A fee-only financial planner once said to me that the one strategy the financial industry rarely supports is paying down debt. No one makes money off of it. In a semi-related observation, investing based on how economists, especially those who are employed by political masters, wants us to invest sometimes does not end well.
Before the credit crisis some economists told us to spend given that we had entered a golden age devoid of recessions. Now economists are urging economic policies that encourage spending when many households are trying to de-leverage; this strategy may give a short-term spike to the economy (and save some political jobs) but its like asking a poker player to go all in one more time with $100 left. Odds are this player will end up with nothing.
If we were all rational investors we would behave like well-run corporations- unemotional decision making based on the bottom line. While some economists are telling us to spend again, what are these same profit-making institutions doing? Refinancing debt at cheaper interest rates and hoarding money until one sees an economic trend one way or another. It is not very sexy and not enriching m & a starved i-bankers but that’s exactly the point.
On a societal level, this may not be a good thing in the short-term but expecting an economic recovery to occur so quickly defiles how economies work. Sitting on cash in the short-term may be frustrating to economists but it may be a far more prudent course of action to shore up household balance sheets than jumping from investing trend to investing trend.
Makes one wonder if we should be following the advice of an economist who may make a decent salary or following the actions of well-run corporations that make millions and billions in profit?
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