The higher are saving rates the longer is economic crisis?

The US saving rates increased to 5% of income and could be higher later, according to David M. Smick, a global financial strategist. Total personal savings have risen from $20 billion in the first quarter of 2008 to $453 billion during the same period of 2009. David M. Smick is afraid of increase of saving rates to 7 or 8%. In that case as he believes economic recovery could be seriously delayed.

Savings are good in the case of efficient work of financial markets, but in economic recession times Americans need to consume, in strategist point of view. Consumption comprises approximately 70% of US economy. And decline in Americans consumption rates means that the potential economic growth later can be very law.

Also the role of earners with high income is in high importance. According to a study by American Express Publishing and the Harrison Group marketing and research firm those making more than $100,000 a year are responsible for half of retail sales and 70% of the profit margins at retail. As study reported this group’s savings rate has soared because of economic recession. The problem is that rich Americans, people who are capable to bring economy out of recession, now have become the new political whipping boy. They are perceived as recipients of illegal proceeds. And now they are going to be subjected to increase in taxation.

In the given circumstances financial strategist offers one option for stimulating demand in the event that the economy fails to fully recover: more fiscal stimulus. The author said: “With congressional midterm elections less than a year away, a second fiscal stimulus in early 2010 hardly seems out of the question.”

As he noted policy-makers should decide which development over the past few months has a greater potential to revive an economy. He cited as an example two ways:
“(a) the $800 billion stimulus package that produced millions of rebate checks worth several hundred dollars; or (b) the $3 trillion stock market jump (since the March 9 low), which has relatively cash-rich, traditionally big-spending Americans looking at their 401(k) retirement accounts with some relief for the first time in a while.”

Eventually, as the author noted, “the factor determining the success of the Obama economy will be the level of private demand for durable goods by the end of 2010.”