23 June 2014

A Capital Idea

This posting, yet another attempt to game the market, asserts that QE is, to some degree, responsible for the mess we're in:
I am open to the idea we have entered a period of structurally low volatility due to increased regulatory burden and flow on effects from the decline of institutional FICC trading. Or it may just be a function of QE, and post-tapering we will see a return to higher levels.

FICC trading is the evil spawn of the whole financial services sector. That it would disappear, we'd all be better off. But what finally motivated me to track down some specific data was the whack at the QE pinata. It's been my sense, just watching the market news, that corporations as a whole are just not investing in productive activities. That the Great Recession was triggered by rogue, on a mammoth scale, fiduciary investing is the elephant in the room. Corporations simply would rather engineer moolah than build productive capacity. The simultaneous destruction of middle class demand for goods just might have something to do with it.

But, is there some quantitative measure of physical investment over some period of time? Well, Virginia, yes there is.

Here's a posting showing core capital goods, the kind we're interested in. It's the sixth graph. From this graph we get:
1990 - $36 billion (appr.)
2013 - $68 billion (appr.)

About double, if we assume that these are price adjusted. Rather less, if not.

But absolute value isn't what we should care about. Rather, physical investment as proportion of the USofA economy makes for a more accurate picture of what the 1% are doing with all that moolah they've squirreled away. So, then, what are the GDP numbers?

Here's one graph of them.
1990 - $ 5,979 billion (appr.)
2013 - $16,799 billion (appr.)

1990 - .6%
2013 - .4%

So, there's your answer. To answer the poster's question: QE hasn't much to do with it. The level of real investment has cratered, thus driving the 1% to fiduciary loophole mining to get their well deserved 10% return on their moolah. And, since it's clear that physical investment opportunities are either scarce as hens' teeth or too poor in return to be viable at the desired 10% return, the monetary interest rate must fall to meet the real return on real investment. IOW, with or without QE, we're facing (or, more likely, amidst) a long period of investment stagnation brought on by both stagnant middle class demand for goods, and ever diminishing real innovation in science and engineering. A Brave New World, so to speak.

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