Increased 'savings rate' product of mortgage defaults, cc write-offs, gov't tax cut

Nobody 'saves' money better.



http://www.bloomberg.com/apps/news?pid=20601213&sid=arUgjalkdR2g





Consumers’ debt pullback is only now getting under way, said Simon Johnson, a professor at the Massachusetts Institute of Technology in Cambridge and former chief economist at the Washington-based IMF.

The rise in savings so far is largely a product of mortgages being extinguished by home foreclosures, government tax cuts and transfer payments under the stimulus package, he said.

“As there’s an adjustment to higher savings, then there is a potential paradox of thrift,” Johnson said, referring to economist John Maynard Keynes’s theory that increased saving is good for individuals but bad for society as a whole because it reduces demand.

...

Then there's this gem:

household borrowing fell to 128 percent of the average family’s after-tax income in the first quarter from a record 133 percent a year earlier, according to data compiled by Bloomberg. The total debt of individuals, nonfinancial companies and federal, state and local governments grew at a 4.3 percent pace at the start of the year

 

'Paradox of Thrift' doesn't exist.

Any consumption over and above the optimal level of consumption at T = 0 is damaging for all future periods' consumption levels.

 

Where exactly do these government statistics derive these savings from? Just a model which assumes that decreased consumption and/or debt payments translates into savings?