Uh oh… savings up

March 2 – 12:48:13
My parents always told me to save more of my allowance. Like most Americans, faced with financial insecurity, I finally am taking the advice to heart.

In the long term, higher savings might have delayed or averted our current economic crisis. Right now, though, it’s causing problems.

Personal saving, 3.9 percent in December, rose to 5 percent of disposable personal income in January, according to a Commerce Department report issued today. As discussed previously, the best way out of this recession is an increase in aggregate demand. Money saved is money not spent, and consumer spending makes up two-thirds of the U.S. gross domestic product.

It all comes back to governmental expenditures. We need to increase demand, but American consumers have maxed out their credit and are scared. Scared of losing their jobs, scared of the decline in their retirement investments, scared of their dropping home values. That means the increase in demand — necessary to avoid a continuing downward spiral — must come from the government.

To stimulate the economy, governmental expenditures now must overcome increased personal savings, as well as the reduced effective demand wrought by increasing unemployment.

What a mess.


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