The American Savings and Debt Crisis

James Cook, President of Investment Rarities and widely read author, writes about the American savings and debt crisis. "Without savings there would have been no Babylon or Rome. Without savings there would be no automobiles or Motown, no stock exchange or Manhattan, no movie-makers or Hollywood. High savings rates are the hallmark of prosperous countries, dominant cultures and successful people."

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In America, where government intervention reigns supreme, savings are under attack.  Transfer payments and social programs erode the will to save. Inflation discourages savings.  High taxes on large incomes reduce the ability to save. Low interest rates make savings unrewarding. Taxing earnings once, and then again when they bear interest, reduces savings.  Rising asset values, brought on by easy money and credit, channel money away from savings into tangibles and speculation.

Today's economic leaders have totally failed to understand the role of savings and capital accumulation in improving the economy. If people do not consume their entire incomes, this surplus can be invested to increase the amount of tools, equipment, plants and facilities that produce goods. Restricting consumption has always been the formula for growth and prosperity. It should be the government's role to encourage this process rather than to impede it.

"In a balanced economy, the money that people save is a real source that can be loaned out to borrowers for constructive purposes. New savings provide an equal amount of new credit. But, in this country, credit exceeds savings by 700 percent."

Prominent publisher, Bill Bonner, states, "Inflating, capital consumption, government intervention, low savings, and overwhelming indebtedness are not the path to prosperity. They are the road to economic destruction and financial perdition." He continues, "Real prosperity results not from consumption, but from its opposite-forbearance. It is that capital, the consumer savings, that determines how quickly a society gets rich."