
Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes - theoneill
http://online.wsj.com/article/SB123120525879656021.html
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gcheong
From what I remember of econ 101, if people are saving more, that should mean
more deposits in banks which should then provoke banks to lend more out -
easing the credit crunch, which should then lead to more spending, etc so in
the long run the extra saving should actually help the economy, no?.

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antiismist
Ordinarily this is true. What is happening now is that financial institutions
are trying to deleverage, so that will soak up a huge amount of deposits
without any extra lending at all.

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cchooper
It's not true ordinarily either. Whether people save or spend makes no
difference to bank deposits, because all money spent or saved gets deposited
in a bank anyway. Spending is just the transfer of your deposits to someone
else, not a net change in the number of deposits.

However, if people moved their money from current accounts to savings accounts
(which you would expect if people actually wanted to save for the future) then
potential lending would increase because banks lend savings cash more readily
that current account cash. But people are probably not saving for the future.
They are saving because they have less access to credit and/or are worried
about losing their job. If anything, that encourages people to liquidate
savings accounts rather than increase them, so the potential money banks can
lend could be decreasing.

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tptacek
Just me, or is this headline a couple of words away from belonging on The
Onion?

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icey
I honestly had to check the URL twice, because I was shocked to see articles
from The Onion here.

It's scary to think that our economy was so strongly based on financial
irresponsibility.

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mynameishere
There's nothing strange about the headline, as an increase in savings relates
to the spending multiplier,

<http://en.wikipedia.org/wiki/Spending_multiplier>

...the reason people like Krugman want the government to increase the deficit
(the opposite of savings) is to plug the gap. Japan's extra-high savings rate
is one reason why it's had 20 years of near-recession.

By saving money, people are (in an indirect way) buying government debt.

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mattmcknight
The Japan problem was not the savings rate. The problem was the government
propping up failing institutions for years, instead of just letting them go
down. We need to start saving. Let the retail and services based economy
decline. Let the creative and manufacturing based economy grow. Export.
Krugman and company are going to kill the dollar.

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incomethax
Even in the face of a highly devalued dollar, the US is simply no longer
equipped to shift to a manufacturing base. The cost structure for any
manufacturing company that relies on labor is too high for any margin of
competition due to current laws.

If the dollar dies, especially if doing so removes its status as a reserve
currency for much of the world's economies, the US economy/nation-state will
be in for a long time of restructuring.

The only part of the economy I see any potential real growth is the creative
sector. That too is in some serious trouble with the number of
science/engineering grads decreasing and the test scores for science and math
being as dismal as they are for high schoolers.

That's why I like gold ;-)

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dangoldin
"The Capps started cutting back. In late spring, they began to trim their
spending and paid down about half of their $11,000 credit-card debt. This
summer, they used more than half of their government stimulus check, about
$1,000, to open a savings account with an attractive interest rate of 5%."

They'd probably be better off paying off their credit card than opening a
savings account.

Edit: Just got to the part that says they had already paid off their CC
balance. My mistake.

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iigs
As a person with some savings and some credit card debt and an uncomfortably
large amount of mortgage debt, I'll say that in an economic downturn there's
definitely value in having liquid cash to spend -- you can cover important
debts such as taxes or mortgage during a job loss.

It's technically cheapest to run your savings as low as possible in favor of
paying down debts as aggressively as possible. I was doing that a couple years
ago when times were better, but for the moment the cost (a couple years of
financing your savings at reasonable credit card interest rates) sure beats
having your own personal liquidity crisis.

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natrius
I don't see the advantage if you still have significant credit available.
Let's say you pay off your credit card debt instead of saving. You then lose
your job and need money to pay the bills. Wouldn't you just put the bills on
your credit card?

It all depends on the interest rate of your current debt compared with the
interest rate of your new debt. Presumably, any new credit card debt will be
at the same interest rate as your current debt since, as far as I know, new
debt doesn't change your interest rate. (If it can, then having a reasonable
buffer of savings does seem like the better choice.) Mortgage debt has a lower
interest rate than your new debt would in this scenario, so saving is clearly
preferable over non-credit card debt.

Anyway, in times like these when the financial system is broken and available
credit could suddenly become unavailable, saving is probably a good idea.

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Retric
You can't pay your mortgage with a credit card. If you want cash they charge
you a higher rate. So keeping cash on hand just in case can be a good idea.

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sokoloff
How good could that deal on eggs be to justify the time and PITA to freeze and
bag 10 dozen eggs individually? Were they paying her $5 a dozen to take 'em?

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tokenadult
If United States consumers spend less, what other countries are most
influenced by that?

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time_management
Great!

What was most evil about the Reagan-Bush-Clinton-Bush era was the sociological
contraction (reduction in good, stable, career-building jobs; mounting health
and education costs; solidifying class barriers) that persisted in spite of
impressive economic expansion. This was exemplified most poignantly by the
2000s "expansion", wherein job growth at its best was barely keeping up with
the country's population increase, and salaries were stagnant except in a few
industries. The average American has been in the damn recession for a long
time, but now it's something deeper and it's being noticed because of its
effect on "important people".

Consumer credit allowed this arrangement of economic-expansion-despite-social-
contraction to continue, to the benefit of those riding (note my word choice)
large corporations. People were getting poorer, less likely to find good jobs
and less able to buy healthcare and higher education, but they could use a
slab of plastic to buy trinkets, and this kept the consumer economy afloat,
and the people in charge rich (and increasingly so).

The consumer credit rewind's bringing this arrangement to an end. This is
beautiful. To those hard-working, saving Americans, keep it up!

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yummyfajitas
Comparing job growth to population is a really poor measure.

What you are measuring is ( _on the books_ jobs) / (estimated population). An
illegal immigrant contributes to the denominator (perhaps fractionally,
depending on how accurate the census is), but not the numerator if his job is
off the books.

Jobs/people fails to account for demographic change. We are getting older, and
old people work less. Our bubbleicious prosperity also allowed women to stay
home if they wanted.

Unemployment is a much better measure; unemployment is (# of job seekers) / (#
of workers + # of job seekers). It excludes people who no longer want to work
from the denominator, which counting the population does not. I don't know
if/how it addresses illegal immigration, however.

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mattmcknight
Unemployment can be a misleading measure. The number of job seekers is not a
particularly meaningful measure, nor is it accurately measured. It's much
better to look at how many workers are supporting the population of the
country. The proportion paying taxes is getting to be less than half. Anyone
not paying taxes doesn't count.

