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xchrom

(108,903 posts) Fri Apr 18, 2014, 08:11 AM Apr 2014

Wealth Effect Failing to Move Wealthy to Spend

http://www.bloomberg.com/news/2014-04-17/wealth-effect-failing-to-move-wealthy-to-spend.html

The wealth effect isn’t what it once was for the U.S. economy.

While the wealth of American households has jumped more than $25 trillion since early 2009 amid rising equity and home prices, the pass-through to consumer spending is lagging the $1 trillion fillip that would have been anticipated historically, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.

This means consumer spending has been exceptionally weak once wealth is accounted for, he said. With wealth gains now moderating, consumer spending could revert to what is already a weak trend, Feroli said in an April 11 report.

His calculations show that since the recession ended in 2009, households have spent 1.7 cents of every extra $1 earned in wealth. That’s less than half the 3.8-cent average implied by data between 1952 and 2009, suggesting the trend for consumer spending gains over the past three years has been less than 1 percent once the wealth effect is stripped out.

One reason for the adjustment may be that those enjoying gains in wealth are already rich, so have less propensity to increase spending incrementally. Withdrawing equity from homes has also been negative for five years.

5 replies

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Highlight:

Wealth Effect Failing to Move Wealthy to Spend (Original Post) xchrom Apr 2014 OP

How many houses or cars does a 1%er need anyway? Cirque du So-What Apr 2014 #1

At what point is it simply called "hoarding" ? KurtNYC Apr 2014 #2

Greedy AND hoarders. DISGUSTING! SammyWinstonJack Apr 2014 #3

The "wealth effect" is not necessarily tied to the 1%. mia Apr 2014 #4

I save as much as I can, too. LuvNewcastle Apr 2014 #5

Cirque du So-What

(25,940 posts)

1. How many houses or cars does a 1%er need anyway?

Reply to xchrom (Original post)

Fri Apr 18, 2014, 08:19 AM

Apr 2014

and after awhile, the thrill of consuming $20,000 dishes in fancy-schmancy restaurants is gone. The best we peons can hope for is that the 1% finds that throwing fistfuls of money out the windows of high-rises is highly entertaining.

KurtNYC

(14,549 posts)

2. At what point is it simply called "hoarding" ?

Reply to xchrom (Original post)

Fri Apr 18, 2014, 08:32 AM

Apr 2014

Increases in average wealth does not mean that everyone has seen the increase.

Also, change in the hypothetical value of a home mean very little since most home-buyers are not selling and even if they are, banks own the majority of the equity. At last count 1/3 of all the mortgages in the country are higher than the homes are worth.

SammyWinstonJack

(44,130 posts)

3. Greedy AND hoarders. DISGUSTING!

Reply to xchrom (Original post)

Fri Apr 18, 2014, 08:38 AM

Apr 2014

Sick s

mia

(8,361 posts)

4. The "wealth effect" is not necessarily tied to the 1%.

Reply to xchrom (Original post)

Fri Apr 18, 2014, 08:49 AM

Apr 2014

I'm trying to save wherever I can - hoarding my resources in preparation for an uncertain future.
It was Bush, the younger, who encouraged us to spend like there is no tomorrow. We all know where that led us.

LuvNewcastle

(16,846 posts)

5. I save as much as I can, too.

Reply to mia (Reply #4)

Fri Apr 18, 2014, 09:20 AM

Apr 2014

I basically spend money on bills and food, and that's about it. I might spend a few dollars on books or clothes at the thrift store, but that's about as close as I come to being frivolous. I just wish that interest rates were higher so I could make a little bit on my money in the bank.

People need to save as much as they can. If they would raise the interest rates to about 5%, it would encourage people to save. People need to be more self-sufficient instead of depending on credit to satisfy their needs and wants. Save your money and pay cash for things when you can. Don't be a slave to the banks.

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