Saving Private Keynes?

If saving is a private virtue but a public vice, the Keynesians will hate this.

Citibank has teamed up with microlender Grameen Bank to provide financial services to thousands of residents from Queens and Harlem. While New York may be home to Wall Street and the $10 million walk-up apartment, it is also home to millions caught in a vicious cycle of poverty and dependence.

Key to breaking this is savings and enterprise. Microloans are 100-1000 dollar loans that allow people to start or invest in an income generating activity. Microsavings and microinsurance are minimal-fee financial products that allow people to form an asset that allows them to escape their poverty.

All people lead complex financial lives. Without microfinance, the poor often use wealth-depleting high-cost alternatives like payday loans or pawn shops. Grameen has over 30 years experience (and a Nobel peace prize) developing products that enable people to work, save, and invest their way out of poverty. The essential idea is to operate a “non-loss” business that can sustain itself while it lends money at reasonable rates.

But the poor are our best spenders, right? Keynesians claim that anything to encourage savings hurts the recovery, as more savings results in the paradox of thrift. That’s just ridiculous. If poor people are able to provide goods and services that others want, they’ll become middle-class consumers and we’ll all be better off: less money for loan-sharks and drug dealers, and more sales at the Dollar Store and Wal-Mart.

You can’t spend your way to prosperity. But anything that encourages enterprise wins.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-05T17:47:10-04:00October 25th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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