September 15, 2003

NO MATTER HOW OFTEN A CANARD IS REPEATED IT REMAINS UNTRUE:

America cannot keep to its spendthrift ways - here's a way to increase saving. (Michael Calabrese and Maya MacGuineas, September 15, 2003, Online Opinion)

At $8 trillion, household debt in the United States exceeds Americans' annual disposable income for the first time. Debt-service burdens for both mortgages and consumer credit are at near record levels - a striking fact, considering that interest rates are close to a 40-year low. Personal bankruptcies and home foreclosures hit all-time highs last year. Despite the fact that Baby Boomers should be in their prime saving years, the household saving rate for Americans plummeted during the 1990s, dropping almost to zero in the fall of 2001 - a level not seen since the Depression. Even though the personal saving rate has risen slightly since 2001, Americans are still saving less than half the post-World War II annual average of 8.6 per cent of their after-tax income. [...]

In many respects America's private pension system is the envy of the world. With nearly $7 trillion in assets, traditional and 401(k)-style pension plans account for the vast majority of financial assets accumulated by households in recent years.


Sometimes you wonder if these people even read what they just wrote. Or, if they at least know that 8 minus 7 equals. And that's before counting the cumulative equity we have in our homes. Factor that into the equation and we likely have the highest savings rates in the world.

Posted by Orrin Judd at September 15, 2003 12:49 AM
Comments

Back in the salad days of the late 90s, I noted that my reinvested mutual fund distributions did not count as savings.

But the IRS sure saw those distributions as income.

How does that make sense?

Posted by: Jeff Guinn at September 15, 2003 7:06 AM

This has been around for about two decades. The biggest fallacy is that equities are not considered savings, as Mr. Guinn points out, but income. The only actual savings that is ever counted is what is in the bank. The problem with keeping it there is that you miss out on the opportunities to create some real wealth.

Posted by: Buttercup at September 15, 2003 7:59 AM

Um, what kind of economic moron lumps mortgage debt together with credit card debt? Mortgage debt is an investment in a permanent asset that appreciates, and appreciates quite well thank you; many smart people view it as the absolute best place to put your money now, and over the last few years. And this is stupid .... how?

Posted by: Jeff Brokaw at September 15, 2003 8:33 AM

I bet our savings rate would make these guys
happier if we all had a few thousand in pennies
under the bed?

Posted by: J.H. at September 15, 2003 8:50 AM

Every time I see these numbers, I'm astonished at how low our debt is. Seriously, on average shouldn't we all be in debt for more than one year's pay?

Posted by: David Cohen at September 15, 2003 9:56 AM

David:

If you subtract home equity we aren't even in debt.

Posted by: oj at September 15, 2003 10:13 AM

If shaving 1.5 to 2.0% off your 30 year mortgage isn't saving then there's no such thing as saving. I know some folks who had just refinanced 2 years earlier when the big rate cuts started to really get traction about 15 months ago. They were in a quandry over the $3500 it would cost to re-fi yet again into a lower 30yr fixed mortgage - a net savings of about $134/month. All minutia and tax implications aside, just look at the macro: In real dollar terms, the question is - what's the current yield on the $3500 in "savings" vs the yield on that same $3500 if its used to fuel "to work" a 30-yr mortgage engine? Looks like you're about 27 months away from breaking even on the $3500 (with the $134 savings), after which the annual "yield" on the initial $3500 is nearly 46%($134x12=1608/3500). Let's see....what were year 30 bonds paying again? Ratios of credit card or consumer debt aren't even in the same galaxy with this notion.

Posted by: at September 15, 2003 11:26 AM

During the Reagan years, Republican economists defined government borrowing as "savings."

Now under Bush we're saving like crazy again, I guess.

The bankruptcy numbers are meaningless. I read all the captions in Bankruptcy Court in this state, and in about 95% of them the spread between assets and debts is less than the price of a used pickup truck.

These people were not participating in the economy to any extent anyhow.

Posted by: Harry Eagar at September 15, 2003 3:20 PM
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