Companies Hoarding $1 Trillion In Cash

As the economic recovery remains tepid, companies continue to sit on piles of cash, shifting it around internally rather than spending it.

The hoard totals about $1 trillion for U.S. companies, Reuters reports, citing data from Moody's. For non-financial companies, the total is about $943 billion as of the middle of 2010, compared to $775 billion at the end of 2008, Moody's said.

Even though revenue decreased in the second quarter, corporate profits in the S&P 500 were up 38 percent from the same period last year, the Wall Street Journal reported earlier this month. Thanks to massive cost-cutting strategies, such as firing employees, it was corporate America's sixth highest quarterly profit ever.

Banks, which also have large cash reserves, used that money to pad their earnings reports, the WSJ says. Of the combined $16.8 billion that the 18 biggest U.S. commercial banks earned in the third quarter (not counting the $10.4 billion charge that stained Bank of America's earnings report), $8.1 billion came from their reserve funds, the WSJ says. At some banks, the contributions from these rainy-day funds outweighed the actual earnings. Of Citigroup's $2.2 billion profit, for instance, 92 percent, the WSJ says, came from its reserves.

According to the WSJ, banks didn't want to prettify their profits. There are rules that say they have to free up cash reserves as soon as it becomes apparent that they don't need them. JPMorgan CEO Jamie Dimon, the WSJ says, called the rules "silly."

With interest rates near zero, banks and other companies can borrow money cheaply. But, as the New York Times pointed out earlier this month, the readily available cash won't stimulate the economy unless banks actually put it to use.

Charles Evans, president of the Federal Reserve Bank of Chicago, said earlier this month that the U.S. economy is in a liquidity trap, in which low interest rates don't spur spending. Companies and timid consumers gather piles of money and simply sit on them -- as the NYT put it, "because they can."

Comments

[Enid]

03:51 PM on 10/29/2010

California business's are sitting on one point nine billion dollars in sales taxes. Dollars not turned into the state yet given over to them in sales tax at time of purchase. Car dealers top of the list. Pay up you tax cheats stop using our tax dollars too pay your way.
Sure this is not unique to California and just not state taxes and as well Social Security funds. Business's mom and pop to Corporations can use the tax courts and avoidance to escape paying their rightful share. So they do consistently and there is even a business model that caterers too them.

[HowardScottPearlman]

02:58 PM on 10/29/2010

This is the Primary reason to TAX corporations more so America can get this Trillion back into the

Economy and PUT AMERICA BACK TO WORK NOW !

[JoeLeland]

02:04 PM on 10/29/2010

THERE IS ONE PROBLEM>Article 1, Section 8 of the Constitution states that Congress shall have the power to coin (create) money and regulate the value thereof. Today however, the FED, which is a privately owned company, controls and profits by printing money through the Treasury, and regulating its value.
The FED began with approximately 300 people or banks that became owners (stockholders purchasing stock at $100 per share - the stock is not publicly traded) in the Federal Reserve Banking System. They make up an international banking cartel of wealth beyond comparison. The FED banking system collects billions of dollars in interest annually and distributes the profits to its shareholders. The Congress illegally gave the FED the right to print money (through the Treasury) at no interest to the FED. The FED creates money from nothing, and loans it back to us through banks, and charges interest on our currency. The FED also buys Government debt with money printed on a printing press and charges U.S. taxpayers interest. Many Congressmen and Presidents say this is fraud.
Who actually owns the Federal Reserve Central Banks? The ownership of the 12 Central banks, a very well kept secret, has been revealed:
Rothschild Bank of London Warburg Bank of Hamburg Rothschild Bank of Berlin Lehman Brothers of New York Lazard Brothers of Paris Kuhn Loeb Bank of New York Israel Moses Seif Banks of Italy Goldman Sachs. Jefferson,Lincoln and JFK AGREED.

[kelo]

10:04 AM on 10/29/2010

What a lame article. Companies can make more off the stock market or interest alone so why should they hire anybody. And because of federal polices banks can't loose. So they sit on piles of cash gotton from the people that have to borrow.

[rebel9999]

09:17 AM on 10/29/2010

Obama is responsible for the money being on the sidelines. A true leader would find a way to get it off the sidelines and working IN our economy. A true leader wouldn't make excuses. He would make it happen.

[Trythis]

11:01 AM on 10/29/2010

Yeah sure - a "true leader" like Boosh? This began in 2008 when Boosh and T-HANK Paulson gave banks billions to sit on.

[oilfield]

11:22 PM on 10/29/2010

he causes it to sit out by passing obamacare and demonizing just about every industryl

[GenosseJoe]

09:46 PM on 10/28/2010

Companies are hoarding cash to be ready to pay Obama money he is going to extort from them by sharply rising taxes and by smacking them with Obamacare mandates.

[wrightj]

02:41 PM on 10/28/2010

Big Bankers and Corporate America have no patriotism or loyalty to anything but money, and that my friends is the "new trickle down reality"!

[Kai-HK]

08:57 PM on 10/28/2010

Yeah but workers and politicians have the same loyalties: money and to get more for themselves and their families (constituents in the case of politicians). So if everyone’s loyalties are to money, why signal out the bankers and corporate America?

