Why We Are In An Economic Crisis!

This graph of the reduction of the savings rate in the United States and the increase in household debt is from The Economist. I suspect it shows fairly clearly the root cause of the current U.S. financial crisis. I also think that the U.S. problem is triggering a global recession.

The blame obviously should be spread broadly. People should know enough to save and avoid debt, and the vast majority of American families have not been doing so.

Still, it seems obvious that public policies do influence peoples willingness to save and anxiety to avoid debt. Since the Reagan Revolution, with both Republican and Democratic Congresses and administrations, public policy has encouraged people to spend more and save less, and encouraged the private sector to cater to and further encourage those trends.

It is going to be painful to reverse course, but I think we must do so or our children will be condemned to live in a second class society.