Tag Archives: federal debt

Apple And The Debt Allure

Apple has made the news big with its recent decision to borrow 40 bn and utilize those funds to pay a dividend.  It has about 137bn cash on hand so why is it borrowing that much money.  The explanation offered is twofold.  First lots of that cash is overseas and under the current tax laws if that money comes back to the US shores then Apple would owe a huge tax obligation.  That is probably true as it is with many other major American companies.  Second the interest rates are at absolutely historical lows and they can borrow the money very cheaply.  Again that is certainly true.  The Fed has pushed down rates to the bottom of the barrel.  Ask old grandma or grandpa about what they are earning on their CD’s these days when they try to keep their money in a very safe place but earn something on it.  They are getting less than one percent.  So there is good logic to what Apple is doing.  People and companies always borrow lots of money when credit is easy and cheap as it is now because of Fed and Federal government policy.   Just take a look at the easy credit policies and the borrowing during the mid 80’s, late ’90’s and the middle of the ’00’s.   The eighties ended up producing the S and L  and bank crisis of that day; the ’90’s saw the ultimate terrible Clinton crash of the NASDAQ in 2000 after the cheerleading for buying the NASDAQ by  both Clinton and Gore; then of course our most recent correction because of the Federal government policy to loan money to anybody with a pulse to buy a home and the CORE act to promote minority ownership.   So Apple and many others at the moment are doing what sure seems prudent at the moment and taking out big loans at really low rates.  They can cite an example of this course of action by simply directing your attention to both the Fed and the Federal Government.  One is printing money like no tomorrow and the other is spending and running up debt like tomorrow will never come.

Having specialized in debtor-creditor relations, bankruptcy, workouts and Chapter 11’s for nigh on 50 years I do have a bit of experience with debt and the problems it can cause.   The first element of debt and the most significant and the one factor that is overlooked by almost everyone is that it is a reality, it won’t go away on its own, it has to be dealt with one way or the other.   This is true for individuals, companies and even governments.   All debt is a restriction and limit on future courses of action.  Provision has to be made for the payment or rolling over of that debt.  Some of future cash flow or earnings must be dedicated to that debt.   In five years when the 40bn comes due Apple will have to either pay it or re-work the payment terms.  In the meantime it will have to spend a certain amount of cash flow for debt service.   Maybe they will make even more money in the next few years, who knows.  But we do know they will have to deal with the debt.  What if when the debt comes due they are working on “The Next Big Thing” and really need 30, 40 or 50 bn for more development or marketing?  What if tax laws have changed and they no longer can even deduct the interest on that bonds they issued?  What if they lose pending litigation and have to pay out some huge judgement reward to a competitor?   The possible needs for money are as endless as the vagaries of the daily business world and markets.    But through it all, the debt remains and must be handled.   Their future options for use of cash on hand has been diminished by the 40bn plus all the interest, even at low rates, and the associated costs like legal and accounting fees.  It is no different than you having to service your mortgage.  A dedicated portion of your future earnings must go to that debt, you can’t use it for anything else.  Debt limits future options.  That is an absolute of economics.   Of course companies that are debt free can go bankrupt.    Hey, lots of buggy whip makers went out of business in the early 20th century.

Credit is needed and it is indeed the lubricant for any modern society.  This is not a cry against all debt, not at all.  But debt is just like fire, it is of great benefit; it gives us light and power but it can also burn the house down if not handled carefully.   I am not predicting any hardship for Apple down the road but I do think this was an inappropriate decision.  This was a voluntary debt; not essential to growing their business but designed to bolster stock prices with dividends from the borrowed money.   I think it is a good company.   But I think they did overlook like some many before them the fact of the restrictions and limits on future actions that debt always brings with it.  They should satisfy their debt as soon as they can.  Debt free companies and individuals always, always have more options available to them than those who must pay debt.  They may have just given some competitor an advantage down the road that they would not otherwise have had.   Some of those competitors are also debt free.  Every heard of Microsoft?  Samsung?

Clorox, the common household bleach, is an amazing product.  It is now over 100 years old and still the best disinfectant for bacteria there is.  It breaks down the cells in bacteria so they can’t adapt to the Clorox and those become immune to its effects.  Clorox is such a simple product.  It is nothing but salt water, regular brine from sea lagoons and such that has had an electric pulse beamed through it.  Changes it properties just enough to make it a household must have.

