Thursday, October 2, 2008

How you can help with the credit crisis.

Save more.

I hope in my lifetime we get another President willing to ask the American people to sacrifice something when we have a problem. I am utterly dismayed that noticeably absent from all this discussion about the financial crisis is a rallying cry to the people to help.

We could all do a lot to put our house back in order if we would save more.

No, it's not the only answer, it's not a complete solution, but it would make a big dent in the problem if people simply banked more money.

For those of you still confused about what the problem really is, let me spell out for you what isn't in the public discourse. It all boils down to this--the banks are afraid to lend each other money because they aren't sure that the other banks actually have any money.

Money comes in many forms for a bank: cash, property, commodities and "paper," i.e., contracts for payment later. There's a lot of "paper" out there that might not be worth anything because the promise of repayment was accepted without any real evidence that it could be kept.

The plan is to have the government buy up a lot of the paper so that the banks have real money instead. That will allow the banks to comfortably lend to each other again and we can have a more stable economic recession in the coming years. The recession is a done deal, there's no way around that, the question is whether it will be orderly or chaotic.

So, if you want to help, what the banks need is cash deposits. Truly, if everyone would simply bank as much as possible of their paychecks for the rest of the year we wouldn't need any government bail-out. I know that's not going to happen, just like my diligent recycling and re-use isn't going to close any landfills, but it helps.

So, find something you regularly consume (and spend cash for) that you can do without and bank that money instead of spending. This economy needs correction as much as Wall Street. We have too many consumer goods (and services), too many jobs that depend upon their consumption. It's not healthy, it is not sustainable.

Bank your cash.

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