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This is true, and may be a market failure, but the basic problem is independant of that problem : Companies largely don't see opportunities for improvement of
by iofj 11y ago
This is true, and may be a market failure, but the basic problem is independant of that problem :
Companies largely don't see opportunities for improvement of the economy anymore.
The hoarding of cash is a symptom of this, not a cause. This is also a problem that can't be fixed by financial rearrangement, however creative. And we should keep in mind that improving things by meddling with financials is really hard, destroying entire economies with that same meddling is very, very easy.
We should do more basic research. That might help. Might.
When it comes to the problem you identified, I think the cause is QE and cheap loans. How do these profits work ? Well, easy : every bit of revenue coming in becomes profit and you use loans to finance everything. In some cases, they literally use loans to buy raw materials instead of revenue. In sadly more than a few cases, loans are being used directly to be paid out as profits, either directly or through share buybacks.
This seems to me a stupid deal for shareholders : you're trading equivalent value for a senior position in the liquidity chain. But it has that "money now" ring to it, of course.
This is not sustainable, and will blow wide open once interest rates rise again. And they will rise as sure as the sun will come up. Either because some central bank causes inflation, or because they simply stop pushing down interest rates.
- AnthonyMouse 11y agoIt's worth pointing out that the hoarding of cash is caused in very large part by the tax code. If a corporation has cash they don't need then the natural thing is to give it to their investors and let them figure out what to do with it, but the tax code causes that to be a "realization event" that requires tax to be immediately paid. So hoarding cash (and collecting interest on the whole of it) is more profitable than transferring it to someone else who will only be able to collect interest on the after-tax portion of it.
- eli_gottlieb 11y ago>We should do more basic research. That might help. Might. Also infrastructure. Seriously. In much of the world outside of Europe and Japan, most people simply don't have access to very good infrastructure for basic needs like transportation, food, water, and health. Sure, it's a public good, but it's money being left on the table by the global economy since capitalism systematically under-invests in public goods.
- iofj 11y agoGood point. Even in the west infrastructure could be improved massively with easy and immediate economic benefits. I regularly see the infrastructure in France and the UK, and frankly, both countries certainly could use an upgrade of their roads, harbours and trains.