ruli schreef:
2007-9-24
SAVINGS ACCOUNTS IN THE USA, WHERE ARE THEY NOW?
For the first time in the history of the United States, savings as a percentage of income is a negative. Furthermore household debt payments as a percentage of disposable income is at an all time high.
Economists point to a change in attitutude, especially among Americans under the age of 40. While historically, a saving account was considered to be a bank account, C.D., or some kind of liquid fund that was safe. Now, a larger percentage of Americans consider the equity in their home, as their savings, or their nest egg.
THE PROBLEM WITH THIS NEW PERCEPTION OF SAVINGS.
The problem is that equity in real estate can change. While in the 1990's, especially during the Clinton Presidency, and for a part of the Bush Presidency, equities and values of homes were increasing regularly. Now, for the first time in many years, housing equities are declining. Alan Greenspan, in a speach today said that for the first time, consumer spending is based upon borrowed money. The economy is highly leveraged. And if consumer spending declines, then the economy may go into recession. Other economists confirmed that all increases in consumer spending of the past few years has not been financed by increased savings, or increased income, but by perceived increases in home equity.
But, for the first time in a decade, equity in houses is declining. The National Association of Real Estate recently released a study indicating that home values of new homes would actually decline in a range of 1 to 2% in the next 12 months. Older homes would show a decline in value as well. Therefore, we are seeing two deep indicators that strongly impact Americans, especially those under the age of 40.
The source of their consumer spending (equity in their homes) is disappearing and declinging. Plus the payment burden on their disposable income is increasing. They have for the first time, a negative balance in "cash" or liquid savings. Thus, the result? We could experience a significant decrease in consumer spending, over the next 12 to 24 months in the USA.
Ben B. Boothe
Economic Consultant