On 2/7/2011 7:38 AM, SA wrote:
> But that's where the causal slippage happens: just because investors
> receiving payouts now have more cash to put "into" the financial
> system doesn't mean the cash will then automatically be forthcoming
> "out" of the financial system to finance the mass consumption needed
> to make up for the decline in investment. Consumers have to be (a)
> able and willing to borrow from (b) a financial system that's able and
> willing to lend. I think the revolution in borrowing happened more
> because of institutional changes like deregulation, the
> mortgage-interest tax exemption, coupled with changing norms and
> "Veblen effects."
By the way, this note from the SF Fed presents a simple regression to explain the decline in the household saving rate since the early 80's. The two explanatory variables are household net worth and a measure of consumer credit availability (from a Fed loan officer survey). The two variables explain 90% of the variance.
See their terrific chart - Figure 4 - here: http://www.frbsf.org/publications/economics/letter/2011/el2011-01.html
They write:
> To explain movements in the saving rate over time, we construct a
> simple empirical model that uses data from the first quarter of 1966
> through the third quarter of 2010. We perform a regression, a
> statistical exercise in which we look at the relationship between the
> personal saving rate and two contemporaneous explanatory variables:
> the ratio of household net worth to disposable income, shown in Figure
> 1, and our constructed measure of credit availability, shown in Figure
> 3. The first variable is based on the standard life-cycle model of net
> worth and saving. The second variable is intended to capture shifts in
> credit available to U.S. households that affect saving behavior
> outside the standard net worth channel.
>
> Figure 4 plots the actual saving rate versus the corresponding value
> fitted to the data from our empirical model incorporating credit
> availability. The model explains 90% of the variance of the saving
> rate since 1966. Both explanatory variables are statistically
> significant in helping explain movements in the saving rate. Rising
> net worth and easier credit availability both correlate with lower
> saving rates, which is consistent with the broad patterns shown in
> Figures 1 and 3. Similar results are obtained when we omit the credit
> availability variable but account for the separate influence of the
> household asset and debt ratios on the saving rate, rather than
> subtracting the two ratios to form a single net worth variable. This
> result reinforces the notion that changes in the household debt ratio
> tend to reflect changes in credit availability.