The effect on jobs for Americans not savings

[bimetalaupt]

THE ARGUMENT THE AUTHOR HAS IS THE LACK OF SAVINGS BY AMERICANS IS LEADING TO UNDEREMPLOYMENT... USA NEEDS TO SAVE AT 10 TOM12.5% OF GDP TO BE COMPLETIVE WITH THE NEXT GENERATION OF GERMAN OR JAPANESE WORKERS.. MAKE THAT 15 TO 20 TO COMPETE WITH CHINESE!!

U.S. manufacturing performance in trade has varied enormously by industry over the past 10 years, with strong surpluses in capital goods, commercial aircraft, and chemicals. Some high-tech products, such as computers and semiconductors, where one might have expected strong surpluses, actually show declining surpluses or even small deficits. The large deficits have been in apparel, other consumer goods, and automobiles.

The explanation for America's trade deficit, however, does not lie in the over-all health or productivity of its manufacturing sector. Instead, it largely is the result of a shortage of national saving. Economists long have been sounding the alarm about how the Federal budget deficit reduces national saving and hence tips the trade balance into deficit. For the foreseeable future, the over-all trade deficit will be driven by the balance between domestic saving (the part of national income that is set aside as a nation by refraining from consumption) and domestic investment (the amount businesses buy of new equipment and offices plus the amount that households put into new housing).

The nation could solve the over-all trade deficit by raising savings or reducing domestic investment, preferably the former. Since no one seems willing to do either, the trade deficit will continue. (This also explains why trade policies that often are suggested as a way to reduce the trade deficit would not work. For instance, if a new quota policy were to cut the import of autos, other imports simply would rise to take their place, U.S. exports would fall, or both.)

Germany and Japan, by contrast, have been running trade surpluses for many years, not because their manufacturing sectors are more productive, but because their rates of national saving are high relative to their domestic investment opportunities. Nevertheless, if productivity is not the determinant of the trade balance, it certainly is one important determinant of trade competitiveness. It also is one clear measure of competitiveness in its own right.

Even though the trade deficit is attributable to the imbalance in the macroeconomy and even though American manufacturing continues to outperform its Japanese and German counterparts in productivity, there remains a concern about U.S. international competitiveness. If the value of the dollar still were high in foreign exchange markets, it would be possible to say that U.S. manufacturing is competitive, but is being hamstrung by a high dollar. However, the dollar is not high. Since 1988, the U.S. has had both a trade deficit and a low exchange rate, one that makes wages and other costs look low compared with its main competitors. It is a puzzle that our manufacturing industries need such an assist from the exchange rate to be able to sell competitively.

There are two likely, :Pand somewhat related, explanations. The first is that not all U.S. industries have a productivity advantage. :(The second is that the U.S. has lost the lead in technology and product quality in some areas.

Although over-all U.S. productivity is much higher than Japan's, the picture varies from industry to industry. According to Bart van Ark and colleagues at the Netherlands' University of Groningen, Japan is ahead in machinery and autos, while the U.S. has a huge lead in food processing and textiles. The difficulty is that Americans, in a fairly open economy, buy Japanese cars, whereas the Japanese do not buy the goods for which the U.S. has the edge. Much of the deficit with Japan involves trade in a single industry - autos and auto parts.

[bimetalaupt]

0% Savings Rate + Consumer Spending at 65% of GDP = Retail Disaster
Submitted by James Quinn on Thu, 30 Sep 2010

Now that the Wall Street Journal, New York Times, CNBC and every other mainstream media outlet have figured out what some financial blogs had figured out months ago theburningplatform.com/blog/2010/08/26/the-great-deleveraging-lie/, everyone knows that the American consumers have not yet begun to deleverage. Consumer credit outstanding peaked at $2.58 trillion in July 2008. It has plummeted all the way to $2.42 trillion today, a 6% reduction over two years. The full $160 billion reduction can be attributed to write-offs by the Wall Street, Ivy League MBA run, banks.

consumer credit outstanding

American consumers do not want the Age of Mammon to end. They will need to be dragged kicking and screaming into the Age of Austerity. Consumer expenditures peaked at $10.2 trillion in the 3rd Quarter of 2008. They reduced spending for two quarters, but when Big Daddy Government handed them billions and told them to spend it on cars, appliances, and homes, they dutifully obeyed. Today, consumer expenditures stand at an all-time high of $10.3 trillion, still accounting for 70.5% of GDP. There really has been no hint of austerity by Americans. It is a false storyline. The major reductions in consumption still loom in the future.

personal consumption expenditures

The myopic financial “experts” have no sense of history or the concept of reversion to the mean. They didn’t get it with home prices and they don’t get it with consumer expenditures. The country has been on a 30 year drunken binge of debauchery, debt accumulation and delusions of never ending 10% annual home price gains funding a glorious 30 years of retirement on an island in the Caribbean. These visions of a sugar plumb life of leisure are slowly giving way to the nightmare scenario of eating cat food in your very own cardboard box McMansion. The bombastic Boomers are turning 50 years old at a rate of 10,000 per day. A staggering 38% of workers between the ages of 45-54 have less than $10,000 of retirement savings and a mind boggling 29% of workers over 55 have less than ten grand in their retirement savings, according to the Employee Benefit Research Institute. It is no longer a matter of people deciding whether to save, it is a matter of saving or else living in abject poverty in their old age.

