Is “Corporations Sitting on Large Cash Stockpiles” a Myth?

Consider this post which I regard as important from James Bianco at The Big Picture:

Liquid assets held on companies’ balance sheets is a nominal number, much like the nominal level of GDP, that rarely decreases. Of course cash on the sidelines is at a record nominal level, it usually is. This series must be compared to other balance sheet items for relevance. The chart below shows liquid assets as a percentage of total nonfarm nonfinancial corporate business assets since 1952. By this measure, the “cash on the sidelines” argument is far less compelling.

See the three charts in the post. They certainly cast some doubt on the claim of corporations sitting on big wads of cash, waiting for demand to rise.

On a company by company basis the claim may still have some merit but even so it may bear no relevance to employment. Are the corporations that have large stockpiles likely to hire in the U. S.?

The company usually cited as having the largest cash stockpile is General Electric, estimates of the amount of cash being held by the company varying from about $80 billion to over $100 billion. According to GE’s Form 10-K the company has 133,00 employees in the U. S., more than 20,000 fewer now than it had in 2006. That’s consistent with the long term trend at GE. According to its 1994 10-K here’s the company’s employment trend:

Year U. S. Employment (thousands)
1989 192
1990 188
1991 178
1992 173
1993 163


Or, said another way, GE’s U. S. employment has declined by about 30% over 22 years. Someone who’s artistically gifted might want to turn that into a graph.

There’s been a reverse longterm trend in GE overseas employment. I don’t know how much of GE’s cash stockpile is overseas. I suspect much of it and, given GE’s long term employment trend, quite obviously the result of policy, IMO that GE’s cash will ever be converted into employment in the U. S. is fanciful.

BTW, try as I might I can’t make the claim of trillions in cash stockpiles add up. According to the info I’ve been able to find the top 20 cash pads in total add up to less than half a trillion. It’s a long way from a half trillion to $2 trillion and, assuming a long tail, a lot of that cash may be in pretty small bundles.

2 comments… add one
  • PD Shaw Link

    My pet theory has been that the big companies have increasingly been self-insuring for everything from liability to healthcare.

  • That’s more than a theory,PD, it’s a fact. Large companies have self-insured their employees’ healthcare for 30 years. I have no idea what effect that has on their cashflow requirements but that they can save considerable jack by doing it is indisputable.

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