Tuesday, July 2

Show me the money

Another very interesting paper trying to explain the drop of the US savings rate. The savings rate dropped from 8.6% in 1980-90 to 5.5% 1990-2000. The reasons are multiple, such as technology improvements, labour productivity, medical care cost increases, asset appreciation, improved credit access, etc. etc.

The abstract

This paper investigates the effect of mortgage equity withdrawal on saving in the US over the period 1993–2011. A multivariate time series analysis based on a vector error correction model (VECM) is carried out. The saving rate, mortgage equity withdrawal, net wealth, interest rates and inflation are included in the empirical model. The results show that the equity withdrawal mechanism plays a relevant role in explaining the saving rate pattern.

People tend to think that the bankers are to blame for the crisis, yes, sir, but as I have already pointed out so many times, don't be a bloody economic illiterate and then blame the Jews for everything. That ship has sailed a long time back and all it does is to expose you as one of the Daily Mail readers. Just like we did pogroms way back and blamed the Jews for everything, blaming the bankers for everything just tells me that you are a doofus :P

Our economic conditions and civilisation is undergoing some serious changes but at the end of the day, one has to recall that basic economic laws are fairly constant. Don't spend more than you have, if you are going to take on debt, then you will have higher fixed costs, the business cycle cannot be wished away, etc. etc. So having more savings is good, very well. So like the paper shows, people shouldn't goose the mortgage market so much. Rental is a perfectly good alternative, see the situation in Germany for one example of a housing market which is not driven by home ownership lemming like behaviour.

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