http://pragcap.com/a-case-study-on-cash A recent article in the Washington Post suggests that this balance sheet cash is actually pent up capital expenditure waiting to happen, and blames the hoarding behavior on uncertainty over new regulation and the likelihood of higher taxes going forward. This seems like a reasonable assumption, when you consider the current low level of net domestic... [more]
http://pragcap.com/a-case-study-on-cash
A recent article in the Washington Post suggests that this balance sheet cash is actually pent up capital expenditure waiting to happen, and blames the hoarding behavior on uncertainty over new regulation and the likelihood of higher taxes going forward. This seems like a reasonable assumption, when you consider the current low level of net domestic investment. This measure, gross domestic investment less consumption of fixed capital (or depreciation), is now at levels comparable to the mid-1980s.
“Interestingly, some observers lament that corporations and some individuals are holding their assets in “cash” rather than spending and investing those balances, apparently believing that this money is being “held back” from the economy. What is preposterous about this is that the “cash” that companies and individuals are observed to be holding is primarily in the form of government securities and base money created over the past couple of years, which somebody has to hold at every point in time until those liabilities are retired. This is not money that is waiting to be spent. It is a stack of IOUs representing resources that have already been squandered, and now somebody has to hold these pieces of paper until they are retired.”
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Response by Riversider
about 16 years ago
Posts: 13573
Member since: Apr 2009
What's fascinating about the "corporate cash" argument is that few observers recognize that a great deal of this cash is not retained earnings but new debt issuance. Brett Arends of MarketWatch puts present levels of corporate cash in perspective: "According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s. Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP."
Sorry, couldn't resist, noneconomist I - this week I saw the Mayor Lindsay exhibit at the Museum of the City of NY. A trip down memory lane? I did it to satisfy a nagging curiosity about New York City before I knew it, which began only in the mid-1970s. All the blather about what caused its decline up to then, I just had to learn something about it. Not such a great exhibit (my favorite part was the Lindsay for Mayor campaign TV ads projected in a hallway in a loop); however, some cold, hard numbers are fresh in my memory. For instance "$3.5 billion."
What is the significance of that number? There were several films shown of interviews with people discussing the near-bankruptcy (spelled "bankrupsy" in one of the captions for the deaf). In one of them, the number "$3.5 billion" was used to dimension the presumably documented and budgeted amount of municipal debt in the form of "revenue anticipation bonds" alone. Since the film is of recent vintage, probably made expressly for this exhibit, an Economexpert intones that NYC's (oh, excuse me, "Wall Street's") habit of generating these worthless pieces of paper was said to be like subprime mortgages; i.e., the investment bankers merrily floated and sold and rolled over these chimeras based on the ludicrous notion that they were "secured" by future federal government injections of ..... cash.
How could anyone possibly believe that there was ever going to be $3.5 billion of money coming into New York from Washington?
And now, today I am supposed to be impressed that all American nonfinancial businesses carry a total of $7.2 billion of debt, some 35 years later? So $3.5 billion of worthless IOUs nearly sank NYC in the 1970s, but a little more than twice as much debt, of all grades combined, is going to bring down all nonfinancial businesses in the USA 35 years later? Explain.
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Response by lowery
about 16 years ago
Posts: 1415
Member since: Mar 2008
substitute "trillion" for "billion" in the above - noneconomist, I, I got the orders of magnitude confused - NYC had $3.5 trillion of junk IOUS in the '70s. Now domestic nonfinancial businesses have a little more than twice that in debt.
What's fascinating about the "corporate cash" argument is that few observers recognize that a great deal of this cash is not retained earnings but new debt issuance. Brett Arends of MarketWatch puts present levels of corporate cash in perspective: "According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s. Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP."
http://www.hussmanfunds.com/wmc/wmc100809.htm
Help! Help! Riversider, you're crazy!
Sorry, couldn't resist, noneconomist I - this week I saw the Mayor Lindsay exhibit at the Museum of the City of NY. A trip down memory lane? I did it to satisfy a nagging curiosity about New York City before I knew it, which began only in the mid-1970s. All the blather about what caused its decline up to then, I just had to learn something about it. Not such a great exhibit (my favorite part was the Lindsay for Mayor campaign TV ads projected in a hallway in a loop); however, some cold, hard numbers are fresh in my memory. For instance "$3.5 billion."
What is the significance of that number? There were several films shown of interviews with people discussing the near-bankruptcy (spelled "bankrupsy" in one of the captions for the deaf). In one of them, the number "$3.5 billion" was used to dimension the presumably documented and budgeted amount of municipal debt in the form of "revenue anticipation bonds" alone. Since the film is of recent vintage, probably made expressly for this exhibit, an Economexpert intones that NYC's (oh, excuse me, "Wall Street's") habit of generating these worthless pieces of paper was said to be like subprime mortgages; i.e., the investment bankers merrily floated and sold and rolled over these chimeras based on the ludicrous notion that they were "secured" by future federal government injections of ..... cash.
How could anyone possibly believe that there was ever going to be $3.5 billion of money coming into New York from Washington?
And now, today I am supposed to be impressed that all American nonfinancial businesses carry a total of $7.2 billion of debt, some 35 years later? So $3.5 billion of worthless IOUs nearly sank NYC in the 1970s, but a little more than twice as much debt, of all grades combined, is going to bring down all nonfinancial businesses in the USA 35 years later? Explain.
substitute "trillion" for "billion" in the above - noneconomist, I, I got the orders of magnitude confused - NYC had $3.5 trillion of junk IOUS in the '70s. Now domestic nonfinancial businesses have a little more than twice that in debt.