The word is out, Americans "save" too much. We are putting too much aside for that rainy day. The nation with probably the lowest savings to wealth ratio in the history of humanity saves too much!
And what will be the disastrous outcome of this ill advised saving? We will depress the economy further. By putting aside a little for the future, we will drive the economy into a standstill, ruining our courageous leaders hopes of a finely engineered recovery. It will be our fault if our thrift puts us all in the soup lines.
We hear these statements and we accept them as truth for the ages. Yet, it could be argued the actual concept of saving does not exist in our modern economy.
How does one save? Let's assume the reference is to depositing personal funds in a bank account. For every one hundred dollars deposited, the Federal Government requires a "reserve" of ten dollars. Ten dollars out of every one hundred of your deposit is on deposit either at the original bank or in a Federal Reserve Bank under the original bank's account. If it gets to the Fed, about one third of the ten dollars is kept as their reserve.
The remainder, ninety dollars, is invested any way your bank sees fit. It could fund a mortgage, a credit card purchase, a business loan, a security purchase, a bank asset purchase or satisfy any number of bank liabilities. Are these "experts" referring to increased bank deposits when they bemoan the fallacies of saving? If so, shouldn't they be criticizing the banks for how they are channeling your savings rather than the actual act of depositing funds?
A long abandoned method of saving was the storage of funds under mattresses or in little hidden nooks and crannies of people's homes. This was done as a result of the fear of banks that was instilled in everyone after the numerous bank failures of the Great Depression. Everyone had either been burned or knew many who had lost their deposited money as one bank after another went insolvent.
Is it possible this is what is meant by saving? Do they believe we have reverted to hiding wads of cash around the house and if they do believe this, how would they know?
What they are really saying, in a deceptive manner, is that Americans just aren't "spending" enough. We are not relinquishing enough of our meager take home pay for apparently, unnecessary goods and services. And in particular, we aren't buying enough of whatever product these counselors or their cousins are selling.
Whenever someone claims to have the inside track on an economic issue and then proceeds to instruct you to take a specific action, usually with your money, for the good of all, chances are they are a salesman. They are selling a product or a system that will predetermine the flow of Wealth or Capital and the resulting Wealth in a direction they favor. We should be especially suspicious when words are used without definitions, such as saving, which has a fairly abstract meaning in our contemporary world.
A person is never truly saving until all consumption debt is serviced. When consumer loans and credit card debt exceed savings, one's savings still has a negative balance. A good percentage of Americans are in this situation today. How is it, considering these circumstances, that saving would be bad? Any progress toward debt reduction is good not only for your personal financial well being but for the entire economy. What good are debt ridden consumers? Eventually, it will be the debt that is doing the consuming!
The question that should be asked is why are we allowing banks to make decisions with citizen's money? Isn't it the right of the owner of the property to decide what to do with his money? Who would know better what is in the best interest of the "saver", that particular individual or the banker? If they feel the need to save rather than spend, isn't this not only in their best interest but in the best interest of everyone?
We were told mutual funds were "safe", they are not "really" like the stock market, they spread the risk and we shouldn't hesitate to put our money there. George Bush told us not to obsess on buildings with planes sticking out of their walls, instead go shopping! Dot Com stocks are a no lose situation! We should buy houses we can't afford because they will appreciate forever! TV ads demonstrate how credit cards make us love each other more! The Credit Default Swap is a great way to balance firm's books! Corporations are "too big to fail" and need billions of dollars of our hard earned money. Bankrupt corporations, whether they manufacture uncompetitive cars or have a difficult time profiting on discounted money they receive direct from the Fed, should be bailed out because they are part of what "makes America American"! Now, we are being told what not to do and what to do with the few coins that remain in our pockets!
If we are smart enough to earn it, we are smart enough to know what to do with it. If we put our money in the wrong place, our own balance sheets will soon let us know and hopefully our future decisions will improve.
If the economy can't survive unless each of us directs every dollar in one specific direction dictated by our "leaders and experts", and all of us have to forfeit the product of our labor to prop up corporations as large as small nations who can't seem to balance their books despite the billions that pass through their hands, then maybe we need a new economy!
