People weren't supposed to be saving this much money...

[Alternatepriorities]

http://finance.yahoo.com/news/people-werent-supposed-saving-much-190950809.html?.tsrc=applewf

I guess we all better stop maxing out our IRAs and go buy a bunch of stuff to help the economy... Or maybe a few more economists need to start reading MMM!

[ysette9]

A bad article with a depressing comments section to go along.

[MgoSam]

So basically we're back to where we during the recession. Paulson and company wanted the FEDs to essentially give money to banks to get them to lend, and thought, "why wouldn't they?" Of course, they largely didn't. Same thing here, economists think that things will work out just like they do in the textbooks, but they don't.

[NorCal]

I've always thought that macro-economists got the analysis on savings wrong.  The current view is that the primary driver of savings rate is interest rates.

On the consumer side this is rubbish.  How much more or less would you save if your investments were yielding 1-2 percentage points higher?  You'd probably save about the same.  Your savings rate is largely tied to your job situation and where you are in life (in college, just had kids, or nearing retirement). 

In fairness, they are correct on the corporate side, where the cost of capital heavily impacts investment decisions.

Of course, some economists also maintain the even stranger dogma that savings (and therefore investment) has minimal economic value.

[EricL]

I must admit confusion.  I thought the problem was Americans weren't saving and most don't have a retirement account or plan.  And, anecdotally at least, the AMWoSC is full of spendthrift examples of that.  But if it's not true, why aren't MMM and fellow travelers more famous with members in the tens of millions and the internet and media full of badassity examples?  The claims can't both be true.  So where is the money going to/at? 

[TheGrimSqueaker]

So basically we're back to where we during the recession. Paulson and company wanted the FEDs to essentially give money to banks to get them to lend, and thought, "why wouldn't they?" Of course, they largely didn't. Same thing here, economists think that things will work out just like they do in the textbooks, but they don't.

It comes down to a very simple problem: politicians and the people who elect them simply don't understand human nature.

If a government's goal is to make money be spent and circulate in the economy, the way to get that is to give money to people who will actually spend it. That means, you give it to poor people. Low-asset senior citizens or people with disabilities almost always spend windfalls, because their needs already outstrip their income (otherwise they wouldn't be poor).

If a government wants money to be spent or lent to individuals, it should never give the money to a bank. That's because a bank is a corporation. Corporations exist for solely one purpose: to make money for their shareholders. Give a bank a buck, and the bank will put it to work for the shareholders by paying it out in dividends, reducing debt to drive up the stock price, acquiring other money making assets like stock, or paying a bonus to an executive who is also a shareholder.

If a government wants money to be used to reduce debt or to be saved, it should give money to the middle class.

If a government's goal is to cause money to be invested in the stock market, the way to get that is to give it to Mustachians.

[Hank Sinatra]

If a government wants money to be used to reduce debt or to be saved, it should give money to the middle class. 

Too much money in too few hands. It caused the Great Depression and indeed every economic dislocation. And it is  a problem today. Unfortunately it is in the genetic nature of the marketplace unless it is managed out. The theory of the marketplace magically and innately causing wealth to expand and  circulate eg owners/producers/investors/workers/consumers round and round etc etc is all a fantasy.  A verisimilitude of economics at best.

You wanna fokkover an economy just let a handful of people have all the money and let them use it for their own enlightened self-interest.

[MgoSam]

So basically we're back to where we during the recession. Paulson and company wanted the FEDs to essentially give money to banks to get them to lend, and thought, "why wouldn't they?" Of course, they largely didn't. Same thing here, economists think that things will work out just like they do in the textbooks, but they don't.

It comes down to a very simple problem: politicians and the people who elect them simply don't understand human nature.

If a government's goal is to make money be spent and circulate in the economy, the way to get that is to give money to people who will actually spend it. That means, you give it to poor people. Low-asset senior citizens or people with disabilities almost always spend windfalls, because their needs already outstrip their income (otherwise they wouldn't be poor).

If a government wants money to be spent or lent to individuals, it should never give the money to a bank. That's because a bank is a corporation. Corporations exist for solely one purpose: to make money for their shareholders. Give a bank a buck, and the bank will put it to work for the shareholders by paying it out in dividends, reducing debt to drive up the stock price, acquiring other money making assets like stock, or paying a bonus to an executive who is also a shareholder.

