The IMF’s reflex to restore investor confidence at the expense of a nation’s economic well-being represented behavior that might have made sense when capital was scarce, because previously investors could, to a degree, be expected to be aligned with the underlying economic interests of the country. But with speculators pouncing on the currency, the IMF’s actions put it squarely on the hot money team.
Remember when holding big balances in your bank account earned you high interest rates, waived fees, and maybe even a toaster? A BusinessWeek article out this week reports that Bank of New York Mellon, the world’s largest custody bank, announced plans in early August to begin charging clients for cash balances above $50 million “to pass on costs incurred from sudden and significant increases in U.S. dollar deposits.” The BusinessWeek piece is called “The Stress of Carrying Cash.” Like anything else, when there’s more cash than the economy needs, it becomes a burden, not an asset.
Idle hands are the devil’s playground. If financial capital were scarce, the financial industry wouldn’t have had the opportunity — the freely available liquidity — to make up all the financial games that have dominated financial industry profits in the past decade. They would have had their capital tied up in productive assets.
Capital will only become more abundant, giving financial players power to manipulate markets of increasing size, if the past regime — including the belief that markets are “self-correcting” combined with a willingness to bail out “too big to fail” institutions — remains in place.
I do not believe capital is abundant in an absolute sense but yes, very much so in a structural sense: during certain time at certain places capital becomes abundant. So the abundant capital will become hot money to manipulate capital markets across the world. This increases the discrepancy ability of speculators.