It’s chickens that sit on eggs

This morning the Wall Street Journal is reporting an astounding statistic from the Federal Reserve:

U.S. companies are sitting on $1.93 trillion in cash!  That works out to 7.4% of the total assets of U.S. corporations.  If U.S. companies are unwilling to spend this cash in an environment when gross domestic product has not only erased the losses of the recession, but also grown beyond pre-recession levels, then this begs many questions:

1.  What is it exactly that they are waiting for?

2.  Cash held by businesses beyond daily working capital needs is a no-no.  That cash should be spent on projects that earn a higher return than cash.  If businesses don’t have projects that earn more than the paltry interest rates than are available at a bank, then they ought to consider…

3.  Why not pay out the cash to shareholders?  Technically shareholders own the business and therefore the cash is theirs.  Equity investors in a business don’t want to earn returns that are in line with bank interest rates.  After all, they take on the risk of investing in a business as an owner specifically because they want to earn more money than is available in the bank.  Shareholders can sell their interest in a business at any time and sink those funds into a bank account.  Businesses ought to be putting that money to work for shareholders, or <gasp!> pay the damn cash out as a dividend.

4.  Why not hire new employees?  New employees don’t just take the pressure off of exhausted, overworked workers currently employed by a business, they also bring new ideas and new ways of doing things.  I have a hard time believing that a new employee can’t contribute a return to a business in excess of the rate of return available on a bank savings accounts.

Figure that companies would like to keep approximately 3% of their assets in cash to cover working capital needs.  That 3% represents 40.5% of the $1.93 trillion in cash, or $782.4 billion, leaving businesses $1.148 trillion of, what I will call, excess cash.  Your median income American earns $44,000 per year.  So that $1.148 trillion in cash represents…are you ready for it?…26 million jobs!!!!!

The Bureau of Labor statistics reported that there were 15.1 million unemployed citizens in November 2010.  So if U.S. businesses hired all of these folks they would still have a huge pile of “excess” funds to cover any perceived disasters.

*****

The game of chicken between U.S. consumers and businesses continues.  But guess who has the power?  Guess who has the cash?  Guess who is really the flock of chickens sitting on their eggs?

Jason