Firms hoarding cash while economy languishes
There have been plenty of comparisons of late between the lacklustre state of the US economy and Japan's so-called lost decade.
Employment remains sluggish. The housing market still bleeds with foreclosures and now there is a worrying report that US companies are hoarding cash borrowed at historically low interest rates. The whole point of these low rates is to encourage firms to borrow for investment, not for the mattress. Sadly the latter seems to be happening according to the New York Times, trapping the economy in a chicken-and-egg conundrum.
The longer firms sit on a pile of cash waiting for the economy to pick up steam, the less likely it is this will happen.
Political fundraising is one area that seems to be experiencing boom times. The Washington Post reports that interest groups are spending five times as much backing various campaigns in the mid-term elections as they did in 2006, with Republican-leaning groups outspending Democratic ones seven to one.
~RS~q~RS~~RS~z~RS~44~RS~)
© 2012
Comments
This is a bizarre post. The vast majority of cash being held by US companies is their own, not borrowed. There is nothing "Chicken and Egg" about it. The Obama administration in their lust for regulation and government control has left small and large companies with no predictability. What do you invest in, if you don't know what employee costs will be? Or you don't know what the tax implications are?
There is a possible the largest tax increase in US history coming in January, what would you have them do?
By the way, the New York Times and Washington Post are not credible sources for any story that has political implications. Their just Obama's tools.
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For a number of years, corporations and economic pundits have harangued the "tight-fisted consumers" (a term used often) that the sluggish economy is due to our lack of spending. At the same time, the corporations wait until consumer spending boosts profits to the point that the corps start spending again.
This time around the corps, citing "fears that consumers will not spend and send the economy deeper into the recession" are hoarding money that, as you mentioned, they got on the cheap. And just how are the consumers expected to spend more money when they, a) have no money and b) cannot get loans from the very financial institutions that the consumers have "rescued from the brink" thanks to the politicians and that gave all that cheap money to the corporations?
Just what are the corporations doing with all that money? For the answer, look at the last paragraph of the post. They are working ever so hard to buy the next election! After all, the U.S. legal and political systems are beholden only to the entities with the deepest (and most generous) pockets.
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Is there a list? with numbers? If the hoarders can be exposed, maybe they can be persuaded to step up and help us improve the economic climate.
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We do not have a business-friendly Government. That's the problem.
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4. At 6:30pm on 04 Oct 2010, Neal Richardson wrote:
We do not have a business-friendly Government. That's the problem.
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We do not have society or people-friendly businesses. That's the problem. Ask any former employee of Enron or Lehman Bros.
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Anybody still wonder? After all this president openly promised that he will chase and punish any sign of productive activity in this country when he admitted to Joe Wurzelbacher (the plumber) that he wants to take even his little wealth and spread around the world.
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Stan is right- we are experiencing 'regime uncertainty.' Why would businesses make long-term economic decisions with so many new regulations on the horizon- many of which are not even written yet?
And who is this author to determine whether or not businesses should be investing? That's up to the business, not so-called 'experts.'
Creating jobs is not an obligation of businesses. If they do not want to invest, that's their choice. If the government is upset that businesses have lots of money but aren't spending it, maybe they should have seen it coming after passing so many new regulations so quickly.
Alas, the government never thinks about unintended consequences. Their goals are short term, and so are their solutions.
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Government policies have also increased the country's personal savings rate as consumers have cut back on spending which has generated similar concern and criticism from government financial planners. Of course, government financial experts don't have to worry about the possibility of unemployment or the risks of expansion in an uncertain (if not downright unfriendly) regulatory and tax environment.
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Of course companies are sitting on their cash we have an anti business administration,they are waiting to see if the up coming elections look to change things.
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7. At 9:49pm on 04 Oct 2010, G McGee wrote:...
Creating jobs is not an obligation of businesses...
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I'd be curious to know what exactly G McGee thinks the "obligations of business" -are-. Seriously. I'm sure they are perceived to have changed considerably in the age of the multinational, too-big-to-fail corporation, haven't they?
Then I'd ask: to what extent are the practices of today's businesses -consistent- with those obligations? In particular, in line with Mr. Frei's comments as well as those from Dan (@2 above) -- to what extent should those businesses be spending investor's money, without their expressed consent, on national political electioneering?
I would like the companies I own a share of to send me the returns on my investment in cash, perhaps with a nice note -suggesting- a political posture, and let me take it from there. Or not.
The Roberts court is no friend of the American electorate in that regard.
