There’s a damning number regarding our economy that Obama doesn’t want to talk about. It’s a number, but for him, would be lower. And, lower, in this case would be a good thing for the economy.
“Although estimates vary,” says Joel Kurtzman, a senior fellow at the Milliken Institute, “American companies have between $4 and $5 trillion in liquid assets, a sum greater than the size of the German economy.”
How is it that companies can now have more cash than anytime in history, while unemployment remains so high, inflation in many goods so low, and national income grows so anemically?
Oh, yeah. Democrats at work. Shhhh.
If all that was needed to bring us a juggernaut economy was more money, we’d be in boom times boys.
But alas, while more money is the Democrat recipe for success in everything-- and generally good in the corporate sense-- in this case it’s a telltale sign that something is wrong with policies coming out of Washington.
Because those high cash balance sheets are telling us a few things.
They are telling us that hiring isn’t an investment that companies want to make right now: Too much risk and too little reward they fear to bring people on the payrolls.
They are saying that companies would rather keep cash on the balance sheet than make investments in new plants and equipment and even sales.
Again, this is a matter of balancing against risk and reward.
Many corporate types are more concerned that they have enough cash for the next downturn, versus concern with putting liquid assets to use to generate return on investment the old fashioned way, by growing their base business.
Instead companies have been doing things like buying back their own stock and passing out dividends to shareholders, which the site ZeroHedge calls balance sheet arbitrage.
ZeroHedge observed last year: “Curious why there is a sense that [there] is no real corporate growth in the US? Because companies are simply not investing in growth, and are instead all engaging in cheap balance sheet arbitrage, which makes corporate equities appear richer. The problem is that the debt remains, and once rates finally do go up...”
But this year, thing won’t be so easy says ZH.
The site says that in 2013 stock buybacks in the S&P 500 equaled about half the money that the Fed injected via quantitative easing. But now that easing is tapering, companies won’t be able to manipulate earnings upward by taking stock off the street.