The Dirge

The excess Cash held by Corporations, here and here (pdf), meant a negative net debt ratio (debt minus Cash) from 2004 through 2006. All authors concentrate upon the annulment of Risk with the Cash load, the expectation of special Dividends, and the new adverse Risk of corporate leadership spending the Cash unwisely. This is excellent analysis, but I would take it further. The added build-up of Cash (around an additional $400 billion) means far more to myself. It means that the Bush Tax Cuts did not work, as they did not substantially increase investment capitalization. It has long been my position that investment capitalization is driven only by Consumption Demand, and cannot be extorted by higher liquidity. Evidence might indicate that the Cash build-up was accumulated for Hostile Takeovers, or defense against Same. I would not assume there will be any special Dividends in the near future, as I find Corporate leadership adverse to release of financial power even to Ownership. The Whole makes me imagine that any added liquidity or stimulus will not promote any meaningful economic growth.

Avoidance of a Stimulus Package and low fed rates (too late I know) might be best summed up by this article. Oil, Utilities, Cable, Internet, and Phone access already show indication of Price Mark-up; none with any realistic provision of extended or better Service. Oil companies will not pump or refine more, and other Commodities are equally rising. Most Retail outlets are planning in-Store Downsizing, combined with higher Prices. Ethanol subsidies express no Input effect, except for higher (much higher) Food prices. There would seem to be little planned Investment given the higher Prices and stability of Consumer Income. Screaming ‘Fire’ in a crowded theater may be illegal, but why is it punished more severely than throwing phosphorous Grenades in the same theater?

Paul Krugman told Us yesterday that the low fed rate was the way to go, and I feed timorous bucking such a Nobel-potential Economist; but this article could explain my own doubts on the feasibility of a monetary solution to the economic downturn. Vehicle Sales were down 10% in February, and people say ‘Well, there is the rise in Oil and all that!’ The problem with this Explanation resides in the nature of Vehicle sales. Vehicles are the easiest and most immediately deferrable major-ticket item on the market. People facing a Credit crunch first delay Car purchases before most other things, and Household Incomes often bring actual increases in Vehicle Resales when operating under duress. The lag-time for such Resale increases are approx. 6 months after the downturn in new Vehicle sales, and reflect Household decisions that they cannot afford new vehicles. There will likely have been severe reductions in other Retail sales in the intervening period, if Households are actually in trouble. It may be time for Economists to adopt the solemn demeanor of a funeral director. lgl