Saving: Bad For Our Economy?

By Jennifer McClelland

Saving money is a magnificent 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 seen those dollars, and the list goes on. Unfortunately, the economy we live in is driven by consumer spending.

Money circulates even further, creating jobs and supporting industry, if spending rises or stays static.

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 levels, we were spending more than the money we earned.) 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 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 created by the large amount of personal and government spending, fiscal irresponsibility, and escalated debt. Regrettably, personal spending, not government spending, mind you, on a small scale from a huge array of consumers, is really one of the best repairs for the economic challenges we are in right now. The humorous thing is that most Americans had the idea they were previously saving. They thought a lot of what they were spending was thought of as saving: home improvements to inflate home value, real estate buys, and much more, predicting these were all savings, with the hope of a definite return. This was further fueled by even more elevated home values and a parallel "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 reasonable, however, due to a much less return from banks than substitute investments. "What drove the savings rate down was stock price appreciation and housing appreciation. People spent on those because they thought it was like saving," said J.P. Morgan Chase economist Bruce Kasman.

The belief that investing is saving was clearly wrong, because it helped lead to the depreciation of banks, helping to cause this tragedy. The proper saving is always good for a flourishing economy. However, right now, no saving is good 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 successful economic recovery actions the downturn has seen. When the economy has improved, all the indexes are solid, and unemployment is not so pitiful, feel free to save yet again the correct way. - 23208

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