Saving: Bad For The Economy?

Saving money is a wonderful thing. It gives banks money to invest, it gives the average person money to invest, money is thrown into markets that would not have otherwise gotten ahold of those dollars, and the list goes on. Unfortunately, the economy we live in is driven by consumer spending. Money circulates even further, making jobs and sustaining industry, if spending rises or remains still.

The savings tempo, which used to be reflected by unenthusiastic numbers, has risen all the way to 5.7% in April. (Here’s a suggestion: If savings rates were once in negative numbers, we were spending more than the money we made.) In a time when what we really need is spending, that is when Americans have decided we are going to save. That is so astoundingly backward. Let’s spend when we actually need to save and let’s save when we certainly need to spend.

The economic problems we are currently facing were somewhat produced by the large amount of individual and government spending, financial irresponsibility, and escalated debt. Unfortunately, personal spending, not government spending, mind you, on a small scale from a huge array of consumers, is actually one of the best repairs for the economic issues we are in right now. The humorous thing is that most Americans had the idea they were already saving. They thought a lot of what they were spending was thought of as saving: home improvements to increase home value, real estate buys, and much more, expecting these were all savings, with the hope of a positive return. This was further fueled by even more elevated home values and a matching “wealth effect”. Investors felt the same way regarding the stock market. Investments in the bank were low, making falling CD and saving account interest rates. It was logical, however, due to a much less return from banks than substitute investments. “What drove the savings rate down was stock cost appreciation and housing increase. Individuals spent on those for the reason that they thought it was like saving,” stated J.P. Morgan Chase economist Bruce Kasman.

The conviction that investing is saving was obviously wrong, because it helped lead to the downgrading of banks, helping to cause this calamity. The proper saving is always good for a flourishing economy. However, right now, no saving is beneficial for the economy. Nobody had been saving before, so saving now is the right mode of revival. Spending, which is growing, will actually be one of the most useful economic revival actions the slump has seen. When the economy has recovered, all the indexes are solid, and redundancy is not so pitiful, feel free to save yet again… the right way.

By: Greg Jackson

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