Stephen Monrad

For individuals, being able to earn money one day and spend it another is very useful. You can build up a financial cushion to use to solve unexpected problems. You can get a car and pay for it from wages you earn at the job the car lets you drive to. You can save for your retirement. You would find it difficult to function in a modern economy if you couldn’t save and borrow money.

The current economic crisis shows that there is a problem with how saving and borrowing is managed. There are two problems. First, when people are worried that there is going to be an economic downturn, they tend to save more money. The economy doesn’t have a way to deal with the increased savings. The things that are produced need to be bought. If they aren’t bought, an economic slowdown is the result. People are losing their jobs today because our economy doesn’t have a good mechanism for coping with increased savings.

Second, the crash in stock and real estate prices has wiped out a lot of wealth. People who saved in the past have lost a lot of money. People who want to save today find it difficult to find safe ways to store their wealth.

Our current system doesn’t make saving easy. Better ways are needed for people to save and borrow money. Somehow savings needs to be decoupled from economic output and the value of savings needs to be made more stable over time.