The global economy is slowing – from China to Brazil to South Africa and beyond. Currency wars initiated in 2013 by Japan’s introducing a ‘quantitative easing’ (QE) monetary policy, intensified in 2015 by Europe introducing its own ‘QE’, and exacerbated still further by Saudi Arabia initiating a global oil price war to bankrupt U.S. shale oil challengers – have together converged to drive emerging market economies (EMEs) like Brazil, South Africa, Indonesia and others into recession or stagnation.
Exporting Recessions to Emerging Markets
Actions in the past 18 months by Europe, Japan and Saudi Arabia have resulted in lowering their currency exchange rates. The moves represent desperate attempts to boost their weakening economies by trying to capture a larger share of a slowing global export pie. Once growing in 2008 at a rate of 12 percent per year, that pie today, in 2015, is virtually flat.
Money wars, price wars, and currency wars all reflect an intensification of competition between the advanced economies (AEs) of Europe, Japan, U.S., and the Saudis as the global economy as a whole grows weaker and slows – i.e. what amounts to an intensifying economic ‘cat fight’.
That cat fight is having a severe impact on EMEs, resulting in escalating capital flight, collapsing financial asset markets (stocks, bonds, etc.), slowing revenue from exports, import inflation, falling investment and employment, and rising real debt. In response, some have raised interest rates to try to slow the capital outflow, attract more inflow, and slow inflation. But that has only slowed their own economies even more.
Other emerging markets have tried to compete with the AEs for export share by cutting wages of workers and introducing ‘austerity’ policies to make their workers pay for the slowdown. But that too is a dead-end response. The false logic is that austerity will show AE investors that they, the emerging markets, are serious about imposing economic discipline. Somehow that will convince investors to send their capital back to the emerging markets again.
But austerity only lowers wage incomes and slows growth even more. It does not attract back foreign capital. And AE investors don’t send money capital into economies that are stagnating or in recession.
Raising interest rates and/or introducing austerity are both economic dead end responses to a growing crisis that is clearly marked ‘made in Tokyo, Frankfurt, Riyadh’, and, of course, in Washington which is about to raise interest rates that will accelerate capital flight from EMEs even faster.
Despite imposing austerity policies on their work forces and populace, everywhere AE corporate elites whine and complain about the deteriorating global economy they have been causing. True, economic conditions worldwide are going from bad to worse. Workers’ wages, benefits, and incomes have been falling in the AEs since 2009 in a so-called ‘recovery’ that still hasn’t reached AE workers and is now ending as well. Wage income decline is about to accelerate. But to hear the AE corporate elites whine and complain you would think they are doing poorly as well. But the facts tell otherwise.
US$7.3 Trillion Corporate Cash Pile
Various studies and reports show that AE corporations continue to pile up cash on their balance sheets.
According to a June report by the Bank of Japan, in Japan corporate cash hoarding now totals US$2.4 trillion. And somehow that was accumulated despite Japan having experienced four recessions since the 2008-09.
How about Europe? There corporate cash has risen 40 percent since 2008, to US$1.1 trillion, despite a double dip recession of 18 months in 2011-13 that was worse than 2008-09 and despite a stagnating Eurozone since 2013.
And the United States? Moody’s Analytics research estimates corporate cash for non-financial corporations at US$1.73 trillion today. Add another US$1 trillion for reserves held by banks. Then there’s the estimate by Moody’s that U.S. multinational corporations continue to hoard another minimum another US$1.1 trillion in their offshore subsidiaries, which they’ve parked there in order to avoid paying U.S. taxes on that amount. That’s a combined US$3.8 trillion cash pile for U.S. corporations alone.
In total, just the AE economies of the United States, Eurozone, and Japan are therefore sitting on a minimum of US$7.3 trillion in cash today!
That US$7.3 trillion still doesn’t count what additional ‘cash equivalent’ corporations stuff away in what are called ‘depreciation’ funds and other hidden funds which doesn’t get counted as cash; or cash they might have stuffed in offshore tax havens and don’t report; or have purposely underestimated as a result of widespread tax fraud by U.S. corporations. The US$7.3 trillion also doesn’t include the undoubted trillions of dollars more hoarded by the Saudis and their regional emirate friends in Swiss, Luxembourg, and Singapore banks. If we included that, and the hidden funds and havens, there’s probably as much as US$10 trillion in cash piled up in the balance sheets of AE corporations in the United States, Europe, Japan and Saudi and friends’ economies.
OK, but what about individual AE capitalists and investors? Perhaps their corporations are bloated with cash, but maybe they haven’t benefited personally? Think again.
US$8 Trillion Stock Buybacks, Dividend, & Interest Payouts
The US$7.3 trillion in corporate cash represents what is left over after trillions more has already been to their investors since 2008.
In the United States alone since 2009, more than US$4.5 trillion has been distributed in stock buybacks and dividend payouts by just the largest 500 U.S. corporations, according to Standard & Poor’s research. Another US$500 billion has been distributed in dividends to all businesses, corporate and non-corporate alike, according to U.S. government data sources. That’s US$5 trillion. But even that astounding number does not include distributions by U.S. private equity firms to partners, estimated at US$1.3 trillion in just the last three years, or additional amounts by global hedge funds, or by other ‘shadow banks’, to their member partners in what’s called interest payments.
How about Japan and Europe? While stock buybacks are not historically as large in Japan and Europe as in the United States, they are rising rapidly. Meanwhile, dividend payments have been more generous compared to the United States, and rose 15 percent in Europe in 2014 and 16.8 percent in Japan by latest estimate. That’s probably another US$1-2 trillion.
In other words, a minimum US$8 trillion or so in cash has been distributed to shareholders and investors since 2009, leaving US$7.3 trillion in a still undistributed cash pile on AE corporate balance sheets.
Notwithstanding this incredible pile of distributed and undistributed cash since 2009, it apparently is still not enough for AE economic elites. (It is never enough.) To protect and grow their cash piles still further, AE economic policies have been shifting since 2013 to ‘export’ their stagnation to emerging markets, on the one hand, and to squeeze even more out of their own workers on the other. The latest version of the austerity squeeze now in development in the AEs is called ‘labor market reform’. And it’s coming to workers in EMEs as well. But more on that another time…
This piece first appeared at TeleSUR.