The institutionalized lies and deceptions just keep on coming...
UNEMPLOYMENT/UNDEREMPLOYMENT: Earlier this week, I went into some detail on how our government and the MSM grossly distort unemployment statistics. (SEE: "A Deeper Dive (#1 of 3): New Truths About Unemployment .") I was just reporting on the facts: former Reagan administration Assistant Treasury Secretary Paul Craig Roberts and former Clinton administration Labor Secretary Robert Reich are out-and-out stating that the widely-hyped US Department of Labor's Bureau of Labor Statistics' U.3 Index results--the updated primary unemployment percentage rate that we hear and read about every 30 days--should be doubled in any given month to accurately reflect the actual state of unemployment and underemployment in the U.S.
This month, above and beyond that inconvenient truth, we learned that the current U.3 Index rate of 9.8% happens to be six-tenths of a percent below the
actual U.3 rate, due to the government's undercounting of those unemployed, primarily in the first quarter of this year, overlooking 824,000 jobless souls as a byproduct of the government's "annual revision" to these statistics. We now know the preliminary results of the undercount, but these folks won't be added to the "official" jobless tally until February 2010.
CONDITION OF OUR NATION'S BANKS: After covering the truth about significant distortions (yeah, I'm being polite) being provided to us by our government concerning unemployment, I then posted a diary concerning how we've been blatantly lied to and deceived about the state of our nation's banks. (SEE: "Fed'l Reserve, IG Barofsky: Paulson, Treasury Lied To Public.") That's not me saying this, that's TARP Inspector General Neal Barofsky and the Federal Reserve confirming his commentary.
TWO MORE MYTHS AND FALSE MEMES: WE'RE SAVING MORE AND (WILLINGLY) PAYING DOWN OUR CREDIT CARDS...
Tonight we're going to take a look at consumer credit and savings rates and the false memes that are being perpetuated by our government and our corporatist MSM as they attempt to put forth these deceptions that we're, supposedly, saving more and (willingly) paying down our credit cards.
HERE ARE THE INCONVENIENT TRUTHS:
1.) Roughly 90% of us are not saving more than we have been, to date. For all intents and purposes, only the top 1%-10% of our population is really doing that.
How much of your income do you save every week? Is it more than you were saving last year or the year before that?
2.) The too-big-to-fail banks have been eviscerating Main Street's consumer credit lines for the past 20+ months. The numbers we're hearing about and reading on this matter, from the Federal Reserve, don't even begin to tell the real story about it. In fact, due to these lending institutions' agressive actions to cut consumer credit, the consumer credit reporting agencies (i.e.: Equifax, Experian and Trans Union, etc.), have been a party to an industry-wide effort that actually ends up lowering the majority of the population's credit scores, all as a result/byproduct of the banks' aggessive consumer credit cutbacks, too. This, in turn, is creating a major crisis in small/very small businesses throughout the country, since most small businesses primarily rely upon the same type of personally-guaranteed, revolving credit lines that consumers utilize. In short, it all feeds upon itself.
Have you had the credit limit on one or more of your credit cards lowered by a credit-grantor in the past couple of years? Have you had a revolving credit line terminated during this time?
Based upon firsthand knowledge of the matter, since I own a very small company that provides software to retailers and service-providers which processes consumer credit applications with lenders, I can tell you that Main Street's consumer credit is, without a doubt, being eviscerated by Wall Street as we speak. We process hundreds of thousands of consumer credit applications per year, in fact. I see the reports, everyday. I hear about it directly from my Main Street small business clients. "So and so lender's approvals are down XX% year-over-year, month-over-month." "My lender just shut my customers' credit lines down. They gave me 30 days notice!" etc., etc., etc.
We're getting hosed. Bigtime.
Depending upon the particular sector (i.e.: furniture, jewelery, etc.), consumer credit application approvals are down a minimum of 10%-20% with any given lender; in many instances it's a multiple of that; in some situations, well-known lenders have just walked away from certain business sectors entirely; sometimes with very little notice, too. (We have national retailers subscribing to our software. And, we're regularly in touch with other national retailers and lenders on a daily basis; this is continually confirmed to us, and in 20 different ways, too. Yes, a lot of it is discretionary income; but, much more of it than many here might realize is due to the fact that Wall Street has very much abandoned a significant portion of Main Street's consumer lending needs.)
...EVEN MORE OF A REALITY CHECK!
