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Savings rate lowest since the great depression (living on borrowed time?)
The Cincinnati Enquirer ^

Posted on 02/01/2006 6:04:26 AM PST by AZRepublican

The Commerce Department reported Monday that the nation's savings rate was a negative number last year.

You read it right. The average household didn't save a dime last year. In fact, the report said, Americans either took on more debt or dipped into previous savings in 2005 - to the tune of one half of one percent of their after-tax income.

The savings rate in the United States hasn't been this low since the Great Depression. But back in 1932 and 1933, unemployment was rampant, and many families had to break the piggy bank just to keep food on the table. This time, the analysts are saying, Americans seem to be spending money they don't have just to maintain a lifestyle to which they've become accustomed.

(Excerpt) Read more at news.cincypost.com ...


TOPICS: Business/Economy; Extended News; News/Current Events
KEYWORDS: consumersavings; depression; economicindicators; economy; savings
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To: jiggyboy
Money you put into IRA's and 401K's is included.

No it's not. They look at after tax money left after consumption. Because IRA's and 401k's are pre-tax, they're not included.

They also don't count realized capital gains. They do deduct the capital gains taxes paid. The savings rate is a flawed statistic.

41 posted on 02/01/2006 8:09:37 AM PST by Toddsterpatriot (Why are protectionists so bad at math?)
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To: paudio
Is it only the residual of earnings minus consumption?

Yes, that's why it is inaccurate.

42 posted on 02/01/2006 8:11:53 AM PST by Toddsterpatriot (Why are protectionists so bad at math?)
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To: Juan Medén
National average. Two years ago. Would have to look up the source.

My point exactly. Housing couldn't have been any hotter than two years ago, and these numbers are skewed by using the national average, rather than more realistic local averages.

Hot real estate markets like Vegas, Arizona, Florida and places in California greatly distort national averages. I'm not saying the past couple of years haven't been good for real estate--they have. I'm simply saying that for personal savings--which this article was about--is about the long-term. You're not going to get anywhere near 17% over the long haul in most real estate markets.

43 posted on 02/01/2006 8:25:03 AM PST by Lou L
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To: Lou L

Home ownership is a leveraged investment for most people. A lot of people only put 10% or less down these days. So taking payments out of the equation to make it simple (you either pay rent or pay a mortgage), a 1% increase in the price of the home is like a 10% rate of return on their downpayment. Problem with leverage however, is a 1% decline takes away just as quickly. And since transaction costs can run up to 7% to buy or even more to sell, even a property increasing in value will take several years to break even on. Things have been bad here in Michigan for sellers. I see a lot of them bringing money to closings instead of recieving a check, or at the very least thinking they have more equity than they really do. Don't use your house as an ATM!


44 posted on 02/01/2006 8:26:55 AM PST by JTHomes
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To: absolootezer0
i'm in a small town, in central MI, watching my house appreciate at 8% every 6 months.

Well, you won't know exactly how much your house is appreciating until you sell it.

But I'l give you the benefit of the doubt. If you happen to be living in a market where houses are appreciating that much, good for you. I think you're in a small minority.

45 posted on 02/01/2006 8:29:49 AM PST by Lou L
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To: Toddsterpatriot
Yes it is.

"Contributions to IRA and 401(k) plans are counted toward the savings rate. So when the rate is negative it becomes very clear that a lot of people aren't participating in retirement plans."

The gains within the account are not counted however.

46 posted on 02/01/2006 8:32:28 AM PST by jiggyboy (Ten percent of poll respondents are either lying or insane)
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To: JTHomes
Don't use your house as an ATM!

Sage advice! Actually, there's probably a "smart" and financially-savvy way to do this, but only under ideal and very conservative circumstances; i.e., assume your house has appreciated much less than it has, and only when you've taken a reasonable dent out of your owed principal.

47 posted on 02/01/2006 8:33:43 AM PST by Lou L
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To: jiggyboy

No it's not. That article is incorrect. I'll find a source shortly.


48 posted on 02/01/2006 8:33:49 AM PST by Toddsterpatriot (Why are protectionists so bad at math?)
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To: AZRepublican
You read it right. The average household didn't save a dime last year.

Incorrect.

49 posted on 02/01/2006 8:51:27 AM PST by Toddsterpatriot (Why are protectionists so bad at math?)
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To: AZRepublican

We need to take into account the increasing number of seniors who are not saving anymore, but spending their savings.


50 posted on 02/01/2006 9:19:26 AM PST by rightinthemiddle (I might be wrong, but I'm always right.)
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To: AZRepublican
Savings rate lowest since the great depression (living on borrowed time?)

Why save money if those who have money will have that money taken away from them to give to those who do not have money, but want money?

Also, why save money when the government will tax that money to pay for illegal aliens or welfare groupies?

We were all told to "be wise with your money, invest and save" but the worthless slugs who live off welfare get free money off of our sweat and tears.

