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Savings rate lowest since depression - Negative (again)


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#1 nimblebear

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Posted 02 February 2007 - 08:48 PM

Savings rate was negative again in 2006. It registered -1.0%. It was negative in 2005, and the only other times it was negative was during the great depression. (1932 and 1933) Times are vastly different between then and now. Back then there was 24% unemployment. Now we have 4.5%. I wonder if we have such a great economy, how is that we can't figure out a way to have positive savings. Something really seems amiss with this picture. How could things be so right with the economy, yet we have people spending more than they earn ? The negative -1 % is for the entire population. Since we have many people that are saving, perhaps a lot more than 1%, this averages in with the rest of the population and we still get negative. The only way that happens is if a very large number of the population (i,e. a majority) is much more negative than 1%. Say -10 to -20%. It would appear there are many people chronically underemployed. What happens to the stock market when people stop overspending, and actually try to save ? Like 70 million baby boomers. They don't all have fat 401k's. Or large amounts of home equity necessarily. The only thing I can see different between now and the 1930's is that while we are creating jobs, a great segment of the population, is earning substandard wages. And living on credit or what little savings they have. The low interest rates have likely kept a good number of people in houses they really can't afford, since lending standards have gone out the window. So in essence, many many people in the US have not adjusted lower their standard of living, (i.e. move into cheaper houses, have less expensive cars, or fewer cars, or forego those bigscreen TV's) and are simply delaying the inevitable as long as possible. Credit cards, low interest rates on housing, pulling equity out of home, etc. to subsist. You never had that type of vehicle back in the 1930's, plus people were likely living at a much lower standard in general as compared to now. Deflationary wage pressures coming from abroad are systematically destroying the nations true wealth. If stocks and hosuing prices ever turn down in any sort of big way, say 20% for either or both, I think you would see a chain reaction of events that would force many many people to dramatically adjust their living standards. Foreclosures could be massive. Then what happens to the banks ? This raging bull market seems to be masking a lot of problems. The implications of a negative savings rate 2 years in a row could be the canary in the proverbial coal mine.
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#2 Sentient Being

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Posted 02 February 2007 - 08:59 PM

I think allowing the tax cuts to expire may be another trigger to economic hardship.
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#3 pdx5

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Posted 02 February 2007 - 11:13 PM

Does the "savings rate" take into account Money Market funds which are curently several TRILLION $$? Does any one know this ??
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#4 snorkels4

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Posted 03 February 2007 - 12:18 AM

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#5 ...

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Posted 03 February 2007 - 03:20 AM

Savings rate was negative again in 2006. It registered -1.0%.


The -1% figure is the "personal savings rate" which is just one component of national saving. The total national savings rate, which also includes business saving and government (this)saving is about 14% of GDP. But, even that number is flawed, as all business R&D is treated as an expense, reducing the number by about 2%.

Not to mention that all education costs are treated as spending and not investment, and that number is 2.7% of GDP just for higher education, about 7% for all education. Defined differently to better reflect reality, national saving is probably closer to 20%. But, even 14% isn't -1%.

Back to the -1% personal "savings" rate.

According to the BEA, "personal saving" is defined as NIPA disposable personal income minus personal consumption expenditures. The definition is heavily flawed and the resulting number is pretty much meaningless.

It does include pension contributions and IRA contibutions and 401K contributions. The defined benefit pension component (which doesn't include IRAs/401Ks as they are defined contribution, not defined benefit) is warped by the fact that they count employer contributions, which may have been reduced because existing plan assets appreciated. At the same time, not all contributions are immediately vested, so that aspect of defined benefit pensions cuts both ways.

No allocation at all of expenditures on consumer durable goods is made to savings.

Social Security taxes (which do "buy" benefits, regardless of how shaky they may be) aren't counted as savings, and that is a very large number, about 500 billion per year, which is over 5% of disposable personal income.

The owner-occupied housing assumptions result in the imputed rental value being too high, which inflates the consumption expenditure figure by hundreds of billions of dollars, reducing savings by the same amount. Worse yet, no allocation of the implied "rent" paid by owners is made to repayment of principal, which is obviously a savings component in the real world.

Capital gains aren't counted as savings at all, yet the taxes paid on those gains are deducted from savings.

The BEA personal savings number has a multitude of problems. My best guess is that the "real" personal savings rate is probably around 5 or 6%. Still too low, but not the total fiction that the BEA puts out.

Meanwhile, total national personal net worth marches on to new all-time highs, a fact that, by itself, makes clear how disassociated from reality the BEA personal savings rate is.

I also note, and I'm speaking generally and not with regard to any particular poster here or elsewhere, that when BEA or DOL numbers imply economic strength or good news, they are often called "made up" or manipulated or manufactured. Yet when a clearly goofy number (and it's goofy because of the rote NIPA mechanical definition BEA uses and has used for decades, not because anyone is trying to manipulate it) like the personal savings rate is released, it's barely questioned, if at all.

#6 endisnear

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Posted 03 February 2007 - 03:55 AM

Savings rate was negative again in 2006. It registered -1.0%.

It was negative in 2005, and the only other times it was negative was during the great depression. (1932 and 1933)

Times are vastly different between then and now. Back then there was 24% unemployment. Now we have 4.5%.

I wonder if we have such a great economy, how is that we can't figure out a way to have positive savings.

Something really seems amiss with this picture. How could things be so right with the economy, yet we have people spending more than they earn ? The negative -1 % is for the entire population. Since we have many people that are saving, perhaps a lot more than 1%, this averages in with the rest of the population and we still get negative. The only way that happens is if a very large number of the population (i,e. a majority) is much more negative than 1%. Say -10 to -20%. It would appear there are many people chronically underemployed.