And, before you come back with the, "Well, we deserved it" meme, please read this from former Goldman Sachs senior executive Naomi Prins: "Wall Street Lies Blame Victims to Avoid Responsibility for Financial Meltdown."
No, we did not create this mess, as much as Wall Street would like to make us believe it! (It is, perhaps, the biggest lie of all!)
The sub-prime mortgage crisis, after everything's said and done, was all about $1.4 trillion in mortgages...and...then there's that not-so-little-but-conveniently-overlooked issue of the $140 trillion in leveraged derivatives by those Wall Street investment bankers.
Wall Street Lies Blame Victims to Avoid Responsibility for Financial Meltdown
By Nomi Prins, Wiley Press. Posted September 29, 2009.
To hear it from the big financial companies, the big crash started when poor people bought homes they couldn't afford. But that was at most 1% of the problem.
Editor's note: The following is an excerpt from Nomi Prins' new book, "It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street."
The Second Great Bank Depression has spawned so many lies, it's hard to keep track of which is the biggest. Possibly the most irksome class of lies, usually spouted by Wall Street hacks and conservative pundits, is that we're all victims to a bunch of poor people who bought McMansions, or at least homes they had no business living in. If that was really what this crisis was all about, we could have solved it much more cheaply in a couple of days in late 2008, by simply providing borrowers with additional capital to reduce their loan principals. It would have cost about 3 percent of what the entire bailout wound up costing, with comparatively similar risk.
--SNIP--
Here are some numbers for you. There were approximately $1.4 trillion worth of subprime loans outstanding in the United States by the end of 2007. By May 2009, there were foreclosure filings against approximately 5.1 million properties. If it was only the subprime market's fault, 1.4 trillion would have covered the entire problem, right?
--SNIP--
But there was much more to it than that: Wall Street was engaged in a very dangerous practice called leverage. Leverage is when you borrow a lot of money in order to place a big bet. It makes the payoff that much bigger. You may not be able to cover the bet if you're wrong -- you may even have to put down a bit of collateral in order to place that bet -- but that doesn't matter when you're sure you're going to win. It is a high-risk, high-reward way to make money, as long as you're not wrong. Or as long as you make the rules. Or as long as the government has your back.
The Second Great Bank Depression wouldn't have been as tragic without a thirty-to-one leverage ratio for investment banks, and, according to the New York Times: "...a ratio that ranged from eleven to one to fifteen-to-one for the major commercial banks. Actually, it's unclear what kind of leverage the commercial banks really had, because so many of their products were off-book, or not evaluated according to what the market would pay for them. Banks would have taken a hit on their mortgage and consumer credit portfolios, but the systemic credit crisis and the bailout bonanza would have been avoided. Leverage included, we're looking at a possible $140 trillion problem. That's right -- $140 trillion!
Sorry for the reality check which created a slight diversion in this diary and a very brief trip down memory lane...back to the latest lies, on consumer credit and savings rates...
THE CONSUMER CREDIT LIE
The Deception: "Consumer Credit Declines Sharply in August." The headline's a fact. It's accurate. The real issue is this: WHY did it decline? The answer is not what you think, despite the status quo meme repeated in this Calculated Risk post.
Consumer Credit Declines Sharply in August
Wednesday, October 07, 2009
by CalculatedRisk on 10/07/2009 03:00:00 PM
From MarketWatch: "U.S. consumer credit falls for 7th straight month."
U.S. consumers reduced their debt for the seventh straight month in August, the Federal Reserve reported Wednesday. Total seasonally adjusted consumer debt fell $11.98 billion, or at a 5.8% annual rate ... In the subcategories, credit-card debt fell $9.91 billion, or 13.1%, to $899.41 billion. This is the record 11th straight monthly drop in credit card debt. Non-revolving credit, such as auto loans, personal loans and student loans fell $2.10 billion or 1.6% to $1.56 trillion.Cash-for-clunkers probably kept non-revolving credit from falling further - just wait for the September numbers!
Consumer Credit: Click on right HERE for graphic image in new window.
This graph shows the year-over-year (YoY) change in consumer credit. Consumer credit is off 4.4% over the last 12 months. The previous record YoY decline was 1.9% in 1991.
Here is the Fed report: Consumer Credit
Consumer credit decreased at an annual rate of 5-3/4 percent in August 2009. Revolving credit decreased at an annual rate of 13 percent, and nonrevolving credit decreased at an annual rate of 1-1/2 percent.Note: The Fed reports a simple annual rate (multiplies change in month by 12) as opposed to a compounded annual rate. Consumer credit does not include real estate debt.
