Friday, February 14, 2014
Saving economies vs. Spending Economies
Economies basically can be categorized into two categories and the government actions, policies, laws decides that which type of economy will prevail in a country.
In Saving Economies :
1. All government policies , are designed so that people are encourage to save their Wealth and income.It is with obvious assumption that whatever is essential for a consumer he will buy anyway .It ensures that money is spend by consumers mostly on essential needs , hence utilization of income/wealth is more efficient.
2. It is insured by keeping bank interest rates as much above CPI Inflation rates as possible. This is keeping the interest of consumers in mind.
3.It puts the producers under pressure if net interest rate is positive , more the difference between Bank interest rates and CPI inflation rate , more is the pressure on producers , but we have to keep in mind that producers have the financial muscle power to bear this pressure.
4.So the GDP growth rate may not touch Dizzy levels, the stock market may not touch dizzy levels , but the economy will have a rock solid base as all consumption is based on actual needs and it is based on actual incomes and not debits.
In Spending Economies:
1. All government policies , are designed so that people are encourage to spend their Wealth and income.In such cases money is spend by consumers on many non essential goods/services , hence utilization of income/wealth is less efficient.
2. It is insured by keeping bank interest rates as much below CPI Inflation rates as possible. This is keeping the interest of producers in mind.
3.It puts the consumers under pressure if net interest rate is negative , more the difference between CPI Inflation rates and Bank interest rates , more is the pressure on consumers to spend the money , but we have to keep in mind that consumers have less financial muscle power to bear this pressure.
4.So the GDP growth rate will touch Dizzy levels, the stock market will touch dizzy levels , but the economy will not have a solid base and asset bubbles will get created as all consumption is based on superficial / non essential needs and it is based not on actual incomes but on Debits..
In Saving Economies :
1. All government policies , are designed so that people are encourage to save their Wealth and income.It is with obvious assumption that whatever is essential for a consumer he will buy anyway .It ensures that money is spend by consumers mostly on essential needs , hence utilization of income/wealth is more efficient.
2. It is insured by keeping bank interest rates as much above CPI Inflation rates as possible. This is keeping the interest of consumers in mind.
3.It puts the producers under pressure if net interest rate is positive , more the difference between Bank interest rates and CPI inflation rate , more is the pressure on producers , but we have to keep in mind that producers have the financial muscle power to bear this pressure.
4.So the GDP growth rate may not touch Dizzy levels, the stock market may not touch dizzy levels , but the economy will have a rock solid base as all consumption is based on actual needs and it is based on actual incomes and not debits.
In Spending Economies:
1. All government policies , are designed so that people are encourage to spend their Wealth and income.In such cases money is spend by consumers on many non essential goods/services , hence utilization of income/wealth is less efficient.
2. It is insured by keeping bank interest rates as much below CPI Inflation rates as possible. This is keeping the interest of producers in mind.
3.It puts the consumers under pressure if net interest rate is negative , more the difference between CPI Inflation rates and Bank interest rates , more is the pressure on consumers to spend the money , but we have to keep in mind that consumers have less financial muscle power to bear this pressure.
4.So the GDP growth rate will touch Dizzy levels, the stock market will touch dizzy levels , but the economy will not have a solid base and asset bubbles will get created as all consumption is based on superficial / non essential needs and it is based not on actual incomes but on Debits..
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