“Neither a borrower or lender be”  both Proverbs and Ben Franklin.  http://www.olcranky.wordpress.com


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2 Cents Worth On Life Its Ownself

Let those with ears, hear……we’ll sort through the flotsam and jetsam of the world events and random thoughts of the inquiring mind….

One wonders how folks 25 years from now will try to explain to their kids what “sequester” means or was all about.  When it is googled their kids will find some reference to a writ of sequestration issued by a court and they’ll really be confused about what the Congress or President was trying to sequester and who was issuing the writ.

Interesting to note that our chief lawyer in the land, Attorney General Holder spoke just a day ago about the drastic and dreadful cutbacks as a result of the sequester and the “cuts” in federal spending.  He was predicting how difficult such cuts would be on our vital Federal programs under his purview.  What was interesting and telling was the location of the remarks.   He spoke at a local Ritz-Carlton in the DC area.  Naturally, only the Feds could talk about the need to spend, spend spend and avoid any reduction in Federal spending by doing so at a Ritz-Carlton.  Haven’t they ever heard of a local community center, a Y, or thought of using the Holiday Inn conference room?

I got the physics of what makes those jet planes lift up into the sky but it is still counter intuitive to me.   We have all at one time or another held our hand out the window of the moving car and felt the wind as the car moves lift and push our hand higher.  You would think the same thing applies to those jets moving through the sky but it is actually the vacuum created above the wings as it moves through the sky that gives the lift.  The plane moves up into the vacuum.   I got that but it still just doesn’t seem right.

You want proof that the world is a dangerous place?  Let’s  make a quick list without referring to any Google or Yahoo searches or news media of all the locales where there are active ongoing wars of one level or another.  Colombia, Mexico?, Mali, Nigeria, Congo, Somalia, Yemen, Syria, Iraq, Afghanistan, Malaysia, Southern Philippines, Chechnya, Timor, Bangladesh, Pakistan, and Burma.  How many did I leave out? And of course this doesn’t count the low-grade conflicts within some countries.

It is not the gasses or elements in our atmosphere that make the sky blue.  It is the rays (radiation) from the Sun that get refracted by those elements into the blue spectrum of the electromagnetic field that give us that bright blue sky.  At night those rays are not hitting the atmosphere and thus no refraction and a black sky.

There is nothing more peaceful to the heart than watching a toddler taking a nap holding their favorite stuffed animal.  Not to mention the momentary respite for mom to quickly get some of those chores done around the house during that short thirty minute rest time.

Just watched Maxine Waters asking questions of Bernancke.  I have a rule in life that has stood me well over the years.  Never trust anyone who wears a wig!   Man or woman.  If they are so vain or so willing to present a false front of themselves then why do you think they would be honest with you about anything else if they can’t even show who they really are.  Only exception is for those in chemo,  God Bless ’em and they can do whatever they want.    Had a professor in college who taught Philosophy of all things who wore a wig.  I guess he never really got the message about to thine own self be true.

Who are these people that spend all their time tweeting or reading tweets or making posts on Facebook?  That is not rhetorical.  Don’t they have anything to do.  With those and all the countless online sites available for all manner of interests you can sit all day doing nothing but following pointless info.  I mean who really cares what Justin Timberlake thinks about Sequestration or the Yankees?   We have always had an interest in pop culture from the old dime novels to the daily comics but those were momentary indulgences not 24 hour obsessions.    Do students study anymore and do folks on the assembly line or in the office do any work?  If they do, then really, who are those doing all that junk communicating.

Compromise if the big word these days in all the news outlets as they comment on the current political disputes regarding our debts and deficits.  Compromise is good, standing by your principles is bad.  That is the message.  How are you supposed to compromise with a policy you believe will lead to ruin?  Compromise–Britain tried that with Hitler and still didn’t delay or avoid WWII.  Even the Vatican entered into a compromise with Hitler which most don’t like to  remember.  It had  a concordant with Nazi Germany.   Compromise is necessarily a good thing.  Compromise is only ok if you agree on the end you wish to reach but have disagreements about the means to achieve that goal.  At present the two parties want completely different results and futures for the country.  Like it or not there will be a victor for that future and the loser will buckle and accommodate to that reality or there will be civil discord.   Those different versions of the future can’t co-exist so why should rational men expect a compromise at this time?   Like it has always been politics is a winner take all game.

