How do you define the 1%?

[Jhhnn]

You don't need to be 'successful' to do so. The average American would only need to save between 8-15% of their income a year until retirement (Obviously if everyone did this the bar would move but we'd have a drastically different wealth landscape)

"Save" at today's interest rates, or "invest"?

How the Hell are people at & below the median supposed to save 10% of their income, anyway, while making much of a dent in the current lack of demand holding down the economy?

We already have a liquidity trap, where those who have money just sock it away, particularly among the bloated top incomes. We actually have a savings glut, easily convertible to a debt deflation spiral...

 

[Exterous]

"Save" at today's interest rates, or "invest"?

Save and invest

How the Hell are people at & below the median supposed to save 10% of their income, anyway, while making much of a dent in the current lack of demand holding down the economy?

Did you not see me list housing as one example? Doing some rough calculations on a mortgage calculator shows that for someone spending 29% of their income on a mortgage if they were to reduce the price they were willing to pay for their house by 12.5% it would give them the ability to save about 3% of their income per year. If we assume the average savings rate of an American (4.6% according to bea.gov) we are getting pretty close to 10% or at least the low end value of 8%.

If we were to reduce the amount spent on fast food ($110bn a year), weight loss products ($42bn a year - does not include gyms), reduce their car purchases $1500* to meet the rule of 20% (from BLS), remove the $402 spent on tobacco and smoking products (BLS) that would be another 3% of their income

*I used the calculated monthly savings on car payments through a car payment calculator not the $1500 value

We have now hit at least ~6% and if they were saving the average amount that would be 10.6%

Even at 6% you'd get ~$20,000 a year during retirement. Not fantastic but you'd be better than about 80% of your fellow retirees who only have SS to rely on

Those are just some examples. If we assume an average amount spent on fast food that still leaves 4% of their income spent on eating out, 0.7% on alcohol, 4% on 'entertainment' as some other places to make cuts

 

[WackyDan]

Really, you think that they are wealthy because their saving rate is 2x the average American's and it's not that their savings rate is x2 the average because they are wealthy?

Gee if I had an extra hundred thousand coming in, even after some whores and blow, I'm sure I would probably quadruple my savings rate.

A couple of years back I read an article on CNN about retirement savings and income. They found four or five households from the same neighborhood to interview. The interesting thing about the comparisons and outcomes were not what you would suspect. The family with the lowest household income had the highest retirement account balance where as the household with the highest combined income had hardly anything. There was one family who should have been able to put away for retirement but their priorities were fucked up on private school for the kids, and keeping up with the jone's. The moral of the story was, the more money you earn doesn't make you any more likely to have a retirement plan or save for retirement... In this case it was exactly the opposite. The high earning household thought that the good times would never end and didn't even have a plan.

I cringe at the balance in my 401k and other investments. I have a 529 started for my daughter... But then I read how on average most americans have little to no cash reserve in the bank and little to no retirement savings and I still wonder how the fuck I'm going to have enough saved by time I retire in 20 years.

 

[Anarchist420]

"Save" at today's interest rates, or "invest"?

How the Hell are people at & below the median supposed to save 10% of their income, anyway, while making much of a dent in the current lack of demand holding down the economy?

We already have a liquidity trap, where those who have money just sock it away, particularly among the bloated top incomes. We actually have a savings glut, easily convertible to a debt deflation spiral...

Then saving should be easier for everyone.

 

[diesbudt]

A couple of years back I read an article on CNN about retirement savings and income. They found four or five households from the same neighborhood to interview. The interesting thing about the comparisons and outcomes were not what you would suspect. The family with the lowest household income had the highest retirement account balance where as the household with the highest combined income had hardly anything. There was one family who should have been able to put away for retirement but their priorities were fucked up on private school for the kids, and keeping up with the jone's. The moral of the story was, the more money you earn doesn't make you any more likely to have a retirement plan or save for retirement... In this case it was exactly the opposite. The high earning household thought that the good times would never end and didn't even have a plan.

