
Why Are Corporations Hoarding Trillions? - hvo
http://www.nytimes.com/2016/01/24/magazine/why-are-corporations-hoarding-trillions.html?action=click&pgtype=Homepage&version=Moth-Visible&moduleDetail=inside-nyt-region-0&module=inside-nyt-region&region=inside-nyt-region&WT.nav=inside-nyt-region
======
ryandrake
Looks like the TL;DR of this article is: "Corporate leadership, being so much
smarter than the rest of us dummies, sees something big on the horizon coming.
They're saving all their cash so they can later invest because "the next
transformative innovation could be just around the corner". Apparently they're
smart enough to hoard all this cash, but not smart enough to know exactly what
that transformative innovation is so they can get started on it right now.

Let me propose an alternate theory: They're no smarter than the rest of us,
and NOBODY knows what to invest in anymore. Corporate leadership is uncreative
and can't think of anything else to do with that money that will produce
returns in excess of what they're already doing. Shareholders don't want the
money back (they'll just turn around and invest it into another company that
already has a pile of cash). And they sure as shit won't throw a bone to
employees (whose wages have been stagnant for a decade). So, what are they
going to do with it all? Who knows? Let it sit in a bank account!

~~~
fennecfoxen
As a corporation, the traditional thing to do with cash you don't need is to
return it to your owners, either through dividends or through share
repurchases: If the owners wanted to own money sitting in a bank account, they
could put the money in a bank account themselves. If they wanted to own a
company, they'd be better off owning just the business part without a chunk of
low-return cash attached. Beyond basic liquidity needs, a pile of cash can
only drag a company down.

Naturally, returning money works much better when taxes on dividends are low,
or when stock prices are low (so you can give the remaining owners a better
bang for the buck). Both taxes and stock prices have risen since the crash,
however, and spending a cash horde on taxes or on overpriced company stock are
a worse drag on the company than holding it.

~~~
guyzero
Tech companies specifically have seen their historical predecessors disappear
very quickly - Sun and SGI nearly evaporated, IBM has had 16 quarters of
shrinking earnings. So tech company execs hoard cash in the hope that if they
get blindsided they'll have time to recover. I'm pretty sure this is Eric
Schmidt's explicit strategy.

Also, as someone else noted, a lot of this cash is "trapped" overseas as it
would cost 35% to repatriate it to the US. The logical thing to do would be to
move more operations out of the US to balance expenses with revenues but I
guess there are issues with doing that.

~~~
icebraining
_" Nearly Half of So-Called “Offshore” Funds Already in the United States"_

 _" Corporations are able to invest their foreign earnings in U.S. assets
without treating them as “repatriated” and subject to taxation, because the
federal tax code, specifically Section 956(c)(2), already allows U.S.
corporations to use foreign funds to make a wide range of U.S. investments
without incurring tax liability."_

[https://www.hsgac.senate.gov/subcommittees/investigations/me...](https://www.hsgac.senate.gov/subcommittees/investigations/media/new-
data-show-corporate-offshore-funds-not-trapped-abroad-nearly-half-of-so-
called-offshore-funds-already-in-the-united-states)

~~~
iofj
That doesn't change anything. Cash on hand, even outside of the US lowers cost
of capital, potentially almost to zero.

Paying the money to shareholders would imply double or triple taxation before
the money is with the shareholders. (once, returning the money (corporate
tax), once capital gains tax, then income tax or corporate tax again in the
case of corporate shareholder). Just so we're clear, that means 35% and then
another 35% or 50% tax, or 57% up to 67% tax.

So I think the original argument stands. The company has a choice. Either
spend 3x the money on something that will make the stock price go up (like
creating an offshore entity buying your own stock if you want to do this
rather directly), or give 60% to the US government, 40% to the shareholders.
That's why buybacks, which have been proven inefficient to say the least,
still happen. They'd have to be 3x as inefficient to break even.

And from the perspective of the management itself : that's either a trillion
dollars under their direct control (not quite property, but ...) or 400
billion payout to shareholders, none of it under their control. As long as
they can get away with it, they'll keep it. Just look at what Amazon does to
it's shareholders.

------
Animats
The US is out of demand. Workers are spent out. Thus, there's no need to
increase output, because nobody has the money to buy it. The US has huge
excess manufacturing capacity, thousands of malls which could handle more
traffic ("there's always parking at Sears", a rather pathetic ad), and
services which could handle more business. There's a glut of capital, plenty
of available unemployed or underemployed workers, no shortage of commercial
real estate outside of a few cities, but no way to use it.

The CEO of WalMart has mentioned this. They have a direct view into the spent-
out economy - same-store sales data. Sales decline each week after payday,
then recover after payday. Sales move to necessities later in the month.

That's why companies aren't investing in capacity.

~~~
jandrese
This is the ultimate problem with "trickle down" economics. Capital doesn't
drive growth. Lack of capital limits growth, but excess capital doesn't
generate additional growth. Demand drives growth and 35 years of stagnant
wages (wages are basically where they were in 1981) have put a chokehold on
growth.

This is why you have the seemingly incongruous effect of high taxes
encouraging growth and low taxes stifling it. Ultimately "high taxes" tend to
effect the rich a lot more than the poor, and the money ends up being
redistributed somewhat equally, spurring demand as the poor can suddenly
afford a lot more good and services.

~~~
jmorrow977
I'm coming around to the opinion that taxes on income are a bad idea. Income
flows to people as they're trying to accumulate wealth, trying to climb from
lower to middle to upper class. Higher taxes on income, especially highly
progressive taxes, make it harder for people to move between social classes.