“He that hath no rule over his own spirit is like a city that is broken down, and without walls.”  Proverbs 25, 28  http://www.olcranky.wordpress.com

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2 Cents Worth On Life Its Ownself

The news and thoughts of the day are so plentiful, its like being a kid in the candy store.  But these are the choices of the moment.

We started off frankly pretty indifferent to the whole Birther thing with the guy in the White House.  For one thing, we assumed that there was someone who would check it out formally or at least the press would dig deep.    Don’t particularly care for Trump for a variety of reasons but he is right about a certificate of live birth proving nothing.  Even a foreign diplomat residing in the US who gave birth to a child would have one of those produced by the hospital.  Such a child would clearly not be a US citizen but would have that piece of paper.   He is also right that it is not only the hospital but anyone could report a live birth and it would be recorded.   If you watched the opening episode of the Borgias on TV recently you saw how the Church examined him to assure themselves that the person elected Pope was indeed a man.  The Church would not want the embarrassment of electing a Joan of Arc as Pope.  I don’t know the details of how they did that in the 114th century.  Sometimes for important offices it is important to determine the eligibility of the candidate.   Whatever opponents may say about Birthers they can’t argue it is unreasonable to be assured of the qualifications of Presidential candidates.  Oh, the newspaper announcements obviously could have been mailed or called in from anywhere.   Whatever the outcome, it is a sure bet that  this isn’t the end of this tale.  At least not till Trump quits talking about it.

If the Federal government does shut down it might be a good time to consider which of the zillion departments, agencies and bureaus we really need.  Who would actually miss anything if the Dept of Education never re-opened or the Commerce Department or the Labor Department?  Education is not a federal matter under the Constitution, the Interior Department could handle the census and the labor laws already exist and the courts are available to those with labor complaints.   Those are literally the tip of the proverbial iceberg.

If we don’t quickly come to grips with our fiscal and balance sheet issues the shutdown will be of little significance anyway.  Math is still math.  We spend way more than we take in and our debts are huge.  The debts can be handled over the long-term but only if we make adjustments soon in the spending curve.  Otherwise all other problems are of no matter.  On a balance sheet basis we are broke; our profit and loss statement is badly out of whack and has been for years.   Very soon the buyers of our Treasuries will start demanding more interest and the interest payments alone could hit 400 billion a year.  That assumes we can find any buyers.  About the only buyer at the moment is the Federal Reserve and that is merely printing phoney money that does not represent any economic or verifiable value.   China has already cut back substantially and Japan won’t be buying nearly as much for the foreseeable future.   With inflation growing you and me sure won’t be buying any T-bills at 3.5% interest for ten years.

Why do we have our foot in the mess in Libya?  Our we protecting our friends?  It would be nice to think so but there isn’t any evidence the folks fighting Qaddafi are modern and moderate in their beliefs.  We already see the encroachment of the Muslim Brotherhood into the politics of Egypt.   Maybe we went there to eliminate one the most prominent “birthers” there is in Qaddafi.  You have read that Qaddafi thinks the guy in the White House is a Muslim and a son of Africa.   Just read those crazy letters he sent to the Pres.  That whole “son” thing is definitely a Muslim phrase.   We can’t see that we have a “dog in this fight” and don’t understand the need to intervene.  “Humanitarian” aid and assistance is such a vague concept as to be worthless and certainly not the basis to risk our blood and treasure.

The rebels in Libya have shipped their first oil export and will use the money to fund their revolt.  At least that is the report.  Who is buying this oil? Who are they making the check payable to?  That is really an inquiry worth pursuing.    When the money is in a bank at least nominally controlled by the Rebels then who has signatory powers on the account?  Lastly, if they have access to the money how do the buy the things they need and want and get them shipped to the eastern half of the country?   Can you imagine the insurance rates that would be charged on those ships delivering 100 million worth of goods to Benghazi?

