Little venture, little gain

Isn't it ironic that companies world-wide are hoarding cash because they fear that the recession will be with us much longer; but the very act of hoarding $4 trillion cash instead of spending it in employment, expansion, acquisitions is causing the unintended consequence of prolonging the recession?

If a mere layman like me can see that, why can't the smart captains of industry and commerce?

You wonder.

From - http://www.thetimes.co.uk/tto/business/industries/banking/article3555319.ece#tab-5 -

Storm-tossed economic seas have prompted company directors worldwide to pick up their shovels, head for shore and bury their bulging business cashpiles.

Risk-averse boardrooms are hoarding about $4 trillion while they wait for the clouds to break, according to a study of the world’s top 500 non-financial businesses by the law firm Hogan Lovells.

Misery in Europe, a slowdown in the pace of Chinese growth and only a tepid recovery in the United States have contributed to a culture of corporate inaction. Hogan Lovells found low activity both in dealmaking and in distributing cash to shareholders.

“It’s tempting to see this as encouraging because you feel, sooner or later, that something’s going to need to be done with all this money,” Andrew Pearson, a corporate partner at Hogan Lovells, said.

American companies top the hoarders’ league, having set aside $1.8 billion, citing political uncertainty before next month’s presidential election as their biggest reason for inaction. German businesses have amassed $259 billion, while French companies have put aside $228 billion as the eurozone crisis rages. Britain’s top companies have $147 billion of cash on their balance sheets — almost as much money as the NHS’s annual budget.

China’s Bridge Collapse: Infrastructure Boom Raises Safety Questions

From: http://world.time.com/2012/08/27/bridge-collapse-in-china-raises-questions-about-safety-of-countrys-road-construction-boom/

On Sunday, 47 people died in two traffic accidents, highlighting the danger of China's overcrowded and poorly maintained roads

OP PHOTO CORPORATION / REX

Four vehicles fell after a section of the Yangmingtan Bridge in Harbin collapsed on Aug. 24, 2012, killing three people and injuring five others

China’s roads are notoriously dangerous. That point was reiterated Sunday as 47 people died in two traffic accidents, including 36 who were killed in Shaanxi province, when a sleeper bus rear-ended a tanker truck loaded with methanol, and another 11 who died in a collision in Sichuan province. The weekend’s road death toll was startling, but the collisions had a grim familiarity: loaded vehicles colliding on rural highways, apparently due to driver negligence, with horrible consequences. Indeed, Monday morning saw yet another crash between a van and a truck that killed at least nine. So perhaps it was understandable that much of the domestic media attention focused on an accident that had a comparatively small death toll but raised the specter of a growing concern on China’s roads: the parlous state of the infrastructure itself.

In the northeastern city of Harbin a bridge ramp collapsed on Friday, killing three and injuring five. The collapse was particularly shocking because the Yangmingtan Bridge was built at a cost of $300 million less than a year ago, raising questions about whether corners were cut in its construction. The bridge failure was blamed on overloaded trucks, but the government is now carrying out a more detailed investigation into the cause. Chinese newspaper editorials and online comments have called for answers as to why the bridge collapsed and who should take responsibility. Harbin officials were forced to deny claims that they couldn’t track down the contractors who built the bridge and said the names would be made public after an official investigation concluded.

The collapse is particularly worrisome because it follows several similar recent infrastructure failures. The Beijing News reports it was at least the seventh bridge to collapse in little over one year. That follows a building boom, driven in part by the economic-stimulus package launched in late 2008. More than a third of the $586 billion package was budgeted for infrastructure development. With a huge population and years of economic growth, China often seems to be bursting at the seams. Its roads, trains and subways are frequently overcrowded, and infrastructure development is sorely needed. The government says it plans to increase the nation’s highway system by 50% from 2 million km in 2008 to 3 million km in 2020. In places like the southern province of Guizhou, China’s poorest region, the stimulus helped the construction of the Baling River Bridge, which shortened the traverse of a river valley from an hour on winding roads to a matter of minutes. Around Beijing, mountain villages now enjoy smooth new highways linking them to the city center. But the Chinese capital’s infrastructure hasn’t aged gracefully. Heavy rainfall in July killed at least 77 people in Beijing — 11 of them drowned as their vehicles were trapped in flooded roadways. Sinkholes have sprouted around the city. Rural highways in the Fangshan district, which was hardest hit by flooding, and the Pinggu district, north of town, still have large sections missing a month after the deluge.

The sudden collapse of the Harbin bridge has raised questions about corruption and possible shortcuts taken in an effort to build so much so quickly. While the risk of crashes on China’s roads is numbingly constant, the fear of road collapses is a new and dramatic worry that likely outstrips the actual danger. “This is the national condition,” Li Chengpeng, a journalist and commentator, wrote on his blog on Monday. “I’ve seen a lot of people are now worried about their safety crossing bridges, wishing each one would have a Spider-Man underneath guarding it.” Similar questions were raised last year about China’s rapid expansion of its high-speed rail network after a crash near the city of Wenzhou killed 40. That accident was blamed on a lightning strike, but the safety of the system as a whole was called into question by the earlier dismissal of the Railway Minister Liu Zhijun for corruption.

The Law of Unintended Consequences strikes again. China spent billions on infrastructure projects after the 2008 global financial crisis to avert slowdown in China.  It seemed to have worked. But less than five years later the cracks (pun intended) are beginning to show in somewhat dramatic and dreadful ways.