It ought to be front-page news: Corporate managers are quietly moving “dead money” into cold storage. Investment opportunities are few and far between. And they can’t figure out what to do with their cash.
And the trouble doesn’t end there.
Bankers are feeling the pinch, too. Their profit rate fell from 13% in 2007 to 6% in 2009 and has stayed there ever since.
I don’t think I’m bursting any bubbles when I say bankers are crafty and unscrupulous, especially when it comes to money.
They invented banking fees! This canker on working-class income has grown by 84% over the last decade, but not enough to boost otherwise meager returns. Fees only make up a small share of bank revenues, and account for only 0.25% of household expenditures.
The real money is in interest payments. It makes up 63% of revenue.
In the past, banks could count on firms to come to them for loans. Business Enterprise was Customer Number One. But they aren’t visiting as much these days.
One reason is technological. Canada’s biggest firms prefer to tap the money market directly. Lenders and borrowers are cutting bankers out of the deal. The revolution in computing and information communication made this possible.
But there’s a more important reason firms aren’t borrowing. They’re sitting on enough cash to end world hunger three times over. They don’t need the money.
So, bankers have redoubled their efforts to sell consumer and homeowner credit to working-class families.
Wage stagnation, decades of cuts to social services, record low interest rates, and zealous bankers have driven household debt through the roof. It now stands at 101% of GDP, higher than American levels before the global financial crisis.
This is a precarious situation.
In my next post, I will show how the buildup of household debt poses a significant threat to Canadian financial and industrial stability.