Economics

Punishing Savers, Again

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Today's Personal Income and Outlays report [pdf] from the Bureau of Economic Analysis makes one thing clear: The increase in personal savings that began in the last months of the Bush Administration has been completely wiped out.

When President Obama took office, the personal savings rate for Americans was an anemic-but-getting-healthier 5 percent. That number peaked a year ago, and is now down to 2.8 percent. This drop is even more striking when you consider that asset prices have, until the beginning of this year, been dropping or flat almost across the board.

And now, according to Agence France Presse, there is even less reason to save than there was a few months ago. AFP uses the personal outlays numbers to show a 2 percent increase in consumer inflation over the last year. That's mostly driven by costs for energy and especially food, which has seen an 18.7 percent increase.

Deflation is good.

Conveniently, food and energy are not counted in the "core" Consumer Price Index, allowing inflationists like Federal Reserve Chairman Ben Bernanke to continue making rhetorical gestures toward a stable currency while taking actual steps to weaken your dollar by any means necessary.

As noted here before, the common belief that savings went negative in the middle part of the last decade is not true. Although the personal savings rate did reach an historic low in 2005, it never went negative.

But there is real reason to believe savings will have to go negative in order to power this "recovery" they keep telling us about. Outside of the federal government, job creation remains anemic. The ADP employment report scheduled to be released this week is expected to show a very slight increase in private sector job creation, the first since the recession began.

That sluggish rate of job growth, and the extremely slow increase in personal income in the BEA's report, is a recipe for stagflation. The only way to keep consumer spending up is if the whole nation can commit to breaking open every piggy bank. And if your dollars start losing value as quickly as expected, that's probably the smart move.

The problem is that eventually you, just like the governments of most of these 50 states, run out of money. As Jimmy Carter discovered back when Obama was getting high with punk rockers at (the not cheap) Occidental College, introducing inflation into a stagnant economy doesn't necessarily produce a boom, or even a recovery.

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  1. The whole fucking system is predicated on irrational consumption. You market fundamentaqlists just don’t get it.

    1. Actually, Max, the fucking market system is predicated on a combination of consumption, saving, investment, and capital improvement.

      The fucking mixed economy that we have now leads market players to believe that they don’t have to save for retirement, they can borrow money they don’t have to buy things they can’t afford, and that some one will come along to bail them out when they inevitably crash.

      I can’t imagine where people come up with such ideas.

      1. And yet, Max, you no doubt want to force everyone to buy health insurance… thereby consuming a product with, um, consumption.

        Are ya a dickweed, or what?

      2. Max, remember My Plan to force people to consume health-insurance by being forced to buy it. Stay with me, lad!

    2. Yeah irrational consumption. Tell me, in your paradise of serfdom, would you have access to a fast computer, electricity, internet access, and (most importantly) an inexhaustible supply of free-market foot porn you whack off to? I can tell you, those whores would not let a man do that to her feet if it was not for the money they need to pay for their meth addicitons.

    3. Heh. How much you want to bet Max is a Mac user? Nothing more irrational than paying a 200% premium for something 2% better (if that)

      1. That really depends on your range and average group size. Your survival may vary.

      2. That really depends on your range an average group size. And your opponent’s, too, of course. Your survival may vary.

  2. Max|5.3.10 @ 7:22PM|#
    “The whole fucking system is predicated on irrational consumption. You market fundamentaqlists just don’t get it.”

    Yeah, and PURPLE, too!
    What “system”? What “market fundamentaqlists”?
    Does this have to do with “animal spirits”?

  3. The whole fucking system is based on folks like Max, of which there will never be a shortage.

    1. Their abortions will come for them one day.

      1. Their abortions? What do you mean?

        1. That was a cryptic and surreal comment by JB.

        2. Keep Honking, I’m Reloading My Gun.

  4. Savings smavings ? we have banks to recapitalize. Screw savers!

  5. I can just picture Edward/Max with the veins on his head throbbing with hatred for “market fundamentaqlists”. Man, impotent rage is hilarious.

    1. Rage at the impotent, more like.

      1. Yeah cynical, what did you do to piss off Max? You took away his foot porn, didn’t you? Holy shit… you’re his mother. It all makes sense now.

