Chris Isidore "Why saving is killing the economy"

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fujisan's picture
fujisan
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Chris Isidore "Why saving is killing the economy"

Chris Isidore should better shut up. It's completly insane.

 Why saving is killing the economy


Saving more and cutting debt might sound like a good plan to deal with the recession. But if everyone does that, it'll only make matters worse.


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caroline_culbert
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Re: Chris Isidore "Why saving is killing the economy"

It will only make matters worse in the short run; not the long run.  We've saved in the past and that is what we have to get back at.  "Savings" (of anything) gives us that relevant assurance that we will have "enough" in an uncertain future (as it always is uncertain in the future that cannot be predicted).  I say we save.

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mpelchat
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Re: Chris Isidore "Why saving is killing the economy"

We are changing our habits to good ones.  Saving a percentage and giving a percentage are positives in long term for our nation.  It is bad for banks, credit card companies and the like, savings reduces the amount of loans and frankly the amount of digital money out there.  A fiat system needs growth at any cost not stabilization. 

So will our monetary system fall as it is, yes.   Will people riot, maybe.  Will there be resource shortages in the short term, most-likely.  Than things will level off and find balance even with government intervention (which will prolong it and make it worse).  Easy money and our bad habits as people got us into this, making refreshed habits and a sound monetary system will get us out of it.

This is all predicated that the powers all be it, really want us to get out of this thing and are just too shortsighted.  I have serious doubts about that.

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Craigmandu
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Re: Chris Isidore "Why saving is killing the economy"

"Saving more and cutting debt might sound like a good plan to deal with the recession. But if everyone does that, it'll only make matters worse."

 

Of course, because spending what you don't have and incurring more debt should be how we think?  No I'm sorry he is wrong.  Will everyone saving or eliminating their debt have poor effects to monetary flow within the ecomony?  Yep.  Is that inherently bad?  Nope.  All it does is show that a system created on the need for increasing debt levels is unsustainable, against human nature, and needs to be revised to a completely different type of system.

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affert
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Re: Chris Isidore "Why saving is killing the economy"

It is so incredibly dumb that we've managed to create a system where people saving money (which is a very prudent thing to do) destroys our system.  I guess I've been destorying the economy my whole life, since my parents raised me to believe I should always put money aside.  I hope we as a culture are able to build a new system where people are rewarded for being prudent instead of for being foolish.  Here's hoping the 'bailouts' stop soon!

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DrKrbyLuv
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Re: Chris Isidore "Why saving is killing the economy"

This is an indirect admission that the exponential growth of debt is choking our economy.  The don't want us to save because it will slow down the velocity of money. 

There are only two things that may keep the economy from collapsing:

1) Increase the amount of debt - but of course this is suicidal, we are already overwhelmed in debt - and there just aren't enough willing and worthy borrowers.

2) Increase the velocity of circulation - if people start saving more the velocity will decrease and if inflation hits the scene, this too will decrease the velocity as the cost of goods will start to outpace income which means people will buy less goods and services.

They may be able to extend the time before the inevitable but in doing so, they will make the crash that much more painful.

Larry 

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Re: Chris Isidore "Why saving is killing the economy"

Savings are an accumulation of wealth that enables us to grow an economy and become more productive.  The resulting increase in productivity is then more efficient at growing more wealth and this stimulates more demand.  When we are NOT consuming, but saving, the capital & wealth not consumed are instead directed toward increasing producton and efficiency to bring more and better goods to market at the same or lower prices.  These new goods will be at cheaper prices if the Federal Reserve doesn't increase the money supply or there is no tug of war for resources between consumers and producers to bid up prices during production.

