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STIMULATORS VS. GREAT INFLATORS: SPECIOUS CIRCULAR BY S E A N C AV E R LY A N D R A N DA L L R OT H Sean Caverly is a professional in the Àeld with experience on both the buy and sell side working with a diverse set of asset classes. Randall Roth is an investment professional whose breadth of experience covers a range of functions from investment strategy and buy-side research to operational risk.

P

redicaments malaise

like

of economic conditions.

InÁators argue

current

Great InÁators contend that propo-

American

nents of additional stimulus are Àghting the

that more forward looking data suggests

the

afÁicting

wallets and psyches have thrown

last war. With over $11 trillion of liquidity

a different picture.

the investment punditry spin-cycle into

already injected into the economy, InÁators

are struggling, corporate America is doing

overdrive. Usually, as per the old adage,

argue that spurring capital availability is

well. Cash hoards on corporate balance

talk is cheap because supply exceeds

less of an impediment to a resumption of

sheets are already at historic highs and free

demand.

However, when direction is

growth than spurring capital deployment.

cash Áow generation continues to mount

lacking, the natural inclination is to look

SpeciÀcally, job-creating investment won’t

in the wake of higher productivity and cost-cutting programs implemented since

for a schema that makes sense of the world in unvarnished terms.

Even if households

2008.

Were one to go

Eventually, Áush balance sheets

shopping for an opinion, there would be an

should translate into jobs as productivity

option for every budget and ideology.

increases and the rest should take care of main

itself. The outstanding question is whether

The Stimulators versus the

government and consumers will choose to

The Great InÁators. The Stimuli crowd

consume or save once the good times are

argues that priming the demand pump

here again. InÁators think they already

is the imperative necessary to change the

have the answer according to the gospel

consumption and investment zeitgeist and

of history and foresee proÁigacy as the

beat back the symptoms of thrift that have

order of the day once conditions normalize.

ground growth to a standstill. InÁation

It is best now to start dispensing with

expectations remain anchored, TIPS-Long

the cotton-blended softness of the U.S.

Bond spreads remain muted, industrial

dollar toward something harder and more

capacity utilization remains below the

calculatingly resolute.

Enter contenders:

long-term

late

secular

2010’s

trend,

two

Both the Stimulators and InÁators

household

balance sheets are still in tatters, and most

occur until the uncertainty on the future

bring to mind shades of the acrimony

importantly, the labor market remains

of the tax code is removed. In the interim,

surrounding the Panic of 1837. Now, as

mired in a funk with the broadest based

more bouts of stimulus can only stoke the

then, concerns persist over the health of the

measure, U6, hovering in the high teens.

Áames of future inÁation.

nation’s medium of exchange. A speculative

Neither consumption nor the savings that

Though inÁation pressure may not be

fervor arose in response to loose credit

lead to capital formation and investment

appearing in indicators that Stimulators

meant encourage westward expansion of

can improve if there is no income feeding

like to cite, it is only because that data

America’s frontier as it sought to grow into

down to households.

provides at best a coincident description

its manifest destiny.

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I N T E R N AT I O N A L B U S I N E S S R E V I E W

President Andrew

FA L L 2 0 1 0

11/27/2010 3:13:03 PM

Profile for Daniel Hellwig

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

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