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.
I also wrote the article Excess Global Capital on October 15, 2017

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."

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