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Prolonged uncertainty will continue to limit hiring and minimize commitment to long-term capital expenditures.
http://pacificgatepost.com/2010/04/end-our-intimate-relationship-with-debt.html
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Yes we know businesses are hording cash.
And for the most part we can read a balance sheet and we know who you are. And we know that your business model is not in the interest of the People but to the owners of your firms -- that is the charter of business management.
But when a company exceeds a reasonable business model, to not willfully harm the people, but by inaction refuse to fund growth that would otherwise profit the firm, we remember.
Are you sure it is not sound corporate stewardship to husband the economy that allows the society, and with it the firm, to prosper?
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Most folk (among them some economists) measure US economic success based on short-term data – like the performance of the stock market. If you pay attention to this short-term stuff, it’s a bit like watching the ball in a tennis match - so quickly does the performance move.
But the truth is there are several long-term problems that are causing the American economy to "languish", money-hoarding being only one.
Tell me why so much money was given in stimululate the American too-big-to-fail investment banks when these too-big-to-fail investment banks are now not lending – merging, getting fatter, issuing bonuses – but not lending. Why didn’t the American Government legislate conditions on these massive stimulus packages – like “Okay, guys, you must ensure the dribble-down effect so our economy can recover. We will audit for this dribble-down effect. So get with the program!”?
Instead, the fact is that no one really knows where the stimulus money went, and no one appears overly eager to investigate.
This dribble-down effect was/is vital.
Why?
If middle-class Joe and entrepreneur Jo-Anne cannot create jobs, where will job creation come from. Jobs have been sold to other countries (like India and China) at an alarming rate. India’s fault? China’s fault? Absolutely not! The fault lies with the American Government and its lack of foresight into the need for a manufacturing base. Any economy with a limited manufacturing base has a relatively short-term future. As 2009 ended LESS THAN 12M Americans worked in manufacturing. Resident population US = 310,411,000.
The United States evidently has become a blood-sucker – take, take, take and produce next to nothing, and that in my book spells W A R.
Of course, the foregoing observation leads to another observation: Each month, billions go out of the United States, billions more than comes in because of the trade deficit. Lately this total is @ 45 B/month – going out of the US to countries like China. India’s fault? China’s fault? Absolutely not! The fault lies with the American Government and its lack of foresight into the need for manufacturing. This lack of foresight has resulted in a mega trade deficit.
While bailed-out big boys sit on their hands, or rather sit on the taxpayer money, America's trade deficit has increased with China alone to something like 300%. This is the cold-blunt truth why China has loaned the US government nearly a trillion dollars, and this ending is the primary reason that China is unwilling to float its currency. That would be like China paying off the American debt for the Americans.
Read this one and weep: (Economic Policy Institute). If the US trade deficit with China continues to increase at its current rate, the US economy will lose over half a million jobs this year alone. Free trade, not fair trade, has forced US workers to compete with the cheapest labor markets. This while “stimulated” banks sit on the money they were supposed to use to stimulate the economy, which in turn was supposed to create jobs.
Treasury Department’s report to Congress: US national debt will exceed $13.6 trillion this year and will grow to (estimated) $19.6 trillion by 2015. With this level of debt, it should be a crime for “stimulated” money-hoarders to hoard money rather than invest. Of coarse, I guess in a little while it won’t make much difference because the US dollar is devaluating so quickly. Federal Reserve was created 1913; since then, US dollar has devaluated 95%. How does this work? An item that cost $10.00 in 1970 would cost you @ $95.00 now.
So those money hoarders will soon be hoarding…well…pennies on the dollar.
So do you think another round of quantitative easing is going to fix anything, or make iot worse?
Let's face it, no matter how you look at it, hoarding cash is the least of the American economic problems.
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Amazing, this is about the 20th "article" I've seen about this subject. I can tell that the authors are ignorant. Omitting the key data is worse than not reporting anything. Along with the "horded cash" is the FACT that these same businesses are carrying a record amount of debt. THAT, along with having to take HUGE write downs due to new gov imposed regulations is what is causing them to hold their cash.
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Golly Wally, but I thought the money was supposed to 'trickle down' to us little people from the honorable and altruistic big people?
Note: the above is a bit sarcastic. And a bit jaded, as well.
It isn't surprising that some folks over here are quite frustrated.
The annoying thing is that folks aren't sure whom to be frustrated at. People seem happy to blame whomever [insert your favorite talking head here] indicates as the 'person' or 'group' at fault.
Personally, I would rather we all just try to figure out solutions than play constant blame games.
Unfortunately, change in the White House will only have a minor affect on our nation... and if people continue to vote from Reaction rather than Pro-action, The Hill will once again represent bull-headed gridlock.
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