Worthless slugs get rewaded--self-sufficient "attemptees" get screwed. This is the USA today. This is why the savings rate is so low.

When the hurricanes came, those with homeowners insurance paid a HUGE deductible. Those without homeowners insurance got free FEMA money (usually, far more than needed. The fraud is incredible). They will get things back to normal with free money (from taxpayers).

We were also told to save for retirement. We saved, but we will be taxed to death to pay for those who did not save so the savings we "saved" will be lost to those who did not save but are not getting OUR savings--you can take that to the bank, assuming, of course, you will have a reason to go to the bank the way the government will tax us into oblivion.

51 posted on 02/01/2006 10:17:57 AM PST by Dont_Tread_On_Me_888 (Bush's #1 priority Africa. #2 priority appease Fox and Mexico . . . USA priority #64.)
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To: jiggyboy
the people who take out equity loans to finance their lifestyles are not only already maxed-out but will soon find out that that game is over,

Could be.

What percent of homeowners do you figure is in in that category?

52 posted on 02/01/2006 11:39:51 AM PST by syriacus (Dems THINK that they have fire in their bellies. But it's merely indigestion.)
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To: syriacus

I don't have a large sampling; home equity loans are not typical light conversation in the office. I will state that my brother-in-law and his wife remortgaged within the first two years. Given their lifestyle, I suspect the 'equity' they reaped is already spent.


53 posted on 02/01/2006 12:38:34 PM PST by kidao35
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To: ExtremeUnction
Moveover, are they taking into account pensions, 401k's, IRA's and stock portfolios? I think not.

You are correct. They are not taking into account these types of savings accounts. Consequently, their entire argument is bogus. My wife & I have $600,000 in a 401k.


No, he's not correct. Money invested in 401k's, IRA's and stock portfolios are all counted as savings. Capital gains on those accounts are not counted as savings. The feds basically calculate savings as income, less taxes, less non-investment consumer expenditures.

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.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/08/07/BUG5JE423K1.DTL
54 posted on 02/01/2006 12:55:50 PM PST by irishjuggler
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To: syriacus

I could only speculate. I could scrounge up a dozen anectdotal stories of people who owe more on their 30-year fixed mortgage than when they took it out ten years ago, people who spend $8000 in refinancing fees to get $10000, etc.

But even if I had a good estimate of how many residences there are in the U.S., the total outstanding mortgage debt in the country, and how much of that is from recent refinancing, I'd need something else to figure out how it's spread around.

You might be able to extrapolate how many people are borderline from foreclosure rates and 90-day late numbers, but you would miss people who are maxed-out but not late in their payments.


55 posted on 02/01/2006 2:58:46 PM PST by jiggyboy (Ten percent of poll respondents are either lying or insane)
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To: AZRepublican

"Americans seem to be spending money they don't have just to maintain a lifestyle to which they've become accustomed."

What's in your wallet...


56 posted on 02/01/2006 4:39:33 PM PST by MD_Willington_1976
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To: AZRepublican
Home ownership is up. Money can't be two places at once.

Unless your home is paid for, you don't own it....period. If you don't own your home, having some savings is a good thing.....I've never seen anyone eat their home in bad times.

57 posted on 02/01/2006 6:28:24 PM PST by ScreamingFist ( Democracy is a pathetic belief in the collective wisdom of individual ignorance. NRA)
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To: A. Pole; Willie Green

The story is more complicated than the article indicates, but this is still bad news. Not helping is that financial institutions encourage people to make unwise choices.


58 posted on 02/01/2006 7:24:21 PM PST by Clintonfatigued (John Paul Stevens for retirement)
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To: irishjuggler
No, he's not correct. Money invested in 401k's, IRA's and stock portfolios are all counted as savings.

You are mistaken. From your own post:
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.

Because IRA and 401k contributions are taken out first, before taxes, they are never part of disposable income and therefore not counted as savings.

59 posted on 02/02/2006 4:33:14 PM PST by Toddsterpatriot (Why are protectionists so bad at math?)
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To: Toddsterpatriot
You are mistaken.

No, you are mistaken. From Barron's:

Finally, several readers wondered whether 401(k) contributions are included in the savings rate tracked by the Commerce Department. They suspected it wasn't, which caused them to question whether the rate was really declining ("Why They Get Richer," March 30). But not only are these contributions included, whatever the employer throws in also is counted in personal savings. Confusion on this point arises from the fact that 401(k) money comes out of pre-tax income, while saving is defined as the difference between after-tax income and consumption. Barron's Online -- April 13, 1998
http://archives.econ.utah.edu/archives/pen-l/1998m04.b/msg00253.htm

I challenge you to find one legitimate, reputable source stating that 401(k) contributions (that's contributions, not capital gains) aren't counted in the BEA's savings rate.
60 posted on 02/08/2006 1:41:18 PM PST by irishjuggler
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