From John Authers at the Financial Times:
Capital demands solutions that the world currently lacks
What happens when there is too much capital? It may be a good problem to have, but it demands solutions that the world currently lacks.
Measure capital as the sum of all financial assets and, according to the management consultants Bain & Company, global capital tripled between 1990 and 2010 – driven by financial wizardry, and increasing leverage. As financial services groups introduced new products, and populations looked for new ways to save, the supply of financial assets outstripped growth in the underlying economy.
The financial crisis slowed this growth, but the rising demand for savings products in China and other emerging economies will keep the supply of financial assets growing. Bain’s ballpark figure, in a report called A World Awash in Money , calls for a further 50 per cent rise to deliver capital of $900tn by 2020.Assuming the consultants are right, the capital glut could create problems. We know what happens when too much capital is chasing returns. People grow uncritical, and bubbles form quickly....MUCH MORE
