Savings - How are they measured

[agman]

I am hopeful the following commentary will provide some incite into the deficiency in how savings are calculated by the government under the National Income Accounting process which is reported on the news or you read about in the papers. As you will soon ascertain my explanation to Brad S. regarding savings was correct, I never doubted it was correct, despite what the naysayers claim. Your 401K and/or IRA contributions are not included, as I indicated, under the current manner of computing savings used by the government. Household Net Worth is now over $50 trillion as I indicated. Excluding housing values household NET worth is over $40 trillion. agman

By John W. Schoen
Senior Producer
MSNBC

Like most government accounting, the monthly statistics on consumer spending and savings bear little resemblance on the way the average household manages its finances. You're right that using some of your paycheck to pay off your credit cards (instead of spending on more stuff) is as good as putting that money in the bank. You've increased your household "net worth" -– the difference between what you own and what you owe.

And by that measure, American households are in great shape. It's true that consumer debt is at record levels in the U.S. -– but so is household net worth. That "net worth" includes what most of us would consider savings: cash in the bank, plus the value of our investments and our homes, and every thing else we own.

But the government definition of savings doesn't see it that way. According to the folks down at the Bureau of Economic Analysis, "savings" simply represents what you have left over from your "disposable income" after you've gone shopping and paid the bills (including taxes.) By that measure, the savings rate has been falling since the early 1990s and is approaching zero.

How can savings be falling and net worth rising? Because this widely quoted "savings rate" overlooks some major sources of American wealth. For one thing, gains on stocks don't count. Neither does the increase in the value of your house -– which for many Americans represents a major portion of their net worth.

When it comes to pension plans, the savings numbers get even screwier. For example, money set aside in a 401(k) plan at work doesn't count as savings because those are pre-tax dollars -– and not considered part of your "disposable income." For older, so-called defined benefit pensions, the impact is even worse on the spending vs. savings picture. That's because income statistics are based on the employer contributions to these plans, not benefits paid out -– which is a larger number. So retirees have a lot more money to spend than the official figures take into account.

The conventional wisdom holds that free-spending American consumers are on a perennial spending binge, in debt up to their eyeballs and unable to put away a dime for a rainy day. The clear implication is that Americans should embrace personal sacrifice, put away their credit cards and emulate other, more frugal societies, where savings rates are higher and consumption is more restrained.

All of which may be true. But it's hard to know for sure because the government statistics that fuel this conventional wisdom are seriously flawed.

 

[Econ101]

I am hopeful the following commentary will provide some incite into the deficiency in how savings are calculated by the government under the National Income Accounting process which is reported on the news or you read about in the papers. As you will soon ascertain my explanation to Brad S. regarding savings was correct, I never doubted it was correct, despite what the naysayers claim. Your 401K and/or IRA contributions are not included, as I indicated, under the current manner of computing savings used by the government. Household Net Worth is now over $50 trillion as I indicated. Excluding housing values household NET worth is over $40 trillion. agman

By John W. Schoen
Senior Producer
MSNBC

Like most government accounting, the monthly statistics on consumer spending and savings bear little resemblance on the way the average household manages its finances. You're right that using some of your paycheck to pay off your credit cards (instead of spending on more stuff) is as good as putting that money in the bank. You've increased your household "net worth" -– the difference between what you own and what you owe.

And by that measure, American households are in great shape. It's true that consumer debt is at record levels in the U.S. -– but so is household net worth. That "net worth" includes what most of us would consider savings: cash in the bank, plus the value of our investments and our homes, and every thing else we own.

But the government definition of savings doesn't see it that way. According to the folks down at the Bureau of Economic Analysis, "savings" simply represents what you have left over from your "disposable income" after you've gone shopping and paid the bills (including taxes.) By that measure, the savings rate has been falling since the early 1990s and is approaching zero.

How can savings be falling and net worth rising? Because this widely quoted "savings rate" overlooks some major sources of American wealth. For one thing, gains on stocks don't count. Neither does the increase in the value of your house -– which for many Americans represents a major portion of their net worth.

When it comes to pension plans, the savings numbers get even screwier. For example, money set aside in a 401(k) plan at work doesn't count as savings because those are pre-tax dollars -– and not considered part of your "disposable income." For older, so-called defined benefit pensions, the impact is even worse on the spending vs. savings picture. That's because income statistics are based on the employer contributions to these plans, not benefits paid out -– which is a larger number. So retirees have a lot more money to spend than the official figures take into account.

The conventional wisdom holds that free-spending American consumers are on a perennial spending binge, in debt up to their eyeballs and unable to put away a dime for a rainy day. The clear implication is that Americans should embrace personal sacrifice, put away their credit cards and emulate other, more frugal societies, where savings rates are higher and consumption is more restrained.

All of which may be true. But it's hard to know for sure because the government statistics that fuel this conventional wisdom are seriously flawed.

Agman, your points have been refuted by the current and past fed chairmen, as well as many, many economists. As my quote of both of them shows, increases in value of real estate and stock appreciation is not an increase in personal savings.

