$this->bbcode_second_pass_quote('shoronbrains', 'T')his is a crock big enough to hold a century’s worth of elephant turds! If savings are “defined” as an increase in one’s net worth (balance sheet total), there are no savings. With a 20% annual decline in home values, a 44% decline in equity values which affect 401ks, Roths, pensions and insurance assets the average American is losing their butt at a rate of over twice their average income. How in Hades do you figure they are saving anything?

[copious.abundance]

For the several people here who have no idea what they're talking about, here is an article describing exactly what is going on now with the savings rate. It may be counterintuitive, but yes, the savings rate usually rises during recessions:

>>> LINK <<<
$this->bbcode_second_pass_quote('', 'F')ebruary 11, 2009
Savings Rate Usually Rises in Recession: Fortune Has It Wrong

Geoff Colvin's column in Fortune ignores many decades of data in arguing that savings usually falls during recessions, providing an automatic stabilizer. He cites statistics from the Great Depression and anecdotal reports from the time of Joseph and the Pharoah. He argues that our problem is that consumers did not build up savings balances ahead of this recession, so they are doing something unusual: increasing savings in a recession. This scares Colvin, who says that we--the country--have our savings pattern backwards.

Let's look at the data. Here's all the monthly history we have, with recessions shaded in pink:



I don't see the savings rate falling in recessions, at least not by eyeball, so I did some calculations. I computed the average savings rate over the 24 months preceding each past recession, during the recession, and over the 24 months following the recession. Here are the results:

[...]

Looks to me like the savings rate most often rises in recession. Not always, but on average. Why is that? As I've noted in a previous blog post and a video, consumers today are cutting back disproportionately to their loss of income, due to fear. That may well have happened also in 1970, 1973-75, 1980, 1981-82. If anything, it looks like we are reverting to the most common pattern rather than breaking new ground.

[...]

[odegaard]

on page 3 OF2 said:
$this->bbcode_second_pass_quote('OilFinder2', '')$this->bbcode_second_pass_quote('odegaard', '.')..The BEA charts did not factor in unemployment.

[Cog]

As a doomer, I'm not seeing why there is such a pile-on on OF2's point here. There is nothing cornucopian about people saving more during recessions. Its a expression of uncertainty and fear about the future. Many members of this board have expressed the idea that we need to buy less "stuff", live a more frugal lifestyle, and become more self-reliant. But when OF2 points out that is what people are doing, it pisses some people off.

I accept that Of2 can be off the mark concerning given his over-optimistic approach about oil discoveries and depletion but I have to give him props on calling the savings increase accurately.

[shortonoil]

Cog said:

$this->bbcode_second_pass_quote('', 'A')s a doomer, I'm not seeing why there is such a pile-on on OF2's point here. There is nothing cornucopian about people saving more during recessions. Its a expression of uncertainty and fear about the future

[vision-master]

$this->bbcode_second_pass_quote('shortonoil', '[')b]Cog said:

$this->bbcode_second_pass_quote('', 'A')s a doomer, I'm not seeing why there is such a pile-on on OF2's point here. There is nothing cornucopian about people saving more during recessions. Its a expression of uncertainty and fear about the future

[shortonoil]

vision-master said:

$this->bbcode_second_pass_quote('', 'S')ave as in hording what ever cash you can.

Most ppl are falling farther and farther behind.

[odegaard]

$this->bbcode_second_pass_quote('Cog', '.').. But when OF2 points out that is what people are doing, it pisses some people off.

[copious.abundance]

$this->bbcode_second_pass_quote('odegaard', '
')If you bothered to read my last post.....I pointed out how OF2 basically did a massive flip flop.
On page 3 he said the BEA charts did NOT factor in unemployment.
and now he's saying it does!

[copious.abundance]

$this->bbcode_second_pass_quote('shortonoil', '[')b]Oily’s point misses the basic concept of a thing called a “balance sheet”. If you save $1 in one pocket and spend $10 out of the other you didn’t save anything, you spent. Your net worth went down. It can not be made any simpler than that.

Americans may be increasing their cash stance to some degree. This could be because they just aren’t paying the mortgage and credit card payments anymore. Cash (as in M1) is only a small fraction of people’s net worth. The large bulk of their net worth is held in assets of various kinds. Asset destruction for the average American household is several orders of magnitude greater and any “extra” cash that may be being accumulated.

[vision-master]

$this->bbcode_second_pass_quote('pstarr', 'I')t would appear that Oily has lost a few more friends.

[odegaard]

$this->bbcode_second_pass_quote('page 3 - OilFinder2', '.')..But there's a really good reason for that: The unemployment rate has absolutely nothing to do with the savings rate.

[copious.abundance]

*sigh*

The same lies, dishonesty and obfuscation! Not to mention a complete lack of the English language. And basic mathematical concepts.

Let me put this as simply as I can:

1. The BEA calculates the savings rate the same regardless of the unemployment rate and other economic conditions. As they should.
2. This calculation includes everybody - employed as well as unemployed. As it should.
2. During recessions (when the unemployment rate rises), it just so happens that the results of this calculation tend to show an increase in the savings rate.

