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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: Frodo Baxter who wrote (1424)	3/21/1999 11:45:00 AM
From: Henry Volquardsen	Read Replies (1) of 3536

The subject of the low US savings rate has been discussed on this thread a couple of times. I was just reading the March 22 issue of US News & World Reports and there is a related article on page 49. The article makes some good points and is generally cautionary. Usual stuff about too much debt, low savings and second mortgages "evisceratung (the) home equity" of middle class families. But they make an interesting point about how the number is actually calculated. In estimating disposable income the government does not include profits from stock sales but does include taxes paid on capital gains. So think of it this way, if a family saves $10,000 during the year and also sells $100,000 stock (which it reinvests) on which it will pay $15,000 in capital gains taxes then, for purposes of calculating the savings rate, their savings will actually be treated as negative $5,000. The result is that in years of surging stock prices both income and the savings rate will be understated. There is an estimate in the article that the savings rate could be closer to 4% than the near zero that has recently been reported. Low but not inconsequential.

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