It saddens me that the credit-addicted US has turned into a big consumption-addicted debtor nation, with a negative savings rate. Of course, the crash of the housing market will change things, as people finally get a taste of reality, cut back their spending, and try to hoard what they can knowing their houses are depreciating and retirement looms not too far away.
Take a look at the city by city and state by state lists. Rich states, poor states. Cities where people put it away and cities where people spend a lot more than they earn. I'd bet these lists match up nicely with the home foreclosure lists to come during the downturn.
The United States does not do savings. Last year, the personal savings rate as a percentage of disposable income in this country was negative 0.5 percent, by far the lowest of any industrialized nation.
In France, the savings rate was 11.6 percent. Germany's rate was a robust 10.6 percent. Japan clocked in at 6.7 percent.
What's the problem? Americans like to spend too much, and it's often money we don't have. Revolving credit card debt hit $807 billion in April, according to the Federal Reserve. That's the equivalent of $7,200 per household.
"The savings situation in this country is dire, as people are not adding to their savings in the way they should be," says Sophie Beckmann, Financial Planning Specialist at St. Louis-based investment brokerage A.G. Edwards. "People are setting their priorities where savings is not high on the list."
With this in mind, A.G. Edwards set out to determine which American cities are doing the best job of building wealth. The result was A.G. Edwards' second annual Nest Egg Index, which ranks the top 500 markets based on their residents' investing and personal savings behavior.
September 12, 2006
From a nation of savers to a nation of debtors: A tale of two cities with the A.G. Edwards Nest Egg Index
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Since our currency is sinking, those that have debt are servicing it with future currency, worth even less while holding the asset today.
Panic?
I think not.
The US gov entirely is betting on hyperinflation to pay off its debt (if possible). Helo Ben told me himself.
As the price of oil will continue to soar (down 15% since July 12th [all time high $78.40], but up 300% since 2003) - REAL inflation will continue to take hold.
Riddle me this batman...when was the last time (in Phx) a head of iceberg lettuce was .99??
You think it is a mystery the M3 went out of circulation on March 23, 2006.
Richard!! It's time to go to school now! MOM.
Holy crap! The uber-consumers just posted the largest US trade deficit ever: 68B! Economists expected only the 3rd largest deficit ever: 65.5B. Also, imports rose 1% and exports declined 1.1%. Not a rosy picture.
WASHINGTON (Reuters) - The U.S. trade deficit widened much more than expected in July to a record $68 billion dollars as record oil prices pushed America's monthly oil import bill to an all time high, a government report showed on Tuesday.
The trade gap widened 5 percent from June for the biggest month-to-month increase in nearly a year, the Commerce Department said. Wall Street analysts surveyed before the report had expected higher oil prices in July to widen the trade gap to $65.5 billion.
...
Does anyone NOT see the 2nd Great Depression?
WTF? Don't you understand DEBT is very BAD. The BORROWER is a SERVANT to the LENDER. Prov, 22.7
I found out why Keith is in Vegas!
Grocery baggers to compete in Las Vegas
http://news.yahoo.com/s/ap/20060911/ap_on_fe_st/best_bagger_3
j/k lol
That savings index includes homeownership in its calculation. Considering homeownership is actually part of the problem as we have changed the definition of borrower and debtor, I don't put much faith in the index.
To the first poster:
Question: In a deflationary scenario those with debt will be paying todays debt back with tomorrows dollars. A downward spiral in wages and prices will be a disaster for those with high levels of unsecured debt. Therefore panic is warranted. no?
"as record oil prices pushed America's monthly oil import bill to an all time high"
Really...amazing huh??
Really ANONs (and Keith) -
Trevor Cordes and myself are conspiring these reports on oil.
Pay no attention - "full steam ahead captain all is fine".
Keep in mind that the $68B deficit number posted today was for JULY. That number lags by 1.5 months. Now, knowing that oil/gas prices were higher still and for a longer period in August, how ugly do you want to bet next month's number will be?
The market doesn't seem to care though. Right now, major indices all up and dollar stronger on this ugly deficit number. The "market" really is stupid! (for now...)
It's good to see the poor people of this country falling deeper in debt. Alan Greenspan should be given a medal of honor. Permanent servant class, here we come. Now, boy, go get me some caviar and cognac, chop, chop!
tabasco you are very correct. great transfer of wealth from the poor to the rich with the "ownership society", where the poor bought at the peak, paying high interest rates. they're screwed.
Keith, yes gold has declined in the last few days, but dont jump ship yet, hold it and put it away (physical not ETF,) it will do you well in the new year for sure when everyone is liquid strapped.The ones who rag on you now will pay dearly later on (IE) I TOLD YOU SO ) HAHAHAH!
http://tinyurl.com/hmx4s
http://tinyurl.com/zyabv
my 2 silver dimes.
This very interesting. Look at the demographics. In areas were there's a lot of highly skilled and educated people, the savings rate are high. If I may add, Silicon Valley has a big population of Asian engineers from China and India, and SAVINGS comes first before expenses, as part of culture.
Conversely, look at L.A. and Houston and the stature of people who lives there. I'll just leave it at that.
