Cheap Debt for Corporations Fails to Spur Economy

Only one way to create jobs: the government needs to create them and pay for them with higher taxes on parasite corporations.

http://www.nytimes.com/2010/10/04/business/04borrow.html?hp=&pagewanted=print

October 3, 2010

By GRAHAM BOWLEY

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.

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.

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.

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.

“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.

...

While Congress strengthened the tax code in August that until now allowed multinationals to shift profits among subsidiaries abroad and never pay U.S. taxes, it is unclear what impact this will actually have on the wholesale transfer abroad of corporate assets and operations.

market. They are making money off of nothing and creating nothing. This is no way to have an economy. If we tax them at a high rate on these investments, capital gains and tax them at high rates on money they personally take out of their companies then they will be forced to reinvest in jobs.Low interests rates are not sparking the economy only the stock market.