Wednesday, March 16, 2011

Picture of the Day: Corporate Cash

Wall Street Journal Graphic

You have heard about how corporations' profits are healthy (thanks in part to US labor market flexibility that allows them to slash costs relatively easily), and you know that the Dow has rebounded nicely since the bubble burst, but you are wondering why the employment situation and the overall economy is still so bad?  Here is a major clue: corporations are stilling on piles of cash.

This is not a condemnation - corporations will start spending when they believe that investment will pay off, and the fact they are not doing so simply reflects the uncertainty that remains in the economy at the moment.  But the silver lining is that when corporations start to invest again, their new investment could become a real source of recovery momentum thanks to these sizable reserves.


Marvinlee said...

Very good picture of corporate cash, but that is only part of the story. What does a chart of corporate debt look like, and what would a comparison of the two reveal?

Ken Pruitt said...

The major problem is getting corporations to invest, and the reality is, you can't make corporations invest by creating false markets through government subsidies and legislation.