Sunday, May 5, 2013

Cheap Money, more, and more, and more

An Ocean Of Cash
Money has become so cheap to borrow that many people are now arguing that you must take it even if you don't know what to do with it. It is hard to imagine how much this is distorting the economy, markets, and reality in general. A total disconnect between life on main street and the financial world is occurring and it is putting the economy in a very dangerous place. It is often hard to determine what is true, but a report on Bloomberg that 32 Trillion dollars in funds were held in offshore accounts around the world made me shutter. How safe is this money, and what exactly is it doing? Can you say Cyprus?

Take for instance that cash rich Apple just floated a massive bond. It was recently reported that Apple Inc. sold the largest corporate-bond deal in history with a $17 billion offering that investors hungrily gobbled up. Apple said earlier this month it would borrow cash as part of a plan to return $100 billion to shareholders by the end of 2015. Apple has a huge cash stockpile, but much of its money is overseas. Raising cash at super low rates in the bond market helps Apple avoid the big tax bill that would hit if the company brought its cash back to the U.S., executives said last week.

If this is about buying back stock, then it is less about their business model, or producing and selling products, but more about some weird investment scheme devised on their faith that they can take advantage of the low  interest rates and benefit from tax games. Sadly many businesses and individuals are becoming more involved in these types of activities, another word often used to describe such action is speculation. When people look back at Japan and how it has preformed over the last several decades they see little growth, this is a result of overdoing things and the bursting of a unsustainable bubble.

The velocity of money is a term in reference as to how fast it moves about, recently velocity has been slowing. If it suddenly takes off watch out, it could herald a massive wave of new inflation and rampant speculation.. Just as important is where this money goes or flows. It would be wise to look forward and take a more practical long term approach to making the economy work, band-aid upon band-aid is not a solution. Debt and the faith people have in their currency and their future does matter. At some point the present and the future intersect, it is not just about the deficits of today but the promises you make coming due and how they effect the financial landscape.

Footnote; Much has been made about the "good job numbers', but they really are not that great,



  1. Our local GM dealer is advertising 0% 84 months financing, and the salesmen are calling it "free money". Naturally, this kind of idiotic advertising will increase sales, but only at the cost of idiots piling on more and more individual debt, which will be carried by the car manufacturers until the next crash, when they will be back for another taxpayer bailout. I think it is really time for a day of accounting, and anyone who hasn't been building something, or growing something, or fixing something etc., should be removed from the financial registry (no bank accounts, no property, no income) and let them find a real job. Any public assistance should be limited to absolute basic survival needs.

  2. Japan's problems may have originated as a stock and property bubble, but the Lost Decades are due to the way they attempted to solve them: instead of allowing insolvent banks and companies fail, they bailed them out, then attempted to spend their way back to growth. Instead, Japan now has public debt equal to 227.2% of GDP, and no growth.