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Wednesday, December 30, 2015

The great hope of the US economic recovery has been a flop

One of the greatest hopes in the wake of the financial crisis was that there would be a surge in business investment, or capital expenditures (capex).

The case for a capex boom was simple and clear: Equipment was getting old, and central banks were making it very cheap to finance this spending.

But that story has been a flop.

For the most part, American businesses figured out how to make do with the equipment they had, and they incredibly managed to squeeze out higher profit margins even as theirequipment continued to get older. And as for that cheap money, there's evidence that companies used at least some of it to finance share buybacks, thus boosting shareholder value through nothing but financial engineering.

"Capex should remain stagnant," Goldman Sachs' Sumana Manohar, Hugo Scott-Gall, and Megha Chaturvedi wrote.



Steve said...

Well, we're not a stupid people. What you expected reflects your own lack of intelligence.

Anonymous said...

The only cheap money was to friends of the super rich not to the average Joe.

Anonymous said...

Shovel ready?? Haha Cash for clunkers? ?? Haha