Chasing Value: Corporate America Hoarding $1.6 Trillion

The money exists but it is not circulating. It is accumulating in four major reservoirs. Sadly, the first place a good deal of capital has gone is overseas. As money made its way to institutions and individuals, a lot of it was quickly spent on goods not produced in the United States.

This leads to the second depository of stimulus money, corporate coffers. As money moves through the economy billions of dollars are being filtered out by companies like Apple with its $48 billion "cushion". Cisco Systems (CSCO), Microsoft (MSFT), and Google Inc. (GOOG) are doing the same thing. There is a $1.6 trillion sitting on the sidelines. This is not to say they did not earn it; they did. But that does not alleviate the repercussions of this vast amount of capital in a holding pattern.

Perhaps these companies fear a double dip recession and another bout with illiquid markets? We are our own worst enemy. By sending money overseas and hoarding it here, might we not be contributing to a double dip? Forcing the Federal Reserves' hand to contemplate an additional stimulus/debt round is something we can ill afford.

The $1.6 trillion does not count financial institutions, which are the the third black hole. In this case, the banks are advantaged by the low interest rates as well, so they can recapitalize. The banks are actually being required to retain more capital as reserve limits have been rightfully raised to withstand the stress of a continued level of high loan defaults.

Finally, the public has increased its savings rate, paying down debt, and hopefully replacing debt with equity.

We are not likely to stem the tide of sending money over seas and we should not push banks and individuals to resume leveraging their future again. That takes care of three of the four money sponges drying things up. That leaves corporate America "holding the bag" for the rest of us. Apple would not be in any danger if they only had a $24 billion bankroll, or even $12 billion. One could argue they might be at greater risk as the money piles up.

If Warren Buffett builds capital reserves at Berkshire Hathaway (BRK.A -- BRK.B) you can be sure he is planning his next move, and his track record of allocating resources is astonishing. The same cannot be said for most everyone else. It would be far better for the economy if corporate America resumed consuming, or at least gainfully reallocating resources then fretting weekly because overtapped consumers have not started spending again.

If Washington and Wall Street are worrying about a weak economy, then they should get together and discuss what productive alternatives stagnant corporate capital could be used for to improve the nations economy. If there is another stimulus package it most assuredly will go to the same four places I have already outlined, and may do little to help in the short run while burying us in debt and higher taxes in the long run.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: He owns shares of BRK.B..