The savings rate in the United States is up. Should that be a surprise? I am not surprised. Saving money for some is like taking money off the table and out of the game. What game? The investment game. If inflation is down overall, then the need to hedge against your loss of purchasing power by investing in the capital markets is reduced. Although interest rates are low, the important thing is that your dollars are protected by the FDIC if they are in an insured commercial bank. So why not save? Who goes to a dirty casino? Why would you? The Wall Street casino is dirty, and people now know it. Let Washington show us that they are serious about cleaning up Wall Street, and the cute little games they made legal like credit default swaps. We need capital markets to move money from lenders to borrowers, but we do not need to be a party to a flawed game. Let Congress clean up the mess they made, then perhaps we will see the movement of capital out of savings and back into the market.
Stay tuned.
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3 comments:
I always thought that saving was supposed to be a good thing. And that the money saved became the money that a bank had available to lend to businesses, home buyers, etc. And that interest earned was a result of those loans being paid back to the bank. That may be a simplistic view of banking - and the idea of saving - but I always thought that basically, that's how it's supposed to work. So, are you telling me that Congress, in their infinite wisdom (that's the easily bought House and the corrupt Senate) have stolen the notion of 'Saving' as a good idea?
Savings is a good thing. Everyone should have at least 6 months of living costs in their savings account, or more. The problem with saving money over the long term is that inflation eats into your purchasing power. What did a car cost in 1969 and what does a car cost in 2009? Or, if you prefer look at commodity prices like oil, gas, electric, water and sewage. Even shorter periods of time will show how inflation eats into purchasing power. Large state pension funds use actuaries to calculate at what percent their fund needs to grow to meet their needs, also known as total rate of return. A dollar placed into a savings account for 20, 30 or 40 years is not going to keep up with inflation over the same period of time. All of us are trying to hedge ourselves against inflation by investing in the capital markets. But, if the capital markets is not a level playing field, and Congress permits or makes legal what many would call gambling, then we have a problem. Trillions of dollars are invested by pension funds and individuals for retirement, and look what the Federal government did to the level playing field. The damage that was done in the recent financial crisis will take years for people to get financially healthy, lots of years.
Current bank savings accounts are paying around .5% in interest. Credit card companies (I just received a notice, even though I don't have a balance) are charging upwards of 25%. At one time this was usery and was unlawful. I can't believe how banks and credit card companies can get away with this against the populace.
In addition, if Congress had any brains, the interest would be tax-free...at least for the average citizen.
When will the "average" person become important in America? Because I work hard and make good choices, I can't get any help on my mortgage...but if I made some bad choices, there are programs to help reduce the burden. I'm ready to protest.
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