Posted by Congressman John Campbell at 12:00 am on Aug 31, 2010 Comments Off on Risk and Return
People and businesses make economic decisions every day. To
spend or not to spend; to borrow or not to borrow; to lend or not
to lend; to invest or not to invest. In making these, and arguably
almost any decision, we weigh whether the benefits and return from
taking that action outweigh the costs and risks. If you believe
that your potential return on an investment is greater than the
risks, then you are likely to do it. If you think the benefit of
buying something is equal to or greater than the cost, then you
will spend that money.
On a macro-economic scale, there are a lot of risks out there
right now. There is a lot of talk about potential disinflation or
deflation, but yet the mounting debt augurs for monetization and
rampant inflation in the future. We may have a “double dip”
recession, or perhaps not. Gold may stay at its record highs and
interest rates at their record lows, or it could all reverse. In
the words of Federal Reserve Chairman Ben Bernanke, the current
economy is “unusually uncertain”.
Uncertainty increases the perception of risk and analysis of
costs when making those economic decisions. So, the uncertainty
causes… Read More