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These companies are not banks so I am not sure why we are talking about cash on deposit. Cash that exists on a corporate balance sheet for a non bank company r
by jonbarker 10y ago
These companies are not banks so I am not sure why we are talking about cash on deposit. Cash that exists on a corporate balance sheet for a non bank company really only exists to reduce risk of default on obligations or prepare for a cash investment of some kind. Not an accountant but can't think of any other use of cash.
- WalterBright 10y ago> why we are talking about cash on deposit Because the companies do not have cash hoards. They put cash in a bank. The bank loans the money out to people who spend it. The idea that corporations are Smaugs with mountains stuffed with gold coins needing to be liberated by hobbitses and merry bands of dwarves is a fine fairy tail, but is not how modern economies work. (The amusing thing about Smaug's hoard is it was so ridiculously large that if it was spent by the dwarves, the value of gold would completely collapse to the point where it'd be used to make plumbing.)
- jonbarker 10y agoI really like the analogy but Smaugs' gold might track inflation if lucky whereas cash carries inflation risk. A nice problem to have in the realm of "first world problems" for sure but still a problem. Also, if the companies had good enough perceived growth opportunities they would be investing instead of carrying hoardes of cash.
- WalterBright 10y agoA more or less real world experiment with Smaug's gold happened when the Spanish exploited S. America for gold and silver, shipping it back to Spain. https://en.wikipedia.org/wiki/Spanish_Price_Revolution https://en.wikipedia.org/wiki/Spanish_Price_Revolution The inference I draw is that prosperity does not stem from adding large quantities of money (gold) to the economy; what happens instead is disruption.