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U.S. Personal Savings Rate to See Big Gains

U.S. Personal Savings Rate to See Big Gains

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Published by Ron Robins
Americans are about to save more, much more. A new consciousness is dawning. It is one that brings enhanced balance to Americans material and inner personal lives as they re-evaluate their futures due to changed circumstances.

Boomers approaching retirement are seeing their homes decline in value, their stock market investments in difficulty, and concerned about government support—are realizing the importance of savings as never before.
Americans are about to save more, much more. A new consciousness is dawning. It is one that brings enhanced balance to Americans material and inner personal lives as they re-evaluate their futures due to changed circumstances.

Boomers approaching retirement are seeing their homes decline in value, their stock market investments in difficulty, and concerned about government support—are realizing the importance of savings as never before.

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Published by: Ron Robins on Feb 23, 2010
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12/31/2010

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September 4, 2008
U.S. Personal Savings Rate To See Big Gains
byRon Robins, MBAFrom my blog:Enlightened EconomicsThere is good news coming. Americans are about to save more, much more. Anew consciousness is dawning. It is one that brings enhanced balance toAmericans material and inner personal lives as they re-evaluate their futuresdue to changed circumstances. Boomers approaching retirement are seeingtheir homes decline in value, their stock market investments in difficulty, andconcerned about government support—are realizing the importance of savingsas never before.Recently, U.S. tax-payers received up to $600 in cash from their government. Itseems that Americans are choosing to save it. In May 2008 the savings rate asa percentage of personal disposable income shot-up to 4.9% and in June to2.5%. This occurred after the rate was near zero for about three years and thelowest since 1933. These higher savings rates are just the beginning of a trendthat I believe will crest with savings rates in excess of 10% in the next fewyears.Higher savings rates will eventually create a new economic equilibrium andallow for vigorous economic expansion. However, until this new economicequilibrium emerges, the increased savings rates have some downsides. Itbegins with a significant reduction in consumer expenditure. The U.S. is theworld’s leader among developed countries in having the highest consumptionrelative to its gross domestic product (GDP).Stephen Roach of MorganStanleyshows that U.S. consumption is about 71% of GDP, compared to 56-57% in most other developed countries. The U.S. average for the years 1975–2000 was 67% of GDP, and for 1950-1975 around 64%. Now the U.S. is likelyto head back to the latter figure.
Why Americans will save more
Another consequence of lower consumption will be further downward pressureon Americans most important asset – their homes. Until recently, Americans
 
saw their homes as the safe place to invest in and build equity for retirement.But they now understand this strategy may not work well in the future.Purchasing a home for investment purposes will be de-emphasized. Home pricesare likely to fall even further, scaring particularly those boomers to save in otherways.In addition, declining consumption could mean even lower stock market returnsthan even the abysmal ones seen in recent years. Adrian Ash in his article,
,says,
“… the total return [capital gains and dividends] onthe S&P500 [the pre-eminent U.S. large companies stock index] was actually negative for the decade ending on 30th June 2008.” 
The numbers were adjustedfor inflation as well. By far the largest proportion of Americans’ stockinvestments are held in companies that make-up the S&P 500 Index.Incidentally, if you account for the declining value of the dollar internationally,then performance of the S&P 500 delivered a negative real return of about -20to -40% over the past 10 years! And Americans investing in S&P 500 companiesdid also participate significantly in the growth of foreign market as well. Suchrevenues grew rapidly to around 40% of total S&P 500 sales during this period.Therefore Americans planning to retire in the next few years cannot rely on thestock market to replicate its gains seen between 1980 and 2000, to fund theirretirement. They simply have to save more and place some of those savingsaway from the stock market. (Note: I do not anticipate Americans abandoningstocks. And there will be some market sectors that will do very well even if thebroad market struggles.)Boomers also have to question the ability of the U.S. government to fund theirmedical needs and pensions in retirement, as the U.S. government is in oneheck of a hole – a hole of around $70 TRILLION! The enormity of this fundinggap cannot be easily grasped. But let us try. In an article,
by Derek DeCloet in the Canadian
Globe & Mail 
hestates,
“To earn $70-trillion in profit, you’d need 1,723 companies the size of ExxonMobil; $70-trillion would be equal to the annual sales at 1.35 million Wal-Mart stores. [Now that’s]… not the size of the U.S. government’s debt, though.It’s the shortfall between its projected future revenues and what it plans tospend (in today’s dollars).” 
It is evident from the U.S. government’s financial position that its promisedbenefits to its citizens could be cut significantly – while substantially raisingtaxes as well. In such an environment boomers have no other option but tourgently save a heck of lot more now.
A new consciousness arising bringing balance to spending and saving
Americans, whether they be boomers or from generations X, Y and Z, are at thecusp of a new consciousness. They will bring a new balance to their material lifeand inner desires. The rapidly changing financial picture together with afundamental shift in their consciousness concerning what is important in life, willplace a renewed emphasis on savings. In years to come, this will be seen as agreat turning point for the American economy, a turn towards a more balancedEnlightened Economics.——————————————————————–

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