US companies are hording more than $2.5 trillion in cash in overseas accounts. This is about 70% of the quantitative easing between 2008 and 2014.
According to reports last September US companies were hording $2.5 trillion in overseas accounts. Apple just announced that it has $247 billion in cash and about 94% of it is held in overseas accounts. Other cash hoarders include Microsoft, Oracle and Cisco.
Below is a chart of total assets of all Federal Reserve Banks.
US companies have benefited from quantitative easing but have kept profits overseas. They did not invest the profits in research and staff training. On the contrary, most of these companies develop technology that removes humans from their jobs.
At the same time these cash hoarders did not return the money to their investors. Investors could use the money to increase consumption or to invest in other businesses.
So why are these companies hording cash?
These companies took advantage of the willingness of the Fed to finance the economy with fresh money. If Fed financing did not exist, there companies would have been forced to spend the money to maintain their sales revenue or would have invested in other ventures.
At the same time these companies are probably forecasting a prolonged recession after seven years of growth fueled by quantitative easing. Their cash is the analogous of currency reserves of countries in case of adverse economic conditions. They probably believe that they can use the cash to finance their operation and pay salaries to key employees during an extended economic downturn.
- About $3 trillion is invested in hedge funds
- Nearly $15 trillion is invested in passive and active index funds
- Close to $2.5 trillion is held in accounts overseas
The total is in excess of $20 trillion, which is more than the US GDP. The economy struggles with what is left after company cash hording and market investments. This is not a sustainable condition. At some point, there will be an adjustment, either centrally planned or reflexive in nature. It will be painful and will probably last many years.
If you have any questions or comments, happy to connect on Twitter: @mikeharrisNY
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