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This Just In: The Diminished Incentive to Save

From Prudent Bear.

"If savers are not rewarded for saving, are even penalized for it, then it is not surprising that they don't save. The U.S. savings rate declined from its already mediocre rate of 8% from the middle 1990s, falling perilously close to zero in 2005-07. It rebounded in the 2008-09 recession, as consumption habits finally changed, but there are now strong signs that the dolce vita of Caribbean holidays and long weekends at casinos is recapturing those Americans who still have jobs – only the McMansion and Hummer fetishes seem to have diminished. The savings rate has fallen below 5% and appears likely to decline further."

...

"The principal requirement for successful economic development is the development of a middle class with adequate savings. You can see this in 18th century Britain, which developed the Industrial Revolution primarily because it had relatively high living standards and consequently high savings. You can see it in the recent development of the countries of former Yugoslavia, the most successful of which has been Slovenia, where savings could grow in Austrian bank accounts, essentially tax-free. Conversely Serbia, far from Austria and subject to hyperinflation, and Bosnia, where savings were expropriated by Serbia in 1991 and never replaced, have been much less successful. Croatia and Macedonia, whose middle class savings were expropriated in 1991, but were replaced by the local governments through bond schemes in 1995 and 2000, have enjoyed at least modestly increasing affluence, far more so than the luckless Bosnia, relatively affluent in 1985 and impoverished today."

...

"Von Havenstein was known as the "Money General" – a title that could well have been applied by his admirers to Bernanke as the 2009 market and banking recovery took hold. Our own von Havenstein has presided over a policy that has hugely damaged the savings base of his society, and the middle class virtues of prudence and thrift that in a high-savings culture produce rapid economic growth. Whether his policies will in the long run produce only anemic growth, persistent high unemployment and a gradual decline in living standards, or like von Havenstein's something immeasurably worse, only time will tell."

Posted by Cute at 9:22 PM

Labels: economy, financial (non-tax), politics