Why is one of the most important reasons people aren't spending being ignored? Low interest rates from the Federal Reserve is the problem. Few retirement planners anticipated this risk: A lunatic would get control of the Fed and give the banks all the money they wanted for free. This means that people who saved their nickels and dimes for forty years and have some money to invest are getting virtually nothing for it. Even if you had a million dollars, at the rates you can get on CD's, money market funds or bonds, you would only earn a few thousand a year, only a sliver of what even conservative planners expected. Many will be forced to invade principal which is the worst thing to happen when you are beyond your working years in that it's going to reduce your future earning ability even more.
The Fed has poisoned investment markets which no real benefit and some real negatives. I can't spend interest I never earn and won't spend what I do earn if it appears to be dwindling. It's hard for even consumers with some money to gain confidence in these circumstances.
No matter how cheap money is, people won't borrow if they don't believe they can make a return on it. Whether rates are 2%, 4% or 12%, if you don't think you can employ it in something that will make money, borrowing is a bad idea. Lowering interest rates in the current economy is of little value. If rates were in the staggering, double digits of the Carter Administration, lowering them would remove a barrier but the rates now aren't the problem.
The current Fed policy reduces the value of capital to virtually nothing. In the long run, this is a problem. I mean real capital involving people saving money to invest, not fictional money created by the Fed. Nothing good can come out of this. Salvation will not come from the Fed, and wherever it comes from, it won't be soon. The economy won't perk up until people have money to spend and making a little on investments is one way to get money to spend. When you are starving for interest, you aren't spending.
