NCPA - National Center for Policy Analysis


April 21, 2009

The president and the Federal Reserve chairman recently voiced cautious optimism that the economy could be beginning to stabilize, however, the economy doesn't seem to be cooperating.  Retail sales dropped sharply in March, wholesale prices fell steeply and the stock market fell 2 percent.  This data underscores the hard slog the nation faces to emerge from its deep recession and the limitations of more optimistic talk from Washington, says Judith A. Klinghoffer, an affiliate professor at Haifa University.

Fortunately, the American consumer is smarter than the quick-fix Washington mindset:

  • Shell-shocked families -- especially some 77 million baby boomers for whom retirement planning is an urgent imperative -- know they have no choice other than to save.
  • The personal savings rate has risen from .8 percent to 4.2 percent in the past 6 months alone, and is on its way to a new post-bubble equilibrium that could be placed in the 7.5 percent to 10 percent zone.
  • A retrenchment by the American consumer should be viewed as a wake-up call for other nations to fill the void by stimulating their own consumers; a globalized world needs to move from one consumer to many.
  • This crisis and the wrenching recession it has spawned are all about a destabilizing shift in the mix of global savings and aggregate demand; the excess spenders need to save and the excess savers need to spend.

Policies that encourage such rebalancing will put the world economy on a more stable and sustainable path and go a long way in avoiding another crisis like this in the future.

In other words, Americans are going to do what their government refuses to do: force the world to change in a manner beneficial to all. Americans may just save America, says Klinghoffer.

Source: Judith A. Klinghoffer, "Americans may just save America," Political Mavens, April 15, 2009.

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