The focus on income tax creates a situation where the person who makes
$200k/yr but has a net worth of $0 gets taxed far more than the person whose
investments bring them $100k/yr and they have a net worth of $2,500,000.

Oh, and their lifestyle might be about the same despite the disparity in
income, because one of them needs to work for a living so they'll need to live
somewhere close to jobs, pay more for transportation, etc.

Higher income tax is great, if you're already wealthy. If I was wealthy, I'd
be very happy people if stay focused on that. But I think taxing accumulated
wealth is a much better way of leveling the playing field over time and also
making sure capital stays in productive use. France already has something like
a 0.5-1% "solidarity tax" on wealth, and it's a progressive tax.

According to Piketty, the return on capital has historically been around 5%
per year, and returns are better at scale. For multi-billion dollar funds, the
rates are around 9-10%. The "Financial Independence/ Retire Early" people who
plan for pessimistic scenarios say to expect 4% return. Let's say it's
reliable to expect 2-3%.

At $10M a person can expect about $200-300k in income. If we have a wealth tax
of 1% their investment income after taxes reduces to $100-200k. If they want
to maintain their previous standard of living, they need to make about $100k
per year.

At $100M let's say economies of scale start to happen and even in a
pessimistic scenario you can expect a 4% return. If we have a 2% wealth tax at
this point, the person can still expect an investment-only income of $2M per
year.

You can see where this is going. At $1B with a 5% pessimistic return, 3%
wealth tax, $20M investment income. At $10B with a 6% pessimistic return, 4%
wealth tax, $200M investment income.

The nice side effect of this is that the mere scale of capital doesn't provide
competitive advantage. The wealth tax should be designed to even out the
advantage of scale so that larger accumulations of capital need to be put to
best use.

Putting some numbers on the napkin... The US has an aggregate net worth of $85
trillion dollars. The federal budget is $4 trillion. Assuming a power law
distribution of net worth, let's guesstimate an average 2% tax on that $85
trillion, which comes out to $1.7 trillion. We could roughly cut income taxes
in half or eliminate them except at very high levels ($1M+) if we used a
wealth tax instead.

The important thing to note here is that the wealth tax still leaves about 2%
investment income, it doesn't reduce the total over time. I think it's great
that people can accumulate wealth and then live on it, or pass it on to the
next generation. But it would be great if we can keep the income at around
1-2% so that the nearly guaranteed increase in accumulated wealth is the same
or less than the growth rate of the economy, meaning that people who build
businesses today have the ability to reach the same heights as those who built
businesses yesterday, without extraordinary luck or blunders by those with
wealth.

~~~
Terr_
One big issue is feasibility: It's much easier to track, meter, and tax income
as it changes hands than it is to track/meter/tax accumulated wealth.

~~~
jmorrow977
Feasibility is a valid concern. Here's what I think.

Stocks are traded on public exchanges. Land and buildings stay in one place.
Private jets need to land at airports and they each have a tail number. Most
things to be sold efficiently are sold in public marketplaces. There are
probably some assets that are hard to track, just like there is currently
income that is hard to track. Some people are paid in cash and don't report
it. A whole multi-billion-dollar black market of drugs, prostitution, etc.
exists that is largely not income taxed. It happens. But in general income tax
works, and a wealth tax would too.

~~~
aetherson
A huge amount of wealth is tied up in land, which is ultra difficult to assess
the value of without actually selling it.

~~~
daurnimator
land is already valued for "tax" purposes as council rates.

------
chatmasta
I'm surprised nobody has mentioned the geopolitical advantages of hoarding
cash. A big pile of untaxed, uninvested cash represents a significant
political bargaining chip for the corporation in control of it.

Apple can extract more from negotiations with the US government, for example,
when it's holding $100b USD offshore. Quite simply, that money is leverage.

Over the next several decades we will see the decline of the nation state as
the primary geopolitical powerbroker. Corporations already exert significant
control over politics, and this trend will only continue.

Perhaps what the executives see that us plebes do not, is that this
geopolitical shift has already begun, and is much further along than anyone
realizes.

~~~
sgt101
I think it's a liability. The US government can at any time tax that cash, and
if Apples execs refuse to pony up then they can have fun in jail.

If the US government decide to do that....

~~~
rchaud
>If the US government decide to do that....

And therein lies the rub. Apple can mount a better defense than the US
prosecution can, by dint of their bottomless legal fund. Apple can also put
forward a united front, whereas you would need to summon an unprecedented
level of political will and bridge-building to simply prevent Congress from
derailing the DOJ prosecution through infighting.

~~~
throwaway101321
How many divisions does Apple have?

------
vellum
According to this Bloomberg article, companies have $2.1 trillion sitting
offshore for tax reasons [1]. They're probably waiting for Congress to let
them bring home the cash, tax-free. However, the last time that happened
(2004), it was done to encourage companies to create jobs. Instead, they spent
it buying company stock. [2]

1 - [http://www.bloomberg.com/news/articles/2015-03-04/u-s-
compan...](http://www.bloomberg.com/news/articles/2015-03-04/u-s-companies-
are-stashing-2-1-trillion-overseas-to-avoid-taxes)

2 - [http://www.theguardian.com/money/us-money-
blog/2015/jun/13/r...](http://www.theguardian.com/money/us-money-
blog/2015/jun/13/repatriate-profits-encourage-corporate-tax-avoiders)

~~~
ju-st
As far as I know the US taxes the income of its citizens even when they live
outside the US. So why can't the US just tax the offshore income of the
companies?

~~~
ryanlol
Because the US needs the businesses, not the other way around.

