2006 personal savings drop to 74-yr. low

[2B]

Not intending to hijack the thread (famous last words) -- our neighbor just listed their house for a $/sq.ft. that would give us 25% appeciation in 1 year. No way I say but another person down the street has theirs listed at about the same silly number. I've told DW if they get those prices it's time for us to sell and move further west. Texas doesn't have price runups like that.

Even though I put money into my 401k, I'll discuss the other aspect with DW later. I couldn't resist the easy shot.

[wabmester]

Quote:

Originally Posted by 2B another conflicting report that said the US savings rate was much higher.

I'm too lazy it to look it up, but without the forced savings of pension plans, the number is much worse.

[samclem]

Whew! That brush fire was put out again. I wager 8 weeks or less until another flare-up.

[wabmester]

I'm not too concerned about people spending like mad. Money makes the world go around. But it is a little concerning to think about what happens when they stop.



(MEW = mortgage equity withdrawal)

[Sam]

That graph is scary! Where did you get it from?

[wabmester]

Quote:

Originally Posted by Sam That graph is scary! Where did you get it from?

Google.

year-old link

[laurence]

So basically, GDP was growing for real up until the dot com bubble burst, and since then we've been living on borrowed time? Scary.

[Gone4Good]

I smell a rat in the whole mess.

In the late 90's the low savings rate was blamed on the "wealth effect" caused by the stock market bubble. After the bubble burst the negative savings rate was then attributed to the "wealth effect" of the real estate bubble. Now that real estate is deflating, equity cash outs are way down, sub-prime borrower defaults are at all-time records, you'd expect the "negative wealth effect" to hammer GDP. But lo-and-behold 4th quarter GDP clocked in at a healthy 3.5% last quarter (anyone know what the MEW was in the 4th quarter?)

Something doesn't add up.

[wabmester]

I believe that household net worth is still increasing even without real estate, so spending is probably fueled by both RE and stock gains.

Calculated Risk has an update on MEW here:

2007 link

[Gone4Good]

Quote:

Originally Posted by wab I believe that household net worth is still increasing even without real estate.

Yes, but isn't that strange. Home values are declining after copious amounts of equity was extracted, the S&P 500 has not yet reclaimed its 2000 peak, tech stocks are still significantly below their peak, savings is negative, and yet household wealth is at all time highs.

I question the data.

[wabmester]

Well, my earned income is zero, my savings rate is waaaay negative, but my net worth is still increasing.

I'm sure there are other factors at play, but the recent increased liquidity of illiquid assets is definitely a big player in GDP growth.

Edit: I guess technically my savings rate is positive since we spend less than our interest/dividends, but it could be negative if we relied more on cap gains.

[cute fuzzy bunny]

Quote:

Originally Posted by 3 Yrs to Go Something doesn't add up.

Ever watch CNBC for many days in a row and realize that they use the same explanations on different days for completely opposite situations? Or completely different explanations for the same thing?

Its a BS stat and you can draw from it whatever you will.

Whats going to make people read magazines, newspapers and watch your tv show more..."Oh my god we're not saving enough money and we're all going to die in squalor!" or "Americans doing an adequate job of saving money"?

[2B]

Just for grins, here's the Neil Cavuto link on the report.

http://www.foxnews.com/story/0,2933,250018,00.html

[Nords]

Quote:

Originally Posted by samclem Whew! That brush fire was put out again. I wager 8 weeks or less until another flare-up.

In the meantime, can you tell me if I should use the spare change I find on the sidewalk to pay off my mortgage or to pay the taxes on my Roth IRA conversion?

[Jarhead*]

Congratulations to the folks that have their own financial situations well enough in hand to have the time and inclination to participate in this thread.

That's actually a compliment. (Well, kind of).

[Gone4Good]

Quote:

Originally Posted by Cute Fuzzy Bunny Whats going to make people read magazines, newspapers and watch your tv show more..."Oh my god we're not saving enough money and we're all going to die in squalor!" or "Americans doing an adequate job of saving money"?

That's true. I also think there is a vein of pessimism/anti-Americanism/anti-capitalism (call it what you will) that runs through a lot of this reporting. No matter how good things are the slant is always that some deep-seated structural flaw is going to upend the economy and all of this prosperity is, in reality, an illusion.

In today's NY Times Business section they ran an article suggesting that 4th quarter growth of 3.5% wasn't really all that good because nominal growth declined in the quarter. That is the first time I've heard a business publication argue that we'd be better off with higher inflation. Of course they didn't say it quite like that, but that is the essence of the nonsense they published. It's no wonder that most people think the economy stinks despite years of solid performance.

Fortunately, the pessimists are losing ground on which to fret (if anyone bothers to report it). Consider:

1) GDP is rebounding
2) Inflation is decelerating
3) Oil is way down from its peak (although running again this week)
4) US Exports are up 10% y-o-y
5) The dollar has stabilized
6) Real wages are growing at a healthy clip again
7) Unemployment of 4.6% is low
8 ) The CBO projected the federal budget will be back in surplus by 2012
9) Residential housing looks to be stabilizing
10) Corporate profit growth continues to beat expectations
11) Household wealth is at an all-time high

"But, but, but . . . the savings rate is low and the trade deficit is at a record high!!! WE'RE ALL DOOMED!!!"

[2B]

Quote:

Originally Posted by 3 Yrs to Go "But, but, but . . . the savings rate is low and the trade deficit is at a record high!!! WE'RE ALL DOOMED!!!"

It's a matter of perspective. Lesser numbers during the Clinton administration are reverently recalled as the "good times" by some of the press.

Before I get deluged with "Clinton was our greatest president ever" posts, I don't think that Bush II or Clinton did anything of note to impact the economic cycle their administrations experienced. Both of them inherited weak economies that just got better. So any political posts should include specific actions taken by the president that caused the economic shift.

[Gone4Good]

Quote:

Originally Posted by 2B It's a matter of perspective. Lesser numbers during the Clinton administration are reverently recalled as the "good times" by some of the press.

Yes, I too recall the "Jobless Recovery" under Bush 41 followed by the "Clinton Expansion" beginning on inauguration day 1993 followed by the "Jobless" and "Wageless Recovery" under Bush 43. Likely followed by another "Clinton Expansion" under Clinton 44.

[wabmester]

Quote:

Originally Posted by 2B Just for grins, here's the Neil Cavuto link on the report. http://www.foxnews.com/story/0,2933,250018,00.html

If he's going to make stuff up, he should at least include one of the real reasons the savings rate is negative: we're getting older as a country, and retirees are increasingly represented in the stats.

[Cut-Throat]

Quote:

Originally Posted by 2B It's a matter of perspective. Lesser numbers during the Clinton administration are reverently recalled as the "good times" by some of the press. Before I get deluged with "Clinton was our greatest president ever" posts, I don't think that Bush II or Clinton did anything of note to impact the economic cycle their administrations experienced. Both of them inherited weak economies that just got better. So any political posts should include specific actions taken by the president that caused the economic shift.

Then please give Jimmy Carter credit for raising interest rates in the late 70's, that finally tamed inflation for any of the so-called successes of the Reagan years of the 80's