Oh no, not that! The savings rate is increasing
March 10th, 2009 | by mbhunter |Once again, no good deed goes unpunished.
Seems like people are testing their personal financial waters, are finding that the temperature is a little uncomfortable, and are saving more and spending less, of all things.
Well, some folks are saying, “Enough of that!” Stuart Hoffman, chief economist at PNC Financial Services Group Inc., says: “I wish I could say the rise in the savings rate is over.”
Oh no, not that! We should all just go further into debt for the sake of the economy. I suppose we can’t blame Mr. Hoffman too much for wanting us all to save less. Thrift is bad for his business.
Reduced consumer spending aggravates a recession, and wholesale reduced consumer spending really does a number on it. This is what the article refers to as the “paradox of thrift” — doing things in our best financial interest as individuals (saving) works against the economy as a whole, especially when we all do it simultaneously.
But it’s thrift that will get the economy going again in the long run. Real growth is driven by production, not spending. Spending follows production in a healthy economy, not the other way around. As the markets slide toward levels not seen since Clinton’s first term, despite record-breaking levels of economic stimulation, it’s becoming clearer (to me, anyway) that we can’t, and won’t, be able to buy our way out of this one the same way we bought our way out of the early 1990s and the early 2000s.
We’re going to have to save. The businesses that rely on people buying stuff now will suffer, and some will go out of business, like Circuit City did this past weekend. People who saved on the sidelines were able to buy our local CC store’s shelving for dimes on the dollar, if not cents on the dollar. By the truckload. They’ll be able to sell them to businesses who are waiting on the sidelines to expand, who will survive the downturn.
Those who have saved will be able to take advantage of lots of opportunities.
So here’s what I say to those who think an increase in personal savings rate is bad: I’m not buying it.
9 Responses to “Oh no, not that! The savings rate is increasing”
By Mackenzie on Mar 10, 2009 | Reply
The problem isn’t really the savings rate, the problem is that it’s changing faster than the economy is able to cope with. In normal times, the rate changes slowly, over a period of years, and the economy is pretty easily able to absorb the change. But when everything changes all at once, it creates all kinds of ripples. Things will be fine in the long term, but there are some growing pains.
By Dana on Mar 10, 2009 | Reply
The problem is that the system has been set up for the past few decades to accommodate and reward debt instead of savings. It’s not surprising since the US has not produced enough to justify its level of spending, but has instead resorted to consumption to sustain growth.
The article by Drhousingbubble is worth a read.
http://www.doctorhousingbubble.com/banks-save-while-us-consumers-are-expected-to-spend-the-convoluted-problem-of-creating-a-debt-based-consumption-system/
By David on Mar 10, 2009 | Reply
Great article! Savers are getting too much crap from economists and the media.
I know that yes, technically saving will hurt business. But I think it creates a more sustainable economy.
We would not have had the boom economy of the past without overspending and overuse of credit.
Is that what we really want to return to? Look how it turned out.
I agree that saving will be better in the long run. We can’t spend our way out of this. It would be like trying to dig your way out of a hole in the ground.
By Jeff@StretchyDollar on Mar 10, 2009 | Reply
I agree with your point about thrift. It will get the economy through in the long run, but as soon as this thing evens out and gets somewhat back to normal, there are those who will return to their previous spending habits, but if we can remember what we’ve learned through this situation we’ll be better off.
By Vincent on Mar 10, 2009 | Reply
Because of this weak Economy, nothing good will come in short term.
I am just wondering how long it will remain like that or if it will go deeper
Good post
By troy on Mar 11, 2009 | Reply
the problem with the “savings rate is increaing” headline is it mistaken belief that it is some how voluntary.
Of course the savings rate is increasing. It has to. The real issue is WHY is the rate increasing.
Since it is due to tougher credit availability on everything from home loans to credit cards and car loans, student loans, etc the WHY becomes the problem.
If society was saving to save that would be great. But society is saving because they have no other choice.
When credit starts being extended again at some point in time, the savings rate will drop back down as fast as it rose.
This is a temporary “savings” bonanza and not a real shift in societys behavior.
By Roger on Mar 11, 2009 | Reply
To paraphrase St. Augustine, ‘Lord, make us thrifty… but not yet.’
In other words, I think that Keynes was right; the only way out of a recession is to increase spending, whether by governments, by individuals, or both. Hopefully, this situation will remind people that things can go wrong, and that saving some of the profits you earn is always a good thing.
By Anita on Apr 4, 2009 | Reply
Saving is the best thing for me and family right now and I feel great whenever I save $$$ and add to our emergency fund… Thanks for the info… Also I distribute this free price comparison and deal finder on the internet… Get your now and start saving on all your purchases… I saved 30% on Locksmith services
By Mack jackson on Jul 16, 2009 | Reply
Ya i agree that saving is very much essential for secure future. According to me there are number of chances of unexpected expenses for which we need some emergency fund.