Saturday, March 17, 2018

Excessive Capital Accumulation

The world is awash in savings and there is a disequilibrium between available investable capital and available loan requests and investment opportunities. In special, in Israel we have many individuals with large savings and they have no safe and profitable investment vehicles. The banks are promoting investing in foreign stocks and loans, because the excess money here will inevitably be channeled into the local bourse and real estate (apartments for rent). Since people keep saving, TASE will surely go on inflating, and apartment prices will go on increasing. The State is budgeting much resources toward infrastructure, but the execution capacity of the population has reached a limit, and we have full employment. Importing foreign workers is unacceptable for a country already suffering from dangerous ethnic diversity.

The result is growing foreign exchange reserves that have to be invested abroad in low yielding bonds. Britain a hundred years ago solved this problem by investing in foreign colonies, like Argentine railways and slaughterhouses, or African plantations. Ultimately, there had to be a war to consume excess savings and excess productive capacity. If so, the safest bet is to buy shares in the armament industry.

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