What’s the U.S. Savings Rate Really?

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Are we spenders or savers?

That’s a significant question looked at by Dan Gross in the Sunday NY Times. Its an issue that has significant ramifications for the economy, interest rates, and the ongoing social security debate.

Gross references Bear Stearns Economist David Malpass:

"Some say that a flaw may exist not in our national character but in the way the government calculates savings: because the bureau’s method of tallying income and consumption doesn’t take into account structural changes in the finances of Americans, it may systematically understate income and overstate consumption.

For example, income includes wages and salaries, interest on bonds, and stock dividends. But it doesn’t include capital gains on stocks, profits from selling a house, or withdrawals from 401(k) plans. Nearly 70 percent of families own homes, nearly half of all households own stocks and mutual funds, and an increasing number of baby boomers are turning to 401(k)’s for income. Those trends, some say, can make a big difference. "The structure of the household portfolio has changed over time," said David Malpass, chief economist at Bear Stearns.

Convinced that Americans aren’t frittering away all their income, Mr. Malpass plumbed the Federal Reserve’s Flow of Funds data, a trove of information on Americans’ spending and saving habits. In 2004, he found that the net worth of all households – their assets minus their liabilities – stood at $48.525 trillion, up 9.6 percent from 2003. Sure, rising home prices helped. "But even if you take out houses completely, it still shows huge savings," he said.

The problem with Malpass’ analysis is that he is taking a mathematical approach to what is essentially a behavioral issue. (Hey, it happens) Call it a rationalization. We tend to see those from both the Bullish and Bullish contingencies, as way to feel comfortable with those ideologies.

Let’s state this another way:  As a nation, are we spenders or savers?

It raises a host of issues, some net positive, others more troubling. How does our behavior as consumer impact economic downturns? (It seems to smooth them out, at least recently). Why haven’t Businesses been as spendthrift as Consumers this recovery?  (My theory is execs are afraid to see their options go underwater again). And the $64,000 question, how might this low savings rate impact retirees when the Baby Boom generation starts playing shuffleboard?   

I believe we are not savers. The fact that so many pension plans, 401ks and IRAs go unfunded is a big clue as to that. (It also reveals how Tax ignorant all too many people are).

But stop for a moment to contemplate this: That people would rather spend their money consuming, rather than put it into a 401K where their employer does dollar-for-dollar matching is proof positive of our savings mindset.

That’s right, as opposed to GETTING FREE MONEY, many Americans still prefer to shop — rather than save.

I’m curious today iof Malpass is correct. So here’s a suggestion for what would be a signifcant and useful analysis:  Use Malpass’ methodology for calculating the national savings rate — and then apply it to as many countries we can get data for. I’d like to see a list that includes at least: the U.S., Japan, Great Britain, Norway, Sweden, France, South Korea, Italy, Germany, Australia, Canada, Spain, Israel and South Africa. That’s a short list, but we want it as extensive and complete as possible.

The goal is to determine whether or not, as judged against a planet of our peers, we Americans are — relatively speaking — savers or spenders.

Should be a rather interesting discussion . . .

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UPDATE May 22, 2005 4:20pm
There’s a long but fascinating discussion on related topics at Whiskey and Gunpowder. You can see excerpts and related graphics below.

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Source:
Is It a Savings Crisis or a Math Error?
By Daniel Gross
NYT, May 22, 2005
http://www.nytimes.com/2005/05/22/business/yourmoney/22view.html

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Froth vs Bubble

Anyone looking for some clarity from Federal Reserve Chair Alan Greenspan on whether the United States Real Estate market is in a speculative bubble is probably asking the person least likely to provide a clear and understandable answer. 

Well, do we or don’t we?

Well, yes kinda, but not really, no.

That was Big Al’s answer to the question of whether we have a housing bubble in the U.S. or not.

"There are a few things that suggest, at a minimum, there’s a little froth in this market. We don’t perceive that there is a national bubble, but it’s hard not to see that there are a lot of local bubbles," Greenspan opined to the Economic Club of New York.

O.K., frothy, no national bubble; yet lots of smaller bubblettes. (Recall our prior bubblette discussion in February).

But don’t breathe to deeply just yet. Greenie noted that asset gains in Real Estate are unsustainable: 

"Without calling the overall national issue a bubble, it’s pretty clear that it’s an unsustainable underlying pattern. What we see are a number of forces, which are, as far as I can judge, not infinitely projectable."

Got that? Let’s review: Not a bubble, but Unsustainable. Not a national bubble, but local bubblettes.

Thanks for clarifying that for us . . .

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UPDATE MAY 22,2005   6:36am

Alan Abelson had a few choice words on the Fed Chief’s prognostications here. He equates Friday’s speechifying to the infamous 1996  "irrational exuberance" speech. (So we got that going for us, which is nice).

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Sources:
Greenspan Calls Home-Price Speculation Unsustainable
Craig Torres, Alison Fitzgerald
Bloomberg, May 20, 2005 18:04 EDT
http://quote.bloomberg.com/apps/news?pid=10000006&sid=ajYPxb8Ojdio&refer=home

Greenspan sees no housing bubble
Federal Reserve chairman says sector shows sign of
‘froth’ but doesn’t perceive a national bubble.
Reuters, May 20, 2005: 3:08 PM EDT
http://money.cnn.com/2005/05/20/news/economy/fed_housing.reut/?cnn=yes

A Bubble in the Housing Market? Any Implosion Won’t Be Obvious
Ken Brown
The Wall Street Journal, May 20, 2005
http://online.wsj.com/article/0,,SB111662227079239476,00.html

Greenspan Is Concerned About ‘Froth’ in Housing
EDMUND L. ANDREWS
NYTimes, May 21, 2005
http://www.nytimes.com/2005/05/21/business/21fed.html

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