Tags: Fortune | spending | corporations | jobs

Fortune: US Companies Are Not Spending Their Cash Because of DC Shenanigans

By John Morgan   |   Wednesday, 16 Oct 2013 02:32 PM

American corporations are sitting on their cash rather than investing it because of policy uncertainty from Washington, D.C., and the result is lost opportunity for millions of new jobs, according to Fortune.

Fortune analyzed a report from the Federal Reserve Bank of St. Louis to reach its conclusions.

The report, by economists Juan Sanchez and Emircan Yurdagul, said that by 2011, U.S. firms were holding four times as much cash as they were holding in 1995. Perhaps even more striking, the cash-to-asset ratio more than doubled between 2000 and 2010.

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The two tracked total corporate cash holdings against an “Economic Policy Uncertainty Index,” which included the frequency of news articles about government policy uncertainty, tax code changes and economists’ disagreements over predicting economic statistics.

Fortune said non-financial U.S. companies have amassed over $1.8 trillion in liquid securities, according to Fed data.

The Congressional Budget Office estimated the 2009 $800 billion federal stimulus package created 3.6 million American jobs. Even after that massive spending, the official jobless estimates today are 11.3 million unemployed, but many experts say the true figure is much higher due to those who have given up looking for work and other factors.

“Even if corporations spent just a fraction of the cash on their balance sheets, there is a good chance this number could be dramatically reduced,” Fortune concluded.

Mike Novogratz, the billionaire president of Fortress Investment Group, agreed events in Washington, D.C. are not helping the domestic jobs picture.

“Political gridlock is one of the reasons for the muted recovery. Once you have confidence, people start borrowing money and investing in the future,” he told Fortune.

Fortune rival Bloomberg Businessweek tended to agree with Fortune’s assessment.

In a piece headlined “Corporations Are Swimming in Cheap Cash. So Why Aren't They Investing?” Businessweek said U.S. companies have access to the cheapest cost of capital in more than 50 years, but are not taking advantage of it.

The reasons why are weak demand and “absolutely zero clarity” when it comes to government economic policy, Businessweek concluded.

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Businessweek said a new report commissioned by the Peter G. Peterson Foundation estimated fiscal policy uncertainty has cost the nation 900,000 jobs since 2009 and reduced GDP by 0.3 percentage points annually.

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