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[quote]Originally posted by interesting at 2009-3-18 20:56|
Capital isn't scarce; we know this because reserve ratios are high and the market for Treasuries is simply on fire. Were capital scarce, neither of these things could even be happening because there wouldn't be any money to invest in those instruments in the first place.
Capital isn't scarce only because the US is considered the safest haven. It is only considered this because the world firmly believes that America is the one Country that would never, ever default on it's debt. The US government believes it can turn this economy around but, is side stepping the obvious. We are a consumer oriented economy and the consumer is over burdened with debt. Everything the government is trying to do is to get the consumer to spend again. This is impossible without creating or at least laying the ground work for the next bubble. How do you get someone already in debt to start spending again? You either have to get rid of their debt or give them access to more easy credit. The first can't happen and the latter is what got us in this mess to begin with. Unfortunately the latter is what probably will happen. True wealth must be created by production. We do not create enough of anything anymore to offset our ever increasing debt or deficit spending.
I'll use myself as and example as to why our economy will not be fixed so easily. I have a house with a mortgage. I bought before the market went on it's bubble run. I watched as my house in just 5 years was worth double what I paid. I could have pulled out loads of equity and went spend happy but, I did not. That was a smart move (maybe). I should have sold the house at peak and rented until now then bought it back on the cheap but, I'm not psychic so I did not. (wish I did) Now I sit here in a house that after 7 years of ownership is worth exactly what I paid for it or even less. I could not borrow against it to spend even if I wanted to. I have a lot of credit available to me on credit cards but, I have no desire to use it because of the lack of equity in my home. Still I am very fortunate in that aside from a car lease payment I have no other debt and I have a fair amount of cash in the bank. I did however watch 30% of my 401K evaporate in this mess. Now even though I am in a far better position than most and capable of going out and spending I refuse to do so. I would rather only spend on necessities and save the rest. Why? Several reasons. One, I do not know if my home will continue to decline in value. I do not know when or if my 401K will recover. I do not know if my employer will begin cut backs. So I am what you would call risk adverse right now and will be so for quite some time. Now if someone like myself is unwilling to go out and spend what I have then how is the government going to get others to spend what they do not have?
So from my perspective capital is very scarce. At least the kind of capital that really counts. A Country like China is the one that will come out the winner no matter what happens. Why? Because the Chinese are and always have been mostly savers. Why? Because they do not have all the social programs we do that gave us the security to go out and spend, spend, spend believing that no matter what we could get some form of government handout. All China needs do (although it won't be easy) is to stimulate domestic demand. They have the highest savings rate in the world and have the ability to do so even without using credit. We on the other hand cannot easily stimulate consumption as we are already to far in debt and for the most part lack cash on hand. We cannot even increase exports because we do not produce enough to make a noticeable difference even if production and exports of same went to 100%. Did you ever wonder why most everything in a China Walmart is made in China and why the same is true here? It's because China produces within her own borders almost everything Walmart needs to stock the shelves. In America we do not produce enough to even stock half of the shelves.
All of this is why real capital as in personal wealth is scarce. If the rest of the world gets past the all the government fluff and smoke being injected up their collective bottoms then we may really see what scarce means. Foreign capital continues to pour into treasuries because they are considered safest but, also because the world knows if it were to stop now then the US economy would probably completely collapse taking the rest of the world with it. So I don't see this capital as being here out of choice so much as out of fear and desperation. I wonder why the press isn't bothering to show in pictures the state of affairs here? The long lines at unemployment centers, soup kitchens, daily bread stores, missions and other places that provide free food and necessities. The increasing number of homeless people over burdening the shelters or sleeping in tents. The large increase in people standing at traffic lights holding "I'm hungry" signs or "Will work for food" signs? We don't see this in the press or on the news. Instead we see the long lines of college students at job fairs in China or the National strike in France! Why? I think to keep the worlds focus off of how bad it really is here. In fact I would be surprised if his post makes it past the censors as sure some of the content may not be welcome.