I don't really think so

Post #322,339 by drook 3/4/10 9:22:33 AM Reply	I don't really think so Lots of people who would like to be going deeper into debt aren't able to find credit like they used to. The nets out to "increased savings rate". I think the reality is "decreased indebtedness rate", which is a qualitatively different thing. -- Drew
Post #322,369 by beepster 3/4/10 9:59:10 PM Reply	or the alternative view which I've heard from several sources... the sudden realization that the savings/retirement account that you >thought< you had, which was your house...is NOT what you thought it was...and the corresponding reaction of many to raise the percentages placed in 401k, IRA accounts etc..coupled with the drying up of the ability to put yourself under using second mortgages and HELOCs I will choose a path that's clear. I will choose freewill.
Post #322,371 by boxley 3/4/10 10:38:15 PM Reply	never! I pay rent to a bank who as a landlord doesnt give a rats ass if I have pets, paint the place in weird colors or dont mow the lawn If we torture the data long enough, it will confess. (Ronald Coase, Nobel Prize for Economic Sciences, 1991)
Post #322,372 by drook 3/4/10 10:45:01 PM Reply	Here's a thought, for anyone looking to do an econ thesis Let's treat individuals like corporations. Assume that they treat their house as just another item on the balance sheet. (So many econ arguments already assume people act this way, it shouldn't be much of a stretch.) So my balance sheet shows $x in "savings", defined as savings accounts and T-bills. It also shows the house "marked to market" at whatever the hell I feel like calling it. You know, just like corporate accountants do. Until I actually try to sell it, who's to say different? Those values are added to create what, in my mind, is my personal savings. If the market tanks so convincingly that I can't tell myself that my original "mark" was reasonable, I have to add savings somewhere else to keep my personal savings where I want it. I wonder if people are actually increasing their net savings rate, or simply increasing the values in other columns to compensate for decreases in the "house" column. For what it's worth, I still think the number being reported is reflecting less debt more than it's reflecting increased savings. -- Drew
Post #322,373 by beepster 3/4/10 10:48:40 PM Reply	I know there's a semantic piece to that... ...but less debt is more savings... still, I know what you're saying...that it isn't by choice. There's probably alot of both going on. I will choose a path that's clear. I will choose freewill.
Post #322,374 by drook 3/4/10 11:03:26 PM Reply	Yes, some But "average savings rate of 4%" suggests that the average person is saving 4%. Probably it's more like a bunch of people deeply in debt -- second mortgages and maxed-out credit cards -- some people current on their bills but no real savings, a few with savings, and a very small group with very large savings. When the largest group finds it impossible to keep borrowing, their indebtedness levels out. The "average" then goes up, but the median probably hasn't changed. -- Drew
Post #322,383 by Another Scott 3/5/10 7:45:25 AM Reply	Some comments by CalculatedRisk http://www.calculate...-to-exceed-8.html [...] And here is a graph of the annual saving rate back to 1929(1). Note: 2009 is through Q2. Notice that the saving rate went negative during the Depression as household used savings to supplement income. And the saving rate rose to over 25% during WWII. There is a long period of a rising saving rate (from after WWII to 1974) and a long period of a declining saving rate (from 1975 to 2008). Some of the change in saving rate was related to demographics. As the large baby boom cohort entered the work force in the mid '70s, the saving rate declined (younger families usually save less), however I expected the saving rate to start to rise as the boomers reached their mid-40s (in the late '90s). This didn't happen. Perhaps the twin bubbles - stock market and housing - deluded the boomers into thinking they had saved more than they actually had. It definitely appears many families treated mortgage equity extraction as part of their income during the bubble years - and the Home ATM is now closed. Whatever the reason, I expect the saving rate to continue to rise over the next year or two. And that raises a question: what will be the impact on PCE of a rising saving rate? [PCE = Personal Consumption Expenditures] I created the following scatter graph for the period from 1955 through early 2009. This compares the annual change in PCE with the annual change in the saving rate. Personal Saving Rate vs. PCE Note that R-squared is only .125, so there are other factors impacting PCE (like changes in income!). But a rising saving rate does seem to suppress PCE (as expected). If the saving rate rises to 8% by the end of 2010 (as PIMCO expects), this suggests that real PCE growth will be about 1% below trend per year. So with wages barely rising, and a rising saving rate suppressing PCE, I'd expect PCE growth to be sluggish for some time. And since PCE is usually one of the engines of recovery (along with residential investment), I expect the recovery to be very sluggish too (what Clarida calls "choppy"). (Emphasis added.) IOW, if people save more during a recession, then the recovery takes longer to take hold. It's a natural reaction, but illustrates (again) the need for the government (the only institution capable of generating substantial additional demand now) to do more. As to what gets counted as "savings" and what gets counted as "reduction in debt", I'm not sure of the details. The BEA should have more.... E.g. "Personal saving is the portion of personal income that is not spent on current consumption but that is instead used to provide funds to capital markets or invested in real assets such as residences." - http://www.bea.gov/s...onalSavingBox.pdf So, the devil's in the details. (So buying a house is savings??) Cheers, Scott.
Post #322,386 by boxley 3/5/10 9:15:24 AM Reply	PCE should be stabilized and shrink as folks age You can only eat one steak at a time and preferences are well set by then. This I know from observing others of course If we torture the data long enough, it will confess. (Ronald Coase, Nobel Prize for Economic Sciences, 1991)

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