An economy is made up of government , corporations and households. Banks, although part of the corporations landscape, play a special role in providing credit and facilitating the money multiplier that is so crucial to modern economies.

Everyone is worried about global economic prospects and investors are scouring every bit of the increasingly high-frequency data points to discern these prospects. Despite the torrent of data, there appears to be no clear consensus.

I thought it might be useful to assess, in a simple manner, the state of the balance sheets of these crucial economic components in each key economic zone. Rather than ask "where is the economy headed?", it is much more useful to ask "what can we do about it?". And the latter question very much depends on the balance sheet of the country/zone in question.

I find the results are quite revealing.

David Fuller's view They are indeed revealing and I commend this report to subscribers.

Here is an additional section:

The most striking feature is the strength of corporate balance sheets all over the world. Where is the money? In the corporations!

Actually, that is why the developed world is stuck. If corporations do not invest and create jobs, households will not consume. If they do not consume, corporations will not invest.

The answer to our economic morass is, in fact, quite simple. Incentivise corporations to invest to renew their capital stock. Governments across the developed world should give their corporations fiscal and even monetary incentives to invest and renew their capital stock - new machines, new infrastructure, new IT equipment, new software and even new furniture. This investment wave will create jobs and income, which will drive consumption. Income and consumption taxes from rising employment and incomes will rise to offset the fiscal cost of capital investment tax incentives.

We're wasting our time, energy and resources trying to rejuvenate the capital-challenged, overstretched and morally-bankrupt financial sector.

The reason we cannot see this solution is because we have been brainwashed to believe that consumption drives GDP. We've got it backwards - there can be no consumption without income, no income without investment and no investment without savings. Where is the last remaining pool of savings? In the corporations!

I find this thesis logical although it may not be viewed favourably by governments with socialist leanings. The risk is that they will be more inclined to make a grab for corporate cash, either directly or in the form of higher taxation.

Bernard Tan's analysis is certainly relevant for investors. Recalling the adage: 'Follow the money', I want to be invested in cash-rich companies rather than the tsunami of bonds floated by technically bankrupt governments.

Cash-rich companies can modernise to increase efficiency and therefore earnings prospects. They can also reduce debt, make sensible (hopefully) takeovers and pay higher dividends. Cash-rich companies may even wish to borrow cheaply at today's historically low interest rates (note the spate of hundred-year bond offerings) knowing that rates will rise when the economy recovers. Higher rates will, of course, push bond prices below their current issue prices, probably for a lengthy period.