325_Supplement19 - Department of Economics University of...

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Intermediate Macroeconomic Analysis Spring 2011 1 Department of Economics University of Maryland Economics 325 Intermediate Macroeconomic Analysis Supplement 19 Professor Sanjay Chugh Spring 2011 The following op-ed appeared in the Wall Street Journal on February 23, 2011. It discusses U.S. corporations’ holdings of cash and other assets, and what their implications may be for their ability to escape “financial constraints” regarding hiring- and other input-financing decisions. You should be able to broadly understand the issues raised in the article through the lens of the financial accelerator framework.
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Intermediate Macroeconomic Analysis Spring 2011 2 OPINION FEBRUARY 23, 2011 The Myth of Corporate Cash Hoarding Companies hire more workers when there's income to pay them. They don't liquidate financial assets. By ALAN REYNOLDS American nonfinancial corporations were "sitting on" $1.93 trillion in liquid assets at the end of last year's third quarter, according to the Federal Reserve Board. This has become one of the most frequently echoed statistics, viewed as indisputable evidence that U.S. business leaders are unduly timid or evil. Last September, Chris Matthews, the host of MSNBC's "Hardball," asked Politico's Charles Mahtesian, "You think business can sit on those billions and trillions of dollars for two more years after they screw Obama this time? Are they going to keep sitting on their money . . . to get Mr. Excitement Mitt Romney elected president? Will they do that to the country?" Mr. Mahtesian concurred.
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