Friday, October 28, 2011

Personal savings fall 32% since June as a consequence of the debt ceiling debacle

The personal savings rate fell to the lowest level in four years and it's no surprise why: gov't spending fell off sharply during the whole debt ceiling debacle. Since gov't deficits add to private sector income and savings, then savings will understandably fall as the deficit shrinks. If savings get low enough, it could cause a very sharp economic downturn as households reduce consumption in order to raise their savings. At the economy's peak in 2007, the savings rate hit 1.7%.


AH said...

Dear Mike, I agree with you, I
am trying to point out that public spending and credit creation are the real drivers of aggregate profit. As can be inferred in particular by Keynesian theories, these elements become vital for generating the aggregate profit for private firms.
In this regard, it is interesting to note that, in a pure private economy, no significant aggregate profit would be possible for firms.
As a matter of fact, labour cost constitutes an aggregate cost for the system of firms. This cost can be brought to zero if employees spend all their earnings but can never become a source of profit. But, very interestingly, not even the entrepreneurs’ investment expenses can create an aggregate profit for the firms as a whole. In such case, in fact, to the profit of an entrepreneur must correspond the expense of another, so that the net result for the firms would be zero.
A way out could be to increase entrepreneurs’ consumption, but this process finds many limitations, especially in the presence of scale-economies associated with mass consumption: the entrepreneur can buy himself a yacht, but for the class of entrepreneur buying, say, one thousand iPod each in order to sustain aggregate demand is likely to be a bit a less practical.
As a consequence, the aggregate profit must derive from sources “external” to the system of firms: these sources — not considering, for the sake of simplicity, international trade whose balance is zero at world-level — take two interrelated forms: public spending and credit creation.

Best regards,
Arturo Hermann

GLH said...

I just heard that when the budget cuts take effect it will probably cause the loss of a million jobs in the defense industry alone. I wonder if they ever consider how many jobs will be lost from the benefit cuts.

Mario said...

prayers and power to the people please!!!

beowulf said...

The Church has been pretty good on economics for a long time (google Catholic social teaching), but this is rather disturbing:

Writing in the Jan. 14 edition of the Vatican newspaper, L’Osservatore Romano, Tedeschi [Vatican's top banking expert] warned of the growing influence of “Keynesian” economic theory on both sides of the Atlantic.

Mario said...

yes it's true. From my understanding the church always helped workers, looked out for people, and supported the less fortunate.

But it appears now that even the Vatican is glossing over all that "give to the poor" stuff in Luke and picking up the "responsible" monetarist notions eh?!?!

Truly the love of money is one of the roots of evil if nothing more than b/c it blocks the mind from true knowledge. You can build me monuments and yet still I may say t you, "I know you not." thud...thud....thud....

The good news I guess is that once everyone has turned the other way, the only other option is for them to turn back again!!! All in good time...politics is all about pulling the cat out of the bag at the last possible minute, b/c nobody wants to be responsible when they could instead be a "hero" and "save the day" somehow. It's all theatrics. Politicians are ego-maniacs that belong in Hollywood not DC.

AH said...

The available data, in particular from OECD and from, clearly make evident this trend. The average value of the ratio PS/GDP has shifted, for the OECD Countries, from 20-30% of 1970s to 40-50% of 2000s.

In this regard, many authors have observed that economic and social development carries with it an enlargement and diversification of the functions of the public sector. These include classic functions like defence, enforcement of the law and welfare provisions, and also more proactive functions like research and innovation.

Total Public Spending as
a Share of GDP

Nations Year 2009

Australia 37.19
Austria 52.97
Belgium 54.11
Canada 44.37
Chile 24.62
Czech Republic 45.95
Denmark 58.42
Estonia 45.17
Finland 55.86
France 56.74
Germany 47.50
Greece 52.85
Hungary 50.54
Iceland 51.05
Ireland 48.17
Israel 44.27
Italy 51.83
Japan 42.03
Korea 33.08
Luxembourg 42.19
Mexico 23.51
Netherlands 51.35
New Zealand 42.33
Norway 47.31
Poland 44.51
Portugal 49.85
Slovak Republic 41.54
Slovenia 49.16
Spain 45.80
Sweden 55.15
Switzerland 34.15
Turkey 39.44
United Kingdom 51.45
United States 42.18
Euro Area 50.84

Source: OECD

Best greetings,
Arturo Hermann

Mario said...

in fact could these vatican publications on the economy be more like attempts to keep the public at bay and "convince them" that these austerity measures are necessary and important...after all the pope says so. How many Italians do you think such a statement from the vatican might satisfy? I don't know but I'm just's all kind of weird. All it takes is one quick meeting with the Vatican officials and all of a sudden a "press release" comes out....

Matt Franko said...

From Bill Mitchell earlier this year:

"ECB to don Purple Robes":

And to finish this week I bring to your attention the speech yesterday (June 16, 2011) – Social Business and Economic Growth – given by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB to the Vatican Executive Summit on Ethics for the Business World.

Imagine giving a gathering of senior Vatican-types a lecture on ethics. Anyway, I digress again – it is late afternoon on a Friday.

Bini Smaghi, who is under pressure from his own Prime Minister to give up his place on the ECB board in favour of a French appointee (see ) went all historical and indicated that:

… central bankers have adopted Saint Thomas More as their patron saint, who, with his independence of thought and his firm conviction in the supremacy of the public interest, managed to resist pressure from King Henry VIII – for whom he was the closest adviser prior to being appointed Lord Chancellor – until he was forced to resign, imprisoned and then condemned to death.

One might hope his historical reflection might be a prophecy – at least at the organisational level.

The analogy according to Bini Smaghi is that More (quoting some Pope or another) “followed his conscience, even at the cost of displeasing the sovereign whose “good servant” he was, because he chose to serve God first.”

He also quoted the Bishop of Aachen who in handing out some prize to the current boss of the ECB recently said:

Financial matters have an element of public service. This also applies to the euro, which is helping to realise a shared vision of a united Europe in the spirit of humanism. It is in this spirit that the European Central Bank … and we members of the Church must fulfil our shared task for the people of this continent and beyond. "

So this seems like a bit of a pattern here that is developing...

Mario said...

Sir Thomas Moore must be rolling in his grave. God rest his Soul.

Moore was one of the bastions of integrity and the law during a very chaotic time in England and stood faithfully to the laws of the land. I doubt very much he would ever have allowed such white collar crimes to occur at the highest levels of office...or any level for that matter. But these days what is up is really down and what is down is really up so who knows anything anymore! Except I recall a MacGyver episode where he was trapped deep in snow and he somehow poked a hole in the snow to see where it fell and from there he figured out which was "up and out." Perhaps we can find holes too to poke through and get free? LOL ;)