Thursday, August 9, 2012

Global Surplus Capital

In a previous article I had referred to "the problem of too much money existing for the present state of the world economy."  This is not a subject you hear being discussed.  You see evidence of it by interpreting reports such as the following.

The article, "Denmark Moves to Drop Deposit Rate Below Zero," by Flemming Emil Hansen and John Stoll in the Wall Street Journal, Friday July 6, 2012, page A7, says that depositors "now face paying for the right to park their money in the central bank....Nationalbanken lowered its deposit rate to negative 0.2% from 0.05%"  This says the national bank of Denmark has more money than it can use, it does not want deposits.  Money exceeds investment opportunities, there is a surplus of capital.

The article, "Google Googles for Yield, Finds Auto Bonds" by Katy Burne, Wall Street Journal, Tuesday August 7, 2012, pages C1 and C3, says Google "has found a new place to park some of its $40 billion cash hoard: bonds backed by car loans."  Remember how collateralized debt obligations crippled the banking industry and plunged the world into recession?  Bonds backed by auto loans are not that much different than loans backed by home loans.

The article "The Bonds, They Are A-Changin'" by Liz Moyer and Al Yoon, Wall Street Journal, Wednesday August 8, 2012, page C4, says that Sesac, "A privately held Nashville, Tenn., company is preparing a $300 million bond backed by the cut it receives as a middleman between music companies and songwriters and the outlets that broadcast their music."  Goldman Sachs is preparing this bond offering.  The article mentions three other bonds backed by revenues.

Investment money is not going into new business creation that would produce employment.  Unemployment is keeping us all in a recession.  We cannot solve a problem we do not recognize.  It is time for us to discuss the problem of global surplus capital and the related problem of inadequate business creation.

The independent intellectual Judge Richard Posner has mentioned "the emergence of a global capital surplus," on page 20 of his book, A Failure of Capitalism.  The alternative press has mentioned it.  The Monthly Review, an independent socialist magazine, in its May 2012 issue published the article "The Endless Crisis" by John Bellamy Foster and Robert W. McChesney, which says,  "...more and more surplus capital tended to accumulate actually and potentially within the giant firms and in the hands of wealthy investors, who were unable to find profitable investment outlets sufficient to absorb all of the investment-seeking surplus."  But these articles do not mention the problem of inadequate business creation.

If we face the problems of inadequate business creation and lack of investment in new business, then we can get out of our recession.

Robert Canright

This article is part of the New Business Project of the Texas Ascendant Campaign.

PS:  the term capital surplus is an accounting term, which is why I use the term "global surplus capital."
Also, the article "The Endless Crisis," does quote the book The Great Stagnation by Tyler Cowen as saying, "Even before the financial crisis came along, there was no new net job creation in the last decade."  But I don't see a discussion of new business creation in the article "The Endless Crisis."

Sunday, August 5, 2012

The Cause of the Crash of 2008 and the New Business Project

What really caused the crash of 2008 was the lack of businesses able to absorb investment money.  This is the flip side of the problem of too much money existing for the present state of the world economy.  Because there are not enough companies to soak up the money available for investment, collateralized debt obligations (CDOs) were created to soak up the excess money.  The CDOs were time bombs waiting to explode and take down all who bought them.  The excess money is presently rattling around in derivatives, making them very dangerous.

I propose a New Business Project within the Texas Ascendant Campaign.  It is important that we have some focus on the creation of new businesses.  The problem of excess money bouncing around the international capital markets is an issue that should also be addressed, but not in this article.

There are plenty of organizations encouraging entrepreneurship.  The Ewing Marion Kauffman Foundation is one example.  The Institute for Innovation & Entrepreneurship at UT Dallas is another example.  But we need to focus on new business creation in the many things we do.  For example, our schools have a big push on science, but we would be better served by pushing business education instead of science education.  We desperately need more business owners than we need scientists.

Areas of special focus for Texas could include the following:
  • Software Products
  • Manufacturing
  • Banking
  • Investment
Texas can be the engine that pulls America back on track.  Let us build a stronger Texas for a stronger America.

Robert

The following are related articles
North Texas Industrialization   Tuesday, May 5, 2009
The Exploitation of Innovation  Saturday, March 13, 2010
Exploitation, Not Innovation  Sunday, August 5, 2012
Global Surplus Capital   Thursday, August 9, 2012

Exploitation, Not Innovation

It is exploitation, not innovation, that needs to be taught to boost our economy.  Boaz Fletcher, 44, a consultant to new companies in Israel, says “As a country, Israel is amazing at technology, but not great at building sustainable businesses," in the article Want to Graduate? Create a Company by Hannah Seligson in the Sunday New York Times, July 29, 2012.  This article describes how the Founder Institute teaches people how to start companies.

You hear a constant drum beat in the public schools for innovation.  America is awash in innovation.  What is difficult is picking the right product to promote, at the right time, and selling the product in sufficient quantities to sustain a successful business.  The judgement on which product will win and picking the right time are skills that are hard to teach.  But product sales and marketing can be taught.  The skills to create and run a company can be taught.  I have seen plenty of innovative people flounder and sink from poor skills in sales and business.  It is the successful exploitation of a product that is needed for success.

America needs more successful businesses.  To grow our businesses we need to focus our energies on the right skills to teach:  exploitation, not innovation.

Robert

A related article:
The Exploitation of Innovation  Saturday, March 13, 2010