Households Are Saving Money, Why Can’t Government?
During the recession, American households have reduced their spending, paid down their debt, and increased their savings. Sadly, Government has not followed their example.
by Wesley Fox
In tough economic times American families take a close look at their budgets. They take a fresh look at their priorities and decide which expenses are necessary and which expenses need to be cut. During the recession, American households have reduced their spending, paid down their debt, and increased their savings. Sadly, Government has not followed their example.
According to the Household Debt Quarterly Report from the New York Federal Reserve Bank, American households have reduced their indebtedness since the beginning of the recession in 2008. As of December 31, 2010, household debt has decreased $1.08 trillion (about 8 percent) since the third quarter of 2008. In the fourth quarter of 2010, it decreased $155 billion from the previous quarter. Mortgage indebtedness has decreased 9.1 percent and non-real estate related indebtedness (credit card balances, etc.) has decreased 8.4 percent from their 2008 peaks.
Americans have done such a great job that their debt-service ratio has reached its lowest point since 1999, according to a report from the Federal Reserve Board. The ratio is an estimate of the average household’s debt payments to its disposable personal income. Americans are also saving at triple the rate they were from 2007 to 2009. According to the Washington Post (citing a report from the U.S. Commerce Department), Americans are now setting aside 5.3 percent of their disposable income.
The federal government has chosen a different path, spending excessively and adding over $3 trillion to the national debt.
The Illinois state government has chosen a different path as well. Governor Quinn’s 2012 budget proposal does not cut spending and instead borrows $8.7 billion to cover overdue bills. Governor Quinn also chose to raise taxes on households, crunching their finances even more, in order to avoid making tough decisions on state spending. Check out Illinois Policy Institute CEO John Tillman’s statement on Quinn’s Budget Address.
On March 8, the Institute will be releasing its 2012 Budget Solutions, which provides a balanced line-by-line alternative budget that does not raise taxes or require more borrowing.