Monday, August 06, 2018

What If?

[I wrote this November, 2017 and did not publish it - I'm guessing because it contains way too much personal financial info. Oh well. Please treat the personal financial info solely as a data point. Some good ideas in this I think.]

Keynes famously speculated that someday, capitalism would have done its job and generated all the capital the world would ever need and could then be retired. I have not read Marx, but he also foretold the end of capitalism.

But let's just focus on Keynes. I retired 5 years ago and have lived off the 6% ROI that my most excellent Merrill Lynch financial advisers have generated via interest on bonds but mostly via dividends and capital gains off of stocks. With CDs returning maybe 1%; savings accounts < 1%; bonds maybe 4-5% (although I see I just had a corporate bond mature that paid 5.6%), increasingly the stock market is the only place to put funds for a reasonable ROI.

Why is the ROI on all other investments so low? What if it is because we have reached Keynes' predicted point where the world has all the capital it needs? Do the low low interest rates on raw capital show that there is more capital than there is need for?

I will theorize: if indeed we have reached the point of capital sufficiency predicted by Keynes, then the stock market will not crash in the foreseeable future, because there is pretty much no where else where you can invest your money and get any ROI. The Fed has no reason to raise interest rates. The economy is not overheated. Unemployment is low - underemployment, who knows? Deflation is much more of a concern than inflation, although you can never convince conservatives of that.

The most recent stock crash in 2008 was caused by financial markets being flooded by fraudulent instruments. I don't think that will happen again real soon - although it would have been better if a lot of the fraudsters on Wall Street did some jail time.

I think I may have mentioned before that 1 side effect of having a world awash in capital is that it might mean that the Fed could fire up the printing presses and fund an aggressive Universal Basic Income program without having to worry about inflation (see below).

Even if they added $5T to the money supply it would represent only 2% of the $250T wealth of the world. (Note, that wealth figure is probably understated by a factor of 2 to 4. Also note, a better calculation might be $3.6T ($12,000 x 300,000,000 US citizens) / $92T wealth of North America = 3.9%) Add that to some Eisenhower era income tax rates (90%) on top earners, and we could maybe make a dent in inequality.

The only downside I see is that increasingly the climate crisis will continue to destroy more and more capital every year. This is yet another reason to address the climate crisis with urgency, and right now.

Inflation: I think inflation is driven only by supply-side shortages, which we haven't seen in quite a while. We moved to capitalism 2.0 in the 1950s, from scarcity to abundance. The only instance of real inflation in my lifetime was after the 1974 OPEC tripling of oil prices. It took more than 10 years for that to ripple through the entire economy. The OPEC monopoly artificially generated a supply-side shortage.

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