SHOULD MALAYSIA SAVE MORE OR LESS?
Is savings a curse or a blessing? Looking at how major economies are desperately trying to boost consumption growth and avoid recession through cheap money policies, one could be forgiven for thinking it is the former rather than the latter.
Cheap money, that is low interest rates, makes savings unrewarding. It also threatens to penalise savers when inflation starts to edge upwards by reducing real purchasing power.
So, why are there these disincentives to savers? I think there are at least three reasons.
FIRST, rising interest rates threaten the health of the financial sector. In an age where financial institutions reign supreme, this not only threatens to choke off economic activity but also an industry that is a powerful growth-driver in its own right.
SECOND, many governments are constrained by what they can spend. Financial markets generally view rising government deficits as evidence of fiscal irresponsibility. Many democratic ones also find great difficulties in getting their government spending plans passed by their legislatures.
THIRD, with governments unable to run large deficits, and with private investors spooked by the great uncertainties and volatility, boosting consumption and reducing savings is an easy way out. If income is not consumed, it is obviously saved.
It is blazingly obvious that the most troubled economies today are the ones that save too little rather than too much. Mediterranean European countries (but also the United States) have debt problems, which they hope to cure with even more debt.
So, should Malaysia save more or less?
So, should Malaysia save more or less?
Read more: Should Malaysia save more or less? - Columnist - New Straits Times http://www.nst.com.my/opinion/columnist/should-malaysia-save-more-or-less-1.70194#ixzz1qwSnl4mO
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