Unfortunately, when spending is inflated by easy credit to the levels we saw over the last decade, the real money has to catch up at some point. This means that instead of returning to a normal spending level, everyone is now panicking and trying to pay off credit cards and put away money for a very possible rainy day. This results in lower-than-normal spending levels, and a painful reality check for the economy.
This point has been reiterated today in a New York Times column, presenting the ultimate paradox – do we do what is best for us now (save), or what we know is best for the economy (spend)? Fortunately, there is an answer that falls somewhere in between, and David Leonhardt does a fantastic job presenting it. At the core of the argument is that there is a difference between spending money and investing it. Not traditional investing, mind you, but the kind that will bring you returns on your money in the future, while stimulating the economy with spending now. I encourage you to take 5 minutes, read the article, and consider how you can contribute.