Posted on 02/01/2006 8:49:13 AM PST by Toddsterpatriot
The Wall Street Journal’s David Wessel wrote last week that “American people, businesses and government don’t save enough.” Citing the Commerce Department’s official U.S. personal savings rate, 0.2 percent, the Los Angeles Times’s Bill Sing wrote, “It doesn’t help that people in the U.S. are spending like there’s no tomorrow.” Sing’s and Wessel’s assumptions are as bogus as the government statistic on which they’re based.
To see why, one need only understand how the government calculates personal savings. Not surprisingly, the calculation is a simplistic one that involves a subtraction of cash outlays from disposable income. David Malpass, NRO Financial writer and chief economist at Bear Stearns, recently noted that savings statistics “understate actual additions to savings by excluding cash flow improvements from realized gains on equities, houses, and mortgage refinancings.” Importantly, the government savings rate either cannot factor in, or would calculate negatively, how Americans purchase the instruments of the wealth that Malpass mentions.
To begin with, 401(k) accounts have become highly popular investment vehicles for Americans over the last 20 years. Since 401(k) deposits come out of pre-tax income, the significant savings built up within those accounts would not factor into government calculations of money saved over outlays.
As for home ownership, mortgage payments are not deducted from pre-tax income, and often are paid out of disposable income. While no one would deny that home ownership is a form of saving, Commerce Department math would put money used to pay down a mortgage into the same basket as money used for everyday consumption.
Even if we didn’t know how savings were calculated, it would still be obvious that a savings rate of 0.2 percent is wildly inaccurate. To see why, consider a variety of statistics about wealth in the U.S.
For starters, the members of the latest Forbes 400 have a combined net worth of $1 trillion, up $45 billion in twelve months. In Merrill Lynch’s 2004 World Wealth Report, the U.S. experienced the biggest jump of any country in terms of high-net-worth individuals, with the number rising 14 percent to 2.27 million. If American’s weren’t savers, the wealth statistics in each case would have fallen.
Someone might reply that the above statistics describe rich people, and that non-millionaires don’t have the means to save like the rich do. Unfortunately, a host of other statistics would also prove an assumption like that wrong.
Indeed, the Securities Industry Association reports that individual participation in the stock market has jumped from 30.2 million in 1980 to 84.3 million in 2002. As the number of investors has grown, so too have stock market returns, with the Dow Jones Industrial average trading at roughly 14 times its low of 743 in 1982.
Home ownership? The rise in home prices is increasingly on the minds of many Americans. That this is so has a lot to do with the fact that at 69 percent, the supposedly “spendthrift” United States has the highest rate of home ownership in its history.
Despite all of the above evidence suggesting a strong culture of saving in the U.S., it can be expected that the “Americans as bad savers” canard will continue to be thrown out by the major media to explain “good” (consumption) and “bad” (trade deficits) economic news.
An optimist would say the mainstream media’s obsession with saving might be a happy signal that its members intend to write more positively about private Social Security accounts, stock options, and other opportunities to save. Sadly, they’ve already demonized stock options, and presumably have only just begun to start scaring readers about the perils of investing their own payroll taxes. Here’s hoping readers start to notice these paradoxical stances, and tune them out altogether.
Was there some fact in that post that you were trying to get across? Maybe highlight it next time? Underline? Something?
Please, post the right numbers and the right conclusions. Just source them. Not your feelings.
You mean like investing in real estate and the stock market? Gee, thanks for the tip, Tex.
" they should be investing in their own investments not tied to a corporation or politician."
"the stock market crash'
You seem to be awfully paranoid, I suggest aroma therapy.
Paranoid yeah you tell yourself that when the market tanks because you were an idiot and didn't diverify investment types.
Snowballing debt is a way to accelerate the paying down of debt over time.
If your monthly debt service equals $1500, for example, you would always pay $1500 towards debt.
As you pay off certain notes, the amount paid toward that note would be rolled into the payment of another note until it was paid off, and so on.
Pretty soon you are paying $1500 towards one note (which you might have previously only been paying $500 against), and that last debt will be eliminated that much more quickly.
All of this assumes, of course, that you are not accruing any additonal debt during the process.
Read the article I posted it shows the realtionship between median incomes and median house values.
I'm sorry, you'll have to show me where I said either of those things. Just to be clear, is a house an asset? Is a stock an asset?
"Housing debt is getting worse
With $6.8 trillion in mortgage debt at year-end, banks now own 45 percent of our homes, the highest level on record. " (Same article)
Great, fabulous. Where does it mention median home equity?
In Boston, the median home sells for 3.3 times median income. In San Diego it's 5.2 times and in San Francisco 4.2 times.
That's right, it doesn't. Thanks again for adding......nothing to the discussion.
Oh my God, this must mean that we own 55 percent of our homes. Still more than zero. Thanks, again.
And you're back to averages missing completely why the higher debt is a problem.
You just keep on buying numbers be damned.
Yes of course bcause every IRA and 401K allows shorting and trading on margin.
Assertion: Credit-market debt is too high. “Total credit market debt as a percentage of GDP rose from around 120% in 1980 to over 300% at present,” according to Marc Faber’s April 20 Gloom, Boom and Doom Report.
Response: It makes sense for debt (and assets) to grow faster than GDP in a flexible, financially innovative economy. Faber’s 300 percent figure includes corporate debt, much of which is cascading (for example, an auto buyer borrows from a financing company which borrows from the credit markets). Other causes of increasing U.S. debt are low interest rates and the increase in home ownership. The issue is not so much the level of debt but whether sufficient capital formation is taking place in a market-based way to maintain growth. I think it is.
The third quarter of 2005 was also the first since 1947 when net national savings as a whole went negative.
The official savings rate measure does not consider economic gains from patents, innovation, capital gains or land appreciation. Since 1997, Americans have cashed in more than $3.5 trillion in capital gains.
Yes, somebody has to have the money to finance the nation's ongoing shopping spree. Increasingly, however, it's not Americans, but their foreign creditors.
The fact that Americans have per capita assets of $89,800 makes us the top saving country in the world. (Japan is second at $76,900 per head.)
Tonelson is no different than Krugman or Paul Craig Roberts in that all of them intentionally ignore the facts to advance their anti-trade/anti-Bush agenda.
15 posted on 01/05/2006 10:10:58 AM CST by Mase
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