I think the inverse is more likely the case. Savings rates should be decreasing with an increase in retirement eligible population. Retirees start drawing down on their accrued savings. As the population continues to age, you'll see a further decrease in savings. This shouldnt really be that big of a concern, especially in this rate environment.
I think what they meant was as people are getting closer to retirement age, they should be saving money. And with such a large huge portion of the population about to retire (but not yet retired), we shouldn't be seeing a decrease in savings. I donno. Anyways, here is the article that I read that from if you are interested (about mid way through).
On one side: On the other side, self-anointed arm-chair internet/anonymous voodoonomics-ist wannabes bx, T_J, and Fat b*stard. Who should I listen? Who should I listen? Oh the dilemma!
4.22% for a one year CD. After 14 rate hikes by Greenspan, the average yield for a 5 year CD was 4.56%, as of today. In 2002, it was about 1.5%. In 2004, it was about 3.5%. I'm aware of CD rates, Fatty. What does Carter have to do with anything? George W. Bush has been President since 2000. So? Keep D&D Civil.
This was based on an article that said this year there is negative savings. When CD rates are doing quite nicely. And you can find a 1 year CD at 4.8% if you do your research. Your argument doesn't hold water.
I'm not disagreeing with either quote you posted. I'm discounting people's spending habits as potentially destroying the economy.
You mention that part of the article, yet you leave out: "This time the reasons for the negative savings rate are vastly different. Americans are spending all their incomes and then some because they feel wealthier due to the soaring value of their homes, which is the largest investment many own." A low savings rate, my guess, is not good but you can't really use your sentence as the basis for an arguement without considering everything else in the article. Also, why is this Bush's fault?
My "argument??" I merely stated what I think is a factor in the lack of savings by Americans today. It is shockingly low... incredibly low. We are setting ourselves up for a huge fall, in my opinion. Huge deficits by the Administration and Republican Congress, with Bush yet to cast any veto, a modern record, much less veto a spending bill. An increasing threat of a switch to the Euro as the currency of choice by the major oil producers. One could go on at length about the threats to our economy right now. Why did I mention the CD? Perhaps you aren't old enough to remember, but it was the savings vehicle favored by the middle class, for many years. The stock market was considered risky, and was viewed as being something those in higher income brackets used. The middle class preferred the safety of insured CDs. During the '90's, with the booming market, and the increasing popularity of mutual funds, which seemed safe enough after hearing and reading about fantastic returns (compared to lower and lower yields on CDs), the middle class got into the market with a vengeance. With the bursting of the dot-com balloon, CDs suddenly looked attractive again, until one looked at the yields. I'm just chatting, Fatty. I've never pretended to be a financial wiz. I have friends who are. Pay me no mind... I'm a liberal Democrat who misses President Clinton, is in an income bracket that would be hit by raising taxes, and I think we should raise taxes (roll back most of Bush's endless series of tax cuts) on higher incomes like mine, and those really wealthy people who are in hog heaven, to provide social services for those in need, higher salaries for the military, far better veteran benefits, to rebuild NOLA and the Upper Gulf, pay for the idiotic war this President chose to put us in, and... gasp! attempt to balance the budget. That, and much else being neglected. Otherwise, things are peachy. Keep D&D Civil.
This is the quote that I'd make an argument against from your article. ''The idea is to put away money for old age, and we are just not doing that.'' With 78 million people on the verge of retirement(article), these people are essentially "old-aged". With such a large percentage of the population "old-aged", its only natural that a per-capita savings rate is going to decrease. In the past few years' rate environment, I would be much more concerned if the savings rate was abnormally high. There have been much better places to find higher risk-adjusted returns in this climate, and I dont mean buying flat screen tvs.
Conventional wisdom is that the runup in housing prices (driven in large part by lower interest rates) has allowed home owners to borrow against their equity and, in effect, live beyond their means (negative savings rate). On the plus side, this has increased consumer demand and is largely responsible for the recent growth in the US and world economy. On the negative side, this has led to large deficits (along with government spending), which puts downward pressure on the dollar. Many experts feel that, although these deficits may be OK in the short term, that the chickens will come home to roost at some time not too far away: specifically through a lower dollar value, which in term would lead to inflation. While I'm not an expert in this area, common sense would suggest that it is not a good thing to continue to live beyond your means for an indefinite period of time.
The low savings rate of the United States is quite worrying. When it comes time for the Baby Boomers to retire, the low savings rate means most of them will not have enough money to get by, even with Social Security and Medicare. America's economy is completly dependent on consumption, which is sustainable in the short term, but is not sustainable in the long term. With the massive deficits and huge spending of the government, the only thing holding up America's economy is foreigners controlling our debts. Essentially, America's deficit spending is being financed by other countries buying up American dollors and America borrowing from abroad. This is a path towards a fiscal debt time bomb. I also have a problem with those on the board who are making this issue into a partisan debate about liberals and conservatives. This issue has NOTHING to do with that! America needs to wake up to the emerging crisis and needs to solve the problem through strong economic leadership from the government. Unfortunately, I don't see much of this leadership coming from the present government in either Congress or the President of the United States. I would advise everyone to save as much money as they can, and put in mutual funds, IRA's, bonds, and savings accounts because when my generation (generation X) is set to retire, you can be sure our government will not be able to support us as in the previous generations.
Nice post. Did you know that Bush has set a modern record, for his time in office, of not having vetoed one bill of any kind, much less a spending bill? And his supporters think he is a conservative. What a joke. Keep D&D Civil.
I guess I see it differently. If I was on the verge of retiring, I would be saving like crazy for retirement. I wouldn't go into negative savings a couple of years before I am no longer am working. If the 78 million baby boomers were already retired, not on the verge, I would agree. Then again, I know little about economics.
I'm going to have to paraphrase Robert Lucas' 1988 paper in the Journal of Monetary Economics here: "Once one starts to think about economic growth, it's hard to think about anything else." The fundamental macroeconomic phenomenon is growth. It's what explains huge increases in income levels over time and equally substantial cross-country income differences. When you have a low savings rate, you are forced into a lower rate of growth of output per person. To be fair, it's only a level shift, and not a change in marginal productivity, but still, over the course of a decade or two, it can generate hugely different outcomes. In the long run, a low savings rate undoubtedly diminshes the growth rate of per capital income. Do I know what the optimal savings rate is for the US? No. But there are some economists that probably can come up with pretty good estimates. Do I think the optimal savings rate is negative? No way. It's not like we're contracting our capital stock in order to accelerate institutional and technological development. We're doing it so we can buy iPods and refrigerators with TVs in them. (That last statement was facetious.)
Japan has had one of the highest personal savings rates in the world for many years, yet their economy has been stagnant for the last 15 years.
You cant correlate the two. Japan had huge structural problems. Corporations were horrendously inefficient due to the idea of giving "permanent jobs." Banks gave out non-performing loans that sank the bank industry in a manner similar to what happened during the great depression. Massive deflation crippled the economy as a result and growth virtually disappeared. Not to mention the collapse of the real estate market which had a gigantic bubble burst. They're only just recovering from this because of politics and inaction by the government and corporations. This has very little to do with personal savings.
In a way, you kind of echo what I was getting at though. Personal savings has very little effect on the economy in general.
