Guggenheim Securities Publishes ‘The Domestic Capital Surplus: A Potential Reversal of Consequence’

A report that traces how a decades-long buildup of investment capital in the US may have reached an inflection point

Guggenheim Partners Executive Chairman and Guggenheim Securities Co-Chairman Alan Schwartz recently published, with Senior Managing Director Andrew Decker, TMT Investment Banking, “The Domestic Capital Surplus: A Potential Reversal of Consequence,” a client report that serves as a companion piece to “An Era Without Precedent: A Framework for Understanding Structural Change in the Global Economy,” published earlier this year. 

In the previous report, Schwartz and Decker analyzed the interactions of six variables that act as tailwinds and headwinds for the global economy. “The Domestic Capital Surplus” delves into the interplay of variables that resulted in what US Federal Reserve Chairman Ben Bernanke described as a massive "global savings glut," which has evolved into a concentration of investment capital in the US.

Schwartz and Decker point to two large waves of capital accumulation in the US (pre-Great Financial Crisis and post-crisis) driven by factors including globalization, foreign investment, government economic intervention, low interest rates, a surging equity market, and a fundamental reconstitution of the US economy as the forces that shaped this dynamic for more than two decades.

“The Reversal,” a potential wide-sweeping reallocation of capital, marks the crossroads at which the US economy now finds itself. The same forces of digitalization, deglobalization, and re-industrialization that could sustain liquidity flows into the system could also lead to a drawdown in liquidity, further exacerbated by a rise in the cost of capital.

“The ultimate question is whether earnings can grow fast enough to outrun a discount rate that no longer has the wind at its back,” Schwartz and Decker wrote.

For more information about “The Domestic Capital Surplus: A Potential Reversal of Consequence,” or to request the report, email Guggenheim Securities.