In the good old days, before the advent of the credit card in 1969, Americans saved up to buy a house, a car, or an appliance. Consumer expenditures as a percentage of GDP stayed in a range of 61% to 64% from 1960 until 1980. This range was reflective of a balanced economy that provided good paying wages to blue collar workers who produced products that were sold in the US and in foreign countries. What a concept. America ran a trade surplus. The financial industry did not drive the economy, they provided financing for businesses that wanted to grow and produce. Sounds quaint. As the Boomers entered their 30s in the early 1980s the easy credit delusion, promoted by Wall Street and the mainstream marketing machine, convinced the spoiled materialistic Boomers that wealth was measured in cool stuff rather than accumulated savings invested over time. Consumer spending as a percentage of GDP surged from 62% to 70% over the next two decades.

consumer expenditures as percent gdp

Real wages have been stagnant since the early 1970s. With moribund wage growth there was only one way for Boomers to live the faux American Dream – Borrow to the hilt. And borrow they did. The personal savings rate fell from 12% in the early 1980s to below 2% in 2007. The concept of deferred satisfaction was cast aside by the “no worries” Boomers. Saving and frugality was for the Depression era old fogies. The old timers didn’t understand modern finance. Why wait until tomorrow when you can have it today by just whipping out a plastic card? The delusion of debt based “wealth” grew for 25 years, encouraged and stimulated by Alan Greenspan and his bubble blowing machine.

debt

The debt party reached its apex between 2005 and 2007. Boomers willfully ignored or chose to not comprehend the concept of reversion to the mean. They believed with all their hearts that their homes would appreciate at 10% per year for all eternity. To prove their faith in this belief, they used their homes like an ATM and withdrew $1.9 trillion of “equity” between 2005 and 2007 and spent it on 2nd homes, cars, boats, flatscreens, vacations, home theaters, and other assorted must have doo dads. They borrowed against their homes at the absolute peak in home prices. Prices have fallen 30% from the peak, with some markets down 50%. This has left millions up to their eyeballs in debt. The home ATM flashes “INSUFFICIENT FUNDS” when they attempt a withdrawal today.

mortgage withdrawals

So here we stand, two years after the financial system collapsed. Government stimulus has provided an artificial boost to GDP. They have tried every trick in the book to convince Americans to keep consuming at a rate higher than they are earning. It is failing because consumers have been shaken from their materialistic stupor. They are slowly coming to the realization that they must save or they will suffer greatly in the next 30 years. The savings rate has been moving erratically higher and is now in the range of 5% to 6%. Ideally, it would need to reach 14% in order for Americans to save enough to cover their retirement. This will never happen. Americans will cut back but they will not revert to the frugal ways of their grandparents.

1944

The GDP of the country is $14.5 trillion. Over the next decade consumer expenditures as a percentage of GDP will fall from 70% to 65% because it must. With stocks destined to return 5%, bonds yielding 2.5% and no equity left in their houses, consumers have no choice. The annual reduction in consumer expenditures will be north of $700 billion. The annual disposable personal income of Americans is $11.3 trillion. The savings rate is 6%. It will rise to 10% over the next few years. This would be $450 billion more savings and $450 billion less spending. This will not happen overnight. It will take at least a decade. Mass delusion wears off slowly and one person at a time. Charles McKay summed up the last 30 years in two quotes from his book Extraordinary Delusions and the Madness of Crowds, written in 1841.

“Money, again, has often been a cause of the delusion of the multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.”

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

Does this paint a picture of an economy roaring ahead? We have at least a decade of low or no growth ahead. Deleveraging after the biggest debt party in history is really a bitch. The industry which is about to be dealt a mortal blow is the retail industry.
Retail Death Knell

Our entire consumer society has been built upon a foundation of lies. The biggest being you could get wealthy without saving. The other being that you were wealthy if you owned stuff that made you look wealthy. There are 1.5 million retailers in America. There will not be 1.5 million retailers in 2020. The winnowing of the chaff from the wheat has begun, but will accelerate over the next decade. The mom and pops are already closing up shop in record numbers. The shocking revelation that major mega retailers such as a Target or a Kohl’s might not exist in ten years will not be believed today. Ever hear of Montgomery Ward?

