A new research paper by Vladimir Klyuev and Paul Mills, of the IMF, measures the imact of rising net worth on American savings rates. Their paper, Working Paper No. 06/162: Is Housing Wealth an ‘ATM’? The Relationship Between Household Wealth, Home Equity Withdrawal, and Saving Rates, concludes that increased household net worth from housing and equity gains may have an impact of about 20 cents per dollar, a significant portion of the decline in US savings rates that everyone is worrying about. This confirms the lesson that I learned 30 years ago: balance sheets always trump GDP accounts in driving economic and financial change.
Perhaps the sky is not falling after all.