Posted on 02/01/2006 8:49:13 AM PST by Toddsterpatriot
The Wall Street Journals David Wessel wrote last week that American people, businesses and government dont save enough. Citing the Commerce Departments official U.S. personal savings rate, 0.2 percent, the Los Angeles Timess Bill Sing wrote, It doesnt help that people in the U.S. are spending like theres no tomorrow. Sings and Wessels assumptions are as bogus as the government statistic on which theyre 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 didnt 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 Lynchs 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 Americans werent savers, the wealth statistics in each case would have fallen.
Someone might reply that the above statistics describe rich people, and that non-millionaires dont 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 medias 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, theyve already demonized stock options, and presumably have only just begun to start scaring readers about the perils of investing their own payroll taxes. Heres hoping readers start to notice these paradoxical stances, and tune them out altogether.
An asset has value, if it's value goes negative it's ceased to be an asset and become simply a liability.
I was quoting the part of the definition of asset, which is pertinent to the discussion of savings and which tod had ignored. I was not claiming that was the explicit and complete definition.
You're welcome.
Maybe in a previous life I taught slow children or protectionists. But then I repeat myself.
From Article: 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
Well, for starters, when tax rates are cut! This frees up individual investors and savers...to... SAVE AND INVEST!
And President Bush squashed (thank GOD) the Dem "double-digit" taxation on dividends, thereby spurring more savings/investment dollars. A natural incentive -- not like the "incentives" Dems build into practice which reward themselves and their allies; but hurts the private sector.
It just really ticks the Dems off to see the "invisible hand" working again.
So Mr. 5452, you derive income from your assets by the fact that you rent out property you own. Correct?
So, if all your tenants moved out or lost the ability to pay, would you no longer classify your properties as assets?
No. From your definitions
A resource having economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit
A balance sheet item representing what a firm owns.
Assets are bought to increase the value of a firm or benefit the firm's operations
Fixed assets are those that are expected to keep on providing benefit for more than one year, such as equipment, buildings, real estate, etc.
Tell me again a car doesn't fit into those definitions. Thanks.
When I read the above, I imagined any number of my former professors, with raised eyebrows, saying "Mr. Rudeboy, that comment makes me want to check your status with the Registrar's Office."
Wrong. A car is an asset whether it is paid for or not. You shouldn't combine assets and liabilities, it's bad accounting.
It's debt, not savings.
Your debt is $18,000 your asset is $16,000.
Personally, I can't remember the last time I spoke with someone who actually bought a new car for cash.
Nice to meet you, I paid for my last car with cash.
An asset is something that you can PROFIT from if you SELL them, or that generates positive cash flow.
Wrong.
By the time a car is paid off enough to have it qualify as an asset, it's value has typically depreciated so much that it's a negligible asset at best.
But an asset nonetheless. Please tell x5452, he's still confused.
It's almost impossible to regain your investment from an automobile, and they cause a net reduction in your lifetime savings.
Who said it was an investment? Who said it was savings? It's an asset.
Don't be an asset.
yes it is a liability it goes in a different column on the balance sheet. Goes back to that whole accounting thing we've been talking about.
Assets
Car
Liabilities
Car Loan
Income
0
Expenses
Car Loan
Gas
Oil
Maintainance
If you owe more on the asset than the resale value of it, it's net worth is negative.
That's funny. Wrong, the asset has a positive value, it's you that have the negative net worth.
When I referred to a car having a negative value, I was thinking in an economic sense, and not an accounting sense. "Dismal science," and all that.
Should the resale value of the car be counted as savings by the government? (This is a carry over mind you, when this began it was about houses not cars)
An asset at zero does not have a positive value. It has literally 'no value' it ceases to be an 'asset'.
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