Quoting me:
>"It's not US _savings_ (i.e., assets) that are "non-existent." Rather,
>it's US _saving_ (net addition to savings) that is negative. Overall US
>consumer net worth is _positive_, not negative (even though this net worth
>did fall during the last year)."
Alex comments:
>There seems to be a problem in the way the above was expressed (or perhaps
>I do not understand the definitions used: saving and savingS). Anyway,
>saving is a flow, assets are stocks.
I don't think that we disagree. (The saving vs. savings (flow vs. stock,
savings = accumulated saving) convention is common, but hardly conventional
these days.) I should correct what I said, though: it's only _household_
saving that's negative these days.
>And, not only in the US, but generally, the NET WORTH of the household
>sector (which includes physical and financial net assets) is positive, and
>it can be 2, 3, 4, 5 times the level of income. The latest figure for the
>net worth of the Personal Sector
>in the US (39.999 Bn.) is almost four times the GDP (circa 10.000Bn.) and
>more than five times the disposable income of the private sector (circa
>7.000 Bn). No one would dispute that net worth of consumers is positive.
except that the article that I was responding to said that "savings" were
negative, while suggesting that consumers didn't have anything to fall back
on. So there are some people who would (wrongly) dispute your assertion.
>So, I guess that what is implied by Jim is that household (or consumer)'s
>saving, INCLUDING CAPITAL GAINS , is POSITIVE, and therefore there is not
>'really a problem' with the private sector. Perhaps this is not what Jim
>implied, but we know that this is a major argument that is going around
>for some time now.
This is not what I implied. Au contraire. If I had, I would have noted that
the capital LOSSES of the last year imply that saving + capital gains is
likely negative.
>... We elaborated on this in the paper, which I would very much like you
>to download or read from the web site (www.levy.org). You could get it
>directly by using http://www.levy.org/docs/sreport/implos.html Let me try
>to make the points as concise as I can (but please, try to get hold of the
>original document anyway):
>1) in the framework of our analysis our major concern is with the
>*financial imbalance* (expenditure, including investment, minus income
>gross of capital consumption) of the *private-sector* (the aggregate of
>the private sector, including households, unincorporated firms and
>corporations) . The gap, which is large as it was never before (above 6%
>of GDP) cannot be sustained
>at the present rate, *because* it can only be financed by credit or by
>foreign purchase of equities. It is not possible to 'spend' the wealth (or
>capital gains, for that matter). There must be either additional credit
>(net borrowing) or net realization of assets by the sector as a whole.
that's what I remember from Godley's previous work.
>2) By disaggregating the private sector between household (or the
>personal sector) and corporations we find the additional problem that
>households' realization of equities (to allow spending beyond income but
>without relying solely on debt) has largely depended on the fact that
>corporations have been net purchasers of equities. As corporations have
>been in financial deficit,
>they could not have purchased equities at the same rate without recurring
>to more credit; therefore setting another limit to the ability of
>households to realize its wealth.
that makes sense.
>3) The limit to borrow, in our opinion the binding constraint in the last
>resort, is set by the ratio of debts to *income*, because debts must be
>serviced by cash. The household sector *as a whole* cannot realize more
>than a fraction of its assets without causing the market to crash. The
>limit to borrow is not set by the ratio of debt to income plus capital
>gains; such a limit would be extremely vulnerable to a fall in prices.
>Moreover, we actually estimated the ratio of saving, inclusive of capital
>gains (i.e. change in net worth), relative to income inclusive of capital
>gains. Such a ratio plunged from 44.4% in 1999 to *MINUS* 17.4% in 2000,
>and it remained strongly negative in the first quarter of 2001.
can't assets be used as collateral, so that the debt/asset ratio is relevant?
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~JDevine
