Prolonged low interest rates fuelled unprecedented greed by corporate executives and individuals, feeding off each other. Executives gambled with shareholders’ funds knowing there was no downside for them, but phenomenal upside. They invented worthless financial instruments, validated and sold them, pocketing huge bonuses. After several years, this white collar scam surfaced, but guilty executives escaped, while you and I bailed out their companies.
Low Interest Rates Fuelling Excessive Spending
Meanwhile, Canadian and US governments are bent on disproving two of my favourite Einstein quotations: “Insanity is doing the same thing over and over again and expecting different results.” And, “We can’t solve problems by using the same kind of thinking we used when we created them.” wrong!
On the other hand, using low interest rates, individuals borrowed to buy homes and stuff they couldn’t afford. Reality came, they needed to lower their unaffordable standards of living, but along came Governments, lowering interest rates so folks could continue spending to keep the economy ticking! Go figure! Sadly, rarely do you hear anyone accepting responsibility for his or her irresponsible spending. Mostly, folks are victims. Really?
During the bubble period, many jobs were created which were unsustainable! Businesses expanded because cheap money was an irresistible bait for consumers. Today, Governments will waste funds stimulating (a euphemism for more reckless than usual spending) economies, driving indebted consumers deeper in debt, and giving incompetent bureaucrats more opportunity to play with our money like it’s monopoly money.
Consumer Spending Drives Economic Growth
The system is broken. In the short-term we cannot depend on consumer spending to fix it. It will take time to heal. Folks to start saving. Bad businesses to close. New companies need to emerge from the wreck, and ethical companies need to begin to invest. Hopefully, by then governments will realize they don’t create productive jobs (sure, they can expand government, but that’s counter-productive). Governments must concentrate on creating a competitive climate for small, medium-sized, and large businesses to function effectively. They need to examine taxation policies, dividend policies, government regulations, to ensure they are simple, effective, accessible.
The capitalist system is the best to grow our economy. We must tweak regulations so executives pay when their risks fail. We mustn’t remove risk-taking, but we must have a penalty commensurate with the potential reward. And, to be sure, the answer is not more government involvement in the economy. Indeed, we need less.
© 2010 Michel A Mell