CREEPING TOWARDS AN INSIGHT:

U.S. firms sitting on piles of cash (Diana B. Henriques, March 4, 2008, IHT)

Unlike most American consumers, whose failure to save has exasperated economists for years, the typical American corporation has increased its savings so sharply that it probably has enough cash on hand to completely pay off its debts.

That should be good news in an economy - the world's largest - unsettled by rising energy prices, tightening credit, gyrating stock prices and declining values for the dollar and the family homestead. Indeed, the Federal Reserve chairman, Ben Bernanke, cited strong corporate balance sheets as a bright spot in the darkening forecast he presented to Congress last week.

Some analysts also speculate that these cash-rich companies - which have been saving to offset the risks of doing business in a more globalized world - may start sharing their wealth with investors through special dividends, providing welcome stimulus for the economy.

Corporate spending on equipment and other capital expenditures has declined as savings have soared, suggesting that companies could stimulate the economy now by going on a hiring and spending spree.

Combine the money that corporations are sitting on with the $55 trillion that consumers have saved (contrary to the low savings myth), the falling budget deficit and artificially high interest rates and you begin to see why the current slowdown came about.

Posted by Orrin Judd at March 4, 2008 8:37 AM