Monday, January 12, 2009

Save—But Not Yet

Many economists have been wringing their hands for years over the lack of domestic saving in the United States, which has increased our financial dependence on foreigners. Finally, Americans have begun to listen and save a portion of their income, especially as their homes and investments have fallen in value.

Are Americans being praised for saving? No! In fact, they are being bemoaned. Economists of all stripes fear that a rise in saving which reduces consumer spending over the next year could lengthen and deepen the current recession. Hold off saving, they urge, until the economy shows signs of recovery. Meanwhile, keep spending, using your credit card if necessary.

How will consumers know when it’s time to rein in spending and begin saving without damaging the economy? Surely not before the end of 2010 since any premature rush to save that slows a recovery could harm Democrats at the polls. Perhaps in 2011? Or perhaps many are sufficiently frightened about the future that they will disregard the pleas to spend and save instead.

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