~~~
crdoconnor
Nope. Lobbying dollars.

~~~
ryanlol
Not really, creating a hostile environment for businesses will obviously drive
them away.

Lobbying has nothing to do with preventing a completely unrealistic scenario
from happening.

------
stickfigure
_If the companies spent their savings, rather than hoarding them, the economy
would instantly grow, and we would most likely see more jobs with better pay._

The article makes it sound like these dollars are somehow being removed from
the economy. If they're put in a bank, the bank loans it out to someone else.
If they buy treasury bills, the government then takes the money and spends it.
Even if all this money was converted to paper notes and stuffed into giant
mattresses, the net effect would simply be to deflate the currency and
increase the value of everyone else's money.

Hoarding money isn't like hoarding oil or rice or microchips. Maybe GM
spending money would grow the economy more than GM loaning it to the federal
government so they can spend it, maybe not. Depends on what they spend it on -
the return on education is probably higher than the return on fancy pensions
or factories for products that nobody buys.

~~~
armenarmen
> If they're put in a bank, the bank loans it out to someone else. If they buy
> treasury bills, the government then takes the money and spends it.

good call, this is Econ 101 stuff that most people just don't know. Saving
money in a bank or government bonds is not the same as locking it in a vault
or burying it in your backyard. It is still out moving around in the economy.

~~~
js8
I think difference between savings and investment (or consumption) is in
reversibility. Savings are reversible, basically if you "invest" in any liquid
enough assets that keep value, then you save. Investment (and consumption) is
irreversible, once you made the decision, it's done deal - somebody does the
work, energy is spent, entropy is produced and so on.

That's why, contrary to mainstream economic opinion, it is useful to save.
Saving lets you react to investment from competitors, by postponing the
decision after they made their move. This gives you advantage (power) if
you're big enough.

------
tyingq
This article does a good job of explaining:

[http://www.dailyfinance.com/on/corporations-cash-hoard-
trill...](http://www.dailyfinance.com/on/corporations-cash-hoard-trillion-
profits/)

Some interesting excerpts:

"Four of the top five holders of cash are tech companies ...who together
possess...about 23 percent of all cash owned by corporate America today.
Overall, the tech sector controls more than half of such cash"

"about 60 percent of [non-financial corporate] cash piles are offshore and
subject to as much as 35 percent tax if brought back to the U.S."

~~~
tamana
The simple answer is that these companies have leveraged the immense economies
of scale in their info-tech niches, and are soaking up billions of consumers'
money but there's nothing else for them to buy.

This is the sort of purchasing power imbalance that caused the Great
Depression. The good news is that even if Depression hits, we still have
access to web apps.

~~~
shostack
Another viewpoint might be that if the economy is indeed in for a slow or down
period (which is certainly not a guarantee at this point), they will be better
equipped to weather the storm and seize opportunities that arise (ex:
acquiring competitors who could not survive).

Personally I'd love to see them throw around that cash to bring serious
competition to a few specific markets. Cell phones and cable are the big ones
(and Google is already getting started there). Looks like they are plans to do
similar things with VR, robotics, and automated vehicles.

------
bobby_9x
It's the same reason I save my money: for opportunities when prices are low.
This is especially relevant now that the stock market is tanking.

Most people with any kind of money think this way.

~~~
mschuster91
> It's the same reason I save my money: for opportunities when prices are low

The problem is: how do you know if the time is right (i.e. ten years later you
can say "I invested in the lowest possible price")?

Possibility A: you invest too early, stock drops further and you can't recover
in a reasonably long time frame (e.g. 1 year)

Possibility B: you invest too late, and people who invested before you made
more profit in retrospect

Possibility C: you invest at the right time frame and made a nice chunk of
cash

Possibility D, especially likely with unicorns: either A, B or C after a
year... and two more years pass by, and the company goes bust (Myspace!)

~~~
analyst74
The trick is, you don't invest during the downturn, hence all the cash
hoarding.

You invest after it bottoms out for a while. Macro economies do not recover
like a rocket, the window to invest is very large, so large that if you only
recognized the bottoming out a couple years later, you still haven't missed
the opportunity.

~~~
petercooper
That is a really interesting point. So I've never invested in stocks before
(preferring to invest in my own business) but have decided to diversify and am
only seeking returns in a 5-15 year bracket (but want to minimize 1-5 year
downside so it could potentially work as an _extra_ emergency fund too).

I had assumed being 20%+ off of the highs, it'd be a good idea to start
getting involved now, but.. maybe I should wait until a clear "bottom out" is
showing?

~~~
throwaway_1010
So long as you don't wait forever. The market bottom of any exchange or stock
is $0.00. The market, will likely never actually "bottom out". Look into DCA
Dollar Cost Averaging. I personally, and professionally, manage DCA strategies
with applying additional infusions during obvious lows (example: markets are
down 10% in a given period). The bottom of a cycle can undulate "sideways" a
bit over a period of weeks, months, years, decades with few discernible entry
or exit points. Sometimes after an "event" occurs, the market/stock jumps XX%
and opportunities may not occur again in the near future (goes sideways at new
level). I note sideways markets/stocks and calculate the risk/reward if I deem
it an opportune time. In most markets stocks don't go sideways forever.

------
spikels
HN is a terrible place for conversations about complex economic issues. Many
comments seem to be both confused about basic concepts and trying to make
political arguments. Not a recipe for enlightenment.