And why is it bad? It makes companies more efficient, thus becoming more competitive thus providing cheaper or better goods and maintaining jobs. It also causes people/workers who want to amass assets to save and invest.

Kai

[Trythis]

11:02 AM on 10/29/2010

Yeah, and our current situation shows us that what you've said is true - right?

[GenosseJoe]

09:47 PM on 10/28/2010

Please, show your patriotism and send half of your income to Ms.Pelosi.

[Linda from Deerfield]

12:48 PM on 10/28/2010

For any who wish to verify that this cash hoarding has been building seriously since the early 2000's, here is one of many articles documenting it. Don't let the right wing tell you it is an Obama phenomena. http://www.ritholtz.com/blog/2010/07/corporate-cash-has-been-piling-up-since-1982/

[GenosseJoe]

09:49 PM on 10/28/2010

Your article says - since 1982. Is it the Clinton phenomena as well?

But last year it went up sharply. It is definitely Obama.

[Linda from Deerfield]

11:50 PM on 10/28/2010

The rate and amount have been startingly in excess of the former trend line since the 1990's. Following a short plunge associated with the financial meltdown, it achieved pre-meltdown levels and resumed its upward march.

[Fred Lane]

12:20 PM on 10/28/2010

What actually needs to happen here won't unfortunately. Americans need to stop being consumers for at least a full-day and take control back from these corporations who won't hire its own citizens. We shouldn't but their products and services if they don't support us, its just that simple but stupid consumers continue to support a system that doesn't support them. We need to have a national day of not buying anything and watch what happens...

[Trythis]

11:04 AM on 10/29/2010

I've been thinking that for some time and wonder how to get it going - how do you organize such an event?

[SinfullySublime]

10:50 PM on 10/29/2010

https://www.adbusters.org/campaigns/bnd

[guveqzero]

12:17 PM on 10/28/2010

Need to tax it, that will get it moving. Doesn't take a genius to figure this one out.

[haval2]

12:00 PM on 10/28/2010

shocking.

[prime99]

11:52 AM on 10/28/2010

A drop in Initial Jobless claims can spur a good opening for markets and that’s about it. These numbers play to our optimism, but at this point we have to remain steadfast and wait for US GDP results. Corporate earnings for the most part have been strong in Q3, but uncertainty concerning which direction the economy is heading hasn’t allowed these profits to translate into job creation. A lack of confidence in the Obama administration is among a number of factors causing this uncertainty. There is a general sentiment among the business community that a Republican house would be more pro business, and this might just boost in confidence and lead to job creation in 2011. Check out how much Initial jobless claims have fluctuated over the past 3months even with a strong S&P in September and October.

S&P 500 vs Initial Jobless Claims- http://www.hiddenlevers.com/hl/u?9ncbuY

Hopes are high, but I’m not so sure that this three week trend will stick.

[palli]

11:43 AM on 10/28/2010

If corporations are people than they can also be traitors. Any corporations that is not contributing to the American economy by placing money into the national cash flow is an irresponsible American company. Any American corporation that hides in a foreign county to avoid paying American taxes is traitorous.

[oilfield]

11:48 AM on 10/28/2010

maybe they can open up a window and let the wind blow some out....if the big bad banks had hoarded some maybe we wouldnt be in this mess.

[HSC55]

09:56 AM on 10/28/2010

This is the 'new math' for businesses. If the stock market doesn't like their 'numbers' then the price of their stock drops. Since they can't sell anything because the middle class is broke and can't buy anything, they artifically prop up their numbers by getting tax cuts, cutting employees, cutting budgets, cutting anything they can except their bonuses. Because their bonuses are tied to the stock price. That is all they care about and they don't care how they get that number up. Very short term and destructive. Instead of investing in their businesses they just want to take the biggest piece out of it when they leave with their golden parachute. They leave behind a mess.

[lisalulu]

10:20 AM on 10/28/2010

Once CEO compensation was linked to short term profits - the dye was cast.

Everyone needs to take a step back and ask themselves: are you a short or a long?

We need to be in this for the long haul addressing complex systemtic issues that have been ignored for decades (energy, infrastructure, R&D, technology, education) and "man up" that globalization has hurt the average American.

[olddognewtrick]

08:09 AM on 10/29/2010

Big stock buybacks help to support the stock price...hmmmm.

[Papa Swamp]

07:31 AM on 10/28/2010

Majority of this cash is from rolled over loans...not profits. Compare the debt to cash ratio and I think you will find there is a negative balance. $3.3 Trillion in debt....don't fall for the headlines...US companies are far from flush.
"Perhaps the biggest, and most overtouted, silver lining of the US depression is the massive (presumably) amount of cash held by corporate America, built up over the past two years thanks to massive headcount reductions, overall cost-cutting, and record drops in CapEx investment. And while American non-financial companies currently do indeed have a record $943 billion of cash (of which however $233 billion is in short-term investments), they also have a record amount of debt to go with the cash: 3,394 billion at mid 2010."
http://www.zerohedge.com/article/objective-presentation-americas-1-trillion-cash-hoard

[HSC55]

09:57 AM on 10/28/2010

These 'loans' are to reinvest in their businesses but they use it instead to prop up the bottom line and the stock price.

[demsrsilly]

01:18 PM on 10/28/2010

Still generates wealth. More so then any stimulus.