We are coming to an end of the deflationary pressures the Chinese can bring to our economy, and a start to their use of market power and barriers to entry to maximize their revenue. It will come out of our pockets.

Using the information in the article you cite and coming up with your conclusion is about like the govt. claiming that there is no deficit when actually they borrowed from the social security trust fund to finance the difference between what was brought in and what was spent. It is just a hoax.

 

[Sandhusker]

Greenspan fears `froth' in US housing market

DOLLAR RALLIES: Although the US economy is still on solid ground, the Fed chairman expressed concern about overheating in the housing sector and a low savings rate

AFP , WASHINGTON
Saturday, Jun 11, 2005,Page 12
US Federal Reserve Chairman Alan Greenspan said the US economy is on solid ground for now, but that "froth" in the housing market and an abysmal savings rate could be storing up trouble.
Speaking to the Joint Economic Committee of Congress on Thursday, Greenspan said that evidence of a spring soft patch in the world's biggest economy did not presage "a more serious slowdown."

Overall, the veteran Fed chairman said, "the US economy seems to be on a reasonably firm footing, and underlying inflation remains contained."

His comments to members from both houses of Congress shed little new light on the US central bank's thinking on monetary policy.

He notably steered clear of baseball analogies, after Dallas Fed president Richard Fisher last week threw markets into a whirl by saying the Fed's cycle of raising rates was in the "eighth inning" and thus nearly finished.

The Fed has lifted its base rate by a quarter point in each of the past eight meetings to 3.0 percent now, to ward off inflation fuelled by a surge in oil prices.

Greenspan confined himself to echoing the language of the Fed's policy-making committee at its recent meetings, that US rates are likely to rise at a "measured" pace.

The US dollar rallied on the comments while US stocks also went up on investors' relief that Greenspan had not dropped any bombshells.

But looking further ahead, the Fed chairman said an overheated housing market in parts of the US, comparatively low productivity growth and a "negligible" savings rate are all worrisome.
"Although a `bubble' in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels," the Fed chairman said in his prepared statement to the committee.

The US housing sector has been smashing records for sales of both new and existing properties, stoking fears about the impact on the wider economy if the market should turn down.

But Greenspan said that any regional declines where prices have risen the fastest, such as in California, "likely would not have substantial macroeconomic implications" at the national level.

He also indicated his distress about the ever-widening US budget deficit fueled by massive tax cuts.

 

[Anonymous]

Just because someone spends $500,000 for a house, doesn't mean its worth that- or will be tomorrow...Just like some of this $200 an acre land that is selling for $1000+...Just because you pay that much doesn't mean it will produce any more- and its kind of hard to eat "a pretty view".......

 

[agman]

Greenspan fears `froth' in US housing market

DOLLAR RALLIES: Although the US economy is still on solid ground, the Fed chairman expressed concern about overheating in the housing sector and a low savings rate

AFP , WASHINGTON
Saturday, Jun 11, 2005,Page 12
US Federal Reserve Chairman Alan Greenspan said the US economy is on solid ground for now, but that "froth" in the housing market and an abysmal savings rate could be storing up trouble.
Speaking to the Joint Economic Committee of Congress on Thursday, Greenspan said that evidence of a spring soft patch in the world's biggest economy did not presage "a more serious slowdown."

Overall, the veteran Fed chairman said, "the US economy seems to be on a reasonably firm footing, and underlying inflation remains contained."

His comments to members from both houses of Congress shed little new light on the US central bank's thinking on monetary policy.

He notably steered clear of baseball analogies, after Dallas Fed president Richard Fisher last week threw markets into a whirl by saying the Fed's cycle of raising rates was in the "eighth inning" and thus nearly finished.

The Fed has lifted its base rate by a quarter point in each of the past eight meetings to 3.0 percent now, to ward off inflation fuelled by a surge in oil prices.

Greenspan confined himself to echoing the language of the Fed's policy-making committee at its recent meetings, that US rates are likely to rise at a "measured" pace.

The US dollar rallied on the comments while US stocks also went up on investors' relief that Greenspan had not dropped any bombshells.

But looking further ahead, the Fed chairman said an overheated housing market in parts of the US, comparatively low productivity growth and a "negligible" savings rate are all worrisome.
"Although a `bubble' in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels," the Fed chairman said in his prepared statement to the committee.

The US housing sector has been smashing records for sales of both new and existing properties, stoking fears about the impact on the wider economy if the market should turn down.

But Greenspan said that any regional declines where prices have risen the fastest, such as in California, "likely would not have substantial macroeconomic implications" at the national level.

He also indicated his distress about the ever-widening US budget deficit fueled by massive tax cuts.

If you either of the sources you cite if the savings rate as reported by the government is a true measure of savings in tehs country they will clearly answer NO.

