...far beyond the scope of anything President Bush chose to address in his speech..."
The threat to end all threats - the negative national savings rate.
The Sketical Optimist (I've advised you before to check in regularly) has a post up questioning whether Americans really are the wanton spendthrifts we are made out to be.
He points out the seemingly odd fact that, though the savings rate was less than zero last year (negative 0.5% according to the Bureau of Economic Analysis), American households boosted their net worth by almost 11% - from $46 trillion to $51 trillion (according to the Federal Reserve).
And no, that wasn't just because homes got more valuable - the increase in the value of real estate accounted for $2.3 trillion of the $5.0 trilllion gain, while the value of financial assets increased by $3.4 trillion (liabilities rose as well, by about $1 trillion - also about 11%). The increase in the value of financial assets includes balances in checking accounts and cash (+ $23 billion), time deposits and savings accounts (+ $420 billion), municipal bonds (+ $80 billion), and, of course, directly held equities (+ $180 billion) and mututal funds (+ $650 billion).
The negative savings rate puzzled me, because it always seems that people as a whole act more rationally (at least from an economic perspective) than I expect, not less. A low savings rate I could believe; a zero, or negative, rate makes it sound like we long ago shuffled collectively off to the looney bin.
It turns out that the savings rate is an odd construct; it counts all taxes as reductions to income (including capital gains taxes on, for example, the sale of stocks), but doesn't count all income as income (such as the capital gains themselves). And if you are retired and spending down your portfolio, or recently sold your home and moved somewhere less expensive, you are spending money you never earned.
Let's say you sell me your home for $200,000, having diligently paid down the $80,000 you borrowed in 1990 when the price of the home was $100,000. You pay off the remaining $50,000, and have $150,000 to spend. Not income, though, according to the savings rate, and, because the savings rate is calculated by subtracting spending from income, it can't be part of savings - even if you put it all in the bank and move back in with Ma and Pa (hey, why not? Were a nation of slackers, too).
But the commissions - spent. Closing costs - spent. And the outstanding principal on mortages rose by $110,000. You've come into a nice chunk of change. I've done the smart thing and bought while mortgage rates are low. But geez...
What a bunch of spendthrifts.
Though, honestly, it seems to me we're more accurately described as capitalists - owners of assets that produce a return. And that maybe the fact that we own more return-producing assets than ever before accounts for the ever-declining savings rate. And that that's not actually a bad thing after all.
Let's crunch some numbers, shall we? If net worth continues to increase by 11%/year while inflation runs 3% and population grows by 2% per year (for a 5.65% annual real rate of increase of net worth per capita), a child born this year will retire at 65 in a country with a net worth per capita of over $6,000,000 in 2006 dollars (up from $170,000 today).