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February 29, 2008

Water realities

With the ongoing drought, most water systems around the state are encouraging customers to conserve, yet at the same time there have been calls to increase water prices. It seems water customers should be rewarded for saving water rather than being charged more. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Let me try to explain what's happened. First, if you look at buyers of water - consumers of water - certainly some people do respond to calls to conserve and cutback on the amount of gallons they use per day, but a lot of people simply won't. So one way to motivate them to conserve is through finances, to raise the price. That's a very straight forward economics concept; the higher the price of something, the fewer units of that something people will buy. But there's an added issue here with water. Water systems are what we call natural monopolies. What that means is that the cost of producing each gallon of water declines as the system sells more gallons. If they're more efficient, they're spreading their large fixed costs over more units, so if water systems sell fewer gallons, that actually increases their cost per gallon. So to recover costs, they actually have to increase the price. They're not making any more money, they're simply covering their now higher cost. It's not going to hurt consumers. It's simply the reality of the economics of water production."

Posted by Dave at 08:00 AM

February 28, 2008

Can the government prevent a recession?

With many economic and business analysts saying a recession is looming for the economy, the obvious question is whether anything can be done to head it off. In these kinds of situations, we usually look to the government. What tools are available to the government to use against a possible recession? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"The government we're talking about here is the federal government, and the tools the federal government has at its disposal are designed to try to get more spending in the economy, and that's essentially what you want to have happen when the economy is slow or in a recession. You want to generate more spending. And the two agencies that do this are, number one, the federal reserve, and what we would see the federal reserve do is, number one, to cut interest rates, which they have been doing, and essentially print more money and send that money to the banks so the banks have money to loan to people so they'll go out and borrow it and spend it. And then the other group that's on the job here would be the president and the Congress together through the federal budget, and here they would either increase government spending - for example, go out and build more roads and bridges and so forth - or they would reduce taxes. As we talk, the plan is to reduce taxes through rebates. Now, the analysis of whether these tactics work comes to the conclusion that they often can't reduce or prevent a recession but they can blunt the effect, maybe shave some of the negatives off the edges, maybe reduce the negative impacts of a recession by somewhere between 25 and 33 percent. But there is a cost to these actions, and that is that the government is going to go into debt more. They're going to borrow more, and this will have to be funded later from taxpayers."

Posted by Dave at 08:25 AM

February 27, 2008

Inflation in 2007

The government has released the inflation numbers for last year. How bad was it? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Not as bad, I think, as many people would think. We're looking here at consumer prices. These are the prices we see when we go shopping. Averaged over the entire year, 2007, and comparing average prices over the entire year 2007 to 2006, prices went up 2.8 percent. Although at the end of the year, the rate of increase did accelerate. Now, no big surprise, the biggest increases in prices were for energy, food and medical care. We saw slower increases in prices for housing, recreation and education. And in answer to the question, Did anything actually go down in price, did anything actually get cheaper in terms of dollars and cents? The answer is actually, yes, clothing prices went down in 2007 in price, so they became much more of a bargain."

Posted by Dave at 08:24 AM

February 26, 2008

Did we respond to oil prices?

If we see the price of beef go up, we may buy more pork or fish. We try to find substitutes for things that become more expensive. But does this strategy work with oil? In response to the big increases in oil prices last year, did we see purchases of oil fall? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, one reason why it may be different with something like oil and, of course, its major derivative gas, is that there aren't any easy substitutes for gasoline. We're not going to be able to go and use hydrogen fuel, for example, at least not now. Furthermore, we constantly see our population going up, and also the number of vehicles keeps increasing. So those two factors also would probably result in us using more oil and gas even in years when prices go up. But what you want to do is look at the amount of oil and gas used per person. And actually here we see that in 2007, that went down in the U.S. So it actually conforms to what you would predict when the price of something goes up, in this case, oil. The amount of oil and gas that people use per person went down. The same thing happened if you look at other developed countries, like in Western Europe and Japan. What was different in 2007, however, when you look at worldwide oil and gas use, is that we saw consumption go up significantly among developing countries, particularly China and India, because they are very fast growing. So I think that our behavior and the behavior of developing countries certainly conforms to what you would predict out of economics. For other countries, it is simply because they are growing so fast they are using more oil and gas."

