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Good News: People are Saving 10% of their incomes again


Cassandra Syndrome

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Aug 23, 2009
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12.3% to be exact

I am dubbed a bit of a doomsayer around here, but when I see something positive, in my view, I will mention it. There has been a dramatic increase in household savings from 0% in 2007 to 12.3% in 2009. This is an interesting report released from the CSO today, as it gives an indepth breakdown of total production, GDP, consumption, expenditure etc of Government, Financial sector, Non Financial companies and households.

http://www.cso.ie/releasespublications/documents/economy/current/isanonfin.pdf

Its unfortunate that people are getting nothing in interest for the discipline of saving and also that most of it is going to service debt. However from a behavioural context its encouraging that the discipline of saving has re-established even in the absence of financial incentives.

10% of household income being saved is reasonably satisfactory as it should supply the funding for firms to invest with. This natural market for money supply is regulated by the rate of interest that the borrower and saver agrees upon in a macro environment. This is the cornerstone of a healthy economy with a savings induced growth. No bubbles, booms and busts.

However thats the ideal world. In the here and now, savers need to be rewarded with a higher rate of interest and the monstrous debt monkey of up to €1 Trillion needs to somehow be addressed and dealt with.


But as I say, nice to get some real good news in the midst of the gloom.
 


adrem

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May 27, 2004
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Savings ratios were too low but are now too high !! We need consumer spending in order to drive economic growth. Consumers will continue to save until such time as they get some confidence back - hearing that taxes are going to increase and services will be cut doesn't engender much confidence.

Ideally a savings rate of c6%/7% is where we need to get to.
 

Mister_Jinks

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Apr 28, 2010
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I am sure FF are thinking of ways of getting their hands this money.

I guess it won't be long before some far left campaigner claims this is proof of wealth hoarding or some other ridiculous idea.
We all ready have DIRT (tax) on our savings. Although as interest rates on savings account are admittedly low it can't be a huge source of cash for the Revenue. It's not to be sneezed at either I'd say though.
 

Rochey

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May 20, 2004
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Savings ratios were too low but are now too high !! We need consumer spending in order to drive economic growth. Consumers will continue to save until such time as they get some confidence back - hearing that taxes are going to increase and services will be cut doesn't engender much confidence.

Ideally a savings rate of c6%/7% is where we need to get to.
Absolutely agree. People are saving out of fear. They're not saving for a new car or house or holiday. They're simply hiding away their money for the 'rainy day'. If people save all their disposable income what will drive an economic recovery?
 

Electric Sheep

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Feb 19, 2009
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Absolutely agree. People are saving out of fear. They're not saving for a new car or house or holiday. They're simply hiding away their money for the 'rainy day'. If people save all their disposable income what will drive an economic recovery?
How awful, saving for a rainy day;) They should be out there buying overpriced crap to keep up with the Jones' and "drive an economic recovery" rather than being responsible adults.
 

Cassandra Syndrome

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Savings ratios were too low but are now too high !! We need consumer spending in order to drive economic growth. Consumers will continue to save until such time as they get some confidence back - hearing that taxes are going to increase and services will be cut doesn't engender much confidence.

Ideally a savings rate of c6%/7% is where we need to get to.
Bull. People were saving 10% of their income back in the 90s up until 1999.

Where the 90s a nightmare like today? No, far from it. If people do not save where does the money come from for firms to borrow and invest with?
 

Cassandra Syndrome

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Absolutely agree. People are saving out of fear. They're not saving for a new car or house or holiday. They're simply hiding away their money for the 'rainy day'. If people save all their disposable income what will drive an economic recovery?
How is 10% saving all their disposible income? 90% goes on consumption. Recoveries comes from fixed capital formation, ie firms investing in capital goods.
 

Cato

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Cassandra Syndrome said:
Bull. People were saving 10% of their income back in the 90s up until 1999.

Where the 90s a nightmare like today? No, far from it. If people do not save where does the money come from for firms to borrow and invest with?
The Germans? ;)
 

charley

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Lots of people are not saving in any of the financial institutions so the figure is probably higher. Until there is a clear path ahead and people can be fairly certain how things are going to turn out there will be no change in saving.
The jailing of bankers and those in charge at the regulators office ,the central bank and the department of finance would increase consumer sentiment a lot.
 
