We're Saving not Spending

by Scott Feldman

Never mind a snowy Tuesday morning on the Island. The Bethpage Federal Credit Union on S. Oyster Bay Rd. was hopping. Long Islanders lined up to make deposits. Yes, they were putting money in their accounts, not taking it out. That activity comes as a new government report shows consumers slashed spending for an unprecedented sixth straight month in December. The personal savings rate rose to 3.6 percent in December. That was nearly three times the savings rate for all of 2007 and far above the seven-decade low for savings hit in 2004, a year buoyed by a booming housing market. Kirk Kordeleski, the CEO of BFCU, tells me the credit union took in 40 million dollars last month for savings accounts. He says the number of people opening credit card accounts is down. But they've seen record business in mortgage refinances. They used to do 150 applications in a month, six months ago. But, in just one week alone they did 250 applications. As for people saving more, Anthony Cuccia, a retired window cleaner on social security, says he puts his food on a credit card, but there is no extra spending. Same story from Salome Claveria. She's widowed and on social security and a small pension. She tells me she goes to the movies less, and she no longer goes once a week to a restaurant. It's pretty much the story for young families. Kris and Christine Corey from Bayville have two young sons. Kris says vacations are a thing of the past. The Bahamas, Florida, just too expensive. Same thing for dining out. So, a steep cutback in consumer spending, the economy's key driver, can only mean continued trouble for struggling retailers, homebuilders and automakers. It remains to be seen just how much the proposed massive economic stimulus program that the Obama administration is lobbying Congress to quickly pass will turn things around. Some economists are predicting the recession will last until late 2009. The slump is already the longest in a quarter-century. So, if it lasts into the summer, it would be the longest downturn since World War II.  

Comments

[John]

The stimulus plan isn't going to help, because nobody has defined the problem. It's not the consumer's fault. If you include corporate costs passed on to us, we're all paying somewhere between sixty and eighty percent of our income in taxes. That means that our only means of survival, for the most part, is credit. So, of course, the big banks have been restricting credit--even though their reserve requirements are zero and interest rates nearly so, meaning that they can generate infinite credit on their say-so with no risk--presumably so that nobody will ask how much they've leveraged in derivatives.

So the problem isn't that we're all trying to save--remember that, just last summer, we were all being told that we should be saving at LEAST ten percent of our income, and nobody predicted the end of civilization at such a suggestion. No, the problem is that money is being vacuumed out of the country in the form of taxes, trade deficits, and bank tantrums.

The government caused this problem. They helped corporations offshore jobs. They raised the taxes. They jumped on every bandwagon to inflate the housing and energy markets. And they're perfectly happy (because the bank lobbyists donate well) with letting the banks do whatever they like, rather than revoking their charters for endangering the country. Big government got us into this mess, so I'd really like to meet the genius who honestly thinks that more government is going to get us out!

We need to get away from the idea of money as a commodity, in this country, and start manufacturing and developing new technologies. We need the tax cuts for offshore jobs to go away. And we need to hassle the banks for large-scale policy, rather than the counterproductive bean-counting that Chuck Schumer seems to enjoy that's only going to increase costs more.

After all, the reason that we haven't seen a really bad downturn since World War II is because the war spurred our industry and the destruction in Europe made them dependent on our products. We can't exactly go bomb Dresden again, so we'll have to find a better way to turn the trade deficit around.

Giving us each a couple hundred dollars to spend at Wal-Mart isn't going to do that. Propping up the housing or stock markets certainly won't. Cutting taxes significantly and funding public research (like the NASA of the old days) just might.

Err...Sorry this ran a bit long, but I'm tired of our being blamed for stalling the economy when every single link in the chain besides the consumers and retailers are owned and operated by the banks, who are doing everything they can to make life difficult.

[Paula]

Have you looked at CSEA local 830's website. There is an interesting column from the President regarding Suozzi's press conference. I thought news 12 would be interested in another version.
Thanks,
a faithful viewer