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No in fact it is precisely the opposite. As GDP growth declines, there is more accumulated investment savings (supply glut of capital) chasing fewer high-return
by alexpetralia 6y ago
No in fact it is precisely the opposite. As GDP growth declines, there is more accumulated investment savings (supply glut of capital) chasing fewer high-returning investments. The savings has to go somewhere, and often it goes into high-yield debt (exactly the type private equity issues). Low growth translates into the increased use of credit.
- jackcosgrove 6y agoThat would seem to increase risk of loss system-wide though. I'm not arguing what you're saying is untrue as that appears to be what is happening. I'm arguing this behavior is irrational. If investment opportunities decline, investment should decline and sitting on savings should increase.
- alexpetralia 6y agoUnless you literally put your cash under a mattress, savings _is_ investment (e.g. bank deposit being lent out, money market funds invested in corporate paper, Treasury holdings, etc.). The savings is always "held" (invested) in some form of an asset, not cash under the mattress.