Alex S.

US Savings Rate Based On Outdated Methods of Calculation

"Let's say I bought 300 shares of Sears Holdings (SHLD) in 2004 for $23 a share spending $6,9000. Wanting to pay for my kids college, I sold them last month for $180 a share pocketing $54,000 or a profit of $47,100.

According to the current savings calculation, that $47,100 is not counted as income."

The situation described is indeed an example of negative savings.

When you sell stocks that you had previously bought, you are not making income--you are taking money out of savings in the exact same way as when you take money out of a bank account, a CD, or any other financial instrument you can think of.

The act of savings is giving cash to a second party today in exchange for some expectation of appreciation (understanding that there is some variability and potential for loss). From a macroeconomic standpoint, this is what we care about, because households saving money drives capital formation by firms.