Royal Bank of Scotland to investors: 'Sell everything'

Explain how the internet has made people LESS productive. This isn't directed at you. ... you are correct that we are seeing no productivity gains. But there are a million lines of bullshit being put forward by the people who actually choked off business investment (i.e. -- savings) that is the necessary component to achieve productivity gains. With respect, what you suggested makes no sense.

Business investment and spending has been nonexistent in this era of monetary experimentation. That is because corporate profits have been way down (belying a run up in stock prices in a non-manipulated environment for what it is worth!). This is what artificial ultra-low interest rates in the name of trying to manipulate behavior does. You get unintended consequences, -- which shouldn't be a mystery anymore. The idea was that they would flood the economy with "cheap" money. ... and that would lead to investment, which should produce productivity gains the way they learned it at Princeton. What we have gotten are asset bubbles. Companies have borrowed an insane amount of money. ... and because of the skewed incentives, that money has not gone into plant and equipment and R&D and worker training and other investments in their businesses (i.e. the things that bring about productivity gains). Businesses are NOT willing to invest that way in an extremely low-growth environment that hasn't been producing profits. It is pretty rational. When business is weak, as it has been for the last decade and remains, you don't build more factories and train more workers. But the cheap money is out there because of the radical experimentation we have been subject to. ... and yeah, those same businesses have gladly availed themselves of the windfall. It has given us share buybacks, debt refinancing and dividends. In another words, the financial manipulation in lieu of profits that has created a run up in stock prices (creating valuations that would be considered insane in any other time period). The cheap money also has led to outright financial speculation -- particularly in the bond market which underpins all the other bubbles. But also in stocks, real estate, etc. which are one degree removed. The people responsible for that have spent a decade conditioning markets to think they are a buyer of last resort that will always keep a "put" under speculative assets and make them always appreciate. It's a "no lose" proposition. ... which is what you are talking about in a nutshell (without the explanation that makes no sense). Why would you take a chance on investing in your business (which is what brings about productivity) when you can buy a bond risk free?

High interest rates are healthy for an economy. They encourage saving, which is necessary for REAL investment. And it forces lenders to actually care about the safety of their loans. When a central planner screws with that. ... you get billions of dollars of subprime mortgage lending, as an example. Without central banks. ... speculators wouldn't be outbidding legitimate borrowers (while creating stock market bubbles) who make capital investments that produce real returns (and productivity gains along with it). In a world of cheap, endless credit being created out of thin air. ... you get the opposite. Asset bubbles, decreasing productivity, low growth, falling real wages. It's exactly what we have been living through.

If the cost of money is high (and comes with risk), it forces people to really consider where they want to put their money. It funnels that money to the best investments. That works to our benefit. In the world of cheap money we have created, it is monkeys throwing darts -- for as long as that remains relatively stable. We live in a world of scarce resources. When they get allocated that way, it shouldn't be any surprise when productivity stays weak. ... as an aside, it's insane to suggest that the Internet has somehow made us LESS productive.

The idiots who have created that environment are like Mr. Magoo. ... they tell us that they can't stop the cheap money until productivity improves. But productivity is low (and will remain low), precisely BECAUSE of them.

 

I am not sure what you are trying to ask me. ... They have made money plentiful and cheap. That money has by and large NOT fueled business investment (which is why we are seeing no productivity gains) the way they assumed, because businesses that see years of stagnant (or declining) profits, don't invest in their businesses. That money has instead brought on insane amounts of stock buybacks, a lot of debt refinancing, and has been outright pocketed in the form of dividends (while the debt remains behind). Can you be more clear about what you are asking me? Sorry.