What most people don’t understand is that the mega-retailers’ strategic plans were based upon never ending store growth, 5% comparable store growth for all eternity, a continuous flow of increasing easy credit, the American population staying frozen between the ages of 30 and 50 years old, and a delusional materialistic greed embraced by the masses. Mega retailers without growing comp store sales are like sharks that can’t swim. They will die. The comp store sales growth is essential to overcome the effects of cannibalization from new stores. The CEOs of these companies have never modeled a decade of declining sales. They still believe it can’t happen, even though it must happen. Delusions die hard, especially for CEOs.

I’ll use Target as an example. Almost everyone would agree they have been one of the best run retailers of the last two decades. They have over 1,700 stores in the US, with annual sales exceeding $65 billion and profits of $2.5 billion. How could a retailer this large and successful ever go bankrupt? They have $16.5 billion of debt and $15.3 billion of equity on their balance sheet for a 52% debt to equity level. This is not a dangerous level, but it is a heavy debt load. The deterioration always begins on the sales side. Comp store sales have been deteriorating since 2005 and were negative in 2008 and 2009.

Target - Annual Sales Growth

The impact of this sales deterioration can be seen in their net income over the last five years. It is at the same level as it was in 2005 and $361 million lower than 2007. Target opened 343 new stores between 2005 and 2009 and its net income is the same. Net income per store has dropped from $1.72 million in 2005 to $1.43 million in 2009, a 17% drop per store. In their peak profit year of 2007, they generated $1.79 million profit per store.

What most people don’t know is that Target goosed their profits using the same method that Americans used to get “rich”. EASY CREDIT. When you’ve run out of ideas to grow your business, offer easy credit to your customers. It worked like a charm for Target until it didn’t. They issued millions of credit cards to the delusional masses. Who needed to sell stuff, when you could make so much lending money? In 2007, the Target credit card accounted for $1.06 billion of their $2.85 billion profit, or 37% of total profits. This was up from 22% of their profits in 2004. They’ve been learning a difficult lesson as credit card profits plunged to $400 million in 2009 as they desperately tried to sell their rapidly deteriorating portfolio with no takers to be found.
Annual Earnings Data 2009 2008 2007 2006 2005
Net Income (1,000′s) $ 2,488,000 $ 2,214,000 $ 2,849,000 $ 2,787,000 $ 2,408,000
YoY % Chg 12.4% -22.3% 2.2% 15.7% 27.7%
Diluted EPS $ 3.30 $ 2.86 $ 3.33 $ 3.21 $ 2.71
YoY % Chg 15.4% -14.1% 3.7% 18.5% 30.9%
Annual Store Operating Data 2009 2008 2007 2006 2005
Store Count 1,740 1,682 1,591 1,488 1,397
Store Sq Ft (1,000s) 231,941 222,588 207,945 192,064 178,260
Employees 351,000 351,000 366,000 352,000 338,000

Net Sales per Store (1,000′s) $ 37,075 $ 38,426 $ 39,929 $ 40,123 $ 37,908
Net Sales per Sq Ft $ 290 $ 301 $ 318 $ 316 $ 307
Net Sales per Employee $ 180,726 $ 175,409 $ 171,228 $ 167,762 $ 162,765



The beautifully constructed staircase of store growth seen in the chart below has reached the top floor. If Target foolishly continues to build new stores while Americans ratchet up their savings and ratcheting down their spending, they will end up taking an elevator straight to the basement. The credit card fountain of profits is gone. Same store sales growth is gone. New market growth is gone. It’s time to get real. The upper management of every retailer in America better pull out their little models and plug in declining consumer spending for the next decade. This will reveal the stores that won’t cut it. They will need to close them based on profitability. Will this be done? Absolutely not. The hotshot CEOs will think a better advertising campaign will do the trick. Delusions die slowly.

Target - Annual Store Count Growth

Many might think I’m being overly pessimistic. I would contend that I’ve presented a best case scenario. I’ve completely ignored the implications of peak oil and $5 per gallon gas on mega retailers that require you to drive miles to shop at their stores and source all of their goods from thousands of miles away. Combine that with an ever declining USD that drives the prices of imported good higher and you have a perfect storm for retailers in America. I’m sure the scenarios I’ve presented will do wonders for commercial real estate and the banks that are on the hook for those loans.

In the immortal words of David Byrne, “the future is certain”.

WELL WE KNOW WHERE WE’RE GOIN’
BUT WE DON’T KNOW WHERE WE’VE BEEN
AND WE KNOW WHAT WE’RE KNOWIN’
BUT WE CAN’T SAY WHAT WE’VE SEEN
AND WE’RE NOT LITTLE CHILDREN
AND WE KNOW WHAT WE WANT
AND THE FUTURE IS CERTAIN
GIVE US TIME TO WORK IT OUT

We’re on a road to nowhere
Come on inside
Takin’ that ride to nowhere
We’ll take that ride

Feelin’ okay this mornin’
And you know,
We’re on the road to paradise
Here we go, here we go

[bimetalaupt]

