Wednesday, November 17, 2010

Further Evidence of An Excess Money Demand Problem

In case there were any doubts we have this from CBS MoneyWatch:
The dividend push comes as companies sit on an ever-growing pile of cash, with non-financial companies in the S&P 500 holding $1 trillion in cash or like assets at the end of the second quarter, according to Banc of America Securities LLC analyst Jeffrey Rosenberg. By one estimate, that cash level could rise to $2 trillion by the end of the year. 
And this from  Economix:
“Not only are we seeing a tremendous V-shaped recovery in corporate profits, but we are in fact seeing the biggest corporate profit recovery ever,” said Joseph A. LaVorgna, the chief United States economist at Deutsche Bank. “That means that the equity market is dirt cheap. That also means that companies have more money than they know what to do with.” Meanwhile,.... unemployment rate is still stuck at 9.6 percent.
Of course the best evidence for excess money demand is the sustained decline in the velocity of money:

4 comments:

  1. yep. "companies have more money than they know what to do with"

    so exactly how is QE supposed to help that?

    ReplyDelete
  2. You need to take into account increased debt at corporations -- it wipes away most of the excess cash.

    ReplyDelete
  3. RJS,

    See this post: http://macromarketmusings.blogspot.com/2010/11/memo-to-fed-fix-aggregate-demand.html

    David,

    For every debtor there must be a creditor. Thus, even if there are indebted firms there are other creditor firms, households, banks, etc. that are receiving payments from the debtors and are sitting on the money. There is no other way to account for the decline in money velocity or the sustained fall in the dolalr size of the economy. QE2 is about getting those creditors to all start spending their money (i.e. eliminate the excess momey demand problem)

    ReplyDelete
  4. david, i saw that post, remember?

    it was i that made the point in comments there that companies have more money than they know what to do with...

    & its all going overseas now...

    ReplyDelete