The great thing about economics is you can be right one week, and right the next week, making you a hypocrite to who you were last week. Case in point: last week I thought that jobs would return when banks increase their willingness to loan and businesses increase their desire to borrow.
This week I have a new idea!
This chart shows us two things. The blue line is the total amount of cash (more or less) that companies are holding. The green line is the amount of cash as a percentage of the total assets owned by companies. Clearly, they’ve both shot up in the recent recession. This is bad for jobs because corporations aren’t investing in new stuff.
Think of it this way. When the recession started, you had 5% of all your money in cash. But once you realized times were getting tough, you hunkered down and changed your holdings to 10% cash. Now you have a lot more cash. But that cash can’t be invested, and it can’t be spent. So it’s essentially just sitting around, not circulating within the economy. This is an oversimplification, but keep in mind this is not a blog meant for economists or finance professionals.
This is what corporations have done. And just like you, you’re waiting to know for sure if the bad times are over before you start spending again. This is part of why we have no demand.
Once corporations start spending again, we’re going to see a lot more job growth. What will get them to spend again? What will get you to spend again? The chicken and egg argument starts again. I can tell you when these lines start falling, you’ll see jobs.
What exactly will make those lines fall is of course the subject of great debate. The only known in economics is that people will disagree, and that we’ll always have another explanation if this one turns out to be wrong.
Source: Advisor Analyst and The Fed
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