Last month the savings rate hit the 5 percent mark. That makes two months over 4 percent and for the first time in a decade that Americans have actually saved more than 4 percent for two consecutive months. Saved 4 percent of what? Of their personal income. You would think that most people would be saving a little bit of money but that has not been the case. The average American household does not make as much as the media once portrayed. This fact is hard to reconcile when our eyes see brand new cars and clothes on virtually every person we come into contact. Yet the fact of the matter is the large majority of these people have those new shiny artifacts because of debt. Let us take a look at the savings rate and consumption over the past two decades:

savingsKeep in mind that we are now seeing a 4 to 5 percent savings rate that I would suspect will go higher (probably not passing 10 percent however). Yet look at the savings rate for other countries. Having a negative savings rate is not good for a country yet ironically, that is the last thing our economy can sustain. That is why the U.S. Treasury and Federal Reserve combined is doing a two-pronged battle. First, they want to decimate the dollar to make us spend more money and discourage us from saving a more and more worthless currency. Second, they are creating elaborate “credit” (aka debt) facilities to keep Americans spending. What do you think the TALF is about? It is about purchasing securitized consumer debt to give more debt to tapped out Americans. This is troubling that we have reached a point where even a modest savings rate (i.e., 10 percent) is enough to keep us in a deep and prolonged recession. What this does signify is that we need to keep spending like good little hamsters to keep the wheels turning.

And if you think banks are okay just look at the stuff on their books:

bank assets

You know about that new “private-public” partnership with a price tag of $1 trillion? It is targeted to buy the junk off these banks. While the average consumer needs to save to clean up their balance sheet and is seeing credit being shutoff from their access, these large institutions with toxic debt have the biggest credit card available to them to whatever assets they see fit. And this credit card is funded by the U.S. taxpayer, the same group of people that are seeing their access to funds being limited. A double standard is partly why many Americans are gravitating toward populist rage.

And of course, this spending stop has caused GDP to fall the most in nearly 3 decades:

gdp

When 70 percent of your economy runs on consumption and consumption is contracting, it is only logical that you will see GDP fall off. Yet it is fascinating that no one in public life or Wall Street is encouraging Americans to be prudent or careful with their finances. This is the right thing to do. Instead, we hear “go out and buy a car” or some other mantra. Why? Americans have over spent! Wall Street has over spent! The government has over spent! Debt is the problem. I understand the need for unemployment insurance and things of that nature but extending credit lines for more credit card debt? Really? Where do we draw the line on what we bailout?

[bimetalaupt]

edited post with permission of Bi Metal. as the bulk of the post was a quote of the one above, i've removed the quote and left the screenshot.

Attachments:

[Nazgul Girl]

Very interesting posts, BiMetalAupt, and it's important to remember, or for the PTB to remember, that those with savings are somewhat reluctant to let go of them, based on fear of the future.

Just because you build the umpti-millionth Target or CVS, or bring out four versions of your latest vehicle, or design and manufacture another version of tennis shoes, doesn't mean that "they" will come.

When my husband and I decided to buy a new car this fall, we went to a few dealers, didn't like how we were treated, so I went onto Craigslist and got a new car with 4000 miles on it for 22% off of the dealer's price, thus lowering my transfer and sales taxes by a couple thousand dollars as well. The only beneficiaries from the deal were the bank that funded the loan, and the old gentleman who wanted to get rid of the car because he couldn't drive anymore. No manufacturer or dealership benefitted from this secondary market sale, although, of course, there was a benefit to them at the original sale.

I have made a unilateral decision that I am not buying any new clothes due to my workplace having gone extremely casual, my having a closet and chests of drawers full of clothes, and I think of the expense of buying duplicates of what I already have. What's the point ? Therefore, I am not interested in replacing anything with "new" unless it is worn out or unpresentable. I don't go shopping at the malls, and I don't go into Target and its ilk very much. We are pretty much duds in the American economy these days.

I don't think that the PTB have figured out that a lot of the thrifty folks and people with savings/bank accounts have already quit shopping and consuming much. The citizens who live on credit cards will eventually find their worlds cratering. It's going to be interesting before all of this unwinds.

[resolution]

I have a difficult time believing the government figures on the savings rate just because of how it is calculated. Unless it has changed, it takes income earned and subtracts spending without looking at captial appreciation. So if my stocks appreciate by $10,000 and I cash them out, I will pay $1500 in taxes and spend or save the other $8500. Under this model it will count the $1500 in taxes as an expense and not count the $10,000 appreciation, so I will have a negative savings rate. It doesn't surprise me that when assets are appreciating it shows low to negative savings because it is only counting the spending half of the equation. I don't doubt that people;s savings habits have improved, but I think the equation is much more biased when there is capital appreciation and less biased when everyone's assets tank. money.cnn.com/2010/06/30/news/economy/personal_savings_decline.fortune/index.htm has the formula.

