$1.8 Trillion sitting in Corporate Coffers

[Magox]

There is a little over $1.8 Trillion sitting on the sidelines right now.. Corporations are actually flushed with cash, but they just aren't hiring in a meaningful way.

 

Most of the jobs that are being hired in the manufacturing space are companies that export goods and services to the growing parts of the world, such as China, Brazil and China... This trend will most likely continue; global growth will be extremely uneven, slow in the developed countries, above trend line average in the emerging economies.

 

You can interpret the $1.8 Trillion in both a positive and negative light. Right now, the fact that they aren't leashing this tremendous amount of cash can be attributed to a few reasons, one there is a lack of aggregate demand for goods and services, uncertainty of how new laws and regulations will affect their businesses, new possible tax hikes etc.

 

My guess is that this uncertainty will still be around for at least the next 6 months, and we can most likely expect to see the unemployment rate head higher throughout the rest of year.

 

Companies are continuing to increase their productivity, yet they still aren't hiring. Capital expenditures for companies are increasing at a good rate, which tells me that they would rather spend on machinery and technology to boost productivity, rather than hire more employees. Which makes sense, there is that uncertainty of whether or not demand for their products will rise enough to sustain their new employees, plus there are no health care expenditures on equipment and you get better tax treatment on this than you do hiring new employees.

 

The silver lining in all of this is the $1.8 Trillion and growing. If businesses can feel comfortable enough moving forward, then this money will unleashed, and we will see much improved numbers. It's just a matter of time, and our economy will grow in spite of the current government.

 

I do believe that either in the second or third quarter of 2011 we will see more of this money filter it's way into the economy, as companies will have a better idea of how the ground conditions will be and we could see some encouraging growth and hiring numbers.

 

However, I wouldn't expect this growth to be sustained, probably above 3.5%GDP for a couple quarters with 200,000+ plus hirings and then eventually coming back to somewhere around 2%GDP with 100,000 job hirings. Way too much structural labor market and credit damage.

[keepthefaith]

There is a little over $1.8 Trillion sitting on the sidelines right now.. Corporations are actually flushed with cash, but they just aren't hiring in a meaningful way.

 

Most of the jobs that are being hired in the manufacturing space are companies that export goods and services to the growing parts of the world, such as China, Brazil and China... This trend will most likely continue; global growth will be extremely uneven, slow in the developed countries, above trend line average in the emerging economies.

 

You can interpret the $1.8 Trillion in both a positive and negative light. Right now, the fact that they aren't leashing this tremendous amount of cash can be attributed to a few reasons, one there is a lack of aggregate demand for goods and services, uncertainty of how new laws and regulations will affect their businesses, new possible tax hikes etc.

 

My guess is that this uncertainty will still be around for at least the next 6 months, and we can most likely expect to see the unemployment rate head higher throughout the rest of year.

 

Companies are continuing to increase their productivity, yet they still aren't hiring. Capital expenditures for companies are increasing at a good rate, which tells me that they would rather spend on machinery and technology to boost productivity, rather than hire more employees. Which makes sense, there is that uncertainty of whether or not demand for their products will rise enough to sustain their new employees, plus there are no health care expenditures on equipment and you get better tax treatment on this than you do hiring new employees.

 

The silver lining in all of this is the $1.8 Trillion and growing. If businesses can feel comfortable enough moving forward, then this money will unleashed, and we will see much improved numbers. It's just a matter of time, and our economy will grow in spite of the current government.

 

I do believe that either in the second or third quarter of 2011 we will see more of this money filter it's way into the economy, as companies will have a better idea of how the ground conditions will be and we could see some encouraging growth and hiring numbers.

 

However, I wouldn't expect this growth to be sustained, probably above 3.5%GDP for a couple quarters with 200,000+ plus hirings and then eventually coming back to somewhere around 2%GDP with 100,000 job hirings. Way too much structural labor market and credit damage.

 

I think the long extensions of unemployment benefits actually hurt the hiring market. Here's why...

 

Each time benefits are extended, the costs for former employees or any that might be laid off in the near future rise. Unemployment insurance rates are usually set based on an employer's individual record of layoffs and the overall state financial picture for unemplyment benefits cost. This year we had a 600% increase in our unemplyment insurance rates which are tied to payroll. That means that when payroll goes up, so does unemplyment insurance and it's a big increase per employee at this year's rates. Here in Illinois, the rate increase affects rates for at least 3 years. Could be longer if unemplyment remains high into next year and beyond (which it will). This has resulted in a silent tax increase here because the state takes the fed money and still charges the employers the higher insurance rate even though the extensions are federally funded. If a company hires now and then has to layoff a person they will cause their unemployment insurance rates to rise even more down the road. It's cheaper and less risky to ask current employees to do more.

