[PEN-L:407] Re: Re: Cyber-Sawicky

[Doug Henwood <dhenwood@xxxxxxxxx>]

Tom Walker wrote:

>Last week, Doug Henwood perfunctorily "debunked" my hypothesis that the
>demographic bulge of the baby boom generation created an anomoulous bubble
>in retirement savings during the 1990s.

Perfunctorily? I'd say definitively.

We're playing word games here. If there were a real bulge in savings as
boomers prepared for retirement, it should show up in the aggregates. But
there isn't - U.S. savings rates have declined to levels not seen since the
early 1930s. People are speculating in stocks in what they call retirement
accounts, whereas they used to put money into banks and bonds.

>My question is: how much of the reported $2.7 trillion increase in asset
>values of total retirement savings (line 5) between 1995 and 1997 came from
>increases in asset prices and how much from net new money inflows?

Well if we assume, based on the ICI figures, that 35% of the mutual fund
inflow was into "retirement" accounts, then about 6% of it was new money
inflows (35% of the $490 billion in net mutual fund purchases between 1994
and 1997).

Here are the numbers since 1990 from the flow of funds accounts. The Fed
ludicrously includes purchases of consumer durables (and allowances for
their depreciation) in the FoF definition of savings; the NIPA concept,
income less spending, makes a lot more sense. The columns show net
financial investment (new saving less new borrowing, or, in the FoF jargon,
net acquisition of financial assets less the net increase in liabilities);
total net acquisitions of financial assets (purchases less sales), with
detail shown for deposits (including money market mutual funds), credit
market instruments, directly owned equities, and mutual funds; and the net
increase in liabilities (new debts less repayments of old debts). The
second panel shows disposable personal income and personal savings (by the
NIPA definition). Note that households continue to be heavy net sellers of
equities (which, you might conspiratorially read to be mostly owned by the
very rich, who are effectively selling their holdings to the less affluent
buyers of mutual funds). 1998 figures are annualized figures based on the
first two quarters.

U.S. HOUSEHOLDS, SAVING & BORROWING FLOWS, 1990-98

                           net acquisitions of financial assets
                      ---------------------------------------------
            net                           credit                         net
           financ                         market              mutual   incr in
           invest     total    deposits  instrum   equities   funds     liabs
1990        365.7     622.3      58.6     202.7     -26.0      27.5     256.6
1991        223.7     417.1      -2.6      47.0     -33.3     103.3     193.4
1992        332.7     496.6     -17.5      61.2      23.6     133.9     163.9
1993        203.6     440.0     -67.6       1.0     -55.6     205.1     236.4
1994        217.6     530.5     -25.3     277.8    -157.5      67.4     312.9
1995        123.5     485.2     214.7       2.8    -197.5      94.5     361.6
1996         48.7     439.0     193.4      11.5    -282.9     174.8     390.2
1997         50.2     442.5     284.0    -109.5    -472.1     221.2     392.3
1998        -30.7     426.1     430.8    -228.6    -498.8     266.6     456.7

1990-98   1,535.1   4,299.2   1,068.5     265.7  -1,700.0   1,294.1   2,764.1



          dispos     pers saving (NIPA)
         personal    ------------------
           income     total    % of DPI
1990      4,171.4     213.3      5.1%
1991      4,340.9     243.5      5.6%
1992      4,605.1     264.1      5.7%
1993      4,791.1     210.4      4.4%
1994      5,018.9     176.8      3.5%
1995      5,277.1     179.8      3.4%
1996      5,534.7     158.5      2.9%
1997      5,795.1     148.9      2.6%
1998      5,965.2      54.2      0.9%

1990-98  45,499.3   1,649.4      3.6%

Doug