Report: Americans Saving Less, $pending More

Kiplinger.com issued a report indicating that, despite recent economic woes, the general trend in America remains that Americans are spending more and saving less. Whatever your thoughts on personal finance, this, of course, would seem to be good news for the business community:

In 2008 and 2009, consumer spending collapsed and the saving rate climbed. After hitting an all-time low of 1.4% in 2005, the rate averaged 4.2% last year and even briefly exceeded 6% during the month of May. But instead of some fundamental and lasting change in consumer psychology, the heightened thrift is better explained by cyclical forces that are already in retreat.

By far the most important have been huge swings in household wealth. After all, it isn’t saving per se that matters most to people, it’s their total net worth. Whether that comes from saving or the appreciation of assets already owned is of little significance. And during the two-year period from the spring of 2007 to the summer of 2009, the combined effect of falling stock and house prices evaporated an astounding $17.4 trillion — or 26% — of household wealth.

In fact, movements in the saving rate closely track those shifting fortunes. The all-time high in household net worth occurred in the second quarter of 2007 and was followed nine months later by a record low saving rate of 1.2% in the first quarter of 2008. Three months after household wealth ended its swan dive, hitting bottom in the first quarter of 2009, the saving rate hit a 12-year high of 5.4%.

More recently, however, these same forces are still at play, though now in reverse. As the free fall in house prices gave way to stabilization over the past year and equity prices skyrocketed, household wealth recouped about one-third of its previous loss. And as it did, the saving rate eased from 5.4% to 3.1% last quarter. Increasingly, it seems clear that the new age of frugality was merely a passing fad.

None of this, mind you, is to say that households shouldn’t be saving more. So long as our government maintains large and chronic fiscal deficits, any shortfall in domestic private saving necessarily requires more borrowing from abroad — and that’s an unsustainable proposition. Ultimately, there’s a huge risk that foreigners will lose confidence in our ability to repay those debts, forcing Americans to do more of their own saving. But that’s more of a long-run problem that doesn’t seem especially impending at the moment. In the meantime, there’s shopping to be done.

New Jersey Governor Freezes Spending

His fellow conservatives are calling it a necessity. The opposition says he’s forcing school districts to raise property taxes. Either way, new New Jersey Governor Chris Christie says he is just following up on a campaign promise to drastically cut spending in the Garden State by declaring a spending freeze. I’m curious, is there any chance somebody is willing to freeze production on "Jersey Shore" for the general benefit of society?

The snow isn’t the only thing that’s causing a chill in the Garden State.

Calling New Jersey’s budget a "shambles," Gov. Chris Christie announced Thursday he is immediately freezing all state spending.

Saying New Jersey is on the verge of bankruptcy, Christie declared a fiscal emergency, announcing drastic cuts. Among them, aid to school districts that have excess surpluses.

"Today we are going to act swiftly to fix problems too long ignored. Today I begin to do what I promised the people of New Jersey I would do," Christie said.

The move had Democrats in an uproar, angry the governor used his executive powers instead of working with the Legislature.

"What that’s going to mean is that those school districts without that money are going to be raising property taxes in the upcoming year to make up for that shortfall," said Assemblyman John Wisniewski, D-19th District.

The governor also cut state subsidies to New Jersey Transit, saying it needs to become fiscally efficient.

"Revisit its rich union contracts," Christie said. "And they may also have to consider service reductions or fare increases."

Bayh Urges Democrats to Restrain Spending

Sen. Evan Bayh (D-IN) offered this advice to Democrats in a Wall Street Journal column today:

Last month the Office of Management and Budget predicted that the national debt will increase by $9 trillion over the next decade—$2 trillion more than forecast just four months earlier. Government net interest payments exceed $1 trillion in 2019, up from $382 billion this year. Because projected deficits exceed projected economic growth, the gap will be self-perpetuating.

The consequences of all this will not be benign. A world saturated with U.S. currency will eventually look elsewhere to invest, causing the dollar’s value to drop; foreign creditors, their confidence shaken by our fiscal profligacy, will demand higher payments to keep holding our debt. The net effect will be "stagflation," that pernicious combination of slower growth, higher inflation and interest rates, and lower living standards Americans suffered through in the 1970s.