A real blast from the past this week with news about another looming danger from the ozone hole in the Arctic this time.  You may recall that we were warned that we would all be dead by now anyway from the ozone holes over the Antarctic about 20 years ago.  We didn’t die, they took away some of our cooling fluids and allegedly that helped. But the ozone is a naturally occurring substance and yes it is necessary but Mother Nature controls that more than we do.  It went away but now we are told that it is still the lingering bad chemicals we used long ago that are causing the new outbreak.  Please, one giant solar flare would blow away huge chunks of the ozone cover in the blink of an eye and we have those on a regular basis.  The wonder of it all is that old Mother Earth has endured so much worse over the eons and yet here we are.

“The surest cure for vanity is loneliness”.  Thomas Wolfe.  www.olcranky.wordpress.com

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Political Scattershots

Once again with a nod to Blackie Sherrod, the best sports writer ever, I offer the following comments and opinions.  They are worth 2cents at most.   Some may be gems, you never know.

I notice that the number of jobs the new guy says he is going to create with the stimulus package continues to vary quite a bit.  About a month ago the number was 2 million new jobs.  Then closer to Christmas it was 2.5 million.  Only about a week ago it was 3 million and now it is up to 4 million.   It is sure easy to make predictions about the future if you get to adjust your prediction on a weekly basis.   The language about these jobs has also changed.  Now it is jobs created or “saved”.  I find that interesting.  Who is the bureaucrat going to be in charge of counting the “saved” jobs?  Exactly how is he going to determine what a saved job is?   You can rest assured someone will be doing some kind of calculations on that one over the next year or so.   I personally think it will be pure pie in the sky numbers. 

Of the new jobs created I have the same question.  How do you calculate that number?   I mean if the market is ever left alone and we do start recovering in our economy new jobs will be created by private industry.  Do all those new jobs count because someone alleges they were created due to the stimulus?   What about all the new companies that start businesses that get no help or funding from the Government–will all those jobs count as “new” jobs created by the stimulus?  Will they be subtracting from the number the jobs that will be lost in say the coal mine industry or the power plants operated on coal due to the new envoirnmental regulations Ms. Browner can’t wait to establish and enforce?

The transition team reports that 20% of the new jobs will be Government jobs.   Whoa boy I can’t wait for that one.  Another 600 thousand plus bureaucrats hired who can never be fired and who have little or no accountability for job performance.   Did you notice how hard those folks were working the last time you visited a Federal agency like the IRS or Social Security office?   Weren’t they all the most competent people you have ever seen.   That idea alone should be enough to kill the stimulus proposal.

The news keeps repeating that over 2.6 million jobs were lost this past year and that that number is the highest since the end of the War in 1945.   Ok, but our population then was only 150 million.  The figure is meaningless.   You think it is bad now?  Then recall 1980.  The unemployment was as high or higher than now, inflation was running about 13% and money was tight.  Businesses couldn’t borrow to expand and start ups were nigh on impossible to get going.  The economy was awful.  We even had that wonderful phrase for it–Stagflation.  The banks weren’t lending and it cost a fortune to fly anywhere on the airlines because of Government regulation.  They had those tariffs in those days and prices were controlled by the Government.  There was very little wiggle room by the airlines.   Same was true for the trucking industry, railroads and the Government controlled the price and supply of petroleum with FERC.  That is when you could get any of it.  Things are better now than then.   As a side note, the FERC still exist.  What the hell does it do these days except cost us money?

I saw the other night on CNN I think it was, some of those man on the street interviews about the Federal debt and deficits.  The question asked was how does the Government operate when it doesn’t have the money to meet its expenses.  Two people had absolutely no idea.  A third said they borrow it but had no clue where they borrowed it from or who were our lenders.   A fourth one had it at least partially right by saying he assumed they just printed up more money.   Appalling.  That’s the only word that fits such a lack of knowledge about the functioning of Government and its funding.

In another recent interview people were asked about the deficit and its importance.  Many responded by saying esentially that it was just a “bookkeeping” matter for the Government and it didn’t really affect their lives.  Thus they thought the stimulus would be a good idea.  When will people ever learn that there isn’t a free lunch.  It always has to be paid for with cash or credit.  Some one pays to put it on the table. 

Folks really need some basic education on fundamental economics beginning in High School.  Not political economics, neither left wing nor right wing, merely an understanding of economics and basic accounting.  You want to play the game then you have to be productive.  Just like a football player. 