~~~
tim333
Yeah, I've noticed the average knowledge standard for programming issues is
very high, economics less so. Then again I'm not sure where you do go for
exceptional conversations about economics.

~~~
edanm
It's not that hard. This is an entrepreneurs/programmers forum. If you want
better economics insights, go to where economists hang out.

A few ideas: Read popular blogs of well-known respected economists, look at
their comment's section. You'll find both really good articles, and serious
discussions between actual economists.

------
BIackSwan
I don't get it. The article does not point out even an attempt to ask the
leaders of the said corporations - "Why?".

Its better to ask to get some semblance of their thinking instead of pure
speculation.

~~~
grp
The author seems to have a kind of _old century_ overconfidence in the value
of the dollar. I hope he uses only one currency for pratical reasons.

And I would rather read an article that use ratios between liquid/static
moneys those corporations got instead of _random_ values.

(I'm one of those that believes static money has no value, had and/or may
have, but in reality it's absolute zero).

------
nstj
Why would the author substitute the terms 'cash', 'savings' and 'profits' in
the article given their entirely different meanings? Corporations could be
sitting on trillions of dollars in 'cash' if they wanted, with zero 'savings'
and zero 'profits'. The whole article seems somewhat contradictory.

------
iSnow
I don't think the reasons are that hard to understand. M&A opportunities
outside the core business are especially hard to integrate in the software
sector. Google and Apple never got social right - social is a field with such
extreme network effects that it tends to create natural monopolies. Buying up
smaller companies in that field doesn't provide a lot of help in cracking FB's
castle.

OTOH, Apple and Google are outcompeting each other in mobile - no other
company is currently making big inroads, not even MS, even though they see it
as a critical playing field for their future.

And why would one of the big tech giants buy out old-economy companies (eg. in
automotive) if they believe disrupting that field with innovation is much more
likely to succeed?

In the end, the international financial system let's them get away with
hoarding and shuffling around the billions and the companies don't see killer
investment opportunities. In a low-inflation period, just stuffing the money
under the pillow is probably better than burning it on failed M&A.

------
roymurdock
Summary: Many large corporations in pharma, auto, tech are becoming net savers
in order to (1) avoid the taxes associated with purchasing and maintaining new
assets; (2) have a warchest of cash for M&A activity as cash deals are
generally much cheaper than equity/debt deals, and M&A can be more cost-
effective than R&D if done correctly.

Author is unconvinced that this covers the whole picture, and offers this
meta-explanation: _Through the 20th century, as we shifted from a horse-and-
sun-powered agrarian economy to an electricity-and-motor-powered industrial
economy to a silicon-based information economy, it was clear that every
company had to invest in the new thing that was coming._

Simplified: there isn't enough promising new tech out there to soak up all of
the cash in circulation. This is a common theme that has economists asking:
what will be the 4th industrial revolution, and when will we see it? [1]

Is the cash hoarding good or bad? Author thinks good: _If corporate leaders
and their investors truly believed that the future were bleak, that innovation
and economic growth were irreparably slowing, there would be little reason to
hold on to all that cash._ AKA that we are on the cusp of a new wave of
innovation.

Personally I don't believe this matches up with leading business cycle
indicators, such as the stock market, employment rates, and trends federal
spending as a percentage of GDP. [2] But what do I know - there could be an
R&D lab somewhere out there that is tantalizingly close to bringing the next
paradigm-shifting technology to market. I'd love to know what that could be.

[1]
[http://www.nber.org/papers/w18315.pdf](http://www.nber.org/papers/w18315.pdf)

[2]
[http://www.usgovernmentspending.com/recent_spending](http://www.usgovernmentspending.com/recent_spending)

~~~
maxwell
Seems to be autonomous transportation. Hence auto and tech. Google, Apple, and
GM are the only companies named in the article.

Google says they'll be ready in 2020. Apple TV has the biggest share of the
streaming TV hardware market [1] and Watch almost brought in $2B last year
[2]... but iPhone and iPod sales are sagging [3]. GM just put $500M into Lyft.
Ford is pivoting to software and services. And so on.

"Driverless" has the potential to be more like horse shoes or "iron horses" or
"horseless carriages" than, say, western saddles or dieselification or
automatic transmissions. Historically, dramatic changes in ground
transportation seem connected with dramatic changes in how people spend time,
where they live, and what they work on and value and eat.

As for pharma, maybe the patent cliff? By 2020, patents on Plavix, Singulair,
Diovan, Lipitor, Rituxan, Humira, Novolog, and Avastin will be expired.

1\. [http://advanced-television.com/2015/11/06/apple-tv-31-of-
str...](http://advanced-television.com/2015/11/06/apple-tv-31-of-streaming-tv-
hardware-market) 2\. [http://www.ibtimes.com/apple-watch-sales-
topped-17b-apple-in...](http://www.ibtimes.com/apple-watch-sales-
topped-17b-apple-inc-fy-2015-2162403) 3\.
[http://www.cnbc.com/2016/01/20/iphone-sales-worse-than-
expec...](http://www.cnbc.com/2016/01/20/iphone-sales-worse-than-expected-ubs-
analyst.html)

------
phkahler
The economy grows and you get inflation when interest rates are lowered. It
shrinks and you are likely to get deflation when rates are raised. The rate
lever was getting reduced over the last 30 years and is not at zero. Anyone
can see the only way for rates to go is up, and the value of cash is likely to
increase in the near future. I honestly don't see any need for mystery in
that.

There's also the notion that a companies stock price should be tied to its
dividends, or at the very least it's ability to pay a dividend. If you want to
buy low/sell high, you're assuming you are smarter than other people. If you
want to buy and get income from dividends/profits you are a more realistic
investor and will be interested in the P/E ratio. A hoard of cash is going to
help stabilize the stock price - market cap should never fall below the value
of the assets.

