Capitol Hill is frustrated with Americans because we’re saving money, paying down debt, and not spending. How dare we!
For two months our government has been scrambling to ease credit markets frozen by a bundle of bad mortgages. But if banks lend again, the thinking goes, we Americans can resume buying stuff indiscriminately, thereby saving our economy.
I’m not an economist, and maybe the fact that I’m ignorant of some major economic principle is why I don’t understand. But when you have a government in more than 10 trillion dollars of debt, a “buy now, pay later” consumer culture, and a personal savings rate of less than three percent, how can spending more—going into more debt—possibly help the national economy in the long run?
Short term, I understand. Ease credit markets, give people new zero percent credit cards, sub-five percent mortgages, and tax rebates, and we’ll all start buying houses, cars, and other big ticket items. When we shop, businesses do well. When businesses do well, people get jobs. When people get jobs, more people shop.
But long term, this can’t be sustainable, can it? Eventually we all have to pay back what we owe. And it’s hard to keep buying when we’re repaying—as individuals and as a nation.
What do you think? Do you agree? Do you know of reasons why more credit, more lending, more buying are the answer to a recession?