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63 comments on A quick review of some current numbers on domestic crude oil stocks and the like
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US personal savings rate is a completely worthless number. It does not include 401ks or any other investment in stocks. 401k saving and stock investments are the greatest change over the last 20 years, and as they are calculated out of the "savings rate", the savings rate is inversely correlated with 401k's and stock investments. Without comparison to the investment rate, the savings rate is worse than meaningless, it is missleading. If this number would have any correlation to reality, we would be in a great depression, which we obviously are not.
However, comparing apples to apples (same methodology), the savings rate on the chart prior 5/05 was positive, after 5/05, negative.
As noted, this corresponded to about a two-thirds increase in average crude oil prices.
And we are seeing, after 5/05, what appears to be a meltdown in US housing prices in several areas.
Yes, one of the possible interpretations is that many people thought the following: "oil stocks are going gangbuster, let's move assets from cash into oil stocks", and that they moved the money to other stocks (instead of cash) when the oil prices crashed. No doom here, just economics.
Oil prices are currently about one dollar below the average monthly price for the 20 months following 5/05 ($62, Brent), versus $38 in the 20 months prior to 5/05. The range in average monthly oil prices in the 20 months after 5/05 was from $54 to $74, through 1/07.
This had no effect on the US Personal Savings Rate?
Your making the assumption that Americans have assets besides their house and a bit in the 401k in general I don't think so.
I think you will find that amount of money invested directly by Americans in stock as part of a personal saving is minuscule at best out side of say the top 5% of Americans.
Now of course they have some money that is technically theirs in 401k's and pension plans that is being invested I'll grant you that and its not a small a mount of money but its not liquid wealth either.
The equity in their homes if any is all Americans have in general.
Many Americans will be facing real poverty if our economy slows.
Actually I suspect that Bush knows this and also I'm positive he knows the real situation in KSA. In a sense America has a dwindling chance to do something while it is still the worlds only super power. The war in Iraq and probably soon Iran is what he has chosen as America's last big move. He doesnt give a damn about Joe six pack since the American middle class is toast. At best we can be assured of enough desperate men willing to be cannon fodder during the oil wars.
I don't agree with his moves or decisions but if you make the above assumptions then they make sense from a neo-con perspective. The scary part as the collision of Peak Oil (Mexico) , Depression and War makes conditions ripe for the imposition of a wartime government and the suspension of democracy in America.
This would be the real tragedy.
Just the fact that a fairly realistic analysis of the situation with some simple assumptions makes even the probability of the suspension of democracy in America is scary to me.
"The equity in their homes if any is all Americans have in general.
Many Americans will be facing real poverty if our economy slows."
Duh!, ya' think so? Somebody please tell me how that is any different than most of post WWII history....well, except the 1970's, when you had hoards of baby boomers coming out of college who had no savings, college debt, and not even equity in a home....oh, did I mention they also faced double digit inflation, double digit interest rates and double digit unemployment and oil prices at what would now be nearly $100 per barrel?
The problem with all of these charts is that they are far too short, it is almost impossible to judge anything using a two or three year window....(ahh, it makes me think of the glory days of the tech bubble..."See, this stock only go's up!!" Question: "How far back does that chart extend?" Answer: "I didn't bother to look....let's see, uh, about a week...but see, IT ONLY GOES UP!" :-)
RC
Remember, we are only one cubic mile from freedom
I'll tell you - since I was there in the 70's, starting a family, buying a home and no debt other than a car to repay.
Compare to today as noted Here, today:
http://www.news.com.au/story/0,23599,21288836-2,00.html
PROPERTY experts have offered a bleak picture for Australia's youth, with only one in 14 believing members of Generation Y will ever be able to buy their own home.
I think this is much like the US. Today is diametrically opposite to the 70's - a time you can only grasp a glimpse of from videos and books. The primary difference was the US, Aus, Canada and the UK were producing countries - now (except for minerals from Aus and Canada) we are consumers, little more.
Ian Down Under said,
"I think this is much like the US. Today is diametrically opposite to the 70's - a time you can only grasp a glimpse of from videos and books."
I am assuming you mean that remark editorially, and not in my personal case, as I got my first job selling gasoline in 1974, and graduated high school in 1977, so I well remember the 1970's, a period when I would not have dreamed of starting a family because I could not have possibly afforded a house to start to one in...and in which I saved $20 per week from a dollar an hour job to buy my first car cash because (a) no bank would loan money to anyone just out of highschool, and (b) even if they would, I could not afford to pay the then common 18% interest rates, which would have made a $2000 dollar used car (not that uncommon then) cost about $8000.
I will not argue with the source you linked, but I am willing to bet that the mood would have been about equal to that of 1979, after the second major fuel crisis in less than a decade, war in the Persian Gulf, and oil prices per barrel at what would now be near $100 per barrel. It was great fun in those days putting in for jobs, at which point the receptionist would tell you, "go ahead and put it in, but I can tell you it's going in the garbage at quitting time, we have 500 people putting in for 3 positions here...."
