The Phony Savings Numbers

The government says the savings rate in the U.S. has skyrocketed to 5%. It's a phony number. NyPo's John Crudele, who is great at digging up the truth behind government stats, explains part of the reason for the bad number and then I'll add on:

...one of the few pieces of recent good news about the economy: that Americans' personal incomes increased in January even as their rate of saving money skyrocketed to 5 percent - the best in nearly 13 years.

Please, does anyone really believe these numbers...?

I did a little research. And I'll let you in on a little secret.

The folks at the Commerce Department, who put out these rosy statistics, really don't believe them, either.

Here's how this "good news" came about.

Because of the recession, the US Treasury is estimating that its revenues will be down for the coming year.

That's mainly because of lower (or no) capital-gains tax payments, because people will report tax losses in the stock market and, of course, because many folks have lost their jobs and paid less income tax.

If the Treasury is receiving less revenue, the Commerce Department figures this money must still be in taxpayers' pockets.

And if it remains in the possession of taxpayers, then people must be saving some (perhaps 5 percent, Commerce figures) and spending some.

Yet did the government ever think that the money isn't reaching people's pockets, and as a result it is neither being spent nor saved?

A source in the Commerce Department chuckled when I asked about these numbers, explaining that these figures "are the very first estimates," which means they are the ones "most subject to revisions."

And people shouldn't take them very seriously.

Crudele has half the story here, but it's a good lead to what really is going on. Since it appears the Commerce Dept. is backing into the number, it is ignoring the fear in the system.

I have been reporting that for roughly the last half of 2008 M1 soared. This was fear money going into M1. It was not added "savings", it was money being hoarded in fear. There's a big difference. Money saved finds its way onto the loan market where businesses can borrow it. Fear money, especially currency, doesn't.

Further, money used to buy Treasury securities does not end up in the hands of businesses for investment, but rather into the hands of government for government consumption.

Thus, with Commerce backing into the number the way Crudele describes, "savings" actually going into system as money available for businesses to borrow is very much exaggerated on the high side. Hoarded money (indviduals and banks have both been hoarding) and Treasury security purchases just don't provide money to the loan market that would help businessmen that real savings would do.