MarketLine Blog

Where all the Cash is

US corporates, especially tech corporations, represent the most liquid corporations in the world. Moody’s has estimated that the US tech sector holds $550bn in cash reserves, a vast proportion of 38% of all corporate cash reserves in the US. To further narrow this insight, Apple alone held $137bn in cash at the end of 2012. For context, any prospective Cyprian bailout is estimated to cost under €20bn; the British government’s immediate bailout of the banking sector in 2008 was £50bn; and the entire EU budget in 2007 equated to €120.7bn.

That which should follows these facts involve two things: first, that, as David Einhorn rightly suggested, some of this money should be handed out to shareholders, increasing consumption and, what follows, income; and that this liquidity preference, whether rational or not, represents the cause of many nation-state woes.

The opportunity cost of not investing is huge: less business, less trade, and, for countries like Cyprus, the prospect of sovereignty governed by (negative) debt markets via proxy at Brussels. If the business of government (used to be) business itself, then one can say right now, with as much accuracy, that government in the ‘Age of Austerity’ is business.

Take, for example, the macroeconomic policy of the United Kingdom. With the chancellor keen to bring both the electorate and the mainstay of his party on to his side, he is still, ultimately, at the complete bidding of capital markets: any prospective interest-rate rise will depend not on a weakening £, but on the cost of the government’s borrowing. Assuming that countries need to borrow to maintain current spending, e.g. in the UK, is the economic budget really a function of a general political-will determined, indirectly, via democracy and represented in parliament? Or is it a function of markets more responsive to investor pay-outs and quarterly results than the fortunes of nations?

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