When we save and put our money in a bank it's not the same as putting it in mattress.  As savings go up there will be less demand for consumer goods and therefore job cuts in the consumer industry.  However, businesses & factories borrow that money we put in the bank and use it to grow to produce more and therefore they need to hire more people.  These new jobs in factories will be higher paying than those lost in the consumer goods industry.  More factory workers will earn more money to afford more goods and can save more for more investment to support even more new production.  It is this supply of savings - to make loans - and demand for business loans where a natural balance of interest rate comes about.  To grow an economy you need to make more loans to businesses and factories (from savings) for them to produce more and create more jobs by using the resources not being consumed by savers.  When investors borrow money that came from other's savings it means that the savers are accumulating wealth and foregoing consumption now so they can consume more in the future.  This gives reason to invest to increase production for future consumption for more expensive things like houses & cars.   If people don't save more then that means they want to consume less now.  Resources aren't free'd up to support higher levels of production.  When the Fed Reserve artifically makes interest rates low (below a level supported by savings) businesses think there is increased long term demand.  Investment in production increases.  There are resource wars to compete to secure commodities and draw labor from consumer to producer goods industries.  There isn't enough wealth being saved to feasibly produce more future products.  Not enough resources/commodities are being saved (not consumed) to support higher levels of production.  As a result, too many producers over invest in long term production of more expensive goods that turn out to be more expensive to make and no one can afford (too many houses, cars, etc.. were made than we really could afford).  A recession is required to reshuffle the structure of production in the economy to liquidate factories or production of capital goods (build less houses & cars) because the savings rate and amount of wealth cannot afford all the goods.   

You need wealth (savings) to grow production.  If production could be grown by printing money and making cheap credit then any country that has access to natural resources could just run their printing press and become an economic super power.  You wouldn't need any investors.  Just create money out of thin air and start producing.  Like say you land on a desert island with nothing but there's natural resources there.  The creation of cheap credit will not make you able to use those resources to become productive and wealthy.  You first have to save your wealth up in the supply of firewood and food in order to make it possible to divert time towards building a house. Otherwise you will starve while building.  Now you sleep better and have more energy to work harder.  Now you can save up more food & wood to sustain yourself while you divert time to build a boat.  Now you use the boat to get more fish.  Now it's easier to save food so you can create more time to divert to making luxary items like a bed or chair.  Cheap credit or money has nothing to do with it.  You can have all the demand for the boat or house you want but unless you have saved wealth you do not have resources to afford it.

The USA became an economic super power by increasing production via saving more.  When we went off the gold standard we began to inflate more and save less and this is one reason why we produce less today.  Other countries like China that have savings and capital accumulation are the producers now.

fujisan's picture
fujisan
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Re: Chris Isidore "Why saving is killing the economy"

It's a quote from the original article, surely not my statements. I should have put this into a quote block, but I can't edit the original post (a pitty).

This guy is criminal IMO. He might consider to give away all his own savings and borrow a lot of money and give it away. Maybe he will then realise how insane his arguments are!

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caroline_culbert
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Re: Chris Isidore "Why saving is killing the economy"
fujisan wrote:

Chris Isidore should better shut up. It's completly insane.

I quite agree!

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Re: Chris Isidore "Why saving is killing the economy"

Just remember that modern economists may not be economists:

Consumers Don't Cause Recessions

Nobody can spend himself out of bankruptcy any more than a heroine addict can recover by overdosing.

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Re: Chris Isidore "Why saving is killing the economy"
fujisan wrote:

It's a quote from the original article, surely not my statements. I should have put this into a quote block, but I can't edit the original post (a pitty).

This guy is criminal IMO. He might consider to give away all his own savings and borrow a lot of money and give it away. Maybe he will then realise how insane his arguments are!

Yep - don't shoot the messenger :-)

I posted once about Australia being told we are riding ok and it appeared that it was my comment when it wasn't - thankfully people on this site are quite level headed and I didn't cop a flaming like one can get on other sites.

Shame there are people out there throwing this sort of rubbish around (i.e. The originator, not fujisan) because a lot of people who don't know any better pick on such comments and act accordingly.

I've never been happy with debt. My dad whilst not a financial whiz at all used to always say that being in debt was being a slave (his wisdom eventually rubbed off after I practically found out that he was right). I borrowed to buy our home but I hated it and spent every cent I could muster paying out the loan and getting the debt monkey off my back :-).  I walked to/from public transport for two years until we had saved enough money to buy a car rather than take a loan for it - just because I felt that getting a loan to buy someting that I could do without was worth it. When you have young kids that's a much harder proposition to be sure, especially in Australia where distances are large and facilities spread out and the reliance upon cars is heavy.

I've always been a person who would rather go without than get a loan - after all, it's only time that passes before you get the goods anyhow and the thought that I didn't throw money away on interest makes me feel good too.

