A Supply Side Nightmare Scenario [View all]

[cali]

I'm just posting the last 4 paragraphs of a very long and very good article. They sum up the story.

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The great credit bubble may have burst, but the age of oversupply hasn't ended -- and won't anytime soon. Abundant labor, excess capital, and cheap money are here to stay.

The expanding savings accounts of an exploding middle class represent only one reason, among others, that cheap money is going to keep flowing. Exports are another, as in the past. In fact, in the five years since the financial crisis, the foreign-currency reserve holdings of emerging countries have more than doubled, according to the IMF.

Via extraordinary monetary-easing measures, the developed world's central banks have turned trillions of dollars of financial investments into so much cash that it is metaphorically bulging out of the pockets of banks and other investors. Yet it is not getting lent and it is not getting invested in new capacity. Why?

In a nutshell, the reason that the enormous ocean of liquidity is not being deployed is that there is so much global supply and excess capacity of labor, plants, equipment, and goods and services relative to present demand that there is little reason for private-sector investment in the development of additional capacity to produce additional supply.

What we have on our hands is a supply-side nightmare scenario.

http://www.pbs.org/newshour/businessdesk/2013/09/a-supply-side-nightmare-scenar.html