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

Discussion in 'Economics' started by ByLoSellHi, Jul 22, 2009.

  1. Nobody 'saves' money better.


    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
  2. '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.
  3. 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?