[bimetalaupt]

Jan 7, 2011 7:43:23 GMT -5 @toughtimes said:

Why should anyone in his right mind save when the money is stolen through inflation and taxation on non-existent earnings as well as paltry returns?

I am a saver, but my true name should be "masochist."

Tough times,
Well, I think your thought were spoken by Thomas Hoenig at the last FOMC meeting . Both of us must be left brain thinking as best I understand.. The main problem is the economy is so dependent of spending as the last item pointed out that savings (M2) will produce better results in about six months for the total economy.

The truth is your points are correct and they are some of the reasons we do not save.
Reduction in debt would be very good also because you can not right off your 19.6% interest payment to Sears. I staqrted posting the 10% needed savings rate about six months ago.

Just a thought,
Bruce ( Bi Metal Au Pt)

[bimetalaupt]

Jan 7, 2011 9:43:40 GMT -5 Nazgul Girl said:

Very interesting posts, BiMetalAupt, and it's important to remember, or for the PTB to remember, that those with savings are somewhat reluctant to let go of them, based on fear of the future.

Just because you build the umpti-millionth Target or CVS, or bring out four versions of your latest vehicle, or design and manufacture another version of tennis shoes, doesn't mean that "they" will come.

When my husband and I decided to buy a new car this fall, we went to a few dealers, didn't like how we were treated, so I went onto Craigslist and got a new car with 4000 miles on it for 22% off of the dealer's price, thus lowering my transfer and sales taxes by a couple thousand dollars as well. The only beneficiaries from the deal were the bank that funded the loan, and the old gentleman who wanted to get rid of the car because he couldn't drive anymore. No manufacturer or dealership benefitted from this secondary market sale, although, of course, there was a benefit to them at the original sale.

I have made a unilateral decision that I am not buying any new clothes due to my workplace having gone extremely casual, my having a closet and chests of drawers full of clothes, and I think of the expense of buying duplicates of what I already have. What's the point ? Therefore, I am not interested in replacing anything with "new" unless it is worn out or unpresentable. I don't go shopping at the malls, and I don't go into Target and its ilk very much. We are pretty much duds in the American economy these days.

I don't think that the PTB have figured out that a lot of the thrifty folks and people with savings/bank accounts have already quit shopping and consuming much. The citizens who live on credit cards will eventually find their worlds cratering. It's going to be interesting before all of this unwinds.
Nazgul Girl,
Great Post.. Thank-you
This is a sister post to "Why Americans are not saving vs German 13% Savings on MT,,
That post as a poll you can vote on.. BTW 10% is about 50% of the voters at this time.

I think the results are clear we have not improved the world for the saver. This is why the Credit Union has grown to fill the gap in Personal Financial Planning.. Buy the way I agree with your Car buying.. Dealers are hard to deal with.. I have bought some real good deals in the past from my banker.. For Cash.. I did a saving account just for cars and put a "Payment " to myself every month for cars or trucks.. It works well and I get real tight with money when I am paying cash.

You keep hearing about how things were better in the 1950.. Wells the USD saved 15% then.

Just a thought, Great Post,
Bi Metal Au pt

[bimetalaupt]

Re: The effect on jobs for Americans not savings
« Reply #7 Today at 4:04pm »

[Modify] [Delete]

Today at 7:43am, toughtimes wrote:
Why should anyone in his right mind save when the money is stolen through inflation and taxation on non-existent earnings as well as paltry returns?

I am a saver, but my true name should be "masochist."


Tough times,
Well, I think your thought were spoken by Thomas Hoenig at the last FOMC meeting . Both of us must be left brain thinking as best I understand.. The main problem is the economy is so dependent of spending as the last item pointed out that savings (M2) will produce better results in about six months for the total economy.

The truth is your points are correct and they are some of the reasons we do not save.
Reduction in debt would be very good also because you can not right off your 19.6% interest payment to Sears. I staqrted posting the 10% needed savings rate about six months ago.

Just a thought,
Bruce ( Bi Metal Au Pt)
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bimetalaupt
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Re: The effect on jobs for Americans not savings
« Reply #8 Today at 4:19pm »

[Modify] [Delete]

Today at 9:43am, Nazgul Girl wrote:
Very interesting posts, BiMetalAupt, and it's important to remember, or for the PTB to remember, that those with savings are somewhat reluctant to let go of them, based on fear of the future.

Just because you build the umpti-millionth Target or CVS, or bring out four versions of your latest vehicle, or design and manufacture another version of tennis shoes, doesn't mean that "they" will come.

When my husband and I decided to buy a new car this fall, we went to a few dealers, didn't like how we were treated, so I went onto Craigslist and got a new car with 4000 miles on it for 22% off of the dealer's price, thus lowering my transfer and sales taxes by a couple thousand dollars as well. The only beneficiaries from the deal were the bank that funded the loan, and the old gentleman who wanted to get rid of the car because he couldn't drive anymore. No manufacturer or dealership benefitted from this secondary market sale, although, of course, there was a benefit to them at the original sale.