Posted by Dave at 08:36 AM

February 25, 2008

The tax rebate plan

The president and Congress are considering tax rebates as a way of addressing the slow economy. What would this plan entail and would it work? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, this is sort of economics policy 101 in the sense that we have this plan, usually recommended and sometimes actually enacted, just about every time we've had a slowdown in the economy or a recession. For example, we had tax rebates in 2001.

"Now the idea is pretty simple: If people aren't spending money because they are worried about the economy - if people's income is tight - then what the federal government can do is say, 'Here, here's some more money, and we hope you spend it.' And essentially, where is the federal government getting the money? Well, they are borrowing it. So they are borrowing against the future to give more folks more money now in hopes that they will spend that money.

"Now in 2001 when the federal government did have these tax rebates, research now shows that people did not spend all of the rebate. They spent somewhere between 20 and 30 percent, and they saved the rest or they paid down on debt. Will the tax rebates prevent a recession if that is what we are heading into? No. It didn't in 2001, and it's likely to have the same effect today, but what it will do is make any potential recession less severe."

Posted by Dave at 08:08 AM

February 22, 2008

Measuring home prices

With the well-known problems in the housing market, there are some reports of home prices actually falling in some markets. But can we generalize from these reports? Are there any particular problems that occur in tracking home prices? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There really are. There are two big problems that affect tracking home prices that we don't have when, say, tracking the prices of eggs or the price of a loaf of bread. One is that homes vary in their characteristics. So the homes that you may be tracking the prices of this year may not be the same as the homes last year in terms of size and amenities and so forth. Also homes sell infrequently."

"So tracking home prices is much more difficult. And that means there are several different measures out there that do suggest what home prices are doing. For example, one commonly heard tracking price is simply to look at the prices of homes sold today - whether they be new homes or existing homes - compared to the price of homes sold last year. Again, the problem here is that the characteristics of the homes may differ, so that you may not be comparing apples to apples. Now, there are a couple of ways around this. One is to look at repeat sales, that is, track the same house over time. You also have the problem there that the same house doesn't necessarily stay the same. People can make additions both inside and outside the house. Then thirdly there is a statistically constructed constant quality home that the federal government tracks. That has its own problems. So the bottom line here is there is no perfect way to track home prices. So when people hear some measure of home prices quoted you should read beyond the headlines and see what exactly is being followed."

Posted by Dave at 08:19 AM

February 21, 2008

Do people really try to 'keep up with the Joneses?'

The old phrase, "keeping up with the Joneses," suggests many of us will watch the kind of spending our neighbors do and that this will impact what we spend. So if our neighbor buys a new car, we'll be motivated to buy a new car. Is there any evidence people really follow this pattern? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"First of all, economists have a fancy term for this behavior. It's called "positional economics." And it says that one of the things that we're concerned about - all of us in society - is our position, or status. Now, some economists actually studied this, and they find evidence to suggest that people will watch what their neighbors and/or their peer group are spending money on, and that may motivate them to spend money on a particular thing, even perhaps if they don't need it. This goes beyond just understanding spending behavior. Some economists are worried that this has motivated some middle-income households to perhaps overextend themselves. Because as we have seen a growing spread between rich households and middle-income households, the concern is that middle-income households in order to keep up with those rich Joneses will be motivated to go into debt, buy bigger houses or cars, buy more material things, that is, live beyond their means. Now, there is actually some evidence from these economists who studied this to support this. This is certainly a very, very controversial area, but it's worthy of consideration."

Posted by Dave at 08:00 AM

February 20, 2008

Are new fees coming to airports?

