The Truth about Savings and Consumption

The Truth about Savings and Consumption

We regularly hear how important consumer spending is for the economy. The story goes like this: the more consumers spend, the more money circulates in the economy, which stimulates healthy…


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43 Replies to “The Truth about Savings and Consumption”

  1. Best way to sum it up is this : EVERYONE wants to consume, and they do that in the free-market by exchanging goods & services they provide for goods & services that they want to consume. What new-age socialists want to do is just try to mandate automatic right to consumption while destroying incentives to produce goods & services. Increasing consumption only increases prices, what Commies seem to envision is some corporation while create tons of products no one will buy, well then the products will be cheap in this absolutely ridiculous scenario. But would actually happen is people would work ( provide a service) to acquire money and then buy that good that the corporation wanted, because people are motivated by incentives and will work for a living if they are mandated to work to get them a house, cars, nicer foods, nice electronic gadgets, vacations (things people enjoy). I support progressive taxation, but not to the point where it leaves drastic incentive altering, and transfer/welfare payments are only for charitable/humanitarian reasons.

  2. this little shitty video forgets about the fact that production is not enough if you don't have people willing and able to buy products: in other worlds demand.
    so yes, consumption drives the economy and the buisness cycle since the spending of one persone is the income of an other…
    and if demand drops, well, so does the GDP…

  3. 'Farmers need to produce faster, more food in order for money to turn faster, so that inflation makes a fighting chance against prosperity.' economists think, I'm afraid.

  4. But what if the production is raised along with cost of living, but income remains the same, if not lowered a bit? Also, how can an economy grow on a fixed land and agriculture resource (I have a concern of reduction of price on apartments and food)?


  6. Well, there has to be a demand for production.. which comes from consumption for the most part. So saving is dandy, but there has to be a good mix of everything.

  7. One little problem: Banks don't lend out your savings: they type it into a borrower's account out of thin air. Yes, deposits are needed to meet fractional reserve requirements, but as that reserve ratio shrinks, there is less emphasis needed for depositors as opposed to people to lend to.

  8. In a traditional idealistic way this makes sense. But what happens when it comes time to expand and purchase new equipment and labor by borrowing. Now your under the influence of the lender and necessity of growth over sustainability. All of a sudden your sole goal is gaining capital at the expense of the land and labor. What happens when the farmer gets fat with cash, the workers are not see full distribution, and the land is getting destroyed because the best corn farmer in the world had to pivot and start producing mediocre soybeans to maintain that state of growth?

  9. There is always going to be a portion of the population that is in the lower income bracket either by lack of opportunity, lack of brains, etc. The question is how do you want to deal with it? A $15/hr minimum wage would encourage people to at least be productive, get job experience, and get off the tax payer's cheques. Critics will argue that a higher unemployment will cause more unemployment and they are right in their very simple view of the economy. But in the real world, one way to combat this and encourage employers to hire people would be to give government grants to employers for hiring employees to subside their wages during the 2-3 month training period at about 50-80% of the wages they pay the new employee. This should be an immediate grant for the employer. Not at tax time. After the employee is up to speed, the employee will be earning his wage plus a profit for the employer.

  10. The Fed Reserve is a private corp. that prints currency, "notes" that are good to pay debt. $ saved over time go bad, they loose value. !960's earning $1.25 hr., rent was paid w/1 week pay. Gas was 23cents a gallon, & they pumped, checked the oil & quite often they gave you a gift, drinking glass or beach toys ect. The Fed is & IMF w/World bank control the world by buying govts. w/$ they print. We don't know who holds the power yet; we see a global system of world banks control the world's economy. They can create shortages, making life so desperate that warring troops fight to feed the family as the world's living standard drops to hell and the media shows us all the great opportunities that turn out a generation of graduates w/a mortgage size debt, but no house. People sleeping in wheel chairs on street corners are common. Heaven help us all chant Hari Hari & get real, eternal relief, even you or me 1%ers!

  11. And in fact, my daughter's 8th grade class was exploring this concept of production vs. consumption. Once the last good is consumed you have nothing.

  12. Best explanation I've heard in a simple way.  Without savings there can be no growth.  Which is why manipulating the currency system will eventually lead to where Greece is right now.  In business, savings is called "building cash value."  Right now there is no incentive to save because the interest rates are so low.  But there is no money to borrow because there is no cash value built up.

  13. Hang on – aren't loans created out of thin air, expanding the money supply and diluting the total money supply? In the UK there isn't even a fractional reserve requirement. It is created at will. I don't ever hear about loans being made using bank savings any more. Is this video-maker aware of this?

  14. This is flawed from 2:30.. where do you think the money came from in the first place? it was made by the private institution called the FED in USA… The problem is banks create money and economy does not grow if the system is based on LOANS it collapses… If you are wondering how and why than just know ALL your money in your wallets is somebody's debt/loan meaning if nobody took a loan you would have 0$.. Banks are a scam and they steal real assests by producing paper, there is no gold reserve behind their notes..
    This is a all age explanation about teft that bankers and banks do:

  15. While Keynesian overspending contributes to overconsumption and self-imposed individual debt, there's one major issue with this magical cash accumulation idea: printing currency. Where do you think all that dough to save comes from in the first place? Answer: the government & the federal reserve, which requires us to chop down trees & convert the wood into paper. The problem is that we're simply using up trees faster than they can grow back, and we're not planting enough. This is because we're a pretty greedy species. We're all living products of the earth who've managed to shelter themselves from natural selection and it's process of checks & balances. What happens over the course of this century is inevitable, so get ready to go extinct along with many other species. Earth will survive, but we won't, and new species will evolve to replace the ones who couldn't adapt.

  16. Your missing the fractional reserve lending practice.  This is where you give the bank $10 to save and then they can lend up to $90 to the entrepreneur.  Works extra great for the bank if especially if you pay them back with 5% interest.  Even if you don't they still win.  If you don't pay back the loan then they consume your goods.  Im not saying its entirely wrong but many people just don't know about fraction reserve lending.  They first lend out $90 that nobody can tell me where it came from and then they make you pay interest on the money that just came into existence at the moment of that loan signing.  

  17. Consumer spending and physical capital are both vitally important in a service economy such as ours, but here's the thing: the reason consumer spending needs to go up is because that's where the output gap is. It's not like the recession just happened because all the factories in the country suddenly decided to suddenly turn back into forests, it happened because consumer spending plummeted after the housing bubble burst (largely caused by the reckless policies of banks encouraged by the Federal Government) and wall street fell apart. 

  18. You forgot that the money banks loan out is 10 times what they in their vaults or balance sheets-its called fractional reserve banking-printing money out of thin air which causes inflation. Without consumption you wouldn't have production-supply and demand. Money needs to flow thru the economy to make it work-meaning people need to spend to keep others producing and vice versa. We should all save 10% of our income if possible for emergencies and retirement. That will be the next crash IMO-most baby-boomers are prepared for retirement as the younger generations have nothing saved.

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