No Shortage of Cash

Companies have plenty of cash. About $960 billion, to be exact. My calculator tells me that is just short of a hell-of-a-lot. So there is no economic slump, right? Well, that is not exactly the right conclusion to draw. First, part of that total is in the form of foreign assets that cannot be brought home without a 35% tax hit. Second, there is no place to put it except under the corporate mattress.

It may sound odd, but having too much cash is a problem. You and I as individuals nearly always have options for putting our cash to work. We can buy stocks, bonds, gold, silver, antiques, or baseball cards. All of these have the potential to increase in value. They can also decrease in value if we make the wrong choices. I explain this concept in my book, Empty Nest Egg: Why You Must Start Your Own Business NOW. (Get the second edition.) Money can be hired.

Let me explain. Money sitting in a pile does nothing. If I go back to that pile six months later, I have exactly the same amount as I had in the beginning. If prices are level, it buys the same amount as it did then as well. No gain, no loss.

If I take that same money and do something productive with it, I have more in six months than I did in the beginning. I could start a business, for example. Or, I could lend it to someone else to start a business. It is the same for big companies. They do not want to hoard cash, but right now, that is the best use for it.

The author of the article suggests paying more dividends. Not a bad suggestion, but it avoids answering the real question. Why don’t companies want to do what they were designed to do–employ money to make more money?

I think the answer is the same as it is for many individuals in America right now. None of us has a clue what is going to happen in the next few years. We can’t count on much of anything. We have an administration that is as anti-business as I can recall in my lifetime. We have a paralyzing level of debt and a Congress that will probably do nothing to rectify that. Any sane person or company would put back cash in case things get really bad.

The solution is to provide a predictable, free environment for businesses to operate in. A flat tax would be a good start. Make the rate low. Really low. Next, force Congress to address each issue it regulates rather than farming that responsibility out to the alphabet agencies whose only purpose is to grow themselves by screwing things up for everyone else. Last, admit once and for all that we cannot pay for the entitlement programs we have in place and replace them with private solutions.

Given a sane and stable set of rules to follow, you can bet that cash will start finding its way into our economy and into the pockets of the productive.

Advertisements

About Terry Noel

I am an Associate Professor of Management and Quantitative Methods at Illinois State University. My specialty is entrepreneurship.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s