Monday 14 September 2009

The Short Sighted Economist


The New Economy

The new economy is an economy that is based on the notion that it is not beneficial to save. It is an economy produced by governments that want revenue increases that arise from increased nominal and real incomes. The implementation of the new economy has serious consequences for real saving.

As governments keep interest rates extraordinarily low people don't save, but rather make long term decisions that commit them mire and more to a culture if low saving over the long term. This may mean greater spending and stock market growth, and rising property values for extended periods, but it reduces the proportion of long term incomes that people are willing to save in cautious savings media, such as bank deposits.

It means that only very profitable short term activities are supported in the stock markets of advanced economies. Long term investments struggle for financing in industrial economies while short term profitability of increasing production in low wage economies takes precedence. This gradually erodes the capacity of industrial countries to produce and compete because they have not invested enough.

Eventually, low interest rates produce a sagging long term economic equation similar to that seen in Japan.

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