Remember when times were good and the economy was booming ? Back then the complaint was that Americans are not saving ...that we had one of the lowest savings rates .

Well now that consumer confidence is at an all-time low ; our savings rate has sky rocketted . Consumers are not spending between $4-5 billion per week ; going from a negative savings rate to at least 7% by next year. Discretionary spending is almost nonexistent which is why companies like Circuit City bit the dust and Starbucks is laying off . (on line company Amazon.com may be one of the few exceptions but their overhead is nowhere's near their brick and mortar competitors )

Like a teeter-totter, when the savings rate rises, spending falls. The latter accounts for about 70 percent of economic activity. When consumers refuse to spend, companies cut back, layoffs rise, people pinch pennies even more and the recession deepens.
The Associated Press: Americans' saving more, spending less

So ;if that's the case ,why was it so wrong before the economic downturn that America had a low savings rate ?

edit . back in 1933 FDR declared in essence that hoarding cash (and gold ) was unpatriotic . That was one of the reasons why he declared a bank holiday . He held fireside chats about hoarding cash ....that was what that .. " The only thing we have to fear is fear itself" was about. He made it a crime to hoard gold .
We all know that President Obama thinks himself the 21st Century FDR (when he doesn't think he's Lincoln) . Do you think he will try to restrict consumers from hoarding also ?

ebaines

It's a matter of balance. It is ironic - if you save money that means you're not spending it, and that hurts the economy in the short term. But if you don't save then you weaken the US economy's ability to generate capital or for the government to borrow except from foreigners, and that hurts us in the long term. It results in higher interest rates (to attract foreign cash), and makes it difficult for corporations to expand (since they have to pay higher interest rates to banks). If the foreigners lose trust in the USeconomy they stop lending us money, and you get a credit crisis. So ideally we should move from an economy where people don't save enough to an economy where people do save, but do it in such a way as to not shock the economy into a recession. A tough balancing act to be sure.

TexasParent

They need to adjust credit card rates downward and stop the high fees and stop jacking ARM's; stop bleeding the American public dry. It needs to be affordable to spend and then pay off our debts; if someone gets a little behind in their payments their credit score goes down and the rates are jacked making it more difficult to get on top of things.

Yes, I know don't put yourself in that position in the first place; but talk about the vultures circling in for every last dollar they can squeeze out of someone once they hit a speed bump in their financial situation.

Savings have gone up, because nobody is lending. This is a correction, people will start to spend again, it's just going to take time.

tomder55

ebaines ; When President Bush after 9-11 told people one of the things they could do to help was to go about their lives ;shop etc. that was sound advice ...right ?

TexasParent

I don't have a problem with that advice from Bush, it was one of the few times he was trying to play down fear for the good of the economy. In most other instances the Bush Administration used fear far to much to advance their agenda; but I will give him his moment and agree that was sound advice.

Except now it's more difficult to spend because credit is near frozen and there aren't the savings reserves available yet.

tomder55

I contend that loosening of credit standards and rates was one of the big culprits in the credit crisis. Institutions were compelled to loan to people who could not pay it back.

TexasParent

I don't know if compelled is the right word, I think in competing with each other they fell over each other selling quantity at more and more risk; rather than quality with less risk.

This is where government regulations should be instituted to save themsevles from themselves and the American public from systemic problems in the industry. Canadian finanical institutions for instance are the envy of the world because of different regulations governing them and can't expose themselves to the same risk in pursuit of profit.

There needs to be a better balance between the ability to compete and safeguards from taking on too much risk, because it will happen again as the financial institutions have a responsibility to their shareholders to pursue profit and if the other guy is taking business by taking on more risk, then they have to take on more risk to compete, and so on, and so on. Then we arrive back here again.

tomder55

compelled is exactly the right word. read this article by liberal Village Voice about Clintoon HUD director Andrew Cuomo (currently the AG in my state ) .
http://www.villagevoice.com/content/printVersion/541234

He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down

ebaines

Sure - remember the concern that the attacks would severly hurt the economy if we all hunkered down at home in fear.

It's like asking whether it's a good idea to feed a starving child a donut and Coke. In the short term of course it is - it could save his life. But in the long run if all the child eats are donuts and drink soda he'll be sicker than ever.

TexasParent

Well even this article says there is more than enough blame to go around to both parties: