![[Powered by Blogger]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_uf8Hq3e6_j1jJJn9GP21zYOh0WAa9sp_XsDwQF3YEKLHaIZm6zbiS9qlqHT95ne_ZBnnINcO1HpNx0vJDwfcWjRKwSji8uZRwyi6-vc-VC=s0-d){kind=small}
Tuesday, June 17, 2003
USEFUL INCREASE IN SAVINGS BY TAX CUTS TO HOUSEHOLDS, INCREASE IN MONEY SUPPLY
Households: Another Quarter Older And Deeper In Debt
June 06, 2003
All of this explains why growth in consumer spending remains tepid. Households remain heavily burdened with debt. Yes, the interest rates on this debt are very low. But the massive amount of debt owed by households is partially offsetting the low-interest-rate effect on consumer spending. In other words, households are keeping their debt-service ratios at elevated levels by “making it up on volume.”
And don’t forget, an increase in household saving does not automatically imply a fall in aggregate spending. If a household saves by investing in a corporation – either buying the corporation’s stocks or bonds – the corporation is likely to buy some good or service with the proceeds of its stock and bond sales. So, saving often means transferring purchasing power to another entity. One exception to this rule is when the increased saving takes the form of already-created money. In this case, the velocity of money circulation falls, rendering a given supply of money less expansionary. To some degree, households were in the first quarter opting to allocate more of their asset portfolio to money, as can be seen in Chart 4. However, of late, the Fed has aided in producing a sharp increase in the growth of money (see Chart 5), which is likely to offset a slowdown in velocity growth.
Households: Another Quarter Older And Deeper In Debt
June 06, 2003
All of this explains why growth in consumer spending remains tepid. Households remain heavily burdened with debt. Yes, the interest rates on this debt are very low. But the massive amount of debt owed by households is partially offsetting the low-interest-rate effect on consumer spending. In other words, households are keeping their debt-service ratios at elevated levels by “making it up on volume.”
And don’t forget, an increase in household saving does not automatically imply a fall in aggregate spending. If a household saves by investing in a corporation – either buying the corporation’s stocks or bonds – the corporation is likely to buy some good or service with the proceeds of its stock and bond sales. So, saving often means transferring purchasing power to another entity. One exception to this rule is when the increased saving takes the form of already-created money. In this case, the velocity of money circulation falls, rendering a given supply of money less expansionary. To some degree, households were in the first quarter opting to allocate more of their asset portfolio to money, as can be seen in Chart 4. However, of late, the Fed has aided in producing a sharp increase in the growth of money (see Chart 5), which is likely to offset a slowdown in velocity growth.
ALL ABOUT HOUSING AND INCREASING DEBT AND BAMKRUPTCIES OF US HOUSEHOLDS
Why Does Fed Chairman Greenspan Have To Keep Interest Rates Low?
May 15, 2003
If Greenspan fails to keep mortgage rates at extremely low levels, housing could take a tumble. And if housing takes a tumble, so do banks and household net worth. I have no doubt Greenspan will do all in his power to keep interest rates in general, and mortgage rates in particular, low. I just wonder what will happen to U.S. interest rates and/or inflation if the rest of the world decides to cut back on its lending to the U.S. on the same favorable terms it is now. After all, 3-1/2% on 10-year Treasury paper is not a lot, especially when the keeper of the currency printing press has openly said that he thinks U.S. inflation is in danger of getting too low.
Why Does Fed Chairman Greenspan Have To Keep Interest Rates Low?
May 15, 2003
If Greenspan fails to keep mortgage rates at extremely low levels, housing could take a tumble. And if housing takes a tumble, so do banks and household net worth. I have no doubt Greenspan will do all in his power to keep interest rates in general, and mortgage rates in particular, low. I just wonder what will happen to U.S. interest rates and/or inflation if the rest of the world decides to cut back on its lending to the U.S. on the same favorable terms it is now. After all, 3-1/2% on 10-year Treasury paper is not a lot, especially when the keeper of the currency printing press has openly said that he thinks U.S. inflation is in danger of getting too low.