FX Macroeconomics
Chart 3, posted on FT Alphaville, illustrates how unprecedented this is. Investment, the red line, was historically correlated to the profits, the blue line. That correlation broke during the Reagan-Thatcher era, and since 2000 the two are inversely correlated.
Chart 1
deterioration of profits that one would expect under the general conditions of excess supply. As Chart 2, from Pragmatic Capitalism here shows, US corporate revenue growth itself is weak and falling.
The incredible development is not so much the decoupling of wages and profits. That happened a few decades ago. What has taken place now is that profits have become decoupled from investment.
This illustrates another key characteristic of surplus capital and reveals one of the channels that relate it to the financial crisis. Corporations do not only recycle their profits into expanded output, but have kept a growing part of their capital outside the production process.
As of the end of 2012, US corporations had an estimated $1.8 bln of cash (liquid financial assets) on their balance sheets. European companies had an estimated $1.3 trillion, while Japan’s corporates had cash holdings of $2.4 trillion. And now imagine that those funds need to be placed somewhere and that $5.5 trillion is also likely to be levered up several times during the circuit of capital.
In addition, another even larger poll of capital
largely stayed out of the circuit of production of direct
emerged that also investment,
Chart 2 64 FX TRADER MAGAZINE October - December 2013
but stay within the circuit of capital; namely the reserve managers and the central banks and an increasing number of sovereign wealth funds. Those funds essentially arose in the circuit of capital itself. Financial products have to be created, sold and
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