WASHINGTON - Americans are hunkering down and saving more. For a recession-battered economy, it couldn't be happening at a worse time.
Economists call it the "paradox of thrift." What's good for individuals — spending less, saving more — is bad for the economy when everyone does it.
On Friday, the government reported Americans' savings rate, rose to 2.9 percent in the last three months of 2008. That's up sharply from 1.2 percent in the third quarter and less than 1 percent a year ago.
Like a teeter-totter, when the savings rate rises, spending falls. The latter accounts for about 70 percent of economic activity. When consumers refuse to spend, companies cut back, layoffs rise, people pinch pennies even more and the recession deepens.
The downward spiral has hammered the retail and manufacturing industries. For years, stores enjoyed boom times as shoppers splurged on TVs, fancy kitchen decor and clothes. Suddenly, frugality is in style. - NBC
OK, here is an Economic lesson for all of you people who think that Washington can spend it's way out of it. People are saving more money right now when we need them to spend it. Why do you suppose that is? People are more frugal with what they buy, why? Well, there are several reasons. One of those being, the more the Government Spends, the more in debt we go. The more in debt we go, the more likely we are to be hit with higher taxes. Higher taxes means we will have less money in the long run and won't be able to save. That is why during economic crisis smart money rides on cutting taxes and giving people more money to spend to help end the crisis. The Government picking and choosing where to spend their Trillions of dollars only helps a small percentage of the Country. Everyone in the Country spending the same Trillions, spreads the money throughout the entire Country and drives growth. We will see this in action as the current stimulus going through the Government will prove this fact.
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