Some economists say personal savings rate declining; others question how i

[UpInArms]

Some economists say personal savings rate declining; others question how it's calculated

http://wire.jacksonville.com/pstories/business/20060304/3689267.shtml

NEW YORK — Now that America's savings rate has been negative for an entire year, a first since the Great Depression, the question is whether we're a spendthrift nation on its way to the poor house or whether we're looking at the wrong numbers when we calculate savings.

The personal savings rate is, essentially, the amount of after-tax income left once household bills are paid. Maybe it's $75 for a household, maybe it's $7,500, but as a percentage of income, it's declining. The personal savings rate used to be 10 percent of disposable income from 1974 to 1984, according to the Bureau of Labor Statistics. It fell to 4.8 percent by 1994, and was negative for all of 2005. As of January, the personal savings rate was minus 0.7 percent.

With retirement looming soon for the baby boom generation, the concern is that a dearth of savings now could cause a cutoff in spending later.

Some economists say that's far-fetched. They argue the personal savings figures are artificially low, since the numbers don't include increases in assets such as equities and homes. Yale University economics professor William D. Nordhaus made that argument in 2002 congressional testimony, saying that once assets were included, the savings rate for the 1990s would have been a robust 25 percent.

<snip>

Another argument is that the wealthiest 20 percent of American families account for roughly 40 percent of consumer spending, spending roughly 4.5 times as much as the lowest 20 percent, something Citigroup's chief U.S. equities strategist Tobias M. Levkovich pointed out in a recent report. The implication: This group isn't going to run out of money anytime soon. If a healthy economy depends on the wealthiest Americans continued spending on $200 haircuts and $500 seven-ply cashmere sweaters, we can all rest easy.

...more...

[RUMMYisFROSTED]

1. Not fond of this article.

Although it does point out the staggering dearth of savings, it follows up with fantasies that read like: "Well, if we were to change the way we calculated it, we're doing just peachy!"

Also, "...the wealthiest 20 percent of American families account for roughly 40 percent of consumer spending, spending roughly 4.5 times as much as the lowest 20 percent..." Repuke talking point. Not mentioned here is that the top 20% owns 95% of the wealth yet they only outspend the bottom 20% at 4:1, even though they have a 19:1 ratio of wealth!

:grr:

[UpInArms]

14. this article also does not point out the flaws in the projected savings

rate in the Fed study:

The Bureau of Labor Statistics, in a report covering the employment and economic outlook for 2004 to 2014, predicted such a change.

"Over the projection period ... the personal savings rate is projected to improve gradually, from 1.8 percent in 2004 to 3.4 percent in 2014," according to the publication.

Instead of improving to 1.8 percent in 2004 - it has fallen to negative .7% in 2005.

:banghead:

[RUMMYisFROSTED]

15. Also, a $3T budget with $8T in public debt and $400B deficit.

That $400B deficit is a -13.4% savings rate for the Govt.

[54anickel]

17. Heh-heh, I do remember an article in SMW thread not too long ago

that pointed out this is about the only government stat that hasn't been messed with yet, and hence one of the few the author gave much credence to. Looks like they're about to bastardize this stat as well.

[unblock]

2. some economists try to put lipstick on a pig.

the savings rate statistic has ALWAYS had the kind of problems they're talking about. it's always ignored equities and homes, and it's always ignored distribution of savings within the population, AND YET IT'S ALWAYS BEEN POSITIVE since the great contraction.

THAT'S THE POINT.

it you adjust for equities and homes, you might find the savings rate is a "robust 25%", but you'll probably also find that it's always been higher than 25% until now. the point is, it's lower now.

one thing they're ignoring, of course, is that americans used to be able to rely on PENSIONS for retirement, which also didn't factor into the savings rate since they're not a portion of income. but now that americans need to save for their own retirement, the savings rate NEEDS to be higher. and yet it's lower.

[RUMMYisFROSTED]

4. "the point is, it's lower now."

Indeed.

