US Personal Savings Now Negative?

[ESRBob]

Did anybody catch this in the news this week that U.S. personal savings have now gone negative? I guess we should have seen it coming.

At the same time, yesterday's WSJ says the world is awash in capital (savings), that US corporations are saving more than ever (by generating huge profits), and that almost everyone else in the world is saving a lot, topped by China where the national average for personal savigns is a whopping 25%.

One other tidbit -- all this capital keeps interest rates low. That makes credit cheap. That means investors can borrow money easily to fund leveraged plays. The credit acts to create an even greater supply of capital, (keeping interest rates low and credit cheap) which is odd- usually in economics things self-correct. I guess they will self-correct, but I just haven't figured out when or how.

Not sure what it all means to us as investors and FIREees, but I find it interesting, and suspect it will be at the heart of the next big 'thing' to affect the markets...

 

[Marshac]

Personal savings has been in the red for several months now- Any guesses how the average person will deal with rising credit card min payments?

 

[wabmester]

Well, what incentive is there to save your money when the banks are offering you a negative real savings rate? You're better off spending.

In any case, corporate savings is very high, and foreign savers are buying our debt and assets. Times have changed, but it seems to all net out for now.

 

[Michael]

The original idea behind constant inflation was that workers would be tricked into thinking they were getting richer, and so would spend more (save less). The rising wages made them feel richer, and the rising prices made them buy quickly before prices went up again. It was billed as a means of getting the nation out of the Great Depression.

The politicians went overboard on the inflation thing though, and most workers no longer save at all. A bit of deflation now and then would encourage saving, but helicopter Ben is still worried about the Great Depression coming back.

 

[greg]

Michael: I found this 'doom and gloom' report. You might be interested. Nice little history lesson too:

http://www.kitco.com/ind/Puplava/oct312005.html

--Greg

 

[Gone4Good]

I posted this calculation in a different thread

. . . The question I wanted to answer was, "what % of Would Be Retiree's gross income does he need to save to achieve a 4% withdrawal rate assuming he does not reduce spending after retirement?"  (e.g. if he makes $50K and saves $20K, he will still spend $30K in retirement).  Assuming he begins saving at an age of 30,

To retire at 65 he needs to save 21% of his gross income
To retire at 55 he needs to save 34% of his gross income
To retire at 45 he needs to save 52% of his gross income

Forget about retiring early.  People need to save a significant chunk of change to consider retiring at all.  Especially now that cola-adjusted defined benefit plans and social security are going the way of the dinosaur. 

In view of a "negative savings rate" I don't think we have to worry about aging boomers dropping out of the work force.  It is more likely that people are going to have to keep work until they drop dead.

 

[Michael]

Thanks for the article Greg. Keep those inflation hedges handy.

 

[Tadpole]

Well, what incentive is there to save your money when the banks are offering you a negative real savings rate?   You're better off spending.

In any case, corporate savings is very high, and foreign savers are buying our debt and assets.   Times have changed, but it seems to all net out for now.

I found this paragraph in the linked article interesting - BofA doesn't want its customers:

Lately, though, questions about the MBNA deal have dovetailed with more pressing concerns about Bank of America's ability to manage its bond trading and loan portfolio.

In fact, the financial giant's enormous size has prevented it from raising its standard savings and checking account rates. As a result of last year's $47 billion purchase of FleetBoston Financial Corp., Bank of America's total deposits have grown close to the 10 percent national limit imposed by regulators. To avoid going over the limit, the bank has kept interest rates lower than its competitors, prompting some customers to take their business elsewhere.
http://www.chicagotribune.com/business/yourmoney/sns-yourmoney-1009watch,1,6336701.story