[Magox]

I see that corporations over the last couple of weeks are beginning to move some of this money off the sidelines.

 

Recently there has been a spate of M & A activity and Share buy backs, and my guess is that we will see increases in dividends. The bad news is that M & A deals usually result in a net loss of jobs as these sort of mergers tend to move towards consolidation. Share buy backs and increases in dividends are all ploys to attract new investors through equities into their companies, which obviously don't do anything for the labor force.

 

Even though corporate profits are through the roof, mainly because of the cost cutting measures that took place and the increased worker productivity from added capital and technological expenditures, the logical way these shares will continue to grow is if there is growth on the top line and that remains heavily in doubt for domestic based corporations.

 

Money sitting on the sidelines is not a great way to attract investors, and my guess is that in this sort of economy that much of this money won't go towards adding personnel as much as what most economists would hope. I would expect to see more of the same over the next 6 months or so.

[DC Tom]

Time for a "not spending" tax...

[Dave_In_Norfolk]

I see that corporations over the last couple of weeks are beginning to move some of this money off the sidelines.

 

Recently there has been a spate of M & A activity and Share buy backs, and my guess is that we will see increases in dividends. The bad news is that M & A deals usually result in a net loss of jobs as these sort of mergers tend to move towards consolidation. Share buy backs and increases in dividends are all ploys to attract new investors through equities into their companies, which obviously don't do anything for the labor force.

 

Even though corporate profits are through the roof, mainly because of the cost cutting measures that took place and the increased worker productivity from added capital and technological expenditures, the logical way these shares will continue to grow is if there is growth on the top line and that remains heavily in doubt for domestic based corporations.

 

Money sitting on the sidelines is not a great way to attract investors, and my guess is that in this sort of economy that much of this money won't go towards adding personnel as much as what most economists would hope. I would expect to see more of the same over the next 6 months or so.

6 months? Until something either replaces housing in the market or housing values suddenly increse for some miraculous reason these conditions are here to stay for a few years.

 

Where does this number 1.8 trillion come from? I mean if the stimulous and the financial bailout are taken into account and we still have a crappy economy, why should these businesses spend this money when it might not even be enough to get the economy back and pumping again? If consumer confindence does not increase I don't see business confidence returning.

 

Maybe if the news media just played down the bad economy it might just improve, lol

[DC Tom]

Where does this number 1.8 trillion come from? I mean if the stimulous and the financial bailout are taken into account and we still have a crappy economy, why should these businesses spend this money when it might not even be enough to get the economy back and pumping again?

 

You're kidding, right?

[RkFast]

Time for a "not spending" tax...

 

Oh dont you worry......the whiner in chief will come up with SOME WAY to demagogue those "grreeeeeeeeddddyyyy" Corporations sitting on their ill-gotten gains.

[Peace]

And there's also lots of credit out there for people/businesses to draw on. The economy could comeback fast...but people need some reasons to feel optimistic.

[joey greco]

Businesses are sitting on this money because of the uncertainty the administration has created in the marketplace. It's more than just waiting to see how Obamacare shakes out-the BP shakedown and screwing of GM shareholders has indicated a willingness to ignore contracts and hundreds of years of contract law in favor of political expediency. They have undermined the essential achievement of Anglo-American commerce and the reason for its success in less than 2 years. The creation of these assurances was Hamilton's greatest achievement, and allowed the tremendous growth the U.S. achieved afterwards. As long as the administration is seen as willing to violate contracts and that bedrock of market certainty by fiat corporations will be very hesitant to invest funds and will continue to hang onto these warchests as long as possible, and the economy will continue to plod. It's psychology and a fear of government intervention more than anything that's holding things up at this point.

[Magox]

6 months? Until something either replaces housing in the market or housing values suddenly increse for some miraculous reason these conditions are here to stay for a few years.

I agree that it will most likely be a few years, but I normally like to make forecasts within a shorter time horizon, visibility is more clear. There is a chance that a friendlier more pro-business fiscal policy can be enacted after the November elections that could lead to more certainty and confidence in the business sector leading to more job growth. However, I do believe that there will be a wall at the 7 - 8% unemployment rate. Structural damage in the labor sector is severe and there are no sustained quick fix solutions.