The two best cars I ever owned were my Chevy Suburban and my Range Rover.  They both drove for miles.  Each had over 200 thousand miles before they cashed it in.  The most fun car I had was my little Karman Ghia.  It was fun but ever so impractical.

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Debtor’s Prison for a Nation?

The amount of the debt we are accumulating and proposing to accumulate has become more than worrisome.   In the olden days we had debtors’ prisons for those who couldn’t satisfy their debt obligations.  Newgate prison in London was one of the most famous of these.  In the Colonies we had them too until after the Revolution and for a while beyond that.   They are now a thing of the past.   The ancient Romans were even more severe in their treatment of debtors who couldn’t pay off their debts.  The creditors after trial and the establishment of debts due provided that the unsatisfied creditors could kill the debtor and divide up his carcass.   Of course this was after they had stripped him of everything of any value.   Becoming bankrupt in those days was not a very viable option.  Most debtors who could would flee.

Our GDP is about 14 trillion a year right now.  Before all the extraordinary actions taken in the fall of ’08 the Federal government’s share of that was about 3 trillion and when you add the States and local governments that was an additional 3 trillion.   So almost half our GDP is government of one sort or another.   Now the politicians are proposing trillions more.  During this year more than half of our GDP will become Government spending.   Government gives us somethings that we need of course, like security and safe skies to fly.  But it doesn’t “produce” goods or services for the general economy.   At least so far the government doesn’t own and run your local super market.  That may change if we continue with the bailout nation approach to solving our economic difficulties.   We won’t even discuss today the trillions of dollars in debt that we already have on the books for our accumulated deficits and the projected shortfalls for Social Security and Medicare.   The fact is the government will be determing the winners and losers in our economy to a very large extent because of its power of the purse ; its purse which can only be filled with the taxes it extracts from us.   The government has clearly demonstrated that it is currently incapable of balancing a budget or even attempting to balance a budget.   The influence of government on our economy will have deleterious effects.  The Government is not innovative or creative.  I mean Apple and Microsoft have come out with many news gadgets and gizmos we all use and love.  You want the Government deciding what kind of computer you can buy and at what price?  or the kind of car you can drive?  AOL had a weird business model at the beginning of is life by literally giving away its software to anyone.   That turned out to be a smart decision.  I doubt a bureaucrat would have come up with that one and certainly would never had it approved up the chain of command.   We have entrepreneurs for a reason.  That is not the Government’s forte.

The government can’t be put into debtor’s prison but might deserve to be there.   The only two methods for dealing with the current debt  and the insatiable appetite of the government to spend more is to print more money or borrow even more.   The borrowing will continue for a while with success but at some point the foreigners and even our home grown investors will not want to loan any more money to the government.  If you had a relative who was notoriously profligate would you continue to loan him  money?   The government is spending money like a drunken sailor on leave.    I am aware of the arguments that we must have this additional stimulus to make our economy grow.  I find them unpersuasive and very dangerous for our future.   Those proposing these giant spending plans are the very same people who got us into trouble in the first place.  Why have they become so smart overnight.   Some could argue that we could raise taxes to reduce the debt.   But we are reaching a tipping point in that area and the returns will diminish by squezzing harder.  Less juice will flow from the fruit.   Only a little over half of us pay any income taxes as it is now.  Those that pay none are going to get a tax rebate which is a lie, it is a transfer welfare payment–a redistribution of the wealth.   Remember that anything, and I mean anything, you tax you will have less of.   Taxes don’t create wealth for anyone.  They merely empower politicians.    When we can’t borrow enough we will simply print more money.  That will devalue the dollar and cause inflation.   That is a fact that can’t be disputed.  Those dollars rolled off the mint presses under the direction of the Federal Reserve aren’t adding real wealth to the nation’s store of value.   They merely provide a method for the Government to pay off debts with inflated dollars.   It also means we have less ourselves.  We might have more dollars in our pocket but they won’t buy as much as they did earlier.  It is a net loss for all of us except those in p0wer.

Please read some history of the Federal Reserve.  You will learn lots.   We do not have to become a debtor nation with debts beyond our ability to pay.   We all need to blow hard on Washington to clear away the smoke from in front of the mirror.   

