Sunil Jain: Changing face of America

All those ready to write off Americans as compulsive spendthrifts would do well to take note of what the current crisis has done to them. From near zero in the summer of 2005 to the middle of last year, the personal savings rate has jumped to 4.2 per cent. With their net worth eroding rapidly, and credit card companies tightening the credit spigots, the average American has no option but to save and s/he is doing that with a vengeance.

US households held around $66 trillion in assets at the end of December 2008 — over the past twelve months, according to US broker-dealer Wachovia Capital Markets, households have lost around $2.2 trillion in residential real estate holdings and another $5.3 trillion in equity/bond/mutual fund holdings; since the fourth quarter of 2005, according to Wachovia, they’ve lost $4.6 trillion, or more than 35 per cent, of their equity in household real estate. At the height of the last expansion, US households had a net worth that was equal to around 6.5 times their disposable income — by the end of 2008, this had fallen to just 4.8 times, a level not seen since the early 1980s. With this likely to get worse over the coming months, over the short- to medium-term, at least, it’s safe to assume the US savings habit is going to continue.