June 28, 2004

SUNSET IN THE EAST:

Decline in savings rate a warning to reform-resistant politicians (TERUHIKO MANO, 6/28/04, Japan Times)

As Japan continues to maintain a current account surplus, it will remain subject to overseas criticism that its people should spend more and save less. However, the truth is that Japan's savings ratio has rapidly declined over the past decade. Let us look at some data and discuss why this is happening, and what should be done.

First of all, Japan's savings ratio, which stood at 15.1 percent in 1991, has dropped to 6.4 percent, according to the latest data available, and the pace of decline has accelerated in recent years.

Unlike Japan, the United States has long been criticized for its savings shortage. Americans are blamed for spending too much and thus incurring current account deficits -- one major reason behind the dollar's instability -- and have been urged to save more. Japan's current savings ratio is, of course, still higher than the roughly 4 percent observed in the U.S., but substantially lower than France's 12.2 percent and Germany's 10.4 percent.

Why is this happening? There are two key factors -- declining incomes and the aging of Japan's population.


Not to mention the foolishness of putting your savings in the types of instruments that these numbers measure.

Posted by Orrin Judd at June 28, 2004 8:16 AM
Comments

Sort of Ironic that people with so-called "lifetime employment" would save at such
a high rate.

Posted by: J.H. at June 28, 2004 8:50 AM

J.H.:

Even worse, they put it in savings accounts that pay 0% during a deflation--so they actually lose money--although that doesn't get factored into the official savings rate. We buy houses and put our money in 401ks and IRAs--whose appreciation doesn't get factored in.

Posted by: oj at June 28, 2004 9:00 AM

OJ, is your math right? Even at 0% interest, savings will be worth more in deflation. What additional costs are you factoring in?

Posted by: Chris Durnell at June 28, 2004 1:02 PM

OJ doesn't do math.

Posted by: Robert Duquette at June 28, 2004 1:26 PM

Chris:

My error. Their savings accounts would do okay, but their home values are dropping.

Posted by: oj at June 28, 2004 2:43 PM

"but their home values are dropping."

Stick around,we're about to teach the world the true meaning of "value drop" when the housing bubble pops.

"Unlike Japan, the United States has long been criticized for its savings shortage. Americans are blamed for spending too much"

Too much saving,too much spending.You know,there is a happy medium in there.

Posted by: at June 28, 2004 3:30 PM

Val:

The American population is growing so fast we face housing shortages.

Posted by: oj at June 28, 2004 4:07 PM

They hold a lot of US bonds. Let's hope they don't listen to Orrin.

My situation is not typical, but although I now have something like $500K equity in my house, it is worth exactly $0 to me.

I can't move, because there's no place to move to. I can't just borrow on the equity, unless you know an investment that guarantees it'll pay more than the interest.

My kids stand to do OK when I kick off, but counting my equity as 'savings' is misleading. Does me no good.

Posted by: Harry Eagar at June 28, 2004 7:43 PM

Why can't you move? You could get a great place in rural NH for 100:k. Or you could just get a reverse mortgage on the house you have now.Your lack of imagination doesn't make you poor.

Posted by: oj at June 28, 2004 8:14 PM

Harry, one word. Gold.

Posted by: Robert Duquette at June 28, 2004 10:13 PM

"The American population is growing so fast we face housing shortages."

Then why are rents so low? One reason that the CPI has been low of late is because of depressed rental prices. People who used to rent are shoehorning themselves into homes with zero down long-term variable rate mortgages. If rates never go up, they might be ok, as long as housing prices keep going up 10-15% per year.

Posted by: Robert Duquette at June 28, 2004 10:19 PM

Yeah, gold is rocketing up there right along with the DJIA, which started the year at 10,000 and has rocketed all the way to 10,300.

No good newspapers in rural N. Hampshire, Orrin (or urban N. Hampshire either). A man's gotta eat.

Posted by: Harry Eagar at June 29, 2004 2:49 PM

There are plenty, besides you'd have $400,000 to play with.

Posted by: oj at June 29, 2004 2:58 PM

even though it was a first effort, directv and we were two whiteys who admittedly loan didn't know as much about rap dish network (the history, methodology, the dish network deliverance, even) as about a mortgage lot of other music - we practiced direct tv several flows over the track before credit card we actually recorded the raps insurance - the finished product was surprisingly satellite tv

Posted by: job at July 25, 2004 6:59 PM

link

Posted by: link- at August 6, 2004 6:52 AM
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