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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Elroy Jetson who wrote (17064)2/10/2004 1:30:52 PM
From: GraceZRead Replies (2) of 306849
 
No, you are wrong as usual in your failed effort to show that tax cuts somehow reduce investment, a completely false conclusion based on specious assumptions.

Prior to 1982 a huge amount of national personal savings came from interest on income producing assets piling up even while high inflation reduced the real value of that incremental savings to almost negative. Ironically reducing interest rates reduced aggregate personal savings because the bulk of national saving comes from those with capital who receive interest income while the bulk of that interest income flows from those who live off wages and pay interest. Got double digit mortgage rates 15-17%? Reduce interest rates, inflation and taxes and you also reduce the flow huge flow of assets into short term debt, speculative assets like gold, real estate and back into productive assets like plant equipment and equities. A huge portion of the wealth in this country was locked up in interest bearing money market and junk bonds by the time interest rates peaked in 1981 because that was the only place one could get a return with double digit inflation aside from the gold casino. It didn't pay to go into risk and by risk I mean putting capital into an investment which may or may not pay off in the future, like capital equipment. Read this as "productive investment".

I think the very first day I was on a job for T.Rowe Price back in 1981 we asked the woman we were working with to check money market rates on their MM fund and it was paying 17%. Why would anyone put money into risky productive enterprise in an environment where you sit back in cash and receive 17%!? As soon as the rates started to come down people slowly started putting money to work back in stocks and their own personal businesses. Whereas during the height of inflation you avoided these things like the plague.

Ask yourself this, if Americans had little or no savings since 1986 or so as you state, what is it that so many are concerned about them having lost trillions in the stock market correction? Could it be that there is a flaw in the way savings is calculated in that it doesn't count unrealized gains? Capital gains that would occur when people move assets out of interest paying financial assets into equities which tend to return capital gains rather than income. For someone who has chided me for my believing the stats on personal disposable income, your whole argument rests rather strongly on those same stats being accurate. So are you now moving over to the position that the national income figures are now correct and not inflated by the GDP deflators?

From the St.Louis Fed:

Of course, measurement issues crop up in evaluating the saving rate: Saving is calculated as a residual from the data on personal income and spending, and the income measure used for these calculations does not incorporate unrealized capital gains.
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