Pages

Friday, December 18, 2015

Big Business Cutting Capital Investment Plans

In review of Kent Hoover's article, "Why Big Business are cutting their capital investment plans", it simply supports the premise that Government Regulation and their Central Planning "solutions" are simply adding more costs to business.

According to Hoover, as he states the following: "Only 30 percent of CEOs plan to increase capital spending in the next six months, down 41 percent in the third quarter. Plus, 27 percent of CEOs plan to cut capital spending up from 20 percent last quarter.

This is not a shocking discovery, as the Federal Reserve is keeping interest rates low, yet the US Government increases the economic costs onto business. The Government increases these costs via increased regulations and taxation.

Per Hoover:

"A strong dollar, economic weakness abroad and increased international turmoil play a role in this decline in capital investment, since most BRT members(Business Round table) are heavy exporters. But, an uncompetitive[sic]corporate tax code and uncertainty over the future of tax incentives for business investment also are making CEOs more cautious about their capital spending plans. "

Recommendations

First of all, Congress needs to review current regulations, and begin the process of rolling the back for permanent removal. These regulations are restraints on current firms in the marketplace, and in many cases, they prevent new firms entering the marketplace since the economic costs are very high.

Secondly, Interest rates should not be fixed by the Federal Reserve. The natural rate of interest is a market set "price". In short, the actors in the marketplace are better suited in determining the price or "interest rate", as compared to the Federal Reserve.  With the Fed setting the interest rate, its tantamount to a price fixing scenario. Since rates are price fixed at a lower rate, this has caused asset bubbles to appear, thus the uncertainty for many of the CEOs for the capital investment plans.


No comments: