16 replies to this topic

[robo]

To not include stocks as personal savings is just crazy and misinformation. Stocks are a liquid and valuable asset.

My savings account went up very little last year around 2k. However, My wife and I each put 20K in our 401k's and 5k in our Roth's. We will do the same this year and every year the IRS rules allow us to continue. I saved 52k last year around 40% of my income, but my personal saving rate is only around 2% by the government figures. In 2008 Roth's go to 6k each for over 50 folks. I will save less in my bank account to increase my Roth’s in 2008. So I will save less, funny! Putting 6k each in our Roth’s is a deal I shall not pass up.

[HiFiGuy]

i should have been more thorough in my initial post regarding the specifics of the articles. It's important that you read them in their entirety to understand my point. I have a print subscription only, but Barron's does offer a 30 day trial for their online service if anyone wishes to read these articles.


Barron's - full article


I'll summarize the "Savings Myth" article, though the other one is worth reading as well:

* among other claims, the article states that the "existing definition of personal savings" (i.e. assets - liabilities) doesn't capture "cash withheld from shareholders...including....tangible and intangible assets."..

Correct me if I'm wrong, but to these extent profits are reinvested rather than distributed as dividends, wouldn't that asset already be reflected in the price of the stock? The article is attempting to double count this.

* i love this one.."people often associate "savings" with the "quaint picture" of a hard-working employee dutifully..." saving.

Right.. its so QUAINT to actually forgo consumption to save for the future!! Why do that when we can simply inflate our assets to infinity!

* the total US "household net worth" figure stated in the article stands at a record $55.6 trillion. But, this apparently includes net worth of "non-profit organizations" that are "hard to separate from the totals". So, i guess Harvard and Yale's endowment funds are going to benefit me personally how???? Then, it states "FED statisticians still find the household totals [[/b]i]accurate enough[/i][b]" to [simply] divide by the total number of households to arrive at an avg net worth per household figure.

....so as Wall Street's hedge fund workers and CEO's increase their pay exponentially to obscene levels, we're supposed to be okay cause they're evidently doing the saving for us! Cool!

* another supposed exclusion to personal saving is capital gains on equity sales, where the capital gains tax is subtracted from income, but the net gain is evidently not included in income. In fact, "BEA staff economist Marshall Reinsdorf has shown that recent negative savings figures become positive merely by restoring capital gains taxes to income."

Again, who does this really impact? Not the "average American" - that's for sure.

* Another zinger...."it is necessary to recognize that institutions don't save, only people do [huh? wasn't the opposite just stated] even if they don't do it consciously the way the previous generation did."

Whew, we sure are inventive, this new generation.


I could go on, but you really should read the full article for yourself. To summarize, everything's just fine, in fact its much better than we ever imagined. The owners of capital (the super-wealthy), corporations, and non-profits (universities), are doing more than enough saving for the rest of us. What I want to know is how I will eventually stake my claim to these savings when I need it. And all this is without mentioning how inflation is devaluing our actual purchasing power.

Amazing. Anyhoo, its worth a read to see for yourself. Me, I think we're topping big time.

[HiFiGuy]

Tedbits - by Ty Andros

IMO, he is on the money in his assessment of our current savings/economic environment. Timing is the only question, and we're getting closer every day.

[ecpinto]

Tedbits - by Ty Andros

IMO, he is on the money in his assessment of our current savings/economic environment. Timing is the only question, and we're getting closer every day.

Can you really blame people if borrowing is made out to be better than saving. The theory is simple borrow today, pay back in inflated dollars...whereas if you save your savings erode thanks to the sea of money that is floating around causing the value of your savings to diminish.

[wyocowboy]

There seems to be a misunderstanding of what the government counts as savings. It is not "assets minus liabilities". Savings is defined as income minus consumption. If you made a big down payment on a home, or if you were foolish enough to pay cash for a new car, then shame on you - you just lowered the nations' savings. You might argue that your home or new car are assets that are worth something - but officially they are not.

And it is true that capital gains are not counted as income - so all you folks out there in Trader Nation that have been raking in profits - maybe even making a living at it - you are destroying the rest of the nation by making the savings rate negative. Just because our economic system is based on capitalism doesn't mean you should try to make money from buying low and selling high - you need to get a job at McDonald's and save all your income to improve the lot of the nation - otherwise, we will never get through the coming economic collapse caused by the negative savings.

Of course, a negative savings rate must mean the consumer is being squeezed - or does it? Stocks and bonds collapsed in 1974 and 1975, and again in 1980-82. During those bleak years the savings rate rose above ten percent - so I must have been mistaken thinking those were tough years to live through - they must have been the best of times. Not exactly the best of times in the market (or on main street), but I guess I missed out on the wonderful savings rate.

Sorry if I seem a little shrill, but the amount of baloney that gets passed on for fact is reaching alarming proportions. Something that is constantly quoted is the average American owes $8,000 in credit card debt. If Bill Gates just sat down beside me, we would average a few billion each - even though I would still have no where near that amount. Twenty three point eight percent have no credit cards at all - and 31.2 % paid off their most recent credit card bill in full. So that accounts for 55% - and they owe nothing.



Only 29% of households owe $1,000 or more on their cards.
<LI>21% owe $2,000 or more.
<LI>6% owe $8,000 or more.
<LI>4% owe $10,500 or more.
<LI>1% owe $21,400 or more

Among households that carry a balance, the median amount is $1,900.

Last, but not least, what correlation does any of this have to the market? My own observation says the effect is next to zero, but I hope that someone can point to a statisticaly observable effect that that may benefit us all........

[...]

The bogus "personal savings rate" issue comes up periodically, almost always in a sky-is-falling scenario. Here's some stuff I had to say about it back in February: --------------------------------------------------- According to the BEA, "Personal saving" is defined as NIPA disposable personal income minus personal consumption expenditures. The definition is heavily flawed and pretty much meaningless. However, it DOES include pension contributions and IRA contibution and 401K contributions. The defined benefit pension component is warped by the fact that they count employer contributions, which may have been reduced by plan asset appreciation. At the same time, not all contributions are immediately vested, so that aspect of pensions cuts both ways. But, no allocation at all of expenditures on consumer durable goods is made to savings. And, using disposable income means that Social Security taxes (which do "buy" benefits, regardless of how shaky they may be) aren't counted as savings. Also, the owner-occupied housing assumptions result in the imputed value of rentals being too high, which inflates consumption expenditure figure by hundreds of billions of dollars, reducing savings by the same amount. Worse yet, no allocation of the implied "rent" is made to repayment of principal, which is obviously a savings component in the real world. Finally, capital gains aren't counted at all, yet the taxes paid on those gains are deducted from savings. The figures have 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.

[OEXCHAOS]

Thanks, guys. That's the type of stuff that makes us quite a bit different from other investment and trading venues. M