Posted on 01/21/2016 6:35:28 AM PST by SeekAndFind
There is an economic mystery I've been struggling to understand for quite some time, and I'm not the only one who's confused: Among financial experts, it is often referred to as a conundrum, a paradox, a puzzle.
The mystery is as follows: Collectively, American businesses currently have $1.9 trillion in cash, just sitting around. Not only is this state of affairs unparalleled in economic history, but we don't even have much data to compare it with, because corporations have traditionally been borrowers, not savers.
The notion that a corporation would hold on to so much of its profit seems economically absurd, especially now, when it is probably earning only about 2 percent interest by parking that money in United States Treasury bonds. These companies would be better off investing in anything -- a product, a service, corporate acquisition -- that would make them more than 2 cents of profit on the dollar, a razor-thin margin by corporate standards. And yet they choose to keep the cash.
Take, for example, Google. Its new parent company, Alphabet, is worth roughly $500 billion. But it has around $80 billion sitting in bank accounts or other short-term investments. So if you buy a share in Alphabet, which has sold for roughly $700 lately, you are effectively buying ownership of more than $100 in cash. With $80 billion, Google could buy Uber and its Indian rival Ola and still have enough left over to buy Palantir, data-mining start-up. Or it could buy Goldman Sachs outright or American Express or most of MasterCard; it could buy Costco or eBay or a quarter of Amazon. Surely it could use those acquisitions to earn more than 2 cents on the dollar.
This strange vogue for corporate hoarding seems to have begun around the turn of the millennium.
(Excerpt) Read more at nytimes.com ...
Well we all know that the NY Times is not hoarding any cash!
My answer would be “lack of decent investment opportunities” combined with asking “how much of this money is trapped overseas because of US idiotic tax policy on bringing it back here for investment.”
Excessive corporate profits = the appeal of Bernie Sanders?
Goodness, you want to bring back American Jobs, Manufacturing whatever.
Get rid of the Federal Income Tax and you WILL see an Economic Boom like no one has ever seen before.
Getting rid of that would fix..... Almost everything. Even some Social Issues.
They fear future governmenr action. Why take risks?
Adam appears to be a financial idiot.
Cash is King and regulations relieve corporations of cash.
What?...y’all gonna call “Ghost Busters”?
That is, unless we get an avowed socialist -- Sanders -- or a closet socialist -- Hillary -- as president instead. Then expect more doldrums, more defeatism, and a return to Carteresque malaise.
Because the banks have been handing out like candy. Once the interest rates go up they’ll lend the money out and make profit off of it. Most of the cash is doesn’t really exist anyway.
They are hoarding cash because they don’t want the federal government to take it and waste it.
How friggin hard is that to understand?
You've hit the Daily Double!
Yes, plus fear. Always hold cash when you’re concerned about the future-—common behavior.
“They fear future governmenr action. Why take risks?”
Exactly, this started when Obama can into office.
TARP, Stimulus and Obamacare scared the daylights out of them, wondering “what’s next”
Companies with big cash reserves (or none at all) do not buy another company just because they can. A prospect must fit the buying company in some beneficial way, must fit into the parent company’s culture, and so forth.
Adam Davidson proves the point that NYSlimes has no idea about any business let alone its own poorly run one - perhaps this is a case of corporate jealousy - if they had the cash which they do not, then they’d buy the WaPo or some such competitor or even MSNBC so they could get the WH talking points for the day out to a wider audience faster - the captive airport crowd definitely would be interested in consuming such fascinating ?ideas? ...
Concur. What the NYTimes is incapable of seeing or comprehending is that in the last 8 years Obama has created an anti-business, anti-business investment climate.
The liberal business guys won’t ever admit that, so they’ll stay quite and just sit on their overseas cash waiting for the “right time”. The conservative businessman won’t say anything either because of the climate of fear from the thought police gestapo.
So everyone is hoarding cash in this anti-business regulatory nightmare era just waiting to, hopefully, be unleashed under more productive circumstances. So, yeah, the NYTimes is incapable of understanding what most other rational people clearly understand, so blinded they are by the allegiance to their god Obama and liberalism.
How about paying some dividends to the stockholders (owners).
**Why Are Corporations Hoarding Trillions?**
They make it sound like it is buried in the back yard or in the CEO’s mattress.
Even if the money is in in bank accounts or other low yield accounts the money is doing good for the economy, in some way.
The economists are too smart for themselves by half. They routinely over think this stuff. It’s pretty simple. You manage a business based on risk. Cash makes a company more fliexible. Flexibility in a company provides some risk mitigation should something go wrong.
There is no confidence in the American economy. Regulations are being passed as law that has real world business impacts. There is no oversight of the regulators that has the GENERAL American economic environment in the best interest. Our government is picking winners and losers through regulations, litagation, intimidation, coercion and corruption. If you are on the winning side, a favorite of whatever lawmakers and regulators are writing the fluid rules, you are at less risk. But what if the winds change? For example, lots of cash would let a company like Google or Apple to move their entire operations (or what’s left of them) out of the US to friendlier nations in a hurry if necessary.
Look at the banking industry. At one time the government blamed them, then bailed them out, and then sued them for the money they gave them based on policy the government forced on them (bad loans). Auto industry. GM is a favorite child when they get bailed out and investors get screwed. While being the favorite, dangerous defects and probable recalls are skirted. When the public finds out, the worm turns and the sugar daddy goes after the kid. It’s prevelent in almost all industry. The Healthcare and insurance industry and Obamacare is another example.
Simply restated, when there is perceived risk, people save more for the expected rainy day. There is no certainty or confidence in our economy in America.
Environmentally "aware" companies in the US have found it much cheaper to despoil the environment of other countries. Exploiting the inhabitants there too is made simple by the free-trade agreements made among nations. The added regulatory costs in the US are never taken into account in those agreements, and are the principal reason why manufacturing has fled our shores.
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