World Economy

Global Corporate Cash Piles Exceed $15t

Global Corporate Cash Piles Exceed $15tGlobal Corporate Cash Piles Exceed $15t

The global economy is slowing–from China to Brazil to South Africa and beyond. Currency wars initiated in 2013 by Japan’s introducing a quantitative easing monetary policy, intensified in 2015 by Europe introducing its own QE, and exacerbated still further by Saudi Arabia initiating a global oil price war to bankrupt US shale oil challengers–have together converged to drive emerging market economies like Brazil, South Africa, Indonesia and others into recession or stagnation.

Actions in the past 18 months by Europe, Japan and Saudi Arabia have resulted in lowering their currency exchange rates. The moves represent desperate attempts to boost their weakening economies by trying to capture a larger share of a slowing global export pie. Once growing in 2008 at a rate of 12% per year, that pie today, in 2015, is virtually flat, Counter Punch reported.

Money wars, price wars, and currency wars all reflect an intensification of competition between the advanced economies of Europe, Japan, US, and the Saudis as the global economy as a whole grows weaker and slows–i.e. what amounts to an intensifying economic ‘cat fight’.

That cat fight is having a severe impact on EMEs, resulting in escalating capital flight, collapsing financial asset markets (stocks, bonds, etc.), slowing revenue from exports, import inflation, falling investment and employment, and rising real debt. In response, some have raised interest rates to try to slow the capital outflow, attract more inflow, and slow inflation. But that has only slowed their own economies even more.

  Austerity Policies

Other emerging markets have tried to compete with the AEs for export share by cutting wages of workers and introducing ‘austerity’ policies to make their workers pay for the slowdown. But that too is a dead-end response. The false logic is that austerity will show AE investors that they, the emerging markets, are serious about imposing economic discipline. Somehow that will convince investors to send their capital back to the emerging markets again.

But austerity only lowers wage incomes and slows growth even more. It does not attract back foreign capital. And AE investors don’t send money capital into economies that are stagnating or in recession.

Raising interest rates and/or introducing austerity are both economic dead end responses to a growing crisis that is clearly marked ‘made in Tokyo, Frankfurt, Riyadh’, and, of course, in Washington which is about to raise interest rates that will accelerate capital flight from EMEs even faster.

  $7.3t Corporate Cash Pile

Various studies and reports show that AE corporations continue to pile up cash on their balance sheets. According to a June report by the Bank of Japan, in Japan corporate cash hoarding now totals $2.4 trillion. And somehow that was accumulated despite Japan having experienced four recessions since the 2008-09.

How about Europe? There corporate cash has risen 40% since 2008, to $1.1 trillion, despite a double dip recession of 18 months in 2011-13 that was worse than 2008-09 and despite a stagnating Eurozone since 2013.

And the United States? Moody’s Analytics research estimates corporate cash for non-financial corporations at $1.73 trillion today. Add another $1 trillion for reserves held by banks. Then there’s the estimate by Moody’s that US multinational corporations continue to hoard another minimum $1.1 trillion in their offshore subsidiaries, which they’ve parked there in order to avoid paying US taxes on that amount. That’s a combined $3.8 trillion cash pile for US corporations alone.

In total, just the AE economies of the United States, Eurozone, and Japan are therefore sitting on a minimum of $7.3 trillion in cash today!

  $8t Stock Buybacks

The $7.3 trillion in corporate cash represents what is left over after trillions more have already been paid to their investors since 2008.

In the United States alone since 2009, more than $4.5 trillion has been distributed in stock buybacks and dividend payouts by just the largest 500 US corporations, according to Standard & Poor’s research. Another $500 billion has been distributed in dividends to all businesses, corporate and non-corporate alike, according to US government data sources. That’s $5 trillion. But even that astounding number does not include distributions by US private equity firms to partners, estimated at $1.3 trillion in just the last three years, or additional amounts by global hedge funds, or by other ‘shadow banks’, to their member partners in what’s called interest payments.

How about Japan and Europe? While stock buybacks are not historically as large in Japan and Europe as in the United States, they are rising rapidly. Meanwhile, dividend payments have been more generous compared to the United States, and rose 15% in Europe in 2014 and 16.8% in Japan by latest estimate. That’s probably another $1-2 trillion.

In other words, a minimum $8 trillion or so in cash has been distributed to shareholders and investors since 2009, leaving $7.3 trillion in a still undistributed cash pile on AE corporate balance sheets.