Thursday, October 07, 2010

Private vs. Federal Government Saving

We frequently hear about how: a) the U.S. trade deficits are unsustainable and demonstrate that we are living beyond our means, b) we've become a nation of debtors, partly at least because: c) Americans don't save.   

And yet the data above possibly suggest otherwise.  Personal saving is now close to an all-time high in nominal dollars at $673 billion, and has more than tripled since the fourth quarter of 2007 when it was $223.6 billion.  Meanwhile, negative federal government "saving" has increased by 5 times over that period from -$276 billion to -$1.35 trillion. 

So if there's a problem with a lack of saving, it's not the private sector that's the problem, it's the negative federal government saving of more than $1 trillion that's the real problem, no? At least for the last few years, the private sector looks pretty thrifty and responsible, and it's the federal government that looks pretty recklessly profligate.


At 10/08/2010 4:20 AM, Anonymous Anonymous said...

I don't think this means quite what you think it does. Despite a fair amount of hand-wringing about the low level of personal saving over the decades leading up to 2007, a lot of the govt deficit and Fed moves over the last couple years is explicitly aimed at counteracting the recent jump in personal saving, as exemplified by this article from yesterday highlighting how some Fed officials want to target higher inflation to discourage saving. Fascinating that the dumbos in govt think they can come up with new avenues for growth that the entire private sector has been unable to come up with, but then as long as these govt bureaucrats are lining their pockets with their cut of that newly borrowed deficit money, I suppose they don't care if it works or not.

At 10/08/2010 8:44 AM, Anonymous Anonymous said...

I think we're all saving more because we know the government doesn't have any money to give us any more.

At 10/08/2010 9:34 AM, Blogger Buddy R Pacifico said...

We know that Fed Gov't spending is profligate but when presented on a chart as Federal Government Saving it is really disturbing.

Private Saving is good news and probably increased by less consumer debt/spending.

At 10/08/2010 9:55 AM, Blogger Tom said...

"Government savings" (massive debt) is much worse than reported. Recent headlines, for example, report the FY2010 deficit as $1.3 trillion. The real number is $1.651 trillion, or 27% higher than reported. Likewise for FY2009, reported at $1.4 trillion, but really $1.885 trillion, or 35% higher. Check the figures yourself from the Treasury website

Comparing the Treasury numbers to the "news media" reported numbers would make an interesting article for this blog. Our government and media are lying to us. I'm shocked, shocked.

At 10/08/2010 10:11 AM, Blogger morganovich said...

you can't look at this nominally.

inflation and population make huge differences.

you need to look at savings as a % of real per capita income.

you also need to consider that "saving" after running up huge debts (consumer debt tripled from 1999-2008) is not really "saving" it's "paying down debt".

At 10/08/2010 9:30 PM, Blogger Unknown said...

Where do you think the dollars that the private sector saves come from? It's not an accident that those two lines are the inverse of each other (with leakage to the foreign sector factored in). Without a government deficit, there is no way for the private sector to increase their dollar denominated assets. If the government 'saves' with a surplus, then the private sector has to sell assets to pay taxes.

The government in a fiat currency system neither has or doesn't have dollars, it has the monopoly on dollar creation. Thinking of them the way we think of a household or a US state (which can't create dollars) is misleading.

At 10/09/2010 7:33 AM, Blogger Jason said...

Morgonovich, I'd take it a step further and compare these two graphs against a metric like the dollar index. The DXI will show the private savings isn't nearly enough and the public negative savings isn't as significant.

At 10/09/2010 8:38 AM, Blogger marmico said...

Savings (deficits) of government+households+business+current account must=private investment, by definition. It's the national savings identity.

Recently, private investment is not rising as fast as the current account and government deficits are rising so household and/or business savings must rise.

At 10/09/2010 10:49 AM, Blogger marmico said...

Our government and media are lying to us

No they are not. The Treasury holds varying cash balances over time which must be subtracted from the outstanding debt to determine the annual deficit. For instance, as of September 2009 (fiscal year end), the Treasury cash balance was $118 billion (see Note 5 on page 30 of the pdf). As of August 2010 (the September fiscal year end has not been finalized yet), the Treasury cash balance was $429 billion.

I think that if you do the arithmetic the reported deficit is accurate.

In other words, the Treasury may issue more or less debt in a fiscal year than the annual deficit (revenues less expenditures); in the alternative, do not confound stocks with flows.


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