I cringe at the balance in my 401k and other investments. I have a 529 started for my daughter... But then I read how on average most americans have little to no cash reserve in the bank and little to no retirement savings and I still wonder how the fuck I'm going to have enough saved by time I retire in 20 years.

I honestly dont think in the next 15-20 years people will afford to retire, unless they saved a huge sum of money.

 

[JeffreyLebowski]

Are you capable of posting without using a strawman? They aren't hated for their success. They are hated when they use that success to further exploit the less fortunate. So tell me what's wrong with that?

No, they are hated for their success and passing on their fortune to their children.
You see the hate all the time. Idiots here and there say tax the "rich" more they can afford it. It's "fair", when in fact, it would only be "fair" to tax the poor more because they use more social services.

The notion of 1%ers is the liberal attempt to ignite class warfare. Ever notice how it's rich liberals with armed body gaurds that push these ideas. They also push to legislate and remove guns from the citizens because they realize that sooner or later their sheep will turn on them too.

 

[JeffreyLebowski]

Then saving should be easier for everyone.

It would be easy if they didn't have to go out and buy the new iPhone or the newest "cool" sneakers, or any other items that aren't needed, but wanted.
I used to be that fool that went out and bought the newest thing just to have it, and one day I realized, I don't need this crap.

 

[berzerker60]

The notion of 1%ers is the liberal attempt to ignite class warfare. Ever notice how it's rich liberals with armed body gaurds that push these ideas. They also push to legislate and remove guns from the citizens because they realize that sooner or later their sheep will turn on them too.

I'm not rich and I don't have any body guards and I argue for higher, more progressive taxation than we currently have all the time. Your gun paranoia is stupid. Regarding class warfare, I'll call my taxation preferences 'class warfare' if you agree that the union busting, stagnant wages, SuperPACs allowing unlimited individual donations, the highest bracket of the Bush tax cuts, holding the debt ceiling hostage for more tax cuts for the rich, lowering of the top marginal rate and capital gains tax, and cap on Social Security tax are 'class warfare' from the rich, who are also winning handily.

 

[alzan]

As a group of which I am not a part.

 

[Jhhnn]

"Save" at today's interest rates, or "invest"?

How the Hell are people at & below the median supposed to save 10% of their income, anyway, while making much of a dent in the current lack of demand holding down the economy?

We already have a liquidity trap, where those who have money just sock it away, particularly among the bloated top incomes. We actually have a savings glut, easily convertible to a debt deflation spiral...

Save and invest



Did you not see me list housing as one example? Doing some rough calculations on a mortgage calculator shows that for someone spending 29% of their income on a mortgage if they were to reduce the price they were willing to pay for their house by 12.5% it would give them the ability to save about 3% of their income per year. If we assume the average savings rate of an American (4.6% according to bea.gov) we are getting pretty close to 10% or at least the low end value of 8%.

If we were to reduce the amount spent on fast food ($110bn a year), weight loss products ($42bn a year - does not include gyms), reduce their car purchases $1500* to meet the rule of 20% (from BLS), remove the $402 spent on tobacco and smoking products (BLS) that would be another 3% of their income

*I used the calculated monthly savings on car payments through a car payment calculator not the $1500 value

We have now hit at least ~6% and if they were saving the average amount that would be 10.6%

Even at 6% you'd get ~$20,000 a year during retirement. Not fantastic but you'd be better than about 80% of your fellow retirees who only have SS to rely on

Those are just some examples. If we assume an average amount spent on fast food that still leaves 4% of their income spent on eating out, 0.7% on alcohol, 4% on 'entertainment' as some other places to make cuts

You didn't address what I offered, not in the slightest.

I'll make it more direct-

http://en.wikipedia.org/wiki/Paradox_of_thrift

If you notice what's going on around us, you'll find that counter arguments are erroneous, because we are demonstrably in a liquidity trap.

 

[Exterous]

You didn't address what I offered, not in the slightest.

Not in the slightest? Did you read my post? I completely answered the first question and showed how people could work within the existing environment to save more and become a 1%er. Perhaps you meant 'You didn't completely answer my second question.'?

