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Why Are Corporations Hoarding Trillions?

nytimes.com

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Re: Why Are Corporations Hoarding Trillions?

#391

Post by freehunter »

Houshalter wrote: post #375
TeMPOraL wrote: post #373

Earlier quoted context omitted.

Except there isn't one producer, there's many competing ones, so you have overproduction because everyone hopes to get more market share than they actually have. Over that, there's overproduction in many areas (especially food) for a very silly reason - that people will buy more when there's more stuff around it (aka. no one wants to buy the last few carrots). It doesn't get consumed, and poor people don't benefit fr…

Large corporations are not stupid. They have decades of sales data. They can definitely predict demand a year in advance, and they do. I don't actually think they are overproducing. They make a huge markup on new cars, so having to discount a few that don't sell isn't a loss. Also factories are pretty much large fixed costs. Overproducing actually doesn't cost that much. The car might only cost $500 worth of raw mate…

Look at the Cash for Clunkers program a few years back. People were paid to bring in their old, but still functioning cars, and buy new ones. Many of those old cars were still fully functioning, and not that old. We have the production capacity for so much more than we actually make. You're right, they can predict sales so they're not making 1,000,000 units more than they can sell, but they CAN make that many. The thing about overproduction is, like you mentioned, it doesn't last for long. Demand drops, they shut down plants, they close shifts, they fire workers. Believe me, I live in Michigan and have many friends and family workers who work (or worked) in the auto industry. We have the ability to churn out hundreds of millions of more cars every year than we actually do. Like you said, we don't do that because it doesn't make financial sense.

But just because we don't overproduce right now doesn't mean we couldn't if we wanted to. I'm still not seeing where production is the problem. If production was the limiting factor, they would be running the factories 24/7 instead of shutting them down. The only reason to underproduce is to increase demand. But if you lower supply and demand doesn't increase, you've already been overproducing. So if they're closing factories, it means they've been overproducing.

Re: Why Are Corporations Hoarding Trillions?

#392

Post by csense »

forgetsusername wrote: post #30
csense wrote: post #17

I think it's because the Fed's past easy-money policies (QE). The idea of QE is that the Fed puts a ton of cash into the market in order to encourage investment. However investment pushes asset valuations higher. Once asset valuations are high enough, people stop investing because the fundamentals don't support the valuations. The money injected by the Fed will eventually be absorbed by inflation and the Fed reversin…

> The money injected by the Fed will eventually be absorbed by inflation and the Fed reversing course and raising rates to suck money out of the market. But inflation's been low and the Fed's only done a single, very recent increase in interest rates, so "eventually" hasn't arrived yet. Do you understand the relationship between interest rates and inflation?

My understanding is that if Fed holds IR on bonds low, money exits bonds and goes into the market, causing inflationary effect (more money chasing same amount of goods). If Fed increases IR, money exits the market and goes into bonds, causing deflationary effect (less money chasing same amount of goods).

Re: Why Are Corporations Hoarding Trillions?

#393

Post by Animats »

eric_h wrote: post #222
anshukla wrote: post #148

Earlier quoted context omitted.

"One leading hypothesis is that firms employing low-wage workers—such as fast-food chains—have significant monopsony power in the labor market; that is, they are the principal purchasers of low-wage labor in a particular job market. And a monopsonist facing a price floor doesn’t necessarily buy less, just as a monopolist facing a price ceiling doesn’t necessarily sell less and may sell more." - Krugman, http://www.ny…

Thanks for teaching me a new word (monopsony)! It's been a long while since my vocabulary has been increased with something that's not a millennial invention.

Farmers know that term very well. When the second loading ramp or grain elevator closes, and there's only one buyer left, farmers face a monopsony. Farmers have fought back with co-ops and Government price supports.

Re: Why Are Corporations Hoarding Trillions?

#394

Post by mirimir »

splintercell wrote: post #383
mirimir wrote: post #359

Earlier quoted context omitted.

I used to manage a restaurant. All unmarketable but edible waste went to homeless shelters. Remaining inedible but unspoiled food went to pig farmers. Remaining spoiled food went to composting facilities. Our target market loved all of those policies.

I know someone would talk about the wasted food in a restaurant when I am talking about the non-wasted food.

Wasted food includes what didn't sell. And honestly, it didn't occur to me that you were suggesting that restaurants would be expected to donate marketable food. Markets, restaurants, etc often lock waste containers, to prevent theft.

Re: Why Are Corporations Hoarding Trillions?

#395

Post by icebraining »

jmorrow977 wrote: post #299
digikata wrote: post #243

Earlier quoted context omitted.

In theory that money in a savings account or investment vehicle gets circulated back into the rest of the economy, but I think what we're seeing is that cash is tied up in some sort of buffer/holding effect in the financial sector, basically accumulating in ineffective places. The bulk of the money certainly doesn't seem to be circulating through the hands of individuals where it would likely spur more economic activ…

This is a really interesting observation. I've never heard someone mention a "buffer/holding effect" before, but that makes a lot of sense. I wonder if it's something like... the average individual spends half of whatever cash they have available every year... but the average business that takes investment lets 6 to 12 months of it sit in accounts. I realize the bank would then loan against the money in those account…

That's the textbook model of money creation, but it's outdated. See "Money creation in the modern economy", by the central Bank of England: http://www.bankofengland.co.uk/publications/Documents/quarte...

Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. (...)

