When financial assets are no longer a resource
During the last 10 years, especially after the economic-financial crisis there were substantial changes in the monetary politics of the big central banks in the world. After 2008, the Treasury of the United States of America intensified the monetary relaxation process and cash infusion, the same policy being adopted, a few years later, by the Central European Bank. As a consequence of these measures, the capital price decreased dramatically, from 16% in 2008 to 5% in 2015.
Because of this evolution, the financial capital did not represent anymore the most significant competitive advantage. Currently, the importance of creativity and specialized work force is increasing, competing with the capital, since it generates a bigger profit rate than the financial assets. Innovation and the emergence of new goods and services specific to the IT industry can lead to a higher profitability rate faster than the accumulation of financial capital. This is why, I think that currently it is more important the attention to be paid on the human capital and not on the financial one.
If in 1990 the financial assets were 6,5 higher than the global GDP, now this discrepancy grew significantly, the financial assets being 10 times higher than the world GDP. This evolution shows us the way the policies of monetary expansion were reflected in the increase of the financial assets. Continuing to have unprecise monetary policy will allow important economic increases, especially in emergent countries, with a spectacular demographic evolution, that will have easier access to capital.
After the crisis and due to the cheapening of the capital, the purchase value of the companies was overestimated. After being purchased these companies were restructured and thus their profitability increased, without making, in parallel, significative investments in technological revamping and development of new productive assets.
In Europe, Germany, the country with the most performant economy, managed to profit the most from the crisis, registering significative increases, thus accumulating a significative surplus of the current account. However, the policies from Germany did not favoured an accelerated increase in consumerism, it remained moderate, even small compared to the country’s population and the standard of living.
“The beginning of the end” of the increased monetary expansion, as a consequence of the FED decision to increase the reference interest for the American dollar, will lead, in the future to another crisis, that will firstly affect the company that have the most debts. The wave will spread over Europe, especially in the South, in the countries that have big debts: Greece, Italy, Portugal, Spain. Even this time Germany will be prepared to confront the crisis, having resources that will allow it to purchase discounted assets belonging to struggling companies. Taking into consideration the European context, Germany shall continue to consolidate also form an economic standpoint its role as a leader in the European Union.
Adrian Crivii is the founder of Darian DRS SA and the coordinating partner of the management teams across all the divisions of Darian Group. He has also been a member of ANEVAR since 1993 and an honorary member of the Royal Institution of Chartered Surveyors (RICS). Adrian Crivii is a REV valuer (Recognised European Valuer) and graduated the Machinery and Equipment Valuation Course (ME 201-206) of the American Society of Appraisers.
