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It Is Not A Good Idea
To Act As If You Can Not Accomplish
What You Were Elected To Do


Sunday, August 07, 2016

Why Are Corporations Hoarding Trillions?

Reality eludes the New York Times. The world is simply too complicated a place for these highly-educated sophisticates to understand.

The idea that, perhaps, corporations do not see this specific time - during the economic stagnation of a Barack Obama-created economy - as a time of opportunity is just too difficult an idea to grasp.

From the New York Times Magazine:
There is an economic mystery I’ve been struggling to understand for quite some time, and I’m not the only one who’s confused: Among financial experts, it is often referred to as a conundrum, a paradox, a puzzle. 
The mystery is as follows: Collectively, American businesses currently have $1.9 trillion in cash, just sitting around. 
Not only is this state of affairs unparalleled in economic history, but we don’t even have much data to compare it with, because corporations have traditionally been borrowers, not savers. 
The notion that a corporation would hold on to so much of its profit seems economically absurd, especially now, when it is probably earning only about 2 percent interest by parking that money in United States Treasury bonds. 
These companies would be better off investing in anything — a product, a service, a corporate acquisition — that would make them more than 2 cents of profit on the dollar, a razor-thin margin by corporate standards. 
And yet they choose to keep the cash. 
Take, for example, Google. Its new parent company, Alphabet, is worth roughly $500 billion. But it has around $80 billion sitting in Google’s bank accounts or other short-term investments. 
So if you buy a share in Alphabet, which has sold for roughly $700 lately, you are effectively buying ownership of more than $100 in cash. 
With $80 billion, Google could buy Uber and its Indian rival Ola and still have enough left over to buy Palantir, a data-mining start-up. Or it could buy Goldman Sachs outright or American Express or most of MasterCard; it could buy Costco or eBay or a quarter of Amazon. Surely it could use those acquisitions to earn more than 2 cents on the dollar. 
This strange vogue for corporate hoarding seems to have begun around the turn of the millennium. General Motors is perhaps the most extreme: It now holds nearly half its value in cash. Apple holds more than a third. 
These numbers are maddening on their face. If the companies spent their savings, rather than hoarding them, the economy would instantly grow, and we would most likely see more jobs with better pay. 
In the 1990s, when companies saved far less of their profits, they built new factories, bought new buildings. In part because of all that corporate spending, the 1990s were a period of low unemployment and high growth. 
Remarkably, the United States government was able to tax all that productive corporate behavior so much that it came close to paying off all its debts for the first time in 160 years. 
So what is going on now?
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posted by Pastorius at permanent link#


Anonymous Anonymous said...

Did these idiots get their college degrees from the DNC?

Ancient Chinese proverb: "One-third liquid, one-third land, one-third loan." Or how you survive uncertain times.

In other words: keep a third of your assets in your bug out bag; keep a third in land since you can reclaim it when the troubles are over; lend the other third long for a high rate of return when times are good and you can afford to lose when times are bad.

Sunday, August 07, 2016 2:32:00 pm  
Anonymous Ciccio said...

And where is the government and big business with that ancient Chinese wisdom? Broke!When the middle and working classes save some of their money, they do not need either government or big business. So let's abolish interest and make them run to us for help.And so they abolished interest, you could not save for your old age anymore, the government was there for that, and let's buy a new truck, the corporations wanted your money. So between them, business and government managed to suck the middle class dry. Never in the entire history of finance has there been a period like this with almost no interest, in good time it was always between three and five percent, double or more in bad times 1072, the end of the gold satndard also marked the end of individual choice.

Monday, August 08, 2016 1:26:00 am  
Anonymous Anonymous said...

Government policy has created uncertain times. Corporations are structuring their assets accordingly.

Monday, August 08, 2016 10:17:00 am  

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