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Krugman_paradox - household balance sheets worse than ever...

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FEBRUARY 3, 2009, 11:12 AM Paradox of thrift Yesterday’s report on consumer incomes, spending, and saving showed a sharp rise in the personal savings rate; it also showed a decline in nominal personal incomes, the third in a row, reflecting the weakening economy. I don’t know who else has made this point, but it’s quite clear that we’re in serious paradox of thrift territory here. Or perhaps more accurately, we’re in a paradox of debt. Consumers are pulling back because they’ve realized that they’re too far in debt. The economy is shrinking in large part because consumers are pulling back. And the result, almost surely, is to leave
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Unformatted text preview: household balance sheets worse than ever. I can’t do this accurately until the Federal Reserve’s flow of funds data have been updated, but almost without question the ratio of household debt to personal income has been rising, not falling, as consumers try to save more. Damnification in action. Copyright 2009 The New York Times Company Privacy Policy NYTimes.com 620 Eighth Avenue New York, NY 10018 Page 1 of 1 Paradox of thrift - Paul Krugman Blog - NYTimes.com 2/11/2009 http://krugman.blogs.nytimes.com/2009/02/03/paradox-of-thrift/?pagemode=print...
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