From Super FedWatch 2012:Paradox of saving.NOW 5.6%

[bimetalaupt]

May 20, 2012 at 2:00pm 
Post by bimetalaupt on May 20, 2012 at 2:00pm

THIS IS A REAL PARADOX AS I JUST CAME BACK FROM THE STORE WHERE I BOUGHT BIRD SEED AND COCONUT FIBRE FOR MY BIRDIES.. OK I SPENT $7.00 FOR THE YEARLY RETURN OF A PAIR.. HE HAS LONGER TAIL AND A RED HEAD..SHE IS A BIT FULLER AND DULL.. I CALL THEM FRED AND FREDELL. DID I SAVE MONEY OR WHAT..NO I INCREASED THE ECONOMY BY $49.00. That was Fred.. math...$7.00 * multiplyer of 7 = $49.00 Now for 7 chicks from 7 eggs.. Fredell do your thing!!!

Just a thought,
BiMetalAuPt
Wait, Is Saving Good or Bad? The Paradox of Thrift
E. Katarina Vermann, Research Associate
“[Saving] is a paradox because in kindergarten we are all taught that thrift is always a good thing.”1—Paul A. Samuelson, first American to win the Nobel Prize in Economics (1970)
People save for various reasons. Some save with a specific purchase in mind, such as cosmetic surgery or a Porsche, while others save just to have more money. Economists say that individuals save to buy durable goods and/or accumulate wealth to maintain a certain lifestyle during retirement or in times of financial uncertainty. These reasons all confer benefits to a saver. In the near term, the saver can finally buy the latest and greatest gadget, and in the long term, the saver can be more financially secure during retirement or unplanned unemployment.
Normally, personal saving declines during recessions because people want to maintain their existing level of consumption. During the Great Recession, though, saving increased. The chart shows the personal saving rate, the year-over-year growth rate of gross domestic product (GDP), and recession periods from 2000 to 2011. Before the Great Recession, the average saving rate for the typical American household was 2.9 percent. Since the recession started in 2007, the average saving rate has risen to 5.0 percent. This increase was largely driven by uncertainty about future employment, efforts to reduce debt, and wide fluctuations in stock and housing prices. Although this increase in saving benefits individuals who save more, some economists argue the dramatic change in saving behavior is detrimental to the overall economy. Given the benefits to individuals, how could saving harm the economy?
John Maynard Keynes, who published his influential work, The General Theory of Employ­ment, Interest, and Money, in 1936, noted saving can ultimately be detrimental to the economy because of the paradox of thrift. This theory argues that if everyone individually cuts spending to increase saving, aggregate saving will eventually fall because one person’s spending is someone else’s income. Because increased saving, by definition, decreases current consumption, it stifles demand.
A simple example can illustrate this paradox. Let’s assume I want a new computer, so I start saving an extra $100 each month that I would otherwise spend going out to eat. By choosing not to spend that $100, I deny the wait staff at my favorite restaurants some work hours and tips (i.e., some portion of their income). As a result, these workers also have to reduce their consumption because they are earning less. If society (as opposed to an individual as in our example) follows this saving pattern, this snowball (or Keynesian multiplier) effect could ultimately lead to decreased consumer spending and lower income for everyone. Consequently, Keynes argued, output would decrease and, therefore, limit economic growth/recovery until, of course, I bought my new computer with the money that I’ve saved.
In the Great Recession, the increase in the number of adult children (25 to 29 years of age) living with their parents is also a good example of the paradox of thrift. According to the Census Bureau’s “Families and Living Arrangements” dataset, the percentage of 25- to 29-year-olds living with their parents increased from 14 percent in 2005 to 19 percent in 2011.2 This arrangement allows them to save money on rent/mortgages, utilities, cable, and furniture. However, because the addition of just one new household contributes an estimated $145,000 to the economy when one factors in multiplier effects,3 the rise in the number of twentysomethings living with their parents could have deprived the economy of up to $25 billion per year during this period. Even if this is accurate, it’s a very small share of a $15.3 trillion economy. In the short run, then, some could argue that this choice by young adults to save slows not only the housing market, but also the retail, construction, and manufacturing industries.
These two examples illustrate that saving can have unintended consequences because one person’s consumption is another person’s income. During recessions, decreases in consumption could inhibit economic recovery. However, in the long run, the accumulated money from individual savers is available for capital investment, a situation where businesses borrow to purchase capital (e.g., machinery and technology). Thus, an increase in the saving rate increases capital investment (e.g., investment in machinery for production). Such increases in capital stock ultimately lead to higher levels of business productivity and growth. Because economists are largely concerned with long-run growth and economic theory notes the positive aspects of increased saving, the paradox of thrift remains a controversial concept. So ultimately, it is OK to save for that big purchase since future consumption benefits both you and society.


