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.
It's also the post where you tried to insinuate it was not simply an asset but a smart investment.
There are folks who sell an image of Christ on toast. That doesn't make toast a great investment either.
I agree that they shouldn't be considered the same thing as a "hard" savings. The statistic should be left as it is. I am merely saying this explanation does provide some perspective about the situation.
Post the whole thing and I'll show you.
Looking at American's debts without taking into account American's assets is just plain stupid.
The whole thread? [hoot]
Money market accounts might be tolerable, but why get into splitting hairs. The savings amount should be regarded as the capital in the account not invested.
The only alternative would be to average the daily balance across 365 days and call that savings. Selectivly calling part of the plan savings and part of it not only further destroys the integrity of the data.
The whole post including his link to a car that sold for 50 million dollars.
He claimed we were overleveraged. We linked him to the Fed report showing household net worth was $51 trillion. He claimed the government stats were wrong. Then he claimed a car wasn't an asset. Assets are only those things that give you positive cash flow, doncha know?
He's been ranting ever since. He even posted the correct definition and then ignored it. He's a slightly more unbalanced than average doom and gloomer.
Dear x5452,
I asked where someone called a car "savings." You gave me a link where Toddsterpatriot sarcastically says cars are never assets.
Is there a post anywhere where someone calls a car "savings"?
Thanks again,
sitetest
"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."
That's a joke. Home ownership is not really ownership if the bank owns the house and you pay them a mortgage!
The percentage of Home Equity has gone down and the article forgot to mention that.
Yikes. Must be a huge fan of the Matrix movies.
look at it this way...
if the federal government abolished the income tax and replaced it with a 30% property tax that didn't exclude your primary residence...
20 years from now liberals would be screaming that homeownership is at an all time low !
People adjust their lives to avoid paying more taxes than they have to, it's a fact of life.
Yes, the percentage has plummeted to 57.1%.
I think Americans have changed where they've put their money however I would not call it savings.
I'd say a good percentage have put it into things of little or no future value which they are convinced have great value.
I'd also say that yes many are putting them into certain investments however I don't see how one could call the potential future returns of a poorly educated investor 'savings'. Most are investing in something highly tied to volatile markets. It's financial suicide to presume returns on non liquid investments are savings.
People used to get pension plans, now they're all getting retirement plans which are held in investments (thanks to ERISA). None of them are getting extra training how to keep that money growing or at least from shrinking. Yes there is value in these plans but I don't agree with modifying the method used to calculate saving to try to account for this value. Nor do I agree with the notion of folks calling that savings, or being encouraged to do so.
You clipped half the definition, and responded only to a portion of it calling IT the definition.
Voila! Cars become savings, free-market capitalists favor illegal immigration, blah, blah, blah. It never ends.
Calling something which gives you a monthly expense, and is constantly decreasing in value is stupid. It's like the folks pre-87 buying money losing properties to write off the loss on their taxes. Those were really great assets.
I am quite opposed to ilegal immigration thank you.
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