If a government wants money to be used to reduce debt or to be saved, it should give money to the middle class.

If a government's goal is to cause money to be invested in the stock market, the way to get that is to give it to Mustachians.

Yeah I concur. I've thought that the best way to stimulate an economy would be to give it to the lowest income brackets. I know that when I am given cash from a family member, they intend for me to spend it, but I usually will just save it unless I had a pressing thing to buy...in which case I would have been going to buy it anyways. A windfall doesn't change anything but my investments and my FIRE date. But I know that our receptionist would instantly go and spend any cash bonuses/gifts. 

[Taran Wanderer]

So basically we're back to where we during the recession. Paulson and company wanted the FEDs to essentially give money to banks to get them to lend, and thought, "why wouldn't they?" Of course, they largely didn't. Same thing here, economists think that things will work out just like they do in the textbooks, but they don't.

It comes down to a very simple problem: politicians and the people who elect them simply don't understand human nature.

If a government's goal is to make money be spent and circulate in the economy, the way to get that is to give money to people who will actually spend it. That means, you give it to poor people. Low-asset senior citizens or people with disabilities almost always spend windfalls, because their needs already outstrip their income (otherwise they wouldn't be poor).

If a government wants money to be spent or lent to individuals, it should never give the money to a bank. That's because a bank is a corporation. Corporations exist for solely one purpose: to make money for their shareholders. Give a bank a buck, and the bank will put it to work for the shareholders by paying it out in dividends, reducing debt to drive up the stock price, acquiring other money making assets like stock, or paying a bonus to an executive who is also a shareholder.

If a government wants money to be used to reduce debt or to be saved, it should give money to the middle class.

If a government's goal is to cause money to be invested in the stock market, the way to get that is to give it to Mustachians.

You should be an economist!

[TheGrimSqueaker]

So basically we're back to where we during the recession. Paulson and company wanted the FEDs to essentially give money to banks to get them to lend, and thought, "why wouldn't they?" Of course, they largely didn't. Same thing here, economists think that things will work out just like they do in the textbooks, but they don't.

It comes down to a very simple problem: politicians and the people who elect them simply don't understand human nature.

If a government's goal is to make money be spent and circulate in the economy, the way to get that is to give money to people who will actually spend it. That means, you give it to poor people. Low-asset senior citizens or people with disabilities almost always spend windfalls, because their needs already outstrip their income (otherwise they wouldn't be poor).

If a government wants money to be spent or lent to individuals, it should never give the money to a bank. That's because a bank is a corporation. Corporations exist for solely one purpose: to make money for their shareholders. Give a bank a buck, and the bank will put it to work for the shareholders by paying it out in dividends, reducing debt to drive up the stock price, acquiring other money making assets like stock, or paying a bonus to an executive who is also a shareholder.

If a government wants money to be used to reduce debt or to be saved, it should give money to the middle class.

If a government's goal is to cause money to be invested in the stock market, the way to get that is to give it to Mustachians.

You should be an economist!

Sadly, I'd be totally unqualified.

[Norioch]

From the article it sounds like they're specifically talking about too much savings in savings accounts and bonds. They wouldn't consider stock purchases as "savings" even though most mustachians probably would.

[nobodyspecial]

Give a bank a buck, and the bank will put it to work for the shareholders by paying it out in dividends, reducing debt to drive up the stock price,

Or in this case, leave it in a vault to increase their liquidity ratio to make the Fed/Wall St/S&P happy

[Papa bear]

The interest rate decreases is not a function of our fiscal policy and is not congress enacting laws to stimulate the economy.   This is pure monetary policy which is carried out by the federal reserve. The federal reserve does not equal our federal government, though they are very related. 

The goals of the fed were to reduce interest rates so low that it would be completely irrational for banks and lending institutions to hold cash and other safe investments.  The only way for the banks, theoretically, to make money, would be to engage in higher risk loans, essentially lend money to people and business they normally would not have. 

Unfortunately, this did not play out as planned.  The fed has 0 ability to control fiscal policy and other laws in the country.  As such, they can only control for 1 thing, monetary policy.  Higher risk loans did not increase and cash reserves stayed high.  In essence, we "saved too much."




Sent from my iPhone using Tapatalk

[Telecaster]

So basically we're back to where we during the recession. Paulson and company wanted the FEDs to essentially give money to banks to get them to lend, and thought, "why wouldn't they?" Of course, they largely didn't. Same thing here, economists think that things will work out just like they do in the textbooks, but they don't.

