Large corporations are borrowing extensive amounts of money from the banks in order to put aside capital until the economy improves. The question arises as to when corporations will build confidence to start spending their money, which would boost the economy and the unemployment rate. The reasoning behind why businesses are withholding these funds is because perhaps they are concerned that the economy could fall back into economic recession. Also businesses need to be worried about making ethical investments that are smart and worthwhile. One benefit to these extensive loans is that when the economy improves corporations “will be strong, well capitalized and ready to act aggressively when executives finally decide it is time to expand their businesses.”
So far this year, United States companies have borrowed a total of $488 billion. The money borrowed so far this year is 7 percent larger than what businesses borrowed throughout all of 2009. The $488 billion borrowed this year is similar to the $589 billion that was borrowed throughout the year 2007. One downside to these loans is that smaller businesses and corporation are struggling to take out loans because most of the financing is restricted to bigger corporations. Although it is quite reasonable for corporations to capitalize on the opportunity to take out loans at a low interest rate it is questionable as to whether it will benefit the economy.
Sources: http://www.nytimes.com/2010/10/04/business/04borrow.html?pagewanted=1&ref=business&src=me
