Just 3 percent of our net worth will solve most economic issues.

Q.When is one dollar equal to six dollars?
A.When you spend it.

That’s right. And here’s the proof: The US economy currently has $2.5 trillion in circulation. Yet that amount produces $15 trillion in sales of goods and services. That means that every dollar in circulation “turns over” six times in one year as it passes from consumer to vender to employees and then to other venders in a lot of small but ever widening circles.

Now what happens when you save that same dollar? Isn’t that even better for the economy? The answer is a resounding “no.” Money that is saved has a much lower turn over rate, hence it produces much less economic activity. It turns over just 1.5 times per year. Money that is spent therefore has 4 times the economic clout as does money that is saved! Economists call this phenomenon the “paradox of thrift.” Moreover, since spending accounts for 70 percent of our economic output, it’s the spenders—not the savers—who make the economic world go round.

Now I’d like to lead you into a new paradox. Which road leads to prosperity, the road of spending, or the road of saving? That answer is a bit more complex. We need both. But the best answer is that we need more spending now in order to raise our output, raise our employment level, and raise our incomes. If we do all that, then we also will produce more taxes, lower our deficits, and solve a lot of our social issues, as well as create more savings. On paper, this is a “no brainer.” In practice, it’s proving to be nearly impossible. Let’s go with the difficult.

We could accomplish all of those objectives by freeing up just a small amount of our savings and get it into the circulation pool. That means we need to convert enough of those dollars that turn over just 1.5 times per year to those that turn over 6 times per year. In the long run we all benefit from doing this—rich and poor.

If this is starting to make sense, it’s because it does make sense. We have $70 trillion of net worth (assets minus debts). If we could move just $2 trillion from savings dollars to spending dollars, that would boost their turn over rate from 1.5 to 6.0, an increase of 4.5 Now those dollars would produce an additional $9 trillion in goods and services, $7.65 trillion in new incomes, and 15.3 million new jobs paying $50,000 each. In addition, they would produce $3.6 trillion in new tax revenues (local, state, and national), thus putting us on course to balancing budgets and solving other problems hand over fist.

Just $2 trillion from the stack equal to $70 trillion would do the job. Now comes the problem. The poor have no savings. The middle class has just enough to barely meet their needs, about $7 trillion. Churches, schools, and charities have $3 trillion. That leaves $60 trillion in the hands of the wealthy. How do we convince them to convert just 3 percent of their assets into cash and get it into circulation?

Here now comes the arithmetic that proves the rich would receive a much higher rate of return by spending just 3 percent of their net worth than by hoarding it. (I am using the term “hoarding” in its best sense—the opposite of spending). In fact, the return is so high I am surprised they have not stumbled onto this huge return potential that is simply there and waiting to be taken.

The long term return on net worth is 7.2 percent per year. That is the capital gain one realizes from stocks, bonds, and real estate (growth data from Fed, 1960 to 2010). It also is the result of an economy growing at about 3 percent per year. An increase in $9 trillion in economic output is a 60 percent boost. Even if that growth were spread over 20 years, net worth would soar by nearly an additional 3 percent per year from 7.2 percent to 10.2 percent.

Net Worth Growth Rates

. 7.2 percent v. . 10.2 percent



Start $60 trillion v. $58 trillion

1 year $64.32 tril v. $63.92 tril

2 years $68.95 tril v. $70.44 tril

3 years $73.92 tril v. $77.62 tril

4 years $79.24 tril v. $85.54 tril

5 years $84.95 tril v. $94.27 tril


It’s clear the wealthy would recoup their money in just over 1 year, and they would be $10 trillion ahead by the end of 5 years.

I have spent the past 10 years in presenting these numbers in at least a dozen different ways. Is there somebody out there who can make a better case, a more compelling case, so that those who are resting on the $60 trillion stack of wealth know how much it is costing them by not getting about $2 trillion of it into circulation?

The country is waiting. The unemployed are waiting. Employers are waiting. The government is waiting. The world is waiting.