I can’t believe that I am now reading a phrase in the newspaper that I learned 25 years ago and by the way viewed as a mere theory. But the concept is now relevant. And how ironic. We all need to save more and saving is what will get us out of debtor hell. However there is a resounding BUT….and that BUT is we need to spend to help the economy from tailspinning into a deeper recession. So, now do you get the paradox!!
But there is a near-term solution – it’s government spending. For anybody complaining about government spending – Here’s the equation you need to know:
GDP= C(Consumption) + I(Investment by businesses) +G(Government Spending) + X(exports) – M(imports). If C goes down because savings is going up, then there is one clear place where the spending needs to come from – it’s government.
The reality is far more complex but you get the gist!! So keep saving wisely but don’t forget to live while you’re living!!