Cash and Corporations


My husband was recently speaking with a friend who works for a large venture capital firm.  His friend informed him that while companies have mountains of cash right now, no one wants to invest and he’s never seen anything like it in his industry before.  The uncertainty of the financial markets, brought on by fear of increased taxes on investments as well as income, is so disconcerting that a state of paralysis has overtaken much of our economy and made growth nearly impossible.

Joe Biden has admitted that “There’s no possibility to restore 8 million jobs lost in the Great Recession.”  During the presidential campaign, a common complaint was that Obama had no business experience.  I’m afraid that when our country elected a man who, despite all protestations to the contrary, exhibits through his actions the belief that only government can save us, we got exactly what we voted for.  Further, this is a man who never had to innovate, never had to make a payroll, and never had to worry about the bottom line; instead, he organized victims in the community, probably paid for by government grants, and then worked as an adjunct college professor with a guaranteed salary.  Of course he and Joe can’t figure out how to create jobs (other than those short-term census gigs, but that might have more to do with the founders than this administration).

I know businesspeople who would be glad to hire more workers but they see absolutely no incentive or benefit in taking risks right now.  If their gamble is successful, they’ll soon be paying nearly 40 percent of their increase in income to the federal government, and there’s always the pretty good chance that the economy really isn’t turning around and workers will need to be laid off, resulting in penalties to the employer through increased unemployment premiums.  Why bother?

According to Karl Denninger at The Market Ticker, corporations are hoarding cash because they see things getting worse; if they saw growth opportunities, they would certainly be investing in them.

So, buckle up and hold on because this market indicator tells us that it’s going to get a whole lot worse.

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