The federal government has proposed giving airports the ability to impose a new fee designed to reduce congestion and flight delays. What is this fee, and how would it affect fliers? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the issue is that there are a lot of popular times for arriving and departing an airport, and what you have is many airlines wanting to schedule their flights at those times. So, for example, if many airlines want to arrive at 11 o'clock in the morning, you're going to have a lot of congestion. You're going to have backups in landings; you're going to have backups at gates and so on and so forth. Now, the airlines themselves don't have any costs related to that. So what the airports want to do is to try to motivate the airlines to take those busy times into account in their scheduling. And what the federal government has proposed doing is allowing airports to charge these airlines a special fee called a congestion fee related to landing and taking off at popular times. Of course, ultimately, the flyer is going to pay that cost, but it would allow airlines to perhaps be motivated to schedule around those busy times. And the way the flyer could benefit, of course, would be that they'd spend less time circling the airport, maybe waiting at the gates, waiting to get their bags and so forth. Or, if they really want to land at that particular time, they'd be willing to pay the higher fee. The problem, of course, is you just have so much airport space, and as flying has become more popular, that has increased congestion at those particular times."

Posted by Dave at 08:19 AM

February 19, 2008

The cost of a long drought

We all want sufficient rainfall to put an end to the drought. But if this doesn't happen, and the drought persists, is there any way of estimating the possible adverse impact to the North Carolina economy? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, we have some immediate impacts that I think we can all see and fairly easily measure. That is, losses to farmers, also to the green industry. And those losses have already been calculated in the several hundreds of millions of dollars. But a long-lasting drought will also bite into other industries in other parts of the economy simply by making the cost of obtaining water or the cost related to reducing water use higher.

"Now if we look at other regions in the world that have suffered long droughts, a good ballpark for the total cost of a long, severe drought is about one percent of the total economy. So in North Carolina's case this would amount to about $4 billion annually. Now, this is a good number to know because it represents the benefit of doing something to replenish our supplies of water."

Posted by Dave at 08:00 AM

February 18, 2008

The changing value of education

It's fairly well known today that it pays to get a college education. For example, college graduates typically earn much more than high school graduates, but has it always been like this? Is there a reason college grads will make more money than high school grads? Listen

"Well, yes, we would expect college grads to earn more simply because they have to pay back the extra schooling expense, the time and the money they spent going to school. So the issue is not whether college grads are going to earn more; the issue is how much more. And this is where there has been variation. Today, college grads on average earn about 65 percent more than high school grads. But that wasn't always the case. In 1980, the premium was 40 percent. In 1950, it was only 30 percent. On the other hand, in 1910 it was also 65 percent. So what's going on? Well, I think supply and demand. Recently the benefit to college has gone up because of changes in the economy. That's increased the demand for college workers. And, actually, the demand for college workers increased faster than the supply. Therefore, we've seen that increase in the college wage premium. But from 1910 to 1950, just the opposite was happening. The supply of college graduates was increasing faster than demand so the college pay premium was going down. So the point here is that how much more you earn by going to college isn't set in stone. It will vary over time."

Posted by Dave at 08:00 AM

February 15, 2008

What would a recession mean?

It seems like more and more economy watchers are talking about a recession. Give us a short primer on what recessions are, how bad they are and just what causes them. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the first point to make is that recessions are defined from the point of view of the entire economy - not for a person, not for an individual company, industry or even state. And a recession means that essentially the economy goes into reverse, it produces less. And the standard we use is, it has to produces less for at least six months for there to be an official recession. We have had 11 recessions since World War II. The last recession lasted just under a year. The good news is that recessions have gotten milder in terms of job and income losses. Now the causes of recessions are hotly debated, but they include the economy just running out of steam, the jump in the price of some key input like oil, or a reaction to overspending or over investing in some market, much like the tech sector in the 1990s or residential housing today."

Posted by Dave at 08:00 AM

February 14, 2008

Tax income or spending?