You're deliberately twisting and obfuscating the results of the calculation with the methodology for calculating the savings rate in your desperate effort to discredit me. All this does is make you look like an idiot.

[odegaard]

Ladies and Gentlemen it's my word against Oily2.

***YOU***
(motions to everybody in the room)

decide for yourself.

$this->bbcode_second_pass_quote('odegaard', '')$this->bbcode_second_pass_quote('page 3 - OilFinder2', '.')..But there's a really good reason for that: The unemployment rate has absolutely nothing to do with the savings rate.

[copious.abundance]

$this->bbcode_second_pass_quote('odegaard', 'L')adies and Gentlemen it's my word against Oily2.

***YOU***
(motions to everybody in the room)

decide for yourself.

[jdmartin]

Interesting thread....

It seems to me that it's a lot of sleight-of-hand, whatever the figures, especially when it's considered in a historical context.

For example:

John Doe has a $1000 mortgage, $250 in utilities, a $300 car payment, and $100 monthly minimum credit card payments on a balance of 10,000. That's $1650 in payments. John Doe makes $3500 clear per month, of which an additional $1350 goes towards groceries, gas for the car, an occasional latte at Starbucks. So he spends $3000 of his $3500 at a minimum, which would be a savings rate of about 15%, pretty good by American standards. But let's say he was putting an extra $50 per month towards the credit card balance. Does this reduce his savings rate? Well, yeah, because he's added $50 towards his liability payments. Conversely, if the credit card company decides he needs to pay $200 minimum per month, does this reduce his savings rate? Of course it does. However, in both situations, he's the better for it long-term because he's eliminating liabilities quicker.

Now let's say John Doe feels he might lose his job soon. He goes down and flips the car for a cheaper model and a longer-term loan, and after absorbing the trade-in hit gets a car payment of $250 per month (for a much longer period). Did he increase his savings rate? Yes, he did, despite the fact that his balance sheet just took a big hit. The same thing could be said if he decided to quit paying the credit cards down faster.

Historically, people had no long-term liabilities other than a 30 year mortgage. Prior to 1960 most people didn't even have a car loan. Thus, whatever they "saved" was theirs, so to speak - there weren't any hidden liabilities obscured in governmental figures. It seems to me that any discussion of savings rates without equal discussion of household debt burden is useless. It wouldn't surprise me in the least if the government's idea of a savings rate went up as people start hording cash. That in turn can have a detrimental effect on other liabilities.

[Tyler_JC]

I'm curious if the increase in savings correlated with the increase in foreclosures.

If people have stopped paying their mortgages but are still living in their homes, they might be "saving" more money but it's based on stealing from the bank. The decrease in the bank's balance sheet is ignored but the increase in the borrower's balance sheet is counted as "savings".

We'd need to separate out that effect to see the real savings rate.

Tyler, according to this article I posted on the 11th, the major reason for the increase in savings is simply because Americans aren't spending so much anymore. The closure of several major retailers, a collapse of imports from China and elsewhere, etc. etc., IMO give credence to this view. Whatever might be happening to personal incomes, the percentage of those incomes spent on "stuff" has gone down, and thus the savings rate has gone up. Not sure how foreclosures might play a role in that. It could be that some people still living in foreclosed homes have more "savings" because they aren't paying their mortgage, but I would imagine such people would drastically cut down on their spending just out of fear.
$this->bbcode_second_pass_quote('OilFinder2', '&')gt;>> Business Week <<<
$this->bbcode_second_pass_quote('', 'A')pril 2, 2009
Bigger U.S. Savings Than Official Stats Suggest
A closer look at BEA numbers shows that Americans reduced spending by 3.1% in the past year, indicating that the savings rate has risen to 6.4%
By Michael Mandel

How much have Americans cut back?

On the face of it, not much. The official data from the Bureau of Economic Analysis say that in February personal spending was down 0.4%, or $40 billion, from the year before. Certainly any drop is bad news, since consumer spending rarely decreases—but $40 billion out of total spending of $10 trillion doesn't seem like enough to wreak economic havoc.

A closer look, however, shows that Americans have tightened their belts more sharply than the numbers report. The reason? Official figures for personal spending include a lot of categories, such as Medicare outlays, that are not under the control of households. They also include items, such as education spending, that should be treated as investment in the future rather than current consumption.

After removing these spending categories from the data, let's call what's left "pocketbook" spending—the money that consumers actually lay out at retailers and other businesses. By this measure, Americans have cut consumption by $200 billion, or 3.1%, over the past year. This explains why the downturn has hit Main Street hard.

Since savings are what's left from disposable income after subtracting outlays, a deeper fall in consumption means a bigger jump in the savings rate. The same analysis implies that the "pocketbook" personal savings rate has risen from near zero a year ago to around 6.4%, rather than the official 4.2%. Thus, households may have gotten a great start on repairing their balance sheets.

[...]