Check out this op-ed in today’s New York Times.
I want to highlight this passage:
The recent slowdown in gross domestic product growth is only a symptom of recession, not the cause. While there are many things to blame for the current crisis — most notably the subprime mortgage mess — one factor that has received little attention is America’s low savings rate. In 2005, net private savings in the United States were negative. In other words, we were spending money that we didn’t have, chipping away at our national wealth.
Essentially, if Americans had a reasonable emergency fund, this economic downturn would have been less severe–if not avoided altogether.
The author points out that, "The last time the savings rate dipped into the red was during the Great Depression.
Great.
It’s important to remember that we simply cannot continue spending money we don’t have. If we don’t have the money to pay for something, why on earth are we buying it? We need to have several months of an emergency fund put away for these rainy (or snowy) days.
If you’re building up that emergency fund, please keep motivated to stock it all the way. Remember how it feels to be pinched during times of recession.
I’m taking an economics class now. One statistic I read says that US consumption (read spending) has grown rapidly since the 80’s. And what are we spending on? Among other things, lots of foreign goods which also helps to lower the GDP. So what is out government doing about this? Giving us a stimulus check in the hopes that we go spend more! Interestingly, if the Fed raised rates it could give more incentive to save.
The problem is that the economic growth we’ve had over the past decade seems largely driven by consumer spending. The reason the economy didn’t drop into recession a few years ago is because people didn’t save — they spent money on all sorts of stuff. Greater savings would result in lower consumer sales which would translates into recession early.
The problems are two fold. First, a significant portion of that spending has gone to overseas manufacturers, rather than being fed back into manufacturers and labor in the US, to be then spent on more consumer goods in the US.
The second is that it seems we’ve built a giant Ponzi scheme to keep the economy going. We can stay out of recession as long as people keeping acquiring debt to drive the economy forward. Eventually, though, credit dries up, less money comes in from consumer spending and we end up in recession or worse.
Increasing savings is exactly what individuals should be doing. Unfortunately, if people do what they should, we are likely to have problems at the national level.
I don’t want to see a recession, but that may be what it takes to reboot the economy.
Some scary things to think about from the post, and the commenters. Why is it that people feel the need to spend spend spend? Is it the rush they get from pulling out that plastic and getting that new tv? or is it the need to keep up with the joneses?
[...] I did make it to my stop and now I’m here trying to win EC’s from Joe Tech , hoping I had the sense to save this week and wondering what would Simon Cowell say about my blog or about my other site Poetical [...]