Saving: Awful for the Economy?

By: Greg Jackson

Saving money is a superb thing. It allows banks money to invest, it allows the average person money to invest, money is thrown into markets that would not have otherwise seen those dollars, and the list goes on. Alas, the economy we live in is driven by customer spending. Money circulates even further, creating jobs and sustaining industry, if spending rises or stays still.

The savings speed, 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 expenditures, that is when Americans have made the decision that we are going to save. That is so wonderfully backward. Let’s spend when we really need to save and let’s save when we really need to spend.

The economic challenges we are currently facing were somewhat created by the large amount of personal and government expenditures, fiscal irresponsibility, and escalated debt. Sadly, personal expenditures, not government spending, mind you, on a small scale from a enormous array of consumers, is really one of the best repairs for the economic challenges we are in right now. The funny thing is that most Americans had the idea they were already saving. They thought a lot of what they were spending was considered saving: home improvements to inflate home value, real estate buys, and much more, expecting these were all investments, with the hope of a positive return. This was further fueled by even more elevated home values and a corresponding “wealth effect”. Investors felt the same way regarding the stock market. Investments in the bank were low, creating falling CD and saving account interest rates. It was rational, however, due to a much less return from banks than alternative investments. “What drove the savings rate down was stock cost appreciation and housing increase. People spent on those for the reason that they thought it was like saving,” said J.P. Morgan Chase economist Bruce Kasman.

The belief that investing is saving was visibly wrong, because it helped lead to the reduction of banks, helping to cause this tragedy. The proper saving is always good for a prosperous economy. However, right now, no saving is beneficial for the economy. Nobody had been saving before, so saving now is the right mode of recovery. Spending, which is growing, will actually be one of the most useful economic recovery actions the recession has seen. When the economy has improved, all the indexes are solid, and redundancy is not so pitiful, feel free to save again… the right way.

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