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Thread: How Apple Would Solve the Debt Crisis

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    How Apple Would Solve the Debt Crisis

    [QUOTE]How Apple Would Solve the Debt Crisis
    by David Weidner
    Tuesday, August 2, 2011

    Commentary: If U.S. were run like business, it wouldn't cut spending

    Spending is good. Borrowing is better. Washington is doing neither. It's liquidating.

    I've been covering Wall Street and corporate America for going on two decades, and if there's anything I've learned it's that there are really only two kinds of companies: those growing and those shrinking.

    The U.S. government today has officially become the latter.

    The difference between a growing business like Apple Inc. (NASDAQ: AAPL - News) and a shrinking one such as Eastman Kodak (NYSE: EK - News) has less to do with spending and revenue and than with psychology. Growing companies go through tough times. They adapt, and they're poised to strike when conditions are right. They don't stop innovating.

    Defeated companies may be producing steady profits. But they lose their entrepreneurial spirit. They stop looking at the future. They get intimidated. They quit fighting. They look for a sale. They try to buy growth. They play not to lose — and end up losing anyway.

    Which of those does Washington sound like?

    So, what would happen if Apple had to tackle the debt crisis? First, it would eliminate spending that's not working. Then it would make a commitment to spend if necessary. Third, it would look for ideas to spend on. Finally, it would call customers' bluff. How much are you willing to pay for what the government gives you?

    Ultimately, what's happened to our government, lawmakers, elected officials and ourselves is that we've have taken on a mind-set of defeat. It doesn't seem to matter that the business model — taxing for revenue, spending for growth — isn't broken. After all, it's working in Germany, Canada, India and China.

    We've given up on the model because of our debt situation. It's a problem, and a pressing one. A default or lower credit rating would cause further damage to our credit picture.

    But there are really two ways to handle it. We could take a balanced approach of reining in spending and increasing revenue (cutting costs, raising taxes), or we could simply cut, slashing incomes (Medicare, Social Security, the military). These drastic cuts, which will balance annual budgets, are in effect a surrender.

    They are based on the belief that revenues (taxes) won't rise through increased business activity, and that taxes can't be raised without scaring the private enterprise. In business terms, management is convinced sales won't be enough to pay the bills and that raising prices will drive away customers.

    Again, this is more about psychology than profit and loss. Let's take a look at three winners in the corporate world:

    • Apple is the most cash-rich company on the U.S. landscape. But it wasn't always that way. Steve Jobs and Steve Wozniak borrowed money from an Intel INTC -0.59% executive to start Apple. When Jobs returned to Apple in 1997, the company was losing money. It was psychologically on the ropes. Jobs borrowed $150 million from Bill Gates at Microsoft Corp. (NASDAQ: MSFT - News) and overhauled the company, spending on ideas that worked, killing projects that didn't. You know the rest of the story.

    • Larry Page and Sergey Brin founded Google Inc. (NASDAQ: GOOG - News) in 1995. The company was born out of a federal grant. Its first business funding came from a co-founder of Sun Microsystems. Then the company raised $25 million from venture capitalists. Google is also cash-rich, but it recently went $3 billion into debt because it needed to establish a credit profile.

    • Borrowing and debt aren't limited to the tech world. John Mackey founded Whole Foods Inc. (NYSE: WFM - News) on a $45,000 loan from family and friends in 1978. The company was forced to borrow more when a fire destroyed its first store (it didn't have insurance). The company still had $508 million in long-term debt at the end of September.

    On the flip side are plenty of losers. Citigroup Inc. (NYSE: C - News) tried to buy its way to greatness. Microsoft just paid a stunning $7 billion for Skype. General Motors (NYSE: GM - News) management failed to take the difficult steps that an eventual bailout and bankruptcy restructuring thrust upon it. None of these companies took significant risks. They cut staff and spending. They cooked the books with deals. They played — or are playing — not to lose.

    You can see the difference. Companies with managers who believe in what they offer aren't worried about balanced budgets. And it's not just big business. Small businesses owners are told by the Small Business Administration to spend money when it saves you time. Hire a janitor, so you can focus on the business instead of mopping the floors.

    And the SBA by its existence acknowledges the fact that borrowing is a necessary part of running a business.

    That's why, even with all the mistakes the government makes, it still doesn't make sense for it to be run as if the country has been defeated. It's interesting to note that our deficit of $14 trillion is the biggest since World War II. In 1945 the deficit was 120% of gross domestic product, compared with about 97% today. So how did the nation respond? By spending on infrastructure and raising taxes. We built housing and roads, and we invested. Unemployment fell from 3.9% in 1946 to 2.9% in 1953.

