Capital Commerce

Fellow Americans, Stop Saving!

February 18, 2009 RSS Feed Print

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Yes, yes, we all need to save more and spend less. So the scolds keep telling us. But this change of behavior will have consequences, as superstrategist Ed Yardeni notes:

We are told: Americans must save more. Maybe so but that won’t be good for our economy. I’ve heard some observers casually claim that the personal saving rate must go back to 8%. If it did that during the fourth quarter of last year, real GDP would have been down by 17.9% instead of 3.8%. Let's do the math: The personal savings rate was 2.9% during Q4-2008, up from 1.2% during the previous quarter. If it was 8% at the end of last year, real personal consumption would have dropped 23.0% instead of 3.5% and real GDP would have been down 17.9%. Obviously, no one is saying that the saving rate should rise so much in such a short period of time. However, if consumers really do decide to save more on a long-term basis, then the size of the economy would shrink since consumers account for so much economic activity.

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In the short term, only spending can save the US economy. In the long term, only saving can prevent this from happening time and time again.
Anyone who thinks that somehow the economy is going to bounce back to end-2007 levels in a short time frame, but without the enormous debt, probably doesn't understand what caused the collapse in the first place. We live in an era where people are expected to have large debts, from the time they leave high school until the day they die. This is not how the world is supposed to work.

Robert Green 6:54PM February 19, 2009

why we have an economy so heavily skewed to people buying crap from Target or Best Buy that they neither need or can afford instead of how bad it would be if we all save some money?
I think economist and other experts are failing or not wanting to comprehend that the old economy is dead, the banks and investment firms and insurance companies ensured that. Trying to fight this war with the strategies and tactics of the last one is a recipe for disaster. As painful as it will be we need to let Bank of America crumble, time to sow that seed of their own corporate malfeasance, let Chrysler go belly up.
We cannot get to the new economy until we shed the dead and dying vestiges of the old.
I hope the savings rate skyrockets to 10% (my own personal rate is actually a bit higher), let the economy skid along for a few years (like I said, I know it will be painful but, as we use to say in the Army, embrace the suck. Place your faith in the people of America, their ingenuity, their entrepreneurial spirit and their optimism. Remove the barriers, discard the dead weight and we can move forward and upward and we'll be ok.

Steve of PA 11:48AM February 19, 2009

His analysis simplisticly and incorrectly assumes that monay that is saved by individuals would not be lent or invested elsewhere in the economy. The correspondence may not be 1:1, but it is pretty close.

DWAnderson of IL 11:12AM February 19, 2009

Fellow Americans, Stop Saving!

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