Also, if the Fed creates the dollars to build the new factory, then the production of goods goes up with the money suppy so prices may rise, fall or stay the same depending of the percent increase in the money suppy vis-a-vis the percent increase in produtive capacity. This is the essence of the real bills doctrine.

If we try to finance investment with more saving, we destroy the incentive to invest in the first place. Capital does not exist in a vacuum; it requires consumption.

Further, saving more deprives the business of retained earnings; retained earnings, since they require no flotation costs, are the cheapest form of capital.

Your flaw is that you don’t see that the income households earn from the production process are available for business investment whether that income is saved, i.e. supplied to the capital markets, or spent on the output of the business which then adds to retained earnings.

Further, when the income is spent on the output it provides returns to existing capital which, in turn, provides the incentive to invest further.

Besides, the capital markets today are populated with the likes of Madoff, Stanford, Fuld, Thane, Paulson, etc.

bye

BB