Should Corporations Hoard Cash?

S

Satchel

2,500+ Posts
From the Political Economy Research Institute at UMass:

19 Million Jobs For U.S. Workers: The Impact Of Channeling $1.4 Trillion In Excess Liquid Asset Holdings Into Productive Investments
Pollin, Robert | Heintz, James | Garrett-Peltier, Heidi | Wicks-Lim, Jeannette | 12/5/2011
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Robert Pollin, James Heintz, Heidi Garrett-Peltier and Jeannette Wicks-Lim show that since 2009, U.S. commercial banks and large nonfinancial corporations have been carrying huge cash hoards and other liquid assets, totaling $1.4 trillion. Small businesses, by contrast, have been locked out of credit markets. The authors examine the impact on job creation of mobilizing these excess liquid assets into productive investments, finding that U.S. employment could expand by about 19 million jobs by the end of 2014, with unemployment falling below 5 percent. The paper discusses policies to transform these hoards into job-generating investments, both for the national economy
 
Wow. Totally busted. Those stupid, racist ******* are intentionally losing money just to spite Obama.

Excellent find, Satchel!
 
Yes... businesses should all convert all their cash on hand into hiring people. Everyone knows that businesses don't need cash reserves during uncertain economic times. In fact, we should appoint a czar to regulate how much cash on hand companies should be allowed to keep! That'll show 'em.
 
You're talking out of your ***, Prodigal. The study makes no such recommendations, nor does it say anything akin to the idea that companies should not keep cash on hand during uncertain economic times.

Having said that, the study identifies a very real impediment to economic expansion. That is, that banks are receiving money from the federal government at essentially zero interest.

The obvious solution is for the federal government to stop funding banks at near zero interest rates. Allow interest rates to be reflective of market forces instead.

Unfortunately, the study recommends instead stimulus spending and taxes.
 
History has shown time and time again, during unsure times or inept Presidential administrations, companies hoard money!

When 7000 pages of regulations are passed for businesses to follow how are they expected to grow the business?

When you have the government telling you that you can't charge for baggage that you are transporting how are you expected to grow the business?

The private sector is not like the government sector where you just hire people and then assign them jobs, they hire people with intent on goals and milestones. When the government limits your goals and milestones it limits your hiring.

Pretty Common Sense stuff really......
 
Some people on this thread need to readjust their sarcasm meters.

I feel sorry for the large banks, they continue to face very difficult and challenging conditions to growing their profits. On one hand, U.S. and global economic activity is is anemic, teetering near the edge of another recession. The NYC banks face huge fallout and uncertain risks relating to the Euro crisis. Housing sales in the U.S. remain weak. They are unable to generate much income from consumers (proposed debit card fees backfired badly, and interest rates are extremely low). Look at a 1-year chart of (ETF) XLF to see what investors think of financial firms... the financial sector has been the weakest in the S&P 500.

If large businesses can't find projects whose potential profit exceeds the risks, they'll just sit on the cash, which allows them to acquire smaller companies (at the right price) and/or weather any potential freeze in the financial markets. Likewise, large banks value large cash cushions to bolster their (minimum) capital ratios in the event of losses in their loan portfolios (mortgages, credit swaps with European banks, etc.). A bank that finds itself short of cash during a crisis is dead (toast), which is what happened in 2008, so any executives worth their salt will keep their bank's cash reserves on the high side if they have any doubts.

When times are tough, cash is king.
 
Again, Common Sense says, it is not a revenue problem, it is a spending problem. When you have budgets that get an automatic increase every year regardless of the departments objectives or goals there is a major problem.

Please point out one time in the history of the USA that raising taxes has actually spurred the economy?
 
I think Michtex's link is an interesting and valuable perspective.. Getting more hands into the hands of working folk is key to economic recovery. How to make that happen is the question that tax policy can't really address and federal spending seems to address poorly. I don't think intelligent government intervention is a bad thing in times like these -- it's just the damn near impossibility of getting intelligent government policy out of the entrenched idiocy the far right partisans and the entrenched idiocy of far left partisans in Washington these days. Hate Bill Clinton all you want, but he was an intelligent, pragmatic centerist, as by the way was Richard Nixon. For all of their ethical lapses, they had sound policy ideas and political skills to get them enacted. Ronald Reagan, for all his hard right imagary, would be consided a RINO today because he was willing too compromise to make progress towards his larger goals.
 
MichTex article was BS. Increasing taxes slows economic growth. Increasing taxes on the wealthy (ie those making over $100K per year) will not only slow the economy directly but will also slow the economy indirectly by taking money away from job creators. Furthermore, the gov't is inefficient so for every dollar taken from the wealthy, a large percentage is squandered and only a portion actually makes it to its intended purpose.
 
""MichTex article was BS. Increasing taxes slows economic growth. Increasing taxes on the wealthy (ie those making over $100K per year) will not only slow the economy directly but will also slow the economy indirectly by taking money away from job creators."

By "BS" do you mean something that wouldn't be aired on Fox News, Illogical or something that's too complicated for you to understand? If there is a fault in the logic and if, as you say, the wealty are "job creators" why isn't the land flowing in milk and honey since those folks have the most cash they have ever had? Maybe I'm dense, but I think he's right in contending middle class and working class folks create the demand that will drive and sustain the economy.
 
Should anonymous internet posters / political economic researchers / politicians have any say whatsoever in what a corporation does with its cash unless they are a shareholder? No.

Is the mere posting of the topic funny, in a Maxine Waters kind of way? Yes.
 
Should corporations hoard cash? I don't know and don't care. Corporations are run by people who should have the best interest of the company, employees and stockholders at the top of their priority. The government takes about 45% of my income in taxes in some form and I have no say in how they waste money. Why should anybody have a say in how a corporation handles its money as long as they follow the law and pay their share of taxes?

I'm not sure what the point of this thread is. As americans, the answer seems obvious, For communists and socialists, I can see how this is a problem.
 
As I see it the point of the thread is tax policy. Is it a good idea to lower taxes on the wealthy as opposed to other ways to stimulate the economy? If you see getting more money into the hands of the wealthy as a moral imperitive and stimulating the economy as socialism, then I think the thread would be pointless. The fact that on this thread we're referencing an incredibly successful capitalist advocating ideas termed "BS" and "socialist" may mean some are unreceptive to input from folks who see things different. I contend that idiocy may one among many reasons peope see things differently than you as opposed to the only concevable one.

As I see it, the problem with the economy is jobs and middle/class, working-class spending power. Their per capita productivity is going up rapidly. Thier compensation not so much. The lack of capital spending, lending and investment opportunities is part of a downward cycle and government should be very interested in how to right the ship. Banks wisely don't lend money to people they aren't pretty sure are going to make money, but they can't expect to make money without taking on some risk. Hoarding may be a harsh term, but well-capitalized businesses are expanding less rapidly than we would like and the direct reason is that there aren't enough brave lenders. I have a friend, a very successful investor, who instead of putting money into stocks and bonds like she used to, is loaning it to successful restauanteurs who are giving her returns -- 12-16 percent -- in simple interest. She's a damned fine accountant and cautious by nature. She has looked at the books, and is very comfortable with the risk-reward ratio. She can't believe the guys she lending to can't get bank loans at great rates.

A tax policy that puts more money in the hands of people who eat out, upgrade their cars and housing and would like to be able to afford nicer vacations, curiously enough, would be good for banks and business, not to mention seniors who are trying to live off interest. We ought to be talking about ways to make that happen.
 
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