  6. >Obama was getting high with punk rockers at (the not cheap) Occidental College

    You say that as if it was a bad thing.

    1. Considering that Obama did nothing in the Illinois legilature, the US Senate, or the White House to legalize marijuana, his smoking habbits are worth remembering.

      1. But he’s smarter, and just a better person, than the rest of us. It’s us rubes who smoking is bad for.

  7. M1 has only grown from $1.4 trillion to $1.6 trillion in the last four years despite a near collapse. M3 has fallen a great deal.

    Food and energy are both well off their 2007 highs and 10 yr T-Bills are in the 3ish% range.

    The market and the Fed are saying that inflation will remain subdued for some time.

      1. So its $1.4 to $1.7? $300 billion? Not remarkable at all.

        If you listen to the goldbugs like Peter Schiff you’d think Bernanke is printing money like a madman.

        1. 20% increase in 2 years with no economic growth is significant.

          You are both a liar and an idiot.

          1. You goldboys are so sensitive when someone presents an objective counter argument to your gold fetish.

            I can’t wait for the gold bubble to pop – although it will probably be in 2011 (about the same time your munitions start to rot).

            1. “Munitions start to rot”? Is this a joke, or do you not know a fucking thing about ammunition?

              1. I thoroughly examined the last box of commercial .44 Specials I bought and couldn’t find a “best if used by” date anywhere.

            2. What objective counter? You got your numbers backwards. When you got called on it you said it wasn’t remarkable.

              You are a pathetic troll.

              1. Pay shrek no nevermind. He’s a pussy.

            3. Um, the numbers you cited were off by 20%. It’s a bit premature to crown yourself the king of objective facts.

    1. The inflation figures can’t be trusted:

      http://www.shadowstats.com/alternate_data/inflation-charts

  8. Wait, he went to Oxy? Man, fuck that guy twice over.

  9. “..allowing inflationists like Federal Reserve Chairman Ben Bernanke to continue making rhetorical gestures toward a stable currency while taking actual steps to weaken your dollar by any means necessary.”

    Just curious here, what steps would those be? Also, how is it the dollar can rise against the Euro whilst falling against the Indonesian Rupiah!

    1. whilst? whilst? This isn’t the commonwealth, mate.

      Back to the point, Indonesia isn’t running massive budget deficits that threaten the solvency of its member states. The European Union is. The US is only beginning to tread that road. There, I explained the anomaly away.

  10. Dude that is amazing stuff.

    RE
    http://www.anon-web-tools.es.tc

  11. You big sillies!

    We owe $12.7 trillion on the FUNDED part of our budget,
    and $106 trillion on the UNFUNDED part, like entitlements: Medicare, Medicaid Social Security, pension protection programs;

    And since the entire value of all property, services, valuables and savings in the entire USA is only $55 trillion;

    It is therefore clear that we could take EVERYTHING away from EVERYBODY, TWICE, and STILL not have enough to pay our debts. Not that we had any goddamned intention of even trying.

    Which means we will shortly embark on a course of inflation that will make Zimbabwe look staid and conservative.

    and that in turn means that the only rational course is just what the Obama administration is in fact doing: spend and spend and spend. Get as much as you can before everybody wises up and the whole thing goes up in smoke. And, likely enough, automatic weapons fire

    1. That is only the rational course if you’re operating on Keynsian “In the long-run we’re all dead” reasoning. You might be dead, but I won’t, so cut it out numb nuts.

    2. You left out the $50 trillion in UNFUNDED future defense spending over 60 years.

      If the old folk keep the poll numbers up they might elect Ron Paul someday.

      1. shrike|5.3.10 @ 9:10PM|#
        “You left out the $50 trillion in UNFUNDED future defense spending over 60 years.”

        You left out a cite.

    3. Don’t worry. Once Obamacare comes into affect there won’t be any old people to cost us in Medicare, Social Security, and pensions.

    4. And, likely enough, automatic weapons fire

      At least they’re fun to play with.