What happens to the stock market when people stop overspending, and actually try to save ? Like 70 million baby boomers. They don't all have fat 401k's. Or large amounts of home equity necessarily.

The only thing I can see different between now and the 1930's is that while we are creating jobs, a great segment of the population, is earning substandard wages. And living on credit or what little savings they have. The low interest rates have likely kept a good number of people in houses they really can't afford, since lending standards have gone out the window.

So in essence, many many people in the US have not adjusted lower their standard of living, (i.e. move into cheaper houses, have less expensive cars, or fewer cars, or forego those bigscreen TV's) and are simply delaying the inevitable as long as possible. Credit cards, low interest rates on housing, pulling equity out of home, etc. to subsist. You never had that type of vehicle back in the 1930's, plus people were likely living at a much lower standard in general as compared to now.

Deflationary wage pressures coming from abroad are systematically destroying the nations true wealth. If stocks and hosuing prices ever turn down in any sort of big way, say 20% for either or both, I think you would see a chain reaction of events that would force many many people to dramatically adjust their living standards. Foreclosures could be massive. Then what happens to the banks ?

This raging bull market seems to be masking a lot of problems. The implications of a negative savings rate 2 years in a row could be the canary in the proverbial coal mine.


When I worked as a loan officer for a couple of yrs specializing in subprime cash out refis here in TX...i woke up to reality....always thought people like doctors and lawyers, school principals would be financially well off or at least comfy enough to pay their monthly obligations...

did a cash out on a principal of a large HS, made 80k yr, paid off 120k house, avg in Tx, and had a Navigator w/30k and a Mercedes w/50k notes...guy had about 10 charged off CCs and a couple of repos on his Cr Report w/barely 500 score....still allowed him to take out max 60% equity about $70k so he could buy a Hummer cash...

point is many people are f'n stupid...bank and lender execs made their bonuses and ran...taxpayers and jp6 shareholders will be left holding the bag...

#7 ...

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Posted 03 February 2007 - 09:01 AM

still allowed him to take out max 60% equity about $70k so he could buy a Hummer cash


Look at the upside. GMAC isn't holding the bad paper. :lol:

Now, beyond the fact that we all know many people have no sense, what do anecdotes have to do with the fact that BEA's personal savings number is baloney or that people are unjustifiably concerned about it?

#8 endisnear

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Posted 03 February 2007 - 09:26 AM

Savings rate was negative again in 2006. It registered -1.0%.


The -1% figure is the "personal savings rate" which is just one component of national saving. The total national savings rate, which also includes business saving and government (this)saving is about 14% of GDP. But, even that number is flawed, as all business R&D is treated as an expense, reducing the number by about 2%.

Not to mention that all education costs are treated as spending and not investment, and that number is 2.7% of GDP just for higher education, about 7% for all education. Defined differently to better reflect reality, national saving is probably closer to 20%. But, even 14% isn't -1%.

Back to the -1% personal "savings" rate.

According to the BEA, "personal saving" is defined as NIPA disposable personal income minus personal consumption expenditures. The definition is heavily flawed and the resulting number is pretty much meaningless.

It does include pension contributions and IRA contibutions and 401K contributions. The defined benefit pension component (which doesn't include IRAs/401Ks as they are defined contribution, not defined benefit) is warped by the fact that they count employer contributions, which may have been reduced because existing plan assets appreciated. At the same time, not all contributions are immediately vested, so that aspect of defined benefit pensions cuts both ways.

No allocation at all of expenditures on consumer durable goods is made to savings.

Social Security taxes (which do "buy" benefits, regardless of how shaky they may be) aren't counted as savings, and that is a very large number, about 500 billion per year, which is over 5% of disposable personal income.

The owner-occupied housing assumptions result in the imputed rental value being too high, which inflates the consumption expenditure figure by hundreds of billions of dollars, reducing savings by the same amount. Worse yet, no allocation of the implied "rent" paid by owners is made to repayment of principal, which is obviously a savings component in the real world.

Capital gains aren't counted as savings at all, yet the taxes paid on those gains are deducted from savings.

The BEA personal savings number has a multitude of problems. My best guess is that the "real" personal savings rate is probably around 5 or 6%. Still too low, but not the total fiction that the BEA puts out.

Meanwhile, total national personal net worth marches on to new all-time highs, a fact that, by itself, makes clear how disassociated from reality the BEA personal savings rate is.

I also note, and I'm speaking generally and not with regard to any particular poster here or elsewhere, that when BEA or DOL numbers imply economic strength or good news, they are often called "made up" or manipulated or manufactured. Yet when a clearly goofy number (and it's goofy because of the rote NIPA mechanical definition BEA uses and has used for decades, not because anyone is trying to manipulate it) like the personal savings rate is released, it's barely questioned, if at all.


Well...if you want to put it that way...what about millions on welfare and medicaid, free lunches in school...etc. who have no income but are subsidized by that 5-6%>>>pretty much negates it>>am i wrong?

#9 OEXCHAOS

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Posted 03 February 2007 - 09:47 AM

yeah, you're wrong. They're counted. Except the money that they make under the table. ;) M P.S., Thanks ... for the post. It's important to look at what these numbers really mean. The standard statistics we're fed are not very good...at best. In many cases they are profoundly misleading.

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#10 pdx5

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Posted 03 February 2007 - 02:18 PM

Yes thanks from me too ... on a very good analysis of "savings rate". I always had a hunch there was something fishy about it, you pretty much confirmed my suspicions. The real eye opener is that theyt don't count social security taxes as savings! That is roughly 15% of your earnings (you +employer).

Edited by pdx5, 03 February 2007 - 02:21 PM.

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