When saving is bad for the economy

A CNNMoney.com article explains why now is not the time to save money. It may seem counterintuitive for Americans who are trying to prepare for more tough times, but economists say "with the economy underwater, it's the worst time for that." While experts agree that saving is the best "long-term" plan for consumers, an economic revival relies heavily on consumer spending. 

By comparison, Americans are some of the worst savers in the world, but the savings rate in the US has "moved sharply higher" in the last few months. The rate rose from 0.8 percent in August to 3.6 percent in December. According to Mark Zandi, chief economist for Moody's Economy.com, the sudden rise in the savings rate is "the difference between an economy that is growing and one that is struggling mightily." 

The problem right now appears to be rooted in the fact that everyone is saving money at the same time. Spending has come to a screeching halt. 

"Saving is a good thing and paying debt is a good thing, but not overnight," said Zandi. "If we go from zero to 10% in a year or so, you'll have a severe downturn that can become self enforcing." 

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