[Dave_In_Norfolk]

I agree that it will most likely be a few years, but I normally like to make forecasts within a shorter time horizon, visibility is more clear. There is a chance that a friendlier more pro-business fiscal policy can be enacted after the November elections that could lead to more certainty and confidence in the business sector leading to more job growth. However, I do believe that there will be a wall at the 7 - 8% unemployment rate. Structural damage in the labor sector is severe and there are no sustained quick fix solutions.

Did you see this?

 

http://www.usatoday.com/money/smallbusiness/2010-08-30-smallbizloans30_ST_N.htm

 

I mean seriously, they call Dems anti-business?

[DC Tom]

Did you see this?

 

http://www.usatoday.com/money/smallbusiness/2010-08-30-smallbizloans30_ST_N.htm

 

I mean seriously, they call Dems anti-business?

 

If the administration wasn't hostile to business, corporations would be investing that $1.8T in their continuing operations, not sitting on it as a rainy-day fund.

[Magox]

Did you see this?

 

http://www.usatoday.com/money/smallbusiness/2010-08-30-smallbizloans30_ST_N.htm

 

I mean seriously, they call Dems anti-business?

Uncertainty is bad for business.

 

However there is an opposing argument that has to be considered.

 

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aIL1LRfRh7w4

 

President Barack Obama is on the verge of creating as much as $300 billion in credit for small businesses as bankers raise doubt about whether there’s demand for new loans and how much will be repaid.

 

The U.S. Senate may vote this week on a bill to funnel $30 billion of capital to community banks, whose business customers typically are small firms. Banks could leverage the sum to make $300 billion in loans that create jobs, according to a Senate summary. That could more than double the commercial and industrial loans at eligible banks as of the first quarter, according to data compiled by KBW Inc.

 

Bankers say the problem isn’t scarce credit, it’s lack of demand from creditworthy firms in a weak economy. The result may be more loans given to distressed firms and higher losses. While bank regulators don’t compile default rates, the biggest lenders have charge-offs of 4 percent to 14 percent tied to small businesses. Eliot Stark, managing director at Capital Insight Partners Inc., said their credit record resembles “junk.”

 

“The highest demand for loans is from the companies least qualified, the companies that have really struggled because of the economic downturn,” said Stark, a former Comerica Inc. executive whose Chicago-based investment bank helps community lenders raise capital. The way lawmakers see it, “everyone’s a good borrower, and that’s just not the case.”

 

David, I'm sure you and others have heard me say on more than a few occassions that the problem isn't so much a lack of supply of credit, it's a lack of credit-worthy borrowers. Interest rates are already at record lows and banks are flushed with cash, the issue is lack of demand for credit...

 

Considering that the $30 Billion can be leveraged up to $300 Billion, there are some serious risks to consider.

 

So it's a matter of prudence, you have to remember it was lax mortgage underwriting from the banks due to government pressure on the GSE's that was largely responsible for the economic downturn we just went through.

 

So yes, this bill would provide more loans to the public, but the vast majority of them would be to bad credit risks. Why do I say this? Because as I have noted, if you are a small business who is looking for credit, if you have a good credit standing, the money is there with super low interest rates. There is no doubt that much of these loans would default... Just like the administrations Home Foreclosure prevention program, so far over half the participants have defaulted and it's only been a year....

[Nanker]

The economy gets moving when the current of currency flows freely.

Nothing 'stimulates' the economy like the expansion of markets.

Free markets won't expand in uncertain times such as these when profit making is so pilloried in the public square and risk taking is objectified as evil incarnate.

It's like the Spanish Inquisition out there, and fuzz nuts are puzzled why the jobs and money aren't flowing, and we aren't partying like it's 1999.

 

Note to President BO: Small businesses don't need access to cheap loans if the don't have consumers banging on their doors clamoring to buy up what they've got to sell.

They don't need to assume more debt (please dear Gosh, can you grasp that concept?) on the if-come that if their shelves are stocked - consumers will buy.

Those are loans that they won't be able to repay. But of course - Stimulus V will be a bail out of small businesses strapped by loans that unscrupulous and greedy bankers lured them into taking without carefully examining the loan's suitability and the creditor's ability to repay.

 

But wait - we've got 'healthcare' now.That should put everybody back to work.

[Dave_In_Norfolk]

If the administration wasn't hostile to business, corporations would be investing that $1.8T in their continuing operations, not sitting on it as a rainy-day fund.

 

Uncertainty is bad for business.

 

However there is an opposing argument that has to be considered.

 

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aIL1LRfRh7w4

 

 

 

David, I'm sure you and others have heard me say on more than a few occassions that the problem isn't so much a lack of supply of credit, it's a lack of credit-worthy borrowers. Interest rates are already at record lows and banks are flushed with cash, the issue is lack of demand for credit...

