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Government Shutdown Reveals Nasty Truth About Americans’ Savings

January 31, 2019

government shutdown reveals americans have no savings

Government Shutdown Reveals Nasty Truth About Americans’ Savings

The temporarily-ended government shutdown didn’t have had a large effect on the U.S. economy, but it may have revealed something disturbing about the savings of 80% of Americans.

They aren’t prepared if the economy get worse.

MarketWatch published some recent findings in an op-ed (emphasis ours):

Why do a few weeks without pay turn into a crisis for many families? Simple: Nearly 80% of Americans live paycheck to paycheck. That’s a problem when you have little to no savings. In fact, it’s akin to playing financial Russian roulette.

And the problem is terrifyingly pervasive. According to a recent GoBankingRates survey, only 21% of Americans have more than $10,000 in savings, with nearly 60% having less than $1,000 in savings.

The findings come from a recent GoBankingRates survey, which contained the following chart reflecting MarketWatch’s findings:

american savings 2014 - 2018

With interest rates on the rise and the economy at levels of uncertainty not seen since 2008, it’s crucial for Americans to buffer their income with some sort of hedge.

Without reliable “go-to” savings and a plan, there could be tough times ahead if the market continues diving into recession.

But the nasty truth appears to be most Americans don’t have enough savings, if any at all, to get them through the tough times.

Right now, government-reported unemployment is the lowest it’s been since 2000. But as you can see from the chart below, a recession tends to follow the “lowest” unemployment rates:

civilian unemployment rate

It’s not for sure that this is a signal of an imminent recession, but it sure seems like enough circumstantial evidence to consider looking into your savings options. That, and the fact that the shutdown has only been “ended” until February 15. After that, we may see “Part II.”

And the shutdown isn’t only affecting individuals. It even drew the attention of top CEOs.

 …click on the above link to read the rest of the article…

What Does it Mean, Saving Rate drops to 12-Year Low when 50% of Americans Don’t Have Savings?

January 30, 2018

What Does it Mean, Saving Rate drops to 12-Year Low when 50% of Americans Don’t Have Savings?

Or what the averages are hiding.

We will start with income and see what’s left over, and for whom.

Personal income increased by 4.1% in December from a year earlier, the Bureau of Economic Analysis reported today. This includes all income received by all persons from all sources, such as from labor, financial assets (dividends and interest income but not capital gains), business activities, homeownership (rentals), government transfers, etc.

“Real” personal income — adjusted for inflation via “chained 2009 dollars” — rose only 2.37%. This is for the US overall.

Per-capita “real” personal income – which accounts for 0.71% population growth in 2017 and measures income per individual – rose only about 1.7%. If the inflation measure even slightly understates actual inflation as experienced by these individuals, their personal income growth might go away entirely.

Next step down…

Disposable personal income – personal income less personal taxes – increased 3.9% year over year in December. This is the income that folks have available for spending or saving. “Real” disposable personal income rose 2.1%. And on a per-capita basis, it rose only 1.4%. So these are not exactly huge increases.

Not everyone is getting this income growth equally.

The economy can be divided up into layers. Bridgewater Associates founder Ray Dalio sees a split between the top 40% of income earners for whom the economy is doing well, and the bottom 60% for whom the economy is a series of setbacks. Or by it could be 30% and 70%. Wherever the split is drawn, the smaller group of top income earners has had it good while the larger group of income earners at the bottom is struggling.

But consumers, no matter what their income levels, are trying to do their best to prop up the economy, upholding an American tradition. And they’re spending more, the Bureau of Economic Analysis reported today.

…click on the above link to read the rest of the article…

“This Is 1987”: Some “Haunting Math” On Today’s GDP Number From David Rosenberg

January 26, 2018

“This Is 1987”: Some “Haunting Math” On Today’s GDP Number From David Rosenberg

When discussing today’s unexpectedly weak Q4 GDP print, which came in at 2.6%, far below consensus and whisper estimates in the 3%+ range, and certainly both the Atlanta and NY Fed estimates, we pointed out the silver lining: personal spending and final sales, which surged 4.6% Q/Q (vs 2.2% in Q3), although even this number had a major caveat: “as we discussed previously, much of it was the result of a surge in credit card-funded spending while the personal savings rate dropped to levels last seen during the financial crisis.”

Indeed, recall the stunning Gluskin Sheff chart we presented a month ago, which showed that 13-week annualized credit card balances in the U.S. had gone “completely vertical” in the last few months of 2017 which we said “should make for some great Christmas.”

Meanwhile, even more troubling was the ongoing collapse in the US personal savings rate, which last month tumbled to the lowest level since the financial crisis as US consumers drained what little was left of their savings to splurge on holiday purchases.

