The Commerce Department’s Bureau of Economic Analysis released a report Monday that found Americans’ appetite for spending amplified in the month of August, a finding that has many economists ecstatic and optimistic about the nation’s overall economy.
Consumer spending increased 0.5 percent in August from the previous month, which showed no gain at all. Experts say about half of the jump came from automobile sales – financial analysts, commentators and pundits say consumers don’t purchase big-ticket items, like vehicles, until they’re actually confident in the economy.
Salaries and wages also experienced a positive uptake. The report discovered that income rose 0.3 percent in the same month. The savings rate decreased 0.2 percent. With consumer spending accounting for more than two-thirds of the United States economy, both data trends suggest growing signs that the economic recovery is revving up.
Most of the data released suggests that the trend of American consumers spending again is good news. However, with consumers suffering from trillions of dollars in debt and acquiring goods and services with money they don’t have, it isn’t a positive a sign at all.
An economy flourishes based on the premise that consumers spend money they have with saved money as opposed to credit cards, overdrafts, loans and other types of credit. Also, with an increase in income earnings, consumers are just spending (or borrowing) it right away rather than saving or investing the raises or deciding to pay down their immense debt levels.
Every Keynesian economist or financial expert that comes from a Keynesian background tends to believe that governments and consumers need to spend, spend, spend and borrow, borrow, borrow in order to reinvigorate the economy. This is one of the reasons behind the Federal Reserve’s monetary policy: low interest rates will prompt savers to spend more of their money and get into debt.
Is it any wonder that Keynes had no respect for savers?
The statists tend to believe that if consumers don’t spend then a recession will begin. Here is economist Robert Murphy on this misnomer:
“Recessions are rooted in misalignments in this unbelievably complex structure, and there needs to be a period of below-normal output as these pipelines are fixed. Most important, consumers are doing the right thing when they increase their saving during a downturn. If solving a recession really were as simple as getting people to spend, then we wouldn’t keep experiencing them.”
Recessions are necessary. It weeds out the incompetent business in favor of the competent enterprise. The issue with a recession is government and central banks. Remember, a recession turns into a depression when the government intervenes.
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