Tip of the iceberg

This sort of headline is never good to see: "Number of the Week: Companies' Cash Hoard Grows".

But this is only the tip of the iceberg. Keynes writes:

"The concept of Hoarding may be regarded as a first approximation to the concept of Liquidity-preference. Indeed if we were to substitute “propensity to hoard” for “hoarding”, it would come to substantially the same thing. But if we mean by “hoarding” an actual increase in cash-holding, it is an incomplete idea — and seriously misleading if it causes us to think of “hoarding” and “not-hoarding” as simple alternatives. For the decision to hoard is not taken absolutely or without regard to the advantages offered for parting with liquidity; — it results from a balancing of advantages, and we have, therefore, to know what lies in the other scale. Moreover it is impossible for the actual amount of hoarding to change as a result of decisions on the part of the public, so long as we mean by “hoarding” the actual holding of cash. For the amount of hoarding must be equal to the quantity of money (or — on some definitions — to the quantity of money minus what is required to satisfy the transactions-motive); and the quantity of money is not determined by the public. All that the propensity of the public towards hoarding can achieve is to determine the rate of interest at which the aggregate desire to hoard becomes equal to the available cash. The habit of overlooking the relation of the rate of interest to hoarding may be a part of the explanation why interest has been usually regarded as the reward of not-spending, whereas in fact it is, the reward of not-hoarding."

Liquidity preference is not just matress stuffing. This behavior exists in the context of a market, which means there's not always a quantity effect - there can be a price effect that isn't even picked up in this cash hoarding data. It's also a marginal effect that happens across a whole suite of assets. Highly illiquid assets are dumped in favor of moderately illiquid assets. But looking at cash on hand is a good indicator of the direction in which it's headed.