And while we highlighted and qualified two trends as key contributors to the spending surge in Q4 personal spending, Gluskin Sheff’s David Rosenberg – who is once again firmly in the bearish camp – did one better and quantified the impact. Not one to mince words, the former Merrill chief economist described what is going on as “The Twilight Zone Economy” for the following reason:

how many times in the past have we seen a 2.6% savings rate coincide with a 4.1% jobless rate? How about never…huge ETF flows driving equities higher, but these metrics are screaming ‘late cycle’.

He then proceeded to give “some haunting math” from the GDP number: “The savings rate fell from 3.3% to 2.6%. If it had stayed the same, real PCE would have been 0.8% (annualized) instead of 3.8% and GDP would have been 0.6% instead of 2.6%.”

…click on the above link to read the rest of the article…

According To Deutsche Bank, The “Worst Kind Of Recession” May Have Already Started

May 8, 2016

According To Deutsche Bank, The “Worst Kind Of Recession” May Have Already Started

One week ago, Deutsche Bank’s Dominic Konstam unveiled, whether he likes it or not, what the next all too likely step will be as central bankers scramble to preserve order in a world in which monetary policy has all but lost effectiveness: “It is becoming increasingly clear to us that the level of yields at which credit expansion in Europe and Japan will pick up in earnest is probably negative, and substantially so. Therefore, the ECB and BoJ should move more strongly toward penalizing savings via negative retail deposit rates or perhaps wealth taxes.”

Many were not happy, although in reality the only reason why the DB strategist proposed this disturbing idea is because this is precisely what the central banks will end up doing.

Today, he follows up with an explanation just why the central bankers will engage in such lunatic measures: quite simply, he thinks that economic contraction is now practically assured – and may have already begun – for a simple reason: contrary to popular belief, this particular “expansion” will die of old age after all, and won’t even need the Fed’s intervention to unleash the next recession (if not depression).

There is an old saying amongst market watchers that economic expansions do not die of old age. Rather, during the course of the business cycle dynamics emerge that threaten to become unacceptable from a policy perspective. In the context of economic expansion, that dynamic has been inflation. The conventional pattern has been that as expansions mature, demand for labor outstrips the available supply, creating upward pressure on wages. In the presence of pricing power, higher wages are passed along to end consumers through higher prices.

…click on the above link to read the rest of the article…

This Will Be Largest Evaporation of Wealth in Modern History

April 14, 2016

This Will Be Largest Evaporation of Wealth in Modern History

It’ll devastate China’s economy and reverberate around the world

Only a handful of countries have a higher savings rate than the Chinese do. For a still relatively poor emerging country with GDP per capita about a fifth of that in the U.S., the Chinese get an A+ in this area.

But if diversification and asset allocation are the key to preserving wealth, then the Chinese get an F!

The reason: 75% of their wealth is in real estate. They’ve overinvested in one illiquid and bubbly asset that they wrongly believe can only go higher. Relative to income, China has seven of the 10 most expensive cities in the world.

In other words, it has the greatest real estate bubble in modern history!

Price to income ratios in the top cities are off the charts. Beijing is 33.5 times income, Shanghai is 30.2 and Shenzhen is 30.0. The average condo in such tier I cities is only 650 square feet and would go for $460 per square foot, or $300,000. In a tier II city, we’re talking $100,000.

That may not sound like a lot, but the average Chinese are only making about $10,000 per year! That begs the question: how do they even do it on their incomes!?

Wade Shepard went after this question in a recent Forbes article. In China, owning your home is paramount. If you’re a man, you have zero chance of getting a date if you don’t. But with home prices running at exorbitant rates, what are their chances?

It all comes back to China’s phenomenally high savings rate. Compared with about 2% in the U.S., the Chinese on average save about 30% of their income. And for the most affluent, it’s more than double that!

…click on the above link to read the rest of the article…

Fear The Smell Of (Monetary) Napalm In The Morning

February 26, 2016

Fear The Smell Of (Monetary) Napalm In The Morning

Via ConvergEx’s Nick Colas,

Warm up the choppers and put some Wagner on the loudspeakers – “Helicopter money” is a hot economic topic.

That’s where central banks print money and either hand it to the government for things like infrastructure investment or just send it out to consumers to spend. While that may sound like an extreme measure, advocates of this novel approach argue that it is a valid response to an extreme problem: slowing global growth and central banks with no “Standard” tools left in the shed.

But would it work?  There are two real-world examples in the last 15 years that offer some clues: the 2001 and 2008 tax rebate checks mailed to millions of Americans for up to $600 (2001) and $1,200 (2008). Studies by the National Bureau of Economic Research done in the wake of both events show notable differences.

  • In the first “Drop” (mid 2001), recipients reported spending most (53-73%) of their windfall.
  • In the second (early 2008), the percentage dropped to one third and most recipients reported saving the cash or using it to reduce debt.

