Friday, February 17, 2006

Running on Debt

From Yahoo Finance:

Americans' Debt: Worse Than You Think?


You've probably heard that the American savings rate for 2005 was negative 0.5 percent, the lowest since the Great Depression. The annual savings rate has been negative only twice -- in 1932 and 1933, during the Great Depression.


According to Kasriel's calculation, last year Americans spent approximately $472 billion more than they earned after taxes -- a negative savings rate of 5.2 percent. That spending is double the previous year -- and a record high.

Going back to 1929, Kasriel found just a dozen years in which households spent more than they earned by his calculation. Two were during the Great Depression. Three were in the decade following World War II, when consumers unleashed pent-up savings accumulated during the war (when there was little available to consume). The other seven years of negative savings have occurred since 1999.


Mostly, we can't help wondering if the lending and spending free-for-all of recent history will end badly -- for all of us. Imagine interest rates continuing to rise amid an employment downturn. The option ARM holders and other over-leveraged consumers put their homes on the market, or hand the keys to their lenders. The housing market experiences a sharp decline. Commercial banks, Fannie Mae, and Freddie Mac require a taxpayer bailout (a la the early 1990s) -- increasing either the current or future tax liability.


Take a look, most certainly worth your time.

Caveat Emptor!


Blogger Metroplexual said...

Grim congrats on the quote in the Star ledger. Speaking of the ledger did anyone notice the RE section today? Kind of thin don't you think?

2/17/2006 12:15:00 PM  
Anonymous Anonymous said...

Via F'd Borrower:

"Mortgage borrowers know that they don't know much"

2/17/2006 12:41:00 PM  
Blogger Metroplexual said...

Today's dilbert says it all. Guess why they are in the hole?

2/17/2006 01:34:00 PM  
Anonymous Anonymous said...

Many people are in for financial disater and they do not even realize it.

Sort of like the Tsunami that hit. You see a bunch of people standing on the beach as the water recedes, but they are clueless to warning they were given.

The warnings are here. A few are listening. Many others are just floating in a dream world.

2/17/2006 01:48:00 PM  
Blogger Richard said...

the savings rate doesn't include investments like 401k, house equity and the like, just cash in the bank. clearly savings rate alone doesn't show the true wealth of americans. still the naysayers that use this line tend to overstate the wealth in these other areas. a more thorough review is necessary. one other salient point. investments are unrealized gains, cash in the bank isn't.

2/17/2006 01:52:00 PM  
Anonymous Anonymous said...

Well this is a 2002 clip - doubt anything's changed (in fact it's probably worse now) and I quote:

"While 401(k)s have allowed top-tier families to more than make up the difference, everyone else is lagging. The assets the upper 30% hold in all defined-contribution plans, such as 401(k)s and individual retirement accounts, have multiplied tenfold since 1983, to an average of $112,000. As a result, their total retirement assets — including all defined-benefit and defined-contribution wealth — have climbed by a healthy 77%, to $188,000. However, families in the lower 70% have suffered an 11% decline. Their average old-age savings today: $29,000.

Part of the problem is that employers have sliced the amount they kick in. On average, employers who set up 401(k)s have cut their retirement spending by 14%, according to an analysis of corporate tax filings from 1981 to 1996 by University of Notre Dame economist Teresa Ghilarducci and two colleagues. "We found 401(k)s are a cost-savings move for employers," she says.

As a result, workers must pay more of the bill for their own retirement. With companies covering fewer workers and paying less for those they do cover, employers' overall spending on retirement has plunged by 22% since 1986, to an average of 83 cents an hour, according to the Labor Department study.

But most families in the bottom 70% don't put aside enough to make up the difference. Many don't start contributing to a 401(k) until they hit their 30s, and many also don't contribute the maximum allowed."

here's link:

2/17/2006 02:04:00 PM  
Blogger grim said...


Take a look at another number. Look at how large the contribution of social entitlements such as welfare, social security, unemployment, disability and other benefits are to the personal income number.

So while investments might understate the savings rate somewhat (I'd argue very little at a macro level), look at how personal income is overstated due to these transfer payments.

Not many people think of social security, welfare, or other like transfers as adding to the income numbers, but they do, and the effects are substantial.

Also keep in mind that when individuals retire, they cash in those investments.. As they do so, those dollars become reflected in the personal income numbers.


2/17/2006 02:25:00 PM  
Blogger NJGal said...

Totally OT, but I had to post this craigslist find re: Hoboken, which we've been discussing a lot lately. It's something I haven't seen before:

"You'll want to get in on this unit before it goes at the winter price.... Sellers are looking for a summer sale of August, but will consider a rent-to-own agreement so you can move in in April, and then buy in August."

Winter price? They're going to raise it later? Nice try.

2/17/2006 02:48:00 PM  
Anonymous Anonymous said...

i'd harly call home equity "Savings". For the past few years people have wrongly equated home equity with wealth when all they have done is aquire more debt by using that "savings". It's funny how access to cheap debt makes everyone feel like they are rich when actually they are poorer.

2/17/2006 03:46:00 PM  
Blogger Richie said...


That's what I would call a "scare tactic", the same tactics that everyone was using to make people buy homes.. "buy now because if you wait too long you'll miss the train".

I have a feeling we're going to see "motivated seller" in a lot of the upcoming home descriptions.


2/17/2006 03:48:00 PM  
Blogger grim said...

Anecdotal story about a friend in work. He was looking at a FSBO home in Jefferson.

The seller urged him to act quickly because she was planning on listing the house with a realtor soon.

2/17/2006 03:54:00 PM  
Anonymous Anonymous said...


The spring is going to bring out all the buyers!!! I talked to hundreds of folks that are going to buy as soon as spring is here!!!

You will miss the boat!!! The new houses being built are already sold and you should get a condo in NNJ for investment now!!!

You can buy now before the spring increases and you can get a lower rate on the mortgage!!!

Do not worry about all that is going on around you, because RE never goes down if you stay in it for 10 or more years!!!

Sounds like the PR man for Saddam is working for the NAR.......

The mother of all increases in value will be in 2006~~~

Please God make them go away!!!!

Go Grim

2/17/2006 04:54:00 PM  
Blogger Richard said...

was talking to a realtor in morris county yesterday. she tells me business is very brisk on the buyer and seller side. she's not one to lie either. then again on the flip side i see alot more inventory sitting. most of it is overpriced. i think 2006 will be highly localized in terms of market health.

2/18/2006 03:16:00 AM  
Anonymous Anonymous said...

Funny b/c few weeks ago at an open house the listing agent told my husband that if it had been spring the original list price of the house would have been higher.!!

2/23/2006 01:05:00 PM  
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7/04/2006 10:12:00 AM  
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7/04/2006 12:36:00 PM  
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