First it was spending, now savings is ruining the economyEconomy | April 1, 2010 at 2:12 am
A couple of days ago, while watching CNN Money, a reporter said, “Saving money, paying off your debt, and cutting down your expense is a great idea to manage your personal finance. If, however, every American starts doing this, it would worsen the economy.”
Though it might have made some sense to them, this sentence is utter crap. No, I think it makes a bit of sense, but they are missing the main part.
After doing endless research, I realized few factors are affecting the growth of our economy. We are facing such a crisis due to similar reasons. But how could savings be a problem. It was spending, actually overspending, that led us into this crisis situation. Though spending boosts the economy, we were wasting too much of borrowed money.
I still remember a the economic situation of the US in 2005-06 when saving rate fell considerably, in fact, it was below 0%. This was the first time such an event took place after the Great Depression. Most people used their savings to buy cars, houses, and other big-ticket things.
So, they weren’t saving in the first place. Moreover, they were borrowing enormous credit to spend on frivolous things. Yes, it did boost the economy. Everything seemed to perform remarkably. In the financial year 2006-07, stock market augmented, home prices rose, etc. But we were busy inflating the bubble that finally did burst.
Due to the economic crisis, people are gaining back their senses and have started saving. This too, however, is a threat to the economy. The less they spend, the less the country earns. So, it will take longer for us to recover.
But I would say, it’s a good sign. A good economy needs people to spend wisely instead of spending without a second thought. Even better would be a situation where people save and keep investing in various financial instruments. This would help them to earn more money, and spend more of it in the future.
In conclusion, the recent crisis was a tough lesson for every one of us including the government and the economy. What we do with it will create the future of our country.