These events will diminish our global influence, because fiscal strength is essential to diplomatic leverage, military might and national significance. No great nation can rely upon the generosity of strangers or the forbearance of potential adversaries to meet its security needs. America is doing both. China uses its monetary reserves to curry favor in developing countries once in the U.S. sphere of influence; we must borrow to pay for the wars in Iraq and Afghanistan.

Worst of all is the legacy we will leave. From the "Greatest Generation" we inherited an America that is the strongest, most affluent, freest nation on earth. On our present course, our children will not. We violate a fundamental part of our national character by taking from our children to satisfy our desires today.

Congress’s initial reaction to our fiscal peril has not been encouraging. The $410 billion omnibus spending bill passed in March increased domestic discretionary spending by 8% and included more than 8,000 earmarks. This year’s budget contemplates domestic discretionary increases of nearly 9%, three times the rate of inflation. If the past is any guide, it will include thousands of new earmarks.

Any serious effort to control the deficit must begin with spending restraint. Efficiency and frugality, common virtues in the private sector, must be incorporated into government. Congress should enact health-care reform that actually lowers the deficit. For the next fiscal year, assuming the economy has gathered sufficient momentum, we should freeze domestic discretionary spending, limit increases in defense spending to the rate of inflation, forgo pay raises for federal workers, and institute a federal hiring freeze.

These steps alone won’t put our fiscal house in order; more difficult action is needed. But by showing common cause with middle-class families facing their own budget crises, we can send an important signal that Washington has the will to chart a more responsible course.

Grabbing Some More of Your Dollars

While the majority of the attention is on health care reform, climate change and the like, other "routine" business continues to take place in Washington. On the agenda this week, as early as later today, is consideration on the Senate floor of a $122 million, fiscal year 2010 Transportation/Housing and Urban Development appropriations bill.

Don’t confuse this with the legislation authorizing highway funding that expires on September 30. The consensus there is that an extension, as long as 18 months, will be enacted so that little challenge can be put off until 2011.

On the transportation bill, there have been more than 50 amendments filed. Most come from Arizona’s John McCain; you remember him from that 2008 presidential election thing. Among the items McCain wants to remove from the bill:

  • $195,000 for renovation of the Emmett Till Memorial Complex in Tallahatchie County, Mississippi
  • $500,000 to construct a beach park promenade in Pascagoula, Mississippi
  • $500,000 requested by Senate Majority Leader Harry Reid to provide a credit counseling service in Las Vegas

I’ll vote with McCain on this one. But then this whole earmark argument has been heard before — and it still seems to be business as usual.

Another worthy amendment would prevent lawmakers from congratulating themselves by using stimulus funds to purchase signage for such projects in their communities. The only stimulus that would provide is to the legislator’s re-election efforts. 

Spending the Stimulus: $46 Billion Down, $741 Billion to Go

How much of the stimulus money had been injected into the economy through the first 4½ months of the year? As of mid-May, about 6% of the money — $45.6 billion – had been paid out. Much of that went to Medicaid costs, unemployment benefits and the $250 checks to Social Security recipients. Highway projects had received $11 million. The Transportation Department had committed an equivalent amount, but the money has not gone out yet.

In all, some $88 billion had been committed to various types of projects and programs. The administration points out that it is a two-year program, but many state officials and others remain anxious. The administration has committed to spending 70% of the money, or $550.9 billion, within the first two years.

Vice President Joe Biden said in an interview recently, "I think that what you’re going to see happen here is the velocity of this will increase not just arithmetically, but geometrically here. At least, we’ve got to make that happen."

Here’s a Hint, Do Not Print (and Other Fun Rhymes)

"PC Load Letter?!?!" 

Do you really need to print all those e-mails? A new report says probably not, and the federal government doesn’t need to either. Government Executive has the scoop:

The government can generate substantial savings by reining in superfluous printing, according to a study released on Tuesday.

