Maybe. Or maybe folks need to save more for many reasons. Maybe folks should work until they simply can't work any more (after all, working is good for you... although you may have to find a new line of work in old age...)... but there is NO doubt that folks really should save more - from an economic consideration. Savings, you see, is really unconsumed production. Ergo, if you are able to save in the first place it means your lifestyle is likely supportable without undo risk and stress; your overhead is moderate leaving money left over.
At least I think so.
The problem is that savings, in the form of unconsumed production, decreases demand in the short term (and increases capital investment over the longer term). And I think that that is exactly what is happening. Of course, our dumb government is "stimulating" by the amount of the rough increase in consumer savings in order to avoid all appearance of a contraction.
"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estateIt will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”-Andrew W. Mellon, Secretary of the Treasury advising Herbert Hoover in 1929
Of course, Hoover did not follow Mellon's excellent advice. Can you imagine a sitting, Democrat Treasury Secretary giving that advice? Or even a Republican? In the "Land of the obese and the home of the something-for-nothing"? NAFC.
-------------------------------------
2 comments:
Of course, our dumb government is "stimulating" by the amount of the rough increase in consumer savings in order to avoid all appearance of a contraction.
How are savings held in the economy?
T-bills? Accounts at the Fed ultimately?
Isn't the deficit just the other side of the savings rate in the accounting book?
I would love to hear your comments on Randall Wray, Warren Mosler, MMT and soft money economics!
Anon,
It is more about the unbridled increase in the money supply and the mis-allocation of capital that has ensued. In a normal situation, savings is money lent to someone who would put it to productive use. That is, he would use the money to buy equipment that would allow him to make things that people need. It would create a return that covered my savings (investment) with interest and left the borrower a profit besides.
Of course there is also consumer credit and government borrowing. The saving money in these "investments" does not increase productive capacity. Government debt must be paid back by taxing existing production, and is economically counter productive. Consumer debt has the same long term effect. It does not create a return based on increased or more efficient production.
When the money supply is increased faster than it can be absorbed into productive savings, it is mis-allocated into consumer and government debt. A credit bubble ensues until the point is reached that there is not enough aggregate earnings to pay the consumer and government debt service.
The expectation of ever increasing home (and other asset) values and tax revenue disappears. Asset values fall and the size of the debt greatly exceeds the value of the collateral. Default follows. Here we are.
Creating more debt that can never be repaid cannot be the solution. Clearing the bad debt is, but it is painful while it happens.
There is always someone around to say that the rules don't apply, that the Sun doesn't rise in the East and this time it's different. I'm doubtful.
Regards,
Coal Guy
Post a Comment