Wednesday, May 2, 2007

7x More Savings Than Cash

I heard an interesting statistic at a meeting recently. Someone examining the nation's savings rates looked at savings and debt statistics, and the Federal Reserve's estimates of how much cash is in circulation. The results are staggering.

It is now estimated that there is some seven times more money in savings than there is actual cash floating around. As everyone pretty much knows, there is no possible way the nation's banks can come up with cash to cover all savings withdrawls if they were made simultaneously. We operate on bookkeeping entries and debt. And with debt come a number of benefits.

In earlier posts I have talked about good debt and bad debt. In fact, there is a book by that name by an Ohio Author, Jon Hanson. His book, "Good Debt, Bad Debt" talks about the difference between destructive consumer debt, and debt that works for you.

Back to the original statement about savings and currency. So where is all that money in savings that is not covered by currency? It has in the form of debt . . . monies loaned for real estate purchases, most often. One of the best statements I ever read was from Robert Kiyosaki, who notes that real estate is the only investment for which the bank will give you eight dollars for every two dollars you put up first. Of course, its in the form of a loan. Still, THAT is where the money in savings has gone.

Anyone involved in business knows about the difference between savings and currency in the marketplace. But seven times? That high number surprised even me.

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