Are we saving too much?
That’s what it seems like, at least in the larger economy. Corporations had a near-death experience during the Financial Crisis, when the money market dried up. Since then cash balances have soared while capital expenditures have shrunk. Ditto for consumers. Excluding student loans, consumers have consistently deleveraged every year since the crisis.
As a consequence, there is a savings glut. This is one reason why interest rates remain low, in spite of the Federal Government’s record borrowings. And if everyone else is saving, government dissaving is the only way to keep the economy growing. Otherwise, either the economy shrinks or prices fall. That’s one reason why fiscal austerity in Europe is deepening the recession over there.
The problem with government spending isn’t the spending so much as the government. Give someone a blank check and a broad mandate and fraud and abuse will arrive like ants at a picnic. The question is what to spend on: there are economically beneficial projects, but there’s always a gravitational pull towards wasteful cronyism.
That’s why private investment is more efficient than public spending. Only it’s not here yet. When your only tool is a hammer, it’s better to use it than let it sit in the toolbox.
Douglas R. Tengdin, CFA
Chief Investment Officer
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