Bad timing

Bad timing

Scripps Howard News Service: From a purely economic point of view, Americans have chosen the worst possible time to start saving. For years, economic scolds have chided consumers for their spendthrift ways, for not saving enough for retirement or education; and urged them to pay cash for major purchases, to build an estate to pass on to their heirs.

It was very good advice. But eclipsed by last week’s report showing that the U.S. economy contracted 3.8 percent in the last quarter of 2008 and may shrink as much as 5 percent in this quarter, was that the savings rate for that last quarter had risen to 2.9 percent of after-tax income. And it is trending upward. The savings rate for December was 3.6 percent.

Whether people are paying down debt or simply socking their money away, whatever they’re doing they’re not spending it.

While individually this newfound willingness to save is laudable, the problem is that consumer spending drives 70 percent of the economy. If consumers don’t spend, businesses don’t spend and there are cutbacks and layoffs. The government is betting more than $1 trillion of borrowed money that it can break that cycle.