Forbes Investment Newsletter November 14

Forbes alerts us to the release of Gary Shilling's new book, "The Age of Deleveraging".

First of all, I must tell you that I have NOT read Mr. Shilling's new book, although I am sure it is as readable and accessible and understandable as his other works and that recommends it.

So I have limited myself to Forbes introduction that tells us Shilling is warning about the drag of individual savings on economic growth.

This is interesting. Forbes tends to promote the interests of the supply side of the economy, in my opinion. Yet, they're alerting us to the dangers of slow growth because consumer demand is being replaced by consumer savings, meaning that demand pull is weakening.

This is bad news for business. That means it's bad news for those who would invest in business.

This is interesting to me because it clearly recognizes the importance of consumption as the driver of the economy. It has always seemed to me that over any length of time, and more so over longer time periods than shorter ones, business activity, including capital investment, is ultimately dependent upon consumption. Business to business activity is mostly part of the supply chain from base producers - my base producers produce talent, farm produce, ore, petroleum etc - to final consumption. It then seems to me that the main driver of economic activity is, in the final analysis, consumption.

It also seems to me that the financial foundation that supports all that activity is savings by individuals, even indirectly through the corporations they own.

I think what Mr. Shilling may be observing is a balancing of the two within individuals' prioritizing.

I think the debt engine has scared most of us and many are not excited about either going into debt or lending. We would just as soon pay down debt and avoid the peril of having the bank go under, resulting in having our debt obligations become enmeshed in another financial debacle.

It seems to me that one of the things missing in this entire financial mess was there was no transparent connection between financial activity and consumption. Financial players seemed to be playing a poker game with each other, constantly seeing and raising bids until someone was left holding the bag. The trouble was, security of supply of cash and credit is the lifeblood of our economy. The rest of us were left holding the bag. I'm pretty sure we were not even at the poker table!

I still see little activity that redresses that sad state of affairs, other than tax-payer support. The financial players don't seem to have changed their business model - modus operandi if you will, while government regulation has not gone far enough to make that transparent connection between financial activity and its service to the common good.

Yet, I am convinced that the solutions to financial and economic stability along with the reduction of risk that suggests, and stability of profitability to financiers that risk reduction suggests, lie in greater enablement of that connection of capital investment to final consumption.

I know that now I must read Shilling's book.