Now the reason you may feel I didn't completely answer your second question is that we are talking about slightly different things. The paradox of thrift only applies if too many people start saving too much. I am not discussing what happens when too many people start saving too much - I am pointing out that with savings/investing and assuming historical norms over the past 110 years or so (actually slightly less than) it is possible for the people in the median income bracket to become a 1% wealth holder as it currently exists.

I would think a different thread would be warranted if you wanted to discuss fantasy 'what ifs' about what happens when everyone starts saving to become a 1%er. Not only would the bar would necessarily move as more people started reaching the initial entry point but it would introduce a savings situation not seen in america for 30 years and we've changed a bit since then. There would be a host of pertinent arguments such as where the money goes, would a massive influx of money into a already historically P/E overvalued stock market cause problems, would people take risks in the bond market that the Fed won't raise interest rates soon, would the Fed raise interest rates so that CDs, savings accounts become more viable options etc.

It seems like you keep trying to divert the thread with irrelevant posts about lot size demand and trying to present problems to situations I never advocated or brought up.

I will say that given our current low savings rate in light of past historical levels and the amount of savings corporations appear to have the 'savings glut' is not a factor of too little demand but of a preference to not spend. However this seems quite far a field from 'How do you define the 1%'

 

[dank69]

No, they are hated for their success and passing on their fortune to their children.

No, only an idiot would hate someone based on those qualifications alone. Characterizing all liberals this way shows you do not know how to debate rationally.

You see the hate all the time. Idiots here and there say tax the "rich" more they can afford it.

We have a progressive tax system for a reason. If you do not understand why, nobody can help you.

It's "fair", when in fact, it would only be "fair" to tax the poor more because they use more social services.

Social services are not the only thing government provides for its citizens. The rich rely on the protection our government provides way more than the poor do. The poor don't have much worth stealing. The more you have to lose, the more you benefit from laws and systems that protect you.

That's just one example of how the rich benefit more from government. Others would include patent protection, protection from invading foreign armies, infrastructure that allows them to create successful businesses, etc.

The notion of 1%ers is the liberal attempt to ignite class warfare.

But disproportionate tax cuts for the already rich is not class warfare, right?

Ever notice how it's rich liberals with armed body gaurds that push these ideas.

I notice lots of different people from all walks of life that push these ideas. Strange that you only notice what you want to notice.

They also push to legislate and remove guns from the citizens because they realize that sooner or later their sheep will turn on them too.

What's wrong? You can't stick to the topic at hand when debating?

 

[Jhhnn]

Not in the slightest? Did you read my post? I completely answered the first question and showed how people could work within the existing environment to save more and become a 1%er. Perhaps you meant 'You didn't completely answer my second question.'?

You acknowledged that saving your way into the top 1% won't work for the vast majority of Americans, yes.

Now the reason you may feel I didn't completely answer your second question is that we are talking about slightly different things. The paradox of thrift only applies if too many people start saving too much. I am not discussing what happens when too many people start saving too much - I am pointing out that with savings/investing and assuming historical norms over the past 110 years or so (actually slightly less than) it is possible for the people in the median income bracket to become a 1% wealth holder as it currently exists.

You point out what an individual might try to accomplish with saving, yet allow that saving alone won't meet the goal. You ignore the effects of the entire population or a large segment doing as you suggest. You also ignore that the deleveraging currently occurring has much the same effect on the economy as saving, because those at the receiving end of the funds are not spending or reinvesting, but rather saving, also that lending is occurring at a much reduced rate. That's the liquidity trap I mentioned.

I would think a different thread would be warranted if you wanted to discuss fantasy 'what ifs' about what happens when everyone starts saving to become a 1%er. Not only would the bar would necessarily move as more people started reaching the initial entry point but it would introduce a savings situation not seen in america for 30 years and we've changed a bit since then. There would be a host of pertinent arguments such as where the money goes, would a massive influx of money into a already historically P/E overvalued stock market cause problems, would people take risks in the bond market that the Fed won't raise interest rates soon, would the Fed raise interest rates so that CDs, savings accounts become more viable options etc.

