Jasz
VIP Contributor
Banks will become insolvent and customers will suffer if we stop saving. We would no longer be able to borrow money from them, which would make our economy vulnerable to a financial crisis. In fact, this is already happening: people are not saving enough to keep the economy going. They're not paying their mortgages on time, they're not putting aside money for retirement and they're not making any progress in paying down their credit card debt.
Without an increase in savings rates, banks will have to lower their interest rates on loans in order to attract borrowers. This means that many people who could afford to pay for their own homes will find themselves unable to do so because rents are too high or because they're being charged too much interest on their credit cards or auto loans. Banks have now become so dependent on taking out large amounts of short-term loans from depositors that they don't have enough capital left over after paying themselves back from the interest earned from these loans that they can lend out again. This is what happened during the Great Depression.
Without an increase in savings rates, banks will have to lower their interest rates on loans in order to attract borrowers. This means that many people who could afford to pay for their own homes will find themselves unable to do so because rents are too high or because they're being charged too much interest on their credit cards or auto loans. Banks have now become so dependent on taking out large amounts of short-term loans from depositors that they don't have enough capital left over after paying themselves back from the interest earned from these loans that they can lend out again. This is what happened during the Great Depression.