This is based on a concept called the paradox of thrift.
The notion, generally attributed to John Maynard Keynes is that individual savings rather than spending can worsen a recession, i.e individual saving is collectively harmful.
Consumer spending contributes to the collective good, because one person's spending is another person's income. Thus, when individuals save rather than spend, they cause collective harm because businesses don't earn as much and have to lay off employees who are then unable to save.
Therefore, an increase in individual savings rates is believed to create a flattening or diminishing of the total savings rate.
And here we thought collectivism was only a Communist term...
You see, no one can profit off a fiscally sound and prudent person so they're looked upon as essentially worthless and useless; in fact worse-- an impediment to profit making.
If he or she wishes to buy a home or an automobile, that person has the means to pay a large chunk of the balance which means any loan (if one is even required at all) will be of a lower amount and shorter term of repayment.
Let's use the example of purchasing a $35k automobile... Read this slowly
Person A is your average Jane or Joe-- up to their ears in debt but generates just enough income to afford a car's monthly payment. Person B could easily pay for that $35k car at the time of purchase but wants to build up his/her credit so a smaller auto loan is taken.
Person A puts down $2k and finances the other $33k over 5 years at 1.9% interest. Using an auto loan calculator, Person A will be paying $576.97 every month for 60 months. By the time the loan is repaid, a total of $36,618 will be spent (we're including the original $2k down payment)
The bank or auto loan agency was able to make a profit of $1,618 above the true cost of the car off Person A who is a debtor and unable or refuses to save. Person B who is a saver and only took the loan to build credit only paid $295 more than the list price.
So the goal of the Fed has been to destroy the saver's ability to earn a fair rate of return on interest which keeps up with inflation. It also does this so it can lower its own re-payments to its debtors but that's a topic for another post..
So now what's a saver used to getting 3-4% and now receiving .01% to do?
He/she could invest in the stock market... That's exactly what that piece of excrement Fed Chair Ben Bernanke wants you to do so others from banks to professional traders to brokers can make money off your gambling...
Or..
He/she can hold put and stay disciplined. What normally should happen in a recession is companies are forced to put merchandise on sale and in some cases liquidate in order to generate the cashflow necessary to keep their businesses operational.
This is called deflation-- it means your money has more power and can be used to purchase more products and services.
The Fed manipulates that too... They don't want people to get a 'deal'.. They want indebtedness and the way you get people into that state is by manipulating inflation (one way is devaluing the currency i.e. printing tons of paper money).
Ultimately it comes down to the fact that government wants to do as little as humanly possible, if anything at all to directly fix the economy during bad times. It simply works to push forth a confidence game upon the citizens to believe things are better than they really are, so they'll spend more.
This in theory becomes a self-fulfilling prophesy...
Stock market at 14 thousand, blah-blah.. Heyy-- simple people feel 'good' about 'recovery'... They spend more.. shop more.. go back to irresponsible habits... And magically all will work out.. And if it doesn't, well... too bad pauper-- here's some government cheese to nibble on.
There are ways to practice non-violent and 100% legal civil disobedience against this corrupt government, incompetent administration and evil Fed Reserve...
To be a saver is a noble endeavor.. stay true to oneself always.
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