~~~
tamana
What's the point of stabilizing stock, price, when instead you can just have
cash in bank plus an unstable lowe price stock?

~~~
joezydeco
Keeping the stock price high fends off hostile takeovers and negative feedback
loops from nervous sellers.

This is my main theory about why companies are hoarding cash. They're tired of
being at the mercy of the traders.

------
mschuster91
> Remarkably, the United States government was able to tax all that productive
> corporate behavior so much that it came close to paying off all its debts
> for the first time in 160 years.

The current US debt is over 18.900.000.000.000 $
([http://www.usdebtclock.org/#](http://www.usdebtclock.org/#)). Am I getting
the author right that the US managed to put on 18 B $ in 20 years?!

~~~
jimrandomh
No. In the 90s, there was a brief period where the US managed to not have a
deficit (ie, it was taking in as much as it was spending). The US has never
eliminated its debt, nor should it; that would essentially mean withdrawing
the US dollar from circulation.

~~~
JoshTriplett
> The US has never eliminated its debt, nor should it; that would essentially
> mean withdrawing the US dollar from circulation.

To the best of my knowledge, the standard debt calculations do not include
outstanding currency, though they do include outstanding bonds.

------
trjordan
One theory I'm currently fond of is that the band of growth where unicorns
live ($100mil -> $1bil in valuation) used to be accessible to the public
markets, but it's recently only become available to private investors.

This creates weird distortions in investment behavior, because it means
investments seeking this behavior have to trickle down to VC or acquisition.
This could be way this comes about -- by investing in Google or Apple, you're
effectively investing in a 10-year VC fund. Sure they're sitting on a lot, but
hopefully they make enough acquisitions with it + "raise" enough more during
that time that it looks like the cash is going to work.

------
secstate
I think my favorite part of this article is realizing how deep we all are in
spin ... "disinflation"? What the hell is that?

Do you mean "deflation"?

But for pity's sake, let's not call a spade a spade and use the word
"stagflation" which is what Japan went through, and where the US is heading.
The Fed can't give banks money fast enough and consumer spending is
stagnating. Sounds like a recipe for stagnating inflation to me.

EDIT: My bad ... disinflation refers specifically to a decrease in inflation.
Stupid English beating me again with a word for everything ;)

------
ksdale
Theoretically the value of all that cash should be baked into the share price.
If shareholders think they can better invest the money, they can sell their
shares take their money elsewhere, and only have to pay capital gains tax.

If the companies repatriate the cash, they have to pay tax right now which
eats up a substantial percentage. Then they still have to find something to do
with the cash. If they pay it out to shareholders there will be an additional
dividend tax at the individual level so most shareholders would receive like
50 cents on the dollar for the dollars abroad.

~~~
tomp
By this logic, every dollar abroad should be worth only 50 cent in the price
of a share - after all, that's the real value of that cash after all taxes
(contrasted to the _accounting_ value of the dollars on the companies' annual
report).

~~~
ksdale
You're right that it's probably discounted somehow by some investors, but it's
also worth it's full value if they choose to spend it abroad, so it's not
necessarily worth exactly what it would be worth if they repatriated it and
paid it out as dividends. The discount depends on what the shareholders think
will happen to the money, and I don't think anyone is predicting repatriation
any time soon.

------
rrggrr
Expenditures and investments by these companies have to be justified on the
basis of expected returns. The constraints sequestering the money:

\- Valuations for acquisitions that exceed expected ROI. \- Taxes on
repatriated funds. \- Dearth of top-end human talent to manage the
acquisitions and investments. \- Pervasive fear in corporate board rooms that
the day of reckoning for quantitative easing and US debt is still ahead. \-
Changing demographics whereby consumers wealth is held by low spenders (older
folks), rather than high spenders (younger folks).

Its a combination of factors.

------
andrewjl
I doubt that the current political climate would allow for this but I wonder
what would happen if the U.S. implemented a basic income program and put in
place extensive support for building out more knowledge based clusters across
the nation. Places like NYC and the Bay are are doing VERY well overall.
(That's also where many of the corporations with large balance sheets are
based.)

Specific additional things I'm thinking of include free tuition, low cost
small business / creative studio financing.

------
leeleelee
There's a saying something along the lines of:

"if somebody owes you a million dollars, they've got a problem. if somebody
owes you a billion dollars, then you've got a problem."

I could be totally wrong, I'm not an economist -- but I think you encounter
problems when you want to earn, let's say, 10% on $80 billion. To give an
_extreme_ example:

If you give me $1 and want a 100% return on your money, then hell yes I can
double your money in a day and give you back $2. If you give me $1 million
then I'm going to have trouble earning you much more than whatever a savings
account offers, like 2%, because I don't have a way to put that much money to
work.

Money doesn't magically grow, you give capital to somebody who's going to do
something with it like pay some workers to produce a widget and sell them,
making more money than they spent building widgets. When retail investors put
money in a bank or in the stock market and it grows, it seems like it's just
an automatic outcome. But somebody on the other end, after the money changes
hands hundreds of thousands of times, has to be able to put that money to
work.

Where are corporations collectively just going to dump trillions of dollars
and expect it to magically grow?

------
dnautics
An alternative narrative. This is classical economic group behavior near the
top of a bubble. The fed has long goosed its lending programs with cheap
money, in an effort to stimulate investment, and to avoid the spectre of
spiraling deflation that they were worried would happen after the short
deflation of 2009. Capitalists have then, rationally gone out in search of
investments to yield a return. However, innovation is a limited resource at
any given time, and we're close to tapping out on the amount of possible
innovation. Moreover, realizing the full capacity of innovation is limited by
the structure of society, wherein identifying entrepreneurs with actual
potential is overtaken by identifying artificial 'signals' or 'tropes' of
entrepreneurs: lots of false positives, charlatans, people with connections,
or people who just got lucky once, are getting money, yields are decreasing.

Accordingly, as capitalists identify that it is becoming difficult to find
real investments, their investment behavior decreases, just as the Fed is
starting to pay banks to hold cash, to shore up reserves and make banks appear
more resilient in the face of their "stress tests". This is artifical
disinflation, but the worst type, because normally deflation helps the poor,
but by the very mechanism of the current disinflation, it's going to the top.
(Austrians: Why is giving money out disinflation? Because in this case it's
tied to _not lending_ , and private lending-based monetary expansion has a
multiplier effect).

What to expect down the line:

A minor economic crisis as happens occasionally (black swans) will start
triggering capitalists to start spending their cash reserves. As this spending
hits the market, prices will go up, triggering inflation measures to start
accurately reflecting the pent up monetary expansion that the Fed has
undergone over the past 8 or so years. As the price of goods goes up, it will
no longer make sense to hold onto cash, and moreover, the smart move will be
to start investing in goods producers that can take advantage of these
increasing prices.

We'll have an inflationary spiral spanning say 2016-2018. Don't worry, it
won't be a Wiemar-republic level crisis, but it certainly will not be pleasant
for the poorest Americans.

I probably have some details about the macroeconomics wrong, so we shall see
whether my prediction comes true. I welcome counter-explanations, and
corrections to what I have to say.

