Not to be pedantic, but this is exactly how the economy works. One person's spending is another person's income and vice versa. An alternative definition of an economy is "the way money moves around"
To be clear, the American economy has always had a "Big 5" of Real Estate, Finance and Insurance, State and Local Government, Health Care, and then Durable Goods manufacture. That hasn't really changed. (At most maybe Lawyering and IT combined could knock off Finance? I seriously doubt either Legal or Tech could knock off even Durable Goods on their own.)
Point is, we've been operating like this for at least a century and a half now. Why are the big intangible transfers in Finance and Insurance, or Health Care, or even sometimes Real Estate* all of a sudden a problem now?
* Finance, Insurance, Health Care, and Real Estate are the intangible transactions that still dominate the economy today. Transactions for legal services or computer/tech type services could not even approach any of the Big 5 in terms of scale. Again, maybe if you combined them? But even then, I doubt they would be number one. There's no way they challenge Real Estate.
I'm not a fan of money going into a bunch of real estate, but given that our society is built around certain kinds of transactions (financing stuff via income/property/sales taxes, plus... y'know, paying people wages and having wages go up eventually) having a bunch of people use their stockpiles of money to just shift stuff between each other in m&a deals doesn't get us far.
>The taxes are just paid to private, unelected elite instead.
of which tesla bears use as a point when writing about the company, tesla/boring/spacex/the defunct solarcity are all vehicles for elon to "burn tax money" on his own megalomaniacal ideas, of which the arguments are about his companies and whether or not they... change anything about their industries
Because those transfers are becoming less and less attached to tangible transactions of value while increasingly allowing the middlemen to embed themselves into the economy through regulatory capture. That's not to say they weren't a slowly growing problem before, but there was enough productivity to be gained through low hanging fruit to justify many middlemen who could claim to efficiently allocate it while taking a cut. Lawyers who can navigate complex regulatory schemes, investors who can free up capital by stripping companies in a dying industry for capital to invest in a growing one, bankers who let companies hedge their bets and trade their extreme highs for less risk of a catastrophic low, insurance companies to do the hard work of data collection so that risk/reward can be accurately priced, and so on.
There is a lot of room for all of these industries to act as middlemen while providing value, but just like a bunch of farmers can grow so much of one vegetable that they all collapse economically (taking the food supply with them), so can these middlemen go too far and bring the entire system down with them.
Take health care for example: we spend more of our GDP on healthcare than the vast majority of developed nations with worse outcomes despite the fact that the majority of research and development for drugs/devices/therapeutics is financed and carried out in the US. How much of that money is going to health insurance middlemen who structure the system to obfuscate pricing from consumers through layers of bureaucracy? How much of that money went (and continues to go) to corrupting the nation's politicians to prevent proper reform of our healthcare system? How much longer can we go with out of control healthcare costs before there is a reckoning like Medicare for all that wipes out the medical insurance industry - essentially putting everyone in the terrible spot of trading the livelihood of millions for the livelihood of millions?
That has always been a problem and it's only getting bigger.
and the velocity of money is much slower now than it was pre-GFC. And it if wasn't, Paulson would have made almost as much on his long gold trade as he did on his short housing market trade.
If we're getting pedantic though... money doesn't just move around. It also comes in and out of existence.
To the larger point though, what I meant is money moving in and out of investment pools. If Tesla raises money to build a factory, the money they raised results in operating revenue upstream for parts makers, materials companies, builders, toolers.. If Google raises money to by a company, it just goes from one investment pool to another.
BTW.. in some economists conception of the market, banks and similar (not sure if a PE funds count) are not part of the economy. They're outside of it.
The place that wealth gets destroyed is at the investment level (in your definition is the economy). At my previous company, they spent billions on plants and they very often sit idle... like 95% idle. That is where the wealth dies.
Google moving the money around from one pool to another doesn't destroy value. Google laying optical fiber down then abandoning it does destroy value.
A lot of folks complain that companies like Google have made so much money that they don't have anywhere to spend so they start to hoard it instead of 'helping the economy'. The reality is that for a company, it is better to wait instead of investing for the sake of investing without considering the returns. It is also worth noting that when a company makes so much money, they often shift a portion of their business into the 'Financial services' segment of the economy.
