gonegolfin
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- #41
Savings was high in Japan before the depression hit. Japan was able to finance its government intervention internally (instead of relying on foreign lending). There was also too much government intervention in Japan during this period, along with the propping up of insolvent banks. Japan is paying a steep price for this.I agree with much of what you are saying. However, it is necessary for the government to spend to keep some people from starving and being thrown onto the street.
I would also say that encouraging people to save now is not the optimal macro solution, though they are going to anyways, and rationally so. The best time to encourage savings was two years ago. However, we are now confronted with the paradox of thrift.
Over time, the savings rate of the US has to rise. However, savings can go too high, as they are currently in Japan.
And not to change the subject and venture into another debate, but I do not accept the paradox of thrift. If by saving, you mean hoarding, then yes I agree. But I am not referring to the hoarding of money when I say saving.
At some point in time, the system must revert and the excesses be purged. We need to become, once again, more of a producer nation than a consumer nation. But the excesses are never purged during times when we are in the expansion part of the cycle. The result is that the cleansing does not happen and the excesses continue to build ... until a massive cleansing is forced upon us. That will be an ugly day. A day when many will starve and the government will be out of ammunition to help. It needs to be corrected before we get to that point.
Brian
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