How savers could doom the economy

A basic grasp of Economics 101 suffices to understand that it is the savers that create capital that, in turn, will be used to expand the economy. So, other than the title being asinine, the rest is interesting. Here are some excerpts:

Pramod Kadambi wakes up every morning fearing the world has come to an end. He and his wife don’t spend money on anything but essentials. Friends who have lost their jobs visit and cry. He sees war or revolution coming. Gold coins and guns are new additions to the household.

An unshaven, out-of-work survivalist in the backwoods of Georgia? Not at all. He’s a young medical professional in California earning more than a million dollars a year — and the new face of the wealthy in America. That makes him the Obama administration’s worst nightmare: someone who could help revive the nation’s economy but instead has shut down his wallet in stark dread.


What’s hasn’t really been challenged is whether the assumptions underlying the plans’ model fit any sort of reality that exists outside the hallways of Ivy League economics departments and whether emotional individuals acting in their own self-interest to save money — rather than as robotic consumption machines that spend like crazy — can mess them up.


If the wealthy are taxed at higher rates, as currently contemplated by the Obama administration, and savings rates go to 10% per annum, the formula suggests corporate profits will be cut in half from their peak two years ago. Because earnings at the companies that make up the S&P 500 totaled $84.70 a share in 2007, that would mean forecasts of the stock market need to start with the assumption that earnings will sink to about $42 per share.


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