The United States Has Different Problems than the Europeans Do
Published in Clarin
(Argentina) on 25 September 2011
by Jorge Castro (link to original)
(Argentina) on 25 September 2011
by Jorge Castro (link to original)
Translated from
by Arie Braizblot.
Edited by Heidi Kaufmann.
Paralysis of capital accumulation. Americans don’t suffer from problems of liquidity or productivity, but problems of investment.
The American crisis is of a different nature from Europe’s. The countries on the periphery of Europe (Italy, Spain, Greece, Portugal and Ireland) find themselves in a long-term structural depression, provoked by a weak or negative level of productivity that prevents Europe from sustaining its exports and obtaining the necessary currency to meet its obligations. Above all is the consequence of enormous public debt (Italy, 120 percent of GDP; Greece, 180 to 200 percent).
This problem of a loss of competitiveness, which causes insolvency in the short and long term and has triggered a loss of confidence — which is a sign of lucidity — in the international financial system, is often referred to as the “European debt crisis.”
The Situation Is Different in the U.S.
The profitability of American companies is the highest in the last 70 years, due to two factors: a high level of productivity — the highest in 20 years — and record profits from its foreign investments — above all, in the emerging world.
American businesses have cash reserves, immediately available, amounting to $1.7 billion, due to their historic level of profitability, and hold $1.24 billion abroad, the work of their associates and affiliates.
Leading this trend, like anything else, are high-tech industries, which have an even higher profit rate (+15 to +24 percent in 2010) and an even higher percentage outside of the U.S. (up to between 80 and 90 percent). This is the case with Oracle, Cisco and Microsoft. Apple — the largest high-tech company in the world — has net earnings on invested capital of $76.2 billion, of which $47.6 billion remains abroad.
The paradox of the American situation is that the high level of profitability of its companies runs in contrast to its rate of investment, above all in increases in the workforce and in fixed (sunken) assets.
The rate of fixed investment, in proportion to the level of liquidity, is at its lowest in the last 58 years. If the level of investment were correlated with profitability, the rate of increase in fixed assets would be double the actual number. The difference exceeds $350 million since the beginning of 2009.
The banks, despite the fact that they provide an extraordinary liquidity, have drastically reduced their loans.
There is more than $1.6 billion deposited in the account at the Federal Reserve, which pays 0.25 percent annually for it.
The only investments taking place today by American businesses are in areas where an increase in the productivity of the workforce is possible, and also in mergers and acquisitions of foreign firms, which have multiplied dramatically.
The U.S. economy now produces the same as in 2007, but does so with 8 million fewer workers.
This is the root of the weak American recovery. The core of the crisis is not a lack of liquidity, much less a lack of productivity. However, it is the mechanisms of transmission of both toward an increased rate of investment. It is a paralysis of capital accumulation.
This occurs in a globalized and cybernetic world, which has more available assets than ever but that also presents better opportunities for investment than any other moment in the history of capitalism. Today, the field of competition is about incentivizing those investments.
Political economy has radicalized in the second decade of the 21st century. The axis is not currently in the search for macroeconomic equilibrium, but instead in the creation of conditions for a capitalist revolution in the United States, Europe, Asia and South America.
The American crisis is of a different nature from Europe’s. The countries on the periphery of Europe (Italy, Spain, Greece, Portugal and Ireland) find themselves in a long-term structural depression, provoked by a weak or negative level of productivity that prevents Europe from sustaining its exports and obtaining the necessary currency to meet its obligations. Above all is the consequence of enormous public debt (Italy, 120 percent of GDP; Greece, 180 to 200 percent).
This problem of a loss of competitiveness, which causes insolvency in the short and long term and has triggered a loss of confidence — which is a sign of lucidity — in the international financial system, is often referred to as the “European debt crisis.”
The Situation Is Different in the U.S.
The profitability of American companies is the highest in the last 70 years, due to two factors: a high level of productivity — the highest in 20 years — and record profits from its foreign investments — above all, in the emerging world.
American businesses have cash reserves, immediately available, amounting to $1.7 billion, due to their historic level of profitability, and hold $1.24 billion abroad, the work of their associates and affiliates.
Leading this trend, like anything else, are high-tech industries, which have an even higher profit rate (+15 to +24 percent in 2010) and an even higher percentage outside of the U.S. (up to between 80 and 90 percent). This is the case with Oracle, Cisco and Microsoft. Apple — the largest high-tech company in the world — has net earnings on invested capital of $76.2 billion, of which $47.6 billion remains abroad.
The paradox of the American situation is that the high level of profitability of its companies runs in contrast to its rate of investment, above all in increases in the workforce and in fixed (sunken) assets.
The rate of fixed investment, in proportion to the level of liquidity, is at its lowest in the last 58 years. If the level of investment were correlated with profitability, the rate of increase in fixed assets would be double the actual number. The difference exceeds $350 million since the beginning of 2009.
The banks, despite the fact that they provide an extraordinary liquidity, have drastically reduced their loans.
There is more than $1.6 billion deposited in the account at the Federal Reserve, which pays 0.25 percent annually for it.
The only investments taking place today by American businesses are in areas where an increase in the productivity of the workforce is possible, and also in mergers and acquisitions of foreign firms, which have multiplied dramatically.
The U.S. economy now produces the same as in 2007, but does so with 8 million fewer workers.
This is the root of the weak American recovery. The core of the crisis is not a lack of liquidity, much less a lack of productivity. However, it is the mechanisms of transmission of both toward an increased rate of investment. It is a paralysis of capital accumulation.
This occurs in a globalized and cybernetic world, which has more available assets than ever but that also presents better opportunities for investment than any other moment in the history of capitalism. Today, the field of competition is about incentivizing those investments.
Political economy has radicalized in the second decade of the 21st century. The axis is not currently in the search for macroeconomic equilibrium, but instead in the creation of conditions for a capitalist revolution in the United States, Europe, Asia and South America.