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

Re: Why Are Corporations Hoarding Trillions?

#396

Post by [deleted] »

ssmoot wrote: post #131
JustSomeNobody wrote: post #108

Earlier quoted context omitted.

How much do you want to pay for goods in order for that cashier to make 40K?

I feel like before people should be allowed to put this forward as a serious argument, they should also put forward the numbers behind it. How much of your current Walmart receipt goes to the non-executive-management in-store staff? The implication of course is that it would be significant. It's echoes of the uninformed arguments around the UAW though. Back in 2008 the $70 was all anyone could talk about. That despit…

[deleted]

Re: Why Are Corporations Hoarding Trillions?

#397

Post by icebraining »

eric_h wrote: post #222
anshukla wrote: post #148

Earlier quoted context omitted.

"One leading hypothesis is that firms employing low-wage workers—such as fast-food chains—have significant monopsony power in the labor market; that is, they are the principal purchasers of low-wage labor in a particular job market. And a monopsonist facing a price floor doesn’t necessarily buy less, just as a monopolist facing a price ceiling doesn’t necessarily sell less and may sell more." - Krugman, http://www.ny…

Thanks for teaching me a new word (monopsony)! It's been a long while since my vocabulary has been increased with something that's not a millennial invention.

It's been a long while since my vocabulary has been increased with something that's not a millennial invention.

That means you're missing The Allusionist! http://www.theallusionist.org/

Re: Why Are Corporations Hoarding Trillions?

#398

Post by sedachv »

refurb wrote: post #273
TeMPOraL wrote: post #268

Earlier quoted context omitted.

Of course there is. The point is, we've reached the stage of our advancement when, on aggregate, we produce more than we actually need. Our current issues are with distribution of what is being produced.

Not sure that I would agree there. What if the "excess" production funds a cure for cancer? What if that cure requires additional resources? The world isn't static.

"Not sure that I would agree there. What if the "excess" production funds a cure for cancer? What if that cure requires additional resources?"

Production does not fund other things, and disease cures are not something that people willingly buy. Excess production just wastes resources on things people do not want to buy (unsold automobile inventory, etc.) and is enabled by access to too much speculative capital. Redistribution of that capital (in the form of higher taxes) into government-mandated and funded research programs to find cures for cancer is how you find a cure for cancer. Disease research in the United States is not funded by pouring water on your head (http://www.nbcnews.com/health/health-news/ice-bucket-challen...) or Tim Ferriss (https://www.crowdrise.com/timferriss), but by the $30 billion budget of the National Institutes of Health.

Re: Why Are Corporations Hoarding Trillions?

#399

Post by icebraining »

guyzero wrote: post #103
fennecfoxen wrote: post #29

Earlier quoted context omitted.

As a corporation, the traditional thing to do with cash you don't need is to return it to your owners, either through dividends or through share repurchases: If the owners wanted to own money sitting in a bank account, they could put the money in a bank account themselves. If they wanted to own a company, they'd be better off owning just the business part without a chunk of low-return cash attached. Beyond basic liqu…

Tech companies specifically have seen their historical predecessors disappear very quickly - Sun and SGI nearly evaporated, IBM has had 16 quarters of shrinking earnings. So tech company execs hoard cash in the hope that if they get blindsided they'll have time to recover. I'm pretty sure this is Eric Schmidt's explicit strategy. Also, as someone else noted, a lot of this cash is "trapped" overseas as it would cost 3…

"Nearly Half of So-Called “Offshore” Funds Already in the United States"

"Corporations are able to invest their foreign earnings in U.S. assets without treating them as “repatriated” and subject to taxation, because the federal tax code, specifically Section 956(c)(2), already allows U.S. corporations to use foreign funds to make a wide range of U.S. investments without incurring tax liability."

https://www.hsgac.senate.gov/subcommittees/investigations/me...

Re: Why Are Corporations Hoarding Trillions?

#400

Post by maxwell »

roymurdock wrote: post #164

Summary: Many large corporations in pharma, auto, tech are becoming net savers in order to (1) avoid the taxes associated with purchasing and maintaining new assets; (2) have a warchest of cash for M&A activity as cash deals are generally much cheaper than equity/debt deals, and M&A can be more cost-effective than R&D if done correctly. Author is unconvinced that this covers the whole picture, and offers this meta-ex…

Seems to be autonomous transportation. Hence auto and tech. Google, Apple, and GM are the only companies named in the article.

Google says they'll be ready in 2020. Apple TV has the biggest share of the streaming TV hardware market [1] and Watch almost brought in $2B last year [2]... but iPhone and iPod sales are sagging [3]. GM just put $500M into Lyft. Ford is pivoting to software and services. And so on.

"Driverless" has the potential to be more like horse shoes or "iron horses" or "horseless carriages" than, say, western saddles or dieselification or automatic transmissions. Historically, dramatic changes in ground transportation seem connected with dramatic changes in how people spend time, where they live, and what they work on and value and eat.

As for pharma, maybe the patent cliff? By 2020, patents on Plavix, Singulair, Diovan, Lipitor, Rituxan, Humira, Novolog, and Avastin will be expired.

1. http://advanced-television.com/2015/11/06/apple-tv-31-of-str... 2. http://www.ibtimes.com/apple-watch-sales-topped-17b-apple-in... 3. http://www.cnbc.com/2016/01/20/iphone-sales-worse-than-expec...

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