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Corporations Sitting on $5 Trillion of Cash

According to Reuters, new IRS release shows that non-financial US corporations held $4.8 Trillion of cash and liquid assets in 2009, which equates to $5.1 Trillion of cash in today’s dollars.

 

 

Is this a case of the chicken or the egg?  Companies are not spending cash because they do not see good investments due to a lack of demand.  The lack of demand is due to a lack of jobs and wage growth so who moves first?  Seems like incentives for US corporations to invest, hire and raise wages would be a good start… On the flip side, the policies that cause uncertainties about future corporate expenses (medicare) or future legislation and taxes should be put to bed so that the companies stop hoarding. At the very least, the companies should be distributing that cash in dividends to the shareholders if they truly cannot find good investments. Unfortunately they will probably throw the money at poorly planned acquisitions and share buybacks (Yes, share buybacks are technically equivalent to dividends but not in reality).

I realize that this topic is a binary conversation with most readers. Most either believe corporations are insidious monsters that steal from the poor and keep the man down or they believe that corporations are the only rational entities in true capitalism and that they are doing their shareholders justice by shielding their assets from government induced malinvestment. I would like to agree with both sides and try to reach a middle ground. Government policies and taxes have contributed to and possibly created the problem, but corporations hoarding cash only exacerbates it under the current conditions. What is wealth if the foundation is crumbling around you?

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Posted in Economics, Markets, Media, Politics.

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