Mutual Finance

Santa Claus, in addition of being one of the most recognizable figures of society, is possibly the single most important consumer. Santa, in fact, is so important for our economy that I often wonder why is it nobody at either the Bank of Canada or the Federal Reserve System has ever thought of putting his effigy on the Loonie or the Greenback. Santa is the quintessential consumer, a real big spender, and whatever he decides to spend his money on not only is vital to a great many small businesses and stores but it sets also the economic tempo for the first few months of the new year as well. Beyond all the gifts and presents Santa is fond to so lavishly shower upon all of us every year for whatever arcane reasons, his greatest impact is to be found in the way his generosity affects the equilibrium between spending and saving. To be more specific, Santa has the greatest say on the most important element of the economy: the domestic pool of capital.

Consumers Spending is one of the basic pillars of capitalism. Its weight is to be felt both domestically as well as in international finance. Nowhere is Consumers Spending more powerful than in the United States. American consumerism works like a gigantic magnet: not only does it affect the domestic economy - it also exerts its huge gravitational pull on countries as far away as Europe and East Asia. In fact, it can be said that were it not for how Americans spend - particularly at Christmas time - a few of those countries would be chronically on the verge of bankruptcy.

In order to realize how powerful American Consumers Spending really is, one has to take a look at Consumers Saving first. Consumer Saving represents quantitatively two-thirds of the pool of capital out of which the U.S. draws its money for investments and capital projects. It is only natural, therefore, that fluctuations in the level of Consumers Saving reverberate throughout the American economic structure. Generally speaking, it can be safely stated that as the level of Consumers Spending increases the level of Consumers Saving diminishes. This is only obvious, since the algebraic relationship between the two - at equal levels of real (spendable) income - is inversely proportional.

What is a little less clear, however, is the fact that under normal circumstances a decrease in Consumers Saving will be matched by a corresponding increase in Corporate and Government Savings. This is so because since consumers spend more (and save less) to buy goods, corporations and firms will earn more by handling more cash while, at the same time, Government will not be pressured to spend or overspend to keep people employed. Practically therefore, the effect of a jolt in Consumers Spending is ultimately to reduce Government Spending or, as they like to put it in High Finance:

[] Consumers Spending (+) = Consumers Savings (-)

[] Consumers Savings (-) = Corporate Savings

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