Economy is Gloomy because Americans are “Hoarding Money”

Investing money in or starting small businesses-- Backbone of America
The Fed: Economy is Gloomy because Americans are “Hoarding Money”



In a moment of recent hand-wringing, the Fed examined the question of why inflation has stayed extremely low in the United States despite all the efforts of quantitative easing money pumping. Their answer: American consumers are mainly to blame.

Yes indeed. In a paper released this week by the St. Louis Federal Reserve, the Fed cites “low level of money movement in large part on consumers and their “willingness to hoard money.”. To be fair, the paper also criticized its own policies as well, suggesting that the has they have “reinforced the recession” with their “excessively low interest rate policy”.http://www.cnbc.com/id/101963821

However, “hoarding money” is seen as the main culprit and attributable to two factors:

A (gloomy) economy after the financial crisis.

The dramatic decrease in interest rates that has forced investors to readjust their portfolios toward liquid money and away from interest-bearing assets such as government bonds

The use of the word hoarding is key to understanding the contempt here. They didn’t say “willingness to save money”, they said “willingness to hoard money”. Saving would imply prudence while hoarding implies selfishness, carefully guarded. It’s like a petulant temper tantrum: why won’t you spend your money for the good of the economy?!

Anti-business climate which is displayed by the current administration

Equally stunning is the lack of discussion with regard to investors. They point out that investors aren’t investing in interest-bearing assets “such as government bonds”, but completely omit the reality that investors aren’t investing in businesses either. And this is key. This is a result of the anti-business climate which is displayed by the current administration.

People used to spend their money investing in or even starting small businesses. That was the backbone of America. It’s not so much anymore. This administration has been exceedingly heavy-handed in its efforts to demonize businesses, while promising that businesses will be highly taxed and regulated. Additionally there have been huge increases in both criminal rules and regulations about what businesses are allowed and not allowed to do, along with a litigation-friendly environment.

All anyone ever reads in the paper is that the government is spending their time and money going after businesses and penalizing them, so much that we are truly becoming dissuaded from going into business anymore.

A few months ago, I wrote about the liberty of risk after the WSJ posted an article by Ben Casselman, who noted the very real decline of risk-taking in business ventures. It is this downward trend which is a major contributor to the fact that the recovery from the recent recession is so painfully slow and anemic. The people’s appetite for investing has been totally decimated by the war on businesses being waged.
http://taxpolitix.com/the-liberty-of-risk/

And don’t forget, we apparently have lost our appetite for spending too, because we “hoard money” these days (whatever is leftover in a paycheck to actually be able to hoard, that is) in this “gloomy economy”.