Except that when they get there, the top 1% will have been accelerating away from them, particularly the top .1% & above. The reason is that deleveraging by the rest of the population goes into their pockets, as does profit from offshore activities.

It seems like you keep trying to divert the thread with irrelevant posts about lot size demand and trying to present problems to situations I never advocated or brought up.

It was you who introduced real estate wrt middle earners into the discussion. Lot size isn't the thrust of the article I posted, at all, and it's dishonest of you to suggest that it is. My point was that people can't buy real estate that doesn't exist in sufficient quantity for everybody who might benefit to do so. You can't have a banana when there are only apples.

I will say that given our current low savings rate in light of past historical levels and the amount of savings corporations appear to have the 'savings glut' is not a factor of too little demand but of a preference to not spend. However this seems quite far a field from 'How do you define the 1%'

The preference not to spend is the result of low demand. They've balanced production & inventory against demand while using only part of their productive capacity. You suggest that they're choosing not to make money, rather than seeing no opportunity to make more.

So they save rather than invest, and given the massive shift of income to the tippy top, that simply sucks enormous amounts of liquidity out of circulation. The more they save, the less everybody else gets in a self reinforcing fashion.

 

[Exterous]

You acknowledged that saving your way into the top 1% won't work for the vast majority of Americans, yes.

It is an attainable goal for the vast majority of the population. The current amount of money to be in the 1% as it currently exists (~$1.2mn) is completely and utterly possible for the vast majority of the population. It would not be possible for the vast majority of the population to be in the 1% because, by the very definition of the 1%, that is impossible.

You point out what an individual might try to accomplish with saving, yet allow that saving alone won't meet the goal. You ignore the effects of the entire population or a large segment doing as you suggest.

I did not ignore it - I dismissed it (and then discussed part of it). As I stated in my last post I am not talking about 'what happens if too many people save too much'. Again my point is "I am pointing out that with savings/investing and assuming historical norms over the past 110 years or so (actually slightly less than) it is possible for the people in the median income bracket to become a 1% wealth holder as it currently exists."

I would also point out that, historically, it has been possible for the economy to function given the savings levels I have suggested. It was done for quite a number of years in the 60s, 70s and 80s so it is clear the savings rate alone is not enough to stagnate the economy.

Your counter argument of 'what happens if everyone or too many do that' is a complete fantasy argument. There is no data to suggest that consumers are even close to approaching a significantly higher limit and no data to show that a significant uptick in savings rate is expected (Never in the savings history of the US over the last 60 years has such an uptick occurred)

I did address parts of it:

There would be a host of pertinent arguments such as where the money goes, would a massive influx of money into a already historically P/E overvalued stock market cause problems, would people take risks in the bond market that the Fed won't raise interest rates soon, would the Fed raise interest rates so that CDs, savings accounts become more viable options etc.

I did not spend much time with it as I have NEVER made any claims about what would happen if everyone did this or even suggest that everyone would do this as there is no sign of that happening any time soon

Except that when they get there, the top 1% will have been accelerating away from them, particularly the top .1% & above.

Actually all the data I have seen is that the entrance to the 1% wealth is in line with historical income level changes. I therefore challenge you to prove that the entrance of the 1% wealth is accelerating away from them. I agree that the top 0.1% is accelerating

I will also note that my numbers used lower than average historical trends and higher than historical inflation. Should those trends follow historical paths they would still be able to enter the 1% should the 1% entrance be growing at historical rates and not accelerating away as you claim.

It was you who introduced real estate wrt middle earners into the discussion. Lot size isn't the thrust of the article I posted, at all, and it's dishonest of you to suggest that it is.

