U.S. Savings at Record Lows

[Doug]

WASHINGTON - People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.



The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Great Depression.

...The savings rate has been negative for an entire year only four times in history — in 2005 and 2006 and in 1933 and 1932.

See here.

[lepenser]

The low savings rate refers to most income groups not just the poor.

Too many middle and upper middle-class people misuse the terms saving and investing.

Appreciated houses and stocks are not savings until they are liquidated and placed in an insured product or bank account.

People riding the emotional highs of their investments are ignoring their gut instinct wanting to believe the high will never end.

I think the words asset allocation or perhaps the cliche eggs in one basket are appropriate.

History keeps repeating itself.

[Barbara Fitzpatrick]

Shows the middle class is eroding away. And yes, the current system that pretends a house with a mortgage on it is an asset doesn't help any. A house with a mortgage is only an asset if "liquidated" (sold) - and then you don't have the asset any longer and will not only pay taxes on the capital gains, but also have to use that money to find another place to live.

The current Fed system has "saved" us from another depression, but we've lived/are living through multiple recessions (unemployment/underemployment combined with inflation) which is worse - since that's a "make less and buy less with it" situation. You can't save what you don't have. It's the old "company store" except it's BofA and Chase instead of your employer you owe your soul to.

[Hogeye]

It's the old "company store" except it's BofA and Chase instead of your employer you owe your soul to.

Right, Barbara. The company store is now called "the Federal Reserve Bank." And the plunder is done by inflating the money supply, as we've discussed in the thread about hard money. The licensed banks (and central banks of foreign countries) are happy to cash in on the scam since they in turn can inflate on top of the US$ inflation.

Since priority access to the newly created "money" lets many Americans buy goodies without producing much, it is not surprising that they have a low savings rate. Also, to some extent they emulate the spend-thrift ways of their government.

[Barbara Fitzpatrick]

BS Hogeye. The Fed is not owned by Chase or BofA and that's were those credit dollars go. American productivity is very high, highest in the industrial world - it's not wanting to pay an honest day's wage for an honest day's work that is shipping jobs overseas (and subsidized transportation via U.S. energy "policies" - and tax breaks for doing it - that allows them to show a better "bottom line" for doing it).

Most folks, of whatever income, in America are living paycheck to paycheck (in truth, that is partly due to a "sliding scale" of what constitutes a necessity). Any emergency that comes up goes on credit, then the credit card payments payment mean the next emergency will go on plastic, too.

I will grant that an unfortunate number of the up and coming generation understands nothing about finances. They don't know enough to understand the old joke about "I can't be out of money, I have checks left". Playing the blame game (it's the parents - no, it's the school system...) doesn't particularly help, but at the moment we have a whole generation of people the credit industry is after and it's like giving heroin to small children - get them addicted before they know what addiction means (and how not to).

[Hogeye]

I don't see that we disagree on our main points. Both Fed debasement of the dollar and ignorant money management by people contribute to the low savings rate. You make a good point about transporation subsidies by the State. However, your comment that it's "not wanting to pay an honest day's wage for an honest day's work that is shipping jobs overseas" is mistaken. Prices are not based on whim or "not wanting to pay," they are based on finding the cheapest inputs, supply and demand. If someone can get the same result and pay less to foreigners, then they will generally do so - it is economically irrational not to. The praxeologic law applies - people prefer to pay less to more - and that is how they act on a macro level. When was the last time you offered to pay more than the asking price for milk at the grocery store? A wage is simply the price for labor, and has the same properties as other prices. But other than that honest day's wage bromide, your analysis is right on.

[Barbara Fitzpatrick]

I have, however, bought a more expensive product (milk included) because I knew the producer treated his workers and/or his animals in a honest and ethical way. As to the honest day's pay - the overseas outsourcers don't pay an honest day's wage to those folks, either. and when I find out about it, I stop buying their products and purchase from people who do. When transporation is no longer subsidized for whatever reason, you'll find many of those jobs right back here. The equation will no longer be labor here v. labor there, it will be the more honest equation of labor+transportation here v. labor+transportation there. Right now, with subsidized transportation, big corporations can (and do) ship American grown (and subsidized) cotton to China to be made into t-shirts and then shipped back here for sale. Get rid of those subsidies and the transportation costs to ship to and from China will be so great, it will make the cost of the product greater than doing it here even if the Chinese did it for nothing.

[Hogeye]

Yes, your analysis about transporation subsidies is right on. Your last post could have come straight from the economists at mises.org! So long as such subsidies obscure the actual costs and efficiencies, we won't know what is actually cheaper to produce here. But what we can say with confidence is that we buy more goods than we would were there no transportation subsidies. And that foreigners buy more USAmerican food staples than they would without farm subsidies. (Which is extremely bad for foreign farmers, especially the small-scale ones.)

I'm glad you have a good, solid, libertarian attitude about subsidies.