Sunday, March 05, 2006

American Savings Rate

Earlier it was announced that American had a negative savings rate for the first time since the great depression. You can spot this announcement by looking at the mortgage rate charts - notice the sharp spike up?

I am not defending the savings rate. It does need to improve, but this just came out in the Associated Press and should be noted.

Some economists say that's far-fetched. They argue the personal savings figures are artificially low, since the numbers don't include increases in assets such as equities and homes. Yale University economics professor William D. Nordhaus made that argument in 2002 congressional testimony, saying that once assets were included, the savings rate for the 1990s would have been a robust 25 percent.

European countries count capital gains and home appreciation when they calculate personal savings, said William Hummer, chief economist at Wayne Hummer Investments.

"Our savings rate is understated," he said. "I think it's wrong."

If any, all or more of the $6 trillion in above the mean increase in housing values goes away are you ready to -deduct- that as readily as you are to add it in?

Regardless, you are correct that the US savings rate isn't a good indicator as many peope are capable of investing their wealth without giving banks an unholy cut for the privilege of the central banks an opportunity to steal even more with monetary policy.

For the past half decade at least, we've been rewarding negative savings at nearly every turn; from the ARM/fixed spread to the AMT tax floor. It should be no surprise that people react.
I found it interesting that we keep hearing how much worse we are, and this is the first time somebody even mentioned that the scales that savings is measured by changes from country to country.

What point is the comparision?
The comparison in the US is internally consistent. The change is as I pointed out, that we have options for savings unavailable 10, 20 ,40 years ago. Indeed a "passbook savings account" today is considered foolish.
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