The New Arthurian Economics: How much money is in savings?

Monday, April 20, 2015

How much money is in savings?

10 comments:

Oilfield Trash said...: Art

IMO have correctly defined “Saving” as a flow, as opposed to a stock.

It’s an accounting residual of two sets of actual transfers: income minus expenditures.

It’s leaving your money sitting where it is, instead of spending it by transferring it to others.

This non act does not add to a stock of monetary “Savings”.

Here’s how monetary savings happens — aggregate increases in net holdings of financial assets

“Savings” for the private sector is deficit spending by the public sector; since the government is the only entity which can increase net financial assets in the private sector.

So I would say there is about 13 trillion in “Savings”.; April 20, 2015 at 8:00 PM
The Arthurian said...: "It’s an accounting residual of two sets of actual transfers: income minus expenditures."

You know... having tried everything else I could think of... I've been thinking about going back to that definition from indexmundi and the World Bank -- "Gross savings are calculated as gross national income less total consumption, plus net transfers."

Income minus expenditures, yeah.

"This non act does not add to a stock of monetary “Savings”."

So you are saying that the parallel I see (debt is the sum of deficits over time, therefore savings is the sum of saving over time) is incorrect because it does not apply to saving & savings?

Convince me.

"Here’s how monetary savings happens — aggregate increases in net holdings of financial assets"

I think it is so wrong to just look at "net". Yeah, sure, the government is the only entity which can increase net financial assets in the private sector. But net financial assets are not the ONLY financial assets, and they are NOT the financial assets that are a burden to the private sector, to the nonfinancial side of the private sector.; April 21, 2015 at 7:13 AM
The Arthurian said...: "Convince me."

No, forget that. Oilfield, if there is one thing I should have learned from my recent studies, it is that the words saving and savings are not reliably used as STF suggests.; April 22, 2015 at 3:21 AM
geerussell said...: I think it is so wrong to just look at "net". Yeah, sure, the government is the only entity which can increase net financial assets in the private sector. But net financial assets are not the ONLY financial assets, and they are NOT the financial assets that are a burden to the private sector, to the nonfinancial side of the private sector.

When you want to ask how much savings is there... the first step is to specify for who? It's crucial to specify who is saving and by accounting implication who is dissaving on the other side of the ledger. Flows come from somewhere, go to somewhere. A change in one stock implies a change in another.

For the private sector in aggregate, we say the government is the only entity which can entity which can increase net financial assets in the private sector because when we specify private sector in aggregate, the government is all that remains as somewhere else as the other side of the stock/flow relationship.

As soon as you change one side, to talk about the nonfinancial side of the private sector for example, you have by definition changed the scope of the other side too. Now you're talking about a relationship between the nonfinancial side of the private sector and the remainder of the private sector plus the government.

If I wanted to talk about geerussell's household savings, I'm necessarily talking about geerussell's income minus expenditure producing a change in geerussell's stock of financial assets and on the other side of the ledger is the rest of the world outside geerussell's household.

In all cases the template for stock-flow consistent description for a given actor's savings is the same. Income minus expenditure is a net flow that produces a change in the stock of financial assets held and both the stock and flow are mirrored on the other side of the ledger.

Of course if you want to ask how much savings there is in the world, the answer of course is net zero as it must be for a single closed sector where everything nets to zero and gross would be total assets.; April 22, 2015 at 12:08 PM
Oilfield Trash said...: Art

geerussell is on point. Hussman has a good article on this.

http://www.hussmanfunds.com/wmc/wmc150406.htm

Paragraph of interest

"If one carefully accounts for what is spent, what is saved, and what form those savings take (securities that transfer the savings to others, or tangible real investment of output that is not consumed), one obtains a set of “stock-flow consistent” accounting identities that must be true at each point in time: 1) total real saving in the economy must equal total real investment in the economy; 2) for every investor who calls some security an “asset” there is an issuer that calls that same security a “liability”; 3) the net acquisition of all securities in the economy is always precisely zero, even though the gross issuance of securities can be many times the amount of underlying saving; and perhaps most importantly, 4) when one nets out all the assets and liabilities in the economy, the only thing that is left – the true basis of a society’s net worth – is the stock of real investment that it has accumulated as a result of prior saving, and its unused endowment of resources. Everything else cancels out because every security represents an asset of the holder and a liability of the issuer."; April 22, 2015 at 12:46 PM
The Arthurian said...: Geerussell: "When you want to ask how much savings is there... the first step is to specify for whom?"

How much savings is there in the US money supply?

I go to FRED for most of my numbers. FRED tells me that M1 money is "readily accessible for spending." M2 money includes M1, plus a few measures of savings. That's pretty cut and dry. M3 included an even broader selection of savings...

If you look at the broadest measure of money you can find, and subtract M1 out of it, what's left is the measure of savings I am looking for. No hocus pocus. No philosophy. Just numbers.

"As soon as you change one side, to talk about the nonfinancial side of the private sector for example, you have by definition changed the scope of the other side too. Now you're talking about a relationship between the nonfinancial side of the private sector and the remainder of the private sector plus the government."