The key lesson here: if policymakers are considering “Helicopter money”, they need to have the choppers in the air before a crisis hits. After that, it is too late.

The world’s central bankers are apparently out of ideas for how to stimulate the global economy back to health. Low interest rates?  Check.  Zero interest rates? Check.  Buying bonds to lower long term interest rates?  Big check.  Negative interest rates?  Ditto.  If monetary policy were a theme park, we could safely say we’ve been on every ride in the whole place.

…click on the above link to read the rest of the article…

Even The Average Joe Gets It: “They’re Winding Us All Up For A Minsky Moment”

February 24, 2016

Even The Average Joe Gets It: “They’re Winding Us All Up For A Minsky Moment”

With global central bank policy in disarray following the Fed’s now admitted “policy error” of tightening just as the US and global economy are heading for recession, while the rest of the world desperate to cut to ever more negative rates, not to mention Japan’s abysmal foray into NIRP, there was hope that this weekend in Shanghai the G-20 would “bail us out” and unveil some miraculous rescue for risk takers at least one more time.

However, as Jack Lew explained earlier today, this won’t happen, leaving traders in a state of limbo and cognitive shock – after all if not even the central banks have your back, then who does?

Still something has to happen, or otherwise the world will careen into a deflationary, NIRP collapse and the Fed’s 25bps “recession buffer” will have absolutely no impact before the US itself plunged into economic contraction.

One proposal comes from BBG trader Richard Breslow, who like most others, is sick and tired of the constant market manipulation, endless central bank jawboning, and who like us, is hoping that one day markets will once again be free and efficient, not for any other reason but because as Breslow notes, even the average Joe gets it: “if you really want to see people spend and invest there has to be some belief this won’t all end in tears.”

His full note:

Parole For Prisoners With A Dilemma

If the U.S. wants to really do some good at the G-20, they should try to get their heads around the concept of embracing a stronger U.S. dollar. That would be showing a commitment to global leadership, both economic and moral, which has been long absent. It’s a bet on a stronger global economic tide raising all boats.

…click on the above link to read the rest of the article…

Fed Admits Economy Can’t Function Without Bubbles

August 3, 2015

Fed Admits Economy Can’t Function Without Bubbles

In short, the dot-com bust was the last chance for the Fed to pivot and liberate the American economy from the corrosive financialization it had fostered. A determined policy of higher interest rates and renunciation of the Greenspan Put would have paved the way for a return to current account balance, sharply increased domestic savings, the elevation of investment over consumption, and a restoration of financial discipline in both public and private life. Needless to say, the Fed never even considered this historic opportunity. Instead, it chose to double-down on the colossal failure it had already produced, driving interest rates into the sub-basement of historic experience. This inexorably triggered the next and most destructive bubble ever. – David Stockman, The Great Deformation

Over the course of the roughly twelve and a half years from Black Monday to the beginning of the end for the dot-com bubble, the Fed effectively engineered a mania by facilitating the explosion of bank loans, GSE debt, and the shadow banking complex, which together grew from under $5 trillion in 1987 to $17 trillion by the beginning of 2000.

For evidence that this expansion was indeed the work of monetary authorities and was not funded by an increase in America’s savings, look no further than the following chart which shows an accommodative Fed and an increasingly savings averse American public:

When the Nasdaq collapsed, the Fed was given an opportunity to restore some semblance of order and discipline to a market that had learned to rely on the Greenspan put. Instead, it chose to inflate a still larger bubble and now, courtesy of Janet Yellen’s friends at the San Francisco Fed, we know precisely why.

…click on the above link to read the rest of the article…

 

BBC News – Japan’s savings rate turns negative for first time

December 26, 2014

BBC News – Japan’s savings rate turns negative for first time.

For the first time since records were collected in 1955, Japan’s population is drawing down its savings and the savings rate, calculated as savings divided by disposable income plus pension payments, was negative 1.3%.

It’s a dramatic change from when the Japanese saved nearly a quarter of their income (23.1%) when the savings rate peaked in 1975.

Japan had the highest household saving rate in the OECD in the 1960s until it fell to the lowest. After all, an aging population draws down savings and Japan is the fastest-aging country in the world; its population has been shrinking for a decade.

It’s another blow to the Japanese Prime Minister Shinzo Abe, who just won another term to try and implement his policies dubbed Abenomics. On the campaign trail, he said that Abenomics aimed to raise wages and employment to revive the economy and defeat deflation or price falls.

Yet, earnings (adjusted for inflation) dropped 4.3% from a year earlier in November. It’s the steepest decline since the 2009 global crisis and marks the 17th month of falls.

…click on the above link to read the rest of the article…

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