"Where is someone supposed to get yield these days?" said Emma B. Rasiel, an associate professor of economics. That's what got us thinking."
The problem for these fledgling financiers is the same one faced by their white-shoe elders: buying and selling stocks and bonds in the market isn't investing in companies, it's gambling with other like minded folks. It's a zero-sum game. The underlying issue is that returns, in real terms, are generated by technology (modulo corruption) progress. Buying stock or bonds in a public offering is investing. Trading such instruments later is not, it's just gambling. Ignorance, or denial, of this fundamental truth is what caused The Great Recession: the vig on all those McMansion loans had to come from the income streams of the mortgage holders. And for those incomes to increase, a necessity given that the bulk of these mortgages were adjustable upward, requires increasing wages and increasing productivity. While productivity has been increasing over the last decade and a half, little of that increase has made itself into wages. Those holding moolah, and wanting risk free returns, turned to housing en masse. As as lemmings do, they all drowned. If you've not heard it, here's the link for the NPR piece "The Giant Pool of Money". NPR produced follow-ups, described in the wiki.
The avowed purpose of the successive QEs was to bring into productive status ever more real investments, which would not have been feasible at higher interest rates. This is classic Lunatic Right trickledown economics: make life easier for those that already have it easy, and the rest of the boats will rise. If capitalists were the homo economicus of theory, then previously marginal physical investments become viable, and are done. Of course, it hasn't happened. Why?
For one thing, in technology the return period for physical investment continues to shrink. The reason for that has been the relentless boot heel of Moore's Law: more and more transistors packed into chips each year. The facilities to make ever denser chips get leapfrogged in tens of months. Long term investment in physical capital in tech is kind of non-existent; there is no long term. It's not like building a railroad or blast furnace in 1870, where one could expect to reap returns for decades. Churn in tech has killed that off.
Apple has had to churn out a "new" iPhone about once a year, just to keep people interested. If you're of a certain age, you may remember the American auto companies being accused of planned obsolescence in the 50's and 60's, compared to European companies. Change a tail fin here or a grill there. Apple's been doing just that for more than half a decade. And they do it because some other company can build on the latest tech, which didn't even exist when the current iThing was finalized.
The end result is that long term physical investment is an oxymoron, in a growing number of industries.
If there isn't the opportunity to exploit physical investment for multiple years, then there isn't a moolah flow to support paying interest to bondholders. In other words, the reason that Apple and all the others are holding trillions of moolah is simply because they can't find useful purposes for the money. The Fed is still pushing a string.
The adulation that housing is "coming back" is a sure sign that capitalists still don't have productive uses for moolah. The only way to generate demand for more capital is to increase demand for current widgets with current tech. And that's fiscal policy, which amounts to divvying up the pie more equitably. Socialism! But the Lunatic Right want deflation, since that's even less risky than Treasuries, which aren't paying much. And they aren't paying much because there's just not much need for physical investment. Moolah is fungible, the economist's fancy word for "it's all one big pot of stuff", and if demand for physical investment were to accelerate the inevitable result is higher returns across the board.
The true danger: as (and if) moolah flows into shares, then we have what the pros call "asset inflation"; more money chasing a fixed number of widgets. Clearly, the stock market has risen far more than macro measures justify. We're near, if not in, Ponzi territory.
This lack of demand for physical capital can't be fixed by the Fed. Marx is looking righter by the day.
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