President Obama recently stated that it was a good thing for Americans to start Saving more, but it created a short-term problem of a decrease of Consumption. Borrowing by households dropped by 2%, which cannot be seen by myself as a precipitate drop. What I find as a over-extension is a 37% increase in federal spending at an annual rate. This basically represents a replacement of Consumer Spending with federal spending; a situation which when evaluated equates with a position where the American and World economy cannot accept any level of American Savings. Rich and less Rich Investor lost an approximate One-Third of their net Wealth simply because Americans adopted a prudent Consumption profile. What is wrong with this Scenario?
Lending to business was up 1.7% during the same Period as the 2% drop in Borrowing by households. What can one make of this information? My Take is that current Business operation in this Country is inefficient, and when American households dropped into a more efficient pattern, American business had to find alternative financing to make up for the Shortfall. A Case could be made for too great of a relationship with Government, where American business has adopted all the pitfalls of political operations; something which Conservatives may pick up in time. The current Concern among all aspects of Economic theory and Government is the drop in Employment. The real Problem may well be within the poor business format framework.
Read this Information from Steve Randy Waldman. Investors want long-term investments of low risk, while households want short-term currency supplies which carry a high degree of risk due to their decentralization and indeterminate means of repayment. Banks commonly act as intermediaries who translate the short-term risks in long-term securities; something they can only do with an inherent misrepresentation of the safety of the instruments. They do this through two avenues: shorting long-term Investors of a genuine Return of a magnitude which does honestly provide a Profit for that investment (the basic real ideation for a maintained low Inflation rate), and through the periodic convention of Booms and Busts, dumping risky investment in foreclosure in the later. The FDIC has cut into the equation for the American economy, and Government Spending has replaced the deterioration of sharp Busts. This has only increased the need for Government Spending, and due to the nature of the equation; will destabilize the nature of Government eventually, basically by making it itself insolvent. The disgust with proper taxation only quickens the directional movement towards Collapse. lgl