THE BURNED OVER DISTRICT

Two items in the NY Times today illustrate the dire financial position Our Dear Embattled Leader's wildly radical economic policies have put our country. The first is an article on the achievement of a negative savings rate, something not seen since the Great Depression.

A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases. For the month, the savings rate fell to 0.7 percent, the largest one-month decline since a 3.4 percent drop in August.

The 0.5 percent negative savings rate for 2005 followed a 1.8 percent rate of savings in 2004. The last negative rates occurred in 1932, a drop of 0.9 percent, and a record 1.5 percent decline in 1933. In those years Americans exhausted their savings to try to meet expenses in the wake of the worst economic crisis in U.S. history.

And if you didn't dip into your savings, you were borrowing. Debt is fine if you don't have the money now but have a reasonable expectation of getting it later. Debt is bad if you use it to support a lifestyle that your income can not now and will not later support. And that is the subject of an editorial today on Our Dear Embattled Leader's favorite way to support his Glorious Little War and other fiscal idiocies.

Though we don't know the final figures, we do know that the United States set a record for foreign debt in 2005. Through November, last year's trade deficit had already exceeded the deficit posted for all of 2004, itself a record.

The trade gap is financed by foreign lenders, mainly central banks in Asia and offshore hedge funds. Ditto most of the federal budget deficit, $319 billion last year. Because America has so far been spared the worst effects of overborrowing — a sharply falling dollar and spiking interest rates — the Bush administration sees no cause for alarm, suggesting instead that foreigners will be honored to keep lending us whatever we need, on our terms, whenever we need it.

But absent policy changes to curb its borrowing, America cannot escape the consequences of its debt indefinitely. The effects may be sudden or gradual, but either way, they mean a weaker economy than would otherwise be the case.

The dollar, which theoretically should have declined under the debt load in 2005, was buoyed last year by foreigners' willingness to park their cash in higher-yielding dollar-based assets while other developed economies sputtered. Investors were also drawn into dollars because of political setbacks in Europe, like the defeat of the European Constitution. And Congress helped to prop up the dollar by offering a one-time tax break that induced many American companies to convert their foreign earnings into hundreds of billions of dollars. But now Germany and Japan are rallying, the tax break has expired for most companies, and the dollar is facing new challenges: China, for instance, recently stated its intention to invest more of the dollars it earns in other currencies.

For the past few years, the United States' economy has overcome the drag of big deficits, mainly because the housing boom let Americans borrow and spend, despite stagnating wages. But the boom appears to be moderating, a slowdown that will only worsen if America's foreign indebtedness leads to sustained downward pressure on the dollar and upward pressure on interest rates.

Deeply in debt, individual Americans can't be expected to keep borrowing and spending. And government, also deeply in the red, won't be able to help much. Yet despite an estimated budget deficit of $400 billion this year, further tax cuts still top the Republican agenda.

When the crunch comes, we won't even be able to mortgage our children, It's already been done.