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One question I've had for...a while now. If a) corporate profits are up b) hiring isn't happening, or is seeing a skills mismatc
by invalidOrTaken 15y ago
One question I've had for...a while now.
If
a) corporate profits are up
b) hiring isn't happening, or is seeing a skills mismatch
then where exactly are all these profits going? If they're going to capital goods for the company, that just moves the question on down the line. If they're going to shareholders, then what are those shareholders buying? And if it's just sitting in the bank, where is the bank lending it out?
- sskates 15y agoA lot of companies are just sitting on the cash (most likely in a bank account). Interest rates are very low right now, so there's not much incentive to lend the money out.
- robryan 15y agoThe bank would be lending it out though.
- dgit 15y agoWhat makes you think so? Interest offered by borrowers is generally low these days and risks are high. So lending isn't happening.
- Nick_C 15y agoIf that was the case, we would see M2 and M3 go up, and we aren't. Depending on how you want to measure it, you could even argue they are contracting slightly.
- dgit 15y agoLooks like 'up' to me for M2: http://www.federalreserve.gov/releases/h6/current/ http://www.federalreserve.gov/releases/h6/current/ M3 not being tracked. That said, I'm not entirely sure about the definition of M2 and how that's related to 'money sitting in the bank'. M2 includes 'savings and time deposits' according to Wikipedia, but it doesn't seem to differentiate whether banks in turn lend out that deposited money or it just sits there.
- justincormack 15y agoOften in treasury bills, as banks are too risky. Which is why treasury bill rates are so low, and the money does not get relent. Since Lehman's banks are not seen as safe and there is no deposit insurance for these large amounts.
- yummyfajitas 15y agoMany of the profits were earned overseas, and are being left there. If they bring the profits home to the US, they will be taxed. Essentially, the US is levying a tax on (certain) foreign investment, specifically investment by Google Ireland in Google USA. Additionally, most of the private sector is deleveraging and building up cash reserves to use in lieu of debt financing.
- invalidOrTaken 15y agoI don't know why you got downvoted (and your reply was certainly within the guidelines), but your answer left me with some questions: would profits left overseas mean that (well duh, but more so than otherwise) foreign consumer markets will pick up noticeably (and we therefore should be paying close attention)? And is there some specific reason the private sector is deleveraging? Have CFO's just gotten more spooked than before? Thanks.
- yummyfajitas 15y ago...would profits left overseas mean that (well duh, but more so than otherwise) foreign consumer markets will pick up noticeably... No guarantee, but it's likely. If the overseas profits are invested, then yes. If it sits in the bank and is not invested, then maybe not. From what I've read and seen, it seems that overseas consumer markets are increasing. Here in Pune, it's definitely the case. There are a ridiculous number shiny new apartment complexes advertised by pretty white ladies doing yoga, Centaurs, and claims that everyone will envy your opulence. And is there some specific reason the private sector is deleveraging? Have CFO's just gotten more spooked than before? The credit crunch is a very recent memory. If another one occurs, then any company that uses credit for cash flow could be destroyed. So yeah, hoarding cash is basically an insurance policy.
- aangjie 15y agoI can vouch for a similar increase in consumer markets in Bangalore.. Been in chennai a few months and am suspecting the same here too....
- 15y ago
- dgit 15y ago" ... if it's just sitting in the bank ..." it's just sitting there, they (banks) are not lending it out. That's precisely what's happening now.