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Accelerating depredation on Global Capital

February 26, 2016

Accelerating depredation on Global Capital

by Lushfun

In some interesting sense nobody is realizing that all these tumultuous goings on in the markets are impacting capital investment decisions. I am not talking about stock or bond markets here, but about real live projects in regard to infrastructure, power grids, water, and otherwise. This is not about China which invested and overinvested in these aspects and still needs more capacity. It is more about everyone else from U.S., Europe, Asia, Africa, and so on.


Capital investments in a negative interest rate environment when real rates of return are sub-zero may be an unpalatable proposition. If deflation accelerates due to loss recognition by banks and asset prices falling it would alter the structure of price formation across all sectors. Returning capital deployed at that point into infrastructure of any sort would be unlikely. Theoretically there would have to be a shift in how it is approached to make it attractive for capital to go there.


The problem to all this is that consumer and other end-users of infrastructure will not be looking for overhead costs to go up as their income declines, and asset prices implode around them. Shifting costs in such an environment would not end well. Gasoline being stolen from pipelines in Mexico comes to mind. Payback requirements for factory or other ground up investments would look different from today in the ways expectations would finally hit home where exponential returns on investment compound over time.


It feels as though the Central Banks acting in concert in pushing forth negative rates do not understand that a global pressure on limiting capital flows and attempts to restrain depositor movements will bring about complete and utter destruction of savings from which all of these loans and other machinations are created to feed the financial system. If you cannot deploy capital anywhere for a period of time due to risk of not getting it back, you won’t. Strange but any marginal destruction will simply re-distribute purchasing power to whatever is left over.



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