Corporate Cash Piles Up, But Demand for Credit Remains Low

Tom Porcelli, Chief U.S. Economist at RBC Capital Markets, joined Tom Keene on Bloomberg Surveillance to discuss the state of corporate cash flows and their impact on the economy. Porcelli emphasized that rather than harming the economy, corporate cash reserves are a sign of caution in an uncertain environment. He cited low confidence among CFOs and small business owners as a major factor in the lack of demand for credit.

Key Takeaways:

• Corporate cash reserves are at historic highs, with over $300 billion in cash on hand.
• Despite this, demand for credit remains low, with small business owners and CFOs citing uncertainty around regulation and healthcare as major concerns.
• The NFIB survey shows that small business respondents are paying high rates for short-term loans, indicating a lack of demand for credit.
• Time is needed to heal the economic mess, with Carmen Reinhart's work suggesting that deleveraging can take between four to seven years.
• Increased government spending is not necessary, and additional debt would come with significant costs, including a growing budget deficit.

Statistics:

• Over $300 billion in corporate cash reserves (TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS)
• 1.5 trillion dollar budget deficit (TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS)
• Between 4-7 years for the economy to deleverage (CARMEN REINHART, ECONOMIST)

Sources:

• Bloomberg Surveillance (radio program)
• RBC Capital Markets (Tom Porcelli, Chief U.S. Economist)
• NFIB (National Federation of Independent Business)
• CBO (Congressional Budget Office)
• Bloomberg (Tom Keene and Tom Porcelli)