Large US firms borrowing money at ultra low interest, but not for giving jobs

October 4th, 2010 - 6:35 pm ICT by ANI  

New York, Oct. 4 (ANI): Large American corporations are borrowing vast sums of money for next to nothing, simply because they can, even as most people in the country continue to reel from the after effects of the global meltdown.

According to the New York Times, firms like Microsoft are raising billions of dollars by issuing bonds at ultra-low interest rates. Big companies like Johnson & Johnson, PepsiCo and I.B.M. seem to have been among the other major beneficiaries.

The paper claims that these business behemoths are stockpiling the cash until the economy improves, rather than spending the money on new factories, equipment or jobs.

It is being described as something of a chicken-and-egg situation — Corporations keep saving, waiting for the economy to perk up - but the economy is unlikely to perk up if corporations keep saving.

This situation underscores the limits of Washington policy makers’ power to stimulate the economy.

The Federal Reserve has held official interest rates near zero for almost two years, which allows corporations to sell bonds with only slightly higher returns - even below one percent. But most companies are not doing what the easy monetary policy was intended to get them to do: invest and create jobs.

The Fed’s low rates have in fact hurt many Americans, especially retirees whose incomes from savings have fallen substantially.

American corporations have been saving more money since the financial collapse of 2008. But a recent rush of blue-chip bond offerings, including a 4.75 billion dollar deal last month by Microsoft, one of the richest companies in the world, has put even more money in their coffers.

Corporations now sit atop a combined 1.6 trillion dollars of cash, a figure equal to slightly more than six percent of their total assets.

In the first quarter of this year it was 6.2 percent of assets, the highest level since 1964, when it was 6.4 percent.

The question that is being asked is when will corporate America start to feel confident enough to put its cash to work, building factories and putting some of the nation’s 14.9 million unemployed to work?

Businesses are holding on to their protective cash cushions, worried perhaps that the economy could slip back into recession or at least grow too lethargically to make an investment worthwhile.

The nation’s corporations will be strong, well capitalized and ready to act aggressively when executives finally decide it is time to expand their businesses.

Economists say that such investment is still below its peak before the financial crisis.

“They may actually be using this new investment to be more efficient and cut jobs,” said Michael Gapen, an economist at Barclays Capital.

He adds: “The mix of signals right now is still telling corporations to sit tight and wait.”

All of this may enrich the corporations’ shareholders and cut company costs in the long run, but it does not necessarily lead to more jobs and it does not represent the big investments in growth that could fuel a sharp economic recovery for everyone. (ANI)

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