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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 3 hours ago - World

In photos: Pope Francis spreads message of peace on first trip to Iraq

Pope Francis waving as he arrives near the ruins of the Syriac Catholic Church of the Immaculate Conception (al-Tahira-l-Kubra), in the old city of Iraq's northern Mosul on March 7. Photo: Vincenzo Pinto/AFP via Getty Images

Pope Francis was on Sunday visiting areas of northern Iraq once held by Islamic State militants.

Why it matters: This is the first-ever papal trip to Iraq. The purpose of Francis' four-day visit is largely intended to reassure the country's Christian minority, who were violently persecuted by ISIS, which controlled the region from 2014-2017.

Cuomo faces fresh misconduct allegations from former aides

New York Gov. Andrew Cuomo during a February press conference in New York City. Photo: Seth Wenig/Pool/AFP via Getty Images

The office of New York Gov. Andrew Cuomo (D) was on Saturday facing fresh accusations of misconduct against his staff, including further allegations of inappropriate behavior against two more women. His office denies the claims.

Driving the news: The Washington Post reported Cuomo allegedly embraced an aide when he led the U.S. Department of Housing and Urban Development and that two male staffers who worked for him in the governor's office accused him of routinely berating them "with explicit language."

In photos: Protesters rally for George Floyd ahead of Derek Chauvin's trial

Chaz Neal, a Redwing community activist, outside the Minnesota Governor's residence during a protest in support of George Floyd in St.Paul, Minnesota, on March 6. Photo: Kerem Yucel/AFP via Getty Images

Dozens of protesters were rallying outside the Minnesota governor's mansion in St Paul Saturday, urging justice for George Floyd ahead of former Minneapolis police officer Derek Chauvin's trial over the 46-year-old's death.

The big picture: Chauvin faces charges for second-degree murder and manslaughter over Floyd's death last May, which ignited massive nationwide and global protests against racism and for police reform. His trial is due to start this Monday, with jury selection procedures.