~~~
dnautics
I should also say the strengthening dollar, partially due to the fed's
disinflationary policy, and also due to external effects (OPEC oil activities,
which are still priced in dollars) are making the dollar crazy strong relative
to foreign currencies. Is disincentivising corporate spending and investment.
This can't last. When the relative strength of the dollar starts to erode,
take it as a leading indicator. Herding behavior will do the rest.

------
tosseraccount
2 reasons ...

"Economists ... showed in a 2009 article that the increase in the cash-to-
assets ratio of firms was related tightly to precautionary motives."

"[a] second motive is present for multinational firms and is due to
repatriation taxes. ... firms may have incentives to keep foreign earnings
abroad. As a consequence, in times of limited foreign investment opportunities
and high profitability, these funds are likely to be held abroad in the form
of cash."

from [https://www.stlouisfed.org/Publications/Regional-
Economist/J...](https://www.stlouisfed.org/Publications/Regional-
Economist/January-2013/Why-Are-Corporations-Holding-So-Much-Cash) : Why Are
Corporations Holding So Much Cash?

If I were to venture a third reason, it would be that with rising interest
rates looming, the cost of borrowing will go up; which might be a subset of
the 1st ("precautionary") explanation above.

------
digikata
It seems to me that holding large amounts of cash is only viable when
inflation stays low. So a higher level of inflation might cause the release of
some of these huge cash reserves in the form of real investment (real in terms
of hands doing work instead of moving the cash to some other financial
instrument)...

~~~
brianwawok
I mean, cash doesn't need to literally be a pile of money right? It could be
in some kind of ultra short term instrument that has some kind of inflation
protection. Normal people could buy t-bonds to exactly match inflation. Not
sure what options are out there when you have 100 billion dollars - but
something like interest rate futures could hedge you against inflation risk.

~~~
lmm
Inflation goes hand in hand with growth, you can't hedge away changes in real
value. If cash can be put to productive use, people who hoard it will do less
well than those who put it to work.

------
tracker1
I've often said that the key to improving investment is to eliminate corporate
taxes, tax foreign currency movements (when money moves out of the country),
and to put limits on the amount of unutilized/under-utilized assets a
corporation can hold onto, and for how long.

Corporations better serve the public good when they are spending, and beyond
that spending domestically. By shifting funds out of the country and/or
otherwise sitting on assets, there's a reduction in economic potential as a
whole and said corporation is less serving of the public good.

Corporations are meant to serve the public good by encouraging investment and
limiting liability of investors not involved in decision making. Corporate
behavior today doesn't reflect this.

~~~
r00fus
Seems like that's a proposal that's trivial to exploit, I can think of at
least a couple of ways off the top of my head: shell companies funds-
shuffling, related companies wash buying/selling, etc.

~~~
Nrsolis
Adding in another market distortion isn't going to help matters, you only
create opportunities for people to game the system in an ever increasing
effort to explore the law of unintended consequences.

Those funds are held (usually) as US Treasury securities, or are at least
hedged against any local currency risk, much the same way that any sovereign
maintains a certain amount of foreign currency reserve.

The most direct way to solve this issue is simply to say that profits earned
in foreign jurisdictions are free from US tax. That's effectively what the
British do and it's worked well for them vis a vis tax policy.

The second most direct way to solve this issue is to offer reduced taxes for
profits earned overseas. This encourages an export-driven economy because
funds earned overseas are taxed less than funds earned here.

The "problem" that everyone seems to be solving is: how do we enable the
government to take the money of these evil corporations?

That's the wrong goal.

The best strategy is to align the goals of the country/people and the
corporations. We haven't done that for a long time.

~~~
tracker1
I'm not suggesting taking money from "evil" corporations... only in that money
made in a locality should be taxed in that locality... getting rid of
corporate 'income' taxes in favor of tariffs/vat and money exports would allow
for that, with less opportunity for subverting the system, so to speak... At
the end of the year, a tax refund could be given if you're a person, and
transferred less than 100k out of the country.

It could be a much simpler system, with less bureaucracy needed. There are
other possibilities as well. Right now, many corporations are holding onto
funds, which doesn't help any economy, and worse, shifting those funds to
holding companies to avoid taxes... What I'm suggesting would punish holding
onto assets and encourage activity domestically... foreign goods will always
be needed, and as such taxes would apply. VAT systems happen in lots of
countries.

