"overinvestment in capacity for the next profit"

[new] Lack of demand... is “the problem” only to the extent that credit-based consumer spending has slowed and we still have an economy based on meeting that unsustainable demand. The sooner we end ALL stimulus and accept that the previous false economy isn’t returning, the sooner capital can begin looking for uses that are modest in terms of next-quarter profits, but ultimately more productive for us as a society. Federal policy is still about continuing the Greenspan-era cheap credit economy, yet private sector actors know it can’t last. So yes, uncertainty is a major issue, even if it’s not exactly what you’re hearing on Fox News. couves @ Mon 4 Jun 12:25 AM === [new] Capital is sitting on its ass looking pretty. It doesn’t matter, if there is no demand, it will not commit to spending on creating capacity to produce. It’s not sitting there due to the fact of a policy “not lasting” – know why? Capital, at least modern capital, could care less about the future really. If it can make money in the next quarter it will. This is HOW bubbles are made – overinvestment in capacity for the next profit. Not the far-future profit. The private sector doesn’t “know it won’t last” – they can’t get anyone to buy up the current stock of widgets, so why make more? End of story. The cheap credit thing however I agree with. We do need to curb cheap credit, and curb credit ABUSES while we’re at it. Institutional investors and banks abuse credit (ie leverage a dollar like 35 times) and then when the chips fall, so do the dominoes. lynne @ Mon 4 Jun 12:20 PM

Like almost everybody else nowadays with any specious pretension to proud ownership of that Intellectual Bottom (Pat. Pend.) product the little lady mentioned the other day, Paddy McTammany is a bit of a crank economist.

My pet crank happens not to fit too well into the groove labelled "overinvestment in capacity for the next profit. Not the far-future profit," however, although I do start, more or less, from "sitting on their assets looking pretty."

What the Malefactors of Great Wealth mostly want just at the moment is above all higher returns on their Fedguv Treasury bonds. The reason why Bernanke von Ludendorff does not give his Classmates that for which they pray has not much to do with "continuing the Greenspan-era cheap credit economy" and a great deal to do with what has been happening overseas, where the MGW of lesser breeds insist on buying Uncle Sam’s I.O.U.’s because they trust their own local secret-sector whizkids even less than they trust Big Sam. Good old Kruggie of Princeton and Dr. Pressbeater of the prestigious Seeper Institution keep suggesting that the Fed could inflate us a little if only they cared, but, being a crank, Paddy is not so sure his twin gurus are right. Especially if the euro collapses, there could be enough foreign demand to swamp domestic bloody-mindedness and keep interest rates low no matter what General von Ludendorff rashly attempts or benignly neglects.

Since the real, after-projected-inflation, long-term return on U. S. notes is now (I believe) slightly negative, "sitting ... pretty" is a stretch, though to gamble madly on the ‘real’ American economy--what is left of us outside the financial sector, that is--would almost certainly cost the Masters of the Universe even more.

ScroogeBank really is in the catbird seat, though, as long as Uncle Ebb

can keep on borrowin’ money at 1.55% and then lend it out at 7.19% . As to "overinvestment in capacity for the next profit," as far as I can make out, ScroogeBank does not have to invest in anything at all except the treasuries. So it’s zero overhead for Uncle Ebb, ¿No es verdad?

To be sure, Paddy, who like six cranks in ten don’t mind boasting that I am not an economist, could easily be missing something here.

Happy days.