Richard:
Make sure you drink your milk before taking off for school.LOL!
Bake McBride = apologist for irresponsible economic policies, out of control spending, and offshoring of good-paying jobs to third world countries.
I know this post doesnt belong on this thread, but just wanted everyone to know on the Drudge report gas is $2 a gallon in Iowa.
What is going on?
I want $2 gas here too in Reno!
Real Estate Recession Coming
By ROBERT Z. ALIBER
September 12, 2006
URL: http://www.nysun.com/article/39480
The housing market now is increasingly a buyer's market. One of the major builders of luxury homes reported that both its third quarter and full year earnings "would fall short of its previous forecasts as a result of slower sales." The firm noted that "high cancellation rates on contracts in backlog that were projected to close this year, and more pronounced use of price concessions and incentives, particularly on the resale of those homes which have experienced contract cancellations."
Some realtors and economists now argue that the decline in home prices will be modest and is nearly complete.
They are very likely to be mistaken.This decline is just beginning and will become more severe because of a recession that will be triggered by the falling home prices. This in turn will lead to a surge in unemployment and many of the newly-unemployed will no longer be able to afford their homes.
The first factor that led to the unprecedented surge in home prices of more than 50% in the last five years is that the Federal Reserve began to pursue an extremely easy money policy in 2001 to buffer the economy from the implosion of the stock price bubble of the late 1990s.
Nominal interest rates declined to 1%,and since the inflation rate bounced around 2%, real interest rates were negative. The combination of low interest rates and the ready availability of credit led to a surge in home prices that in turn led to exceptionally high levels of both new construction and remodeling — new kitchens and bathrooms. Moreover the surge in household net worth that followed from the much higher level of home prices facilitated borrowing. People used their new collateral to pay for autos, vacations, tuition, and even daily living expenses.
The second factor that drove home prices upward has been the creativity of the lenders in developing new forms of credit. Financial firms became much more creative in designing mortgages that reduced the monthly payment of the borrowers and thus enabled them to buy more expensive properties. More borrowers opted for adjustable interest rate mortgages, or ARMS. Some provided only for interest payments for five or ten years. A recent innovation was the negative amortization mortgage, sometimes called the option ARM. The interest payment that the borrowers made for three or five years was less than the amount required based on the interest rate, and the borrowers' indebtedness increased.
The expansion of private mortgage insurance meant that many individuals could buy homes for the first time. Their purchases induced significant increase in the prices of starter homes, and the owners of these properties realized large capital gains and spectacular increases in their net worth and so they traded up to more expansive homes.
Finally tens of thousands of individuals have purchased homes and apartments in anticipation of large gains on their small investments. Condo flipping became commonplace and for several years the practice was extremely profitable.
Most of the surge in property prices has been on the Pacific and the Atlantic coasts and especially in warm weather areas; home prices in the Midwest and in Texas have not increased significantly. Prices have doubled in the southern California and south Florida.
The Federal Reserve reversed its easy money policy in the Summer of 2004 and then began to increase interest rates slowly and steadily. Interest rates on some adjustable rate mortgages are now twice as high as they were three years ago. Home foreclosures began to surge about six months ago, especially in Indiana and Ohio and other states that have experienced job losses in the automobile industry. Foreclosures also have increased in Colorado and other mountain states and in southern California.
Some impatient sellers have auctioned their properties. The sales prices often have been 20-30% below the previous asking prices. Moreover the sellers incur marketing and other costs that often are 10% of their selling prices, about twice as high as the traditional real estate sales commission.
Government regulators will require that the banks that have taken title to homes in foreclosure sell them. The prices of these properties will decline by 20-30% or more.
Moreover many of the investors who bought homes in Florida, Arizona, Las Vegas, and Southern California in anticipation of quick revaluation profits will put these properties on the market, often at prices significantly below their purchase price.
The supply of homes nationwide for sale is much higher than at any time since the early 1990s, about equal to six months' sales. In part the increase in the inventory of unsold homes reflects a stalemate — buyers are waiting for prices to decline further while sellers are reluctant to reduce their asking prices in anticipation that there is an eager buyer just over the horizon. Most of these sellers will be disappointed. The current market value of their homes is below and in many cases significantly below their current asking prices.
In the next few months more and more of those houses on the market will reduce their asking prices, both because of the mounting costs of owning unoccupied properties and in response to the price reductions by the major home builders who will be seeking to reduce their inventories of newly built and unsold homes.
Moreover no builder is likely to put a shovel in the ground to start a new project until home prices stabilize.
Financial markets have already responded. Share prices of companies that are major home builders have declined by 30-50% in the last year.
The decline in spending that will follow from the combination of the sharp decline in new home construction and the much smaller borrowing against lower home values will lead to a sharp increase in the unemployment rate. Foreclosures and price drops will follow.
The decline in household wealth that will follow from lower home prices is likely to be comparable to the decline in 2000, 2001, and 2002 that followed from the lower stock prices. Moreover the sharp slowdown in the rate of economic growth is not good news for corporate profits.
U.S. equity prices declined by 40% in the three years after the bubble imploded. The decline in property values on average could be as large, and because of the regional character of the bubble, much larger in what had been the hot property markets.
