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Thread: Don't believe the hype about U.S. debt

  1. #1
    SiriuslyLong is offline
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    Don't believe the hype about U.S. debt

    The way politicians from both parties are shouting from the rooftops about the dangers of the federal debt, you'd think such high rates of borrowing are always cause for alarm. But some of our nation's largest and most successful businesses not only run even higher levels of debt — they actually consider carrying significant debt to be good business practice. In fact, the private sector teaches us why increasing government debt right now is a good idea.

    By comparison, here are the debt-to-income ratios of some of the leading corporations in America:


    •IBM— 2-1

    •Dupont — 3-1

    •United Technologies — 3-1

    •Boeing — 4-1

    •Caterpillar — 14-1

    •JP Morgan Chase — 50-1

    In other words, IBM borrows twice as much money as it earns annually. Boeing borrows four times more than it earns. And JP Morgan Chase, clearly not too big to borrow, borrows 50 times more than it earns — getting $50 from lenders for every $1 it makes.

    Sure, if the U.S. were borrowing anywhere near as much as Chase bank, we'd have legitimate reason to worry. But in general, borrowing money is necessary to invest in the future — whether the future of a business or the future of a nation.

    You'll have to read the rest (or all) here: http://www.usatoday.com/news/opinion...ebt-hype_n.htm

    I have a couple points about the article. First, Sally Kohn is considerably liberal - nothing wrong with that mind you, but as such, she has an agenda which is stereotypically "tax and spend" to support "rigid collectivism". Like most liberals, she feels she can spend your earned money better than you can. In fact, if you read her blog, she may even be too liberal espousing things like "Federal Debt is Good".

    Secondly, and she address this in her blog, the comparison between government and business is not that good. For example, if a business is irresponsible, they go bankrupt. The same cannot be said for government. It can tolerate DECADES of irresponsibility. In government, you have individuals like Barney Frank who claimed there was nothing wrong with Fannie Mae and Freddie Mac some 10 years ago, and now he chairs the Finance Commitee. There is no competition for government. Corporate investment is highly focused for a return on assets. That is one key problem with government "investment" -- the investment really needs to be an asset, and better yet, a productive asset. Stimulating the economy by giving states money to fill in their budgets hardly qualifies as an asset.

    She cites that business's borrow to invest in the future, but fails to recognize that corporations also put profit back into the company to grow. This is a huge, probably purposeful, oversight. Corporations must return a profit or they go bankrupt. The profits created are shared with the stockholders and put back into the company for growth. This is the priority for growth, not borrowing.

    The metric cited is not typically used to measure business health. It is generally used on consumers to see if they are loan worthy. Debt to assets or debt to equity are typically used with business's, and are more appropriate for such a comparison.

    I did enjoy the article though. It was one of the more comprehensive pieces I've read on "government investment" and got me thinking on what government should be investing in for THIS period of time. The simple liberal mantra of "infrastructure" is far too loose. To support this ideology, one should be specific noting the payback to we taxpayers (yes, I am one of the 50% who do pay income taxes, and a lot of them - I don't have a freakin accountant!!). For example, I am on record for saying that the government should investigate building literally 1000's of health centers available for private / public use. These are assets that just so happen to be needed. These are real assets that will put a wide variety of people to work. The supply and availability of health care services will increase.
    Last edited by SiriuslyLong; 05-28-2011 at 10:20 AM.

  2. #2
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Furthermore, I have tried without success to find a balance sheet for the US government such that one can compare it to one of the companies listed in the article. Though no such report exists in GAAP standards, I did find an article stating that for FY 2007, the Federal Government has assets of 1.6 T and liabilities of 10.8 T for a debt / asset ratio of 6.75. That's lousy. Hell, SIRI looks stellar at near 1 compared to that lol.

    Here's the article: http://www.forbes.com/2008/02/08/bud...apbox_inl.html

    Here's SIRI's balance sheet: http://www.google.com/finance?q=NASDAQ:SIRI&fstype=ii

    It still was an interesting article, though wishful in many regards.

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