[modrepub]

5. My 403b and IRA's

Haven't done all that well over the last few years; my return is probably < 5%, though it is positve. My home value has increased, but I'm not sure how that will help me. I also wonder what affect the interest rates have had. I remember I could get 6.5% for just sticking money in my credit union's savings account back in the late 80s and early 90s. Today I get 0.75%, in other words it's much harder for ordinary people to earn interest (and save) through their banks. This interest rate differential and the lack of any "measured" inflation today (I don't believe the gov stats because they don't reflect what I'm seeing) has to have some affect on the savings rate.

[unblock]

7. home values are not included for a good reason

namely that it's not easy to cash out on "home savings". if your house value goes up, but so does every other house in your part of the country, you can't cash out unless you sell your house and move to a cheaper part of the country.

yes, there are financial products that let you BORROW against such home value, but that's getting a bit away from tapping savings.

[1932]

13. And, if you notice, the more money retirees have from the sale of their

last home before they move into the retirement community, the more expensive their health care become and the more expensive that retirement community becomes.

We are not protecting senior citizens' built up wealth. In fact, companies with easy access to the government are turning old people into cash machines, and the government doesn't give a shit about the dignity of those retirees.

[hatrack]

16. Exactly - when you say "savings", you're not talking about a loan

You're talking about liquid assets which you own free and clear and which are available without penalty for whatever use you prefer.

So, we'll just move the goal posts by making assets available through a HELOC count as "savings". OK, whatever.

[1932]

11. It's also important to remember that real estate values have increased

at an average of 1% per year everywhere in the country. There's no reason to believe that current real estate values today aren't going to adjust themselves downwards before people are able to cash out of them.

And what happens when baby boomers everywhere want to sell their three and four bedroom houses and move into one of the millions of one-bedroom retirement homes so they can live off their built-up equity so they can cash in on this money these economists say will be available to them? And what happens when they all want to cash out of their IRAs at the same time?

This is why it's important for a society to reward WORK with wealth and not turn everyone into a class of people who have to be successful speculators on asset values in order to live with dignity.

[wordpix2]

22. well said, but baby boomers who sell a large home to downsize won't

necessarily reap huge rewards if the real estate market takes a big downturn as it did in the mid-nineties. At my condo village, prices were down nearly 100%, with a previously bought $160,000 unit selling for $85,000 in 1995. A friend with a detached home bought for $200,000 couldn't sell it for $130,000, even with improvements.

[NYC]

23. That's exactly what is happening.

...This is why it's important for a society to reward WORK with wealth and not turn everyone into a class of people who have to be successful speculators on asset values in order to live with dignity...

Very few people can save enough from salary to afford retirement, medical care, etc.

One shouldn't have to sell one's home to have money to retire. That presumes the person is going where?

This whole article is skewed. Trying to make things look rosy. They're not.

[modrepub]

3. I'm not saving like I used to

Gas, increased withholding for my medical coverage, lousy raises and "old" car expenses (they're paid off at least) have taken their toll on our house-hold budget over the last 4 years or so. I'm not one of those who earn a living waiting on the super rich so I'm not sure how I'll rest easy. In fact I expect less out of my next contract (retirement, medical and sick-leave pay outs) and my wife has heard rumors her company may be laying off (again) in April.

I do have to hand it to the financial community and *s chosen few; I did not think you could run an economy relying on the top 5% of all income brackets to drive it without serious damage and collapse. I know there are those of you who disagree but thus far you're predictions haven't panned out. While the financial elite's plan seems to work I have serious problems with it ethically (too much privilege and brow beating; you could be rich like us if you only worked hard enough! yea right).

[unblock]

9. they ARE building up to serious damage and collapse

it's just that these things take time. just a few years of insane deficits doesn't convince foreign investors that the insane deficits will continue forever. they are counting on a sane president to come into power at some point and re-balance the budget. but if the insane deficits continue for a long time, interest rates will jump as our nation's credit risk increases.

meanwhile, they have been neglecting our infrastructure, from bridges to schools to roads, the basis for our future economic strength. the damage does not show up immediately, it takes many years to take a great nation and reduce it to rubble by gutting its core strengths.

