NEW YORK - April 2, 2010 - Edward Harrison yesterday gave three causes for the fall in U.S. savings rate - in other words, why Amerikans are spending 96.9% of their income.

These were: rising asset prices, debt-related stress, and a wave of strategic defaults. Commenters on our site and elsewhere came up with a few more reasons: low interest rates and a rise in under-the-table revenue.

But whatever the reason, a low domestic savings rate is dangerous for the recovery. We’re looking at a Japan-like lost decade, where imbalance in supply and demand create inefficiency and deflation.

Here’s Harrison in a follow-up post:

If you understand the financial sector balances approach, the increase in the government’s deficit must be balanced by a concomitant increase in the combined private sector and capital account surplus. Put simply, if the government goes into greater deficit, this increase must be balanced by an increased surplus of private sector savings or capital account inflows.

Clearly the aim of the deficits should be to increase household sector savings. But what I am stating rather clearly I believe is that this is not the aim of the deficits in the least.  Nor is it the aim of monetary policy. Instead we have an industrial economic policy in the U.S. that is predicated simultaneously on suppression of domestic wage growth and on consumption growth in order to boost corporate profits and increase asset prices.