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Open Discussion Discuss Cheap Debt for Corporations Fails to Spur Economy at the General Forum; As many households and small businesses are being turned away by bank loan officers, large corporations are borrowing vast sums ...

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Old 10-04-2010, 03:54 AM
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Default Cheap Debt for Corporations Fails to Spur Economy

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As many households and small businesses are being turned away by bank loan officers, large corporations are borrowing vast sums of money for next to nothing — simply because they can.
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Companies like Microsoft are raising billions of dollars by issuing bonds at ultra-low interest rates, but few of them are actually spending the money on new factories, equipment or jobs. Instead, they are stockpiling the cash until the economy improves.
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The development presents something of a chicken-and-egg situation: Corporations keep saving, waiting for the economy to perk up — but the economy is unlikely to perk up if corporations keep saving.
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This situation underscores the limits of Washington policy makers’ power to stimulate the economy. The Federal Reserve has held official interest rates near zero for almost two years, which allows corporations to sell bonds with only slightly higher returns — even below 1 percent. But most companies are not doing what the easy monetary policy was intended to get them to do: invest and create jobs.

The Fed’s low rates have in fact hurt many Americans, especially retirees whose incomes from savings have fallen substantially. Big companies like Johnson & Johnson, PepsiCo and I.B.M. seem to have been among the major beneficiaries.
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“They are benefiting themselves by borrowing and keeping this cash, but it is not benefiting the economy yet,” said Dana Saporta, an economist at Credit Suisse in New York.

American corporations have been saving more money since the financial collapse of 2008. But a recent rush of blue-chip bond offerings — including a $4.75 billion deal last month by Microsoft, one of the richest companies in the world — has put even more money in their coffers.
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Corporations now sit atop a combined $1.6 trillion of cash, a figure equal to slightly more than 6 percent of their total assets. In the first quarter of this year it was 6.2 percent of assets, the highest level since 1964, when it was 6.4 percent.

When will they start spending that money — in particular, by hiring?

That is part of what has become the great question of this long, jobless recovery: When will corporate America start to feel confident enough to put its cash to work, building factories and putting some of the nation’s 14.9 million unemployed to work?
http://www.nytimes.com/2010/10/04/bu...w.html?_r=1&hp

No easy answers here.
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Old 10-04-2010, 08:26 AM
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Default Re: Cheap Debt for Corporations Fails to Spur Economy

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Originally Posted by saltwn View Post
Trying to make loans to smaller companies doesn't do a thing, if no one has the money to buy their product.

Increasing a small company's debt load right now is a simple recipe for another financial disaster. REDUCING the debt load is the only way to support small business at this point - a reduction in overhead expenditures - ie tax cuts or credits - will let the stressed small business stay afloat.

Jambing the HC boondogle down small business' throats will increase closures - the administrative load, and the actual overhead cost will effectively smother any growth, and will actually cause closures and layoffs.
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Old 10-04-2010, 05:02 PM
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Default Re: Cheap Debt for Corporations Fails to Spur Economy

From the OP:
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This situation underscores the limits of Washington policy makers’ power to stimulate the economy. The Federal Reserve has held official interest rates near zero for almost two years, which allows corporations to sell bonds with only slightly higher returns — even below 1 percent. But most companies are not doing what the easy monetary policy was intended to get them to do: invest and create jobs.
This is the problem: Government cannot force businesses to make decisions and act based on what would be to their detriment. Our government bureaucracy keeps acting like business owners are stupid, which is anything but the case. If the people who know how to run a successful business were anything like a government bureaucracy, they would never succeed. As long as the feds keep taking us in our current direction, this will continue to be the case.
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