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

[antimatter98]

Source: Wall Street Journal

BOISE, Idaho -- Rick and Noreen Capp recently reduced their credit-card debt, opened a savings account and stopped taking their two children to restaurants. Jessica and Alan Muir have started buying children's clothes at steep markdowns, splitting bulk-food purchases with other families and gathering their firewood instead of buying it for $200 a cord.


As layoffs and store closures grip Boise, these two local families hope their newfound frugality will see them through the economic downturn. But this same thriftiness, embraced by families across the U.S., is also a major reason the downturn may not soon end. Americans, fresh off a decadeslong buying spree, are finally saving more and spending less -- just as the economy needs their dollars the most.

Usually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living. But in a recession, increased saving -- or its flip side, decreased spending -- can exacerbate the economy's woes. It's what economists call the "paradox of thrift."

Read more: http://online.wsj.com/article/SB123120525879656021.html

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So, frugal families and individuals are the reason the economy is tanking.

[musette_sf]

1. blame the victim

typical Puke mentality. i hope the WSJ tanks in the coming years.

[Taverner]

2. Blame the victim indeed

Everyone spend! Spend! Go bankrupt! Doesn't matter as long as you spend!

Fuckers.

[DJ13]

3. Everyone spend! Spend!

Im for it, so lets stop giving a trillion to the banks and just give it to the citizens to spend as they see fit.

[ogneopasno]

4. They're not saving. They're just not putting anything on credit anymore. There's little saving

involved. Because they can't get credit anymore, they're not spending on credit. Because they're making less money (layoffs, wage cuts, under- and unemployment), they're spending less.

Economists can kiss my fat breezer-wearing ass.

[DCKit]

5. OMG, that's just SOOOOOO un-Amurkan. n/t

[ShortnFiery]

6. Yeah, it's all our fault that the robber barons of the 21st Century squandered their BILLIONS.

:crazy:

[truthisfreedom]

11. Trillions.

[Stellabella]

7. Oh for God's sake.

The problem is declining and stagnant wages and the uber-rich hogging all the money. I know we have a consumer-driven economy, but when you starve the middle class, this is the logical response.

[ixion]

8. the audacity... can you imagine? people taking care of themselves

rather than spending into oblivion.

What the hell is wrong with these people? :crazy:

[WorseBeforeBetter]

9. I'm really sick of the victim mentality on this board and elsewhere.

The article clearly states:

"Usually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living."

The economy is tanking because many, many Americans (all colors/income levels/political stripes) have been living like hogs at the feeding trough for a very long time. THE COUNTRY IS TAPPED OUT. We need to get back to basics:

--Credit for emergencies only.
--Save a portion of your earnings and if that means forgoing the latest Cheap Shit from China, then too phucking bad, forgo the latest CSFC.
--Mortgages not to exceed 33% of gross monthly income, with 10% down (I had to...so can everyone else!)
--Strike a balance between cooking/freezing leftovers and dining out.
--Hold on to cars longer to get rid of car payments, thus freeing up more money to save.
--Take advantage of free/low-cost entertainment. Hit the woods for a hike. Visit museums. Borrow DVDs from the library.
--Don't buy it if you can't afford it (emergencies excepted). If you're wearing $300 sunglasses and $100 jeans yet bitch about making the rent payment every month, I don't want to hear it.
--Don't assume anyone will be there to bail you out. I refused to take on an ARM because I was afraid of them and would NEVER have expected anyone to bail me out.

I know this will be an unpopular position, but TFB. I live within my means and am getting screwed by everyone else (from (ick) Main Street to Wall Street) who does not. How? Dried up employment opportunities...

P.S. A married couple with two kids didn't have a savings account? Is common sense dead in this country? Even if it's $25 direct-deposited into a savings account every two weeks, do it!

[Dappleganger]

12. I wish that I could K&R this post!

Perhaps unpopular but it is true nonetheless.

