Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes | Hacker News Reader

Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes

online.wsj.com

17 pointstheoneill26 comments

From what I remember of econ 101, if people are saving more, that should mean more deposits in banks which should then provoke banks to lend more out - easing the credit crunch, which should then lead to more spending, etc so in the long run the extra saving should actually help the economy, no?.

Ordinarily this is true. What is happening now is that financial institutions are trying to deleverage, so that will soak up a huge amount of deposits without any extra lending at all.

It's not true ordinarily either. Whether people save or spend makes no difference to bank deposits, because all money spent or saved gets deposited in a bank anyway. Spending is just the transfer of your deposits to someone else, not a net change in the number of deposits.

However, if people moved their money from current accounts to savings accounts (which you would expect if people actually wanted to save for the future) then potential lending would increase because banks lend savings cash more readily that current account cash. But people are probably not saving for the future. They are saving because they have less access to credit and/or are worried about losing their job. If anything, that encourages people to liquidate savings accounts rather than increase them, so the potential money banks can lend could be decreasing.

Hopefully that means banks competing for deposits, which should lead to the interest rate on my ING account to go up.

Just me, or is this headline a couple of words away from belonging on The Onion?

The article sure reads like it at times:

Even the family's cable-TV subscription didn't escape the scalpel. "It's been killing me because I don't get the Cartoon Network anymore," says Noah, a shaggy-haired teen. "I'm missing so many new shows."

I honestly had to check the URL twice, because I was shocked to see articles from The Onion here.

It's scary to think that our economy was so strongly based on financial irresponsibility.

There's nothing strange about the headline, as an increase in savings relates to the spending multiplier,

http://en.wikipedia.org/wiki/Spending_multiplier

...the reason people like Krugman want the government to increase the deficit (the opposite of savings) is to plug the gap. Japan's extra-high savings rate is one reason why it's had 20 years of near-recession.

By saving money, people are (in an indirect way) buying government debt.

The Japan problem was not the savings rate. The problem was the government propping up failing institutions for years, instead of just letting them go down. We need to start saving. Let the retail and services based economy decline. Let the creative and manufacturing based economy grow. Export. Krugman and company are going to kill the dollar.

Even in the face of a highly devalued dollar, the US is simply no longer equipped to shift to a manufacturing base. The cost structure for any manufacturing company that relies on labor is too high for any margin of competition due to current laws.

If the dollar dies, especially if doing so removes its status as a reserve currency for much of the world's economies, the US economy/nation-state will be in for a long time of restructuring.

The only part of the economy I see any potential real growth is the creative sector. That too is in some serious trouble with the number of science/engineering grads decreasing and the test scores for science and math being as dismal as they are for high schoolers.

That's why I like gold ;-)

Sadly, no. Some asshole out in Easthampton is on the verge of throttling his maid, screaming at her, "Why aren't you spending?!?!?!?!"

"The Capps started cutting back. In late spring, they began to trim their spending and paid down about half of their $11,000 credit-card debt. This summer, they used more than half of their government stimulus check, about $1,000, to open a savings account with an attractive interest rate of 5%."

They'd probably be better off paying off their credit card than opening a savings account.

Edit: Just got to the part that says they had already paid off their CC balance. My mistake.

As a person with some savings and some credit card debt and an uncomfortably large amount of mortgage debt, I'll say that in an economic downturn there's definitely value in having liquid cash to spend -- you can cover important debts such as taxes or mortgage during a job loss.

It's technically cheapest to run your savings as low as possible in favor of paying down debts as aggressively as possible. I was doing that a couple years ago when times were better, but for the moment the cost (a couple years of financing your savings at reasonable credit card interest rates) sure beats having your own personal liquidity crisis.

I don't see the advantage if you still have significant credit available. Let's say you pay off your credit card debt instead of saving. You then lose your job and need money to pay the bills. Wouldn't you just put the bills on your credit card?

