Fiscal prudence is great for consumers. But is it bad for stocks?


Seventy percent of Gross Domestic Product growth comes from consumer spending. With median incomes having fallen since 2000, it's a miracle that we experienced any economic growth during the last decade. It turns out that the economy grew because people borrowed money. When investors realized that much of that borrowing would not be paid back, stocks lost most of the value they had gained during the decade.

But despite record government efforts to encourage people to borrow even more, consumers are hoarding every penny they can get. Or at least they're saving at a higher rate than they have in the last 15 years. That boost in savings -- to 6.9 percent of disposable personal income in May -- led to $768.8 billion in personal savings -- the largest since records began in January 1959.

Originally published