[customerserviceguy]

14. About that savings account

I've always had one, even if it's just the twenty-five bucks I kept in a credit union account to keep the account open. But my eyes were opened wide back in 1981 when I started my own tax practice. People making twice what I was making had zero savings.

The next ten years were also an education, I never saw an income that couldn't be outspent, and I saw more than a few families making it decently on less money than I thought was needed to survive. I even started doing some low-level financial counseling for my clients, and saw them achieve goals.

Financial ignorance is rampant in America. The current recession/depression is going to be very, very tough on the imprudent.

[sendero]

18. I pretty much agree with you.....

... and I've been railing about it here for years.

There are lots of people who simply don't make enough money to save any. But there are a lot more who CHOOSE not to, because they "HAVE" to drive a new car, wear new clothes, have all the latest toys, etc, etc, etc.

Those folks are about to be in a world of hurt and I really don't feel very sorry for them.

[depakid]

21. It's a classic macroeconomic paradox

The paradox of thrift (or Paradox of Saving) is a paradox of economics propounded by John Maynard Keynes. The paradox states that if everyone saves more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population. One can argue that if everyone saves, then there is a decrease in consumption which leads to a fall in aggregate demand and thus leads to a fall in economic growth.

The argument is that, in equilibrium, total income (and thus demand) must equal total output, and that total investment must equal total saving. Assuming that saving rises faster as a function of income than the relationship between investment and output, an increase in the marginal propensity to save, all other things being equal, will move the equilibrium point at which income equals output and investment equals savings to lower values.

In this form it is a prisoner's dilemma as saving is beneficial to each individual but on a whole it can be harmful. This is a "paradox" because it runs contrary to common intuition. One who does not know about the paradox of thrift would fall into the fallacy of composition. This fallacy arises when one infers that something is true of an economy from the fact that it is true of an individual. Although exercising thrift might be good for an individual, by enabling that individual to save for a "rainy day", it might not be good for the economy as a whole.

More: http://en.wikipedia.org/wiki/Paradox_of_thrift

[Sequoia]

10. On the History Channel they're running the Seven Deadly Sins

and the sin of Greed's sister is Thrift !!!! Can you believe that crap?!! What a bunch of hooey!!

[sarcasmo]

17. That is why Religion is funny, the sin of Greed's sister is Thrift.

Thanks for the laugh.

[truthisfreedom]

13. It's all true. The economy is reflective of the American lifestyle. Busnesses who have built their

model on excess are going to suffer first. Businesses that have built their model on savings will do well.

This is nothing new. We're going through a very predictable cycle that's been repeated many times in American history. It's just the one that's happening in our lifetime, and it's annoying as hell.

[olddad56]

15. How about if the Fed, under Bush, hadn't kept interest rates artificially low...

What if the rates were raised when they needed to be and there had been an incentive to save all along. Maybe the Feds have only been helping themselves. Maybe real estate prices wouldn't have skyrocketed if the feds had kept interest rates in line with reality. Mayeb the stock market would have held up beter if it hadn't become the only game in town.

[BumRushDaShow]

16. Bingo.

Which is part of why the savings rate became negative last year (first time since the 1930s). Many banks ended up only paying fractional interest dividends on savings accounts, required large minimum balanaces to keep the account open, and charged fees that often exceeded any dividend paid even if the balance was maintained. This drove people out of saving and into spending (or the stock market if they had the money to play). And the rest is history.

[sendero]

19. Oh horsepuckey..

... what drove people into spending was plain old keep up with the Jones' material greed.

It amazes me the rationalizations people can make for not doing what any fool should know HAS to be done, have a financial cushion for a rainy day. It doesn't matter if you save your money in a mattress, you HAVE TO SAVE SOME.

I live in a nation of grasshoppers, most of the ants are dead.

[RobinA]

20. Well, This Fool

saved plenty, but having lost 30% of in the past months, now I'm not buying the car I was planning to. AND I'm, wondering why I saved, although I know it was still the right thing to do.