So, it is somehow wrong to compare the savings of the 1% to the savings of the 99%??? I don't buy it. If you are right, then there are a lot of people who focus on inequality that you need to talk to.

//

I used to write things like this: If you could stop the economy for long enough, you could count up all the money that everybody has in their checking accounts and in their wallets and pocketbooks and in their pockets and under the couch cushions, and you would come up with a number very much like M1...

I don't have to say that anymore, because balance sheets are a picture of the economy when it is stopped. Now, if you could just get everybody to do their balance sheets at the same time...

//

Oilfield Trash, my trouble is not that I fail to understand that one minus one is zero. My trouble is that when you "net everything out" and look at what's left, you are failing to look at the problematic parts.; April 23, 2015 at 6:11 AM
Oilfield Trash said...: Art

"//

Oilfield Trash, my trouble is not that I fail to understand that one minus one is zero. My trouble is that when you "net everything out" and look at what's left, you are failing to look at the problematic parts."

Hmmm...Or you could say looking a what is left tells you if you have problems.

I see financial assets as nothing but a claim on the future output of the economy and or the cash flows they produce.

The question IMO is will the "stock of real investment that it has accumulated as a result of prior savings, and our "unused endowment of resources" produce enough output to absorb these claims when they are spent?

Given the speculative nature of most of these financial assets, I doubt it.

Which is as you say problematic.; April 23, 2015 at 1:54 PM
geerussell said...: If you look at the broadest measure of money you can find, and subtract M1 out of it, what's left is the measure of savings I am looking for. No hocus pocus. No philosophy. Just numbers.

You're conflating savings held with the specific financial assets that may or may not be used to hold them.

According to that logic, if I receive $1000 of income, spend $300 and keep the rest in the form of seven hundred-dollar bills in my pocket I have saved... nothing, because bills aren't savings. See the problem? It doesn't matter what the instrument is. A dollar saved is a dollar saved.

So, it is somehow wrong to compare the savings of the 1% to the savings of the 99%??? I don't buy it. If you are right, then there are a lot of people who focus on inequality that you need to talk to.

I'm not sure where you're going with that. The measure is the same for the 1 as the 99. Income minus expenditure in a given period for the flow of saving which changes their stock of financial assets held.; April 23, 2015 at 7:41 PM
The Arthurian said...: Oilfield Trash: "Or you could say looking at what is left tells you if you have problems."

How would that work, exactly? If you mean look at what's left relative to the whole then I agree. Looking at net financial assets relative to gross financial assets can prove highly informative. My series on Debt Relatives is a sample.

But I'm not sure that's what you mean.

"I see financial assets as nothing but a claim on the future output of the economy and or the cash flows they produce."

I've seen the phrase "a claim on future output" before. Doesn't seem right. As long as that money stays in finance, it is claiming part of the cash flows of output, but not the output itself. (In other words, aggregate demand is insufficient.)

The claims on the cash flows of output -- that one is important to me. I call it the cost of finance. That is the cost that competes with the cost of labor and with the return to the stock of real investment. It is that cost that undermines both profit and living standards. And that cost is the income which makes financial investment increasingly more attractive than real investment, until the real sector can no longer bear the load.; April 24, 2015 at 3:10 AM
Oilfield Trash said...: Art

How would that work, exactly? If you mean look at what's left relative to the whole then I agree. Looking at net financial assets relative to gross financial assets can prove highly informative. My series on Debt Relatives is a sample.

But I'm not sure that's what you mean.

You have peaked my interest on this saving savings issue. I have some thoughts on this, but do not know if you want to continue this thread.

However I will leave you with a teaser from some old notes I gathered on this issue. So if you have time help me think through this.

Thinking of the “real” sector for the moment, for simplicity and clarity. (This subject needs a lot of this)

I form a conclusion that for each of the economic units at the bottom level of that sector (households and nonfinancial businesses), Saving means money saving:

(1) Saving = Income – Expenditure

But at the top, the level of “sectoral” saving, Saving means saving of real goods

Saving = Production – Consumption

So unlike every other measure in the national accounts, if you sum up the money Saving of all the bottom-level units, it doesn’t equal Saving for the sector.

So to me the definition of “Saving” changes in the course of the accounting, from money to stuff.

We all know households and businesses save money — but only, in aggregate, if there are inflows from outside (which there are).

Both the NIPAs and the FFAs provide a sector-level measure of Personal Saving (households), which is IMO money saving:Money Income – Money Expenditures. (Nobody would say that household saving is “stockpiling of real goods.”)

But the accounts do not provide similar measure of money saving for business. Because in the real sector in the NIPAs, businesses only do Investment Spending, and only businesses can do Investment Spending. (Households can only do, Consumption Spending.)

Neither Consumption Spending nor Investment Spending adds to or subtracts from the Saving measure. Not directly.

Each of these spending flows increases Income and Expenditure simultaneously and equally, so they can’t increase Savings (which is the difference between the two). Sectoral Savings only happens if there are inflows to the sector

The notes are a collection of various people and I do a poor job of keeping up with who said what, but I agree with all above.; April 29, 2015 at 6:57 PM

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