Noooooo! Nuh uh!
This is what REALLY happened...
Since the "Great Recession" started, the too-big-to-fail Wall Street firms have already cut consumers' credit lines by $1.25 trillion. (Remember what I told you, a few paragraphs above, in terms of what we've been seeing playing out on Main St.?) And, these are the same lines being used by all those mom-and-pop small businesspeople out on Main Street, as well. From, arguably, the leading and most prescient stock and consumer credit analyst on Wall Street, Meredith Whitney: "The Credit Crunch Continues."
(KEY NOTE ON CONSUMER CREDIT UTILIZATION RATES/PERCENTAGES: We interrupt this diary for an explanation about "consumer credit utilization rates." Another thing my little company does is create customized credit scorecards for retailers and service providers. What these scorecards do is predict future behavior of consumers by running historical analysis of a given retailer's consumers' credit data, based upon segregating a given retailer's consumer credit accounts into "good" accounts and "bad" accounts. It works out something like this--and this is the very simplified explanation. We create a scorecard which is a combination of weighted variables. A typical customized consumer credit scorecard will have anywhere from 6-20 variables in it. [There are up to 2000 variables available and in-use in credit scoring, today; however, in reality, there are about 100 variables that are used most of the time to compile the lion's share of most retail scorecards.] You "push" the consumer's credit application data and their credit report data into the computerized scorecarding platform, and it calculates the score of each variable. In a split second, give or take, the scorecarding platform then adds the totals of each variable result--weighted to reflect the activity of that particular retailer's history with "good" and "bad" accounts-- and an overall, customized credit score is created. The important takeaway from all of this is that the PERCENT OF OVERALL UTILIZATION OF A GIVEN CONSUMER'S AVAILABLE/EXISTING CREDIT LINES is, in many/most instances, one of the most widely-used credit variables employed in retail consumer credit scoring, today. SO, WHEN A LENDER REDUCES YOUR AVAILABLE CREDIT LINE, YOUR UTILIZATION RATE INCREASES, ASSUMING YOU HAVE AN OUTSTANDING BALANCE WITH THAT GIVEN CREDITOR. And...THE HIGHER YOUR UTILIZATION RATE, GENERALLY SPEAKING, THE LOWER YOUR CREDIT SCORE. So, what happens is that when these lenders are going around stripping available credit lines down within the consumer population--as is the case today--by definition, THESE LENDERS ARE, EFFECTIVELY, LOWERING THE CREDIT SCORES OF THOSE CONSUMERS, TOO. Also, by definition, the lower a consumer's credit score, to begin with, the more likely it is that this action by a credit-grantor will adversely affect the consumer going forward! Now, Fair Isaac will try to spin the story--as they do in this press release linked above--otherwise. But, it's a fact of life that what I'm telling you is a general rule of thumb in the credit-scoring/credit analytics industry!)
So, this story, below, takes on a whole different meaning, now. (At least, if you understand the run-on paragraph, immediately above! LOL!)
The Credit Crunch Continues
By MEREDITH WHITNEY
October 2, 2009
Wall Street Journal Op-Ed
Anyone counting on a meaningful economic recovery will be greatly disappointed. How do I know? I follow credit, and credit is contracting. Access to credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.
Since the onset of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and credit-card lines (a critical funding source to small businesses) have been cut by 25% since last year.
Unfortunately for small businesses, credit-line cuts are only about half way through. Home equity loans, also historically a key funding source for start-up small businesses, are not a source of liquidity anymore because more than 32% of U.S. homes are worth less than their mortgages.
Why do small businesses matter so much? In the U.S., small businesses employ 50% of the country's workforce and contribute 38% of GDP. Without access to credit, small businesses can't grow, can't hire, and too often end up going out of business. What's more, small businesses are often the primary source of this country's innovation. Apple, Dell, McDonald's, Starbucks were all started as small businesses.
--SNIP--
As is true in most recessions, banks' commercial lending portfolios shrink as creditworthy customers pay down their debts and the less-worthy borrowers are simply denied loans. Banks, in other words, want to lend only to those that don't want to borrow. Challenging as that may be, in the last cycle small businesses at least had access to their credit cards.
