Balancing my checkbook and figuring out football completion percentages completes the inventory of my math skills. So I'm looking for some expert advice from someone who really know the economy.
This financial crisis appears to be a frenzy that feeds on itself:
- People are worried about their jobs and finances, so they are spending less and saving money.
- Spending fewer dollars means less in tax money going to the state and the government so there are budget shortfalls.
- And spending fewer dollars means sales are down so production goes down and companies cut jobs.
- So people are worried about their jobs and finances, so they are spending less and saving money.
And on we go again.
However, we're all taking a look at our spending and are trying to make smart choices. American household debt stood at about $14 trillion according to the Federal Reserve in December.
So spending money by running up debt is bad, right?
But the Associated Press reported that the personal savings rate rose to 3.6 percent in December and averaged 1.7 percent for 2008. That's nearly three times the 2007 rate and far above the seven-decade low of 0.4 percent in 2004.
So that's good, right? Americans are saving money instead of running up debt.
But that's bad to get the economy going, right?
So the key to turning around our economy - which will require a $1.5 trillion dollar plan from the U.S. Treasury and the Federal Reserve as announced Tuesday - is to unfreeze the credit markets so they can lend again with confidence.
We take on more credit and spend more money. More dollars are spent and production increases. Production requires jobs and workers get hired.
Workers wages get taxed - as do our retail purchases - and state/federal revenues increase. Budgets expand instead of shrink.
So the pressure is on me to stop saving, quit debt reduction and spend more in credit?
If you're an economist; give me some help.
Signed,
Confused
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