“Government deficits have caused the U.S. savings rate to turn negative for the first time since the Great Depression…” ~Bloomberg
This is a good example of why government stimulus sounds good on paper, but does little to help the economy…
Federal, state and local governments spent $1.3 trillion and $14.9 billion in a ‘Hail Mary’ play to stimulate the economy. Meanwhile personal (you and me) and corporate savings increased by $983 billion.
While government spent, we saved.
This means that most of the stimulus money being pumped into the economy is being squirreled away by citizens and corporations into savings accounts. This is a completely normal and rational event in bad economic times.
This also means the impact of the stimulus spending is minimized while governments run up large deficits.
To pay those deficits, governments will have to raise taxes.
Taxes you will have to pay from your savings.
- You spend less to save money in scary times.
- Government makes up for your spending less by spending more
- Your savings go up while the government goes into debt
- The government raises your taxes to pay off their debt
- You withdraw from your savings to pay your taxes.
It’s one…big….circle. The irony is almost funny. Almost.
The solution: Is always…lower taxes and allow producers (the American worker) to keep more of what they earn and spend it, invest it, or save it as they see fit. A recovery would come much faster this way but that would cut government out of this loop and the last thing the government wants the American people to learn, is that we don’t actually need them.