Small businesses primarily fund themselves through credit cards and loans from local lenders. In the past two years, credit-card lines have been cut by over $1.25 trillion. During the same time, 10% of all credit-card accounts have been cancelled. According to the most recent Federal Reserve data, small business lending is down 3%, or $113 billion, from fourth-quarter 2008 peak levels--the first contraction since 1993. Credit cards are the most common source of liquidity to small businesses, used by 82% as a vital portion of their overall funding. Thus, it is of merit when 79% of small businesses surveyed tell the Small Business Association that credit-card lending standards have tightened drastically and their access to credit lines has decreased materially.
So, what else is happening while this is all playing out? Think about this...the credit data industry becomes a party to the deception.
Why and how would/could that happen? You might ask.
Well, guess who's buying most of Fair Isaac's products? (HINT: The answer is not "consumers.")
Bingo!
NOT-SO-FAIR ISAAC...
On August 20th, around six or seven weeks ago, Fair Isaac Corporation (a/k/a the creators of those FICO credit scores that are so critical throughout the credit-granting world) publicized the results of a "study" they conducted "...on the impact to consumer FICO® credit scores from lender reductions to credit card limits. The study found that while U.S. lenders have made substantially deeper cuts into consumer credit card lines, their targeted approach has had minimal impact on the FICO credit scores of most card customers. The study also found that credit scores fare best when consumers keep balances low on their credit card accounts."
The Fair Isaac corporate spin on this is all right here in their press release: "Study Finds Little Impact to Most Consumers' FICO Credit Scores When Lenders Lower Spending Limits on Credit Cards"
In it they tell us about the 33 million credit reports and credit scores they ran in the study. In every instance, we're told the consumers' reports in the tests indicated instances where a credit line was lowered. Their conclusion, as we learn from the press release, is that only a small portion of the scores were actually lowered when a consumer's credit limit on a particularly credit product was lowered.
But, there's a huuuuge problem with this, when you read the fine print in the press release...
1.) They segregated 24,000,000 of these 33,000,000 credit reports and used them to derive their "findings."
2.) We're told that of the findings relating to the processing of 24,000,000 credit reports upon which they spin the release copy:
A.) the average credit line was reduced by $5,100. That's somewhere around $125 billion in reduced credit lines.
But, here's the kicker....
B.) the average credit score of those 24,000,000 credit reports in Fair Isaac's study is....760.
FACT: The average consumer's credit score in the U.S., when I last checked--despite industry hype to the contrary--is in the high 670's!
FACT: Fair Isaac's entire press release relates to the results of a study that was performed on the top 20%-25% of our society, in terms of the credit quality of the sampling group! These are the people that do not need more credit. These are the folks that would be LEAST AFFECTED by a $5,100 drop in a given--and probably much, much larger--credit tradeline. Again, the credit scores of this segment of the population are going to be the least affected of any group, when it comes to having a (probably much larger) credit line reduced by a measley $5,100. (See my comments above about "percent of utilization of available credit.")
Furthermore, it all but demonstrates--although it simply cannot be confirmed--that a disproportionate share of the cuts in consumers' credit lines occurred in the next three quintiles (i.e.: what we call the "lower A," "B," and "C" credit classes) of the consumer public, at least if you assume Ms. Whitney's numbers are accurate, at least as far as her claim that $1.25 trillion in consumer credit lines having been cut in the past 21 months is concerned.
Of course, from the lenders' perspectives, this makes total sense...but, the truth is that folks in the A, B, and even C credit classes, still pay their bills.
Lastly, as far as these consumer credit myths and deceptions are concerned, here's a study from Harvard University (SEE: "Credit Information Reporting and the Practical Implications of Innacurate or Missing Information in Underwriting Decisions" ) regarding something we're very familiar with right here, in my business...an ugly truth--just one of many I might add--about the credit data industry, and consumer credit reports, in general: As you work your way down the credit spectrum, the "percent of utilization" (see "run-on" paragraph, a few paragraphs above) of a consumer's credit tradelines (the reports from a given lender constituting a "tradeline," or line of credit from a credit-grantor to a consumer as noted in their credit report), becomes more and more difficult to ascertain! And, this is due to flaws within the current consumer credit reporting data deployed at the three primary consumer credit repositories in America, today: Equifax, Experian and Trans Union.
So, by definition, the findings of this Harvard study directly demonstrates that a consumer's credit utilization is weighted more negatively, due to the (accidental? deliberate? the folks in the study speculate all over the place, quite frankly) omission of critical data relating to their "available credit" in their respective credit reports. And, based upon the results of the study, as well, this "data quality flaw" actually worsens as the consumer's credit score diminishes! (As you'll see in the discussion of the study's results.) Hence, a consumer's "utilization rate" (of available credit) tends to be skewed negatively against consumers as their credit quality sinks, but due to no fault of their own! (Granted, these consumers with lower credit scores maintain access to smaller lines of credit, if at all; but, by definition, the very system is weighted/"flawed" against them, too.)
