Wednesday, February 11, 2009

Economy - We are Saving More, Buying Less

Americans are hunkering down and saving more. I know we are trying to do just that. For a recession battered economy, it could not be happening at a worse time. That is tough, but when people are out of work or don't know when they will be laid off, they are going to hang onto every cent they can. That is the smart thing to do, not go out and spend and spend.

Economists call it the "paradox of thrift." What is good for individuals, spending less and saving more, is bad for the economy when everyone does it. Last Friday, the government reported Americans' savings rate, as a percentage of after-tax incomes, rose to 2.9 percent in the last three months of 2008. That is up sharply from 1.2 percent in the third quarter and less than 1 percent a year ago. It is like a teeter-totter when the savings rate rises, spending falls. The spending 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.

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