Saturday, September 18, 2010
Companies Still Hoarding Tons of Cash
This article was taken from the New York Times and discusses companies hoarding cash in today's economy. On Sept. 17, 2010, the Federal Reserve reported their quarterly flow of funds report. This report showed total credit grew for the first time in over a year, federal government increased borrowing, and net household borrowing fell for the eighth straight quarter. Bussinesses are extremely reluctant to spend money in this economy, and many can be seen liquidating their assets. This makes sense because the bad economy has cause the cost of holding money to go way down.
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I think the reason companies are hoarding cash right now is because of the low aggregate demand and hence they are not hiring or investing in capital. The problem starts really with the banks giving out loans with such difficulty. So if the banks hoard cash, the consumers don't have enough to spend so they will hoard cash, aggregate demand falls. The companies don't have enough to make large investments and will hoard cash because of the low aggregate demand. Even with the low interest rates, it is still not easy for borrowers to take loans and thus slows down the process of boosting the economy.
ReplyDeleteI agree. Since the banks arent lending money out for fear of defaults companies have no other choice but to hold on to their assets. They also dont have a lot of confidence in the economy.
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