Praying to the Porcelain God, by Robert Gore
At the corporate level, the exhaustion of productive investment opportunities prompts executives to either return funds to shareholders through dividends or to use that cash flow (sometimes augmented by cheap debt), to speculate on the company’s share price. Hillary Clinton has made political hay about corporations buying their own shares instead of making productive investments. The world is glutted with raw materials, intermediate goods, finished goods, and consumer goods, the visible manifestation of return on investment equilibrating to the artificially low cost of funds. Glutted markets and falling asset prices are screaming, “No more!” In what would Ms. Clinton have corporations invest? Undoubtedly there are elements of self-enrichment and bull market crowd psychology at play when executives authorize share buybacks. However, returning capital to shareholders is also an admission that they don’t have any better ideas of what to do with the money. Ms. Clinton doesn’t either.
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This is an excerpt. Please click the above link for the rest of the article.
A: Who creates the money at no cost?
Without unlimited ability to create no-cost credit by the central banks none of this could have occurred.
Rand Paul was interviewed a couple of days ago and he anwered the question by first explaining history and why it was the basis for his current solution to the subject of the question. The interviewer said: "All that is history. What about going forward?"
'If interest rates are free to fluctuate, the interest rate will equilibrate that demand and supply.'
Well put. I suggest, there is no such thing as a correct interest rate. When not fixed by edict, rates fluctuate with time and vary across the economy according to the borrower and across lenders.
Negative (real) interest rates-
not anything new, it is what happens when interest rates get, or are held, below inflation. Even with low inflation as in Switzerland sometimes, when including bank charges the net interest rate can drop below zero.
I have been a fan of your articles for a long time, but here you have done an amazing job of demonstrating your point. Anyone should be able to get it.
And the title is a match!
So now, the MainScream wants to blame the banks, colleges and students for reacting logically to the artificially low loan rates?
Yep, the inmates have taken over.
The observations in this article are spot on and shows in living color the shear lack of creativity, the shear dependence upon the easy way out and the shear idiocy of shuffling about shares in a shell game to only perpetuate business and to avoid the creation of new business...new value.
I've argued before that the beginning of the useful end of big corporations was the advent of professional so called CEO's. They have no connection to the original intent of it's founder; never mind the original founders connection to the people that helped in that creation of value. Professional CEO's no Nothing but the perpetuation of business, not the creation of business.
My other argument is with allowing shareholders a right to vote in the business of that corporation. If the corporation does not perform or worse, actually does harm to it's consumer then; Sell your share's stupid.
Should be Free Market Principles all the way.
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2. I thought I heard the Fed was slowly reversing all its Quantative Easing. No ?
My question is why don't the same forces that cause malinvestment in assets leading to a glut off goods and services also lead to a glut of demand for goods and services themselves? It should be the exact same inflationary psychology that you describe for assets.