The Corporate Cash Myth Continues

August 2, 2012
Where are the US jobs? Ask the corporate cash hoarders

This time around, it would be refreshing if the pundit-political class considered a radical but obvious idea: tapping the multitrillion-dollar stockpiles of corporate cash currently sitting on the sidelines and benefiting no one.

Here's the obvious reply. Corporations might not need so much cash if they didn't have so much debt.

The following chart shows corporate cash as a percentage of corporate debt as seen in Table B.102 of the FRB's Flow of Funds Accounts of the United States.


Click to enlarge.

As seen in the chart, there is roughly $6 in corporate debt for each $1 in corporate cash. Put in this perspective, this is hardly the era of epic corporate cash hoards (Apple notwithstanding).

I can't speak for corporations but if I owed $60,000 on my credit cards and had $10,000 in cash then I probably wouldn't gamble with the cash unless I was extremely desperate. In fact, I might keep it as a safety buffer in case the economy got even worse.

There would be a temptation to pay off part of the credit cards. However, I'm not sure my situation would vastly improve if I only owed $50,000 but had zero cash. Things happen and those same things tend to hit the fan.

Source Data:
FRB: Z.1 Release