Thursday, April 17, 2008

Bernanke, Greenspan agree cash arms firms for slump

Corporate balance sheets of American businesses – other than banks – are in better shape today to face a recession than in previous economic contractions because they have banked some half a trillion dollars in cash, reduced short-term debt and slashed inventories, according to former Federal Reserve Chairman Alan Greenspace and current Fed Chairman Ben Bernanke. That means companies aren’t likely to be as reliant on beleaguered banks to fund their operations.


  • Since the last recession, disciplined companies have been rewarded with 20 consecutive quarters of double-digit growth in profits. S&P 500 companies alone have amassed about $615.5 billion in cash, compared with $352.4 billion prior to the 2001 downturn and $95.5 billion prior to the 1990-91 recession.
  • Debt as a percentage of net worth for non-bank companies was only 63 percent in the fourth quarter of 2007, compared with 93.6 percent in 1990-91.
    Together, these figures indicate that companies may have to do less trimming of excess capacity and workers than they have done in recent recessions. Some companies are even expanding, albeit cautiously.
  • While these trends don’t ensure a rapid recovery if the country falls into a recession, it does position companies to ride out the storm.

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