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Apple Takes On Debt, Showing Fallacy of Government Policies

Posted by Steve Markowitz on April 28, 2013

The Wall Street Journal reported that Apple announced plans to borrow money for the first time in its history.  This raises the question as to why a company that currently has $145 billion in cash is seeking to raise money through debt.  The answer is simple, bad government economic policies.

Apple is raising funds through the issuance of debt because it can currently do so very cheaply.  With interest rates at historically low levels due to governmental and the Federal Reserve’s interventions, Apple joins other cash-rich companies issuing debt.  While the government’s and Fed’s low-interest rate policies are designed to stimulate bank loans, most of the loans are either occurring in the form of banks purchasing Treasury securities or making loans to companies who do not need funds.  As a result, the low interest rate policies are not stimulating the economy as designed, but are instead creating imbalances (bubbles) within the economy.

In addition, a significant portion of Apple’s cash is currently located in subsidiaries outside the United States.  With the United States having one of the highest corporate tax rates in the world, Apple would pay a huge penalty if it were bring these funds back to the states to pay future shareholder dividends that have been promised.

You cannot make this stuff up!

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