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Old 03-27-2009, 04:04 PM   #1
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4%

No, not that SWR 4%. 4% Savings rate. It's good to see Americans saving again after so many years of spending without regard to the cost of credit.

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Today the Commerce Department reports that for the second straight month Americans are saving more than 4 percent of their disposable personal income.
NPR: A New Reality For Savings?
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Old 03-27-2009, 04:12 PM   #2
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In terms of the bigger picture this is good news and will hopefully continue. In terms of jump starting our consumer driven economy not so good news...

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Old 03-27-2009, 05:59 PM   #3
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In terms of jump starting our consumer driven economy not so good news...
From what I understand, most of the forecasts that show the economy turning around late this year assume a savings rate of ~5%. If we go back to 10% than recovery is going to take quite a bit longer.
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Old 03-27-2009, 06:01 PM   #4
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I'm not a big fan of the so-called Paradox of Thrift in the general case, but there's little doubt in my mind that when a critical mass of people all decide to crank up savings at the same time, the economic results are ugly. I think the best long-term outcome would be a sustained, gradual increase in the savings rate, but that's not how it's playing out. The more people are being laid off, the more even those who can currently afford to keep spending retrench anyway.
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Old 03-28-2009, 07:50 AM   #5
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I'm not a big fan of the so-called Paradox of Thrift in the general case...
There is no Paradox of Thrift in the general case. If thrift caused a problem in the general case there would be no paradox.

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Old 03-28-2009, 11:45 AM   #6
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There is no Paradox of Thrift in the general case. If thrift caused a problem in the general case there would be no paradox.

Robert K
The paradox in this case is that what is good for the individual (saving more) is bad for the general economy (more saving = less spending and ultimately growth).

I agree with those who think the "paradox of thrift" is overblown. A sustained, modest savings rate is good for individuals and society. It's only a "paradox" when people want to urge consumers to spend more in order to get the economy moving. I wish there was less talk like this--Americans need almost no prompting at all to encourage them to resume irresponsible spending at the first excuse.
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Old 03-28-2009, 11:49 AM   #7
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I agree with those who think the "paradox of thrift" is overblown. A sustained, modest savings rate is good for individuals and society.
Yes, it is. But in THIS case, I think there's at least a modicum of truth to it because the shift has been so sudden and dramatic, far beyond what most people alive today have ever witnessed. The velocity of money isn't gently slowing down with a gradual application of the brakes -- it crashed.

In the long run it's a very good thing that people are saving more; IF these attitudes persist the economy may actually built on something more solid than the debt-driven house of cards that's falling today. But the rather extreme rate at which we're collectively shifting from spending to saving is clearly feeding on itself in terms of unemployment and consumer sentiment.
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Old 03-28-2009, 12:05 PM   #8
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I agree with those who think the "paradox of thrift" is overblown. A sustained, modest savings rate is good for individuals and society.
All things in moderation.

A sustained, modest, savings rate is the ideal. We were pretty far from the ideal. Getting back there is going to be painful. But it's also necessary and should be encouraged.
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Old 03-28-2009, 01:12 PM   #9
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If Americans that have not previously understood that saving some money for the future (even if only 2%) and not charging much on their CCs can make a life-altering move, and understand that saving for the future and denying themselves something today can now make it part of their philosophy, then in the long-run they will definitely be in better shape financially.
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Old 03-28-2009, 02:05 PM   #10
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If Americans that have not previously understood that saving some money for the future (even if only 2%) and not charging much on their CCs can make a life-altering move, and understand that saving for the future and denying themselves something today can now make it part of their philosophy, than in the long-run they will definitely be in better shape financially.
I hope this happens, but I'm not very optimistic at this point. It just doesn't seem likely that fundamental assumptions and behavioral patters will have shifted in such a short time. And, it has been a short time. Folks during the Great Depression had the shock of the stock market crash and bank failures, then a decade of pain and false hopes as the government tried one "cure" after another (which, according to recent studies, extended the economic pain rather than shortening it). Widespread business closings and a 25% national unemployment rate. 25%! Then they had WW II and the material scarcities and national economic mobilization of the war era. These are the factors that formed the attitude toward money of people in my parent's generation--people who already started with fairly low material expectations (many remembered homes without indoor plumbing or electricity, and the idea of a leisurely retirement was just a fantasy to their parents). I don't think we've had enough trauma yet to change the American mindset in a fundamental way. The savings rate has probably gone up due to short-term fear ("we can't buy the big-screen TV or the season tickets right now, first we need to get a couple months of cash stashed away in case I lose my job") rather than a long-term view ("I never want to be in the situation of having to worry about our bills. And I want to quit this job in 15 years. We're taking in a boarder next month, and when housing prices recover we're moving to a smaller house").
I hope I'm wrong.
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Old 03-28-2009, 03:04 PM   #11
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I hope I'm wrong.
Doubtful.

