T
aking advantage of current regulatory “uncertainty” and ultra-low interest rates, large U.S. corporations have amassed a pile of cash worth about $1.6 trillion or about 6 percent of their total assets.
Yet small businesses and individuals have a difficult time tapping into the low rates because banks refuse to lend them money.
This conundrum is the opposite what the Fed had in mind as it has kept rates near zero for the past two years. Doing so was supposed to encourage lending and economic activity which would spur more jobs. But the opposite is happening — the ultra low rates actually are serving as a brake on jobs-creation and keeping the recovery anemic.
To be sure, some of the bloggers on Bacon’s Rebellion, would have you believe (and I mention no names), that this spate of cash hording is simply because U.S. business is fearful of new regulations put forward by President Barack Obama and the Democratic-controlled Congress.
Culprits include Dodd-Frank which finally regulates financial services and ObamaCare which promises medical insurance coverage for all citizens and bans such atrocious practices by the managed care industry of denying people coverage because of what the insurers define as “pre-existing” conditions such as high blood pressure. Of course, the vast majority of regs for ObamaCre haven’t even been written yet, but that doesn’t stop the fear-mongers.
It could be that the reason big companies are grabbing cash could be as simple as one word — greed. From their perspective, it is better for the corporation to grab all the cash it can at rates that may not be around again for years. The intent might be to borrow to invest in capital equipment and research & development, but why bother? If anyone squawks, raise the specter of “regulatory uncertainty.” Enjoy the good money run as long as you can! Get the U.S. Chamber of Commerce, Fox News and the Wall Street Journal to do your blocking!
Back two years ago, I was helping out as a financial services blogger for bnet.com. That was during the worst of the financial crisis and I was up every morning at 5 a.m. surfing the Web for clues. As more banks, especially those who bet on subprime plays, panicked, credit everywhere froze up. The Treasury Department under Henry (Bazooka in his pocket) Paulson desperately tried to shore up balance sheets and confidence so that money could get moving again. The Fed under Ben Bernanke kept rates low, low, low to encourage liquidity, lending and stave off disaster.
Ironically, disaster appears to have been kept at bay. But big firms have gamed the system and horde cash. Little guys (small business makes up most jobs in the U.S.) can’t get credit two years later.
And the some of the bloggers on Bacon’s Rebellion whine about the “uncertainty” of Obama regulation. Someone is laughing all the way to the bank here and they ain’t in Richmond’s West End.
Peter Galuszka