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Illustration: Lazaro Gamio/Axios

A truly bizarre trend is having an impact on the economy — wealthy people and corporations have so much money they literally don't know what to do with it.

Why it matters: At a time when growing income inequality is fueling voter discontent and underpinning an array of social movements, the top 1% of earners and big companies are holding record levels of unused cash.

The big picture: U.S. companies raked in a record $2.3 trillion in corporate profits last year, while the country's total wealth increased by $6 trillion to $98.2 trillion (40% of which went to those with wealth over $100,000).

So, where is all the money going? The IMF notes large companies around the world are overwhelmingly and uniformly choosing not to reinvest much of it into their businesses. They're hoarding it in cash and buying back stock.

"There are only 2 things that money can do — sit on a balance sheet unused, where it's just earned income earning an interest rate of zero," ICI chief economist Sean Collins points out. "Or it makes sense to release it to share buybacks or dividends."

  • Companies could pay their workers more, but "that would be terrible for the stock market," says Neil Shearing, chief economist at Capital Economics — half-jokingly.
  • Companies made a record $1.1 trillion in stock buybacks in 2018 and are on track to surpass that number this year. But they still have record cash holdings of close to $3 trillion.

Wealthy households and individuals are pouring money into asset managers, betting on companies that lose $1 billion a year, bonds from little-known Middle Eastern republics, and giving hot Silicon Valley start-ups more venture capital than they can handle.

But even that hasn't been enough to account for all the new money. The top 1% of U.S. households are holding a record $303.9 billion of cash, a quantum leap from the under $15 billion they held just before the financial crisis.

How we got here:

  • The Fed's quantitative easing program pushed the cost of borrowing money to next to nothing for nearly a decade, allowing companies to splurge on debt for mergers and acquisitions and to boost revenue.
  • At the same time, globalization allowed them to reduce labor costs, meaning that gains effectively were returned as profit and used by public companies to boost stock prices.

Between the lines: These factors, combined with legislative policies that have consistently favored business owners over workers, eroded unions and reduced employees ability to demand higher wages.

  • The Tax Cut and Jobs Act i.e., the Trump tax cut exacerbated these issues, slashing the share of U.S. taxes that companies paid to its lowest level in at least half a century and provided companies even more capital for buybacks, dividends and executive compensation.
  • "Perhaps the fallacy of the tax plan to begin with was companies were not starved for capital coming into this," Mark Hackett, chief of investment research at Nationwide, tells Axios. "They were starved for growth opportunities."

The end result is money that would previously have been split between businesses, workers and the government for projects like schools, health care and infrastructure is instead sitting in corporate accounts earning little to no return.

Go deeper: How depreciating money could save the global economy

Go deeper

Updated 2 hours ago - World

U.S. releases report finding Saudi prince approved Khashoggi operation

Photo: Bandar Algaloud / Saudi Kingdom Council / Handout/Anadolu Agency via Getty Images

The Office of the Director of National Intelligence (ODNI) has released an unclassified report assessing that Saudi Crown Prince Mohammed bin Salman (MBS) approved the operation to "capture or kill" Washington Post journalist Jamal Khashoggi in 2018.

Driving the news: The White House also announced sanctions on entities implicated in the murder, though not on MBS directly. Officials also announced a new "Khashoggi ban" under which individuals accused of harassing journalists or dissidents outside their borders can be barred from entering the U.S.

About 20% of U.S. adults have received first vaccine dose, White House says

Joe Biden speaks during an event commemorating the 50 million COVID-19 vaccine shots. Photo: Doug Mills-Pool/Getty Images

Nearly 1 in 5 adults and nearly half of Americans 65 and older have received their first dose of the coronavirus vaccine, White House senior adviser Andy Slavitt said on Friday.

The big picture: The Biden administration has previously said it has secured enough doses to vaccinate most of the American population by the end of July.

Updated 3 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Health: Most COVID-19 survivors can weather risk of reinfection, study says — "Twindemic" averted as flu reports plummet amid coronavirus crisis
  2. Vaccine: Employers mull COVID vaccine requirements — New data reignites the debate over coronavirus vaccine strategyPfizer begins study on 3rd vaccine dose as booster shot against new strains.
  3. Economy: What's really going on with the labor market.
  4. Local: All adult Minnesotans will likely be eligible for COVID-19 vaccine by summer — Another wealthy Florida community receives special access to COVID-19 vaccine.
  5. Sports: Poll weighs impact of athlete vaccination.