Showing posts with label stocks. Show all posts
Showing posts with label stocks. Show all posts

Sunday, March 15, 2009

Invest in America--Before it's Too Late

In the March 23 issue of Newsweek (on newsstands Monday, March 16): "I Want You to Start Spending!" Daniel Gross writes about how we, as consumers, need to start taking risks again in the economy and start spending to help the recovery. Plus: Mexican drug cartel violence spreads north of the U.S. border; investigating Americans' Swiss bank accounts; the decline of Iraq's Kurdistan; how to choose the right procedure for an ailing heart and Prince's big online bet. (PRNewsFoto/Newsweek) NEW YORK, NY UNITED STATES 03/15/2009

15 Mar 2009 16:56 Africa/Lagos

NEWSWEEK Cover: I Want You to Start Spending!

Invest in America--Before it's Too Late

We've All Lost The Taste For Risk; For Our Economy To Recover and Thrive, 'Hoarders must open our wallets and become consumers, and businesses must once again be willing to roll the dice,' writes Daniel Gross

'We've gone from age of entitlement to age of thrift,' says PIMCO CEO

NEW YORK, March 15 /PRNewswire/ -- With the economy in its 16th month of recession and the markets cut in half, it seems we've all lost the taste for risk, writes Newsweek Senior Editor Daniel Gross in the current issue. "In the grip of a bubble mentality, we -- as investors, consumers and businesses -- blithely assumed risk and convinced ourselves it was perfectly safe to do so," he writes. But now, "the zeitgeist has spun 180 degrees. Squeeze your nickels, slash debt, stop gambling," Gross writes in the March 23 Newsweek cover, "I Want You to Start Spending!" (on newsstands Monday, March 16). "For our $14 trillion economy to recover and thrive, hoarders must open their wallets and become consumers, and businesses must once again be willing to roll the dice."

(Photo: )

In his essay, Gross explains how not spending anything now could mean bigger problems in the future. The rush to hoard cash and pinch pennies is understandable, given that some $13 trillion in net worth evaporated between mid-2007 and the end of 2008, Gross writes. "But while it makes complete microeconomic sense for families and individual businesses, the spending freeze and collective shunning of nonguaranteed investments is macroeconomically troubling. Especially if it persists once the credit crisis passes."

"The precautionary behavior of every entity in the global economy has gone up," Mohamed El-Arian, CEO of the giant bond-investment fund PIMCO, tells Newsweek. "We've gone from an age of entitlement to an age of thrift."

Gross writes that nobody is advocating a return to the debt-fueled days of "4,000-square-foot second homes, $1,000 handbags and $6 specialty coffees. But in our economy, in which 70 percent of activity is derived from consumers, we do need our neighbors to spend. Otherwise we fall into what economist John Maynard Keynes called the 'paradox of thrift.' If everyone saves during a slack period, economic activity will decrease, thus making everyone poorer. We also need to start investing again not necessarily in the stocks of Citigroup or in condos in Miami. But rather to build skills, to create skills, to create the new companies that are so vital to growth, and to fund the discovery and development of new technologies."

Economists warn that if we don't manage to jolt the economy back into life soon, we run the risk of repeating Japan's so-called "lost decade" of the 1990s, Gross writes. Would that be so bad? After all, while Japan endured a prolonged period of slow growth, nobody starved, there was no social unrest in the aging country, and its biggest companies continued to innovate. But America is different. Thanks to our continually rising population, we need significant growth just to maintain our standards of living -- and the health of our democracy. "When people experience progress in their material living standards and they have some degree of optimism that it will continue, they're inclined to support public policies that reflect tolerance, opening of opportunity and commitments to democracy," says Benjamin Friedman, a Harvard economist and author of "The Moral Consequences of Growth."

A second moral imperative demands that America get back on the growth track, Gross writes. "The U.S. remains the single largest source of demand. Until America emerges from its bunker, the global economy -- facing its first year of contraction since World War II -- is likely to remain moribund."

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