The news of Spain's deep mortgage woes reminded me to pass along this graph below. We often hear about the United States' consumer burdening herself with credit card debt in the last few decades, as though we were globally unique. But the truth is that household saving plummeted throughout the world in the last 30 years, in almost all developed countries -- with and without value-added taxes, with and without Fannie Mae's.
Here's the graph, courtesy of the McKinsey Global Institute:
What's so great about savings? High debt among households and banks creates a hole in the economy. Fiscal stimulus has a high bar, because Americans will spend their next checks to spend down debt rather than buy new stuff. Monetary stimulus can only do so much, because even after you've cured the liquidity crisis, banks will still be shy about dangerous lending while the economy tip-toes toward recovery. A low-savings/high-debt recession, or a "balance sheet recession," is especially tricky to get out of.
So it is notable that in October 2010, about a year after the nadir of our credit crash, the two countries with the fastest-rebounding and highest-performing business indices in Western Europe are the same countries that went into the crisis with the the highest savings rates: France and Germany.