Reiterating, again...the lower your credit score, to begin with, the more adversely your credit score will be affected when a lender reduces your available credit.
Even more succinctly, this entire matter just negatively feeds upon itself, as far as the availability of credit is concerned to those that need it most!
And, last but not least, realize that we're talking about AVAILABLE CREDIT, as opposed to actual credit utilized. (i.e.: the utilization rate, discussed way up, above.)
Therefore, the Federal Reserve's reports on consumer credit utilization, quite frankly, given everything I've just discussed above, should mean very little in terms of what's really going on out there on Main Street as far as the ravaging of most consumer's credit reports are concerned.
Again...recapping...
1.) credit standards have tightened up significantly;
2.) credit scoring methodologies deployed in the U.S. today--to say the least--are far from even-handed, and this has as much to do with the credit data industry, real biases inherent in it, and flawed methodologies for credit scoring, in general, as anything else. (Think about it? How did we get into this mess in the first place? Apart from greed, and the fact that many credit reports were often barely even reviewed--especially with regard to the Pick-a-Pay Mortgages/Option ARMS and Subprime sectors--the truth is that the people responsible relied upon less-than-perfect data, and/or they just looked the other way! I witnessed both, firsthand, and on many occasions.)
3.) those that need credit the least are still being offered it; intensively, I might add;
4.) those that still pay their bills, but who may not be in the top 20%-25% of the population, as far as their credit scores are concerned, are getting hammered!. (i.e.: the good people that need credit the most are getting hurt the most by the system.) But, again, don't take my word for it, check this out: "Your Credit Score May be Hurting Due to Credit Card Issuers Not Reporting Credit Limits."
5.) the situation with consumer credit and lending is far worse than the numbers we're seeing being issued by the Federal Reserve; and, I'm absolutely certain that 9 out of 10 Main Street retailers would concur with my observations, too;
6.) we know, firsthand, that apart from the top 20%-25% of the population, the remainder of the consumer public is STARVING for credit, due to inefficiencies in the system, itself, and an inherent weighting in the methodologies and practices of a system that, frankly, favors the status quo.
7.) THE REAL REASON WHY CONSUMER CREDIT/DEBT IS BEING PAID DOWN is due to a combination of factors, including:
a.) the majority of consumers are being forced to pay down their debt by their credit-grantors;
b.) a large portion of the population that was obtaining credit prior to the meltdown, simply no longer has access to it;
c,) this situation is getting worse, not better;
d.) the entire industry is biased in favor of the status quo, despite a boatload of regulations to the contrary;
e.) given an opportunity, and appropriate/reasonable access to credit on reasonable terms, 90%-95% of the population that either no longer has access to credit, or have had their credit lines curtailed severely, over the past couple of years, would use it responsibly; but, it's a moot point, and it has more to do with draconian, Wall Street banking policies and an inefficient system than it has anything to do with the creditworthiness of the population. (Of course, as the overall economic situation within the consumer population deteriorates, it does become a self-fulfilling proposition for Wall Street. Therein lies the rub, IMHO.)
Why do I say this? We employ very intensive credit-granting scorecards, today, in some of the most adversely-affected areas in this country, right now. These credit scorecards are highly-calibrated, and they pretty much IGNORE the standard Fair Isaac, generic scorecards that are in use throughout much of the country, as I speak. We regularly approve in-store credit for tens of thousands of people a year with credit scores in the lowest quintile of the consumer-credit-score population. These people, that are supposedly encumbered with "bad credit" are accessing credit lines with annual interest rates that are lower than the national, too-big-to-fail banks, too! And, the payment histories of these consumers--given the properly calibrated analytical tools being provisioned at point-of-sale--are better than the payment histories of many of the largest U.S. banks' prime credit portfolios, even NOW.
There's only one thing that we do--that some other similar firms do, as well--and that's the fact that we take the time to CUSTOMIZE the credit decisioning to the actual retailer and the actual community where the credit's being granted.
