Mountain of cash shielding corporations

Consumers may be hurting, but corporations outside the financial sector are sitting on a mountain of cash worth more than $1 trillion, and that's helping to shield them from the effects of the credit crunch, economists say.

"The existence of this stockpile of cash means things aren't going to be as bad as they could be," says Jeffrey Cleveland, economist with Payden & Rygel.

Even as banks tighten lending standards, cutting off financing for companies to buy equipment, acquire competitors or otherwise expand, cash-rich companies can rely on their own reserves.

Consumers will still need to pick up their spending for the economy to enjoy any meaningful recovery, but Cleveland says the corporate cash cushion should help limit the downside.

For years, U.S. consumers have been funding their lifestyles largely through borrowing but companies have been frugal with their earnings.

Since 1990, liquid assets at nonfinancial businesses have skyrocketed to $1.57 trillion at the end of 2007, according to the Federal Reserve. The figure includes money in banks, commercial paper and other liquid securities.

To put it into perspective, Cleveland says these holdings are 10 times the size of the federal government's 2008 fiscal stimulus plan.

Such "historically strong nonfinancial balance sheets" should help protect the economy from a sharp downslide in capital spending, says Alexander Paris, economist for Barrington Research.

To be sure, the trend has slowed recently. In 2007, liquid assets rose by just 1.3 percent compared to a gain of 18.6 percent in 2005.

Balance sheets at financial companies, meanwhile, have been shredded by tumbling values for assets tied to mortgages, as the U.S. housing market continues to sink.

In the latest in a series of write-downs, Merrill Lynch (MER), for example, sold assets for only $5.7 billion, for a current value of about 22 cents on the dollar.