Did we suffer the Paradox of Thrift disease?

Here is Paul's chart on the different savings.
I went back to the original BEA chart


Comparing line 10 and 2 I see that net federal government saving drops about 40% in the first quarter of 2008. In fact government new savings dropped continuously, both state and federal started dropping in Q3 of 2007.; while personal savings is still growing or holding steady.

It is more likely that consumers started saving after they saw that government spending was out of control. Rather than Paradox of Thrift, we would call it Alarm of Out of Control Government.

OK, Paul needs an update. This post of his showing causality is sometimes mixed. The Fed did not cause unemployment by lowering interest rates.

But, in the case of the paradox of Thrift, we have to assume that the Federal Governmet increased deficit spending in anticipation of the Paradox of Thrift. I still have a problem, since the paradox of Thrift claims recessions can be a result of too much savings, so Congress must have known we were about to get a Paradox of Thrift even though the Fed had just begun to cut interest rates. Is Paul saying that there was not yet a Paradox of Thrift in the first quarter of 2008, but Congress and the Fed began to prprepare for one? How did they know, either the recession had started and was not caused by Paradox of Thrift; or they expect a Paradox of Thrift in every recession. The causality argument falls apart. A better argument is that the Paradox of Thrift has nothing to do with causing recessions, but are a reaction to them.