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A Glum Note On The U.S. Savings Disaster

Summary

Atle Willems

Economy

https://seekingalpha.com/article/4125176-glum-note-u-s-savings-disaster

Saving is one of the least appreciated and most widely under-reported of all significant economic indicators. There could be many reasons for this, including that it is frequently perceived as a dull subject associated with inaction. But perhaps one of the more important ones for the financial world is modern-day economists' obsession with consumer spending as the main determinant of their definition of economic growth, namely growth in real GDP. But the economic significance of saving is much broader than being a mere deduction from potential consumption. Intuitively, increased consumption not driven by increased production is not sustainable since the ability to demand in the first place is derived from what is produced. Comprehension of this important law of economics (Say's Law) used to be a hallmark of an economist. Saving is closely related to this economic concept as it is derived from production (the creation of goods and services demanded by consumers) and as it plays an integral role for economic developments, including economic growth.

Saving, the surplus of production over consumption, always requires a restriction in consumption compared with what could be consumed. Increased saving today by itself hence means higher potential consumption in the future while increased consumption (less saving) today means less potential consumption in the future. This might sound too basic to mention, but the extent to which this simple truth is ignored and twisted in our time must not be underestimated.

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Full article here.

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