The world of sideline corporate cash

There have been more reports on the issue of corporations holding large cash balances. Depending on who is doing the calculation, there could be up to $5 trillion of money that is just sitting on the sidelines not being invested. This is a little bit of a mystery. Ina  normal world, cash should be invested in new project. Some cash should be held as part of normal cash management as working capital. Excess cash that is not invested should be given back to shareholders through dividends or through stock buy-backs. The high cash balances does not seem to upset shareholders. So what is going on? 

Some saying that this is the paradox of thrift on the corporate level. Companies are ruining the the potential recovery by not investing in the global economy. This cash is a form of savings. Many CEO's are saying that they have not made any investments because the world is too uncertain. It is not worth the risk. Interestingly, the policy uncertainty index that has been discussed as one measure of uncertainty is not at extreme levels. Other have argued that the cash balances is a result of poor opportunities in EM but the cash hording has been occurring for some time.

I would venture to say that there are expectations of higher policy uncertainty that is not capture by current numbers. The environment is very uncertainty and there is a pessimism that is pervading the corporate world. Bashing of corporation to play to workers has cost. The cost is that companies do not want to invest. Whether potential tax increases, health costs, sovereign rating declines, overall regulation, capital controls or uncertain policy, the world is perceived as uncertainty and risky. These are risks that are imposed by government and not a result of uncertainty growth.