Banking on a Recovery

   There are three main parts to any modern economy -- consumers who buy stuff, businesses that make stuff, and governments that spend money on services and lots more stuff.
   That's an oversimplification, but it's a good starting point to explain where the American economy is now, why it's not going as well as it could and who can step in to help.
   An economy grows when people buy more stuff, assuming they have the money to do so, which encourages businesses to make more stuff that people will buy. That's another simplified version of the Law of Supply and Demand -- consumers demand stuff, and businesses supply it. In addition, government is another buyer, and when an economy slows down, government can step in to artificially boost demand by buying more stuff, which can include spending on infrastructure projects that provide employment, so workers have more money so they can buy more stuff that businesses will be happy to supply.
   Round and round it goes.
   But when one group cuts back in its spending -- for instance, workers lose wages when they're out of a job -- the other group also cuts back. Businesses reduce production because there are fewer buyers.
   Round and round it goes.
   Here again is where government can step in, and when the business and consumer parts of the economy regain strength, government can step back.
   That's called fiscal policy.
   
   In America recently, however, government has not been spending as much as it could, so economic growth has been quite slow. Political gamesmanship has been stalling the federal government from doing more, as the Out Party delays projects and blames the In Party for poor economic performance.
   Another way to influence economic growth is what a central bank does, controlling the amount of money available, which affects interest rates, which in turn affects spending, investment and saving.
   That's called monetary policy.
   The U.S. Federal Reserve, as the nation's central bank, has been trying to encourage economic recovery by keeping interest rates low, which should discourage saving and encourage spending. 
after all, why keep money in a bank account if any return is overwhelmed by inflation. Simply put, if a savings account pays 1 percent and inflation is 2 percent, you are effectively losing money. So you might as well spend it, because prices keep going up and your income is not.
   Moreover, it's not just the U.S. Fed that has kept interest rates near zero. (That's a key rate available only to other financial institutions. Credit card holders are still paying interest rates in the double-digits.) Central banks in other major nations have actually gone negative in their key rates, which means other institutions are paying the central bank to hold their cash.
   In short, the American economy is crawling along, and the Fed's monetary policy has not helped. Consumers are watching their wallets, and producers are waiting for a pickup in demand before they boost supply. In effect, everybody's waiting for the other guy to start.
   Don't hold your breath.
   That leaves government, as the third major player in the national economy, to step in and kickstart the economy, since the central bank's effort at priming the economic pump has not worked.
   
   Now the question is, will the incoming government leaders step up and launch new projects and services to fuel faster growth in the American economy? Low interest rates ordinarily would encourage borrowing to finance such projects, even if it means going into debt. Then, when boom times return, government can step back as businesses and consumers benefit from  a healthier economy. Or will the new administration insist that government is not the solution, but rather is the problem? This has been a conservative argument for many years, and its leaders maintain that lower government spending, less regulation and lower taxes combine to let the benefits trickle down through businesses and then to consumers.
   
   Given the history of past promises and actions, and recent nominations announced by the incoming President-elect, who is more likely to benefit from strategies after Inauguration Day?
   Monetary policies by the Federal Reserve, as well as by other nations' central banks, have not helped. If the new federal government under President-elect Donald Trump behaves as recent history indicates it will, and fiscal policy does not change substantially, we can expect major changes in the American economy. And not for the better.