What do you think would happen if everyone in the United States stopped spending money and started saving it ?

Question

The U.S. is trying to get china to spend more money. I hear they save 50% of their earnings.

Answer 1

Roll revversal, the rich would get poor and the poor would become middle class

Answer 2

This is by far the most misunderstood area of economics. Consumption is not good for the economy, and saving is not bad. The corollary of saving is investment. Investment is a form of expenditure too. It creates jobs and profits. Growth is essentially the result of investment (if we use a broad definition of investment, which includes education, productivity improvements and so on). Without investment the economy cannot grow. All of the high growth countries in Asia have extraordinarily high savings rates (Singapore's is 50%, China's 35%). The reason why Detroit (and the rest of Americas manufacturing sector) is failing is because Americans aren't saving. Consumption crowds out local producers in favour of imports. An economy (like the natural ecology) adapts and grows to suit the environment. Americas economy has become a consumption based economy. If the US switched from consumption to investment their would be an adjustment cost, but this would depend on how quickly and dramatically it happened. If it occurred gradually the adjustment process would be smooth and costless. O yeah and a rapid switch from consumption to saving would dampen the IS curve, but the fed could respond by pumping more money into the economy.

Answer 3

Americans are among the biggest spenders of the world. This means that when big purchases are made that outstrip the rate of income, most people have to rely on borrowing for financing. This is reflected in the American trade deficit; Americans are buying far more than they sell, and they do this because people outside of the US are willing to lend to Americans either by buying stock in American companies or otherwise.

If Americans want to reduce their reliance on foreign lenders, they will have to either reduce their spending or increase their productivity. In your question, you only ask about a spending reduction.

If Americans reduce spending, this will reflect immediately in a reduced standard of living. Instead of buying a car or a house on a loan, people will be relying on public transit or even foot-power, or renting or living with their parents longer. This short-term reduction will be at least partially offset by not having to pay back those debts later. Indeed, short-term consumption will be lower than the income stream, just so that savings will accumulate and make big purchases possible.

Whether or not this results in long-term net gains or losses is up to the spender/saver. If the spender values instant gratification highly, then saving may not prove worth it. If the saver values long-term security, than spending now wouldn't be worth it.

Currently, German citizens stand out in my mind as savers. Few borrow to buy houses or cars, mostly getting what they need through inheritance or making due with rentals. Germans consider themselves better off saving than spending, but really, that's up to the individual person to decide. Even so, Germans seem objectively well off and live a lifestyle comparative to Americans.

Answer 4

I think the economy is based on the GNP and the GNP reflects money moving around and being taxed to support the government. If people stop spending then unemployment will go up. Unemployed people can't purchase. The Federal Reserve regulates spending by regulating interest rates making it easier or harder to borrow money and spend. The Federal Reserve can only go so far. Now the Government can sell bonds to other countries and create projects to put people back to work. These bonds make up the National Debt.
(A little knowledge is dangerous so shoot me)

Answer 5

In every country in the world -- not just the US -- if people literally quit spending money, well the economy would collapse. All businesses and the government would fail and all jobs would cease to exist. There would be no saving -- no one would have any income to save, and there would be no banks or financial services in which to save money anyway.

The economy exists to serve the needs of the consumer, and if consumers no longer needed anything, there could be no economy.

Answer 6

The United States would move from a negative savings rate (i.e. we spend our savings) to a positive savings rate.

Answer 7

If people are like me they don't have anything left after paying what has to be paid to save any. If I saved any money I would be hungry, naked and homeless...

Answer 8

It would probably be total chaos. Market research and many numbers reflect consumer confidence. If this is low, stock go way down.

Answer 9

Unfortunately, our consumer-based economy would implode on itself. I agree with the 1st answer, "like that would ever happen".

Answer 10

our economy would probably tank. then there would be inflation. then the savings would be worthless. we're screwed economically anyway, though, so might as well.