Apple and Microsoft are Borrowing Money — Why Wouldn’t They?

Yahoo! Finance has an interesting article on two tech giants, Apple ($AAPL) and Microsoft ($MSFT) who are or will be issuing bonds–that is, borrowing money.

Two takeaways. First, if you can get personal financing at these low rates the folks at Apple and Microsoft think you should. Of course, they have a total of nearly $300 billion in cash sitting on their balance sheets so that may not apply to you.

The real message from Apple and Microsoft is that artificially low rates have perverted the markets in weird ways that will take generations to unlock. Issuing debt to buy back equity doesn’t actually create value. It’s just restructuring. It’s like moving your wallet from your right pocket to your left. You feel heavier on one side and lighter on the other, but on the whole you weigh the same.

It’s not stimulative to make it easier for the rich to stock pile cash, but that’s what we’re continuing to do six years into the financial crisis. The bankers are getting paid, and you can too, as long as you’re willing to take .4% a year denominated in Swiss francs.

“Artificially low rates” is the key here. Thanks, Uncle Ben Auntie Janet.

In suppressing the natural rate of interest, the Fed is attempting to stimulate the economy by facilitating borrowing. They’ve been doing this for around eight years now, actually, since 2007. Has it worked? Yes and no. The economy is certainly better than it was in 2008, 2009, etc., but the extent of the health of the economy is debatable. This is particularly true if the economy continues to be dependent on artificially low interest rates. If the market crashes and business activity slows down if the Fed raises interest rates by a quarter point, it’s difficult to say that our economy is healthy.

Macke makes a good point that because rates are artificially low, companies like Apple and Microsoft are taking advantage of that. There’s another theme here, though, which I think is really important: America’s corporate tax policy is so bad that companies like Apple and Microsoft would rather take on debt than repatriate cash that they are holding overseas.

Apple has over $100 billion overseas and Microsoft has nearly $100 billion. Because of corporate tax rates, if Apple or Microsoft brings that money to the United States, they will pay the highest corporate tax rate in the world on that repatriated money!

I’ve said it before, but there is an opportunity for GOP hopefuls here. Candidates should call for a repatriation holiday and welcome corporate cash home to America tax-free for a period of time. Such an inducement would be real stimulus and bring back capital to the American economy.


As always, free markets are better markets.