 

Considering that the $30 Billion can be leveraged up to $300 Billion, there are some serious risks to consider.

 

So it's a matter of prudence, you have to remember it was lax mortgage underwriting from the banks due to government pressure on the GSE's that was largely responsible for the economic downturn we just went through.

 

So yes, this bill would provide more loans to the public, but the vast majority of them would be to bad credit risks. Why do I say this? Because as I have noted, if you are a small business who is looking for credit, if you have a good credit standing, the money is there with super low interest rates. There is no doubt that much of these loans would default... Just like the administrations Home Foreclosure prevention program, so far over half the participants have defaulted and it's only been a year....

Oh please, this is all politics pure and simple. The GOP wants Obama to get credit for nothing. These small business want the credit and they would help get the economy moving. If these Republicans cared about the budget they would start cutting money for military spending or in some other area. They cried not at all when Bush spent tons of cash for prescription drugs, etc. all.

 

Anyway, this doesn't look too good:

 

http://www.nytimes.com/2010/09/01/business/economy/01econ.html?hp

[3rdnlng]

 

 

Oh please, this is all politics pure and simple. The GOP wants Obama to get credit for nothing. These small business want the credit and they would help get the economy moving. If these Republicans cared about the budget they would start cutting money for military spending or in some other area. They cried not at all when Bush spent tons of cash for prescription drugs, etc. all.

 

Anyway, this doesn't look too good:

 

http://www.nytimes.com/2010/09/01/business/economy/01econ.html?hp

 

Credit is available to credit worthy people/businesses. I have a novel idea though, why not get to the root of the problem and fix the housing market. Let's give everyone a mortgage so we can prop up prices.

[Magox]

 

 

Oh please, this is all politics pure and simple. The GOP wants Obama to get credit for nothing. These small business want the credit and they would help get the economy moving. If these Republicans cared about the budget they would start cutting money for military spending or in some other area. They cried not at all when Bush spent tons of cash for prescription drugs, etc. all.

 

Anyway, this doesn't look too good:

 

http://www.nytimes.com/2010/09/01/business/economy/01econ.html?hp

Oh I'm sure there is an element of politics, that's what both sides do. That still doesn't take away the argument of this bills effectiveness. I've already outlined to you why it wouldn't be a good bill so no need to rehash over it.

 

Also, the prescription drug bill was horrible and was the main piece of legislation that I criticized from the Bush administration.

 

And yes, the housing numbers don't look good. That is from the Case/Shiller Index, which the latest reading was for the month of June, which still reflected the end of the $8000 home tax credit. Since then, the supply of homes has shot up, which WILL 100% indicate price drops moving forward. I'm not saying that the July number will indicate this, but in future months. When supply of homes go up substantially, prices ALWAYS head down eventually. So you can bank on it.

 

Also, not that I expect that you read entirely what I wrote in the DOUBLE-DIP thread, Robert Shiller, the creator of this index that you linked recently stated that he believes that there is "greater than a 50/50 chance of a double-dip".

 

Why do you think that is? Do you think it has something to do with housing?

[RkFast]

 

 

Oh please, this is all politics pure and simple. The GOP wants Obama to get credit for nothing. These small business want the credit and they would help get the economy moving. If these Republicans cared about the budget they would start cutting money for military spending or in some other area. They cried not at all when Bush spent tons of cash for prescription drugs, etc. all.

 

Anyway, this doesn't look too good:

 

http://www.nytimes.com/2010/09/01/business/economy/01econ.html?hp

 

What does the GOP have to do with a small business (and larger ones) playing close to the vest fiscally, in a down economy????!!!???

 

Explain that to me.

 

And military spending WAS cut. And the GOP is in the minority right now. Wake up.

Edited August 31, 2010 by RkFast

[DC Tom]

 

Do you think that just maybe businesses would be spending that money, rather than banking it, if the business environment were friendlier?

 

Really, you're that clueless? Really?

[whateverdude]

They should call this The "Bad Loans to Bad Businesses Bill". Is this not a repeat of fannie mae?

 

What's in the bill:

 

•An increase on government guarantees to as much as 90% on some of the most popular loans. That would mean a little less pressure on banks if a company defaults, because the government would insure a larger percentage of the loan, says Coleman. With current guarantees topping out at 75%, "there is a bit more exposure" for banks, he says.

High risk small businesses should not be lent gov't backed money, they should build their credit worthiness on their own or go out of business!