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How much longer will companies be allowed to run
themselves for cash...?
HOARDING stuff until
your home is a health hazard and your family and neighbors
hate you isn't only a TV "reality". Perhaps 1 million US citizens
are prey to the hoarding compulsion on one estimate, fighting the urge to let
everything just keep piling up.
"Hoarding
and anxiety," according to one fighting sufferer,
"go hand-in-hand. Fear keeps us from letting go of objects we don't
need." Overcoming that fear is a tough job, however. "Clean-up
usually provokes intense anxiety," says another report,
noting that hoarding stems variously from dementia, depression, and obsessive
compulsive disorder amongst other deep-seated troubles.
"Anyone
helping the hoarder – even a professional cleanup
crew – should be gentle, always caring and encourage the person to deep
breathe and relax." Which sounds fair enough given the
anxieties involved. But what about shouting at the sufferer instead?
"Companies'
growing cash piles are irking shareholders and stunting growth," said
the Financial
Times in late January. "Politicians and policymakers
are going to have to ask the question," added David Bowers of Absolute
Strategy Research, wagging his finger – "How much longer are we
going to allow companies to run themselves for cash?"
Barely
a fortnight later, Martin Wolf was at it in the very same pages.
"Britain needs to whittle down corporate cash piles," Wolf
declared. "If the fiscal deficit is to disappear...there needs to be a
mixture of lower profits, higher investment, and significantly smaller
current account deficits," he went on, quoting Andrew Smithers of Smithers & Co.
"Increases in government investment and private housebuilding
would also help," said Wolf, parroting the Anglo-Saxon post-war
consensus. This attack on corporate cash hoarders is new, however. Because
corporate cash hoarding is so new, it's barely noticeable.
"Highly
indebted UK households should not run large deficits again," said Wolf.
Or to quote The Times just this
week, "Consumers cannot lead recovery. Britain needs business to stop 'stashing
the cash'."
Put
another way, "Companies must stop hoarding cash and start investing
instead," says Will Hutton in The Guardian,
quoting this week's same press release from the same think-tank, Ernst &
Young's ITEM Club. "David Cameron and George
Osborne have still not developed a full-throated industrial policy that would
encourage companies to spend money on investment and innovation."
"Business investment has picked up nicely in
the US," says ITEM's chief economic advisor, Peter Spencer, apparently
ignoring the huge $1.24 trillion hoarded by US corporates by the end of 2011
– more than half of it outside Uncle Sam's clutches according to
Moody's, who compiled
the data, as emerging-market
growth plus onerous US tax treatment drives businesses to avoid remitting
profits back home.
Look, if everyone shouts loudly enough, maybe the
hoarders will snap out of it? They are trying already, however, if only at
gun point. Thanks to 2011's flat S&P performance,
US equities continue to pay a higher yield than Treasury bonds, something
unseen for half-a-century prior to 2009. Here in the UK, "Total
dividends paid by UK companies hit a record £67.8 billion in 2011, a
rise of almost 20% on 2010," reckons stock broker Hargreaves Lansdowne.
"Encouragingly, dividend growth was seen across all industry sectors."
And
it's not like corporate US and Britain didn't do their bit in fighting the
war of debt vs. recession starting in the mid-1990s either. Over the 12 years
ending spring 2009, for instance, private-sector UK companies outside the
financial sector spent 124 months growing their bank debt net-net. Yes, UK
households fought harder (141 out of 144 months), but they began to rein in
their borrowing sooner and actually saved money right when the canon fodder were called on for a last "big
push" in late 2007.
But who cares? "British
companies are running a cash surplus of some 6% of GDP, the largest in the
world," says Hutton, wagging his finger at people making a profit and
daring to keep it. "[They] are refusing to spend that cash on investment
or innovation, preferring to hoard it, preserve
profit margins or buy back their own shares."
Oh the monsters! Refusing to spend...stashing the
cash...hoarding, in short. It must not be allowed. Which is
why the financial press began softening up public opinion at the start of the
year, when the Financial Times first ran that story about what it called
"the $1,700bn problem. Companies in
the US are flush with cash and are paying out a smaller proportion of their
earnings as dividends than ever before. Much the same can be said for western
Europe. Governments and households on both sides of the Atlantic are
meanwhile strapped for cash. This cannot persist much longer."
"Businesses
run 'for cash', rather than spending in an attempt to boost revenues, do not
promote growth," said the FT. The government should do something to stop it!
"The
battle front today is against the hoarding of currency. No one will deny that
if the vast sums of money hoarded in the country today could be brought into
active circulation there would be a great lift to the whole of our economic
progress."
So
said Herbert Hoover, then US president, as the United States sank towards the
depths of its Great Depression in the early 1930s. "We are making war on
depression. War against a lack of confidence. Our people must have something
tangible to do in the fight. There is no use to go out and say 'Have
confidence, courage and faith.' They must have something positive to bite on.
"They
can bite on the question of hoarding."
Hoover's
war on the hoarders drew opinion and business leaders to enlist in
Washington. "It [hoarding] began in April last year in consequential
amounts," Hoover told a private White House gathering of newspaper
editors and other luminaries in February 1932. "The disturbances in
Austria, which finally culminated in the German panic, showed paralleled increases
of hoarding in the United States, which rose at one time to about seventy or
one hundred million a week...[Then came] the disturbance in Great Britain
which finally resulted in the British abandonment of the
gold standard.
"Instantly,
within 24 hours after the Bank of England ceased paying gold, hoarding jumped
in the United States to $250,000 a week."
Then
as now, people kept hold of their money – hoarded it at home, under the
mattress – because they were fearful of default by the banks. Hoarding
created that very event, said Hoover. But still others were fearful of what
the government would do to try and prop up the banks, so they hoarded gold
bullion too, keeping it at home – out of circulation and safely away
from bank credit. This, like "refusing" to spend corporate profits,
was deemed bad for the nation. Because back then, unlike today, gold really
was money, the base of America's credit, and so such behavior
could not be allowed to persist. After Hoover's war on depression, his
successor turned on what seemed the cause: "nothing but fear
itself". Or rather, the outcome of that fear, as manifest in the private
desire to hold physical gold. Roosevelt made gold bullion illegal for
everyone but the State to own, nationalizing private gold holdings at $26 per
ounce, raising the official price to $35 per ounce.
Roosevelt
thereby enforced on the United States the very Dollar devaluation which gold
hoarders had forecast. All they had to fear was what they already feared.
Such hoarding was hardly irrational.
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