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But doesn't a higher savings rate infuse money into credit markets? B's $1 in savings is at least $1 available for capital and consumer credit alike, and with f

by Gormo 17y ago

But doesn't a higher savings rate infuse money into credit markets? B's $1 in savings is at least $1 available for capital and consumer credit alike, and with fractional reserve rates, even more. Most of the boom that preceded the current bust was fueled by credit expansion - and the bust was largely due to poor risk assessment, not the high availability of credit itself.

sokoloff 17y ago
I'm sure there is some need for balance, but from the (smallish) amount I recall of Macro in college, a small positive savings is the "optimum" for economic growth without unbounded inflation, etc. If the savings rate were negative, then availability of credit may be the overall bounding factor. In the situation the US finds itself currently, I believe that an increased savings rate will slow or stall the recovery. (That doesn't mean that I don't think individuals should be prudent and save, which I continue to do, but rather that I want OTHER people that I don't know or care about to continue to spend freely, ideally on products my company sells. :) )