If stocks are not savings what are they? If net equity in a home is not savings what is it? If your 401K and IRA, which are not counted as savings as I pointed out, then what are they? Are the aforemetnioned just assets? Do you even know where to look for the Household Net Worth figures? It is very apparent you know nothing about National Income Accounting. Savings is the residual as pointed out in the article I posted. Do you know where to find the actal accounting data?

The beauty of our economy is that it is cyclical. Land prices do not always go up but the long term trend is up. Housing won't go straight up either. If you want to sell this economy short do so. Put your money where your mouth is. People such as yourself have preached the negatives for many decades and they have all been wrong. You will join them.

Is the deficit something we need to correct? Have I ever said no? I have stated correctly that that the present deficit relative to GDP is lower than in some previous periods. That is also true with our trade deficit. Those are two more fact you are unaware of. We can grow this economy as we have in the past and retire the debt just as we have previously.

Are you aware of the thinking of the new Fed Chairman regarding trade deficits?

 

[Econ101]

Greenspan fears `froth' in US housing market

DOLLAR RALLIES: Although the US economy is still on solid ground, the Fed chairman expressed concern about overheating in the housing sector and a low savings rate

AFP , WASHINGTON
Saturday, Jun 11, 2005,Page 12
US Federal Reserve Chairman Alan Greenspan said the US economy is on solid ground for now, but that "froth" in the housing market and an abysmal savings rate could be storing up trouble.
Speaking to the Joint Economic Committee of Congress on Thursday, Greenspan said that evidence of a spring soft patch in the world's biggest economy did not presage "a more serious slowdown."

Overall, the veteran Fed chairman said, "the US economy seems to be on a reasonably firm footing, and underlying inflation remains contained."

His comments to members from both houses of Congress shed little new light on the US central bank's thinking on monetary policy.

He notably steered clear of baseball analogies, after Dallas Fed president Richard Fisher last week threw markets into a whirl by saying the Fed's cycle of raising rates was in the "eighth inning" and thus nearly finished.

The Fed has lifted its base rate by a quarter point in each of the past eight meetings to 3.0 percent now, to ward off inflation fuelled by a surge in oil prices.

Greenspan confined himself to echoing the language of the Fed's policy-making committee at its recent meetings, that US rates are likely to rise at a "measured" pace.

The US dollar rallied on the comments while US stocks also went up on investors' relief that Greenspan had not dropped any bombshells.

But looking further ahead, the Fed chairman said an overheated housing market in parts of the US, comparatively low productivity growth and a "negligible" savings rate are all worrisome.
"Although a `bubble' in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels," the Fed chairman said in his prepared statement to the committee.

The US housing sector has been smashing records for sales of both new and existing properties, stoking fears about the impact on the wider economy if the market should turn down.

But Greenspan said that any regional declines where prices have risen the fastest, such as in California, "likely would not have substantial macroeconomic implications" at the national level.

He also indicated his distress about the ever-widening US budget deficit fueled by massive tax cuts.

If you either of the sources you cite if the savings rate as reported by the government is a true measure of savings in tehs country they will clearly answer NO.

If stocks are not savings what are they? If net equity in a home is not savings what is it? If your 401K and IRA, which are not counted as savings as I pointed out, then what are they? Are the aforemetnioned just assets? Do you even know where to look for the Household Net Worth figures? It is very apparent you know nothing about National Income Accounting. Savings is the residual as pointed out in the article I posted. Do you know where to find the actal accounting data?

The beauty of our economy is that it is cyclical. Land prices do not always go up but the long term trend is up. Housing won't go straight up either. If you want to sell this economy short do so. Put your money where your mouth is. People such as yourself have preached the negatives for many decades and they have all been wrong. You will join them.

Is the deficit something we need to correct? Have I ever said no? I have stated correctly that that the present deficit relative to GDP is lower than in some previous periods. That is also true with our trade deficit. Those are two more fact you are unaware of. We can grow this economy as we have in the past and retire the debt just as we have previously.

Are you aware of the thinking of the new Fed Chairman regarding trade deficits?

Agman, everything in the economy will eventually work out, even the trade deficits we have today. It just might mean consequences we don't want. The facts you bring in the next to the last paragraph are well known and not new arguments.

You are correct in the personal savings rate that is calculated that you have previously cite something different than people saving money in a bank. It does show a relationship between consumption and earnings as does the two facts you point out. As you know, stock market gains are not gains until you sell the stock. Same with a house. The issues of pensions and the Social Security (as well as the 401 k savings and similar programs) not being able to actuarily take care of the coming liabilities in the economy are real, regardless of the transfer of wealth you cite as a positive.

Not everyone has the parents that have participated in the run up in assets that comes with a loose monetary policy. Those policies are set by the national government and the fed and they do not benefit everyone equally. The growing gap between the rich and the poor is of major concern to our democracy as is the irresponsibility of putting everything on the nation's credit card as the aforementioned liabilities loom in the not too distant future.

This is not gloom and doom, it is responsibly looking at the problems our country will be encountering and making sure that our children and grandchildren have as good a shot at democracy and a good life as we have. I am sorry you do not see it in those terms.