Posted on 03/01/2006 8:09:49 AM PST by Toddsterpatriot
You must have heard that "Americans are spending everything they're making and more, pushing the national savings rate to the lowest point since the Great Depression." That line from Associated Press writer Martin Crutsinger was echoed on TV and in most newspapers, provoking columnists and editorial writers to bemoan the "savings crisis." The analogy with 1933 was designed to equate a low savings rate with hard times. Actually, the savings rate is usually highest in recessions, because of fear and because recessions crush our nest eggs. The savings rate rose above 10 percent during the stagflations of 1974-75 and 1980-82 to make up for the wealth that evaporated when stocks and bonds collapsed. A low savings rate can be a sign of optimism about the future.
Since the purpose of saving is to add to wealth, the best measure of saving is the addition to wealth. In the third quarter of last year, the Fed's measure of household net worth amounted to $51.1 trillion -- up by more than $5 trillion from a year earlier. Net worth measures assets minus debts, so that 10.9 percent wealth gain also debunks any "debt crisis." Homeowners' equity accounted for only 21 percent of total wealth, so it was not just a housing boom.
Wealth gains from financial assets benefit a rapidly rising share of the population. Tax-deferred IRA, Keogh and 401(k) plans alone amounted to $6.7 trillion in 2004. Something like half a trillion dollars in dividends, interest and capital gains from such tax-sheltered investments were excluded from last year's income statistics, particularly those based on income tax returns.
A New York Times story said, "In 2003, the top 1 percent of households owned 57.5 percent of corporate wealth, up from 53.4 percent the year before, according to a Congressional Budget Office analysis of the latest income tax data." Yet the most that such tax data could show is that the top 1 percent own a big share of taxable investments. That is because the rules do not allow large sums to be stashed in tax-deferred or tax-exempt (Roth) savings vehicles. The rest of us, by contrast, now keep the vast bulk of our investment income hidden in such plans. It only shows up in wealth surveys.
To put one year's $5 trillion wealth gain in perspective, personal income was just $9 trillion after taxes. Even if we'd saved half of all personal income, that could not have added as much to household net worth as was, in fact, added. We clearly need to examine the household balance sheet -- not just a one-year income statement.
The third chapter of the new "Economic Report of the President" explains why the personal savings rate tells us little about personal savings.
First of all, savings is defined as income less consumption. Because such investments as home remodeling and college tuition are miscounted as consumption, they reduce the savings rate. Making a big down payment on an existing house lowers the savings rate, as does paying cash for a new car. Yet homes and cars are assets.
Second, corporate saving is also personal savings because stockholders own the corporations. When corporate profits are retained and reinvested, that increases assets per share and results in greater capital gains for 401(k) plans. Undistributed corporate profits accounted for more than 72 percent of total net private savings in 2004, when total private savings hit a record high despite a drop in so-called "personal saving."
Third, an increase in the value of old savings accomplishes the same thing as new savings -- it increases net worth. Yet capital gains are not counted as income or savings, so they are excluded from both the numerator and denominator of the savings rate.
Wall Street Journal columnist Greg Ip quoted Alan Auerbach of UC-Berkeley as saying, "It's too sanguine to equate capital gains with cash-flow saving -- they're not the same." This seems to suggest that a thousand dollars from writing a check on a savings account is somehow better than a thousand dollars from selling mutual fund shares.
"To live off capital gains," Ip explained, "a retiree would have to sell the underlying asset." Nonsense. Consumer spending is always financed by selling assets. Cash in your wallet and money in the bank are assets, just like stocks and bonds. Human capital (such as a new M.D. degree) is an asset that can be tapped by borrowing against future income. Income is simply a means of replenishing your assets, not a distinctly different way of financing spending. If the value of your stocks and bonds increases by 7 percent a year, you can sell 7 percent of your assets every year without reducing your wealth.
Because Ip assumes most household wealth is tied up in homes, he writes, "For many (retirees), selling their home is impractical." But you don't have to sell your home to spend a fraction of the equity. Just take out a bigger mortgage, a home equity loan or a reverse mortgage. If the cash withdrawn is no larger than the annual appreciation in property value, there is no reduction in wealth. Once you're old enough, there's nothing wrong with reducing your wealth (but heirs may disagree).
Last year's below-zero savings rate was: 1) partly a statistical illusion due to counting investments as consumption and ignoring corporate savings; 2) partly a sensible way to spread out the financial pain of surging energy prices; and 3) partly a rational response to the $5 trillion gain in household wealth.
