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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (53817)	2/14/2006 11:39:13 AM
From: ild	Respond to of 110194

Date: Tue Feb 14 2006 10:52 trotsky (Bleuler@savings rate) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "The White House report said the decline ( of the savings rate into negative territory ) is "potentially misleading" because it doesn't reflect how the rising values of houses and stocks make households feel more financially secure and willing to spend." this statement is utter nonsense. the savings rate is not supposed to reflect the change in prices of financial assets ( which are subject to a bubble as it were ) , but is supposed to measure the difference between what the nation produces and what it consumes. the fact that rising asset prices have led to more consumption than production should be a source of grave concern, as this amounts to eating the seed corn. "The report's sanguine view of current accounts appears to reflect the thinking of Mr. Bernanke, who previously has attributed the current-account deficit to a "global savings glut."" just because the monetary crank now heading the Federal reserve has said it, doesn't make it so. while a current account deficit per se is not a reason to be concerned, in this particular case it's the heavy hand of state intervention propping up the flow of foreign funds. the foreign central banks that for mercantilist reasons prop up the US capital account simply run their printing presses to do so. "The savings rate is a derived figure. Actual savings are not measured; however, I believe the chronic inflation ( increases in money supply ) and low bank savings rates have made saving cash in a bank foolish. Essentially, you receive little interest and it is taxed while inflation exceeds after tax interest. Most don't figure this out, they just see it and act accordingly." this begs the question, where is the money? if J6P decides to withdraw his bank savings in order to invest in e.g. the stock market, the money doesn't disappear into the blue yonder - the seller of the shares receives it after all. bank balances overall should not change as a result - the claim to savings that money represents has simply changed ownership ( note that money , by itself, does not constitute 'savings'. savings are final goods that have been saved for future, instead of immediate consumption. money is a claim on these savings ) . the fact remains that the nation consumes more than it produces - the pool of real funding consequently shrinks. the effect this has on economic performance is not immediately apparent as it is masked by the money printing operations of the central banks that support a host of activities that a free market would not support, as they do not generate real wealth. it should however be clear that this process can not go on indefinitely. as a rule of thumb, the longer is does in fact go on, the bigger the eventual bust will be.