Wednesday, 22 of November of 2017

Economics. Explained.  

Corporate Cash

June 8, 2017

Corporate cash holdings  rose $51 billion in the first quarter to $2.64 trillion (above) , and  continues to be quite high at 10.2% of non-financial assets (below).

As the recovery first began in mid-2009 corporate CEO’s needed to increase cash holdings for defensive reasons.  They had no idea if the expansion would be sustainable.  Similarly, they could not anticipate the likely pace of growth.  By the end of 2010 they appear to have become confident that they had ample cash on hand to weather almost any economic upset that might occur.  But given considerable concern about the high corporate tax rate, the inability to repatriate overseas earnings to the U.S., unhappiness about the onerous regulatory burden, and a failing health care program in serious need of revision,  corporate leaders have been reluctant to deploy these ample cash holdings.

But it is important to remember that all of these cash holdings — checking account balances, CD’s, holdings of government securities and municipal securities — all yield less than 1.0%.  It is not good management to have a considerable portion of your assets earning so little.   As we go forward and the stock market continues to climb and the economy continues to expand at a moderate pace firms should become more willing to invest.  The prospect of cuts in the corporate tax rate, an ability to repatriate earnings at a favorable 10% tax rate, relief from the onerous regulatory burden, and revisions to Obamacare, they might be more willing to loosen their purse strings by putting more money into technology to boost productivity.  Or they might build a new factory.  Whatever they choose to do, putting these cash holdings back into the economy will support GDP growth and boost productivity in 2017.

Stephen Slifer


Charleston, SC

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