Mixed Mantra: Consumers Urged to Save More -- and Shop More (WSJ)

[KoKo]

Mixed Mantra: Consumers Urged to Save More -- and Shop More
by Mark Whitehouse
Monday, October 12, 2009

With the holiday-shopping season approaching, many retailers, investors and politicians are hoping American consumers' animal spirits will return in force. They should be careful what they wish for.

Americans have good reason to be confused about what they should be doing to help the economy. On one hand, the Obama administration is crafting policies designed to make them save more and be more responsible about their finances. On the other, the same government is offering them incentives to spend, such as tax rebates and the "cash for clunkers" program.

To a large extent, the mixed signals reflect a conflict between the stimulus the economy needs now and what's good for it in the longer term. As Mark Iwry, a senior adviser to Treasury Secretary Timothy Geithner puts it: "If you suffer a heart attack, your doctor's advice will probably include getting lots of regular exercise in the future -- but first you've got to get back on your feet."

In recent months, Americans have been recovering pretty well. In August, consumer spending logged its biggest one-month jump in nearly eight years, and last week many retailers reported better-than-expected sales for September. That helps bolster optimism among businesses, and it also benefits China, Germany and other major exporters, for which U.S. consumers are a crucial source of demand.

But there's a rub: Unless a resurgence in jobs or wages boosts people's income, any sustained rebound in spending will require them to cut back on savings at a time when they're still struggling with a massive debt burden. That, in turn, could revive the profligate pattern of U.S. borrowing from abroad that helped get the world in such trouble in the first place.

Economists have long fretted about the dangers inherent in the large gap between what the U.S. spends and what it earns. Known as the current-account deficit, the gap requires the U.S. to make ends meet by borrowing large amounts of money from abroad, typically from big exporters such as China. The flow of money encourages bubbles in financial markets, while the rising debts put downward pressure on the dollar.


U.S. policy makers recognize the need to close the gap. The administration of President Barack Obama has proposed expanding a tax credit for low-income savers, as well as a requirement that employers who don't offer 401(k) or similar programs automatically put a share of their workers' paychecks into individual retirement accounts. The Group of 20 developed nations has called for policies that would stimulate consumer spending in places such as China, while encouraging more saving in big consumers like the U.S.

So far, though, nothing has been implemented. As a result, if U.S. consumers return to their borrow-and-spend ways, they could easily reverse a trend that has seen the imbalances shrink in recent months. That would be particularly dangerous now, as the U.S. government's vast budget deficit is already adding to jitters about the dollar.

More at....(No subscription needed) at...

http://finance.yahoo.com/banking-budgeting/article/107942/mixed-mantra-consumers-urged-to-save-more-and-shop-more.html?mod=bb-debtmanagement

[DJ13]

1. Pay us more and we COULD do both

:think:

[dhpgetsit]

2. The trouble is

Many of us who considered ourselved middle class in the Clinton years are barely afloat now.

I know I can't afford to save or spend beyond the bare essentials.