The debate over replacing the federal income tax with a national sales tax has been revived in the presidential primaries. Do economists have anything to say about the relative merits of taxing income or taxing spending? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, what we do is, we look at characteristics of various kinds of taxes and compare these alternative taxes on the basis of these characteristics. For example, size of the tax base. If you have a bigger tax base, you can have a lower rate. Comparing an income tax to a consumption or spending tax, you would have to give the nod here to the income tax because the income base is much larger. So you are going to be able to have a lower tax rate with an income tax than you would with a spending tax.

"Ability to pay is another characteristic that economists consider. And oftentimes people want higher income people to pay more relative to their income. Well, here again you would have to give the nod to the income tax because it's easier to structure an income tax with higher rates for higher income people than it is to structure a spending tax like that.

"On the other hand, volatility. We would like to have a tax that results in tax revenues that don't change a lot over time with the business cycle. Here you would actually give the nod to taxing spending because spending tends to be less volatile - less up and down - than does an income tax.

"Enforcement is a fourth characteristic. Some say that taxing spending is easier to enforce. And then lastly, adjustments. Some people want to be able to adjust a tax - particular tax for different circumstances or people. Probably here the income tax would be better able to do that because you can put provisions in to adjust taxable incomes. That is much harder to do with the spending tax."

Posted by Dave at 08:00 AM

February 13, 2008

Are layoffs a sign of trouble?

One of the worst things that can happen to a worker is to get a pink slip, that is, a notice saying the worker is laid off. Certainly, losing a job would be very bad for a worker, but does it automatically signal bad times for the company? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Not necessarily. And in fact, a new study from the Federal Reserve emphasizes this, and says that although layoffs can certainly be bad for individual workers, they can actually be good for both the company and the broader economy. For example, they can indicate that the company is becoming more productive, is better able to produce more with fewer workers. Now, this does result in the remaining workers perhaps being paid more, although it also results in labor being released for other jobs.

"Now, that point is actually important because - think about it - if we still had a third of our folks working on the farm like we did 70 years ago, who would staff all the tech companies and all the health care companies and the financial firms? So it is important to an economy to have the ability to move people around into different products and different areas. And if the layoffs also occur because some products are outdated and there are other products that are now coming on-line, then again, you need to have that labor shift. You need to have some companies laying people off in order for those folks to go take the new jobs. So as with many things in economics, there is a much deeper meaning here to job layoffs."

Posted by Dave at 08:00 AM

February 12, 2008

The big picture

Everyday there is a new fact or figure about the economy that analysts dissect to see what it means for the direction of jobs, spending and other commercial measures. But aren't there some big forces always operating in the background of the economy that help determine the ultimate direction we're taking? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Yes there are, and I like to think of this as sort of a computer program that's operating in the background of your computer. It is always on. We may not see it, but it's actually very important. And I would argue there are three of these big forces.

"First is, I think, obvious to most people, and that is technology. And we see that mostly in terms of the computer. Technology has had a big impact on space, on speed, on the ability of people to make decisions, acquire information. It's really reduced the importance of being big. That is, even a small company can have access to, for example, information and decision making tools that a big company used to.

"The second big factor, I think, is deregulation and trade agreements. These really go together, and what they have done is, they've made our world more tied together economically. They've made our world more competitive and they are really changing where commerce is being done.

"And thirdly is the increased returns to education. Brains now win out over brawn. We need brain power to use the technology to compete in the world. For example, North Carolina can no longer compete on being a low-cost, low-skilled labor state like we used to in the early 20th century. And of course this has had big implications for our standard of living."

Posted by Dave at 08:10 AM

February 11, 2008

Are CAFEs low on gas?

