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Citizens may be feeling the pressure from the media or government to get out there and save the economy by spending – it’s their patriotic duty to spend. According to the Federal Reserve’s Beige Book report, consumers have been pulling back on spending since September, with a resounding moan from retailers. Keeping the wallet shut is not what’s causing the economy to spiral into a recession. But the news media, such as the NY Times, would have people think otherwise about the decline in consumer spending, “Such a decline would be the first since 1991, and it would almost certainly push the entire economy into a recession in the middle of an election year.” Whether the country is technically in a recession doesn’t matter. It’s whether you, the consumer, believes that it is. A recession is made up these components that all experience economic downturn simultaneously: employment, sales, income, and output. When spending has dropped, it leads to cutbacks in production, which leads to layoffs and unemployment. The drop in jobs leads to a drop in production, and the recessionary cycle continues. It would follow that you should be spending to create a disruption in the vicious cycle. In reality, the catalyst that spurs capital expansion is savings. Saving helps the economy in the long-term. Combining debt with high consumption and low savings doesn’t seem like the prudent thing to do during this economic downturn, especially for the individual citizen. The answer to the question of whether to spend or save depends on who you ask and if you’re seeking a short-term or long-term solution. If you’re Joe Public from a middle-income household, you want to save as much as you can to withstand the economic forces that are pushing against you. In the long-term, your goal is to have future investment. You hope to set aside more of your earnings for investments in new assets for your future needs (.e.g. college, retirement, or house). When Joe Public saves money, his funds don't... [continues]

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