Tag: savings rate

Except, the wealthy don’t use savings accounts

It’s all in the argument – the more obfuscated the better. From Bloomberg:

Give the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it.

Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody’s Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell.

The findings may weaken arguments by Republicans and some Democrats in Congress who say allowing the Bush-era tax cuts for the wealthiest Americans to lapse will prompt them to reduce their spending, harming the economy.

The problem with this argument is that while wealthy people are not conditioned to dump their next paycheck on a new wide-screen television, they don’t sock their money under the mattress either.

They invest it. Not in savings accounts, but in the equity markets, in real estate, and in small businesses.

It’s counterintuitive to suggest that the wealthy can only help jumpstart the economy via consumer goods purchases, unless the purpose of your argument is to consolidate control over the stock market, housing prices, and the entrepreneur.

Unfortunately, stimulus directed into union coffers while the average person’s IRA sits in the toilet, toying with FHA/Fannie/Freddie and other “affordable lending” purse strings while foreclosures sit empty on every street, and burdening the independent businessperson with 1099s for every check they write, is all about that.

Control.

Consumerism Is A Fantasyland

The savings rate has been negative for an entire year only twice before — in 1932 and 1933 — two years when Americans were having to deplete savings to cope with the massive job layoffs and business failures caused by the Great Depression.

This time the reasons for the negative savings rate are vastly different. Americans are spending all their incomes and then some because they feel wealthier because of the soaring value of their homes, which for many Americans is the largest investment they own.

But analysts cautioned that this behavior was risky at a time when 78 million Americans are on the verge of retirement. The baby boomers start turning 60 this year, which means they can begin retiring with Social Security in just two more years.

So says the Associated Press, via Taipei Times (just in case some US media outlet screwed with the story).

After setting records for five straight years, sales of both existing and new homes are expected to decline this year under the impact of rising mortgage rates. The weaker sales will translate into slower price appreciation which in turn will slow consumer spending, analysts are forecasting.

And what if housing price “appreciation” goes negative as well? It’s not the first time I have heard the “D” word.