Americans are finally stashing more money away—and that’s a bad thing.

All this money, however, is like a flock of pigeons released directly into a gale force headwind. They try to fly, but it's awfully hard not to get blown right back. Because even as the government tries to get consumers to spend more, there's a powerful force making them spend less—a force we haven't had to contend with in other recessions. To understand this force and just how powerful it is, you need to understand the savings deficit and its repercussions.

Through most of the postwar years, Americans saved roughly 9 percent to 10 percent of their incomes. During the last two decades, that number steadily went down, until sometime around 2005—the exact point depends a bit on how you measure savings—when the U.S. personal savings rate hit zero, another way of saying that Americans spent pretty much every cent they earned. The moment was a two-day story in the papers, which generally noted that this was the only time in 20^th-century history that an industrial country had negative savings in a period of economic growth and the first time the U.S. savings rate had hit zero since the depths of the Depression.

It takes but a moment of thinking to see why savings rates would have hit bottom in the Depression: In times of economic trouble, people take money out of their savings instead of putting it in. We all get that. Savings are a financial cushion, and having savings that can be withdrawn and turned into spending gives us a natural "stimulus package" that evens out the economic cycle.

With this in mind, you can start to see just how extraordinary the zero savings rate of the last few years was. Because if American consumers saved nothing when the economy was good, what are we to do when the economy is bad? Spend even more? When we start with a savings rate of zero, finding a way to keep up consumer spending is much, much harder. In this sense, our situation is actually worse than that of Japan in the ‘90s, when it suffered an extended period of slow growth and economic stagnation. Japan's savings rate then was generally in the range of 10 percent or more. The Japanese had plenty of room to cut their savings and spend more, and as they did, the economy picked up (Japan's savings rate is now a quite low 2 percent). Japanese consumers had the option of saving less and spending more. We don't.

There's nothing in economic theory that prevents the savings rate from going below zero—but in practice (i.e., real life) this isn't what's happening in the United States. Right now banks aren't interested in lending more money but instead are desperately trying to limit their exposure. Home equity loans have essentially disappeared, going from some $700 billion a year to close to zero. And despite the government's efforts—from interest rate changes to boardroom arm-twisting—to get banks to lend more money, the big lenders are understandably reluctant to risk making the same mistakes next year as they made last year. While the rate the government charges banks to borrow money has fallen to almost nothing, the rates that card issuers are offering new borrowers have barely budged, and the limits for many current borrowers have fallen (that last bit, by the way, I've seen play out with my own credit cards). If, as is widely expected, consumer lenders get hit with a wave of defaults next in their portfolios, they will almost certainly become even more cautious about lending money, and the situation will get worse.

Which brings us back to the savings rate. You've already seen that in normal recessions, the savings rate goes down and cushions the blow to consumer spending. But now we are in the midst of a strange kind of backward recession. As lenders retrench, instead of the savings rate going down it is, in fact, going up. This is what economists call "de-leveraging": In economic terms our "savings" go up because our borrowing goes down. (You can see more detail in this very good report from Schwab analyst Liz Ann Sonders.) This isn't savings as you normally think of it. It's an enforced regime of austerity thrust upon us because having relied on debt for so many years, we have no way to keep funding consumption.