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Politics : Politics for Pros- moderated
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To: Sr K who wrote (438307)8/1/2011 3:22:37 AM
From: unclewest29 Recommendations  Read Replies (2) of 794004
 
And as an a aside, when IBM borrows money in the debt markets, does anyone on this thread think that they are borrowing from future (or even current) customers, or from "future generations" of customers? Of course not. They borrow in the debt markets because it reduces their cost of equity capital. They choose to leverage their balance sheet to increase returns to equity holders including buying back equity before they otherwise would have the cash to do so.

The United States also borrows in the debt markets based on its cash flow.

The difference is -

IBM invests its borrowings to make even more money than the principle it repays and the interest it pays.

The United States pisses its borrowings away and has nothing left but a need to borrow more money to pay for debt service on the money they already wasted. Debt service here means interest only. The principle is never reduced only increased. And every future borrowed increase in principle is pissed away too.

Borrowing money is not a bottomless pit. It definitely has a bottom. Ask anyone who has been bankrupt. You think the United States borrows against cash flow - What cash flow? 41% of the government's cash flow is borrowed money.

The recipients of our government's largesse piss it away too with the sure knowledge we will borrow more money to give them next month. Unlike IBM there is no profit motive anywhere in this scenario.
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