The U.S. personal saving rate marked an inglorious milestone in June, dropping to zero percent, the Commerce Department's Bureau of Economic Analysis reported last week.

Because many Americans are saving something, this means a lot of Americans are spending more than they make, which should come as no surprise because consumer debt has been growing about twice as fast as personal income during the past five years, according to Federal Reserve data.

The zero-saving rate comes at a time when Baby Boomers are in their peak earnings years and presumably should be socking money away because they will start retiring in just six years.

Should we worry?

Some economists say not really. Others answer emphatically yes.

The optimists say the bureau's number underestimates saving because it excludes realized and unrealized capital gains from stocks, homes and other investments. These assets, despite some ups and downs, have generally been appreciating in recent years.

The net worth of households and nonprofits -- which is the value of their assets minus their debts -- has risen about 24 percent since 2002 (near the end of the bear market) and 15 percent since 1999 (near the end of the bull market), according to Federal Reserve data. These numbers are not adjusted for inflation.

"I'm just not terribly concerned because wealth is so great," says John Lonski, chief economist at Moody's Investors Service. People figure they can afford to save nothing because if worse comes to worst, they can sell their house or investments, he adds.

Other economists say the lack of savings is a big worry.

Why it matters

If Americans are not saving their hard-earned money, how will they buy stocks, houses and other assets that are likely to produce these pain-free gains?

And what if the Baby Boomers sell their houses and stocks around the same time? Will they drive down prices?

On a broader scale, savings provide the capital companies need to build plants, buy equipment and employ people. U.S. companies have been able to finance some, but not all, of their investment needs with their own earnings. To get the rest, they've had to go overseas, where saving rates are generally positive and in some Asian countries, very high.

"It's almost disturbing that the richest country is borrowing from the rest of the world," says John Shoven, director of the Stanford Institute for Economic Policy Research.

"As that happens year after year, the returns on our capital will not be paid to Americans but to owners of that capital, namely people from all over the world except the United States," Shoven adds.

Our dependence on foreign capital also makes us more susceptible to the political and economic crises that often shake developing countries.

Which of these economists are right? Let's take a closer look at the saving rate.

The Bureau of Economic Analysis starts with personal income, which includes wages (from a job or self-employment), dividends, interest, rental income (if you are a landlord), and employer contributions to health and retirement plans.

From this it subtracts income tax and the employee's share of payroll taxes. The difference is disposable personal income.

From this it subtracts consumer non-investment expenditures, including retail sales, utilities, interest payments on consumer debt, and money people send to friends and relatives overseas.

For housing, the bureau counts rent for renters or mortgage interest, property taxes and insurance for owners. It does not subtract down payments or principal payments on a house.

What's left is personal savings.

"It's the amount of money out of your income that you don't spend and don't pay in taxes. It's what you can put in the bank or stock market," says Shoven.

The saving rate is personal savings expressed as a percentage of disposable personal income.

This rate has been falling for 20 years. It was 10.8 percent in 1984, 4.8 percent in 1994, 1.8 percent in 2004 and 0.4 percent in May 2005.

What accounts for this drop?

Why the rate is falling

"Part of the reason Americans are saving so little is that they feel they have gotten wealthier," says Shoven. In the late 1990s, their stock and pension investments were growing and now their houses are worth more than they ever imagined.

Also, low interest rates are probably discouraging saving and encouraging borrowing.

Marshall Reinsdorf, a research economist with the bureau, says a small reason the saving rate is falling is because pension benefit payments are increasing faster than pension contributions.

When an employer makes a contribution to a retirement plan, it's counted as income. When the employee retires, receives a pension payment and spends the money, it's counted as spending, but not income. The income was recognized long ago.

As the generation covered by traditional pension plans retires and starts spending their pension benefits, it is increasing consumer expenditures. But employer contributions to pension plans have been flat. This difference explains a small part of the decline in the saving rate.

Stanford economist Michael Boskin says the main reason the saving rate seems to be falling is because it excludes capital gains.

Say you buy a share of stock in 1984 for $10. Twenty years later, you sell it for $40 and spend it on a watch.

The bureau ignores the $30 gain, but counts the $40 as spending, deducting it from income.

He points out that "401(k)s and IRAs got started in the early 1980s. The value of those assets is vastly larger than it was 20 years ago." As people begin spending that money, it shows up as negative savings.

"I believe the saving rate is lower than it used to be but not nearly as much as these figures suggest," Boskin says. He says it is probably 3 to 5 percent, not zero.

The greater good

Reinsdorf says the bureau ignores capital gains in its saving rate calculation because "those values can be very volatile, and they don't always go up."

He once calculated that if stocks and homes were included, the saving rate would have been negative 21 percent in 2002 and positive 59 percent in 2003.

"Our concept of savings shows how much funds households are making available to finance our society's needs," Reinsdorf says. "We are not richer as a society if the value of a house has gone up but it's still the same house. "

He says economists who are blase about the savings dearth are focused on short-term effects: Will households default on their debt or be forced to cut back their standard of living?

If that is the question, the answer is probably no, thanks to the rapid appreciation in housing prices and a rebound in stocks.

According to Lonski's calculations, real (inflation-adjusted) net worth per U.S. worker is very close to the record high set in the first quarter of 2000, just before the stock market crashed.

Drew Matus, a senior economist with Lehman Bros., says a falling saving rate in today's environment "makes some sense." Job and income growth is decent, home and stock prices are rising, and many Baby Boomers are expecting to inherit wealth.

"The problem really comes if this perfect scenario doesn't continue. Let's say home price appreciation slows. All of a sudden, that saving that was being generated without you having to work for it has to be replaced by taking money out of your income," he says.

And what will happen when the Baby Boomers who are counting on their homes and stocks for income in retirement try to sell? Will they get what they hope? Will they drive down prices?

"We may find out one day we are saving too little," Lonski says.

In the short term, he says the low saving rate poses the biggest risk to retailers. "You have spending growing twice as fast as disposable income. The only rational conclusion: Retail sales and consumer spending will slow."

Shoven says the government should encourage saving by creating a simple tax-sheltered savings plan that is open to everyone, like individual retirement accounts in the early 1980s. When the government imposed IRA limits in 1986, contributions plunged, not only because fewer people were eligible to make tax-deductible contributions, but because financial companies slashed their advertising and marketing.

Shoven also said he favors systems that automatically enroll workers in 401(k) plans unless they opt out. Today, they must opt in. "We should be looking at ways to make savings the default. If you have a tax refund, the default is it goes into a savings account," he says.