©2009 Gene DeNardo, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Saturday, May 9, 2009
Last modified: Saturday, May 9, 2009
The views expressed in this article are those of Gene DeNardo only and do not represent the views of Nolan Chart, LLC or its affiliates. Gene DeNardo is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
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Reader Comments:
Posted By: Walt Thiessen
Date: 2009-05-10 12:49:27
This idea that savings and investing are two entirely different functions is a Keynesian idea, which has been ridiculed by both dissenting economists and historical experience. As Rothbard said, "Savings and investment are indissolubly linked. It is impossible to encourage one and discourage the other."
Yet Keynesians continue to insist to this day that if you save money, you can't invest it. Or in Rothbard's word, "The task of government in a depression, according to the Keynesians, is accordingly to stimulate investments and discourage savings, so that total spendings increase."
So, in essence, the government's message is: Spend Like There Is No Tomorrow!
Posted By: gene
Date: 2009-05-10 13:29:08
Hi Walt,
It really seems like a no-brainer! I think it is intentional deception or at least the creation of an illusion.
I really think true storage would be an option, if money creation were eliminated.
With monetary inflation gone, letting money sit for future use would be little different than storing a ounce of gold or stack of lumber. And, all could also be considered investments, value put aside for future use and future return.
Posted By: Jahfre Fire Eater
Date: 2009-05-11 10:00:35
Hi Gene,
Nice article. Of course the savers are going to be blamed. All fraud depends on convincing individuals to act contrary to their own best interests. Those who have already put their faith in the fraud of benelovent government and perpetual growth will not admit they are wrong. No, they will say they were right but their efforts were undermined by the selfish and greedy.
-Jahfre Fire Eater
Posted By: EJ
Date: 2009-05-11 13:20:05
Maybe the whole issue is not what it appears to be at first. When we are saving too little, that is when corporations are posting record earnings, stocks are soaring and pay increases for the top performers are outpacing those lower in organizations.
When we save too much, corporations are posting losses, stocks are in the toilet, and unemployment is the topic du jour.
Politicians have had a difficult time because when we spend too much, tax receipts are usually rising, but that means the wealthy are getting weathier, and they would like to have the tax receipts increase without the wealthy getting wealthier.
Then when we spend too little, tax receipts tumble, deficits skyrocket, and while the wealthy lose much of their wealth, unemployment climbs and politicians fear losing their elections because of voter dissatisfaction.
Obama is attempting to change this by funneling wealth directly to those at the lowest rungs while gaining control of corporations so that the profits can be limited, the wealthy do not get wealthier, and the government develops new tax resources not tied to earnings, such as cap and trade carbon tax credits.
It's about getting the assets away from those that have it and getting them to those that "need" them.
EJ
Posted By: gene
Date: 2009-05-11 15:29:43
Hi Jahfre,
I like your perpetual growth idea and have many thoughts along those lines. Maybe give it an article? I would like to read your ideas about it.
Hi EJ,
The policies of the Federal Reserve have more to say than anyone about who ends up with assets.
Posted By: EJ
Date: 2009-05-12 05:44:11
Hi Gene,
I have to believe tax policies have the most direct effect of who ends up with assets. Tax policies take directly from people and tax policies redistribute those assets.
Federal Reserve policies have an impact on asset values, but they are not guaranteed to take part of those assets via force to redistribute at they see fit.
EJ
Posted By: gene
Date: 2009-05-12 08:50:21
Hi EJ,
You are right in that you certainly can't discount the effect of taxes on redistribution. Taxes are redistribution after the asset is created, although where they go can determine what "new" assets are created. The battle over taxes is constant because lawmakers have control over how they are instituted and allocated.
The Federal Reserve on the other hand, which is definately backed by force, utilizes control of asset or Capital production.
In a free economy, Capital can only be created by the production process itself. By creating money, the Federal Reserve turns the process upside down. And because the Fed is the creator, the Fed must also distribute.
The value of this "new" money can only come from the existing Capital [since it has none by nature], which is also a redistribution, not to mention "confiscation".
There is no struggle, because no one has power over the Fed.