Attachments:


savings rate usa.png

GDP Down and Savings are up!!

Just a thought,

BiMetalAuPt

[flow5]

Savings never equal investments. Ten trillion dollars of savings are impounded within the confines of the commercial banking system. From a system's perspective, CBs do not loan out existing deposits, saved or otherwise.  I.e., the source of all time/savings deposits in the CB system is other bank deposits.  Time deposits are the indirect consequence of prior bank credit creation.

[Aman A.K.A. Ahamburger]

Jun 4, 2015 15:15:35 GMT -5 bimetalaupt said:

GDP Down and Savings are up!!

Just a thought,

BiMetalAuPt

Now, now .. GDP has been FLAT for years. This is while consumers have been saving instead of contributing to their 70%.. Talk about building a solid foundation for the end of the extreme boom and bust economy of the past.

[flow5]

R-gDp growth has been lower than the gDp deflator (and for good reason).  Commercial bank transaction deposits were 77 percent of time deposits in 1959.  By 2008 they'd become 10 percent of time deposits.  Because the commercial banks do not loan out existing deposits (saved or otherwise),, these savings are lost to investment, i.e., are a leakage in Keynesian National Income Accounting procedures. 

This disparity is reflected a number of different ways.  AD fluctuates more widely.  Inflation is higher.  And the incentive to invest is marginalized.

[Aman A.K.A. Ahamburger]

I hear you flow, Veteran Lender and I talked about the same thing a few years back. Investment Banks have moved money from the economy to investments for years as they have grown, been deregulated, and created more and more complex "products".

 When you mix in a bloated govt system that further drives money away from investment, it starts getting real clear as to why it takes so much more debt to create GDP now than it did in 1959 as well - IMO anyway. 

What and I are debating here is the paradox of saving within the consumer spending segment of the economy. There is no doubt that consumer spending makes up the largest portion of GDP, and patterns within this segment have large effects on final GDP.‎ IMO - based on personal savings rates and personal debt levels - one of the biggest reasons for the "lifestyles of the rich and famous" attitude that has emerged during the boomer generation was living beyond ones means. 

This isn't happening this time around. This time around consumers are saving money and every percentage point that personal savings rate moves up translates in a fraction of a reduction in GDP. What the exact number would be, I have no idea. I guess to find that you would have to go back to when personal savings rates started to drop and debt levels began to rise and analyze spending habits data in relation to GDP, recessions, etc...

Personally, I think savings in better than debt. So for me I like the idea of savings and slower GDP, because I belive that slow and steady wins the race.

[tyfighter3]

The trouble with Debt is when it is too much it's hard to spend and it's hard to save. This is why we have slow growth, if that is what we call it.

[Aman A.K.A. Ahamburger]

That's exactly what it is. No growth leaves you in a "Greecey" mess.

This is also why there is no boom coming, tapped out.

Crazy thing is how massive China's debt problems is now, yet for some reason China will be different? Seriously, most can't be watching the actual numbers because the CPC is now chocking on their own debt and they are very close to the day of reckoning. That point that you mentioned on the other thread, Ty. They either burn off all their reserves trying to keep the facade of control, or they start all over again with a pile of cash to rebuild with.