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'Savings' rhetoric won't revive the economy, only jobs will

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By RON RAE

The Rae Way

Published: November 3, 2009

"The United States must increase its national saving rate. Although we should deploy, as best we can, tools to increase private saving, the most effective way to accomplish this goal is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time."

The quote was made during a speech given by Fed Chairman Ben Bernanke at the Conference on Asia and the Global Financial Crisis on Oct. 19, hosted by the Federal Reserve of San Francisco. During a question-and-answer period, Bernanke also stated, "We were smug," referring to the years of feckless lending practices when the U.S. economy was bubbling over with easy money from cash-rich countries. I imagine the statement was said rather smugly.

It's a mystery as to how Bernanke expects consumer saving rates to increase given the lack of jobs and a questionable revival of pre-recession wages even for the still-employed, considering their sizable pay cuts and reduced hours.

Personal savings of disposable personal income was 3 percent in August, down from 4 percent in July and significantly lower than the peak rate of 6.9 percent in May. Fueled by income tax refunds and stimulus package disbursements, critics at the time reproached consumers for slighting the system by saving instead of spending the money to get the economy moving.

Whatever savings people have managed to accumulate will soon be spent to pay winter heating bills, higher gas prices, medical bills, credit card debt, etc., and quickly consumed during the holiday season to give families a temporary, but desperately needed, good-time feeling.

The sole means by which large numbers of consumers will have the ability to add to their savings is through working. And the only way President Barack Obama could possibly deliver on a promise to create or save 3.5 million jobs by the end of 2010 will be by out-of-focus hocus-pocus employment figures.

Much of the blame goes to Henry Paulson, Ben Bernanke and Timothy Geithner. These overlords of taxpayer dollars squandered the opportunity to leverage the recipients of TARP funds to direct the handouts where they were intended. Instead of renegotiating home mortgage loans, banks deliberately refused to accept their part in correcting the fallout from their historic lax lending practices. Banks continue to restrict investment lending to small businesses for future growth to create jobs.

Instead, Wall Street bankers are on another unhealthy round of risky investment gains that recently catapulted the DJIA to over 10,000 points from a low of 6,470 in March, further proving investors care more about their own interests than propelling the country to economic growth. The Organisation for Economic Co-operation and Development leading indicators don't jibe with the worldwide numbers of unemployed, homeless and destitute citizens.

Thus far in 2009, banks are so comfortable with the status quo that they've supplied lobbyists with more than $220 million in a concerted effort to thwart significant financial reform.

But rest assured, economic wizards Bernanke and Geithner are on the same scripted page of attempting to convince world financial markets that the United States has targeted American consumer savings as a strategy to offset the imbalance of global trading.

"Everyone is going to have to come to terms with the fact that we are going to save more in the United States," Geithner claimed during an Oct. 6 interview with German weekly newspaper Die Zeit. In other words, don't count on American consumption to fuel worldwide economic recovery.

"China will carry out the exchange rate regime reform and the United States will increase saving rates so as to promote balanced and strong growth and prosperity in the two nations," read a fact sheet released by then-Treasury Secretary Paulson at the China-U.S.A. Strategic Economic Dialogue held in Beijing during the Bush administration. This goes way back to Dec. 15, 2006.

With a great amount of vanity, on June 2, prior to addressing graduates at his alma mater, Harriton High School in Rosemont, Pa., Economic Advisor Larry Summers said, "… a higher savings rate can still go with a rising standard of living as long as income is growing." Repeating the same old "saving" rhetoric doesn't make the claim a reality.

A growth in consumer savings rate will not revive the economy. The only solution is through the growth of employment figures.

Mr. Summers and his cohorts must realize that it'll be quite some time before "income is growing." The only things growing are undeserved Wall Street bonuses and the egos of himself and his fellow economists.

Ron Rae, a regular columnist for Hernando Today, lives in Spring Hill. He can be contacted at hernandoron@yahoo.com.

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