Lowest Savings Rate Since 1933

[Mountain_Mike]

What the heck are people thinking??

Savings Rate at Lowest Level Since 1933
Jan 30 11:22 AM US/Eastern


By MARTIN CRUTSINGER
AP Economics Writer
WASHINGTON

Americans' personal savings rate dipped into negative territory in something that hasn't happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.

The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.

The savings rate has been negative for an entire year only twice before _ in 1932 and 1933 _ two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.

More….

http://www.breitbart.com/news/2006/01/30/D8FF3QE00.html

 

[yakers]

So what will it be, a sharp, short correction or a long slow downward slope?

 

[MasterBlaster]

Well this makes a great headline (negative savings rate). However most people would disagree with their definition of savings. For the official statistics money (saved) in 401K's and IRAs is ignored in the savings rate. Only money in checking and bank savings accounts counts as savings. Similarly Home equity (and other capital gains) is excluded in their calculations.

This statistic is meaningless when trying to decide how wealthy or how prepared Americans are for retirement.

 

[Targeting40]

I agree, their method of measuring savings is a joke.

 

[JPatrick]

They also pointed out that the combined net worth of all Americans is at a record high.  If you don't feel as rich as you should, just give it a few years.  As soon as Hillary is elected that net worth is going into one big pot and we are all going to get an equal share.  Barbara Striesand is planning to share with me.

 

[Cut-Throat]

They also pointed out that the combined net worth of all Americans is at a record high. If you don't feel as rich as you should, just give it a few years. As soon as Hillary is elected that net worth is going into one big pot and we are all going to get an equal share. Barbara Striesand is planning to share with me.

Where did you hear that? - Rush Limbaugh? - Let me ask you though - When you guys repeat this stuff enough - Do you really start to believe it?

Actually the worst mistake the Democrats could make would be to nominate Hillary. That said, if she were president, I would expect similar policies to Bill. Nothing wrong with Balanced budgets, a roaring economy and peace.

 

[MasterBlaster]

<This'll get you started, I'm searching for a better reference>

Quirks in the calculation

The savings rate is defined by the national income and product account (NIPA) as after-tax income less spending. This definition may concur with most individuals' understanding of saving, but there are several areas in which the NIPA's treatment of income and spending probably wouldn't agree with most consumers' expectations.

First, because capital gains are generated by asset appreciation and not by so-called current production, they're not counted as income; however, since capital gains taxes must be paid, they are counted as an expense. Thus the official savings rate is squeezed from both sides of the equation.

Likewise with pensions: Because pension benefits are considered to be transfer payments -- since they also aren't generated by current production -- they're not counted as income. If they were counted, income and therefore savings would be higher.

Finally, the argument is often made that durable goods such as automobiles should be counted as investment rather than consumption because they are long-lived assets. In this way, too, the savings rate would be higher because only that portion of the asset that depreciated in a year would be treated as consumption.

Not clear that lower savings rate is a problem

To be sure, the measured savings rate remains useful as an indicator of Americans' inclination to save. Because of it we know that savings have almost certainly declined in the United States. But to focus narrowly on this particular statistic without also recognizing the limits of its construction may distort its real significance. With these measurement limitations, it is not clear that the lower savings rate will forestall an economic recovery, especially in view of the offsetting high inflows of foreign capital.


<Here's a link to a better discussion of the issue>

http://www.svsu.edu/writingprogram/braun00/braun-kw-00.htm

Personal Savings Rate= Personal Savings /Disposable Personal Income (Personal Income - Personal Taxes)
 

My take on the savings rate is that savings means that part of your disposable income kept in "On deposit - ie. bank" accounts.

 

[Mountain_Mike]

You've brought up some valid points. The faulty assumptions do make for a catchy headline, but I still think there is cause for concern. I know my views are based upon the empirical, but I still talk to many people who tell me they have little or no savings. Some of these same people max out their credit cards and buy new cars on credit. I know one guy who has taken out 3 different home equity lines of credit. In my book, this is not responsible.

 

[MasterBlaster]

Sure:

Could and should Americans save quite a bit more ? - You bet !

Is the negative savings rate (official statistic) meaningful ? - Not to anyone but bankers. All this statistic says is how much of after tax income Americans put into deposit (bank) accounts - Nothing more !


Also notice that the official savings rate says nothing about indebtedness.

 

[danm]

What's not valid? Home equity - that's not savings, it's asset bubble valuation. It can change at a moments notice. A friend at work just sold his house, he estimates it's 10-20% off the high price in summer. That's a lot of variability, and certainly not savings. I don't know what his house sold for, but he probably lost $60k from waiting.

And 401k - again, most 401k's are invested in equities, which have highly variable values. Tomorrow could drop by 50%, or go up by 50%.

Savings is savings. Ask any company who survived 2001 (i.e. not a dot.com) how they did it. "Cash is King". Not through their market capitalization. The ones who made it had enough cash to get through tough times. And do we wonder why the cash balance sheet of corporate America is flush, circa 2005? My company learned it's lesson, it was high on dot.com and didn't have any cash, and barely squeaked through.

If the Fed raises rates until a recession (pretty likely), then consumers will get caught short. If it transitions into low level deflation, then all that debt will hurt more. If that occurs, then those who have savings and cash will do well.

 

[Slarty]

Don't forget that the baby boom wave is moving into early retirement now. The majority of the nation's wealth is controlled by this group. As they live off their investments instead of traditional income, I expect we'll see "savings rate" as measured here to continue to go down on the average. Also, those few left working will probably see more and more taxes and that'll leave less for savings too.

Maybe more people are just going FIRE. 8)

 

[danm]

The majority of the nation's wealth is controlled by this group.

Do you have data to back this up? Not necessarily doubting you, but I've been looking for data for this assertion.

 

[sgeeeee]

. . . Nothing wrong with Balanced budgets, a roaring economy and peace.

Are you sure, Cut-Throat? All the Republicans I know seemed to be unhappy when that stuff was going on. They were especially worried about a soiled dress if I remember correctly.

Now we have record deficits, loss of jobs, loss of pensions, men dying in an unjustified war, . . . and they all seem very happy. Maybe the political scandals today involving politicians taking money to sell out the public or to violate citizen's civil rights makes them more comfortable than those silly sex scandals?

 

[Nords]

Are you sure, Cut-Throat?  All the Republicans I know seemed to be unhappy when that stuff was going on.  They were especially worried about a soiled dress if I remember correctly.

Actually the worst mistake the Democrats could make would be to nominate Hillary.

I think she just wants to make her own mark (so to speak) on the Oval Office carpet...

Hey, do you think she'll let Bill sleep in the Lincoln bedroom?

 

[HFWR]

She'll probably MAKE him sleep there... :

 

[cute fuzzy bunny]

Hmmm...point messages from government agencies and their paid think tanks

"You're not saving enough"

"You should wait to take social security"

Yeah, I need the magic 8 ball to figure this one out.