Unless things continue to get worse, and stay that way.
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Old 03-28-2009, 03:34 PM   #12
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Hmmm - my Parents got out of high school during the Depression and it altered their thinking thru the rest of their lives.

They did rebound to eat TV dinners and participate in the Post WW II consumerism. But when my Father died in 1989 - there was $5000 in a money belt hanging in the closet.

It would be interesting to hear what world views among the younger set are being formed as we post.

I suspect a marked disconnect with prior generations if this drags on.

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Old 03-28-2009, 05:41 PM   #13
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Does this savings rate include what's automatically deposited into 401K plans at work?
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Old 03-28-2009, 06:52 PM   #14
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Does this savings rate include what's automatically deposited into 401K plans at work?
I certainly would include 401(k), as well as IRA contributions, as part of my savings rate.
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Old 03-28-2009, 11:36 PM   #15
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One thing to realize is that savings in this context is not necessarily money in the bank, so to speak. A large part of this "savings" is really paid down debt because they're running out of options. Credit lines are being cut down or shut down, etc.

The net overall result is good and basically the same, but I'm not so sure that there's a whole lot of money piling up in cash accounts from this.

As to the issue of whether this is a real and lasting change in peoples' attitudes and actions, I'm also skeptical. Only a really long and painful experience will accomplish that. Time will tell whether that's what we'll see or not. I want to see that kind of change in the culture, but I'm loath to wish that kind of pain on most people.
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Old 03-28-2009, 11:42 PM   #16
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One thing to realize is that savings in this context is not necessarily money in the bank, so to speak. A large part of this "savings" is really paid down debt because they're running out of options. Credit lines are being cut down or shut down, etc.
and if you are right about it being forced on them then no change of behavior can be expected
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Old 03-29-2009, 11:04 AM   #17
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Does this savings rate include what's automatically deposited into 401K plans at work?
The savings rate (as calculated by the Bureau of Economic Analysis) equals personal income, less taxes, less personal outlays. So it is a comprehensive figure that would include any money that went into 401(k) plans.
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Old 03-29-2009, 12:46 PM   #18
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A large part of this "savings" is really paid down debt because they're running out of options.
That's a good observation, especially with ST rates being so low. I believe that the PMMF, for example, has a Yield of only about .74%, so if you had a loan with a rate higher than that, it would be worth your while to pay it down rather than accepting such a low Yield on your ST savings.
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Old 03-29-2009, 05:15 PM   #19
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Well, Me thinks their is Alot more than just 2-4% Savings going on..for the Vast majority of Workers... they seem to always want to use different sources to spin these kinds of reports..Or go the otherway and include only those making $30k yr an up..or Only taxable and Not Non Taxable $...

To me, savings is the following , that I'm sure very few want to Include and are both taxable and Non taxable $..

1. The Net amt you pay into your Home's Principal
2. Amt. you and your Employer is paying into One's Pension/#401k plans
3. Amt one is Putting into any savings accounts, be they #529 plans & Reg. SA's
4. Amts. into One's Seperate IRA/Roth accounts & Investments.
5. Amt. into One's taxable Investments
6. Whole Life Ins. Policies

Thus a Homeowner with a #401k is probably saving more than 10% apy..
I paid aobut a total of $90,000 for my $50k place that included P&I and Down payment and sold it for over $250..now was that $90k savings or just the Principal? and shouldn't the Difference be a Capital Gain? and taxed as a LT 15% taxable gain?
and how about all those Getting Their Health Insurance paid all or in part by their Employer? Shoud that Not be also taxed? It is part of one's Salaary is it not? Many employers are just setting up Savings Accounts for employees to use for health cost..but that is not being taxed.. Is that fair? Or is it a Savings plan for the employee?

and when you go apply for Medicade/Welfare? You can have a $250,000 Paid in value Home and a $30k paid for car and still qualify..But can't have more than $240 in your Cking or savings account... Cute, isn't it?

and I , nor non of my family & friends have seen any of their Credit reduced or shut down..They all have their $10-$25,000 LOC's, 7-9% Rates. I would hope it's about time to Shut down those that don't belong having them, much like those Subprime people...and going back to not giving Fido or Your Teenage kids a Creditcard...or worse yet, your Kids In College..as they have been doing on campus...as told about on 20/20 and 60 Min. TV shows yrs back...
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