I wonder how the folks in Spokane feel about the danger of Global warming this winter?

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Piper paid for bailouts?

The bailout monies continue to grow and the list of beggars at the Feds’ door also is mushrooming with each passing day.   Even more states and local governments are now saying they deserve some bailout help.  The numbers have become so staggering that I fear to many ordinary folks that they are becoming meaningless and that is dangerous.  Only a few short months ago the mentioning of 100 billion for any government program would have seemed off the charts.  People would have gasped and they did gasp at the first major bailout proposal of 700 billion in September.   Now the numbers have run into the trillions and the Big Three bailout request is probably going to be approved if for no other reason than that it seems like chump change all of a sudden.  What’s 25 billion after all when we are talking now of over 3 trillion in bailout funds for the multitude of programs now in play.

I don’t like repetition but we all need to bear in mind that the Government has NO money.  Only we have money and it is our money and our credit the Government is using for these bailouts.  The piper must always be paid.  Who is going to pay for this enormous expense?  Not the Government, but you and me.   The Government can print money literally but that doesn’t work well over time.   Usually the Government borrows the money but our creditors may soon become unwilling to loan us any more or else start imposing  new conditions on the loans that affect our domestic and foreign policies and economy.   Germany tried to print up money as one way to pay its reparations debt under the Treaty of Versaille after WWI.   That ended up getting them into hyperinflation that damned near completely ruined what was left of their society in the ’20’s.   The war debt was not the only reason behind the inflation but it was certainly a significant contributing factor.   You should study the history of Germany in the ’20’s as a background for some of the economic matters facing our nation today.  There are many disparate factors and differences between then and now and our society and theirs at the time but the lessons  are none the less quite revealiing.  Recall too that it was against this economic turmoil that Hitler began his rise to power because the people were so desperate for hope and change.  I urge you to get a good history of that era.   There are many sources available.  

 Printing money would  make each dollar worth less.  It makes it easier to pay off all those treasury notes bought by the Chinese for sure but it also destroys our own wealth at home.  Inflation is a killer of any economy.   It will grind it to a halt quicker than anything and you end up with almost a barter system rather than a modern economy.     With inflation you get to pay off your mortgage with those cheap new dollars so that is a real bargain for you but then you have to buy gas, groceries and pay for insurance, a new car, etc. and the prices for all those items will skyrocket.   Believe me you won’t feel or be rich with inflation.

There is nothing written in the stars that says we must spend all this money on the bailouts.   Printing a little money will work but only if it is limited and we stop at the right time.  Unfortunately, inflation in its early stages is like an addition.   It is so easy to do and there is all this money to spend at first but quickly the prices for everything starts to accelerate and when you reach a tipping point it spirals out of control.   No economist can predict with  accuracy that tipping point.   If we allow the use of debt for all these bailouts we run the risk of facing tax rates of such proportions that they couldn’t be borne.   Remember also that only about half of us pay any income tax at all now.   The amounts to simply service the interest on these debts will be approaching 1 trillion dollars a year.   It is already a several hundred billion every year now for debt service on our national debt.  

We either print more money that loses value and causes inflation or we borrow and have to deal with repayment.   We pay the piper or we kill the piper.  I don’t really think we want to do the latter.   There is a third choice.  We cut back on these bailouts dramatically.   Stick with the original 700 billion number.   Otherwise let the market do its work  and over a period of a year or two things will be better.  Failing companies should use the Chapter 11 alternative.  There is no free lunch and there damn sure isn’t a 3 trillion dollar free lunch.   We simply can’t afford it.   Lastly,  that much money sloshing around in Government coffers inevitably leads to Government control of our lives, our economy and a draconian intrusion  into our freedoms.   At my age this is advice for my kids and grandkids.  I do hope someone will listen out there.   Civil unrest and  true taxpayer rebellion loom on the horizon if we follow the present announced course.   The new administration whatever you think of it can’t change human nature, the law of supply and demand, the rights of creditors holding our debt or creat wealth out of thin air.  It can balance the books and we should demand that it do that.

The Christmas season is upon us.  I confess I love most of the Christmas carols and music of  the season.   It reminds me of hot chocolate, family  and friends and a spirit of giving for others and hope.

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