We all know we are in a scary place, in danger of entering a "deflationary spiral", ie... another depression, and one reason is the so called "paradox of thrift". It's a paradox because what is presently good for individuals is bad for the economy, very bad in this case because the economy we had before September 15th was a consumer based economy. 70% of GDP in fact, was consumer spending.
Jeffery Sacs, an economist from Columbia University was on CNN Friday, and he explained in a nutshell just why the economy isn't going to recover for at least "5 years". As he pointed out, trillions in personal "wealth" has just gone up in smoke between falling home values and retirement accounts, and so the consumer isn't going to start spending again for a long time.
As he stated, "folks have finally realized that they aren't well off financially", and that the future looks bleak. Of course many of us here already knew this, but apparently others didn't. People are paying down debt and the saving rate is growing, as folks respond rationally to their real financial state.
Another pundit on the News Hour stated; "People are terrified", and so they are pulling back and saving as they watch their retirement funds vanish. At the same time, they are also pulling back from the stock market, in favor of investments that offer a fixed return, like bonds.
So, my thought is that Obama should harness these rational reactions and launch a drive for Americans to buy "Recovery Bonds" to help finance the spending we must do, just as FDR called on the nation to buy War Bonds during WWII. This would allow people to start rebuilding their financial futures by investing in our common future. Yes, Americans are scared, but they are willing to bet on the nations future, if they weren't they would not have elected Obama in the first place. Paradoxically, this would also lower our dependence on China lending us the money we need to get out of this, while at the same time make it less likely that China will pull the plug on that lending. And it would allow Obama to rally the nation in common action and common cause while stilling the tongues of the Repugs.
What do you guys think? Would you buy a recovery bond? I would, even though I have never invested in the Stock Market or anything else.