Europeon Debt Crisis: There isn't another option EXCEPT austerity.

[Akvod]

Kasz216 said:

Akvod said:

Kasz216 said:
I mean, actually the biggest problem the US faces right now is that the US companies have made some huge profits but aren't reinvesting that. While it's fun to just blame the big faceless corporations, a better question is... wh

Uncertanity to make a profit/uncertantity about costs of obama's healthcare plan/uncertanity of their tax rates.

Plenty of money is sitting out of the economy because of this.

No. Uncertainty of demand, difficulty of obtaining finance, and increased risk of financial distress are the main reasons why they are holding cash.

Even if we were to accept fear of taxes as a reason, they're not as huge as the three reasons I've listed.

 

Enough with the conspiracies.

You seem to be the one with the conspiracies.

Why is it difficult to obtain finance when banks are having huge comebeacks and rapid profits?

Uncertainty of demand... that sounds a lot like uncertaitnty of profit to me?  Which you know, is the focal point against stimulus, government stimulus isn't real demand, so instead it just cloggs up the money into buisnesses that hold on to it for real demand?

Increased risk of financial distress... so... what's the point of the stimulus again... if all this money is just going to end up in buisnesses hands that won't spend it.

1) Because demand is uncertain and the economy is depressed? Demand uncertainity = Cash flow uncertainity.

2) I really don't see your point. We can disagree what the government should do when there's uncertainity of demand, but the point is that people are less willing to spend and now firms have to deleverage because cash flows are uncertain.

3) I mean, you have to take financial theory with a grain of salt, but firms don't just horde cash for the sake of hording cash. If you gave a firm a trillion dollars, hypothetically, they aren't just going to horde it all. They'll probably distribute a lot of it as dividends or repurchase shares. So no, firms aren't going to hold infinite amounts of money. Firms are deleveraging though, because, like I said, there's higher uncertainity in demand, and because getting external financing is more expensive.

 

It might not be as simple and feel good as "it's big bad government's fault", but the reality is simple. Firms are deleveraging because it's more expensive to borrow money and it's more risky to have debt in the current economic environment.