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Sort of and sort of not. Companies do sit on cash. Their cash equivalent accounts are designed so that they can be reliably liquidated in under 30, 60, and 90 d

Sort of and sort of not. Companies do sit on cash. Their cash equivalent accounts are designed so that they can be reliably liquidated in under 30, 60, and 90 days and have no chance of a reduction in principal amount. The kinds of "investments" that allows for are thus quite limited to things such as treasury bonds, certificates of deposit, and some very special case derivative instruments. Those are not the sort of investments that build houses or get loaned out to businesses.

WalterBright 6y ago
Cash equivalent accounts are NOT cash. The cash has been loaned out. If you deposit $100 in the bank, you do NOT have cash in the bank. The bank loans it out 9 times over, that's right, your $100 turns into $900 of loans handed out to people and businesses who spend/invest it. It's the magic of fractional reserve banking. A massive clue that it is not idle cash is when interest is paid on the balance. That can only happen if the cash is "put to work", i.e. it is NOT cash.
- ChuckMcM 6y ago
  That's true, but $100 in a series-E savings bond is just sitting around waiting for tax dollars to pay its coupon rate. Not really helping anyone and certainly not participating in the fractional reserve system (to the extent that the federal government runs such a system to its own advantage :-)). When I helped set up one of these accounts for the startup I was in, we set it up to hold the $10 to $20 million that came in from investors. We bought t-bills through Goldman Sachs. They are very liquid, they pay a marginal return, and they are intrinsically insured. At most we kept $100K in our "regular" bank account[1] to pay salaries and taxes. Paying vendors consisted of simultaneously selling some t-bills, wiring the money to the vendor, and putting the fractional remain into the checking account. [1] This was the FDIC insurance limit so we didn't hold more than that in a depository account.
  - WalterBright 6y ago
    The reason the government issues savings bonds is so they can spend the money used to buy them. The same for t-bills. It is never sitting around as cash. Again, the fact that it pays interest is the clue that it is not cash, it has been spent "helping anyone". Nowhere in your description is there money idly sitting around as cash.

WalterBright 6y ago

Cash equivalent accounts are NOT cash. The cash has been loaned out. If you deposit $100 in the bank, you do NOT have cash in the bank. The bank loans it out 9 times over, that's right, your $100 turns into $900 of loans handed out to people and businesses who spend/invest it. It's the magic of fractional reserve banking. A massive clue that it is not idle cash is when interest is paid on the balance. That can only happen if the cash is "put to work", i.e. it is NOT cash.

ChuckMcM 6y ago
That's true, but $100 in a series-E savings bond is just sitting around waiting for tax dollars to pay its coupon rate. Not really helping anyone and certainly not participating in the fractional reserve system (to the extent that the federal government runs such a system to its own advantage :-)). When I helped set up one of these accounts for the startup I was in, we set it up to hold the $10 to $20 million that came in from investors. We bought t-bills through Goldman Sachs. They are very liquid, they pay a marginal return, and they are intrinsically insured. At most we kept $100K in our "regular" bank account[1] to pay salaries and taxes. Paying vendors consisted of simultaneously selling some t-bills, wiring the money to the vendor, and putting the fractional remain into the checking account. [1] This was the FDIC insurance limit so we didn't hold more than that in a depository account.
- WalterBright 6y ago
  The reason the government issues savings bonds is so they can spend the money used to buy them. The same for t-bills. It is never sitting around as cash. Again, the fact that it pays interest is the clue that it is not cash, it has been spent "helping anyone". Nowhere in your description is there money idly sitting around as cash.