Practical Dad

Per the Federal Reserve, We’re “Hoarding Money”

In a recent article discussing the dramatic decline in monetary velocity - the number of times that a dollar is turned over in the economy as a measure of economic activity - the author states that The answer lies in the private sector’s dramatic increase in their willingness to hoard money instead of spend it. To which I, as a member of the private sector, can only reply no shit, Sherlock.

This simple comment is clearly symptomatic of multiple issues facing American society today.

The first is the simple use of the term hoard, a word with clearly pejorative connotations.  To previous generations of Americans, the term was save and it was something that was done because the responsibility for the family future was overwhelmingly the responsibility of the family itself.  Saving was something done because there were responsibilities such as educating the kids and providing for retirement and it was considered unfortunate and unseemly and unwise to place yourself at the mercy of others.  But using the term hoard implies that we are both selfish for not spending and perhaps just a bit mentally ill; gathering everything around us irrationally in fear of the future, retreating to our own little worlds and ignoring the outside world.

The second is the sense that the mandarins at the Fed simply don't see things as the rest of us.  Families now have greater uncertainty and competing demands upon their resources.  The median family wealth has fallen by a full third in the past decade, the median family income is lower than before and yet it's becoming clear that the fiscal obligations facing the family are rising.  The passage of the Affordable Care Act - Obamacare - is hitting more families with higher medical insurance costs than before and as businesses cut out the benefits, then the medical bills themselves will rise as families take on higher and higher deductibles in order to afford even the smallest premiums.  The decline of the pension plan means that we're now responsible for our own retirements and parents wonder how in God's name they're going to get the kids educated.

The third is the illustration of the extent to which our economy is now dependent upon consumption as an economic driver in lieu of everything else.  We're supposed to ignore the flashing check engine light on our dashboard and continue spending; the point of how off-the-rails we'd become was driven home after 9/11 when the president commented that we shouldn't let the terrorists take over our daily lives but should go shopping instead.  We're now caught in an impossible position.  The realities facing the family are significant yet the mandarins view the impetus to drive the economy - to spend - as paramount because they don't seem to realize that we're now trapped, and the push to spend is all that they can offer.

In keeping with the present horror craze, many describe ours as a zombie economy.  There is no more life left in the consumer model as the family faces competing and frankly, more important, demands upon its resources.  Yet the system - and folks, the Fed is at the heart of the system - describes the common-sense response in the pejorative and implies that if we only freed ourselves from our delusions, all would be better.  Understand this: the old system is dying rapidly, if it's not fully dead yet.  The system can only push what the system knows, even if it's ultimately more harmful to our families.

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