Too Much Capital

A Floyd Norris article in the New York Times on Friday, entitled “Too Much Capital: Why It Is Getting Harder to Find a Good Investment,” seemed right on the money (so to speak).

Why is there too much capital? One answer is that central banks reacted to the bursting of the technology bubble by cutting interest rates by too much for too long. The resulting liquidity might in other times have sent inflation soaring, but now China’s emergence has placed offsetting deflationary pressures on consumer goods prices. The excess liquidity is sloshing around world capital markets.

And the US real estate markets, I’d say. In the same paper there was a classic story on the growing real estate speculation. One guy says, “I look at this as a short-term investment, and plan to unload it as soon as things look dangerous.” Ha ha!

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