Not All Savings Is Good Savings 12 comments
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The personal savings rate in October was estimated to be 2.4% which was an increase of 1.4% from September’s savings rate. Normally, during periods of rising unemployment and increasing economic hardship, the personal savings rate declines because some households spend more than they earn. When consumers are confident about the future, they believe that it’s OK to dip into savings to cover a short term household income shortfall because better times are right around the corner. However, when consumers are scared about the future they put money “under the mattress” because they think it will be needed in the future. The rise in personal savings is a signal that confidence in the future is eroding and that householders are copying banks by hoarding financial resources.
While the United States desperately needs to have an increased savings rate, an increase in savings due to fear of the future isn’t what most economists have in mind. “Good” savings occur because households have confidence in the future and want to participate in better times ahead. “Bad” savings happen when households are afraid of the future. October’s increase in savings was an example of bad savings and reinforces an already weak economic cycle.
Money supply hits a new high
The Federal Reserve resumed its monetary stimulus crusade by pushing money supply up to new records. As measured by both seasonally and non-seasonally adjusted M2, money supply has never been greater.
Fed Funds trades below the target rate
The effective Federal Funds Rate has gradually floated up from its low of 0.23% to around 0.60% which means that the actual rate is still below the target rate of 1.00%. There has been a lot of debate among economists and Fed watchers as to what the difference between actual and target Fed Funds means. I think that Fed Funds data is saying that there are excess reserves in the banking system which continues to signal hoarding. I also think that if the actual rate converges with the target rate, the Federal Reserve will institute another cut in the target rate.
Black Friday results provide false comfort
While initial Black Friday sales numbers are encouraging, these sales only have limited significance. This year’s Black Friday sales were driven by unbelievable discounting and promotions rather than strong underlying economic conditions. So, while sales are slightly up when compared to 2007, margins are almost certainly down. And, there is a good chance that sales were shifted from later in the holiday season to Black Friday which means that the sell through for the rest of December will be potentially weaker than Black Friday’s sales numbers indicate.
Another “canary in the cave” warns of deflation
On Wednesday, the Department of Commerce released data for October. The PCE price index provided additional evidence of a deflationary spiral. The PCE price index is a measure of changing prices (it is calculated differently from CPI) and decreased 0.6% in October.
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This article has 12 comments:
That's because 'most economists' are Keynesians. To a Keynesian ANY spending is preferred to trimming the deadwood from the economy.
What the consumers are reverting to is necessary spending while saving any excess income for the proverbial rainy day (ie. the possible pink slip in their near future). This is exactly what the economy needs if it is ever going to stabilize and begin to recover on a solid foundation.
This is exactly what people like Ron Paul and Peter Schiff were saying over a year ago, and events have proven them right. All those who pooh poohed their claims at that time are now undertaking the 'excuse of the week' program while trying to wipe the egg off their face.
What the economy most needs is to rid itself of the unnecessary businesses and the debt which sustained them over the past 10 years and instead to build savings and spending only on those businesses which provide 'must have' items.
Naturally, this is the last thing that the Keynesians in and out of the gub'mint want to see happen as it will show the world how wrong they have been for the past 3 decades.
Keynesian policies are the cause of our current problems, more of the same won't do anything to fix what they have broken.
That money isn't literally under the mattress, is it? No, it is in a savings account, CD or checking account where it can be lent out by the bank. How then can money deposited in a bank be called "hoarding"?
Nor is it 'funny' that our elected leaders continue to ignore the plain wording of the Constitution which they routinely swear to uphold and then repeatedly violate for the purposes of securing re-election or to repward cronies and supporters with our taxdollars.
Offhand I can think of only one member that deserves a proper title of respect in Washington, the Honorable Ron Paul.
There may be others who come close. Most are nothing but crass opportunists at our expense, and the expense of our children and grandchildren, who deserve a label much worse than "gub'mint" for their behavior as our "leaders".
When those who govern from Washington start adhering to the limits that the Constitution imposes on them they will deserve honor and respect. Until that time I will continue to apply a label which, perhaps to some, grants them a measure of respect they do not deserve. gub'mint.
I am sorry if there are readers out there whose sense of political correctness finds this repulsive, but as far as I know this is still a (supposedly) free country where I am allowed to express my opinion. I do not ask that you agree with me or even find my opinions pleasant. You are free to express your own opinions to the contrary, whether I agree with them or not.
I only hope that you yourself still believe that I am entitled to do likewise.
Move money from under the mattress to new location. Potential spots:
1) Cookie jar
2) Buried in back yard
3) Under welcome mat
4) Between pages of various books on bookshelf
5) Ziploc bag in freezer
True, but I would bet that that is not what is meant. So my question is still revelant, IMO.
Smarty,
We all love ya, even that commenter I would bet. How about "gub'print"? "Mint" is really too kind, don't you think?
I take no offense. He has every right to express his opinion on the topic. My use of the term in question is intentional and a symbol of my disdain for most politicians and bureaucrats. They deserve to be called worse but this is an open public forum and I choose not to resort to less agreeable labels.
While gub'print is a nice play on words, it's actually the FED that prints. The gub's only borrow and spend.
Not to worry, one of these days our paper-backed currency will outvalue the dollar. Then we'll see who has the last laugh.
Yes, I realize the Fed prints the money. So what I was trying to convey was that evil couple, the Federal Government and the Fed. Between the two them, they do a number on the country.
As for money, precious metal backing is very useful in gaining initial acceptance for a currency but later, in the event of unavailability or scarcity it would not be needed as long as the issuing bank had a deserved reputation for honesty and fairness in the issuing of new money so as not to dilute existing holders,IMO.
Honest innovations and convenience would also help. Of course any bank with such a good reputation could become a target of government for its own misuses.
I sure wish we had free banking. I have some ideas I would love to try.
The Mint (part of the Treasury) prints the money for the FED. The FED pays them for printing it on their behalf. The bills are ordered and paid for by the FED, who then lends it to the Treasury in return for Treasury debt. Once the money is in the Treasury everyone else spends it and then some.
The sad part is that in the past the Treasury has simply printed the money and used it without issuing debt (see civil war era). Today's system differs only in that the Treasury is saddled with interest payments where there weren't any in the past.