Most Americans have the majority of their savings tied up in their home. Beyond making a mortgage payment, few savers are able to put away excess income. The government encourages saving in homes. Mortgage interest is tax-deductible. Credit card interest is not. Profit on the sale of a residence is tax-exempt up to $500,000. Government programs support firsttime buyers and lower interest rates for low-income homeowners.
Realtors play up the savings aspect of homeownership. Savers are shown charts of home appreciation and tax savings compared to renters. This leads to overconfidence. Despite government support, a family home is an erratic savings vehicle.
The value of a dollar invested in a family home is not fixed. Home equity can swing up and down. When the local economy is bad, homeowners who lose their jobs often find out that they have lost all the savings in their home as well. In the late 1980s, the oil belt recession forced a massive loss of both jobs and homes. In the early 1990s, New England had a similar episode caused by the collapse of the real estate industry. The massive closing of military bases and defense plants a few years later caused thousands of Southern California residents to lose both jobs and homes. When a
home is worth less than the mortgage, even employed homeowners have lost all their savings.
Though there are emotional quirks with true saving instruments, the frequency of trauma is low. Saving instruments are for investors who value predictability and are not troubled by jealousy, resentment, or regret when other investments produce spectacular returns and make headlines. Longterm returns on savings instruments are lower than for other investment classes. For those who value peace of mind, the price of lost returns is more than reasonable.
Savings instruments are also good for investors who do not want to spend time on their investments. Buy and ignore is a good philosophy for savers. Someone who needs to be out of the country for five years should leave her money in savings instruments. Blind neglect is often advocated for stocks, but in fact, there are too many five-year periods when stocks lose half their value.
Picking Treasury bonds requires a few hours each year. Higher yields can be found in agency issues and older bonds. Call provisions must be evaluated. The time requirements are minimal.
Investors looking for action should look elsewhere. If you enjoy lots of research, or want to interact with people such as tenants, other investors, or money managers, savings instruments are not for you. While you can create excitement trading bonds, you cannot create profits. High-energy investors should stay clear. Disappointment will follow.
Treasury bonds are also the only insurance against deflation. Savers who worry that current Japanese deflation may be exported to the United States or that there will be a return to deflation of the 1930s will feel safe here. Savers concerned with inflation will be comfortable with TIPs and money market funds.
Competitive considerations have heavy and pervasive impacts on state policies. Concerns over non-competitive tax burdens translate into pressures to keep spending, and thus taxes, low. Concern over the effects of taxes on economically attractive, mobile taxpayers encourages states to minimize taxes on footloose firms, high-income households, and affluent retirees. Competition for economic development motivates huge outlays for industrial parks, sports stadiums, convention centers, highways, and other programs.
The Economic War Among The States: State officials are in constant economic competition with each other. Candidates for state offices campaign on platforms including promises of enhancing their state’s economic development — bringing more jobs, higher incomes, and fiscal dividends for state and local governments. They point with pride to signs of economic success such as statistics on increased employment and examples of new plants. They seek track records including not losing existing employers to the lures of other states, encouraging the growth of existing firms, and drawing new employers to their state. Their challengers leap on signs of failure such as high unemployment, plant closings, layoffs, and even losses of
professional sports teams. Business groups lobby states to eliminate signs of what they call a “poor business climate.”
The Competitive Environment: Interstate competition is based in the reality of the open economy which the U.S. Constitution guarantees to citizens of every state. It protects the rights of individuals to move to any state and enjoy the privileges of long-time residents. It permits firms from any state to sell in every state, free from tariffs and quotas, and subject to no higher taxes nor more stringent regulations than in-state firms. It permits firms to establish new plants anywhere and to abandon a state entirely for any reason — including dissatisfaction with policies of that state. Attempts by states to shelter their markets from interstate competition are consistently overturned by federal courts as violations of the Commerce Clause of the Constitution.
Changes in technology and the nation’s economy have been increasing the impact of competitive factors on state policies and are likely to continue to do so. Reductions in the weight-to-value ratio of goods, in transportation costs and speed, and in communications cost have liberated producers from the need to be in close proximity to customers. Whole industries — beer, potato chips, dairy products, hardware vendors, and banks — have been shifting from locally based businesses to national firms. Deregulation of public utilities is reducing the ability of state and local governments to continue policies which have imposed disproportionate taxes on them.
There is strong evidence that decisions of firms to locate, expand, and remain in particular states are heavily influenced by state policies including state and local tax levels. Firms planning to establish new plants or contemplating moves routinely solicit competitive offers from states. There are many examples of firms relocating or deciding to put their new plants in different states because of home-state taxes they consider too high.
Nearly all states respond to these solicitations for offers to draw new plants, often with tax concessions tailored to the soliciting firm. But offering such concessions only to firms considering relocation produces criticisms of state officials for not pursuing even-handed policies. More important, it induces all footloose firms to consider moves if for no other reason than to induce concessions from home states.
The global financial crisis spreads, and thus also pushes on private consumption. Therefore, warns the Society for Consumer Research for the year 2008 before a stagnation in private consumption and thus facing a higher risk of recession.
The Society for Consumer Research (GfK) has in the recent publication of these growth forecasts from an initial 0.5 percent to the current 0 percent and thus a reduced stagnation. This was announced at the company GfK in Nuremberg with 25.08.2008. However, there are also some hope at the dark sky, because the company could announce that the downward trend of consumer sentiment has deteriorated further. Therefore, increased the forecast for the GfK consumer climate indicator of 1.8 points in October after 1.6 points in September.
The GfK had, however, the announcement of the figures admit that the surveys of consumers before September 15 took place. This morning, 15.09.2008, is probably as a black day for banks in history. Had the surveys of consumers after that date took place, then perhaps the consumer climate substantially worse and the index would have done no improvement. Its impact will be in the index for the month of November are introduced.
According to the GfK reports have therefore been the economic and income expectations of consumers in the month of September improved significantly, however, the outlook for the German economy (recession looming threat) is still very negative. Many citizens are even planning major purchases within the next few months, so retailers never so bad Christmas business may emanate. Reasons were partly falling costs for energy and gasoline.
About recession and stagnation
A stagnation of the economy means that no growth achieved neither positive nor negative sense. The economy and hence the economy of a country occurs on the body. Worse than a stagnation, a recession in the economy (economic performance) of a country is reduced. This would have a negative impact on individuals and not just on the economy of a country.
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