As many households and small businesses are being turned away by bank loan officers, large corporations are borrowing vast sums of money for next to nothing — simply because they can.
Companies like Microsoft are raising billions of dollars by issuing bonds at ultra-low interest rates, but few of them are actually spending the money on new factories, equipment or jobs. Instead, they are stockpiling the cash until the economy improves. via www.nytimes.com
The chicken and egg recovery. Not really. You can't have an economic recovery without spending. You have a recession without spending.
A recession is defined as two consecutive quarters of declining GDP.
Production declines because you have declining demand. Declining demand is signaled by declining spending.
An economy does not emerge from a recession until...spending and demand resumes.
The ABC's of why consumers and small businesses are not spending:
A. many remain unemployed, under-employed.
B. food, gas and rising healthcare costs consumer a greater portion of our household budgets.
C. lack of household credit. Either our household budgets are over-extended, our mortgages are under water or...our access to credit must overcome higher hurdles.
Now. What are the ABC's for large corporations not spending?
A. Markets are nearing previous high's.
B. Profits have been discovered from streamlined (layoffs) operations.
C. Access to credit is easy, again.
So. Who spends first? The consumer or the corporations?
What are the corporations waiting on? Mid-term elections?
Another way of looking at the NY Times article is the fact that they are saying big companies are hoarding during a recovery. Your definition of a recovery presupposes there is spending. Therefore, someone somewhere is spending. Therefore it's a matter of "how do I pocket some of this spending?" Nice post for a conversation, Zane.
Posted by: Jade Handy | October 05, 2010 at 12:57 PM