Savings rate still in the red: another very disturbing economic statistic

[DuncanK]

Originally posted by Case


I fail to see how increased household and business saving offers a fix to the current US economic problems. In recessions, businesses and people generally tend to over-save due to fears about their financial security, and this causes consumption to fall, resulting in the economy slowing further.

As such, the only reason to encourage increased saving in a recession is to make money available to businesses so that they can expand. However, as US interest rates are already fairly low, I really don't see this as justification for encouraging more people to sit on their pay-checks and businesses to stash their profits away in the bank.

While the US debt situation appears to be serious, IMO it would be best to wait for a genuine economic recovery before trying to tackle it.

Good point. The Economist supports the Bush tax cuts, because they believe that it will increase the savings rate and stimulate spending at the same time. I disagree though. The lower income groups are more in debt and they won't be getting the tax cut. We need a stimulus that will allow the lower income groups to pay off their debt.

[DuncanK]

Well housing starts are down now. I'll eat my hat if there's now recession this year.

[Sava]

America is a debtor's society... it's bound to catch up with us sooner or later.

[Bosh]

Greenspan might be considering their theories, which might explain his reluctance to lower interest rates right now.

Possibly he doesn't want to get in the position that Japan is now and is trying to ensure that he can cut interest rates a lot if things get really bad.

Good article, if I wasn't an impoverished student I'd buy an Economist subsciption despite the right-wing slant. It seems like the US economy is in a bit of a bind since we had a couple years of really low savings rates but we can't get them back up to normal without dropping spending and possibly getting in a downward spiral. Its times like this that I'm happy that I'm used to a college student level of spending...

[Drogue]

Originally posted by Boshko
Good article, if I wasn't an impoverished student I'd buy an Economist subsciption despite the right-wing slant.

IMHO there are many better online magazines that are free. The Economist, as well as having a right-wing slant, is a little too political for me. If that's what you want, it's great, but if I wanted to read about economics, I wouldn't be reading that. Just my opinion though, I'm sure others like it.

[DuncanK]

Originally posted by Boshko
Possibly he doesn't want to get in the position that Japan is now and is trying to ensure that he can cut interest rates a lot if things get really bad.

After things get really bad its too late. There is at least a 6 month lag before the lower interests rates even start to work. He's too conservative.

Originally posted by Boshko
Good article, if I wasn't an impoverished student I'd buy an Economist subsciption despite the right-wing slant. It seems like the US economy is in a bit of a bind since we had a couple years of really low savings rates but we can't get them back up to normal without dropping spending and possibly getting in a downward spiral. Its times like this that I'm happy that I'm used to a college student level of spending...

Amen to that. I'm going back to school next semester too.

[Bosh]

is a little too political for me

I like that, its a good source for international political news.

After things get really bad its too late. There is at least a 6 month lag before the lower interests rates even start to work. He's too conservative.

Yeah but what if we get stuck in a few years of stagnation like Japan, if we don't have a few % points of give then we're ****ed badly.

[DuncanK]

Originally posted by Boshko
Yeah but what if we get stuck in a few years of stagnation like Japan, if we don't have a few % points of give then we're ****ed badly.

We can't let it get as bad as Japan. Just because we drop our interest rates down right now doesn't mean that things are as bad as they are in Japan. If the economy improves because of the measure then we could avoid a recession. However, if we wait until we are in a recession the drop in interest rates will have a smaller effect. Larger stimulus will be needed, but we won't be able to use the interest rate as a tool. I say since interest rates are so close to zero right now we are in serious danger and we can't risk a recession. Everything should be done immediately to avoid one.

[Case]

I really don't think that the US's current situation can be compared to Japan's. Japan's woes are the fault of the country's failure to reform it's outdated financial system and to reduce government intervention in the economy. AFAIK, the US's economic structure is OK, and this recession is largely the hangover from the stockmarket bubble of the 90s combined with lower consumer and business confidence.

As such, the correct responce by the US authorities would be to kick start the economy through increased government spending while trying to stabalise the international situation to encourage business investment and consumer spending.
Note; when I say government spending, I'm not talking about tax cuts: from what I understand, the US Federal and State Governments tax bases are already too small to balance the government deficit over the economic cycle.

Originally posted by Boshko
Good article, if I wasn't an impoverished student I'd buy an Economist subsciption despite the right-wing slant.

Ditto. The Economist is also great magazine for long flights - on my way home from Europe I bought a copy in Paris and finished it over India.