Save more or spend more?

Echoing a similar debate in the USA, the UK debate about getting savers to spend more, or to tax them, the prudish comments about a false economy based on credit boom, how our priority should be more savings, UK having highest household debt in EU etc. - this is angst-ridden baloney! The only important issue about our credit boom economy was the external account (net of our high FDI inflows) that had to be funded by selling financial asets to forewignors (exporting bank asset securitisations) and at some point this had to collapse necessitating severe changes in our terms of trade; lower net imports and lower pound (for a while anyway).
The viability quality of the economy is not given by how much we save or borrow. Export-led economies are not in better shape. Anyway, the definition of 'savings' is wrong - too narrowly conceived. When households pay mortgages they also believe themselves to be saving, similarly in life and pension schemes. Household debt did rise to highest in EU (among the bigger nations) but so too did assets and therefore UK households net position remained merely at the average for the EU. Even today with average loan to value ratios of mortgages at about 55% these loans are more than fully secured despite the 20% fall in house prices (even if likely to fall another 10%). Even defaulting mortages average about 67% LtV also in aggregate within the discounted collateral value of house prices. So far all defaults are likely to be at least 60% recoverable. When Government borrowing rises or falls, so too does private saving rise or fall and by exactly the same ratio to GDP. This is an accounting identity; these are not separate unconnected observations. Japan's high savings ratio was the counterpart of the Government's high borrowing. The low domestic consumption was caused by lack of Government domestic stimulis and the multi-generational household debt overhang from the heady property values of the late 1980s.
More serious an accusation is that following a major shift in lending to mortgages and consumer cards (In UK, Eire, Greece, Spain, USA) that lending to non-financial businesses suffered (when measured absolutely and not just in ratio to GDP) and net imports grew phenomenally - financed by foreign acquisition of net financial assets. There is a strong case for shifting bank lending to more loans for business sectors.
Lending to customers by UK banks is 2-3 times GDP (and not all this is UK specific). UK customers possess 3 times this again in assets at current market prices, i.e. one third at most is debt, probably only one quarter. Household savings in bank deposits alone are about one times GDP and this covers 80% roughly of loans to households. Therefore, the idea that UK households cash savings are perilously low based on reported annual 'savings ratios' is wrong, and wrong again when other savings are considered out of income i.e. pension, life, property equity net of mortgages and other private or personal assets. Taxing cash savings when expenditure is richly taxed and given recession circumstances is truly mad! Taxing unearned income (interest on cash savings and other) at source could be relieved and recovered in income tax returns is possible, but this gives non-doms a bonus.
Hence I prefer the idea of more money for the poor among whom in greatest number are poor state pensioners getting half of what state pensions were worth 50 years ago and almost half what French pensioners get for example. Rich pensioners are the fastest rising tax payer segment and pay more than enough to fund doubling of state pension to poor pensioners, whose net cost is low given that the poor spend domestically and can't save whatever they get.
Of course, household consumption is important to GDP, but too much attention is focused on the consumption side of GDP (a conservative choice) nd not on the output side of the same double-entry account. Output GDP is public and private earned income and profits. The ratio between earnings and profits varies over the cycle, but the total of the two has to equal public and private (households and businesses) consumption + fixed investment. Government counter-cyclical actions operate on both sides, but it should be fairly clear (before considering the external account, which is also very important) that action to maintain employment income is just as important or more important than consumer spending. If people save more in bank deposits or similar than they would spend at other times, this is merely a matter for the banks' transmission mechanism to extend more loans to productive industry and/or to buy and hold more gilts from new issues - something the Government is keen to enforce on banks in which it has shareholdings.
When household saving fell dramatically in the few years this coincided with 186% rise in house prices and fall in government borrowing. When sterling deposits at UK banks fell over a long period as a % of their assets this was also because of the international expansion of UK banks including wholesale business.
The media dogs, like Anatole Kaletsky recently in The Times, responding to the simple-minded statements by messrs Osborne and Cameron, and absurd questions about whether to tax household savings, have got their teeth on a meatless and hollow bone.