Americans spent more than they saved in 2005

According to Associated Press, the nation’s personal savings rate went negative in 2005 for the first time since the Great Depression.

The savings rate — the percentage of household income that consumers don’t spend — slipped from 1.8 percent in 2004 to minus 0.5 percent last year, making it the third-worst rate in U.S. history.

That means Americans not only used all of their after-tax income to pay for cars, homes and other expenses, they also dug into their savings or went further into debt to make ends meet.

That has happened only twice before — in 1933, when the savings rate was minus 1.5 percent, and in 1932, when it was minus 0.9 percent — as the country struggled to recover from the worst economic collapse in history.

Experts attribute the willingness of Americans to spend savings to the upsurge in real estate values.

But as a retired aerospace worker put it, speaking to AP:

“The value in a house is a paper value, just like stocks. Once the boom peaks, which it looks like is happening now, then those values begin to evaporate and people are faced with mortgages on their house that are higher than it is really worth.

“It’s a false security, I think.”

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