Corporate cash hoarding and current crisis

[Kidlicious]

I started looking into this a little bit and corporations started stockpiling cash as early as 2004. They might be stockpiling a trillion dollars at this point. This must have created a problem with banks who turned to real estate loans to make up the difference.

One of the contributing problems could be outsourcing. As corporations profit off of outsourcing they aren't investing the profits. Consumer spending hasn't been hit that much, but it's starting to create problems in the financial sectors.

Discuss

[rmsharpe]

What would be the point of hoarding a weakening dollar in your mattress?

[Whoha]

The other world currencies are collapsing even faster

[chequita guevara]

Originally posted by Whoha
The other world currencies are collapsing even faster

Money is a relative, not absolute, measure. If other world currencies were collapsing faster, the dollar would be rising.

If corporations are sitting on piles of cash, that means the banks have lots of extra money to invest, hence the real estate bubble. Funny how we always get these bubbles when there's surplus cash.

[Felch]

Cash hoarding wouldn't mesh with inflation. If there were cash being pulled from the economy it would become more scarce and its value would rise.

[Kidlicious]

Originally posted by rmsharpe
What would be the point of hoarding a weakening dollar in your mattress?

They hoard the dollar to reduce risk. Trading it for another currency would just increase risk.

[Whoha]

Originally posted by Comrade Snuggles


Money is a relative, not absolute, measure. If other world currencies were collapsing faster, the dollar would be rising.

If corporations are sitting on piles of cash, that means the banks have lots of extra money to invest, hence the real estate bubble. Funny how we always get these bubbles when there's surplus cash.

The dollar has been slightly appreciating though

[Kidlicious]

Originally posted by Felch
Cash hoarding wouldn't mesh with inflation. If there were cash being pulled from the economy it would become more scarce and its value would rise.

If they were demanding it in order to make investments or consumer purchases that would strengthen the dollar, but they are just hoarding it for the sake of hoarding it. That can cause deflation and keep the value of the dollar from falling more than it would otherwise, but it won't necessarily strengthen it.

[Whoha]

Another reason that they've been hoarding is that they've had little need to spend money on the capital, wages, or employee training that they have historically done. Likewise they haven't had the opportunity to expand into new markets which would again require spending.

Even still, they should be paying dividends, doing stock buybacks, and the like with the cash(which they are doing to some extent), not sitting on it.

[Straybow]

Like Chegitz Snuggles said, they don't stuff the cash in a mattress, they have it in interest bearing bank accounts. The cash stays "in" the economy in the form of loans made by the bank. In the US, only 8% of that money has to be kept in reserve, and 8% of even a trillion bucks isn't going to make the dollar more "scarce."

[Zkribbler]

Originally posted by Whoha
...Even still, they should be paying dividends, doing stock buybacks, and the like with the cash(which they are doing to some extent), not sitting on it.

True, if for no other reason that the officers' and directors' own self interest.

Higher dividends --> Increasing stock price --> Big bonuses

[Kidlicious]

Originally posted by Whoha
Another reason that they've been hoarding is that they've had little need to spend money on the capital, wages, or employee training that they have historically done. Likewise they haven't had the opportunity to expand into new markets which would again require spending.

Even still, they should be paying dividends, doing stock buybacks, and the like with the cash(which they are doing to some extent), not sitting on it.

They've also been doing a lot of stock buy back.

edit: But they still end up with lots of cash.

[Zkribbler]

Originally posted by Kidicious
They've also been doing a lot of stock buy back.

I love stock buy backs! It's the corporation's way of saying that its stock is way undervalued.

[snoopy369]

Originally posted by Zkribbler


I love stock buy backs! It's the corporation's way of saying that its stock is way overvalued.

Corrected...

Buybacks are intended to drive up the price (by increasing the theoretical value of each remaining share).

[Kidlicious]

Originally posted by Zkribbler


I love stock buy backs! It's the corporation's way of saying that its stock is way undervalued.

Yeah, and they deter takeovers. They really go hand in hand with cash stockpiling.