>Greenspan (via Doug) says:
>
>>The growth of home mortgage debt has been the major contributor, at
>>least in an accounting sense, to the decline in the personal saving
>>rate in the United States from almost 6 percent in 1993 to its
>>current level of 1 percent.
>
>These kinds of analyses seems to always jump over what seems to me to
>be obvious: (a) the majority of 'savings' in the past was built up in
>order to -- ta-da -- buy a house (no surprise when they do it!);
No, not really. People save for a cushion, for retirement, for self-aggrandizement, for the children, etc.
> (b)
>many people have substituted pre-tax investments (i.e., IRAs, 401(k)s,
>etc.) for traditional "savings" -- the "savings rate" (which doesn't
>include such accounts) is therefore akin to the number of horsehoes
>consumed by the average family: an outdated way of measuring SOMETHING.
>Unless/until the tax advantage of these plans is erased (good luck!), I
>don't see this trend changing.
The savings rate doesn't include which accounts? Here's the BEA's definition of personal savings (which it estimates as after-tax income less spending):
>Personal saving (2-6) is personal income less the sum of personal
>outlays and personal tax and nontax payments. It is the current
>saving of individuals (including proprietors and partnerships),
>nonprofit institutions that primarily serve individuals, life
>insurance carriers, private noninsured welfare funds, private
>noninsured pension plans, publicly administered government employee
>retirement plans, and private trust funds. Personal saving may also
>be viewed as the net acquisition of financial assets (such as cash
>and deposits, securities, and the change in life insurance and
>pension fund reserves), plus the net investment in produced assets
>(such as residential housing, less depreciation), less the net
>increase in financial liabilities (such as mortgage debt, consumer
>credit, and security credit), less net capital transfers received.
>and 8 of account 3).
Employer contribs to retirement funds are "other labor income" and are included as personal income. The point of looking at the low savings rate is that it's the product of Americans spending a growing share of their income and borrowing more to do it. Any sane central banker would be worried about this, not that Bubbleboy is one of those.
Consumption has been over 70% of GDP for several years - well above the long-term average, which was pretty consistently around 66%. Savings are going down because people are letting capital gains - first on stocks, now on houses, perform the illusion of saving for them. Realized capital gains aren't part of savings because they don't correspond to any real production, and aren't counted as part of income. Realized capital gains have to be paid out of the fresh savings of others, ultimately.
It's amazing to see Greenspan admit that an asset bubble has driven US consumption higher, which has driven our international accounts deep into the red.
Doug