Saturday, June 23, 2012

no shortage of money

A crisis is caused by capitalists choosing not to buy, that is, not to invest profits because they judge they won't make any profits or not enough. The current crisis of capitalism is that there is "surplus liquidity". In other words, the rich have so much wealth they have exhausted places to store it. If it is not invested its value depreciates. And they won't invest unless it produces a return. This is why we see record amounts being spent on gold or on art (ironically mostly on art that depicts the pain and isolation of capitalist society). While workers are having their jobs and wages cut and governments are enforcing austerity, companies have never held so much cash. As one author reports: "Globally, companies are sitting on more than $5 trillion." This is a classic case of "over-production".

According to a report from a group of University of Massachusetts economists $3.6 trillion in cash is being hoarded by companies. The Federal Reserve reveal banks are sitting on $1.6 trillion in reserves -- about 80 times the $20 billion they held in 2007. While, non-financial companies are keeping their profits liquid, rather than plowing them back into investments, to the tune of about $2 trillion. Together, that amounts to almost a quarter of the U.S. gross domestic product and if move it into productive investments instead, the report estimates that about 19 million jobs would be created in the next three years, lowering the unemployment rate to under 5 percent.

Corporations in America are underinvesting relative to its availability of funds, according to a report by TD Economics titled, "Milking America's Cash Cow: The Case for Stronger Investment Growth," According to the report, corporate profits make up 10% of GDP, nearly double its pre-recession average, while the ratio of current assets to short term liabilities—a common measure of liquidity—has risen to levels not seen since the 1950s. Corporate profits and liquidity as a share of gross domestic product are at record highs, yet the share of these profits going towards investment is lower than ever. Liquid assets as a share of the economy have grown almost 50% since the recession. The ratio of current assets to short term liabilities – a common measure of liquidity – has risen to levels not seen in over 60 years. Surplus cash levels have continued to grow, and treasurers are less satisfied with the returns they are able to obtain on their cash balances.

Capitalists - especially the mega-corporations that have come to dominate the world's economies - are simply too good at what they do. They squeeze more production and profit out of their workforces every year, and capital piles up faster than they can invest it profitably. Production outstrips demand, and companies find themselves directing their excess wealth into ever-more elaborate mechanisms of sales and marketing aimed at stimulating demand domestically and internationally; into increasingly sophisticated technology to support the marketing effort; into state ventures (primarily the military-industrial complex); or, increasingly in recent years, into the finance, insurance, and real estate sectors, which of course are sources of the increasingly catastrophic bubbles that have made this such an interesting century so far.

Politicians often talk about jobs as if they are businesses' gift to society. In the real economy, employers need workforces and require it to be as malleable as possible. Intensifying employee productivity, outsourcing jobs, and automation for human power are all reliable ways to increase profitability. The result has been long strides in output. That has provided businesses huge payroll savings and boosted profits, but at the cost of accelerating overproduction, stagnation, and unemployment.

Shorter work weeks, slower production, lower consumption, smaller ecological footprints, and a stable climate, can become a reality - but only after a radical economic transformation.

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