I have made a unilateral decision that I am not buying any new clothes due to my workplace having gone extremely casual, my having a closet and chests of drawers full of clothes, and I think of the expense of buying duplicates of what I already have. What's the point ? Therefore, I am not interested in replacing anything with "new" unless it is worn out or unpresentable. I don't go shopping at the malls, and I don't go into Target and its ilk very much. We are pretty much duds in the American economy these days.

I don't think that the PTB have figured out that a lot of the thrifty folks and people with savings/bank accounts have already quit shopping and consuming much. The citizens who live on credit cards will eventually find their worlds cratering. It's going to be interesting before all of this unwinds.
Nazgul Girl,
Great Post.. Thank-you
This is a sister post to "Why Americans are not saving vs German 13% Savings on MT,,
That post as a poll you can vote on.. BTW 10% is about 50% of the voters at this time.

I think the results are clear we have not improved the world for the saver. This is why the Credit Union has grown to fill the gap in Personal Financial Planning.. Buy the way I agree with your Car buying.. Dealers are hard to deal with.. I have bought some real good deals in the past from my banker.. For Cash.. I did a saving account just for cars and put a "Payment " to myself every month for cars or trucks.. It works well and I get real tight with money when I am paying cash.

You keep hearing about how things were better in the 1950.. Wells the USD saved 15% then.

Just a thought, Great Post,
Bi Metal Au pt

Read more: notmsnmoney.proboards.com/index.cgi?action=display&board=finance&thread=855&page=1#ixzz1AO9W9gdn

[bimetalaupt]

Kari... you are not alone!! Bi Metal Au Pt
A Fun Fact About the Savings Rate

Posted by: Michael Mandel on February 03

With all the discussion about today’s savings rate, it’s important to point out an important fact. Savings is a residual: That means the government measures disposable income and consumption spending. Then they subtract the second from the first, and what’s left is savings.

The implication is that any revisions in either income or consumption immediately and directly affect savings in a big way. For example, suppose that the income of a family is measured as $100 and its consumption is measured as $95. That leaves savings of $5, or a 5% rate.

But if measured income is revised up to $105—a 5% increase—then savings will be revised to $10, and the savings rate will nearly double to 9.5%.

What does this have to do with the real world? Let’s take a look. First, here is the familiar chart of the personal savings rate, as currently reported by the BEA:

savings1.gif

In this chart, the savings rate takes an inexorable plunge down, from roughly 11% in 1981 and 1982 to almost nothing in recent years. Oh, those early Americans were such good savers…

But wait! Here’s another chart, of the personal savings rate as originally reported. That is, for each year I used the savings rate as reported in the Survey of Current Business, the February or March issue of the next year (i.e. I got the 1981 savings rate from the February 1982 SCB).

savings2.gif

Hmph…all of a sudden that previous generation doesn’t look quite so prudent. The savings rate in 1981 is reported today as 10.9%, but at the time it was originally as 5.3%. Or take 1986—today it looks like the savings rate was a strong 8.2%, but at the time it was originally reported with a savings rate of 3.8%, less than half. In fact, through most of the early 1980s, journalists and economists were bemoaning the low savings rate, based on the numbers they were seeing.

Now, I’m sure Steve Landefeld and his friends at the BEA had very good reasons for revising the statistics (hi Steve!). But it’s worth noting that there are some statistics—and the savings rate is one of them—which are highly prone to large revisions.

On the next page, I put both lines on the same chart.


savings3.gif

This chart shows the current savings rate data versus as reported.

Note: For these charts I used the February or March data immediately following the year. But if I wait an extra year, the same pattern remains. That is, the savings rate for 1982 was originally reported as 6.6% in early 1983. That estimate for 1982 was actually lowered to 5.8% by early 1984.

TrackBack URL for this entry: blogs.businessweek.com/mt/mt-tb.cgi/13242.1413314641
Reader Comments
MattYoung
February 4, 2009 01:56 AM

If the ex-post revisions of ex-ante savings result from the equilibriating processes, then one is stuck. One should stick with the expected savings rate at the time it was first reported, as that better indicates the current intent of the saver.

[bimetalaupt]

saving #3.. revised

[bimetalaupt]

Jan 7, 2011 17:59:51 GMT -5 bimetalaupt said:

saving #3.. revised

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[bimetalaupt]

Jan 7, 2011 17:59:51 GMT -5 bimetalaupt said:

domestic saving rate of several exporting nations .. revised

[/img]

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[bimetalaupt]

bimetalaupt said:

.. revised

[/img]

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[bimetalaupt]

Jan 7, 2011 17:59:51 GMT -5 bimetalaupt said:

saving RATIO.. revised

THIS IS WHAT IS IS ALL ABOUT!! [/img]

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[bimetalaupt]

Jan 7, 2011 17:59:51 GMT -5 bimetalaupt said:

saving #3.. revised

IT ALL RELATES BACK TO GDP!! AND EDUCATION[/img]

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[bimetalaupt]

Kari,
One more thing.. If you have say 10,000 you can buy government bonds and make more money.. We should see 7% to 8% in the coming years if inflation returns like you suggested. This will make for a good cash reserve that you can add to in $1,000 amounts. Invest like the billionaires.

