Friday, May 10, 2013

Who Saves Money in America?

Much is made of the Chinese savings rate vs. the American savings rate. The Chinese save so much, while Americans save so little, boo hoo. The real questions are: what do people do with their savings, where are savings made, who saves, how is capital allocated, who is planning what? We live in a consumer economy. It is not a saver economy, and our leadership does not want a saver economy. Americans are not encouraged or suppose to save. The FED's policy of inflating away debt is a tightrope walk between keeping commodity prices low for Americans while pleasing our creditors to avoid sparking hyperinflation. It isn't too much of a tightrope though because America has few savers, so destroying savers is a winner domestically. Step outside your circle and look at the market economy at generational lows for labor participation, all time highs for food stamp usage and a median income stagnant for decades. Americans save so little because our corporations save and allocate capital for our economy.
Americans have a tiny savings rate that has decreased over decades as debt has accumulated. In reality, even when Americans were saving a decent amount of money decades ago, a large portion of it was saved by the upper classes (top 20% + accredited investor types). Today, corporations are sitting on enormous cash reserves. They plan and invest with the national economy's savings. With the birth of the FIRE economy in the early '80s, Americans also pushed more capital into assets like real estate, stocks and bonds. Your savings is handed over to corporations to allocate. With the rise of the FIRE economy, the income slid from productive economic sectors straight to finance, real estate and insurance companies. This is also another feature to the consumer, FIRE economy. There is no incentive to save with bank book rates hovering around inflation for 20 years. How many advertisements do you see that recommend saving money? Auto-saving bank cards that round up a purchase and deposit $0.52 into a savings account? (sarcastic condescending clap) From advertising to education to purchases of home appliances, the message is take out loans and assume a monthly nugget to pay off. Don't save up to buy something, and remember, all assets can be borrowed against to free up cash for today.
You honestly think you, little American, and your local bank is worthy of holding your money and determining how it is loaned or invested? No way. That is only for the big boys to handle. They are experts; you are a plebeian fool. In their defense, look at the poor performance of the thousands of real estate flippers of the mid '00s. Expert corporate leadership and money center bankers know exactly how to maximize returns. They shoved billions into mortgages with single digit interest rates in the early 2000s instead of shoving billions into energy and alternative energy investments. Where was their genius there? An investment firm that spent billions in Bakken shale oil plays in '02-'05 instead of California mortgages would be a political kingmaker now instead of a corporate welfare queen (Citigroup). The savings comparisons to China are flimsy because they do not have a comparable financial infrastructure. Chinese people do save a ton of money, which is partly due to low trust in banks, cronyism in planned projects and limited investment vehicles. China does not have a national social security system (experimental here), so they have to save for retirement. It's apples to oranges and only distracts Americans from the real problem. Our system is focused on spending. It is a rather grotesque comparison, but agriculture never went away in America. We don't farm the soil for money, we farm our citizens.


PRCD said...

So do you agree with Captain Capitalism that it's pointless saving for retirement since a) not enough money in the world exists to fund everyone's retirement and b) the government will eventually nationalize 401(k)s?

What should Americans do with their money? I personally liked Burton Malkiel's advice, but maybe it's based on too much trust in guvmint and banks.

Son of Brock Landers said...

I did comment on his post on 401ks. I disagree. I think you should save up to the corporate match. It makes no sense to give up free dollars from your employer, as long as the match is in dollar contributions to your investment choices and not matching stock (Citi does this). If a company does a 50% match on the first 6%, you'd be foolish not to bump your retirement savings by 50% due to a match. You can go super conservative with a 401K and still do really well just from the match and a low 3-4% bond or fixed payout option (they exist at some corps).

I've noticed some anti-401k propaganda in the media recently. I dont think a nationalization of 401ks is coming but I think there are two potential outcomes that involve screwing people over partially. They won't make that move until after the next crash. Hell, Jim Rogers is openly saying that the USG will come for your money, so the government knows that the people are aware of a potential grab.

PRCD said...

The standard advice we hear is to max-out your 401(k), meaning, "Contribute up to the limit to which you'll still leave a tax break." Obviously, this puts a lot of money in a spot that's easy for the government to steal. The tax breaks are hard to ignore.

I think it's not irrational to fear a government nationalization. We have $16 trillion in debt and there is supposedly $18 trillion in 401(k)s.

I'm interested to hear how you're planning on funding your own retirement. Also, do you move money out of the country?

Do a "prole guide to retirement planning."

Son of Brock Landers said...

I will keep this in mind.

I've been trying to figure out how they will f*ck with our retirement plans, and I have some ideas.

I'm from a line of savers. I say save what you can while you can, but the exact mix changes per the environment. I never would have considered gold/silver in the '90s and early '00s. I had more trust in govt bonds + non-dot com stocks were about capital allocation. I likewise wouldn't trust government bonds right now but I would have at any time prior to 2009.

asdf said...

You should contribute whatever amount you company matches. If your worried about confiscation you can always do a hardship withdrawal. It's a 10% penalty, but most company matches are 100%. (1 + 1)*0.9 = 1.8 You're ahead 80%.

You can also borrow against it if you have a mortgage. In many cities there are probably some short sale or foreclosure deals that are relatively safe. In my case mortgage + taxes + fees is still slightly less then my rent. I'm waiting for a unit to go on sale.

asdf said...

My savings plan is I basically buy whatever I want and there is still a ton of money left over every month.