With interest rates artificially low, consumers reduce savings in favor of consumption, and entrepreneurs increase their rates of investment spending.
A rise in the level of saving can reduce aggregate activity temporarily but only a sustained high level of saving makes it possible to have the sustained high level of business investment that contributes to the long-run growth of output.
We have fluctuations all the time, business cycles, and they come about in various ways, but normally what sets them off is some reduction in the willingness of our population, our businesses, and foreigners to buy.
I would splurge on a great pair of high heels, because you can wear them to something fancy, but regular clothes? I'd rather go on a trip than spend $10,000 on clothes, and fly first class as a treat.
A government can't cut its way out of a recession any more than you can dig yourself out of a hole.
The reality is that business and investment spending are the true leading indicators of the economy and the stock market. If you want to know where the stock market is headed, forget about consumer spending and retail sales figures. Look to business spending, price inflation, interest rates, and productivity gains.
Supply can create its own demand.
Thus, the questions we should ask here are what makes the current economic upswing different from the past two recoveries, and whether such differences are sufficient for the economy to reach the sustained growth path.
I don't waste money on smart, expensive clothes.
