by Archie M. Richards, Jr.
September 17, 2007

You've heard the line: Americans are lousy savers. Supposedly we'll be forced to cut our spending big time, causing the economy to tank.

All of that is nonsense!

The misunderstanding is caused by the federal government. (Governments emphasize bad news whenever they can. They invent problems they would endeavor to fix by becoming larger and having more power.)

Here's how the U.S. government calculates its bogus savings rate: From a narrow definition of after-tax personal income, it subtracts personal spending.

Lately, the faulty savings rate has implied that Americans are using up their savings faster than they're adding to it.

Yet, despite problems in autos and housing, the economy is growing like topsy. How could this be?

Answer: Because the government doesn't include in its calculations other forms of savings that are becoming ever-more important. Here are examples:

• You fund a 401(k) plan.
• You buy, repair and improve a house.
• You patent an invention.
• Your stocks and bonds appreciate in value.
• You sell a stock or a house for a profit.
• A company whose stock you own invests its cash to build the business.
• You pay for schooling to learn computer programming. (The tuition counts as spending, but the improvement in your productivity is disregarded.)

Bill Gates is worth $59 billion, most of which came from the rise in Microsoft stock. The government excludes stock growth from its calculations. Indeed, Gates's computer developments and sales have added trillions to United States wealth, with little of this counted in the savings rate.

A more accurate calculation is prepared every three months by the Federal Reserve Bank. The Fed totals the values of stocks, bonds, pensions, life insurance and other financial assets. It subtracts mortgages, credit card debt, and auto loans.

The result: In March 2007, the U.S. household financial savings reached a record of $29.1 trillion. But even this large number is too conservative, because it doesn't include homes and cars as assets but it does include home mortgages and auto loans as liabilities.

The International Monetary Fund tracks the household financial savings of other countries. At the end of 2006, Japan's savings amounted to $9.8 trillion, the UK $4.8 trillion, and France $2.6 trillion. At the end of 2005, Germany's was $3.2 trillion. The household financial savings of the U.S. was considerably higher than that of all those other nations put together.

Americans are striving more and more for long-term growth. Consumer spending is not heading for a crash. Far from it.

Rob wrote, "In April, I bought 500 shares of Alpine Global Premier Properties Fund (AWP) at $20 a share on the initial public offering. In June, I bought another 500 shares at $18. Now, the stock is selling at $16. Should I buy more?"

I have no opinion about Alpine's prospects, Rob. But I do believe that the stocks of almost the entire world, probably including real estate companies, are headed up from here.

You say you bought some of your Alpine stock at the initial public offering (IPO). As you know, an IPO takes place when the stock of a company is first introduced to the public. The money goes to the company to help build the business. Thereafter, the stock passes from one investor to another in the secondary market, and the money does not go to the company.

Brokers make more money from an IPO than they do from the stock's subsequent secondary-market trading. In Alpine's case, the underwriters, who organized the IPO, paid the brokerage community 4.7 percent of the proceeds to sell the new stock.

Brokers say you can buy IPO stock without a commission. This is technically true, but it doesn't mean that brokers sell IPOs for nothing. Whatever they're paid reduces the stock's value to investors.

Alpine's value was cut by 4.7 percent. Not being a "hot" new offering, the stock price dropped by that amount immediately after the opening. By waiting to buy after the IPO was completed, you'd have saved a hefty chunk of change.