I recall buying a couple of houses in Silicon Valley: put all your money down, plus whatever you could borrow from relatives;add your income to see how much you could afford to pay per month and get an 80% mortgage based on that; with the seller accepting a second as the difference from your down (often about 10%).
Huge mortgage payment; interest is deductible; your "savings" is the steadily increasing equity value of the house. I do NOT know, but am interested, in how this "real savings" is included in the savings statistics. Also, I would guess that middle class wealth effects, where most stock is locked in IRA/401k plans, are based more on real estate equity wealth than on stock market wealth; dispite the much higher liquidity of the stocks, but again have only my gut feelings. Interest rates dropping should increase prices (and maybe reduce second mortgages?), but also encourage refinancing and borrowing/consuming that equity. I DO wish (too?) that I could offer more answers, rather than just questions I'm interested; thanks to Bill Dickens for his! Tom Grey PS -- has anybody else suggesting migrating some of this Armchair talk onto a blog, with archives, maybe threads, and comments? Weblogs -- a coming tech that's cool. > -----Original Message----- > From: William Dickens [mailto:[EMAIL PROTECTED]] > Sent: 12 August, 2002 8:10 PM > To: [EMAIL PROTECTED] > Subject: Re: Savings Rates > > > Hi Bryan, > There are at least two official government savings > rates. My guess is that you are referring to the individual > savings rate from the National Income and Product Accounts. > For a very good description of how it is computed and its > advantages and shortcomings see Gale and Sabelhaus in the > 1999:1 BPEA. > Whatever you may think about NIPA savings measures they > are not "silly." They do a pretty good job of measuring the > national income concept of savings which is not identical > with change in wealth. It is a useful concept since in NIPA > savings flows equal investment and if household savings is > negative it has to be offset by government saving or > international savings if there is to be any investment. > Gale and Sabelhaus do not answer the question that you > ask but they do look at the question of whether savings rates > are low if we define savings as change in wealth rather than > income minus consumption. They conclude that were (at least > at the time of the article) extremely high. > I wouldn't be surprised if some of the same problems > that Gale and Sabelhaus address wouldn't be behind some of > the results you mention from the literature on individual > savings rates. - - Bill Dickens > > William T. Dickens > The Brookings Institution > 1775 Massachusetts Avenue, NW > Washington, DC 20036 > Phone: (202) 797-6113 > FAX: (202) 797-6181 > E-MAIL: [EMAIL PROTECTED] > AOL IM: wtdickens > > >>> [EMAIL PROTECTED] 08/08/02 02:25PM >>> > Bill Dickens wrote: > > > > Bryan: > > Which "official definition of savings" are you referring? NBER or > > Palgrave's Dictionary of Economics? Both emphasize looking > at savings as > > abstinence of consumption. Do you reject the > Wicksell-Fisher tradition that > > savings is a reflection about how individuals discount the future? > > I am thinking about officially-reported "savings rates," > which in recent > years have sparked puzzlement by actually turning negative. I'm not > sure whose imprimatur is on these numbers. But the savings > experts I've > had the chance to ask have told me that official numbers don't count > stock purchases, capital gains, etc. > > But maybe I'm just confused. If anyone knows better... > > -- > Prof. Bryan Caplan