It comes down to a very simple problem: politicians and the people who elect them simply don't understand human nature.

If a government's goal is to make money be spent and circulate in the economy, the way to get that is to give money to people who will actually spend it. That means, you give it to poor people. Low-asset senior citizens or people with disabilities almost always spend windfalls, because their needs already outstrip their income (otherwise they wouldn't be poor).

If a government wants money to be spent or lent to individuals, it should never give the money to a bank. That's because a bank is a corporation. Corporations exist for solely one purpose: to make money for their shareholders. Give a bank a buck, and the bank will put it to work for the shareholders by paying it out in dividends, reducing debt to drive up the stock price, acquiring other money making assets like stock, or paying a bonus to an executive who is also a shareholder.

If a government wants money to be used to reduce debt or to be saved, it should give money to the middle class.

If a government's goal is to cause money to be invested in the stock market, the way to get that is to give it to Mustachians.

I'd vote for you. 

[oneday]

From the article it sounds like they're specifically talking about too much savings in savings accounts and bonds. They wouldn't consider stock purchases as "savings" even though most mustachians probably would.

I dimly recall from long-ago econ classes that the term savings had a specific meaning close to "idle cash", while investments were a separate thing entirely. Can anyone clarify?

[NorCal]

From the article it sounds like they're specifically talking about too much savings in savings accounts and bonds. They wouldn't consider stock purchases as "savings" even though most mustachians probably would.

I dimly recall from long-ago econ classes that the term savings had a specific meaning close to "idle cash", while investments were a separate thing entirely. Can anyone clarify?

My memory is also a bit fuzzy, but here's what I remember.

S=I.  Always.  That is, every dollar of savings is a dollar of investment.  If you save at your bank, the bank invests it by making loans of some type.  If you invest it in equities, that is still an investment, just of a different type.

I think what you're referring to the money supply, which has several different measures.  There's things like M1, which is cash on hand.  Then there's M2 with cash on hand + savings accounts.  M3 might be cash, savings, + CD's.  Eventually you get down to M-whatever that includes equity investments.  Somewhere around M26 they're probably adding in the cash value of household pets.

[MrMoogle]

And thus we arrive at consumers not being or acting like economists.

LOL, blame the consumers for not acting correctly.  It's not the economists are wrong in their predictions, it's the consumers!!!

[jinga nation]

And thus we arrive at consumers not being or acting like economists.

LOL, blame the consumers for not acting correctly.  It's not the economists are wrong in their predictions, it's the consumers!!!

Yeah, those fickle consumers, flip-flopping on their values. It is truly their fault from leading us into debt and now leading us away from it.

[nobodyspecial]

It comes down to a very simple problem: politicians and the people who elect them simply don't understand human nature.

The problem is that the politicians want the money to be in circulation but have to do it in a way that will appeal to their voters and campaign funders.

[YoungInvestor]

And thus we arrive at consumers not being or acting like economists.

LOL, blame the consumers for not acting correctly.  It's not the economists are wrong in their predictions, it's the consumers!!!

Yeah, those fickle consumers, flip-flopping on their values. It is truly their fault from leading us into debt and now leading us away from it.

FWIW, I thought this article was having a bit of fun at economists' expense.

[Marus]

So basically we're back to where we during the recession. Paulson and company wanted the FEDs to essentially give money to banks to get them to lend, and thought, "why wouldn't they?" Of course, they largely didn't. Same thing here, economists think that things will work out just like they do in the textbooks, but they don't.

It comes down to a very simple problem: politicians and the people who elect them simply don't understand human nature.

If a government's goal is to make money be spent and circulate in the economy, the way to get that is to give money to people who will actually spend it. That means, you give it to poor people. Low-asset senior citizens or people with disabilities almost always spend windfalls, because their needs already outstrip their income (otherwise they wouldn't be poor).

If a government wants money to be spent or lent to individuals, it should never give the money to a bank. That's because a bank is a corporation. Corporations exist for solely one purpose: to make money for their shareholders. Give a bank a buck, and the bank will put it to work for the shareholders by paying it out in dividends, reducing debt to drive up the stock price, acquiring other money making assets like stock, or paying a bonus to an executive who is also a shareholder.

