Many economists have observed the irony that sensible household economic policies–reducing personal debt and increasing savings–can be bad for the broader economy, particularly in a prolonged recession, when renewed consumer spending is needed to get businesses hiring again. Now two studies suggest that the same may be true for companies, which are holding record cash balances.
According to the Federal Reserve, U.S. nonfinancial companies reported holding some $1.8 trillion in cash during the first half of this year, the highest figure on record, even as the Fed and the Treasury Department are trying to figure out ways to get banks lending to businesses.
It's not that executives are being greedy or foolish. "Increased cash levels at many firms are the result of improvements in day-to-day operations and independent decisions made for the good of each individual company," says Cathy Gregg, a partner at Treasury Strategies, which recently surveyed 300 firms about why they were holding so much cash.
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