[modrepub]

19. Collapse?

I'm not disagreeing with you; I feel the same way you do regarding our current direction. My line of work is part of the "infrastructure" you are so sadly mourning. That said, when, if ever, will this collapse occur? The GDP and jobs numbers don't seem to indicate any problems. We run huge deficits and people keep lending us more money. I get less regarding pay and benefits but my work load is way up and my wife complains of the same thing. This does not indicate a depression or crash is immanent in my opinion.

I'm becoming convinced that the top 2% of income bracket and multinational corporations can keep things going on their own if they are motivated. This will be a different, and less stable, system with fewer people controlling it. I liken our plight to the collapse of the western Roman empire. With little fan fare the last emperor was deposed. Meanwhile the races in the Hippodrome continued, the games continued in the Roman Colosseum and the senate continued to meet. Today we have a congress that refuses to assert itself and most of the masses embroiled in disputes over the latest drop outs in American Idol.

[unblock]

20. they hollowing out america. collapse could take decades.

it may well be long and excruciating.

[BillZBubb]

24. So you think "people keep lending us" will continue????

That's one BIG hole in your view. Sooner or later, people won't keep lending us money except at exorbitant rates or return. When that happens, the bottom falls out--and fast.

The GDP and jobs numbers are also artificial. They are chimera created by manic deficit spending by both the public and the government. If the public starts seriously tightening its belt, the bottom falls out--and fast.

Neither situation is necessarily imminent. But both are hanging right above our heads. We are in a very precarious economic situation.

[modrepub]

26. Its not a hole

its a chasm! It's so big why would anyone want to throw anything else in it? I don't understand it either but every time it looks like they might stop or at least slow down they go ahead and lend us more. We owe mostly to the Japan and China banks (plus some entities in the Caribbean). I can't explain why they do it, but against all logic the do. Maybe they're afraid of walking away. It's a lot of money to leave on the table and neither one has demonstrated to me or anyone else that they can set up their own game and run it on their own. Some have suggested Japan has acted this way because they have been under our control since WWII. I don't have any answers and tend to agree with you, but I'm becoming convinced they're too afraid to strike out on their own so they keep propping us up. If you'd like to offer a date of collapse I'd be happy to entertain a nominal wager.

[goforit]

6. Where will the middle class end up?.....Nonexistant?

[1932]

8. So we're RELYING on Two Americas to keep the boat afloat? During Great De-

pression, that's EXACTLY what happened.

The Great Depression happend BECAUSE wealth got so polarized. A lot of rich people got richer during the depression and republicans thought that that was going to save the nation. You can't have a functioning democracy that makes wise decisions for society when you have such polarizations of weath and power.

Oh, and it sure is nice to know that we've put all our eggs as a society into bubbles like real estate values and the stock market rather than by rewarding people who work with wealth. Another reminder from the Great Depression days: real estate and stock values pop pretty quickly when you have an economy which destroys the hopes and economic security of one class of American people and shifts all the rewards to a few very wealthy people in the other, wealthy America.

[xchrom]

12. polarization of the economy

polarization of our politics

geographic polarization

it all sounds like a necons wet dream.

remember all this polarizing is one more tool for controlling us.

course if we'd just shut up and stop reading and help make this all one big jesusland -- well then it would all be fine!

[Media_Lies_Daily]

10. Economists in bed with the NeoCons are working overtime to....

...make everything look wonderful. IMHO, they're swimming upstream.

[lovuian]

18. Depressions happen when over 90% assets owned by a few

in a country... check out Economics 101... Greed tremendous Greed

What amazes me is the quiet economists who damn well this is true and not speaking up about it...

[wordpix2]

21. John Edwards was really great on helping poor/m.c today on Chris Matthews

show. Edwards said Katrina showed that the poor in this country can't afford a car, bank account or credit cards and there's a lot government can do.

He is running for president.

[leftofthedial]

25. Yeah. "...we can all rest easy,"

sleeping in our cardboard "house" next to the dumpster near the construction site.