I am not opposed to more saving, or to virtue in general. But last year's low personal savings rate was no "crisis." And the sensational analogy with 1933 was sensationally ridiculous.
The sky isn't falling ping!
Fifteen percent of my weekly salary goes into long-term savings, but I guess that doesn't count!
We have our money invested in stock market, IRA, 401, etc. NOT in our little savings account at the bank. That one gets zapped monthly by our three college age kids.
But, but, I thought assets were only things that generate income! [sob]
We usually put min. of 10% into stock in our company (Dow) every year. That wouldn't show up in our bank savings account.
Toddster
Great post. A sane voice.
The single thing that's missing, I'm afraid, is a comment on the financial system, and so I'd say this:
Our financial system, which includes the largest, most liquid capital markets in the world, allows for us to build more optimal portfolios (increasing return per unit of risk, or minimizing risk in relation to return). More, this smooth functioning, stable financial system allows for the transfer of savings to those who would employ it to innovate and invent, leading to a fully funded capital stock of productive assets, and to wealth creation itself.
Turns out the tax and spenders and the socialists were wrong all along. Ooops.
Thanks again.
Actually, those investments are included in the savings rate. Your gains are not included. If you realized a capital gain, the tax you pay reduces the savings rate, but the gain does not increase the savings rate.
So that means gold isn't savings. Don't tell the buggers!
I invest most of my money in liquid assets, namely Heineken. Problem is you never get to keep it, you only borrow it for a while.
Or now that I think about it, it really isn't "borrowed," but you do have to give most of it back.
Traitor. I only drink American beer. Sam Adams. Although, if you think about it, Boston really isn't part of America anymore. Never mind.
ping
Pi$$ing away your future?
There is no point for saving by buying reported stocks and bonds since government is going to take all away from you to pay for Social Security for the elderly U.S. citizens and illegal immigrants.
Along with lower savings, the leftists are complaining about the borrowing that expands with an expanding economy. The fact is that people are borrowing more because they can. Delinquencies are down and credit scores are up.
OK, maybe that's not true of union members --but they're only half the percentage of the labor force that they were 20 years ago.
Yes unbacked paper currency has always held its value throughout history. Paper currency has never been worthless. Inflation is nothing to worry aboutTime to go and rent Pollyanna and get some rose colored glasses
I don't hold my savings in paper currency. Paper currency is like gold, it also pays no interest.
I make sure that I have just enough in the bank to cover monthly expenses and that is it. In the case of an emergency I have one credit card that is ONLY used for that. Who wants to put money in those old dinasures when you can make a heck of a lot more in a mutual, 401K and practically under your mattress...LOL. Banks suck pretty much in my humble opinion. In fact, I use a credit union which is better than a bank, but not much.
I wonder what impact this would have on A.Pole's favorite class warfare tagline? Could it be that middle class America has much more wealth accumulated (and a bigger piece of the pie) than he realizes? It would make sense, given that the percentage of Americans who own stock has increased from just 25% in 1980 to 52% today.
This number is MEANINGLESS without knowing how much of the stock is owned. So how is it related to my tagline?
Did you ever provide back up for your class warfare tagline? Or did you make it up? And you haven't given us the equivalent numbers for your favorite socialist country.
Here you go-- always happy to bring meaning into people's lives:
|
American Owned Company Stock 2005 ($trillions) |
||
| Corporate equities | $6.1 | |
| Mutual fund shares | $4.1 | |
| Security credit | $0.6 | |
| Life insurance reserves | $1.1 | |
| Pension fund reserves | $10.4 | |
| Equity in non-corporate business | $6.6 | |
| $28.9 | ||
It's interesting to note that Americans own more stock than they do real estate.
As for the tagline (In 2001 top 5% owned 60% of national wealth, while bottom 60% owned 4%) why is it that we talk about unfair distribution when it comes to our money, but when ever we talk about the national debt it's always divided per capita ("every American is leaving $30,000 in debt to their children")? It's one way or the other. Either we face the fact that 5% of Americans pay 80% of the taxes, or we say the "average" American has $200,000 in the bank.
Pick one.
You gave the totals. The question how is this stock ownership distibuted. The fact that you might own $1000 in stocks does not make you comparable to Billy Gates.
Either we face the fact that 5% of Americans pay 80% of the taxes
If the stratification is extreme enough, this 5% might end up paying 100% of taxes.
This has some truth to that, but if we say assets are uncertain then we have to say liabilities are uncertain too. Think of it-- every time inflation goes up by just one percent, the burden of all liabilities in the US goes down by $114 billion!
