There are a number of very specific reasons that this worldwide economic situation persists, primarily, as I wrote earlier, due to the very poor decisions and lack of clarity from politicians. While we do live in a worldwide economy, the United States remains that primary engine of that economy. For that reason, what happens in the US leads the rest of the world in a particular direction. Right now, that direction is aimless wandering.
For more evidence of the repercussions of the unpredictable environment that the US government has created with its fast-changing taxes, fees, and laws, realize that the 500 largest non-financial corporations are holding more than 10% of their assets in cash according to a recent Wall Street Journal article. That’s about a trillion US dollars sitting on the sidelines. It’s not hiring new staff, developing new products, or buying new capital. It’s sitting there doing nothing.
Why? Because the management of those companies doesn’t know what they are going to have to do next as the US government changes the rules yet again. So, they hold on to the funds just in case they might need them to handle yet another “great idea” from government bureaucrats who have never had to make payroll or delivery a product or produce a service that customers value. They are utter unequipped to understand — much less implement — effective solutions to economic issues involving the complex interrelationship of business.
The first thing to do is to promise and then deliver predictability to the market, and not just for interest rates. Interest is not the only expense that businesses have to plan to address, so predictability must extend to the other areas such as regulation, taxes, fees, and other mandates. When that happens, those funds will find their way into investment, turning into jobs, investment, and an economy on the rebound.
Until then…? A continuing malaise.
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The reason businesses are sitting on their cash is not because they don’t trust the government, it’s because they don’t trust each other.
An interesting perspective, Jim, and one that is a typical talking point of those who do not know the process of managing and building a business. With that said, I think the point is patently false and cannot be supported by any of the available evidence. Not to mention historical evidence as I mentioned in my previous (linked) post.
Why? Simply because those companies that will be successful have to invest to move forward. Management of organizations like the ones referenced in this post certainly knows that, but they have to hedge their investments until they have confidence that the funds won’t be required by some new whim from Congress or the Administration.
Kind of like many who are wondering about their health insurance premiums next year.