Capital Saturation
It seems like one of those good problems. You're just saturated in capital. Stuffed with it. Soaked in it. Your swimming pool is filled up with hundred dollar bills and your shower head spits out quarters. (Okay, that last one migh hurt a little bit.)
It's actually a dangerous situation. "Capital saturation" refers to an economic environment where the savings rate is low and people (and companies) spend a lot on consumption.
That probably still sounds kind of fun. But it can represent the party before the hangover.
All the spending can contribute to economic bubbles, and the low amount of savings provides no safety net if things go wrong. Think: Roaring Twenties, followed by the Depression. Or the housing bubble followed by the financial crisis of 2007-2008.
Related or Semi-related Video
Finance: What Does "Capital Intensive" M...27 Views
Finance a la shmoop what does capital-intensive mean? lots and lots and
lots and lots of capital yeah that's what it means starting a website, two [Two young kids setting up a website in a garage]
kids a garage and a nice home computer not capital intensive, drilling for oil
in the North Sea highly capital intensive...
well capital needed for the two kids in a garage building a search engine about
two million bucks capital needed for the oil rig well like ten billion bucks and
why does the capital intensity matter well if you can create Google that
generates a few billion dollars of free cash flow a quarter for a total capital
input of maybe a hundred million dollars ie a few rounds after the garage round [Equity investment agreement documents appear]
then investors in it make an absolute killing like if you don't dilute
yourselves and the stock goes up a lot life's good yeah hundreds or thousands
of times their original investment if you create BP British Petroleum or Royal
Dutch Shell or Chevron which also have a few billion dollars of free cash flow a [Cash flowing into fuel tanks]
quarter but it takes you ten billion dollars in capital to generate those
returns then yes you get a nice investment return but it's nothing that
you know Vikings sing songs about and it's the allure of the capital [Man typing on laptop]
unintensive businesses like building a website in Yahoo or a search engine in Google or a video streaming
site in Netflix that takes relatively small amounts of capital to start and
then produces mounds of free cash profits that has made venture
capitalists fall all over themselves hoping to find that one little garage [Person looking through binoculars at garages]
with the next great white whale yeah that's intensive...
Up Next
What is capital expenditure (CAPEX)? Capital expenditure refers to the money that is used to buy or fix the physical parts of a business like land,...