Joined
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"Its unfortunate that people are getting nothing in interest for the discipline of saving and also that most of it is going to service debt".

Does it say how much is being put into savings and how much is going on debt repayments? It would be interesting to know. (I am not in a position at the moment to scan the document fully ;) ). Also do the debt repayments on this just refer to credit card debt and what is the total amount of credit card debt in the country? Just wondering if anyone had these figures off the top of their head.
 

Cassandra Syndrome

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The Germans? ;)
Exactly. Which causes chaos within a domestic economy as they can bridge 2 separate equilibriums created by artificially low rates, which in the one hand forces excessive consumption AND on the other excessive investment. Too much of a tug of war between competing consumption and capital demand for the same scarce resources creates massive bubbles.

Then to make matters worse the debt obligations + interest become a leakage to the economy on top of the inevitable bust.
 

jerry springer

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Oct 6, 2009
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If people are still able to put away 10% of there Income despite unemployment huge morgage repayments an the various cutbacks in salaries etc etc, It does show that we all have either been paid way to much or paying to little tax . Oh BTW this was the busiest year ever for te Cork Jazz Festival !!!
 

roc_

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Recoveries comes from fixed capital formation, ie firms investing in capital goods.
True. But have our banks and institutions learned anything?

No. - If they don't use these savings to repay the money they used to "fix" their balance sheets, they will just lend it out for more inflated mortgages (that justify the present valuations on their books), and to the kind of businesses that are bolstered by the Eamon Ryan stamp of approval and Eamon Ryan grants.

Personally, I would be a lot happier of there were differentiated funds set up to take in these savings, that did not have the legacy of our existing banks - the political affiliations, and the defensive behaviour (eg. "we will continue lending out money in the manner we have done over the past ten years, because we were not doing anything wrong. To do otherwise would be to admit this.").

Our problems are at root social and political. What our banks will no doubt do with these savings is one aspect of this... The washes and flows and disappearances and reappearances of money is only symptomatic of these root causes.
 

Goban Saor

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Savings ratios were too low but are now too high !! We need consumer spending in order to drive economic growth. Consumers will continue to save until such time as they get some confidence back - hearing that taxes are going to increase and services will be cut doesn't engender much confidence.

Ideally a savings rate of c6%/7% is where we need to get to.
Too higher? 30% saving is what is needed to have a pretty good buffer for the next crash that is in 2 years time.
 

Slippers 2

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If people do not save where does the money come from for firms to borrow and invest with?
Firms don't borrow other people's money they borrow liabilities of a bank. That's what the numbers in the firm's bank account are, look at any bank balance sheet. The bank issues them at will and lends them to borrowers. Another name for these numbers is "deposits". When a bank makes a loan it types new deposits into the borrower's account. If someone makes a "payment" to a bank it just deletes some of the payer's deposits. What stops a bank from issuing an infinite amount of deposits is that the total of its liabilities has to be a certain percentage smaller than the value of all the assets that it buys with the deposits that it issues ("the capital requirement", capital is a name for the number you get when you calculate [value of assets] minus [liabilities]).
 

roc_

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Firms don't borrow other people's money they borrow liabilities of a bank. That's what the numbers in the firm's bank account are, look at any bank balance sheet. The bank issues them at will and lends them to borrowers. Another name for these numbers is "deposits". When a bank makes a loan it types new deposits into the borrower's account. If someone makes a "payment" to a bank it just deletes some of the payer's deposits. What stops a bank from issuing an infinite amount of deposits is that the total of its liabilities has to be a certain percentage smaller than the value of all the assets that it buys with the deposits that it issues ("the capital requirement", capital is a name for the number you get when you calculate [value of assets] minus [liabilities]).
Uh oh. Here we go again. Time for the half hourly lesson.
 

Harmonica

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Even allowing for the fact its an average across the entire country and many don't have any savings I don't see how 10% could be described as too much. If you spend 90% that means will take 9 months to stash away money to fund 1 month of spending.

Normally banks would take the savings and loan out to other people or businesses but now they are just hoarding to fund their deposit ratio & pay off their debts.
 

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