Saturday, September 8, 2012

Demand Drives Investment!

When will they begin to understand that demand drives investment, it is not about confidence, it is about lack of demand. Call it want you want, CEOs are unenthusiastic and banks have little incentive to loan money on half backed ideas for which their is little demand. It is becoming apparent to many that the financial system has become totally dysfunctional.  People are loaning money to governments and banks for five years with negative interest.  This is at a time that there is little demand for loans even at zero interest rates.

It makes little sense to invest in constructing new buildings or buying new machinery when little real demand exist. The idea of economic growth is based on getting a return on savings and investments in the future, today we live in an environment that is not encouraging anyone to take that risk. Those who accept this risk must be rewarded. This means government must address the structural issues holding back such investment and the Federal Reserve must abandon the policy of using artificially low interest rates to drive the economy forward.

Those that have saved for years and had planned to retire on the interest are being forced to receive meager and historically low interest returns on their savings while inflation lowers their buying power. When it comes to the supply and demand dynamics of the economy,  you would be surprised to the amount we can cut demand. Americans are so wasteful that often many of these cuts have little impact on their quality of life. Sometimes by cutting back people discover that "less is more", and that life is less cluttered. Till true demand increases do not expect the economy to move forward.

FOOTNOTE; this dovetails with another post concerning the dismal job market and why businesses are not hiring; 

No comments:

Post a Comment