Maybe Australia was doing better than the U.S. South in that period, but I can tell you from my experience it was helll that I would not want to live through again.....but guess what? We did live through it, all the kids that thought they would never own a home finally did (many delayed, mind you) and it turned out to be the best economic period in history for 20 years thereafter.
What most worries me about the "Y" generation or whatever is that they grew up in a period in which they NEVER saw a down market.....and by the squalling and moaning I am hearing in what so far has been a brief and shallow slowdown, it's debatable whether or not they can take it.....
RC
Remember, We are only one cubic mile from freedom.
I graduated with a BS in 1979 in California in deep debt, during that time, people were being shot in gas lines in LA. I had to work for a couple years before going back to school. During the 2 years working, my rent went from $150 per month to $360 per month while I got a 5% raise. Returning to school, I had to take out a 12% student loan. While I expect the economy to worsen, it has a long way to go to get as bad as the 1970s were for many folks.
I grew up and graduated in the same time period, Roger, and I am going to have to question your anecdotal numbers. The US minimum wage in 1974 was $2.00. In 1976 it advanced to $2.10. In 1977 it advanced to $2.30 and in 1978 it advanced to $2.65. If you worked for $1 per hour you should have been getting tips. If you did not get tips, then that was your personal choice to work under those conditions. I graduated in 1976, Roger, and never, ever, even in the midst of the rust belt as steel plants and coal mines closed around me, did I find myself unable to locate minimum wage work.
Grey Zone
Graduated H.S. in 74, worked my first job as a sophomore at $1.20/hr. flipping burgers in 72. Dishwasher for a time in 73 at $1.45/hr.. Worked at an amusement park as a ride operator in 75 making $1.65/hr. In between some better higher paying factory jobs. Point is Minimum Wage laws were governed by intra and interstate regulations. If your employer did not operate in more than one state then the minimum wage laws in the state were in force not the Feds. Lots of loopholes for underage workers and in general state mins. well below the Feds.
While the 80s and 90s were very good for investments they were hell on paychecks. Over the course of 24 years in my public transit job the purchasing power of my paycheck dropped in real terms about 20%. Compared to many working families who did not have the benefit of a union I did pretty good by losing only 20%. The 25% of Americans with a BA or BS live in a very different world than the 75% who lack degrees. We now live in an age where none of the benefits of economic expansion and increased worker productivity is going to those workers who are generating that wealth. We have the dichotomy of increasing wealth and increasing poverty at the same time as America continues to become Mexico.
This guy is sick and tired of the "redefinition of savings." Perhaps there are some vested interests in this? You think?
http://themessthatgreenspanmade.blogspot.com/2007/02/stop-trying-to-rede...
Westexas,
I agree with what you say as being a strong indication of the slide of the average American’s financial well being. It’s an epidemic of vast proportions, and the debt of this country is a strong signal that we are in trouble. The average voter puts politicians in place who will tend to do as they wish, which is all too often to give generously to the public welfare. I saw a news article today that claimed that about 1 in 6 in this country is receiving public assistance, and much of this was Medicaid. Health and Human Services is the largest outlay for the government, beating out the DoD. This can’t go on forever, so something has to give.
Also in the recent news were articles concerning the health care cost problem. A number of politicians and others were discussing how this might be “fixed.” From what I could see, all the ideas they presented were nothing more than ways to shift those costs around, or spend yet more government funds! Health care costs have been skyrocketing. Which is no surprise when you consider that the professional health care providers and the corporations that run the public hospitals know they can charge just about whatever they wish, because the bill will get paid in most cases by private insurance or the government. I was recently hospitalized myself, and remember well a number of doctors who charged me $300 an hour! How plain can it be? Just how many of us average citizens could afford to pay that out of pocket? Not very many, so we are stuck with paying insurance and being bled of our work over our life times! Either way we get the shaft. The poorest among us rely on the government. How can someone who makes $6 or $7 an hour afford any kind of decent health insurance? They can’t, it’s that simple. Many have been living off the rising asset price of their home, but not now!
As a research scientist working in health care related basic research, I feel fairly comfortable putting forward the suggestion (without having researched it) that the major driving force behind the rise in health costs are new technologies, treatments and drugs. An uncomfortable side effect of research efforts directed at curing diseases is the increase in treatments, usually more expensive, which are introduced into standard medical practice. No opinion on whether this is justified or not; however, I do believe that shifting some research money from medicine to sustainable environmental policy better happen soon.
Daniel,
Yes, you are correct, or at least that’s what I read in a recent news article. The patients and doctors are ordering the new technologies, treatments and drugs you speak of. Since many of these have insurance, whether it is private or government, they want the best treatment possible. Who can blame them? I would do the same.
Cheers
Daniel, I can offer no hard evidence to back up this statement, so maybe you can comment..
A very level headed friend of mine is also in UK drugs research. His comment to me many years ago was that his company spent far more more budget on 'marketing' than they did on research [presumably sports event freebies, oiling greasy palms for purchasing committees etc]. When I pressed him to guess [obviously he wouldn't know details] he figured maybe 5 - 10 times as much!
your thoughts??
