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Stop blaming the sluggish economic recovery on tight-fisted consumers

During the height of the credit and housing boom economists lamented that we were spending too much and saving too little.No matter what you hear on the news, consumers are not to blame for the country’s slow economic recovery.

During the height of the housing and credit boom, a lot of us were financial messes.

We had record levels of credit card debt. The national savings rate was almost zero.

Economists lamented that we couldn’t manage our money, that we were spending ourselves into oblivion without the savings to back it up, and that we were setting ourselves up for a financial nightmare.

That time is now.

With nearly 10% unemployment, many Americans have hit a credit wall. Too much debt and no savings plus no job – and in some cases, no more home – has turned that nightmare into reality.

But what we’re hearing from some talking heads is that we’re the reason the economy isn’t recovering.

Us!

Because we’re not spending.

According to a Javelin Strategy & Research survey, only 56% of us are using credit cards now – down from the peak of 87% in 2007. And Javelin predicts that number could drop to 45% later this year.

We’re paying down our debt, too. According to the Federal Reserve, revolving credit (which is made up of mostly credit card debt) decreased by 6.3% in July.

We have $822.5 billion in revolving credit debt. Sounds like a lot, but that’s down from the 2008 high of $989.1 billion.

Because we are making smart financial moves – paying down our credit card debt, and saving – we’re apparently stymieing an economic recovery.

Because we’re not spending at pre-recession levels, we’re adding to the problem. Some have even suggested that our lack of spending is preventing job creation.

“The underlying story that I seem to be saying over and over is that consumers are not feeling good enough to start spending on things that count, such as durables and houses, because the unemployment level is basically so high,” Chris G. Christopher Jr., IHS Global Insight’s senior principal United States economist, told the New York Times.

“Right now the consumer is actually retrenching so businesses are not going to have the urge to rehire. It’s a Catch-22 situation.”

But we are not the problem.

The big banks are the problem.

According to Standard & Poor’s, non-financial companies in the S&P 500 are sitting on a record $837 billion in cash.

And what are big banks doing with all that cash?

Nothing.

They are not lending that money to businesses so they can grow, expand, create jobs, hire people, and drop unemployment numbers.

They are not lending to individuals who want to buy homes or refinance their mortgages.

They’ve closed credit card accounts and slashed limits on people with stellar credit scores, and tacked on such high interest rates and fees to credit cards that it’s no wonder we aren’t using plastic at the same pre-recession levels.

So if you ever feel a twinge of guilt that your lack of spending and additional saving habits are keeping the country in a debt hole, drop it.

You are not the problem.

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