I've only ever borrowed twice in my life to buy something. A house and a video recorder (back in the days when I was young and they cost $2K). The borrowing for the video recorder taught me a lot. It taught me that your a slave until the money is paid back - I had moved to another country but had to keep shipping money back to keep up the payments - never ever again I said to myself after that. It also taught me that you give away a lot of money just to have someting earlier than had you saved and waited a bit.

I'm wondering how many more twists and turns will we see unfold. No governemnts/power base every gives up easily - there will be lots of pressure applied to get people spending again. We are seeing this in Australia with the low interest rates - people are saying "It's never been a better time to buy" - so the uptake on new homes is booming, this is despite the fact that housing in Australia is well overpriced by world standards.

http://www.news.com.au/business/money/story/0,28323,25039845-14327,00.html

Then the latest job figures are released and potrayed in such a way to show that things are going ebtter than expected!

http://www.news.com.au/business/story/0,27753,25043850-462,00.html

There's going to be a lot of fuzzy data get thrown around in the times ahead and people with vested interests in certain areas seek to bolster their own interests rather than the interests of everyone.

At work I get emailed from some people everytime they get a report stating that gold will not rise and will in fact fall - they email me because I said gold will rise so they like to keep 'proving' me wrong. My simple answer is that I want to invest something in gold not to make huge amounts of money but simply for wealth preservation - that is, if everything does go to hell in a handcart then having something in gold is better than loosing everything in a bank! Even if I walk away with 50% of what it cost me, so what - it's better than having nothing left. This type of non-profit taking/looking at the interests of others as well is sadly foreign to a lot of people who think that you should only ever do something if your going to make a fortune out of it. Surely this world is fast getitng sick of this profit taking/self-centred type of attitude? I am.

Anyhow fujisan - don't worry, we will not shoot the messenger...

:-)

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Craigmandu
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Re: Chris Isidore "Why saving is killing the economy"

That's a good article mred.

 I get sick and tired of so many people blaming the general population for the economic woes of the country.  There is a thing called Supply and Demand and if business is only interested in producing or selling without the foresight of Supply and Demand in place (or at least the long term view of it) then they deserve in my opinion to go under.

I never really understood the whole banking bailout due to the housing bubble in this regard.  Ok, so alot of people defaulted on loans, you still have the asset that they defaulted on "the house".  Where you run into major problems in these scenarios is when there are so many side deals and creative investment scenarios created with debt that when defaults etc.. happen there isn't a good way to recoup the ramifications, because they span more than one entity.  So instead you have the financial institutions basically "instructing" government to take this headache off their balance sheets, because they can't easily settle it out between themselves, the folks they sold incentives to, and the folks that the folks they sold the incentives to sold them to etc..etc..etc...

 Also, isn't recession a necessity of free markets?  Isn't recession just a means of the economy to re-align itself after it's different industries, systems, and methods get out of sync?

caroline_culbert's picture
caroline_culbert
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Re: Chris Isidore "Why saving is killing the economy"
maveri wrote:
fujisan wrote:

It's a quote from the original article, surely not my statements. I should have put this into a quote block, but I can't edit the original post (a pitty).

This guy is criminal IMO. He might consider to give away all his own savings and borrow a lot of money and give it away. Maybe he will then realise how insane his arguments are!

Shame there are people out there throwing this sort of rubbish around (i.e. The originator, not fujisan) because a lot of people who don't know any better pick on such comments and act accordingly.

It is also too bad that there are adults, or those that appear to be living as adults and parents, who do not know any better.  I wish I could say that the majority of us were not acting as sheeple.

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bearing01
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Re: Chris Isidore "Why saving is killing the economy"
Craigmandu wrote:

Also, isn't recession a necessity of free markets?  Isn't recession just a means of the economy to re-align itself after it's different industries, systems, and methods get out of sync?

Yes it is necessary.  The problem is created by the Federal Reserve's artifically low interest rates that distorts prices and the structure of the economy.  Bubbles are created.  The recession is the correction the economy needs to be sustainable again.  To eliminate the boom / bust cycles we need to get rid of fractional reserve banking and to End the Fed.

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