From: "christian a. gregory" <chrisgregory11 at email.msn.com> Date: Thu, 30 Sep 1999 21:20:18 -0500
I think that Wade and Veneroso's point is that, in a country with an abysmal savings rate, the transfer of equity to corporations is in fact significant, even though it's small (about 1% of GDP). So in the U.S., the stock market does actually matter for consumption and investment in a way that debt does not--at least compared to Asian economies. (Citation below.) That doesn't necessarily contradict what Doug has always said. But it also implies some questions about the investment rate which, according to JP Morgan, has been going down rather precipitously over the last 2 years. Doug's numbers on this suggest that capital investment is more robust, though less so than the acolytes of the new triumphalism suggest. If Wade and Veneroso's argument is to wash, we'd have to know something about the relation between that 1% of equity transfer and investment, right? Where might we get those numbers?
"But even in the most highly developed equity markets only a few percentage points of GDP or less are transferred. In the United States, where the equity market is a celebrated national institution, net savings transferred to the corporate sector through the equity channel have averaged less than 1 per cent of GDP, and have often been negative over the past decade. Such small flows may be meaningful in a country like the US where household savings are only 4 per cent of GDP, but are trivial where household savings are more like 12 per cent of GDP." --"The Asian Crisis: The High Debt Model Versus the Wall Street-Treasury-IMF Complex," NLR 228, 15-16.
----- Original Message -----
From: Doug Henwood <dhenwood at panix.com> To: <lbo-talk at lists.panix.com> Sent: Thursday, September 30, 1999 1:37 PM Subject: Re: stock market question
> DENNIS_CLAXTON at fragomen.com wrote:
>
> >In their NLR aricle from sep/oct 98 (available at
> >http://www.igc.apc.org/globalpolicy/socecon/global/newleft.htm) Robert
> >Wade and Frank Veneroso say "the US has the lowest aggregate savings rate
> >among the OECD countries....It needs foreign savings to sustain its
> >consumption and investment. It also needs a high stock market for the
same
> >purpose."
> >
> >Doug, you often make the point that the stock market has little to do
with
> >investment so this need for a high stock market is tied to consumption,
> >right? What's the connection exactly? Credit cards?
Overconsumptionism?
>
> Good question. I don't know what they had in mind. Could be that a
> high (and rising) market is necessary to keep the foreign money
> coming in, but who knows? Or maybe a high (and rising) market is
> meant to offset low savings rates so that people can have the
> illusion of saving for retirement. But if too many people start
> withdrawing their funds, then the stock market will be low (and
> falling).
>
> Doug
>
>