Spending vs. Saving

By Dian Vujovich

If you’ve been squirreling away your money over the last few months, bully for you–there’s nothing like a plump savings account to add a little spring to your step. But while your savings accounts may have grown, don’t forget that America is both a land of opportunity and the land of spending. Our growth depends upon each.

In May, our household savings rate was 6.9 percent. That’s the highest it has been since 1993. Also that same month bank deposits grew by 1.7 percent, the ninth-biggest monthly rise since 1973. And in April, our borrowing dropped $16 billion. (Source:http://tinyurl.com/lawcg6 )

While that’s great news on the one hand, in the bigger scheme of things, it might be time to go shopping.

Why? Because 70 percent of our economy depends upon consumer spending. That means saving too much for too long doesn’t necessarily do our economy any good.

Economist John Maynard Keynes, the “father of modern economics” figured there was a circular flow to money. He thought when folks were working they were also spending. But when consumers became worried and concerned for any variety of reasons—like unemployment, extended bear markets, etc.—they began to hoard their money. And that when they hoarded too much of it and stopped spending, it made a difficult economic situation more difficult.

Keynes thought the best way to handle a situation like that was to expand the money supply and get more money into the hands of the people. Seems like our government sort of started doing that, but not really—they’ve spent an enormous amount of money but I haven’t seen it get into the hands of those who really count and spend, i.e. the people.

So if you’re one of the majority of people who are still working and comfortable —if 15 or even 20 percent of the working public is unemployed, that means 80 percent are still employed—consider shopping. It’s fun and feels good especially after you haven’t done it for a while.

Is there a chance this recession will continue a lot longer than we’d hoped for or expected and that our country enter into a depression? Yes. But in either event, it has been spending that’s pulled us out of troubled economic times in the past.