    5. > $106 trillion on the UNFUNDED part, like entitlements: Medicare, Medicaid Social Security, pension protection programs;

      Remember those names

      > Which means we will shortly embark on a course of inflation that will make Zimbabwe look staid and conservative.

      Except that inflation won’t reduce the effect of those liabilities because they’re mostly inflation-adjusted.

      In other words, they grow with inflation.

  12. Tim et al. fail to understand that 1970s had a variety of factors that contributed to high inflation/stagflation. The most important of which was a genuine belief amongst some economists that you could trade a slightly higher inflation rate for full employment.

    As we have eventually figured out, consistently inflating the money supply would eventually lead to both high inflation and high unemployment.

    Since there is so much slack supply in the economy, increasing the money supply while ostensibly inflationary, will not have the same types of inflationary pressure that existed in the 1970s. While going off the gold standard has had some negative consequences at times, a government having the ability to control the supply of money can and I would argue does have a positive impact when coupled with decent economic theory.

    Regards

    Joe Dokes

    1. While going off the gold standard has had some negative consequences at times, a government having the ability to control the supply of money can and I would argue does have a positive impact when coupled with decent economic theory.

      And if we ever find a government that operates on “decent economic theory” instead of politics, we can test your thesis.

      Yours is a variation of the “If we just had the right people in charge” meme.

      1. IBM, Apple, and Microsoft will soon team up with the Japanese and develop Robot 1.0, which will rule over us all justly and impartially. Then all will be good.

        As long as we keep up on our Robot subscription fees.

        1. You would be surprised. When I was at Rutgers studying ecology and evolution, one of the professors developed a computer program that calculated which plot of privately held land the state should designate as undevelopable open space.

      2. Neither ‘e’ nor ‘m’ appear in the word ‘fallacy.’

    2. Well, that must explain why the rest of us don’t understand the “economics” of ObamaCare.

      If only we understood, we surely wouldn’t oppose it. Our elites know what they’re doing.

  13. It’s kind of hard to save money when you’ve been unemployed for over a year. The job market isn’t “anemic,” it’s quadriplegic.

  14. Time to start spending some of my cash.

    Should I purchase a case of Old Crow?

  15. Saving is only socially useful to the degree it funds investment in new machines, buildings, and equipment.

    If people want to save more than firms want to invest, something needs to change. The two possibilities are for firms to invest more or households to save less.

    The market prices that coordinate this are interest rates. More saving than investment requires a lower interest rate–to motivate more investment and less saving.

    If interest rates are at zero and people still want to save more than firms want to invest, then in interest should be negative. People should pay to save.

    If you believe that no one will pay to save, then fine. I suppose they will save less until saving matches investment at the zero interest rate.

    If people will pay to save, then negative return investment projects will become profitable. Like producing goods now, putting them in a warehouse, and storing them for the future.

    If people don’t want to pay to save then they have to consume. If they don’t want to consume or save, then they have to work less.

    Working is only valuable to the degree it produces things that people want to buy. Usually, there are way more things that people want to buy than can be produced with the labor available. That is why people are paid to work. The wage is the market price that coordinates the allocation of labor between uses, including leisure (not working for money.)

    Of course, the actual situation we face today is that people want to save by accumulating short term to maturity, low risk assets. The value of saving is the purchase of machines buildings and equipment to be used to production processes that take time and involve risk.

    The interest rate on low risk, short term assets are near zero. I think they need to be negative. People should pay to save without taking the risk involved in generating the returns that allow for and justify paying any interest. If people want to save and are willing to take risk, BAA corporate bonds are paying good returns.

    1. Your post is uncomfortably rational and sensible…primarily because it sounds to me like the kind of policy thinking being deployed right now. And while it constitutes a testable hypothesis, the problem for me is that I would prefer not to be experimental data in someone else experiment. Which is what a government monopoly on currency makes me.

      1. There is no real government monopoly on currency. You’re free to buy all sorts of assets to avoid inflation if you feel like it’s a risk. You’re free to buy any currency, gold, silver, stocks, bonds, or real estate denominated in almost any currency on earth.

        1. True enough, for inflation, but it requires me to first convert the government monopolized currency that most of society is paid in (my employer won;t, yet, pay me in gold, silver or chickens). And the value of that currency is being manipulated by policy… So, starting from scratch, you are right. Starting from where I am and being wary of deflation–not inflation–is something altogether different I think.

    2. One problem is that interest rates are not low enough given expected returns. Before thing got out of whack, interest rates were comparable to GDP growth. Now, they several times GDP growth (taking out the big increase in goverment spending).

  16. OFFS. Unless savers are putting money underneath their mattresses, the current levels of inflation don’t punish them. Put the money in a money market fund and you’ll get an inflation+ return.

    1. Where are these accounts? I haven’t seen anybody’s MM acct that pays anywhere close to enough to keep up with inflation.

  17. Small gripe Tim. While there may be some controversy about the matter I am a dedicated A for “historic” and AN for “hour” kind of guy. Makes my skin crawl when speakers or writers use AN with historic.

    Personal Opinion. Everybody has got them

    1. Depends on your accent, if you pronounce it “istoric” than an “an” is appropriate.

  18. Mo, MM and CD’s are currently paying rates about matching inflation. That’s BEFORE taxes. After taxes, with CD’s or tips, or even i-bonds (which are tax deferred) you are currently loosing purchasing power.

    Right now if you want to keep even with inflation you have to put you money in a tax deferred account. If you use a Roth (which is tax pre-paid) might still get screwed by a VAT tax in the future.

  19. Ammunition DOES TO get old (and unreliable). Why, back in the late ’70s that WWII surplus ammo we used would misfire at 1/100 or sometimes even 2/100!

  20. Tim,

    Not to burst your “use by” when it comes to ammunition, but, just how reliable was WWII ammunition during WWII?

    You never know, the stuff you were using just may have had that kind of failure rate to begin with.

  21. Re fleeing to tax sheltered accounts to preserve assets from the storm of taxes and stagflation, seems that’s what “they” might like to see, since it appears “their” next goal will be to nationalize those tax sheltered IRAs and 401k’s — see:

    http://www.humanevents.com/article.php?id=36823

  22. I don’t really understand how this administration can keep saying things are getting better and that the recession is ending when nobody in this economy yet feels any relief.

    Job creation in the private sector is what we need, am I wrong? Not false indicators of economic restoration that your average family doesn’t see.

    1. KOCHTOPUS!!!

      All hail the Master.

  23. Money Quote:

    As Jimmy Carter discovered back when Obama was getting high with punk rockers at (the not cheap) Occidental College, introducing inflation into a stagnant economy doesn’t necessarily produce a boom, or even a recovery.

  24. Mr. Cavanaugh, you write “?that asset prices have, until the beginning of this year, been dropping or flat almost across the board.”

    Well, U.S. equities are assets, and as measured by the S&P 500, stocks returned over 26% in calendar 2009, and were up nearly 70% from the intra-day low made March 6 last year. So far this year, the S&P 500 is up 5%; more than respectable, but off last year’s pace. There is a similar trajectory for commercial real estate. The Dow Jones Composite All REIT Index was up 19.9% last year, and was up 114% from the low in March 2009 through December 31. Real estate continues strong this year, up over 15% so far, but it is not running at nearly the pace of the last nine months of last year.

    I hope to take a back seat to no one in my criticism of the plan to make us subjects of an overbearing, technocratic state, run along Rousseauian philosophical lines by the junior league totalitarians of the abstractionist elite, but that criticism should be built on an empirical foundation.

    1. I do taxes for a living and not a single client of mine realized a 26% gain on any equity investment in the US or elsewhere.

      Not a scientific survey but that’s reality for my little corner of the universe.

      1. Stocks were up big last year. Stocks were, however, down bigger the year before. Ditto, commercial REITs. That is part of the reason for few gains taken in 2009. Keep in mind also, that individuals tend to sell at the bottom, and stay away until things have recovered to the point where they bought initially. For mutual fund investors, the paucity of capital gains distributions is explained by the losses of 2008 being carried forward to 2009 and netting out for tax purposes.

        Mr. Cavanaugh’s claim was that asset prices were falling or flat until the beginning of this year. That is simply untrue, no matter the capital gains experience of your clients.

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