The $100 trillion question

[YMix]

[Marcus]

[Mr. Perfect]

[Mr. Perfect]

[~]

And it seems only yesterday that the US was helping China through a banking crisis...

[Caskhades]

You are a middle aged man somewhere in the world. You have paid off your educational and home debt. Your grandparents are dead or still living independently on state support, meaning either way you don't have to support them.
You have fewer kids than your grandparents, so the costs of their education/dowry have not been astronomical.

You have a lot of money coming in. You can choose to spend it on consumption (I'll call this "prostitutes") or save it. Say your country does not protect private property well enough (either via expropriation, outright defaults or devaluation via inflation) for you too trust all your money with the local system. So you look elsewhere to put your money in.

This money goes into the US system. There, it can either go into US government debt, portfolio investments or physical assets (such as houses).
Financial investments adjust quickly (say the US Bond rate goes down, perhaps even into negative real interest rates if we're dealing with a lot of foreign hedging behavior).
Real investments are sticky, there are only so many houses that can be built in a given time, only so much total land in the US, and only so many entrepreneurs starting up businesses at a given risk level. So the adjustment is less fast, adjusting to the increased capital availability takes time, leaving room therefore for speculative bubbles if people are stupid enough to shape their future price expectations on say a 10-year linear trend. To get the same return they used to get for a given asset, investors have to go towards riskier and riskier assets. With increased risk comes increased risk of default, and enough defaults will eventually deflate the price expectations. This destroys the "extra" savings.

We know of no way of quickly increasing successful entrepreneurship on demand (aside from providing rule of law, simple laws and low tax environments we're clueless). Cutting taxes will only get you that far - you can't clone Steve Jobses and keep them in a freezer and bring them out when lots of savings are coming in.

Various levels of Fed interest rates will change the balance of the three (debt, portfolio and fixed), but the money will come in anyway. So Fed tinkering with interest rate will not cut it.
The only obvious answer is capital controls, assuming they work.

However, I am not as convinced as Mr. Perfect that the problem was primarily foreign capital. There was plenty of domestic capital, and plenty of reasons to assume that the crisis would have happened even if foreign capital were absent (obviously of less severity, of course). The US shows the same baby boom savings patterns, for instance, as Collingwood was so keen on talking about.

So if capital controls wouldn't have worked (either because of workarounds or because the domestic capital was sufficient to cause the crash on its own) ultimately, the only way to deal with excess savings is to convince people to spend more on prostitutes.

[Captain Murphy]

Apart from an admirable adherence to the Anglo-Saxon tradition of law and order, and more importantly, a large amount of capital (from the overinvestment Mr. P has been talking about) and brains, which are now beginning to out-diffuse, is there anything really that special about America? Even the rule of law is slowly becoming a farce. Where I live, a major city, cops flout the law and shoot people with impunity.

The rest of the world has caught up. America is just another developed country, like everyone else, only with an outsized sense of entitlement. Few of the international students I meet want to make their home here, excepting those who have escaped from real hell-holes, like the middle east. America is still somewhat wealthier, so, predictably, they want to put in a decade of work or so, but then it's time to punch out and head to greener, more familiar pastures.

[Tinker]

[YMix]

[Demon of Undoing]

Stop that , Ymix , or you will have to move to Alabama.

[Milo]

$100 trillion means only what its actual value is, so does ~62% of GDP, trending towards 100%.

http://goo.gl/q6Qir

What about debt to assets? As far as I know, nobody even bothers with that.

[Rhapsody]

[Tinker]

[Mr. Perfect]

[Mr. Perfect]

[Tinker]

[jerryberry]

[Mr. Perfect]

Mmm yeah. Here we go again.

[Rhapsody]

[Tinker]

[Rhapsody]

[Tinker]

[Alph]

Marcus,

There is a vast amount of capital sloshing around, and it is not air in a balloon. It is actual profitability, writ large, producing real surpluses unheard of in past eras. These surpluses continue to grow. But, they are growing faster than diminishing return barriers are being lifted by technology. These leaves a lot of surplus capital chasing relatively diminishing, but still absolutely increasing, profit.

Captain Murphy,

Labor productivity. The US leads in labor productivity for countries its size, and leads absolutely except for countries like Luxembourg and the Netherlands, which tend to be special cases. Crucially, what the United States actually primarily exports is labor productivity enhancing goods. It is the tip of the spear. Someone else could be the tip of the spear, like Japan is the tip of the spear in robotics, but America is the tip of the spear for enhancing labor productivity, and has been since it took the mantle of the Industrial Age from Europe. That could change, but until it does, America will remain wealthier than others. And even when it does, it will remain wealthy. Wealth is not relative.

Tinker et al.,

I am not a venture capitalist. I am a financier. I invest in existing operation that need to expand when they have sufficient real capital to safeguard my investment. I cannot expand my operations. I cannot absorb outside investment, I operate at the limits of my willingness to work in the face of my own personal diminishing returns on profit made and wealth accumulated. So I, and people like me, cannot satisfy any of the needs of the average person who wants to receive a return on their retirement account, or the average business who wants their investments in other companies to show their owners a return. But the funds that own pieces of funds can, and do, and they can do it on scales a million times greater than I can.

Unless radical advances in technology create huge capital needs this trend will likely remain fixed. And even if they do, said radical technology advances must produce such vast profit that, once their needs are met and diminishing returns on their future use start to ramp up, this trend will return with even greater force.

[Mr. Perfect]

[Rhapsody]