January 22, 2016

A FOX BUTTERFIELD MOMENT:

Why Are Corporations Hoarding Trillions? (ADAM DAVIDSON, JAN. 20, 2016, NY Times)

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, a 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.

They have simply noticed, before consumers have, that falling costs mean that cash is making more like 4%.

Posted by at January 22, 2016 7:59 PM

  

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