Congress just raised the fuel efficiency standards that auto manufacturers must meet for their newly built cars and trucks. These standards, called CAFE, which is short for Corporate Average Fuel Economy, are meant to reduce our use of gasoline. But there's considerable controversy over the impact of these standards. Just how are the battle lines drawn? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"The pro CAFE folks say these standards are needed in order to prod auto manufacturers into making more fuel-efficient vehicles and to motivate drivers to buy them. In other words, they are saying that without these standards, we wouldn't get increases in fuel efficiency. So you need the government to say, 'Look, you've got to do this, you've got to meet these standards.' And that's the way to getting our fuel efficiency up. And the pro-CAFE folks say that there are big benefits to the environment and to national security from higher fuel efficiency and, therefore, using less gasoline.

"Now, on the other side of the coin, you have some doubters. And the doubters make two points. They first of all ask if greater fuel efficiency will just motivate people to drive more miles. So they are going to end up using the same or maybe even more gasoline. And then secondly, the doubters ask how is the greater fuel efficiency going to be achieved? If it is achieved, for example, by reducing the weight of the vehicle perhaps this might also reduce safety in riding in vehicles. So this is where the battle lines are drawn, and this is going to be a continuing debate."

Posted by Dave at 08:38 AM

February 08, 2008

Are credit cards money?

Credit cards are being used by more and more people for everyday transactions. Even some fast food restaurants now take credit cards for payment. Does this mean we can consider credit cards to be money? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"In the technical or financial or banking sense, the answer is, 'No, credit cards are really short-term loans.' That is to say, if you don't pay the balance at the end of the grace period, you're going to incur an interest charge, and you're going to pay that interest over time. But in the practical sense, especially for people who do pay their credit card bills in full each month, they're actually a substitute for money. And people really use them like money. That is to say, people will carry them, and they will make payments like you said, maybe at a fast food restaurant or department store or for gasoline or whatever instead of having to carry cash or writing a check. And then at the end of the month, when that credit card bill comes, all your costs are on one nice bill, and people write one big check and pay it off. So in that sense, they are sort of a substitute for money. But again, if you don't pay off the balance, they're really a loan, and they're a short-term loan. And I should say that if you are going to use your credit card for a loan, primarily use it to buy long-lasting durable goods. Don't carry loans on things that you consume right away, like food and gas."

Posted by Dave at 08:00 AM

February 07, 2008

Subprime auto loans

We've been hearing a lot about subprime mortgage loans. These are loans made to high-risk home buyers, and the default rate on them has been rising substantially during the last year. But is there any other market that has the same kind of high-risk loan to consumers? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There actually is, and it is the auto market. For a long time there have been auto loans made to car buyers who would be considered very high risk. These are typically folks with limited income, and they also have low credit scores. The average kind of borrower in this situation finances about 90 percent of the car purchase, and they have a typical loan of about $11,000.

"Now these loans are very risky, and I think the lenders realize that. In fact more than half of them result in a default and most of those occur in the first year of the loan. Consequently, because there is a high risk of default and because the borrowers are very risky, the interest rates reflect this high risk. Interest rates for these kinds of sub-prime auto loans are in the neighborhood of 25 to 30 percent."

Posted by Dave at 08:00 AM

February 06, 2008

What backs our money?

When we buy something, we often use only paper to pay for it. We either use cash or we write a check. But why does the merchant take our paper? It doesn't seem to be worth very much. Is it because there's something valuable backing that paper money? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, not really. And this is where I think a lot of people are surprised. Of course, it used to be that you could cash in, so to speak, your cash - your dollars - for gold, but that's been long gone. Now there is a legal stipulation that dollars and coins printed by the U.S. government must be accepted as payment. But I think the real reason that the merchants that you talk about take your paper money, the real reason they do that, is simply trust. They trust that everyone else will take that paper as payment. So when they turn around and buy something, that person that they are buying from is going to take that paper money.

"And I think the trust is based really on two things. Firstly, the U.S. government isn't going anywhere. We have had a very stable government for, really, our entire history virtually. And there's no signs of any threat of an overthrow of the U.S. government. So that U.S. government-issued cash is still going to be used as legal tender.

