Monday, January 30, 2006

Worst savings rate since: Guess. Guess!

There are a number of unsustainable aspects to our economy right now. That probably means that we are heading for a correction. Maybe a recession. Today's New York Times online has the following to offer:
A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases. For the month, the savings rate fell to 0.7 percent, the largest one-month decline since a 3.4 percent drop in August.

The 0.5 percent negative savings rate for 2005 followed a 1.8 percent rate of savings in 2004. The last negative rates occurred in 1932, a drop of 0.9 percent, and a record 1.5 percent decline in 1933. In those years Americans exhausted their savings to try to meet expenses in the wake of the worst economic crisis in U.S. history.

One major reason that consumers felt confident in spending all of their disposable incomes and dipping into savings last year was that a booming housing market made them feel more wealthy. As their home prices surged at double-digit rates, that created what economists call a ''wealth effect'' that supported greater spending.
Economists seldom impress me with their explanative powers. It seems likely, almost a certainty, that the reasons for a negative savings rate must also involve rising health care costs, stagnant wages (perhaps not stagnant real income as globalization and cheaper prices boost that) and higher fuel costs. A recent study reported that the rich are, per usual with a Republican administration, getting richer and the poor are getting poorer.

In fact, only by considering the impact that these additional costs have on the citizenry can one explain a positive savings rate for 2004 and then a drastic cut in savings by 2.3 real percentage points. Oddly enough, that impact is within one point of the Consumer Price Index rise in the past year. A slowing economy, a raising set of prices, and less savings are the attributes of 2005. The underlying problems are energy and health care costs, and those show no sign of subsiding in 2006.

More of the same can be expected in the near term, reports the Congressional Budget Office (via the New York Times):
WASHINGTON, Jan. 29 — Millions of low-income people would have to pay more for health care under a bill worked out by Congress, and some of them would forgo care or drop out of Medicaid because of the higher co-payments and premiums, the Congressional Budget Office says in a new report.
An aggregate income crunch on the lower economic spectrum would show up in the savings rate. In all likelihood, the upper class in the economic spectrum -- I don't have the hard numbers -- can save just as much as before and enjoy an aggregate rise in income: from their real income, lesser taxes, and the society-wide flush of cheaper products from foreign markets.

This is the true situation we presently face in the American economy -- in spite of what the administration and their sycophants say. It is unfortunate that Bush will tout economic progress, even while the wheels of his Coolidgesque economic ride are shaking on the bumpy pavement.

Expect more of the same from 2006. Do not expect GOP plans to assist those in the income crunch. And, the less savings a person has today, the longer they will need to work.

Or, the more likely they are to vote in a number of progressives for a generation of taxing the rich and spending on the needy.

Frankly, bring it on, Mr. President.

7 Comments:

Blogger Ezzie said...

Wrong, wrong, wrong... which is why you should NEVER trust the Times on the economy.

:::sigh::: I'll be back later, but this is why I HATE when the NYT comments on economics. The lower savings rate is because people are INVESTING. They've already saved more by refinancing and the like than they would by simply 'saving' the money as they used to.

Any decent economist recognizes how strong the US economy is, despite high energy costs and the like. No inflation, incredible - and STABLE - GDP, and steadily decreasing unemployment. The Times got ripped (including by me) a few months ago for an economic piece - they should really stick to the arts.

4:51 PM  
Blogger copy editor said...

As always, I welcome some additional information. But, if there are merely numbers showing additonal investments in equities, I would note that may be do to the reduction in dividend taxes and the expanasion of financial institutions. Plus that something-Speagle act was redefined.

5:04 PM  
Blogger copy editor said...

Oh, moreover, don't trust the WSJ on things military ;-)

5:04 PM  
Blogger Bassizzzt said...

Well frankly, I hate to go against the grain on this one, but we're doing fine with savings. It's mainly discipline because we want to move, sell the house and get another one, and plan on celebrating (if we're successful) by going on a family cruise this coming fall season.

Sounds like the NYT wants Bush to have a recession more than what the facts are saying. I also got a salary increase, but then again that was due to me taking on additional responsibilities (two more company's networks to boot).

9:46 PM  
Blogger Ezzie said...

Heh. I don't: According to a recent study, the WSJ came out farther to the LEFT than most mainstream news sources. Their editorials are to the right - their newspaper, oddly, to the left. I get my news from Copy Editor. ;)

3:07 AM  
Blogger zen said...

Interesting interview with Stephen Colbert over at the Onion—yes that Stephen Colbert, and yes that Omion. Nevertheless, he made a great point in saying that there used to be a time when facts mattered, now they don't. Perception is what matters. And it touches on media bias as the right has a huge problem with the media, labeling it 'liberal' not because they necessarily have a problem with the facts, but with it's authority. And the current power structure can only have one authority, the president. If the media (facts) hold authority then the authority of the government is questioned. And it becomes less about what is factual, and more about who says so. Thus authoritarian government.

Seems to me the issue that all of you comments here touch on. It matters not what the facts are, if one can muddy the waters enough and distort perception, which is after all one's truth, one's reality.

8:09 AM  
Blogger copy editor said...

zen, thanks. I enjoyed the read at your blog.

ezzie, thanks as well. you would make a fine politician. i regret i did not get my a.m. post up until 11:15 today. had to sleep in and race to work.

5:13 PM  

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