    By the time Harry Truman left office in 1953, the deficit was 71% of GDP. When Dwight Eisenhower left office, it was 55%. Bill Clinton raised taxes in 1993, and the U.S. saw the biggest peace-time expansion since the 1950s. In both eras, the key was that the government gave people and business what they wanted.

    Those were different times, of course. But the point remains: It takes a lot of guts to raise revenues. It takes spending to help the private sector. If every company aimed for a balanced budget, the majority would be out of business.

    Wall Street, I've found, was built on a simple idea: Companies need financing to grow. Governments need it, too. But governments also have a distinct advantage: They have the power to force the customer to pay, and they have it in perpetuity.

    But to focus time and energy on doing nothing but cutting to make ends meet? That's what a defeated company does. And once you're convinced you're defeated, it's over. You will be making film in an age of digital cameras.

    Sure, you may survive, but you'll never thrive.[/QUOTE]

    [URL="http://finance.yahoo.com/banking-budgeting/article/113237/how-apple-would-solve-debt-crisis-marketwatch?mod=bb-budgeting"]http://finance.yahoo.com/banking-budgeting/article/113237/how-apple-would-solve-debt-crisis-marketwatch?mod=bb-budgeting[/URL]

    Very interesting article.

    Solving debt problems by spending cuts alone is a losing strategy. The focus should be major cuts and reform to failing programs coupled with aggressive investment on innovative ideas.

    Too bad our government and the people who continue to support a broken system are not competent enough to implement real and substantial change.

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    [QUOTE=parafly;4088915][URL="http://finance.yahoo.com/banking-budgeting/article/113237/how-apple-would-solve-debt-crisis-marketwatch?mod=bb-budgeting"]http://finance.yahoo.com/banking-budgeting/article/113237/how-apple-would-solve-debt-crisis-marketwatch?mod=bb-budgeting[/URL]

    Very interesting article.

    Solving debt problems by spending cuts alone is a losing strategy. The focus should be major cuts and reform to failing programs coupled with aggressive investment on innovative ideas.

    Too bad our government and the people who continue to support a broken system are not competent enough to implement real and substantial change.[/QUOTE]

    It's an absolutely ridiculous angle, like comparing apples to bicycle racks. Companies produce things, which in turn produce revenue. The government produces squat -- it drains revenue from the people and organizations that actually are productive.

    This line is particularly telling about where the writer is coming from:

    [QUOTE]Wall Street, I've found, was built on a simple idea: Companies need financing to grow. [B]Governments need it, too.[/B] But governments also have a distinct advantage: They have the power to force the customer to pay, and they have it in perpetuity.[/QUOTE]

    Our government is not a "company," and by no means should our goal be for the government to "grow." It's an out of control behemoth already.
    Last edited by shakin318; 08-03-2011 at 01:55 PM.

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    This article is nuts. It's comparing the United States to a tech startup. Of course those companies borrowed money to start their companies...they also ate pizza, worked in their garages and were coding software until 2AM. That's the kind of austerity that the U.S. has no stomach for, nor should it have to do all these things more than 200 years into its evolution.

    In 1776 we had nothing to lose, we were shooting Brits in the streets and trying to construct a government on the back of napkin. In the 70's and 80's companies like Apple were doing the same thing (figuratively...and literally) as they wrote business plans on the back of a napkin and said, "F it...we'll just take shots at IBM and reinvent computing!"

    Do you think Apple borrows more than it makes now? No. It's got incredible cashflow and that's why it is succeeding.

    So if we want to take a look at startup Apple and copy it's borrowing and all-in approach to shooting for success, the government better dramatically cut costs, live in the garage and eat cold pizza while it works every night until 2AM. That's what has made this country and entrepreneurs successful. Do more with less!
    Last edited by jetstream23; 08-03-2011 at 02:51 PM.

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    [QUOTE=shakin318;4088961]It's an absolutely ridiculous angle, like comparing apples to bicycle racks. Companies produce things, which in turn produce revenue. The government produces squat -- it drains revenue from the people and organizations that actually are productive.

    This line is particularly telling about where the writer is coming from:



    Our government is not a "company," and by no means should our goal be for the government to "grow." It's an out of control behemoth already.[/QUOTE]

    Companies providing labor/contractors were booming and one of their biggest customers is the gov't.

    A good question I heard the other night was this:
    When Wall Street needed a bail out the gov't gave them one, now the gov't is hurting and Wall Street pretends they have nothing to do with it? Why isn't Wall Street helping?

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    [QUOTE=shakin318;4088961]

    This line is particularly telling about where the writer is coming from:

    [QUOTE]
    Wall Street, I've found, was built on a simple idea: Companies need financing to grow. Governments need it, too. But governments also have a distinct advantage: They have the power to force the customer to pay, and they have it in perpetuity.[/QUOTE]

    Our government is not a "company," and by no means should our goal be for the government to "grow." It's an out of control behemoth already.[/QUOTE]

    +1

    And why do governments need to grow? :huh:

    The problem is not that we don't need government, it's that we need a limited government. I cant' defend myself from the Chinese, I can't build a highway from California to New York so I can drive across the country. But our government is doing everything from studying the sexual habits of college women with Stimulus funding to measuring cow farts to determine the effect on the ozone layer.