If a government wants money to be used to reduce debt or to be saved, it should give money to the middle class.

If a government's goal is to cause money to be invested in the stock market, the way to get that is to give it to Mustachians.

I agree with this analysis. 

What jumps into my head though is how if we actually started a direct monetary transfer program we'd be hearing endless overblown stories of fraud and cronyism.  I can already imagine the congressional hearings and the endlessly circulating stories of poor minorities using government aid to buy drugs.

[TheGrimSqueaker]

So basically we're back to where we during the recession. Paulson and company wanted the FEDs to essentially give money to banks to get them to lend, and thought, "why wouldn't they?" Of course, they largely didn't. Same thing here, economists think that things will work out just like they do in the textbooks, but they don't.

It comes down to a very simple problem: politicians and the people who elect them simply don't understand human nature.

If a government's goal is to make money be spent and circulate in the economy, the way to get that is to give money to people who will actually spend it. That means, you give it to poor people. Low-asset senior citizens or people with disabilities almost always spend windfalls, because their needs already outstrip their income (otherwise they wouldn't be poor).

If a government wants money to be spent or lent to individuals, it should never give the money to a bank. That's because a bank is a corporation. Corporations exist for solely one purpose: to make money for their shareholders. Give a bank a buck, and the bank will put it to work for the shareholders by paying it out in dividends, reducing debt to drive up the stock price, acquiring other money making assets like stock, or paying a bonus to an executive who is also a shareholder.

If a government wants money to be used to reduce debt or to be saved, it should give money to the middle class.

If a government's goal is to cause money to be invested in the stock market, the way to get that is to give it to Mustachians.

I agree with this analysis. 

What jumps into my head though is how if we actually started a direct monetary transfer program we'd be hearing endless overblown stories of fraud and cronyism.  I can already imagine the congressional hearings and the endlessly circulating stories of poor minorities using government aid to buy drugs.

Of course there would be fraud and cronyism, and of course some individuals will at least try to use a windfall to practice their addictions. It wouldn't be human nature otherwise.

[merula]

“Better the occasional faults of a government that lives in a spirit of charity than the consistent omissions of a government frozen in the ice of its own indifference.”

But that's coming from the total pinko commie FDR, so just ignore it.

[EarlyStart]

The whole narrative is a bit of a misnomer. Saving doesn't reduce consumption, it moves it forward in time. Borrowing doesn't increase consumption, it moves it from the future to the present.

Yesterday's savers are consuming today. A lot of this has to do with demographics as well. The greatest consumption (and usually economic growth) occurs when the largest generation is in the very middle of their lives (Boomers in the 80s, 90s, for example). The 35-45 year old cohort buys houses, pops out 2.4 children/couple,  etc.

Right now the biggest generations are the Millennials and the Baby Boomers, who are young and old, respectively. Generation X is the group in the middle-aged, high-spending time of their lives, and they are a much smaller cohort.


When the Millennials are in their prime earnings years we'll see spending and antimustachianism galore.

[maco]

From the article it sounds like they're specifically talking about too much savings in savings accounts and bonds. They wouldn't consider stock purchases as "savings" even though most mustachians probably would.

It flat-out says that:

Namely, people are saving money despite low interest rates when many economists expected or hoped these folks would spend that money to buy stuff or put it in assets that actually earn some return.

The economists hope that people will give up on savings accounts because of their crap interest rates and invest (as in higher risk/reward) instead. Crap interest rates don't change anyone's risk aversion, though.

[Papa Mustache]

So saving is bad b/c we aren't buying pointless consumerist items on trips to the mall?

My wife and I were talking this morn - would rather live cheap(er) so we can spend our money paying off the mortgage or traveling to Italy at some point. Of course that doesn't make corporate America as happy perhaps as frequent trips to the mall to buy stuff we don't need (ex: new clothes to replace clothes that aren't worn out or are "out of style")

[minority_finance_mo]

I must admit confusion.  I thought the problem was Americans weren't saving and most don't have a retirement account or plan.  And, anecdotally at least, the AMWoSC is full of spendthrift examples of that.  But if it's not true, why aren't MMM and fellow travelers more famous with members in the tens of millions and the internet and media full of badassity examples?  The claims can't both be true.  So where is the money going to/at?

This was skimmed over, but this is exactly what I was thinking. $100TN in household assets? How much if we remove the top 0.01% from the equation?