~~~
Nrsolis
What makes you think that taxes aren't already being paid in the foreign
jurisdictions?

This is a big part of the disconnect: if you (say, as Apple) sell a phone in
Munich, you're paying the VAT tax in that country already.

Generally speaking, when you take the profits from your German sales back to
the USA, in many (most, save a few exception) cases, you're going to pay
corporate taxes on those profits now that they are repatriated back in the
USA. So companies are incentivized to keep those profits in overseas
jurisdictions to defer the US tax and reinvest in their overseas operations.
Considering how much of their actual sales come from overseas, it's no wonder
that they pursue this strategy.

EVEN IF a company wanted to be a "good US corporate citizen" and pay more
taxes to the government, they'd be at a financial disadvantage to overseas
companies doing business in the USA because THOSE companies DON'T have to pay
tax on their overseas profits. That's why you see all of these companies set
up in "corporate tax havens" that don't tax a single penny of offshore income.
For one thing: it's damn easy to do international business through these
companies because you effectively have a neutral ground from the perspective
of finance. For another: you save money on taxes, allowing you to offer better
terms to your customers and partners.

This kind of stuff only matters to the biggest corporations with multinational
operations because the regulatory minefield associated with keeping track of
laws and regs in lots of different countries is a nightmare and only a few top
accounting firms have the talent to master it. Another reason why the law of
unintended consequences shifts the tax burden to the little guy: he's not big
enough to care about shifting his income overseas. When you create incentives
by way of regulatory/tax arbitrage, you make it worth the while of a big
multinational to invest the time and effort structure their deals so they take
place in offshore jurisdictions.

~~~
tracker1
This isn't money earned over seas, it's money earned in the U.S. then shifted
overseas... Results from a few simple searches. Yes, it does only matter to
the largest corporations, and investment firms which account for a huge
percentage of wealth that further stretches an imbalance in property/wealth
where fewer than 100 people have more than half the world's population
combined.

I'm all for being able to make insane amounts of money, but there are limits
to what is good for greater society and having underutilized holdings overseas
for the simple purpose of tax avoidance isn't good for anyone. The money isn't
being invested to earn more, and it isn't being spent to improve the economy.
It's wasted in a corporate setting.. it should be re-invested, spent or
dispersed to the share holders, who should then pay income taxes (baring a
VAT/tariff system in place to replace it)

[http://www.nytimes.com/2013/05/21/business/apple-avoided-
bil...](http://www.nytimes.com/2013/05/21/business/apple-avoided-billions-in-
taxes-congressional-panel-says.html?pagewanted=all&_r=0)

[http://motherboard.vice.com/read/apple-avoids-60-billion-
in-...](http://motherboard.vice.com/read/apple-avoids-60-billion-in-taxes-by-
keeping-money-overseas-report-says)

[http://arstechnica.com/business/2015/10/apple-google-
microso...](http://arstechnica.com/business/2015/10/apple-google-microsoft-
hold-more-than-336b-overseas-via-legal-tax-loopholes/)

------
AJ007
The liabilities side of US corporations balance sheet makes the cash holdings
far less significant than they appear. When one imagines a "hoard", we don't
assume the fire breathing dragon also has bills that match the equivalent of
that hoard or beyond.

The expected EU tax payments for companies like Apple take another large bite
out of how much of that cash is really their own.

The word "hoard" is correct ("a supply or accumulation that is hidden or
carefully guarded for preservation, future use, etc.") but suggesting that
this money can just be unleashed upon investors or the general population in
the form of capex or wage increases is silly.

------
csense
I think it's because the Fed's past easy-money policies (QE). The idea of QE
is that the Fed puts a ton of cash into the market in order to encourage
investment. However investment pushes asset valuations higher. Once asset
valuations are high enough, people stop investing because the fundamentals
don't support the valuations.

The money injected by the Fed will eventually be absorbed by inflation and the
Fed reversing course and raising rates to suck money out of the market. But
inflation's been low and the Fed's only done a single, very recent increase in
interest rates, so "eventually" hasn't arrived yet.

I think the "big thing" they're waiting for is for the investment market to
become less competitive. One way it becomes less competitive is with investors
exiting the market (because they have things to spend their cash on, like
bonds), another way it becomes less competitive is with more startups to
invest in.

So by this analysis, the next couple years will be a great time to own
equity/options in a startup -- those balance sheets are just waiting for the
right opportunity to make an acquisition.

~~~
forgetsusername
> _The money injected by the Fed will eventually be absorbed by inflation and
> the Fed reversing course and raising rates to suck money out of the market.
> But inflation 's been low and the Fed's only done a single, very recent
> increase in interest rates, so "eventually" hasn't arrived yet._

