It's simple, Stupid

With everyone rushing to determine what is the best thing to do to stimulate the economy, I decided it is a good time to offer my advice to individuals. There is a lot of conflicting ideas about what the average American should do once they start receiving that extra $12 a week.

The answer is simple. Americans need to live responsibly. Americans need to save money and make sound investments. Americans need to live at their means, possibly below them for a while - depending on their current state of debt.

In addition, the last thing that the average American needs to do is increase their consumption spending, unless the individual as the means and the desire to increase the spending.

It is outrageous that we have a government that is trying to manipulate Americans into increasing their consumer spending. It is reckless, irresponsible, and incredibly short sighted. The fact that the tax credit in the stimulus package that Americans are getting is divided up to promote spending instead of given in lump sum (which would promote saving and debt reduction) is a clear example of the selfishness of those in power.

To be clear, the government wants an increase in consumption spending because it makes the economy look better now. Consumption spending does not fix the root cause of the economic problem nor does it promote long term economic growth. Our "leaders" are only after consumption spending because it looks good in the short term and ultimately, their only concern is the short term. There are elections coming up in 2010 and 2012. Those people that are currently in power merely want to inflate the economy long enough to get re-elected.

The alternate, which is Americans saving and investing instead of spending, would lead to long term economic growth but would most likely cause short term loss. Some industries would suffer if luxury spending tightens even further and that is unfortunate. The important thing is that while a few would suffer, the great majority of Americans would be much better off.

On a national level, the savings and investment would lead to a growing economy that is more stable. Private investment equals growth because private investors invest money in places where they have a high expectation of return.

On a personal level, the average American would be in a great financial position with more money saved, more money invested, and with less debt. To boot, once individuals reach a point where they have lower debt with more money saved and invested, they will start to increase their spending. Only this spending is done at a sustainable level.

The great thing about a capitalistic economy is that if everyone acts in their own best interest in a legal way, then the economy does well as a whole. It is only in a socialistic society where individuals are asked to sacrifice their own interests for the good of the society as a whole....

-The Banker