David Kirkpatrick

January 6, 2009

10 lights in dark economic times

Filed under: Business — Tags: , , , , , — David Kirkpatrick @ 2:22 pm

It’s list day! Not really, but I am doing two lists posts in a row. Here’s ten things that are good news, as far as that goes, to look forward to during the financial crisis.

From the link, number one — and a great point:

The Savings Rate Should Increase
The slowdown in consumer spending is actually a good thing. While often decried as an accelerator of the downturn — which it surely is — the pullback in consumer spending will benefit the economy in the long term. Consumers have been on a shopping spree for two decades, and household savings have suffered. In 2007, the household savings rate was 0.6 percent. In some recent quarters, the rate turned negative, indicating that people borrowed more than they saved. As a result, many families have very little cushion to protect themselves from the vagaries of life. And, even disregarding the recent damage wrought on 401(k)s, a staggering number of people have not put away enough for retirement. At the same time, their ability to invest their savings in U.S. businesses by buying bonds and stocks has dwindled. Instead, U.S. business growth has become highly dependent on foreign investors, whose willingness to send funds to these shores could fade at any time.

“Consumer spending needs to slow down,” says Matthew Slaughter, professor of international economics at the Tuck School of Business at Dartmouth. “It’s a really important long-run structural issue for the financial health of families and the economy. More savings means companies can undertake more investment to drive faster economic growth.”