The extract below may be interesting reading for some. I have lived through 5 recessions and each is getting shorter lived as Governments get to grips with it more quickly. This is global, but they are reacting collectively so the result should be even more quickly realised. May the Force be with you ----------------------------------------------------------- Paradox of thrift
Because thrift may be a virtue for the individual, but could damage the economy as a whole, according to the economist John Maynard Keynes, writing in the midst of the Great Depression in the 1930s.
He called it the paradox of thrift. The more people saved, the more they reduced effective demand, thus further slowing the economy.
This was one reason, he pointed out, that a recession can become self-reinforcing.
Keynes also argued that, faced with slowing demand, businesses would not necessarily use the extra savings available in the economy to invest.
In the Keynesian theory, as the slump in demand cascaded through the economy, the resulting slowdown would mean that everyone had less income - ultimately reducing the absolute amount of savings, even if people increase the proportion of their income they put aside.
As unemployment grew, investment would fall, whatever the level of savings.
Government help needed Sales signs on the High Street The government has slashed interest rates in a bid to boost spending
But how can we persuade the reluctant consumer to spend, and the reluctant businessman to invest?
Keynes' answer was that it was only the government that could overcome the collective paradox: what was good for the individual would weaken the economy.
This is now the theory being embraced by the chancellor, who has abandoned his fiscal rules for the time being in order to pour money back into the economy.
And cuts in interest rates by the Bank of England are also designed to encourage businesses to continue to invest.
But this is not very effective, because credit markets are in deep freeze. As a result, it is even more important to inject cash into the economy - at least according to Mervyn King, the governor of the Bank of England.
APG Price at posting:
4.8¢ Sentiment: ST Buy Disclosure: Not Held