Just a thought,
Bi metal Au Pt

[Deleted]

We could all go crazily in debt and have a roaring economy is that the point of this info?

No thanks.

[bimetalaupt]

Jan 7, 2011 20:14:28 GMT -5 @saver74 said:

We could all go crazily in debt and have a roaring economy is that the point of this info?

No thanks.

Saver74,
We would have a better economy with an 30% increase in M2!!! per Milton Friedman..WE NEED TO SAVE!!!! WATCH M2 FOR SMALL SAVERS AND M3 FOR LARGE SAVINGS!!!!
I KNOW YOU JUST WANTED TO PULL MY CHAIN.. YOU DID!! Bruce

Germany and Japan, by contrast, have been running trade surpluses for many years, not because their manufacturing sectors are more productive, but because their rates of national saving are high relative to their domestic investment opportunities. Nevertheless, if productivity is not the determinant of the trade balance, it certainly is one important determinant of trade competitiveness. It also is one clear measure of competitiveness in its own right.

Read more: notmsnmoney.proboards.com/index.cgi?board=finance&action=post&thread=855"e=43748&page=1#ixzz1APeH6FdI[/img]

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[bimetalaupt]

This message was deleted by the original poster.

[bimetalaupt]

Jan 7, 2011 23:23:43 GMT -5 bimetalaupt said:

This message was deleted by the original poster.

I will try this again.. Whey are boomers not saving at the peak earning power of the last two generations???[/img]
The German European Bankers I know tell me how stingy the Anglo-Saxon social programs are so we should be saving more money the the German households. I think we have talked about two reasons why we do not.. One: Inflation.. The bundesbank is 100% dead set against inflation..Axel Weber is inflation hawk number#1.
Boomers have been a generation of spenders.. With return on equities of 11% why not.. Current numbers look more like a total return on the stock market of about 7.995% call it 8%.With 30 year T-Bond at 5% return that leaves about a 3% risk premium. Or about 1.5% less the the evaluation class I took at NYU MBA program. the 5% = 2% Income over inflation and 3% inflation.... 5% is also know as risk free rate for CAPM

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[bimetalaupt]

This message has been deleted by a Staff Member.

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[bimetalaupt]

This message has been deleted by a Staff Member.

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[cronewitch]

Jan 8, 2011 23:50:22 GMT -5 bimetalaupt said:

Jan 8, 2011 0:01:17 GMT -5 bimetalaupt said:

I will try this again.. Whey are boomers not saving at the peak earning power of the last two generations???[
Boomers have been a generation of spenders.. With return on equities of 11% why not.

[/img]
Just a thought,
Bruce[/quote]


I don't know how they really compute saving but we boomers are starting to retire. After retirement you might spend but not have income that they count. What do they count as income and what do they count as spending? Is paying down debt spending or saving? Is putting money in a 401K saving or reducing income? Black market spending and earning can't be tracked.

Many of us boomers earned hundreds of thousand in real estate but then took out the equity to spend or save. Does the earnings count if we didn't sell? Does the borrowing count as spending if we bought mutual funds with it?

[bimetalaupt]

Jan 9, 2011 3:09:08 GMT -5 cronewitch said:

Jan 8, 2011 23:50:22 GMT -5 bimetalaupt said:

Jan 8, 2011 0:01:17 GMT -5 bimetalaupt said:

I will try this again.. Whey are boomers not saving at the peak earning power of the last two generations???[
Boomers have been a generation of spenders.. With return on equities of 11% why not.

Just a thought,
Bruce

I don't know how they really compute saving but we boomers are starting to retire. After retirement you might spend but not have income that they count. What do they count as income and what do they count as spending? Is paying down debt spending or saving? Is putting money in a 401K saving or reducing income? Black market spending and earning can't be tracked.

Many of us boomers earned hundreds of thousand in real estate but then took out the equity to spend or save. Does the earnings count if we didn't sell? Does the borrowing count as spending if we bought mutual funds with it?

It is all about risk and what you can do to reduce.. One concept is Mutually exclusive investments.. So if you have a million for CD's it would be best to invest in five banks.. 200,000 USD in each...That will make Axel Weber happy if one is in Germany...

Graph telling it more about return vs Sharpe index..

*post edited by moon per request of Bi Metal

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[bimetalaupt]

From the above that did not get posted...

The problem with savings have been in the past inflation and taxes have distroyed the money saved spending power. During the depression with a negative inflation savings was a good way to protect the family and its life style at the cost of GDP.. Hording was good for your family.