Do you understand the relationship between interest rates and inflation?

~~~
csense
My understanding is that if Fed holds IR on bonds low, money exits bonds and
goes into the market, causing inflationary effect (more money chasing same
amount of goods). If Fed increases IR, money exits the market and goes into
bonds, causing deflationary effect (less money chasing same amount of goods).

------
Outdoorsman
First, corporations are hoarding trillions collectively, not
individually...Google, the example cited is banking 80 billion...others I'm
guessing, much less...

Maybe "caution" has risen a notch in the CEO/Board investment
repertoire...there aren't nearly as many sure things as there used to be...why
is that? The chances of making a mistake have never been greater...

A large part of the uncertainty is likely dictated by the plain and simple
fact that we Earthlings have now constructed a "global economy"...countries
now share many of the same opportunities and risks, even when they're on
opposing sides of the planet from one another...good times and hard times can
now seep across borders and continents in ways they never could before...

In any economy wages, production, living standards, etc., eventually even out
across the spectrum (global), and arrive at a stasis...

When that stasis is fully realized across the globe what will daily life be
like for the average American, the Chinese, those in India, etc...?

------
frogpelt
My theory is that when the QE rounds started and trillions of dollars were
pumped into the economy (major inflationary red flag), the velocity of money
dropped like a rock (major deflationary red flag) as a natural reaction.

EDIT: The reason is likely tied to the fact that interest rates sat on the
bottom for the last 5-8 years and holding money was just as valuable as
investing it. See the article[1] on the St. Louis Fed's website.

1\. [https://www.stlouisfed.org/On-The-
Economy/2014/September/Wha...](https://www.stlouisfed.org/On-The-
Economy/2014/September/What-Does-Money-Velocity-Tell-Us-about-Low-Inflation-
in-the-US)

~~~
evanpw
The increase in excess reserves is not mysterious. The Fed starting paying
0.25% on them in 2008 (now 0.50%) while other interest rates were near zero.

~~~
dnautics
Eventually some minor crisis will trigger spending, all this excess cash will
hit the system like a floodgate, and we will have an inflation spiral (because
suddenly hoarding will be a bad idea). And the irony is that the ethical
justification for the fed is that it is supposed to be countercyclical, and
thus 'good for society'.

~~~
AngrySkillzz
[https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_...](https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_Me_8_14_13.pdf)

------
mc32
This is the NYT, and, I was hopeful they'd also include information about the
state of company hoarding abroad as well as hoarding by foreign companies in
their home nations, bjt they dont, so I don't know if this is uniquely
American, or maybe its global, regional, etc.

That said I'd like to see a look into an international tax collection
agreement among nations,like they have IP rights agreements, human rights
agreements, etc. in order to render foreign holdings loopholes useless.

------
tim333
Here's a possible explanation. In the industrial days it made sense for
companies to invest in plant and machinery. These days most of the value is
intellectual capital and high wage employees. It makes sense to hold a load of
cash so you can pay those high wage employees if there's a blip in sales.

(The industrial the mentioned, GM may have $15bn in cash but it also has $73bn
in current liabilities so it's not really rolling in vast excesses)

------
vinceguidry
Investing money is work. You have to sink resources into it. If you don't,
then you will assuredly lose that money.

A guaranteed return is better than an assured loss.

~~~
apaprocki
Holding cash is essentially an investment in the sovereign government that
controls that currency. Simply sitting on cash does not imply little or no
risk.

~~~
vinceguidry
It's not risk-less, but it's way less risky than every other alternative.

~~~
apaprocki
Possibly only if you are operating in a single market. If you have
currency/soverign risk because you are selling in 100 countries, it's way more
complex. I bet Apple doesn't consider all the rubles they have from their
operations in Russia as less risky than parking it in US treasuries. The
problem is getting it there...

~~~
vinceguidry
> I bet Apple doesn't consider all the rubles they have from their operations
> in Russia as less risky than parking it in US treasuries.

They certainly have somebody looking at it.

There's more than one component to risk. Sure, holding rubles in a Russian
bank is risky, but that risk isn't really of losing your whole pile all at
once. So you have time to leave your position if it gets more dangerous.

------
amazing_jose
What if it's just people (exec) thinking that we are going to see a huge
contraction in liquidity in the next 10 years? It could be an early warning
that the central banks have injected too much money into the economy and the
economy, saturated, instead of surrender to hyperinflation has "decided" to
put the money under the pillow before is scarce (higher interest rates again).

------
forgotAgain
Investment in hard assets like factories has been in countries with low levels
of property rights.

Better to let those countries provide the cash for building via state loans
rather than the company investing it's own money. Then if the factory is
confiscated or the company is kicked out of the country for whatever reason
the loans are defaulted on and the company's money is intact.

------
littletimmy
The short answer is that everyone can see the current system is not
sustainable, and that any change will be potentially catastrophic. Holding
cash is going long on fear, and being prepared to deal with a massive crunch
when it comes.

The solution is to just force them to bring the money back into the US and
invest. And not let the fear foment inaction.

------
ChuckMcM
Very much reads like the paradox of saving, where saving for a downturn,
actually causes the downturn.

It would be an interesting experiment to pay out a chunk of it as a bonus to
their employees. Basically dump it into the economy that way.

------
arasmussen
> With $80 billion, Google could buy Uber...

No it couldn't, Uber isn't for sale.

------
AndyMcConachie
It might be interesting to see how the rise in this cash hoarding correlates
with the tendency to stop paying dividends to stock owners and instead focus
on growth in stock price.

------
oldmanjay
The hyperbole in the comments here is impressive.

------
golergka
What the CEO and upper management of these corporations say about this?
Surely, they were asked about this by shareholders?

~~~
forgetsusername
> _Surely, they were asked about this by shareholders?_

Except it's the hot, new Silicon Valley thing to structure your company as to
not give your shareholders any power or voting rights.

~~~
golergka
But the worst offender they list is General Motors.

------
randomname2
Many corporations seem to rather spend their money on share buybacks than on
capex lately.

------
simo7
I suspect it's a taxation thing.

Better to give back the money as capital gains than as dividends.

------
pix64
What else are you going to do with it? Invest in your employees? Ha.

