December 8, 2005
IF IT WEREN'T FOR THE 500K TIED UP IN MY HOUSE & RETIREMENT I'D SAVE A LITTLE:
Less-Than-Zero-Savings? Don't Believe It: The real numbers explain why consumers continue to buy. (Michael K. Evans, December 01, 2005, Industry Week)
ecently the Federal Reserve Board issued an important working paper, co-authored by none other than Alan Greenspan himself. It estimates "gross equity extraction" from homes on a quarterly basis from 1990 to the present. As I read through the numbers, they suggest that the personal savings rate is about 9%, not less than zero.They are not the only numbers we can look at. The U.S. Labor Department's Bureau of Labor Statistics publishes a comprehensive consumer expenditure survey on an annual basis. The personal saving rate, calculated from that survey, increased from 3% in 2000 to a whopping 12% in 2003, the latest year for which data are available. I don't think the saving rate is that high, but the point is that the BEA measure of personal saving is far from the only measure available, and in my opinion is irrelevant.
How could there be such a mammoth difference in the federal government estimates of the personal saving rate? To a certain extent, it is caused by different methodology to determine consumption. The main difference occurs in housing. Suppose, for example, that the typical mortgage rate declined from 7% to 5%, and many homeowners refinanced. They would then spend less on their mortgage payments, which would leave more money for either other purchases or an increase in saving. Note that this development is independent of the extraction of home equity, which increases the actual cash saving rate even more.
The Fed's paper has gone far to resolve the conundrum that consumers keep buying other goods and services at the same rate even when energy prices rise and even though the personal saving rate is reportedly negative. The personal saving rate is nothing of the sort. It is probably about 10% when refinancing at lower rates and extraction of home equity are taken into account.
Which still ignores your 401k/IRA. Posted by Orrin Judd at December 8, 2005 1:56 PM
This is the kind of stuff the GOP needs to rally around, get people talking and thinking.
Make the dems defend their beliefs.
Posted by: Sandy P at December 8, 2005 5:08 PMNot to mention the plan where you can buy your company stock for a 15% discount from the lowest of the starting/ending price of a 6 month period. Worst case is you get a 17.6% gain every 6 months. That's FREE MONEY for just delaying 10% of your salary by 6 months.
Posted by: ray at December 8, 2005 9:41 PM