New Mexico State University
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LCSN: Debt down, savings up, but is that good news?

August 22, 2010. Retrieved online August 23, 2010 from Brook Stockberger, Las Cruces Sun-News

LAS CRUCES — Here is the good news: Recent reports by the New York Federal Reserve and Equifax Inc., show that debt is down.

The bad news: Some of the reasons debt is down include high unemployment, the drop in housing prices and tight credit.

So whither the economy?

Savings/recovery/stimulus

The Bureau of Economic Analysis reports that personal saving was $725.9 billion in June, compared with $713.9 billion in May. Personal saving as a percentage of disposable personal income was 6.4 percent in June, compared with 6.3 percent the month before.

So the trend of people saving more during the tough economy continues. While it is good, on a personal front, to save, is that a good trend for the economy? After all, if people are saving more and spending less, how will the economy recover?

“For 30 years, all during the ’80s, ’90s, early 2000s, there were a lot of complaints that Americans did not save enough,” said James Peach, who teaches economics at New Mexico State University.

Peach said that an economic recovery was burdened by the fact that the government stimulus was not enacted correctly.

“The stimulus package, a good chunk of that was in tax cuts and what people apparently did with that was pay down debt and increase savings (instead of purchase goods and services),” he said. “They left the stimulus decision in the hands of you and me.

“I still think stimulus package was too small; we needed a package twice that size,” he said. “But there is no political will right now for a second stimulus package.”

Tony Popp, who also teaches economics at NMSU, said of the stimulus money, “They have not even spent it all.”

Still, Peach does not predict gloom and doom. Despite some worried glances that way, he does not think we are in the midst of a double-dip recession.

“When you talk about the slowdown in the recovery, there is a herd instinct with forecasters who have almost universally lowered forecasts for GDP growth,” he said.

But what if the economy does fall back into recession?

Read the Las Cruces Sun-News article.