All across the world companies have in recent years been hoarding cash, nowhere more so than in the US. For at least a decade and a half, cash has progressively increased its share of the American corporate balance sheet, to the point where US quoted companies have turned into the Scrooges of the global economy. According to research by Juan Sánchez and Emircan Yurdagul of the Federal Reserve Bank of St Louis, their cash hoard had reached almost $5tn by the end of 2011.
Such is the scale of this cash pile that the US corporate sector must have been partly responsible for the surge in demand for safe assets and the decline in interest rates that fuelled the US housing bubble. Yet American business has been spared the opprobrium heaped on excess savers such as China, whose official reserves top $3.5tn. There is nonetheless something fundamentally different about the US corporate cash pile compared with those of, say, China and Japan, where burgeoning corporate sector savings have increasingly fuelled global imbalances.
Corporate savings consist of depreciation and retained earnings. For much of the past 20 years the Chinese government has urged state-owned companies not to distribute profits, which would help push up retentions. In the absence of developed financial markets, companies are more reliant, too, on internal financing. For its part, Japan is a mature economy in which investment opportunities are insufficient to absorb the country’s domestic savings.