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For this to happen some of the excess household debt from the number 96% of GDP, that household debt in the USA has reached, has to be shaved off. This is happening as Americans are shifting to becoming debt free in their finances. This affects consumption through the paradox of thrift. But says Prof. Frank this is OK, as the government steps in in the meantime to give the boost to the economy, till consumers recover from debt. Future savings can then be channelled into new productive investment for modernization's next phase, just as China and India are doing.
Imbalance in Nations' Savings Clouds Forecasts for Recovery
Wall Street Journal 03/23/2009
Go Ahead and Save. Let the Government Spend.
New York Times 02/15/2009
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