January 9, 2006
SURE I OWN A HOUSE, BUT I CHARGED THE NEW COUCH:
Americans saving less than nothing: Spending could outstrip income in 2005, which hasn't happened since the Depression (Tom Abate, January 8, 2006, SF Chronicle)
When the Commerce Department recently tallied up consumer finances for November, it found that Americans shelled out more money than they took in. It was the seventh such month of red ink during 2005.Kevin Lansing, an economist with the Federal Reserve Bank in San Francisco, tracks the personal savings rate -- the Commerce Department's measure of how much consumers have left after spending is subtracted from income. In November the savings rate was a negative 0.2 percent. [...]
[E]conomists, including current members of the Federal Reserve, say the falling savings rate isn't so alarming. They argue that the declining savings rate has been offset by another factor -- rising home prices.
"A lot of the psychology of savings is that you're prepared for an emergency," said economist Tim Kane with the Heritage Foundation in Washington. "And if your house is worth 10 percent more, then you feel you're prepared.''
Federal Reserve Board member Susan Schmidt Bies painted a sanguine picture of American spending, savings and debt in an April speech. She conceded that household debt had grown twice as fast as after-tax income between 1999 and 2004, helping drive down the savings rate. But Bies noted that household net worth has soared, driven by rising home prices coupled with stock market gains.
"While analysts usually focus on the savings rate," Bies said, "some argue that a more relevant measure of savings adequacy is ... the change in net worth. And in this regard the picture of household savings looks more favorable." [...]
Tom Schlesinger, executive director of the Financial Markets Center, a liberal Virginia think tank, is more alarmed. Schlesinger noted that the Federal Reserve's debt service ratio, which compares consumer debt payments to disposable income, hit records in each of the three quarters of 2005 for which data are available.
"Families continue to be heavily burdened by debt,'' he said.
In case you ever suspected that liberal think tank was an oxymoron, household net worth, which is calculated after subtracting consumer debt, crested $50 trillion in the third quarter. Posted by Orrin Judd at January 9, 2006 6:06 PM
The biggest pile of wealth, actually, the world has ever seen, but liberal economists manage to miss it.
Posted by: ZF at January 9, 2006 6:43 PM. . . because that pile of excrement they call a liberal philosophy obscures the view.
Posted by: obc at January 9, 2006 6:48 PMHorsehockey, most of our money's in our IRAs.
Posted by: Sandy P at January 9, 2006 6:52 PMAnother reason to open up ANWR and decrease our national debt.
It's for the children!
Posted by: Sandy P at January 9, 2006 6:56 PMStupid question, what criteria are they using for savings?
Darned if I can find it on the site.
Checking, savings, money market and CDs?
Posted by: Sandy P at January 9, 2006 7:12 PMSandy: It is simply this year's income minus this year's spending. It ignores appreciation or depreciation of any asset (houses, investments, IRA's, 401K's, etc.) owned throughout the year and (I think) counts money spent during the year on appreciating assets as an expense.
Posted by: David Cohen at January 9, 2006 7:27 PMSo in other words, if you aren't sitting on cash you aren't saving?
Posted by: joe shropshire at January 9, 2006 7:48 PMI seem to recall a discussion here that we should be treating childraising as an investment, not an expense.
Posted by: Sandy P at January 9, 2006 8:08 PMWe can send an email to the fed board. I think I will and suggest they bring the computation/formulation into if not the 21st century, at least acknowledge the late 20th century and 401Ks.
Posted by: Sandy P at January 9, 2006 8:09 PMJoe,
So in other words, if you aren't sitting on cash you aren't saving?
I think only cash is counted. Savings are investments, but investments are not necessarily savings, at least in the eyes of the govt.
Not sure how they count bonds, convertible debentures and the like, either.
On a related note, the Fed Reserve will soon stop publishing M3 figures, so the govt will be able to pump up the money supply that much more easily. That was the first thing I thought of when reading this post actually, that people concerned about inflation would be fools not to get their money into an asset class other than cash, and as quickly as possible.
sandy:
Interesting point: in these calculations your children have no worth.
Posted by: oj at January 9, 2006 8:57 PMAny additional information concerning the demographic distribution of this household net worth?
Posted by: Grog at January 9, 2006 9:10 PMWho needs to save? The Feds have been skimming 12.4% off the top of my yearly income since I began working 24 years ago and in theory have been investing that money for my retirement. According to every investment guru alive, 12.4% is more than enough to fund to a person's retirement.
Posted by: Pete at January 9, 2006 9:30 PMPete,
12.4% is more than enough to fund to a person's retirement.
Indeed it is. And I'm sure a person will enjoy it.
Grog:
Yes, 69% of American households own their own dwelling.
Therefore, at least two out of three adult Americans are "investing", albeit imperfectly.
If you throw in the apartment-dwelling urban professionals with 401(k)s and 403(b)s, it's likely that four out of five adult Americans belong to "the investor class".
Posted by: Michael Herdegen at January 10, 2006 1:00 AMDavid:
By your comment, I take it that the unearned income I pay taxes on every year, and don't spend, but could, does not count as savings?
Posted by: Jeff Guinn at January 10, 2006 7:19 AMAnd more than half of all households own stock in some form.
Posted by: David Cohen at January 10, 2006 7:20 AMJeff: I think we're overthinking this. As I understand it, it is a purely income-driven statistic that is not interested in wealth, though it get's misused to say something about wealth.
Money comes in from whatever source (wages, dividends, asset sales) and from it is subtracted money that goes out (food, mortgages, clothes, couches). Unrealized gains and losses are ignored, which is OJ's point. What I'm less sure about is whether a downpayment on a house, or buying a car, or buying stock are all treated as cash expenses in that year. I believe that they are.
Posted by: David Cohen at January 10, 2006 8:16 AMIt's amazing how we're not saving anything yet worth trillions.
Posted by: Sandy P at January 10, 2006 11:15 AMThat's because the left are masters of semantics. They decide how wealth, savings, etc. will be defined, the more abstruse the better.
Krugman must be shocked! Schocked!
Posted by: Genecis at January 10, 2006 12:41 PMFascinating. I have no idea whether or not the DDT ban is a good idea or not, or whether using DDT again would save lives.
I am quite certain, however, that the greenie-weenies have lied, cheated and concealed the truth from the public on matters concerning which I am adequately informed, namely, wildlife management and predator reintroduction. I therefore am disinclined to believe anything they might say.
Movements must have a care to their own credibility.
Posted by: Lou Gots at January 10, 2006 7:31 PM
David:
For my part, it isn't overthinking, but overignoranting. I just don't know.
I know self reference is frowned upon here, but it seems appropriate in this case. If it is true -- I have heard that is the case -- that "unearned" income is taxed as income, but when reinvested is not counted as savings, then my own savings rate is half of what it would be otherwise, and gets lower over time. For if my amount of saved earned income remains the same, and I am investing it all in stocks, then my unearned income increases over time. My apparent savings rate decreases ([earned + unearned]/unspent earned), while my actual wealth increases, due to increasins unspent unearned, and hence not counted as savings, income.
Since, as you note, many households are investors, the resulting disparity could well be huge.
Thus, Americans, the world's worst savers, have $51 trillion saved--even after we repay our consumer debt.
Posted by: oj at January 11, 2006 12:02 PM