Economy faces heavy blow from stocks funk

By Burton Frierson - Analysis

NEW YORK (Reuters) - Some people can't wait for the day they retire, but 49-year-old Christiana Drapkin is relieved she's not at the finish line yet after the rout on Wall Street ravaged her retirement savings.

"Since the beginning of the year I must have lost around half," Drapkin, a musician, said of her withering savings. "(The money) wouldn't be there at all."

Wall Street is currently in its worst bear market since the Great Depression, and its stunning destruction of wealth and retirement savings has sent a wave of distress through investors, especially older ones.

A native of Germany, Drapkin has lived in the United States for 26 years. Like many of her fellow Baby Boomers, those born between the mid-1940s and mid-1960s, she saved for her golden years in a 401(k) retirement account.

Such accounts are often heavily focused on equities and if the stock market doesn't recover soon, this could also send further shock waves through an already weak economy as workers like Drapkin cut spending to offset the lost savings.

Ironically, economists have condemned Americans for years for not saving enough, especially during the heavy-borrowing period of the housing bubble earlier this decade, whose implosion has brought down the global economy.

However, a rapid move by U.S. consumers to boost savings now could kick the legs out from under the stumbling economy, which is facing potentially its worst recession in decades.

Still, there is little choice for Drapkin and the once free-spirited generation of Boomers, who account for about a quarter of the population and are on the verge of retirement.

"You just don't spend. You save," Drapkin said. "You make do without things."

TRILLIONS AND TRILLIONS

The Organization for Economic Cooperation and Development estimates U.S. household wealth has taken a $7 trillion hit from the tumbling housing and stock markets.

Last week's stock market losses took the S&P 500 down to 11-year lows and amounted to a 52 percent decline from record highs hit a year ago.

"It's just stunning. It's heartbreaking, I'm sure, for a lot of people," said Brian Fabbri, managing director of economic research at BNP Paribas.

"In periods of economic stress like we're in now, fear dominates consumers' minds, and as fear dominates, it encourages them to save money," he said.

Stocks have recovered some since last Friday, after President-elect Barack Obama demonstrated his commitment to reviving the moribund economy. But still-huge losses have left a hole in many people's savings.