Topic: Economics
Idle Cash Is Devil’s Material Once Again, interest rates have been lowered dramatically and taxes pleaded to be cut. This time too, there aren't enough opportunities in the Real economy. ON TOP OF IT, this time round, there's overcapacity in almost All existing industries. New feasible product ideas in new technology will take their time to surface - to pick up the slack in both mainstreet investment opportunities and employment. Meanwhile, there is the "Rain of Money" waiting to right-time its ruinous dance. What we need is a well thought out "Rein ON Money"by Ohm
(centrist)
Tuesday, January 27, 2009
Towards the end of my previous articleBig & Sweeping Action (on Banking Sector Revamp): Indeed, But It's a Vector! I revisited a key actor common to the recent bubbles that have caused so much havoc. Now, I examine the circumstances of today and how the very same actor looks well equipped to create more bloodshed in coming time.
This actor is "Idle Cash". The problem with this guy is that it doesn't stay idle for long! It waits only so long for a Main Street "Real" Opportunity to invest in - if that doesn't come about soon enough, it jumps onto other avenues in its desperate quest for growth.
In early 2000s, the dot com bubble burst. By itself, and with its ripple effects, unemployment climbed and stock market plunged.
As Standard remedy, interest rates were lowered and taxes cut.
But there really were grossly insufficient avenues for reinvesting the liquidated capital and the cheap money that the Government made available through banks and across-the-board lower taxes. The High Technology and "New Age" sectors simply did not come up with sufficient number of ideas and ventures fast enough to grab this money. Expansion in production of "low value" products (where not much innovation can be expected) lost out to offshore procurement - that brought lower costs and cheaper prices, improved sales and corporate growth, with some uplift in employment scenario.
This was sufficient for the Cash to wake up from its hibernation, and begin its work via a combination of herd mentality and market play, greatly levered by some really fancy instruments like the ARM loans. We know all too well now the story of truckloads of idle and cheap cash fuelling the Housing Valuations Boom, HELOC based consumption, and the Stock market Bull Run; finally entering commodities, and the commodities bubble killing all of its previous siblings and thereby, shooting itself in the foot as well. So, Game Over.
Once Again, under Standard Remedy, interest rates have been lowered drastically, and taxes are being pleaded to be cut FURTHER - for Everyone! Again, a lot of cash has precipitated with individuals and, once again, there are not sufficient opportunities in the real economy. THIS TIME, there's overcapacity in most existing industries; while, like before, feasible new ideas for products and services involving new technology will take their time to surface - to pick up the slack in both investment worthy 'mainstreet' opportunities and employment.
The situation today is rather onerous to re-run even the temporary 'growth play' of last time. As foreclosures are still piling up, nobody knows where the housing bottom is - including the banks. So they want new borrowers to put in a hefty downpayment, so the borrowers do not walk out if home prices fall significantly further. But even as there's a lot of cash around collectively, and the banking system can make available tons more with low interest rates, many individual buyers just don't have as much to make these downpayments, or they have money locked in their 401 K. Fresh housing investments are a tough nut today.
But money will go somewhere. Companies left right and center have been busy cutting costs and employees. At some point in time, some of them will show growth in profits (not necessarily sales, but in profits) from the lows they touch today or in a little while from now. Employment downturn will turn a corner. It will give us the euphoria and good feeling that we've been craving for. Consumption will increase - of course, not to the legendary highs from where it fell, but it will increase. The prices of everyday stuff will firm up a little.
THAT's when the Idle Cash gets its chance to jump in to make its Move.
We are rather 'blessed' with some smart aleck analysts in the media that can "see" trends with just a couple of months of data, with 2 quarters, they have predictions. I have little doubt that this time around there is going to be more fallow cash than last time, and very little might go into real estate this time. MOST of it could go into speculation in stocks and commodities. The commodity price surge will be very easily explainable on the current monetary expansion. Trust the analysts to not bother to figure if the price take-off towards the stratosphere is commensurate with demand or not - who has any reliable quantitative models anyway. Welcome to Commodity Bubble 2.0! If it occurs, it will wreck more homeowners' budgets, and spew more foreclosures, bringing everyone back to square 1, maybe square -1.
The prevention of rerun of last time lies in showing restraint on really how much cash is injected into the economy, and through what channels. Banking rescue is best done with prudence to ensure survival of optimal number of players, equipped with optimal amount of cash accessed at a good rent! In fact, some idle cash can even be removed from the economy by inviting individuals to fund the proposed Economic Revival & Reinvestment Plan via issue of decent interest bearing debt. This will take away the desperation to jump into risky avenues to generate a return, risky to their own money and risky for the economic balance.