It all depends on the interest rate of your current debt compared with the interest rate of your new debt. Presumably, any new credit card debt will be at the same interest rate as your current debt since, as far as I know, new debt doesn't change your interest rate. (If it can, then having a reasonable buffer of savings does seem like the better choice.) Mortgage debt has a lower interest rate than your new debt would in this scenario, so saving is clearly preferable over non-credit card debt.

Anyway, in times like these when the financial system is broken and available credit could suddenly become unavailable, saving is probably a good idea.

You can't pay your mortgage with a credit card. If you want cash they charge you a higher rate. So keeping cash on hand just in case can be a good idea.

I suppose you're right. I'm still young and only have college loans to pay but they're at a higher rate than my savings account so I pay them off.

I understand having a mortgage that you aren't paying off but credit cards have a greater than 20% interest rate whereas a mortgage would be under 10%.

Credit card debt tends to be smaller than a mortgage though so I would seriously consider paying that off to be a higher priority.

I have 4k of CC debt at 9% that's 30$ / month. Now IMO paying that down vs waiting a month is not really that big a deal vs. having a fair amount of cash on hand. I just got an offer to roll that over at 3% down till march 2010 so I might do that but I would rather pay it down vs. get tempted to keep it for another year.

Anyway, I feel focusing on a few $ a month is much less important than raining in my spending. It's the big expenses that really damage my finances. I make twice what I did 5 years ago, but while I like my job keeping this job is costing me a lot of money.

I think you were right to begin with. They opened the savings account in the summer and fully paid off their credit card debt in October.

Nice catch.

How good could that deal on eggs be to justify the time and PITA to freeze and bag 10 dozen eggs individually? Were they paying her $5 a dozen to take 'em?

If United States consumers spend less, what other countries are most influenced by that?

Great!

What was most evil about the Reagan-Bush-Clinton-Bush era was the sociological contraction (reduction in good, stable, career-building jobs; mounting health and education costs; solidifying class barriers) that persisted in spite of impressive economic expansion. This was exemplified most poignantly by the 2000s "expansion", wherein job growth at its best was barely keeping up with the country's population increase, and salaries were stagnant except in a few industries. The average American has been in the damn recession for a long time, but now it's something deeper and it's being noticed because of its effect on "important people".

Consumer credit allowed this arrangement of economic-expansion-despite-social-contraction to continue, to the benefit of those riding (note my word choice) large corporations. People were getting poorer, less likely to find good jobs and less able to buy healthcare and higher education, but they could use a slab of plastic to buy trinkets, and this kept the consumer economy afloat, and the people in charge rich (and increasingly so).

The consumer credit rewind's bringing this arrangement to an end. This is beautiful. To those hard-working, saving Americans, keep it up!

Comparing job growth to population is a really poor measure.

What you are measuring is (on the books jobs) / (estimated population). An illegal immigrant contributes to the denominator (perhaps fractionally, depending on how accurate the census is), but not the numerator if his job is off the books.

Jobs/people fails to account for demographic change. We are getting older, and old people work less. Our bubbleicious prosperity also allowed women to stay home if they wanted.

Unemployment is a much better measure; unemployment is (# of job seekers) / (# of workers + # of job seekers). It excludes people who no longer want to work from the denominator, which counting the population does not. I don't know if/how it addresses illegal immigration, however.

Unemployment can be a misleading measure. The number of job seekers is not a particularly meaningful measure, nor is it accurately measured. It's much better to look at how many workers are supporting the population of the country. The proportion paying taxes is getting to be less than half. Anyone not paying taxes doesn't count.

it does exclude the # of people who give up looking for jobs though.

Unemployment is a poor measure, because it doesn't count workers who no longer qualify for unemployment, discouraged workers, people in prison, or those forced into part-time or marginal labor because of being unable to find full-time work with decent pay and benefits. The illegal immigrants would fall into the last of those categories. By the way, if all the other categories are included, we're comparable to the EU countries. The claim that those countries have horrific unemployment compared to us is false.

Comparing job growth and population growth in raw numbers is not a valid comparison, but comparing the percentage changes is reasonable. Population grows by about 1.3% per year, so job growth ought to be at about the same rate for the long-term health of the economy.

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