Free Cash, the Current Account and Bubble Creation

Craig Medlen

Journal of Economic Issues, 2010, vol. 44, issue 2, 449-458

Abstract: The present paper explores the relationship between corporations' ability to generate free cash, the lopsided current account, and recent speculation in stocks and housing. It argues that some portion of recently generated free cash is related to the outsourcing of production. Over the last two decades, foreign saving, consequent on the lopsided U.S. current account could not be absorbed by a corporate world beset by its own plethora of saving. Consequently, excess saving, both domestically grown and imported flowed toward speculative avenues — in the 1990s in stocks and more recently in housing.

Date: 2010
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DOI: 10.2753/JEI0021-3624440217

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