Friday, February 12, 2010

Cash on the Barrelhead

Bloomberg reported yesterday that the companies making up the S&P 500 have a total of $1.18 trillion in cash on hand. That sounds like an awful lot, doesn't it? A year ago, those same companies had $688 billion in cash. In the interim, nearly $500 billion in additional money has made its way into corporate coffers.

The fact that companies are sitting on so much cash helps explain why the recovery has been so jobless so far. Corporations are trying to ramp up through increased productivity and by shedding off excess capacity. They've also been trying to avoid indebtedness and creating leaner operations.

All that cash sitting on the sidelines represents a tremendous source of possibility for the economy. If the S&P 500 companies spent only the amount of cash they've accumulated in the past year, it would be a greater investment in the economy than the entire spending portion of Obama's stimulus plan. The nation has an awful lot of latent capability, which is one reason to believe that we will regain our full financial strength one of these days.

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