Too Much Money To Invest

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In The world’s wealthiest people and companies are holding record levels of unused cash, Dion Rabouin spins a strange tale:

A truly bizarre trend is having an impact on the economy — wealthy people and corporations have so much money they literally don’t know what to do with it.

I’ve written about the problem before: companies — and rich people — are finding it difficult to determine risks affecting possible investments (see Justin Wolfers, Why Most Economists Are So Worried About Trump)

Why it matters: At a time when growing income inequality is fueling voter discontent and underpinning an array of social movements, the top 1% of earners and big companies are holding record levels of unused cash.

The big picture: U.S. companies raked in a record $2.3 trillion in corporate profits last year, while the country’s total wealth increased by $6 trillion to $98.2 trillion (40% of which went to those with wealth over $100,000).

So, where is all the money going? The IMF notes large companies around the world are overwhelmingly and uniformly choosing not to reinvest much of it into their businesses. They’re hoarding it in cash and buying back stock.

And companies are steering clear of raising pay for workers, because is very hard to cut pay in bad times, which are coming, sooner or later.

The net result is the profits from the economy that we are all working so hard to create are sitting locked up in vaults, doing no good for anyone, not even the winners. As just one example,

private equity has seen so much cashflow that firms have $2 trillion of unused capital.

This is one of the best arguments for taxing wealth and raising corporate taxes.

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