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	Zero Savings and Rising Retail Sales--Do ya reckon there's a connection?   (November 28, 2005) As the accompanying charts reveal, the nation's savings rate has plummeted from above 4% a decade ago to less than zero today, while retail sales have skyrocketed over the same timespan. Do ya reckon there's a connection? At the risk of stating the obvious, we can conclude rather safely that these two key benchmarks of the health of the economy are indeed tightly correlated. And therein lies the danger. While savings create the capital needed to grow new enterprises and build new infrastructure, retail sales measure the growth of easy credit and an overload of advertising-induced desires. Which barometer best reflects the fiscal health of the nation? Savings or spending? Wall Street hangs on every month's retail sales as if the entire health of the American people's livelihoods and assets rest solely on ever-increasing retail sales. But what if retail sales are not the measure of health but of feverish profligacy, and it is the savings rate which accurately measures the fundamental health of the nation's finances? The received wisdom is that rising productivity and sales underpin prosperity; savings don't matter, as other nations' savers are apparently happy to lend us most of their savings to fund our deficits and carefree spending. But what if capital formation from spending less than you spend--savings--does matter? What if capital appreciation gained solely from asset bubbles (i.e. real estate appreciation) ends up being a sign of illness rather than robust health? What happens when retail sales plummet by 4% every month instead of rising by 4%? Those months must come, and perhaps sooner than expected, for no business cycle runs upward forever. Will it be all bad if Americans decide to start saving again rather than spending every dime they make plus some each and every month? Common sense suggests some prudent capital accumulation would be positive for the long-term health of the nation's economy, even if it spells doom for the retailers' stock prices. * * * copyright © 2005 Charles Hugh Smith. All rights reserved in all media. I would be honored if you linked this wEssay to your site, or printed a copy for your own use. * * *
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