What is needed is a Mutually Exclusive pro-saving system that made savings a better deal then spending.. We need to keep about 12% total monies to protect our family and prepare for retirement.. See Attachment above in Reply #25.. I keep losing my Print

[bimetalaupt]

Vergil,
Problem is #25 now!!! this is getting old.. Sorry!!!

Bruce
From the above that did not get posted...

The problem with savings have been in the past inflation and taxes have distroyed the money saved spending power. During the depression with a negative inflation savings was a good way to protect the family and its life style at the cost of GDP.. Hording was good for your family.


What is needed is a Mutually Exclusive pro-saving system that made savings a better deal then spending.. We need to keep about 12% total monies to protect our family and prepare for retirement.. See Attachment above in Reply #25.. I keep losing my Print

[bimetalaupt]

« Real GDP Grows at 2 Percent in the Third Quarter | Main | links for 2010-10-29 »
Friday, October 29, 2010
"Friedman was All Wrong about Japan ... and the Great Depression"

As I've noted before, one thing I've learned from this recession is that it's not as easy to increase the money supply as I thought. It's easy to create additional bank reserves and increase the monetary base, but if the new reserves simply pile up in the banking system, then they don't have much of an effect on the supply of money:

More On Friedman/Japan, by Paul Krugman: ...So: David Wessel quoted what Milton Friedman said about Japan in 1998, and interpreted it as meaning that Friedman would favor quantitative easing now. I think that’s right. And just to be clear, I also favor QE — largely because it might help some, and seems to be just about the only policy lever still available in the face of political reality.

But I think it’s also important to note that Friedman was all wrong about Japan — and that you can argue that he was also wrong about the Great Depression, for the same reason.

For what Friedman argued, both for Japan in the 1990s and America in the 1930s, was that all the central bank needed to do was more — push out those reserves into the banking system. This would raise the money supply, and a higher money supply would have the usual effects.

But the Bank of Japan tried that — and found that pushing more reserves into the banks didn’t even lead to rapid growth in the money supply, let alone end the problem of deflation. Here’s a chart of growth rates of the monetary base and of M2, Friedman’s preferred monetary aggregate:

DESCRIPTION
Bank of Japan

So, after 2000 the Bank of Japan engineered a huge increase in the monetary base; this was the original quantitative easing. And it didn’t even translate into a surge in the money supply! This is why I’m so skeptical of people who say that all the Fed has to do is target higher nominal GDP growth — in liquidity trap conditions, the Fed doesn’t even control money, so how can you blithely assume that it controls GDP?

And this also calls very much into question Friedman’s famous claim that the Fed could easily have prevented the Depression, which gradually got transmuted into the claim that the Fed caused the Depression. Yes, M2 fell — but why should we believe that the Fed had any more control over M2 in the 30s than the BOJ had over M2 more recently?

Again, that doesn’t mean that I oppose having the Fed engage in unconventional asset purchases. I’m just trying to be realistic about the likely results. We really, really need expansionary fiscal policy along with Fed policy; and we’re not going to get it.

Posted by Mark Thoma on Friday, October 29, 2010 at 05:39 PM in Economics, Monetary Policy | Stumble, Digg, del.icio.us, Reddit, Tweet, Share on Facebook, Like on Facebook | Permalink Comments (91)


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anne said...

krugman.blogs.nytimes.com/2009/03/02/friedman-and-schwartz-were-wrong/

March 2, 2009

Friedman and Schwartz Were Wrong
By Paul Krugman

It’s one of Ben Bernanke’s most memorable quotes: at a conference honoring Milton Friedman on his 90th birthday, he said: *

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again."

He was referring to the Friedman-Schwartz argument that the Fed could have prevented the Great Depression if only it has been more aggressive in countering the fall in the money supply. This argument later mutated into the claim that the Fed caused the Depression, but its original version still packed a strong punch. Basically, it implied that no fundamental reforms of the economy were necessary; all it takes to avoid depressions is for central banks to do their job.

But can we say that recent events appear to disprove that claim? (So did Japan’s experience in the 1990s, but that lesson failed to sink in.) What we have now is a Fed that is determined not to "do it again." It has been very aggressive about monetary expansion. Here’s one measure of that aggressiveness, banks’ excess reserves:

[Banks’ excess reserves are rocketing....]

And yet the world economy is still falling off a cliff.

Preventing depressions, it turns out, is a lot harder than we were taught.

* www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm

[bimetalaupt]

Patstab,
That is fantastic!!!! My CPA and Lawyer got me to set up a holding operating company for my holdings in 1974.. At the time I could put about 100% of my extra earnings in a tax exempt self managed retirement fund.. It worked better then I did as it now worth more a lot more then invested. We move from cash to stocks to bonds now go European Growth. I will not have to take a draw until I am 70.5 years old..

It may be something to look into to reduce taxes.

Please, Keep up the good work... America needs you, I am one of the last of the WWII Babies....
Bruce