Warren Buffett’s Huge Pile of Cash

Roughly the same is happening at other large U.S. companies, with the biggest of them accumulating the most cash. According to a June report from Standard & Poor's, the largest 18 of the 1,800 companies the ratings agency studied controlled 36 percent of the group's cash and short-term investments. S&P believes that U.S. corporate tax policy is at least partly responsible for this accumulation: Overseas cash accounts for 83 percent of the total cushion built up by corporate America's top 1 percent.

One might think the big holders of this overseas cash — Microsoft, Google, Apple, Cisco Systems, Oracle, Pfizer, Johnson & Johnson, Coca-Cola and the big car companies — just aren't finding suitable acquisition targets overseas and prefer to sit on the money than pay the taxes involved in repatriating it.

There is, however, a simple way to move the cash into the U.S. and save on taxes in the process. Corporations borrow billions of dollars at home and then service the debts with the overseas cash, a process that S&P calls "synthetic repatriation." The geography of the cash holdings is important mainly for accounting purposes.

A better explanation is that lax monetary policy in recent years has allowed big corporations to make a lot of cash (demand stimulus at work), but that decision-makers in these companies are not yet accustomed to the decreased value of money that implies. Current company valuations, especially in the tech sector, are OK for buyers who themselves have overvalued stock, but not for long-term investors such as Buffett or cautious corporate managers such as Apple's Tim Cook. There simply aren't enough big acquisition targets available at acceptable prices to deplete the cash piles.

So a fourth motive for corporations to hold onto cash should be added to Keynes's three: the inability to spend it. Dividends and buybacks are just about the only reasonable alternatives open to the cash-rich companies — expect more of them.