Saving is coming back into vogue in the US, says Bill Bonner. Americans need to recover their losses. But that is murder on an economy built almost entirely on consumption. And as the ailing retail sector sheds jobs, this recessionary cycle will get much, much worse.

More from The Daily Reckoning:

A few months ago, we wondered what the surprise would be. Mr. Market always has some tricks up his sleeve. What must happen always happens, but never as you expect.

So when stocks started to slide and people began talking about a ‘soft landing for global growth’, we wondered where the surprise would be.

Now we know. The downturn has been much more violent than almost anyone imagined. And it’s beginning to look as though the long-term damage could be much greater too.

Remember, a correction is equal and opposite to the deception that preceded it. Where was the deception of the boom years most concentrated? In two places – the US and China.

Americans believed they could live beyond their means forever. China believed it could get rich by selling more and more manufactured items – even though its major customer couldn’t pay.

You’d expect the resulting suffering to be equal and opposite to the aforegone enjoyment too. That is, those who lived highest on the hog should fall the farthest, no? And those who benefited most from selling to these people should lose most money.

So far, we’ve seen the beginnings of these redressments. But probably only just the beginning. Some people in America have lost their houses… some have lost their jobs. Spending has begun to fall. But the typical American continues to enjoy a standard of living that most of the world’s people cannot afford – including most Americans.

It will get worse. The third quarter showed the biggest decline in consumer spending in 28 years.

This is a “balance sheet recession”, remember? Consumers, businesses, investors – all need to pay down debt and build up savings. This will mean a huge turnaround for everyone – especially consumers. They have to reduce their standards of living dramatically in order to save money. And especially the baby boomer consumers – who also have to sock away some cash for retirement.

Saving went out of style in the ‘90s… but it’s becoming very popular, very fast. We’re going to see national savings rates rise… back to nearly 10%… and maybe beyond. This is exactly what consumers need to do. Consumers need savings. But the trend is murder on a consumer economy. A 10% savings rate means about $1.3 trillion in money that is NOT spent every year. (That’s why Obama is going to have a $2 trillion budget deficit… more on that tomorrow.)

And here comes the bad news from the Wall Street Journal: “Retail Losses Sap a Jobs Safety Net.”

We’re not sure how you sap a safety net. But for millions of people, when budgets got tight, someone could always go to work as a clerk in a retail shop. The money was poor, but at least it was money. And it filled in the gaps. For retired people… students… part-time working spouses – retail employment was always there… a fallback position… a “safety net.”

But with sales collapsing, the safety net is on the hard ground. The complaint of working stiffs used to be that “good jobs” were hard to find. You could always find a ‘bad job’ – flipping burgers or stocking shelves. But jobs with health benefits and union wages were few and far between. Now, even bad jobs are getting hard to find.

Source:Delaying the Process of Correction