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> If everyone does this, it creates a recession. If everyone suddenly switches from low-savings to high-savings, yes, that may happen. But if everyone consiste
by throw0101a 5y ago
> If everyone does this, it creates a recession.
If everyone suddenly switches from low-savings to high-savings, yes, that may happen. But if everyone consistently has a not-low savings rate, then that is the 'baseline' that the economy will base its production on. It's the sudden changes that can cause problems and not necessarily the/a steady state.
Even sudden changes up can cause problems, as we've learn with supply chains when everyone switched from buying services (going out) to buying goods during the lockdown(s).
Of course 'just save more' isn't an answer for some people, as the author's coworker observed:
* https://ofdollarsanddata.com/the-biggest-lie-in-personal-finance/ https://ofdollarsanddata.com/the-biggest-lie-in-personal-fin...
- nicoburns 5y agoIf everybody has high-savings, then does anybody actually have high savings? As in, would it still be possible for everyone to redeem those savings for concrete goods and services?
- throw0101a 5y agoA savings rates (of a person's income) of 15% is higher than a savings rate of 5% is higher than a savings rate of 0%. Some of those savings goes to building an emergency fund (which eventually tops out), while other savings goes into a retirement account to generate for future income; some may go into a child's education fund. Eventually most people will retire and draw down their savings. Eventually one's child will grow old and go to some kind of post-secondary school and need money for tuition, books, etc.
- gruez 5y agoThat doesn't really answer OP's question, which is how everyone would turn those savings into goods/services. At the end of the day, the production capacity of the economy is fixed, and if there's more dollars chasing the same amount of goods, the value of goods will go up and the value of dollars will go down.
- nightski 5y agoI'm not sure I agree that the production capacity of the economy is fixed. It's heavily dependent on the value of that production.
- gruez 5y agoJust because something is high value and resources from lower valued production can be diverted into them, doesn't mean that the production capacity of the economy as a whole isn't fixed. At the end of the day there's still only so many people available to do stuff, and so many machines/raw materials available.
- throw0101a 5y ago> That doesn't really answer OP's question, which is how everyone would turn those savings into goods/services. You don't. Saving = not-spending = not getting goods and services. At least not at the present moment. You save now to protect against future income risk (e.g., emergency fund) and future income needs (e.g., retirement). You convert savings to cash flow when non-savings (e.g., employment income) dries up.
- gruez 5y ago>You save now to protect against future income risk (e.g., emergency fund) and future income needs (e.g., retirement). You convert savings to cash flow when non-savings (e.g., employment income) dries up. Everything you described works at an individual level, but fails at a societal level, which is what the GP was talking about. If society as a whole saved a bunch of money, and a few years later there were some sort of society-wide income risk (eg. war), those dollars won't do you much good.
- giantg2 5y agoI don't think that's much different than today. There's tons of money tied up in intangible things, or speculative stuff above it's true value. If everyone tried to buy tangible things, then inflation would happen. Too much money + plus not enough things = price increase to take advantage of that money until there's no excess.
- vineyardmike 5y agoYes, thats the whole issue of inflation and the pandemic. No one could do anything, so they saved money. There was less stuff as factories closed. then... Inflation.