"And I think the second reason that people take paper money as payment is they understand the purchasing power of that payment is not going to dramatically change over a short period of time. That is, inflation isn't out of control. Now if we had inflation rates of 25 or 30 percent or even higher - and there have been situations in other countries where they have been that high - I think you would have an issue with people taking paper money. But we have relatively low inflation rates. I think that is one of the big reasons why we do have a paper money economy."

Posted by Dave at 08:00 AM

February 05, 2008

If you think gas prices are high here ...

We've all heard the story about gas prices being only a $1 a gallon a decade ago and now, of course, they're at $3 a gallon, but when something looks bad, it's often helpful to see if it's even worse somewhere else. Can you say this is the case with gas prices? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, I can certainly say, 'yes,' and hopefully this will make our drivers feel somewhat better because gas prices are much, much higher in many other countries. Try $6 a gallon in the United Kingdom and the Netherlands. Try $5.70 a gallon in Germany, Belgium and Italy. And $5.50 in France. Now the difference is not due to the raw price of gasoline. In fact, that is very similar in all countries. The big difference between our prices and those prices I just cited comes from differences in taxes. Taxes on gasoline are much, much higher in those European countries. In fact national taxes make up 60 to 70 percent of the retail price of gasoline in Western European countries compared to only 16 percent here in the U.S. That's the reason when you go to Europe you see a lot of people riding motor bikes, even adults. You see mass transit much more heavily developed. That's simply because driving your car is a lot more expensive."

Posted by Dave at 08:05 AM

February 04, 2008

The pros and cons of high gas prices

Three-dollar-a-gallon gas is back, and experts don't see any big breaks in this price soon. But it seems we have almost a love-hate relationship with gas. We want gas to be cheap, but we also want to use less of it for environmental and national security reasons. Can we have it both ways? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, many people think we can, but here comes an economist who's going to throw cold water on that. I'm going to say probably not because what's going to happen is, you're going to run up against one of the mainstays of economics called the 'Law of Demand.' Now this is not a law that was passed by legislators, but it is just a description of economic behavior. And the simple fact is that people use more of something like gas when the price is lower, and they use less of it when the price is higher.

"So if we look at the recent big rises in gas prices, we do see that people are starting to change their behavior. In fact, gas consumption is rising at a slower rate. People are beginning to look more at better fuel consumption on the vehicles that they are buying. Some people are even considering carpooling and mass transit. So high gas prices do motivate conservation. And they motivate people in the industry to explore other alternatives, other ways of fueling our cars and using energy. So this is the benefit of high gas prices that it does contribute to our concerns, if you will, about the environment and the use of energy. But of course along the way we are going to be gritting our teeth because on the other hand, we don't like those high prices coming out of our wallets."

Posted by Dave at 08:35 AM

February 01, 2008

Are we overwhelmed with debt?

It seems generally accepted that American households aren't saving enough and have too much debt. But there must be more to the story. Is there? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the numbers do look bleak. The official saving rate has actually plunged to only one percent, and in the last 15 years, households have taken on debt at a rate twice as fast as the growth of their income. But as you say, there really is more to the story. Financial experts look not just at debt and the growth in debt, but they also look at the ability of households to carry that debt by focusing also on their assets. And here's the deal. You can save money in two ways. You can save it by taking money out of your paycheck, putting it into investments and watching it grow. Or the money you already have in investments can be growing, and that can be getting savings for you.

"The fact is that household savings has been growing a lot in the last 20 years through their already invested-in assets, things like stocks, bonds and even housing. And furthermore, when you look at household debt compared to household assets, actually household debt is smaller relative to assets. In fact, what that means is the net worth of households - which is their assets minus debts - is actually now at an all time high. So this certainly does paint a bigger picture and a better picture of the household financial situation. But it's all keyed on their assets. If assets start to fall because of decline in housing values or a decline in the stock market, then these numbers are also going to decline."

Posted by Dave at 08:21 AM