Izzy on Corporate Cash Hoarding

My homegirl Izzy Kaminska is easily one of the smartest economics and markets reporters in the business.

Here, she tackles the much-discussed question of the moment – whether or not corporate cash hoarding is hurting the recovery or not…

From the Financial Times:

Krugman’s had a go, Cowen’s had a response and now Roche has weighed in.

So why are corporates hoarding cash, and is this good or bad for the economy?

Krugman is of the opinion that people may be underestimating the damage corporate hoarding is doing due to an illogical and overly loyal commitment to Say’s Law. This rule, largely debunked by Keynes, states that all income ends up being spent because all products are paid with products. Thus it doesn’t really matter if corporates hoard or not, because we live in a commodity-for money-commodity exchange world. If you’re holding money, you’re really holding yet-to-be redeemed commodities, which have already been pre-allocated to the money you hold in question. Everything is a zero sum game, and only the price of the transaction absorbs supply/demand imbalances. Given that, money hoards don’t really detract from stimulation.

In the Keynesian view, however, too much hoarding is always bad, largely because it represents income being turned disproportionately into savings…

Keep reading:

On Cash Hoarding (FT Alphaville)