It seems that business reinvestment is not dead, the problem is that it is being done to reduce the amount of workers needed. A lack of growing demand for most products means that business has shifted its focus from growing and producing more, to cutting cost. Increasing productivity is a good thing in that it allows profits to grow and can reduce inflation, but this is a double edged sword in that it also reduced employment. Reinvestment should thus not be confused with new investment, new business start-ups tend to be far more job creative.
Today the government cut its calculation of U.S. growth in the second quarter
to 1.3% from 1.7% in its third and final review, citing less consumer
spending and business investment than previously estimated. Consumer
spending rose 1.5% in the previous quarter instead of 1.7% as initially
forecast. Business investment, excluding residential housing was
revised down to a 3.6% increase from 4.2%. This trend should continue, expect consumers to spend less as business spends money in ways that reduce the numbers of high wage workers needed.
On Sept.8th 2012, I posted a blog about how demand drives investment. When will policy makers 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 distorted and 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.
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 part 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.
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