If the US had the same income tax structure as we did in the 50s and 60s the cost of social services we be no problem. Repeated cuts in tax rates of corporations and the wealthy is what has put us in this dire situation.
The problem is globalization. It's the corporate tax rates that have really plummeted. From as much as 40% of tax revenue to only 7%. Our tax structure is made for the world that existed in the 1930s. Today, companies just incorporate in the Cayman Islands or some such place, and avoid paying taxes. Even if they don't, they are competing against corporations that do - at a big disadvantage.
I would pontificate that if the level of benefits had been held constant then we would not have any problems. The problem is the tit babies are always wanting the government to do more for and thus the government overspends. Causing inflation and devaluing your purchasing power the problem you eluded to earlier. Total taxation levels (meaning the percentage of your income you give to the bloodsuckers) are much higher today than in the 50's and 60's especially for the well to do.
Hello Biologist,
The stock market correlation to reality can be incredibly fast, instantly wiping out most 401ks and other stock investments. It has happened in the past and will undoubtedly happen again. The personal savings rate may just be a solid indicator of what is coming next.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Please back that up. The definition of personal savings from the BEA is
Personal saving. Personal income less the sum of personal outlays and personal current taxes.
Unless they count contributions to 401ks as personal outlays, you are incorrect. I am pretty sure that since 2005, the average american has spent more than he made, and has either pulled from savings or (more accurately) went further into debt to balance in vs. out.
I totally agree with you. There seems to be a great misunderstanding, that somehow 401k etc are not included in the savings number - this is very, very wrong. In fact, everything is included.
The BEA has a recent paper out with a few alternative ways of measuring the savings rate (eg including car purchases as "investment") here: http://bea.gov/scb/pdf/2007/02%20February/0207_saving.pdf
Their conclusion: "Alternative measures of personal saving neither change the conclusion that personal saving has fallen dramatically in the past two decades, nor do they imply any decrease in the record levels of national borrowing of recent years...."
Regards
"US personal savings rate is a completely worthless number. It does not include 401ks or any other investment in stocks. 401k saving and stock investments are the greatest change over the last 20 years, and as they are calculated out of the "savings rate", the savings rate is inversely correlated with 401k's and stock investments. Without comparison to the investment rate, the savings rate is worse than meaningless, it is missleading. If this number would have any correlation to reality, we would be in a great depression, which we obviously are not."
What value will stock investments and 401K saving have when the fractional reserve banking system they rest upon can no longer increase debt do to declining net energy? Those financial instruments only have value based on continued growth of the system. I would say 401k saving and stock investments are completely worthless numbers right along side the US personal savings rate. Promises based on ever increasing energy inputs that are not going to be there. What the numbers may be foreshadowing is there is not much more net energy to be squeezed out of the system considering the US has virtually shipped its entire industrial base to countries that use less energy per capita.
==AC
This issue seems to come down to how much longer overseas investors are willing to invest 800 billion a year in the US economy. I don't believe this decision will have much to do with reality. Eventually these investors will stop financing US growth but I doubt we can draw conclusions about the timing.
Hi Daniel,
From what I have read, overseas investors stopped buying US treasuries quite some time back - now it is only international central banks printing money to support the Ubber Central Bank in the US. For now it is in everyone's interest to keep the system running, and it will until...
Had not meant to distinguish private and governmental investors.
It is quite possible, and even likely, that 401k and stocks are or will be worthless. I just can't buy the notion that mortgaging the farm to buy stocks is not a very bad sign.
This is what initiated the great depression. First a general housing/construction bubble that collapsed with money fleeing to the stock market and this finally collapsing.
Of course this time is different we will have a permanently high plateau of prosperity.
Note that the correct term, as used by the Bureau of Economic Analysis, is the US Personal Saving Rate, with no 's' on the end of "saving." This is because the two terms, saving and savings, have different economic meanings.
Personal Saving is derived by first calculating total personal income, then reducing that by personal taxes and contributions for government social insurance. That result is personal disposable income, which when reduced by personal consumption, non-mortgage interest payments and personal transfer payments leaves personal saving. Positive personal saving is added to personal savings, negative personal saving is deducted from personal savings.
Under the above, it is clear that saving is a flow, while savings is a stock or supply, the stock of accumulated personal wealth. If savings is in the form of assets that can appreciate in value, then it is possible for savings to increase in spite of a zero saving rate. Personal savings can even grow in the face of a negative saving rate, providing asset appreciation exceeds the negative saving rate.
Seen in its proper context, the US personal saving rate is therefore not a worthless number. The fact that it is negative tells us that any growth in US personal savings is because of increase asset valuation and not the inflow of additional saving.
In an of itself, this situation is not seen to be that serious over the short term, as evidenced by reports from the Federal Reserve Banks of San Francisco and St. Louis and Germany's
CommerzBank.
Long term negative personal saving could very well be a different story.