Just as a personal investor should take the time to adjust their personal financial position to better meet the demands of an expansionary policy, changes need to be made to reflect a Contractionary government policy. Specifically, because of the way in which such an environment will generally command higher interest rates, lower growth in private business, and possibly even an appreciation in currency values, an investor should focus on building up the integrity of their own financial position so that they can weather the ensuing costs of living.
The most obvious aspect of a Contractionary environment that an investor needs to deal with is the increasing costs of managing debt. Because of the way in which the government has taken it upon themselves to require banks to fortify their financial statements, while private business growth declines in the face of the reduced accessibility of capital, consumers will start to see that paying down their expensive debt is the strongest guaranteed investment that they can possibly make in the economy. Continue reading