All the Cash

Optimism about the economy has deservedly bubbled up and seems set to percolate even higher once the latest economic statistics are processed and disseminated. Of course there’s more than a bit of a self-fulfilling prophecy about the economy—optimism generates economic activity generates more optimism and so on (or what Keynes memorably called “animal spirits.”)

I do think the possibility of animal spirits asserting themselves with corporations is underexplored. There have been a ton of media stories arguing that there are around $2 trillion in cash reserves sitting around collecting dust in corporate coffers (or earning low interest rates in Treasuries, which these days must be like getting dust for interest). I just saw a study recently arguing that actually there are $508 billion in spare corporate reserves; whatever the figure, there are large sums waiting to be used once they feel sufficiently confident to do so.

At any rate, we can be reasonably sure there’s a large amount not doing much. Here’s corporate profits after tax since 2007:

Rising higher, naturally. They’re not returning to investors via dividends:

So where’s it gone? Certainly not into fixed private investment:

If that returns well, we could be in very good shape.