People want to work. Companies want to make and sell things. People want to buy things. And everybody wants to do more of all of it. The population is also growing, which should add 100,000 jobs a month to the economy.

But the key is, “absent policy errors.” And there are plenty of those. Still, it would take mismanagement on a massive scale to actually drive the economy South, and to forestall a recovery.

Don’t get me wrong – I am really glad that you are recommending a big emergency fund. But if someone had read your advice in January and reduced their emergency fund, just one job loss, sickness, death, or other unforeseen circumstance would have had an even more negative impact on them and their extended family.

In one family I know, both parents are at the end of their unemployment benefits. Their high school age son is the only one in the family generating any income. One of the grandparents is making their house payment. Even with food stamps, once their benefits run out they won’t be able to afford to eat and they’ll have to move in with relatives.

Their car died and needed repairs they could not afford. The only reason they have transportation is because the owner of the shop where they took their car for repairs felt sorry for them and gave them an old van that another customer had abandoned – he could not pay for the repairs owed on it.

I know people who have had to pull their kids out of private school. I know people whose children will not be able to graduate from college because they can’t afford to return to college in the fall. They are reluctant to get any job at all because if they do they have to begin paying back their student loans.

In some cases, people have lost everything they have. One family went from a mid six figure income and a large home to living in a friend’s basement. They have exhausted their severance, emergency fund, investments, and retirement accounts. Both parents have been without jobs for over 2 years and as of yesterday they had only $200 in their checking account.

All of these families had more than a year’s with of expenses socked away – some had 2 year’s worth. I could tell you many, many more stories of friends and acquaintances who are dealing with the worst times they have ever faced.

One out of every 2 working age Americans has no job. Families are hurting. The value of what they have set aside to get thru troubled times is now threatened with being inflated away as our Treasury Department continues to float more and more debt – debt we will never be able to repay.

In the words of Uncle Ben of “Spiderman” – “With great power comes great responsibility.” Your words have power. Please use them wisely. Please use them to help – not harm.

In any case, I think joint emergency funds can still allow you to keep the level lower than normal. The chances of you and other family members losing your job at the same time seems low enough that one fund could share responsibility for several people. That said, when I talk about emergency funds as one point within a larger post, it would be a little cumbersome to describe that kind of system every time. So when that happens, you can assume I’m talking about one person with his own fund.

Pop, you called them “giant slush funds” and “sumo funds.” You advocated reducing them. I find it interesting that you have removed this post, and all the comments associated with them as well.

In my comment to this post I spoke in favor of increasing our emergency funds, not reducing them. I wrote, “We are all now living in times of great uncertainty. During times of uncertainty, the likelihood of becoming a victim of unforeseen circumstance increases.”

On July 21 Mr Bernanke told the Senate Banking committee that the US economy faces “unusual uncertainty.”

In my comment on the now vanished post I also said, “In our current environment it seems foolish to advocate reducing an emergency fund. It seems to me that prudence in uncertain times of protracted high unemployment would dictate setting aside a bigger emergency fund, not a smaller one.”

And in this post, just 3 months after you encouraged us to reduce our emergency funds, you now say, “Keep your emergency fund high. Hopefully, you’be been socking away cash in a money market account or money market fund, just in case unemployment strikes. When the economy started to add jobs again, it was probably tempting to cut that one-year emergency fund back to six months. Big mistake.” What you advocated 3 months ago is now a big mistake, and my recommendation has risen to the forefront.

Coincidence? Or is it possible that you and Mr. Bernanke are channeling me?

The mind boggles!

One of the problems with economic bad times is that people get caught up in gloom and doom. That makes things worse. I believe strongly that the best way to help is to put a positive spin on things when this can be done honestly. This is one of those cases, in my assessment.

Stocks are in all likelihood headed to a valuation level of one-half fair value (that’s where they ended up following every earlier trip to insanely high valuations). At one-half fair value, the most likely 10-year return is 15 percent real. That’s amazing. Every dollar that you today put in a fund paying 0.11 is going to be paying 15 percent real in a few years. Your combined return is not going to be anything even remotely in the neighborhood of 0.11. It’s going to be something like 14 percent real.

These are not bad times for investors. These are bad times for investors who do not take valuations into consideration. But my view is that all times are bad times for investors who do not take valuations into consideration (it’s just that some of us are at times fooled by temporary gains into thinking that not paying attention to valuations can work).

Rob