[lbo-talk] Goodbye to the export of surplus capital?

Doug Henwood dhenwood at panix.com
Sun Feb 6 17:55:01 PST 2011


On Feb 6, 2011, at 11:57 AM, SA wrote:


> If there are fewer real investment opportunities, the result will be less real investment. It won't be more financial speculation.

U.S. corps have accumulated vast amounts of cash over the last couple of decades, much of which they've passed along to shareholders through dividends, buybacks, and takeovers. So a lot of money has passed from the "real" sector to the financial. Part of the reason for this is that shareholders have demanded very high rates of return on new investment, and if it's not likely to be forthcoming, they want the money themselves. Some of this flow has doubtless gone to the expansion of financial assets. For the U.S., financial assets of all kinds were under 500% of GDP in the early 1980s to a peak of over 1,000% in 2007. They've come down some, but they're still just under 1,000% of GDP. Over that same period, nonresidential fixed investment went from around 12-13% of GDP to around 11% (it fell under 10% during the recession, and has recovered a bit since). So there has been less real investment, but nowhere near enough less to explain the explosion in financial assets. It's like capital is so profitable that is generates gushers of cash - and that the financial side has demanded (and gotten) a bigger share of it.

Doug



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