Thursday, February 26, 2009

Want to get people to save?

Scare them. It's working.

Graph from Saul Eslake's presentation to ANZ board of directors, Feb 24.

6 comments:

Marek said...

Is paying down debt considered saving?

If this rate is sustained, recovery may be swift once confidence swings around.

derrida derider said...

Yes, paying down debt counts towards saving. But one of the curious things about the household savings rate is that it is counted as a residual in the national accounts. Rising asset prices artificially reduce the measure, falling ones artificially increase it. So Eslake is predicting, inter alia, a housing crash.

Plus in a recession higher savings don't translate to higher investment (that's Keynes' core insight). And it's investment that matters for future living standards.

Anonymous said...

DD,
How do changes in assets (balance sheet item) prices have any flow through into the national accounts (a measure of the production of good and services/income)?
Nick

Marek said...

Rising asset prices artificially reduce the measure, falling ones artificially increase it.

WHAT!!! how does that work? I would have thought the opposite was true?

Bruce Bradbury said...

DD,
I think you are wrong on the National Accounts treatment. The concept you describe is the microeconomic concept of saving - ie the change in net wealth (though I think you have it the wrong way round). More important, I'm pretty sure that The National Accounts doesn't include these 'revaluation effects' as part of GDP or GNP.

Bruce Bradbury said...

Mind you, Saul may well be predicting a housing price collapse. The houseprice/rent ratio is still well above historical averages

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