I find it difficult to sell the idea that banks, etc are not part of the market. For example, without a bank loan at X% interest, some industries wouldn't exist. Without insurance for X product, a lot of companies and technologies wouldn't exist since insurance impacts risk level, etc.
read this in a poetry book about love. Many things in life are ultra hard to get when you're further away from it.. an hommage to the non linear multivariate nature of life maybe
Get the thing in loan twice: that way you don't need any particular of the two.
Somewhat unfortunately, that latter statement is just as troublesome and can translate as "I am using you, x, as a way to make y feel jealous."
In the context of Tesla, if the gigafactory is not the endgame.
There are a lot of possibilities here, since the demand drivers won't appear for another year or so.
EDIT: I lost it a long time ago. It appears to include the piece you were referring to!
[0]https://en.wikipedia.org/wiki/You%27re_the_Guy_I_Want_to_Sha...
The only question is whether or not a lender is willing to sell their cash now at an interest rate that the borrower finds agreeable. Sometimes, if you really have a bad track record, you can't get any financing, but in most cases financing is available, just not at an interest rate the borrower is willing to pay. The borrower also has the option of obtaining financing via selling equity.
Bottom line, financing is available at terms that have positive expected value for the person with the cash, not based on how much the borrower needs it or not, as with all other vendor - consumer relationships.
It has nothing to do with need, just ability to pay back. It's mostly about leverage. When you have no money, leverage won't get you very far because 2 x 0 is 0. But if you have some money, you can leverage it, 2 x 1 = 2.
If you have a billion dollars, and try to over leverage by taking a 100 billion dollar loan, they won't let you do it, unless you are powerful enough to create a world financial crisis.
To clarify, this is an acronym for mergers and acquisitions. That wasn't immediately clear to me.
And when Tesla spends it, the money goes to workers that perform the physical labour. These situations differ in amount of people getting rewarded and in how long these chains are, but in the end, you give money to people for exchange for something valuable they created.
If Google takes $5bn (imagine they don't have it) from a firm/fund to buy a software company, that money goes to founders and investors. In practice, the money went out of a an investment pool and into another one, staying in the macro-pool.
What happens when tesla takes $5bn is it comes out of the fund and goes to pay parts manufacturers, toolers, builders.. IE, it is spent in the "real" (in the sense that economists use th term) economy. One affects the ethereal world of bank balances and stock valuations. The other affects wages and production of goods and services.
Truer words have never been spoken. I remember when our startup had to fight to get a $5k credit card from Chase. Now our Amex LoC is like 750k @ 6% and it’s useless.
Sorry, but businesses raise money for capital projects all the time. Tesla, itself, has raised billions to get to where they are today.
Maybe the Money People are smarter than you think, and are looking at the state of Tesla's business and saying, "if we lend them money for a factory they might not even require, will we ever be paid back?"
Most of the money invested in tech (excl early VC money, which is a small portion) very little is "true" capital investment. It's like the difference between investing in swappable corn notes and investing in seed corn which is going to be planted. One results in more corn. The other might be more profitable, depending on the year.
Like a Chinese ghost city?
Investment in a manufacturing company like Tesla enables more cars to be built, technology to progress and probably lots of 2nd order effects via their supply chain.
There's another explanation for the statement above. The more you need the money, the grimmer the outlook is from the lender's perspective. So you're much more likely to secure capital/loan when you are already financially secure then when you are extended almost to the limit. And this is true regardless of the domain.
You give the money to make money so you're looking more at "sure wins" and less at risky bets.
Google or FB would have no problem at all spending a measly $4.5bn on a project that potentially has real impact on their primary business (search,ads), or even secondary one (android, etc.). Their only problem is finding a way to spend it.
This is because Google makes software, and software doesn't really require much capital. The only thing they could realistically spend that kind of money on is m&a.
So, because they don't need it, google has many times that sum sitting around and could probably raise many times that sum again.
Because the only thing they could spend it on is m&a. If they do, the money goes to pay founders/investors in the target company....and back to to the "available to invest" pile of money collectively accumulating in software giants' balance sheets, VC & PE funds and such.
What rarely happens is actual spending.
If Tesla or another manufacturing company gets ahold of $5bn, they will actually spend it on parts, machinery and such.
The current money market is so loopy. All it can do is move money around. It can't spend it. It's like a real estate market in dense places like NY, but worse. Lots of money flies around, but it goes between one pocket and another. Very little goes towards building buildings. An investment in the gigafactory would be more like investing in a new city. It actually results in buildings, but isn't going to be attractive to investors, because... because it isn't a zero sum game. Other people can build a building too. There's no reason for your building to be worth more than it cost you to build.