The report, which is based on a survey of 380 federal employees, found that the government spends nearly $1.3 billion annually on printing. Of that, about $440 million — more than four times the amount President Obama recently asked agency managers collectively to eliminate from their administrative budgets — is spent on pages that don’t need to be printed, the survey found.

The study — conducted by Lexmark International Inc., a Lexington, Ky., printing supply company, and Alexandria, Va., marketing firm O’Keeffe & Co. — recommends that agencies set clear printing policies, establish strong enforcement procedures and begin switching from paper to digital records.

Just 10 percent of survey respondents said their agencies had a formal printing policy, and just 20 percent reported that their agencies had restrictions on color printing, which can be more expensive than typical black-and-white printing…

Some agencies already have started cutting back. The Homeland Security Department expects to save more than $40,000 in part by printing fewer copies of the fiscal 2010 budget and posting the material online. The Agriculture Department’s chief financial officer is developing a Web-based utility billing system that could save more than $670,000 annually, according to budget documents released last week…

On average, federal employees print 30 pages of paper every work day — or 7,200 pages annually, the survey found. Respondents estimated that they discarded 35 percent of the pages the day they printed them. Ninety-two percent of respondents acknowledged they did not need all the material that they printed, and more than two-thirds said they could print less if they tried.

And it would likely also benefit private companies to consider establishing a printing policy. You can save cash and reduce waste — "The More You Know" (bing bing bong bing).

Unemployment Insurance Fund Negative Balance Growing to an Alarming Level

The state’s Unemployment Insurance (UI) Trust Fund is not just broke and in debt to the federal government to the tune of over $300 million through January; it’s going further in the hole by a magnitude that few have come to grips with. Conservative estimates suggest that Indiana is going to have to borrow somewhere in the neighborhood of $1.5 billion to meet its obligations.

The system needs a major overall. It suffers from a structural deficit that is getting exponentially worse as the economy continues to eliminate jobs. The problem actually began well before the economy tanked. A deceivingly large balance from several years ago has steadily disappeared. Last year the fund took in only $579 million, while paying out $986 million in benefits – a rounded off annual structural deficit of $400 million. Clearly there is a problem with the system.

Assuming the revenues paid in by employers in 2009 are equal to 2008 (which is questionable) and the monthly benefit demand remains $150 million (also questionable), the structural deficit for 2009 will be a whopping $1.2 billion. Unless something is done, by this time next year the negative balance will total approximately $1.8 billion. Federal stimulus money is anticipated, but it also increases and extends the mandatory benefits, exacerbating the problem rather than ameliorating it. Keep an eye on this issue because even though it is currently being overshadowed by other topics (budget, stimulus plan, etc.) it looks to become a major part of the legislative puzzle before the session ends.

Coburn Slices Wasteful Spending in 2008 Report

No matter your political leanings, you’ll likely find this report by U.S. Sen. Tom Coburn of Oklahoma, 2008: Worst Waste of the Year, to be worth perusing. He basically takes government to task for what he perceives to be a national barrage of pork. Many of these programs are laughable, while some might be defendable depending upon your perspective.

Here’s an example:

First Tee Program – South Carolina ($3 million)

Kids around the nation will be invited to learn and appreciate the game of golf through a $3 million grant from the Pentagon to First Tee. First Tee is a non‐profit organization that was founded to bring underprivileged youth off the streets and onto the golf course. When one member of Congress responsible for arranging the grant was asked what childhood golf had to do with the military, he responded that golf “helps you make generals and colonels.”

I remember hearing about this one when it earned Rep. James Clyburn (South Carolina) a nomination for the Citizens Against Government Waste’s Porker of the Year Award. I must agree that there are some holes in the logic. For starters, I played quite a bit of golf as a youngster (in the converted cornfields of Boone County, not fancy golf with sand traps and such), and I’m hardly qualified to lead an army of ants, let alone becoming a general or colonel. Nor did it teach me about decorum as I was a known club-thrower, and I learned little about finishing what I start as I became a master of the four-foot gimme.

Worst of all, I never actually became good at golf, which led to a poor self image (frowny face).

Hat tip to Chamber staffer Chase Downham for passing the report along.