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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

May 8, 2013 at 9:45 AM

What’s behind the record cash firms are holding

As of last month, Starbucks was holding nearly 1.7 billion in cash on hand. In June of last year it was nearly $2.5 billion. Microsoft had nearly $74.5 billion. Amazon.com, which invests heavily in its future, still boasted about $7.9 billion. All these figures are much higher than before the recession — and these companies are pikers compared to many. Apple, for example, has about $145 billion. In general, American corporations are holding record amounts of cash.

Economists at the Federal Reserve Bank of St. Louis set out to find the answers. One size probably doesn’t fit all. For example, some corporations are keeping profits earned in growing international markets offshore to avoid U.S. taxes. Some don’t seem to trust the safety of the financial system after the Panic of 2008, thus are keeping cash for acquisitions and operations rather than borrowing on a large scale as they would have done so in the past. Yet another explanation is the rising importance of information-technology firms, which use cash for research and development. I would add that cash gives management a tool to keep shareholders happy, with dividends and stock buybacks.

One thing that’s not happening is broad-based hiring. The nation still faces an unemployment crisis, despite record cash in corporate treasuries and a historic high (not adjusted for inflation) for the Dow Jones Industrial Average. Whether this is the new normal or a sign of continued uncertainty and low demand is a key question that isn’t answered.

And Don’t Miss: Bankers warn of farm, student loan bubbles echoing subprime | Bloomberg

Today’s Econ Haiku:

Borrowing again

American consumers

The snake eats its tail

Comments | More in Amazon.com, Apple, Microsoft, Starbucks

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