No, the information on wealth distribution is as easily available as on income distribution (you prefer to know the second while avoiding the first). This is a sample
I believe the author is claiming that your tagline propaganda is courtesy of the NY Times and that it doesn't include the tax deferred or tax exempt investing that most Americans do who are not in the top 1%. That would dramatically change the distribution of wealth.
You never did answer my questions though:
Count on a Communist to refuse to share his source. LOL!
I have you the source - this was a carefuly chosen search link with MANY DIFFERENT sources providing the same information. The problem is that if I pick ONE PARTICULAR source you will start to dig the dirt on the authors.
Same way if I had to demonstrate to you that wombats still exist but are at risk I would provide you the following Google search: wombat population in Australia
If I gave you the concrete one link like the one about Jana Pittman trying to save wombats you would find that she is a loony environmentalist, that the site publishing the text is leftist and more.
In other words, you free market guys use character assassination and Red Herring tactics,
That's pretty slick. "I won't support my argument because you will impeach my source." Nice.
No you didn't. You made a very specific claim. With no back up. When it comes to good Communists like you, I believe my hero Ronald Reagan was correct, "Trust but verify". Obviously you made that statistic up. Typical.
Show me.
You never did answer my questions though:
Do you stand for everyone's right to become rich and stay that way?
Yes, but not unconditionally. If in a particular country the rich on the top are not productive and prevent the rest of the society from having significant share in the national economy my answer is no.
Are you for wealth redistribution or, are you for making the poor wealthier by increasing their productivity?
This is not exclusive. Moderate wealth redistribution is good and making "the poor wealthier by increasing their productivity" is even better. But the extreme stratification might mean the poor getting poorer while working harder.
Reminds me of "I don't have to give you a source because I'm smart and have a good memory"
Is Bill Gates "not productive"? You never did show how he stole his wealth from the poor.
So, what's the source, E.P.I. or Ralph Nader?
Since you bring the productivity of Bill Gates, I will make a remark: it is quite likely that the computer technology would evolve better if Microsoft did not squash truly innovative smaller companies while appropriating their ideas.
This is a good example that many affluent and independent entrepreneurs or inventors might be better than couple huge corporations and couple super-rich guys being in control.
Now all you need is a time machine. Go back and bump off Bill's dad before he was conceived. So does that mean you can't show he stole his wealth from the poor?
Now, Now...You wouldn't be remembering where DOS came from would you? Or a PARC? For shame! Bill Gates IS computer operating systems,isn't he?
As I often say to my congresscritters-Some Of Us JUST won't forget!
bump to read later.
You're not accusing Bill of stealing those technologies, are you? And what were IBM and Xerox doing that they allowed Bill to do what he did?
"stealing", no ...Smart enuf to buy DOS, smart enuf to adapt/adopt a 'window'......Not smart enuf to invent them himself...Kildall/Xerox...NOT Gates....that's all..
So he became wealthy because he was smart enough to buy a product and sell it to other willing buyers? Try to explain that to A.Pole. He thinks that the rich get that way by stealing from the poor. Of course A.Pole is a Communist.
You know what? You and other Freemarketeers make Communism look better.
So it's our fault that you want to recreate Communism in America?
Do you think if you added in all the money we have in 401k's and IRA's (and other tax deferred and tax free investments) that it might make a difference in the wealth of those not in the top 5%?
If in a particular country the rich on the top are not productive
Is their money not productive? Besides, who is going to determine whether someone is productive or not? The Party, comrade?
But the extreme stratification might mean the poor getting poorer while working harder
Unfortunately, you cannot prove that this is happening because it isn't. The poor in America become wealthier because they improve their productivity. Handouts have never worked over the long term at alleviating poverty. We spent trillions on the war on poverty and it did nothing to improve the lot of America's poorest. I would argue that it made things worse. It's amazing to me that you argue here for a return to the failed policies of socialism. You've learned nothing from your experiences.
This is important and we don't want to miss anything. Please help us out by filling in your points with a more complete discussion.
The thrust of the thread's article is that the the doom'n'gloom press is wrong when it says "Americans are spending everything they're making and more, pushing the national savings rate to the lowest point since the Great Depression." The article continues by explaining that the simplified savings inventories that the liberals use don't make sense, because the fact is that Americans are not spending themselves into debt-- they're getting richer. Not poorer.
For the life of me, I just can't understand how we got from that beginning, to all the way over with your concern about wealth distribution. Please tell me if the problem is that you're mad that someone else has more money than you (in which case the solution is to tough it out somehow) or if the problem is that you believe the 99% poor have all the debt and the 1% rich have all the assets (in which case don't sweat it because it ain't so).
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