The Flight of the Money - Where Has It Gone?
Two months ago, the “new” General Motors made possible by government bailouts, theft of shareholders’ equity for forced re-distribution to unions, and managerial change at government’s gunpoint, was held up as shining example of success – it was even repaying its debt to Uncle Sam early.
But the week of the Independence Day, GM announced its urgent need to borrow five billion dollars, to use in re-paying debt (ie. paying its VISA bill with a new MasterCard) and as cash reserves to counter anticipated slumping sales.
As Arte Johnson used to say on “Laugh-In:” v-e-r-y interesting.
If you go to a movie set, you will see perfect-looking streets, each building front rich in detail, looking as real as real can be. Yet its only façade. One thin piece of painted sheetrock propped up. Walk around behind it, there’s nothing there.
There is flight of capital. Companies like Ford and Microsoft moving hundreds of millions of dollars to investments overseas. Mega-investors like Buffett are breaking long-standing, self-imposed prohibition on investing in non-U.S. companies in foreign lands. Insurers and health care companies are quietly buying up land beyond our borders.
A major business story going unreported: the long, long list of iconic American brand companies closing countless stores, shops and restaurant locations here while expanding and opening outlets like mad in other countries. That means they are draining money out of local economies here and moving it over there. Starbucks. Wal-Mart. Etc. Can’t you hear this giant sucking sound?
There is capital on strike. An estimated $2-trillion of excess cash reserves in companies other than financial institutions – although they are hoarding rather than lending, too. And this is calculated from examining big, public companies. As somebody intimately in touch with thousands of small business owners, I can personally assure you, their reluctance to invest or spend is profound, and, in aggregate, they are likely keeping trillions more inactive.
A fast-growing majority of institutional and individual investors believe we are nowhere near bottom of anything; that following a 1929-like crash soon to come, much can be bought by those with ready cash, for pennies against dollars. Most won’t openly articulate this, but their actions speak. Further, many investors are so enraged and disgusted by what they see emanating from the White House, they have withdrawn to protest. Even to punish. Money has moved to mattresses en-masse, and there it threatens to sleep for some time to come. At least through 2012, but perhaps for a lost decade or more.
There is conversion of assets to cash for hoarding or export. Recently Disney announced an end to its self-imposed prohibition on residential real estate development on land immediately adjacent to its parks, there to build $2-million to $8-million vacation homes. Well, that’s positive, optimistic investment and job creation, isn’t it? Yes and no. Think about what it is actually about: converting an idle, non-cash asset potentially reserved for future park expansion (an optimistic idea) into hundreds of millions of dollars of immediate cash, with no plans for its active use or reinvestment within U.S. borders (a pessimistic, prepare for Depression idea).
On a much smaller scale, in the small business arena, I see the brakes slammed on, to opening of next stores, branch offices; to buying buildings or building them. And I see the sale of businesses or, in many cases, their liquidation and owners’ premature retirements, all in favor of cash in a drawer in case it’s needed.
A June issue of New Yorker Magazine carried no fewer than five full-page ads inviting companies to relocate to
In the little community I live in, in
No president in
Causing this much of a freeze in spending, investment and job creation, this much hoarding, this great an exodus of money is a remarkable achievement. If you set out to destroy our entire economic engine on purpose, you’d be hard pressed to achieve more in as short a time, at as fast a pace.
Beginning in 2011, he has a dizzying array of redistribution and destruction of wealth tax schemes ready for unleashing, like crazed beasts through the Gates of Hell, to eat whatever enterprise remains.
The economy is starved for private sector money in motion. Deprived of lifeblood. Gasping for oxygen that isn’t there. If you but listen, you can hear the death rattle. Even the business and financial news media pretty much fails at stitching these things together, to reveal the full picture. The few highly credible experts who speak eloquently about it, like my friend, the economist Harry Dent Jr., are mysteriously shunned by the media. There seems more willingness to point to the façade than to walk people around to the vacant lot behind it, and edge of cliff it teeters on so precariously.
Dan Kennedy is a serial entrepreneur, adviser to business owners, sought-after speaker and author of 14 books. His latest, “Make ‘Em Laugh & Take Their Money: A Few Thoughts on Using Humor as a Speaker or Writer or Sales Professional for Purposes of Persuasion,” contains a selection of his BMI essays. More information about Dan can be found at www.NoBSBooks.com, and a free collection of his business resources including newsletters and webinars at www.DanKennedy.com.