User:Vtaylor/Financial stories/Saving, speculation and investment

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Saving, speculation and investment

  • “In the words of historian Charles Geisst, “Excessive speculation was creating inflated wealth and a sense of prosperity built upon borrowed money.” [1]
  • Savings. The flip side of debt is savings. Savings is, in essence, a voluntary reduction in consumption which frees up income to be allocated to investment – or, of course, debt reduction. Reducing debt and then building the infrastructure and industry to generate exports will require household and government savings to generate investment. Note that we have to look at business and household savings separately, in essence government and households will have to fund business investment. Business will have to run at negative cash flow as it spends. Right now the reverse is happening. [2]
  • Speculation and Investment. We often hear the terms “Investment” and “Speculation” used interchangeably and casually. “Speculation” is often used as a derogatory term for activities considered somehow wrong or extreme. But both these words have relatively well-defined meanings. An “Investment” is a transaction which is entered into primarily to yield an ongoing income stream. While in many cases capital gains may also be a hoped-for result, they are secondary. A “Speculation” is a transaction which is entered into for the primary purpose of a capital gain on sale. Income, if it exists at all, is a secondary consideration and often will be negative, a “carrying cost”.
    So if I buy an apartment building for rental income, believing that the rents will yield a net return on my capital after expenses, then that is an investment. If I buy a house with the intention of “flipping” for a higher price as soon as possible, then that is a speculation.
    It is important to define the terms because they will be used frequently, but carefully, for their particular meanings. [3]
  • 1930′s recovery plans, in which the government went out and hired large numbers of the unemployed, and put them to work. On projects that were worthwhile investments in many cases – many of the the WPA projects around the country are still in use today and are an amazing legacy of that era. Employing 8.5 million people, the WPA built, inter alia: * 800 airports, including for example New York’s LaGuardia * 78,000 bridges * 125,000 buildings * 650,000 miles of roadways * Countless parks, golf courses and works of art. ... Most of today’s infrastructure was built in the 1930s through the 1960s. When President Eisenhower left office, 12.5% of the Federal budget was being spent on infrastructure. Today it is less than 2%. As a result, America’s infrastructure is old, worn-out, crumbling and, in many cases, dangerous as recent bridge collapses have shown.[4]
  • Increase investment by changing Social Security from pay-as-you-go status to an actuarially funded investment scheme. [5]
  • what would I do, given plenipotentiary powers? My main objectives would be to: * Rebuild the nation’s balance sheet by encouraging savings and penalizing consumption. The primary tool for doing this would be the replacement of the income tax with a consumption tax. [6]