In fact, in many ways, it is a compelling, real-world argument for breaking up the too-big-to-fail banks, and returning consumer lending to the community. Because there's one very well-known rule of thumb in the consumer credit business that's not widely publicized, and it's this: "WILLINGNESS TO PAY IS MORE IMPORTANT THAN ABILITY TO PAY." In many other ways, it's a testament to the goodness of people. And, if you give credit to people that have been denied access to credit, repeatedly, in the past, they will pay their bills and become your most loyal customers!
I'll bet there's not a too-big-to-fail bank in this country that would accept what I'm saying at face value. But, the truth is, that is just another glaring example of how out-of-touch Wall Street is with Main Street, in general!
So, again, the explanation as to why consumer credit is tightening is significantly different than the story we're being told in the MSM!
CONSUMER SAVINGS RATES
The analysis of the reality that we're hearing a lot of false information from the MSM, as far as consumer savings rates are concerned, is as much anecdotal (and common-sense oriented) as anything else. The entire "case" is provided in the follwing post, and IMHO, it IS compelling: "The Savings Rate Has Recovered...if You Ignore the Bottom 99%."
Guest Post: "The Savings Rate Has Recovered...if You Ignore the Bottom 99%"
By Andrew Kaplan, a hedge fund manager
Naked Capitalism
August 31, 2009
It has become fashionable among equities managers of the bullish persuasion to argue that a strong recovery in GDP will occur in 2010 because the "structural adjustment period" of moving back to a more normal savings rate has been completed. We've gone from a savings rate of barely 1% in 2008 up to 4.2% in July (ok, so the argument sounded better when the number was 6.2% in May, but still...).
The story goes something like, "consumers took a little time to recognize that their home equity had disappeared, but now they've adjusted their savings rates toward the desired level to reflect the fact that they need to save a larger proportion of income for retirement...so this effect will no longer be a drag on growth in coming quarters."
This is the kind of conventional wisdom which could only emerge among folks in the 99th income percentile who spend their time primarily with other folks in the 99th income percentile. You don't have to look at the data (mortgage delinquencies, foreclosures, credit card defaults, bankruptcies) all that hard to see a very different picture. In fact, it is almost certainly true that the savings rate for 99% of the US population is negative. These people (a/k/a "all of us") are drowning. And to the extent that our savings rate is less negative than it was one or two years ago, that simply reflects the reality of reduced home equity and unsecured credit lines rather than any conscious effort to reach a "desired level" of savings.
A little data might help here. Unfortunately, there really IS no good data on PCE (personal consumption expenditure) and savings stratified by income percentile. There are a couple of surveys, the triennial "Survey of Consumer Finances" by the Federal Reserve and the "Consumer Expenditure Survey" by the Bureau of Labor Statistics, but the self-reported data is laughable. For 2007, the Consumer Expenditure Survey showed a personal savings rate of 18.4%. In the same year, the Bureau of Economic Analysis, which calculates the savings rate as a residual from actual income and expenditure data, showed a savings rate of 1.7%. Either the Consumer Expenditure Survey does a poor job of sampling, or people who fill out surveys are really big liars.
So, exactly where are folks obtaining this data that tells them--and us--"we're saving more" really coming from?
Kaplan proceeds to discuss Thomas Piketty and Emmanuel Saez, both of whom have spent their careers studying income stratification in our society. (Many other bloggers have posted on Piketty's and Saez' work.)
But, here's a final conclusion from Kaplan. And, it's really quite simple...perhaps too simple and sensible for some, but I find it quite convincing...
If we expand our survey to the top 1% of all households, we find an average income of $1.36 million for 2007. These folks had an average federal tax burden of just under 33%, so their after tax income averaged $916 thousand. If you assume this group had a savings rate of 33%, you get total savings of $452 billion (remember, $171.5 bn of this comes from the top 0.01%, we're assuming a savings rate of around 25% of after tax income for the "poorer" 99% of the top 1%) This is more than 100% of the personal savings of the entire population, according to the BEA data. It implies that 99% of the US population still has, on average, a negative savings rate of around 1.3%. If you subtract the next nine percent, which likely still has a positive savings rate, the data for the bottom 90% becomes even more depressing, implying a negative savings rate of close to 5%.
Anyhow, exactly WHERE are these pundits and so-called experts obtaining their information from when they tell us consumers are saving more now than they were, before?
Realistically, wouldn't it be a hell of a lot more likely that it was just the uppermost portion of our society hoarding cash?
So, that's it for today. Another day, another few mistruths and deceptions regarding our economy coming to the fore...and, that's because we're at a point where reality is outlapping the spin.