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I realize that Mr. Ohm is new at this, but perhaps that’s the best time to tell him that his writing skips around like someone trying to write while riding in a speedboat skipping over the choppy waves of a lake. It bounces every which way, often missing a thought here and there, often not even having a thought to make. Look at some of these sentences:
He opens right up with this mysterious treasure: “Towards the end of my previous article, I revisited a key actor common to the recent bubbles that have caused so much havoc. Now, I examine the circumstances of today and how the very same actor looks well equipped to create more bloodshed in coming time.”
Sounds like Jack the Ripper lurking the streets of London although, for some reason, he’s lurking through “bubbles”. It isn’t until the second paragraph that we discover that this “actor” is identified as “Idle Cash”. Must be that lazy brother of Johnny, I suppose, that’s why this inanimate concept is called an “actor”. But, he must certainly be dangerous because he’s “well-equipped to create more bloodshed in coming time.” I’m still not sure what that phrase “coming time” actually means, but it must be soon!
In the second paragraph, he goes on to say that: “The problem with this guy is that it doesn’t stay idle for long! It waits only so long for a Main Street “Real” Opportunity to invest in – if that doesn’t come about soon enough, it jumps onto other avenues in its desperate quest for growth.” First he calls it “this guy”, then he continues to refer to this guy as “it” rather than “he” or “his” or “him”. Then, he/it/this guy jumps onto other avenues so that he/it/this guy can grow. Phew! That’s a lot of activity for an Idle Guy!
So that I don’t have to drag others through the bouncing, barely-comprehensible sentence structure of each paragraph, I will use one more to make my point; what I think might be called the 5th... or maybe it’s the 6th... no, the 5th. Well, it’s really hard to tell what it is numerically because he just starts a new paragraph whenever he thinks he needs one. So, I’ll just call it the 6th... no, the 5th... No, it’s got to be the 6th. Anyway, he says: “This was sufficient for the Cash to wake up from its hibernation, and begin its work via a combination of herd mentality and market play, greatly levered by some really fancy instruments like the ARM loans. We know all too well now the story of dollops of idle and cheap cash fuelling the Housing Valuations Boom, HELOC based consumption, and the Stock market Bull Run; finally entering commodities, and the commodities bubble killing all of its previous siblings and thereby, shooting itself in the foot as well. So, Game Over.”
Clearly, Mr. Ohm hasn’t the foggiest idea of how to use capital letters or punctuation. He doesn’t seem to be following any normal rules for using them, nor even any obscure ones of which I’m aware. I think he uses the “random” method; just tossing them in whenever he feels like it. But, let’s examine some other parts of this rambling, skipping, hopping, bumpy piece of writing.
The CASH has been hibernating (and it’s no wonder after all that jumping down the avenue for growth that he/it/that guy had to do), but then begins its work “via a combination of herd mentality and market play”.
The combination of herd mentality and market play must certainly be a volatile one because it is then levered (although I believe he means “leveraged”) by some “really fancy instruments like ARM loans.” Having been in banking for seven years myself, in commercial loans and branch management where I made many ARM (adjustable rate mortgages) loans, there is nothing “fancy” about them at all, let alone REALLY fancy. But, for someone who’s from da backhills’a San Fern’cisco, they prob’ly ain’t got so many’a dem as dey do udder plazes so dey jist seemz fancy.
To continue, it appears that Mr. Ohm is unaware that “dollops” are actually quite small, as in a lump of something or a splash of liquid, but he contends that they’re “fuelling” (should only have one “l”, by the way) the “Housing Valuations Boom, HELOC (Home Equity Line of Credit), and the Stock market Bull Run;” Phew! As I mentioned, that’s a LOTTA fuel (or even a lot of “fuell”) for just some “dollops” of hibernating cash, even if they do have a combination of herd mentality and market play motivating them! Phew! Tires me out even thinking about it!
Only a little bit more... Stay with me... He tosses in a semi-colon at this point, although the next phrase comes from so far out of left field that I don’t see why it doesn’t have its own paragraph, and says: “finally entering commodities, and the commodities bubble killing all of its previous siblings and thereby, shooting itself in the foot as well. So, Game Over.” Wow! Cash enters commodities then a commodities bubble (not the bursting of a bubble) kills its siblings, and then shoots itself in the foot, and the game’s over! That's a funnier image of comedy than I think I've ever read before!
This article is such a beautiful example of someone with a poor focus, a wandering discipline, and very poor grammatical skills ~ yet with an URGENT NEED to say something ~ that it helped me to coin a new phrase: “obscure infantile expressiveness”. What I mean by that is that it represents the kind of unorganized, misapplied gibberish that usually comes from someone of a very young age, or someone who is undereducated and probably skipped some of the classes in grammar and composition that they should have attended.
I only feel compelled to bring this to Mr. Ohm’s attention because I think he reflects poorly on the rest of us and should work more diligently on keeping his metaphors in some semblance of order, and to study the rules of capitalization and punctuation before venturing into public discourse.
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