Great post Xin. I think you're absolutely right, people are finally coming to their senses.

But it's more than just that. The way capitalism is supposed to work in world where the government doesn't do bailouts, is that when banks don't have money, they increase interest rates, which encourages people to save. Then, the banks have tons of money, which they then can lend out. That is how money supply is naturally managed, and would be handled under normal market conditions.

Unfortunately we have the Federal Reserve which makes those decision based upon their whim. What's amazing to see is that people are increasing their savings with interest rates at ZERO percent. That means that people are putting money into savings purely because they don't want to spend it, without ANY monetary incentive (i.e. interest) to do so. Imagine if the Fed wasn't handing out free money to the banks and interest rates went up?! Imagine how many people would throw their money into a bank if they knew it would grow at 6% just sitting there?!

And that's why the government is worried, because sooner or later the Fed is going to have to raise rates. If they don't, they'll create inflation and the value of the dollar will plummet. And once that happens, people are going to love saving, not only for the security it brings, but also the interest. And when that happens the good old GDP, which you pointed out Xin, is mostly based on consumer spending, will drop like a rock. The reality is, our economy isn't as real or as glorious as we've been lead to believe. We have a great credit rating, but we're really broke. And sooner or later our creditor is going to do a credit check on us. God knows what they'll find.

Banks, investment companies, and discount stores win big.

But isn't that the way it always is? Isn't that how the arbitrary save 15% of your income was propagated so quickly and effectively? I guess the banks and investment companies couldn't sell the saving 40% they would rather have, so the 15% comes in. Reachable, but a lot more than some people need to save and a lot less than others need to. Oh well. At least people are saving.

Even though it seems like savings arbitrarily dropped off, you need to look at equity extraction rates. In the 90’s, where you see the savings rate drop off, people started extracting equity from their real estate and stock market holdings. Watching these values increase substantially inflated their sense of savings because it was almost looked at as a quick way to get cash (Helllloooo HELOC funds!). You will probably see the savings rate normalize back at around 8% as people get re-acquainted with their actual savings.

The way I look at it, it's not my job to prop up the economy of man. EVERYBODY has a responsibility to themselves and their families to have a little safety net set aside to tide them over for the bad things that inevitably happen in life. Death of a spouse, job loss, divorce, disability, economic downturn, natural disaster, these things happen and a wise person sets aside enough money to tide them over. From the time of Joseph advising Pharoah to set aside 7 years grain in times of plenty to tide Egypt over for 7 potential years of famine, mankind has had enough common sense to save. Until recently, that is... Somewhere in the past two decades, we all got cocky and forgot that God and Nature deal an unforgiving hand to those who don't heed the dreams of Joseph and set a little "grain" aside.

True capitalism is about the collective actions of free citizens acting in their own self-interest benefiting society as a whole. Setting a little aside "just in case" is self-interest, while squandering every penny you have and then going even further to spend money you DON'T have is lunacy.

Climate change, peak oil, and a nuclear armed North Korea and Iran are coming at us and, if you think a few big banks melting down was ugly, wait until you see oil at $7 per gallon. Americans need to focus on rebuilding their "7 years of grain" before we start worrying about pleas from greedy CEO's of multinational corporations to squander our own self-interest to prop up their greedy lifestyles. After you've got your head above water, if you want to prop up your local economy, hire an independent handyman to do some repairs to your house and buy veggies from a farm stand. Don't get fooled into thinking it's your civic duty to charge a $200 pair of made-in-China jeans on your Abercrombie visa.

poster #7 too.

Though I don't have a problem with limited "propping" (depending on what you actually mean by that).