The New York area will be sharply affected both by the decline in home prices and in stock prices. Homes in the metropolitan area will remain more costly than in most other parts of the country, but they will become much more affordable than they now.
Mr. Aliber is professor at the University of Chicago's Graduate School of Business and president and chief investment officer of Dorchester Capital Management.
It saddens me that the credit-addicted US has turned into a big consumption-addicted debtor nation, with a negative savings rate. Of course, the crash of the housing market will change things, as people finally get a taste of reality, cut back their spending, and try to hoard what they can knowing their houses are depreciating and retirement looms not too far away.
The American way of life is non-negotiable. The Vice-President said so, it must be true! Even when wages stagnate, and pharmaceutical and insurance costs shoot up, and utility and tuition costs rise at a rate exceeding inflation. I perceive that people feel more "patriotic" when they devote more of their disposable income to Chase, CitiBank, Bank of America, CapitalOne, and Discover. Keep the economy going now, so it'll stall when the next administration comes in and we can blame it. The ANTi-Americans are saving now; the "patriotic" grasshoppers are doing their duty by bending over for financial lenders. Keep up the arREARS and good work, chum(p)s.
Richard:
Don't forget your lunch!
Mom
I'm not surprised at all with Los Alamos, NM. That is a small city which is a 99% "company town", the Los Alamos National Lab. I was there a month ago.
People there are paid well ($80-130k for PhD scientists) and there isn't that much to spend it on, other than maybe fancy mountain bikes. The personality types are also not flashy spenders either.
Outside that tiny bubble, (and outside the country homes of uber trendy & rich in Santa Fe), NM is very poor.
McBride: there are 2 camps: the mainstream media "deficits don't matter" camp, and the "we're freaking doomed" camp. I won't say one is right or wrong, we'll find that out soon enough. I have my opinion, obviously.
If deficits don't matter, then the Ponzi sham can continue until the cows come home. There are tons of things that can happen that would instantly make the deficits matter again; everything has to keep going "perfect" for it not to blow up.
I, for one, like to take the opposite view of the MSM as the masses are almost always wrong. Just like in summer 2005 when they said there is not, and can never be, a housing bubble. At that precise moment I was loading up on homebuilder 2008 LEAP puts. Was the MSM correct that time?
"Everything's ok, move along, nothing to see here."
as liquidity tightens and ushers in the collapse of the gentrification of inner city neighborhoods i am hoping to see tag-team cage matches that pit:
Starbucks Yupster and GenX Flipper
against
The Urban Outdoorsman and his skanky cohort Crack Ho
Let's get it on!
Regarding Japan:
When's the last time you saw an American camera? Stereo?
Toyota is destroying the US carmakers.
Despite their supposed decline, they maintained all their industrial supremacy.
Japanese were stupid in their property bubble, but their industrial policy (now pursued ten times as much by China) was fully successful, and no US industry came back.
borkafatty said...
Keith, yes gold has declined in the last few days, but dont jump ship yet, hold it and put it away (physical not ETF,) it will do you well in the new year for sure when everyone is liquid strapped.The ones who rag on you now will pay dearly later on (IE) I TOLD YOU SO ) HAHAHAH!
http://tinyurl.com/hmx4s
http://tinyurl.com/zyabv
my 2 silver dimes.
___________________________________
What do you think of precious metals mutual funds (VGPMX). The guy in the second article says to sell all stocks, bonds, mutual funds, non-gold ETFs etc...
VGPMX is a precious metals mutual fund. I'm still trying to figure out how that bad boy will do in an 'event'.
the last paragraph of that article...
"Many potential house buyers will be alarmed by the very real possibility that interest rates could rise again before the end of the year. We think these mounting affordability pressures will increasingly outweigh the support to the housing market coming from high employment and a relatively healthy economy," said economist Howard Archer of Global Insight."
Looks like a blip on the screen - no more than a temporary band aid in advance of the bone crushing thud.
LauraVella, it's pretty obvious what's going on wrt oil prices: mid-term elections are just a few weeks away.
Big oil does NOT want Democrats to take control of congress. That could potentially ruin their ability to control foreign policy and keep prices artificially high. They are willing to sacrifice a little bit of their short term profits in order to help take the pressure off of Republicans.
I don't see prices dropping 40%. There will be severe pain for the speculators and those who took on exotic loans. I see housing average prices dropping perhaps 25% in the bubble areas and maybe 10% in non-bubble areas. Prices will make new highs again in 2013.
The real problems with the massive trade deficits are:
1. It is getting out of hand as a percentage of GDP. Never in history have such large numbers been seen without a huge painful correction to the violating country (normally massive currency crash).
2. The USA is at the mercy of the Asians, their creditors. If China & JP want something, all they have to do is threaten to sell their T-bills and dollars. JP probably isn't a problem, but China??
3. To continue on this course without a correction the size of debt and deficits must keep growing just to keep everything level. Any interruption or downtick and it's bye-bye bonds, bye-bye housing...
One day, don't know when, the deficits will matter and it will be a nightmare to make up for all these years of insanity.
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