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.
Interestingly do you consider your car to be savings?
Is that a bad thing? Should not the governments numbers be conservative in this case? Creative accounting for 'savings' and 'assets' in the late 90s sort of blew up in everyone's faces.
And the one huge, monsterous, gigantic, overwhelming important word these government eggheads left out: Primary Residence!!!! Hello, most homeowners in the country have seen a dramatic increase in the value of their home. That is SAVINGS if you don't sell it.
How is counting 401k and IRA contributions "liberalizing" the definition of savings? If capital gains taxes are subtracted from savings how is adding the capital gain "liberalizing" the definition of savings?
It's bad enough that idiots like yourself call your car savings without convincing everyone to do so.
No one called a car savings. It's idiots like you who claimed a car isn't an asset.
One thing this article missed was how most of the LSM lament how our savings pale when compared to other countries. They neglect to mention the "savers" in those other countries mostly don't own their own homes, and have ZERO equity therefrom.
Maybe they have $100,000 in the bank drawing a whopping 2% interest, but compare that with the $200,000 equity I have in my house, which will be $250,000 next year, then $300,000 and so on. That's how I'm funding my retirement. (And I pay ZERO taxes on that appreciation and equity)
For purposes of applying for a loan it is useful to call a car an asset. For purposes of planning one's retirement it should not even be pondered. Quit falsifying my point.
Further IRA and 401k contributions can go up or down. It is foolish to count them as savings because they are not 'money in the bank'. The day before Enron revealed its behavior all it's employees were certain they had great 'savings' for retirement. That saving the next day was worthless. Promoting that rationale and basing government policy on volatile 'savings' is stupid.
Dear x5452,
I missed the post where someone called his car "savings."
Could you point it out?
Thanks,
sitetest
Now both y'all calm down and be nice :)
Who pondered that?
Quit falsifying my point.
You had a point?
Further IRA and 401k contributions can go up or down. It is foolish to count them as savings because they are not 'money in the bank'.
Some 401k money is in money market accounts. Can we count that as money in the bank?
I do not find it to be pertinent, 1 it would require invasive legislation, 2 it would tell a room full of legislators with no required accounting experience that all contributions are 'savings'. Considering the way they treat Social Security 'savings' I think that'd be quite dangerous.
Thanks for a link to where I called a car an asset. Would you like some links where you said a car was not an asset?
"That's right. Cars are never assets. Only rental property."So let me be the first to ask, what's your major malfunction?
So you'd agree that when planning on's financial future that regarding the car as more or less a wash financially is better than carefully calculating it's apparent value?
Personally I think it's distracting to the point to get into assets with as little and declining value.
Depending on one's home, and the finances involved I'd say the same can apply to a live-in home, although there is certainly more ability to examine that balance sheet to see if it's a positive or negative.
That is my objection to counting these sorts of assets as 'savings'.
Don't clip his post. He tried to infer that all cars could latter be sold for 50 million dollars.
Can you give me a summary of this whole car as savings thing? Is this one of those "doom and gloomer arguing with a notion that exists only in his imagination" occasions?
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