The Grand Trickle Down Deception

The constant refrain in the Presidential campaign is to give the Job Creators the money with various unconditional tax breaks, and those adventurous souls will have America up and working  in no time flat. But  overwhelming  current evidence is this is not just a myth but a crass deception. The following articles  in the NYTimes Dealbook , the Atlantic and the DailyBeast by Republican analysts David Frum show that great income inequality leaves  enormous amounts of Trickle Down moneys left standing in  multi-trillion dollar stagnant pools. meanwhile major  opportunities are left begging  like huge infrastructure investments; massive investments in energy conversion to abundant natural gas, wind and solar power;  and ventures in Clean technologies for water treatment/desalination, air pollution and better garbage utilization/disposal.

The NYTimes Dealbook article, More Money Than  They Know What To Do With, describes the 1 trillion dollars languishing in Private Equity firms’ coffers. The neglected money has gotten so large that  1/5th of  it will have to be returned to shareholders this next year  because the Private Equity firms have not invested the dollars since 2007. This refund problem continues for the next 4-5 years until investments can be found that the Private Equity firms are willing to take a bet on. Here is the low down:

Nearly $200 billion from funds raised in 2007 and 2008 alone needs to be spent in the next 12 months or it must be given back. Private equity executives, after spending the last several years largely on the sidelines amid the economic uncertainty — often proclaiming “patience” as an explanation — have begun to be anxious that they may need to go on a shopping spree….

So the race is on. But, of course, there is a problem: “Burning off the aging dry powder will likely result in too much capital chasing too few deals throughout 2012,” according to Mr. MacArthur. That means it is possible we could see a series of bad deals with even worse returns.

Now this is just Private Equity financial capital. The argument can be made other financial institutions such as the major banks have similar dollar hoards that are being saved for  riskless investments. And why not, the banks are used to borrowing at the Fed Windows for 1% or less, then loaning those monies out again at 3% or more. When levered this is a huge cash cow.- so why take on even any more risky adventures?

Yet. as the Dealbook and David Frum articles point out there is real danger that misue and  financial bubbles will be created by the excess, unused money in US Finacial  Banks and Investment funds. This is  described as follows

Rauch notes also that the concentration of wealth in the hands of rich investors will tend to inflate demand for investment assets, causing asset bubbles.
[F]or decades, more than half of the increase in the country’s GDP poured into the bank accounts of the richest Americans, who needed liquid investments in which to put their additional wealth. Their appetite for new investment vehicles fueled a surge in … “financial engineering”—the concoction of exotic financial instruments, which acted on the financial sector like steroids.

However, the Financial Community’s unused Financial Hoard is only part of the story of how badly Trickle Down Economics advocated by Romney has gone awry. Business in general, not just the Banks, are hoarding cash.  TheAtlantic Story, The $5 Trillion Stash: U.S. Corporations’ Money Hoard Is Bigger Than the GDP of Germany, shows how US corporations are hoarding cash in the amount of $5trillion. These huge amounts could light a fire under the Economy if even 1/3rd were applied. The Private sector, which already pays the lowest income tax rate in 60 years [see chart below] is holding out for even more tax breaks domestically and on its offshore trillions.  And then having failed to police themselves effectively, corporations are demanding less  regulations as well before they do business.

Watch in the Presidential Debates for this fact to come up … and see how the two candidates address the issue of Trickle Down hoarding.

Summary

In contrast to Trickle Down, President Obama has been trying to inject some targeted economic start-up funding like the auto-rescue, electronic patient informations systems, aid to badly strapped state economies, etc – and all have been rejected along with major compromises in deficit reduction. All have been rejected by GOP Congress. As a result Income Inequality and Trickle Down Hoarding of cash as just identified have become the  two primary causes of the US Economies continued poor performance. One should  add the GOP’ Congressional   Scorhed Earth NO  vote on all of Obama’s major Economic efforts and compromises plus the fact the GOP Owns the US Deficits to the problem. But bottom line, Mr. Romney has a lot of Economic ‘Splainin to do in the debates and campaign ahead.

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