Well, I am not sure what point you were trying to make by bringing it into the argument but lot size is the core topic of the article you linked. It just so happens to mention lot size 12 times in the article and covers no other incentives on what people want. It says what size lot people prefer but that does not mean that lot size is the sole determination of what people buy and it's dishonest to act like a single study that focuses on lot size alone would determine demand in a market. Schools, taxes, house size, local amenities can all be more important than lot size. Just because someone wants stainless steel appliances that doesn't mean that they would not be ok with a house or not buy a house without them. It goes on to lump McMansions in with what it calls large lot sizes which I find absurd. Did you read what size they consider large? 7,000 sq ft. Thats 0.16 acres. Thats friggen tiny - its smaller than the average! How can smaller than average be considered large? (~8,000 sq ft - which, incidentally, has decreased by about 2,000 sq ft over the last 30 years) [Honestly - any research that has two lot sizes and the large lot size is still smaller than average makes me suspect of the research ]

My point was that people can't buy real estate that doesn't exist in sufficient quantity for everybody who might benefit to do so. You can't have a banana when there are only apples.

Well, first, your analogy is completely wrong as 'bananas' exist. Everyone can't have a banana when there are less bananas than people want' would be far more accurate. I am also curious to know why you think that everyone should have everything they would benefit from (or even just realestate)? I would be curious to know when the last time you think it was possible for this to happen? Certainly no time in any kind of recent history so I am curious to know why you think it should miraculously happen now?

The preference not to spend is the result of low demand. They've balanced production & inventory against demand while using only part of their productive capacity. You suggest that they're choosing not to make money, rather than seeing no opportunity to make more.

I guess that depends on the time frame you look at. If you only look back to 2008 then yes, demand has fallen. However the current levels of consumption are still above the inflation adjusted numbers from 2007 (which was the highest this millennium IIRC). We are not looking at 'low' demand, we are looking at more efficient production.

Furthermore the uncertainty over the 'fiscal cliff' and possible changes due to an upcomming election have many businesses sitting on cash waiting for a clearer view of what the future holds. It would be foolish and risky to have a large outlay of money until the fear and uncertainty generated by these events subsides (otherwise you risk being over extended if a second recession hits and risk bankruptcy)

 

[rchiu]

You didn't address what I offered, not in the slightest.

I'll make it more direct-

http://en.wikipedia.org/wiki/Paradox_of_thrift

If you notice what's going on around us, you'll find that counter arguments are erroneous, because we are demonstrably in a liquidity trap.

Stop throwing definition with your half-assed understanding of those terms. Liquidity trap and Paradox of thrift mostly talks about hoarding "cash", taking cash out of the economy. Saving is a different matter. People save by putting money in banks, stock, real estate. Not many people save by putting cash under their mattress. Those money still go out to the economy, and actually boost economy. Money in banks increase money supply with multiplier effect, money in stock, real estate all boost economy.

As long as the economy is healthy, company will spend, people will spend on the essentials, those saved money can be invested and boost economy. You don't need people to spend frivolously to boost economy, in fact, that'd be your one way ticket to an asset bubble.

 

[Jhhnn]

Stop throwing definition with your half-assed understanding of those terms. Liquidity trap and Paradox of thrift mostly talks about hoarding "cash", taking cash out of the economy. Saving is a different matter. People save by putting money in banks, stock, real estate. Not many people save by putting cash under their mattress. Those money still go out to the economy, and actually boost economy. Money in banks increase money supply with multiplier effect, money in stock, real estate all boost economy.

As long as the economy is healthy, company will spend, people will spend on the essentials, those saved money can be invested and boost economy. You don't need people to spend frivolously to boost economy, in fact, that'd be your one way ticket to an asset bubble.

Stocks & real estate are investments, not savings. There's a difference. Putting money in a bank has no multiplier effect if they don't lend it. Buying govt bonds has no multiplier effect, either, unless you borrow against them for some other purpose.

Corporate cash reserves are at all time highs, and Rich people are willing to accept negative returns so the govt can keep their money safe. Corporate savings rates are still quite high.

As long as the economy is healthy...? It's not, so none of the rest applies in the slightest. Deleveraging in the private sector is ongoing, simply because of the enormous debt overhang of the Ownership Society, and that won't be going away anytime RSN.