Investing, Interest and Consuming

June 23, 2013

An investment expert admonished her interviewer to not count the American consumer out. Here then it seems was what many concerned about the US/world economy needed to know: once spenders resume spending employment will increase; deficits will diminish, and maybe tax rates will decline; once those consumers start consuming again there will be money again even if that money purchases things imported from outside the spenders’ national confines. Money needs to flow.

And where do these consumers get the money they should be spending. Well the financially literate may think that it comes from a hoard of cash that spenders are afraid to spend because no one else is spending, and so that cash may not be replenished, and may run out: so who wants to chance spending.

And who are these spenders, the ones who stubbornly hang onto the cash that could save the economy if it were spent in consuming, buying “stuff”? Well I read recently in a Naked Capitalist article that maybe these potential purchasers live on fixed incomes of interest bearing investments that will increase with interest rates and so be able to take a chance on increased “stuff” purchases. But maybe these fixed income people are by definition, frugal, perhaps even avaricious, and that’s why they patiently endure the low rate of return from fixed income: GI C’s, government bonds; and for the more daring: uninsured dividend paying preferreds.

I also heard some years ago that the real spenders: the one’s who constantly spend all they have are the real consumers, the American consumer, the European consumer, or maybe even the global consumer none of whom can stop spending and save to earn interest or to invest in stocks because the money they receive must keep circulating as they purchase food, shelter, energy often at interest rates of between 19 and 28% just to stay alive.

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