Why is a high Percent of population spending and small amount of saving bad for an economy?

Question

I'm a college freshman that has taken a big interest in economics. I am most interested in New Zealand's economy because I plan to move there. I'm reading their current account defecit is impart due to a lack of saving and high rate of consumption. I thought population spending was good for an economy???? I know I'm ignorant in economics still. Someone please elighten me. As well, if anyone has any interesting statistics about New zealand and their economic future, please share... Thank you.

Answer 1

Spending is good for the economy, but the caveat is that it matters what you spend the money on. think of it like this: you as an individual can invest your money into a car, or maybe in a hammer and some nails. The car will allow you to travel to work faster (orr get to work at all), the nails and hammer will allow you to build a bench or to do home repairs. In both examples you have invested in capital that is used to increase your wealth and income. You use the car and the hammer and nails to make yourself better off. Now compare that to taking a vacation in Europe for a month or buying a big creen TV. Sure you stimulated the economy with your purchase short tem by buying that TV and made yourself feel better because now you can watch a football game on a 50 inch plasma, but are you generating wealth and income from that TV? No, so its not a capital investment, its a LUXURY, ie a non-essential item that does nothing productive. That vacation likewise feels good while it lasts, but when you wake up from your drunken stuppor you realise that all the money is gone and all you have to show for it is your memories. A country's economy and its deficit spending works the exact same way. if a country invests in building infrastructure like new roads. dams, power generators, etc, then the economy will benefit long term because those are capital investments. On the other hand if the government and its people spend money on non-capital goods, such as subsidies for the poor (sorry to say, but the poor dont usually use their handouts to make themselves better off for the most part), then the deficit spending really goes to waste. If a government has a huge beaurocracy for example a lot of the money gets swallowed in overhead costs, so the real benefit is small relative to the expense. So the bottom line on my answer is: deficits are okay, but only so long as they are not too large (just like taking a big loan on a credit card is a bad idea), and so lon© as the money spent in defecit is used to promote capital growth instead of being squandered. The creditworthiness also matters, beleive it or not countries have credit (just like you, or corporations do), so the more creditworthy a country is, the better off they are in using deficit spending because they have to pay a lower rate of interest for borrowing the money.

Answer 2

Consumer spending is good for the economy in the short term.
However, for the longer term, investment spending is more important. And investment spending is financed through savings. So, a small savings rate means that there is less to be spent for investment, which translates into slower economic growth in the future.

Answer 3

Obama is a non secular guy or woman. Socialism is a faith and believers care no longer something related to the suffering it creates. no remember what number circumstances it rather is shown to be a failure -- even a brutal failure (the U.S., Cuba, North Korea, etc.) -- or an ongoing "gentle" failure as evidenced by skill of the bankrupt eu countries, socialists refuse to correctly known that socialism is, in fact, a failed device. and isn't any longer that the hallmark of all religions? One has faith, inspite of real-worldwide data and data? There could properly be no reasoning with non secular zealots.