    You've got Reps and Senators from every state who every day try to figure out what new program would send money their way and improve their state. It's the kind of thing that creates bridges to nowhere and keeps an obsolete military base in the center of the country open. It's what causes Harry Reid to goof up his message so badly yesterday that at first he agreed that a $3700 PER TICKET subsidy made no sense for tiny airports even in his own state, and then an hour later had his aides backtracking for him.

    Yet, the writer of the article in the OP believes that spending will make us great again! Holy smokes!

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    If Apple from day one took half the paychecks from their most productive employees and gave it to an equal number of employees who contributed absolutely nothing to the company's success, I'm sure they'd be the corporate giant they are today.

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    [QUOTE=cr726;4088985]Companies providing labor/contractors were booming and one of their biggest customers is the gov't.

    A good question I heard the other night was this:
    When Wall Street needed a bail out the gov't gave them one, now the gov't is hurting and Wall Street pretends they have nothing to do with it? Why isn't Wall Street helping?[/QUOTE]

    Wall street is helping big time. The big firms there are the highest paying employers in the country. Everyone on those payrolls pays income tax. There is no way to hide W-2 earnings from Uncle Sam. Everyone pays.

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    [QUOTE=cr726;4088985]Companies providing labor/contractors were booming and one of their biggest customers is the gov't.
    [/QUOTE]

    Was that for all those "shovel ready" jobs?

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    [QUOTE=shakin318;4089034]Was that for all those "shovel ready" jobs?[/QUOTE]

    In my office the 80 percent of the admin employees are contractors. The admin jobs in gov't are mostly contractor positions.

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    It seems like some people may be missing the point here.

    The argument is not that the government is a business or that it's purpose is to grow. The point is government should be implementing the same debt reducing strategies as we've seen from successful businesses in the past.

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    [QUOTE=cr726;4089043]In my office the 80 percent of the admin employees are contractors. The admin jobs in gov't are mostly contractor positions.[/QUOTE]

    How many of the non-contractor positions in the same office are redundant to the contractor positions? Or to each other?

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    [QUOTE=shakin318;4089068]How many of the non-contractor positions in the same office are redundant to the contractor positions? Or to each other?[/QUOTE]

    Zero, our big boss has to keep costs down and the majority of employees who have either retired or left have been replaced by contractors.

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    [QUOTE=cr726;4088985]Companies providing labor/contractors were booming and one of their biggest customers is the gov't.

    A good question I heard the other night was this:
    When Wall Street needed a bail out the gov't gave them one, now the gov't is hurting and Wall Street pretends they have nothing to do with it? Why isn't Wall Street helping?[/QUOTE]

    They are helping. Wall Street provides jobs, access to markets and capital. Jobs are taxed, profits are taxed and access to capital markets provide companies with financing to expand, hire people who are taxed and profits which are taxed.

    Additionally the bailouts of some weaker players probably cost others who werenít bailed out to go under. Net, net you really donít know if government helped out Wall Street or not? They provided help to some companies at the expense of others.

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    [QUOTE=shakin318;4088961]It's an absolutely ridiculous angle, like comparing apples to bicycle racks. Companies produce things, which in turn produce revenue. The government produces squat -- it drains revenue from the people and organizations that actually are productive.

    This line is particularly telling about where the writer is coming from:



    Our government is not a "company," and by no means should our goal be for the government to "grow." It's an out of control behemoth already.[/QUOTE]

    Exactly if we were a Communist State where the State runs the economy you could make an argument that growing the State is growing the economy and GDP. In a capitalist system the State tends to provide drag on the economy the bigger it gets the more drag it creates. That doesn't mean we don't need government to do things but doing things means economic drag in a free market system.

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    Doesn't AAPL build their products in China?

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    [QUOTE=cr726;4088985]Companies providing labor/contractors were booming and one of their biggest customers is the gov't.

    A good question I heard the other night was this:
    When Wall Street needed a bail out the gov't gave them one, now the gov't is hurting and Wall Street pretends they have nothing to do with it? [B]Why isn't Wall Street helping?[/B][/QUOTE]

    Don't they (Wall Street) take advantage of those 'tax breaks for the rich'?

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    [QUOTE=Jetdawgg;4089197]Don't they (Wall Street) take advantage of those 'tax breaks for the rich'?[/QUOTE]

    Who? Wall Street is not a person. Are we talking about hedge fund managers? How many of them exist 500? 1000? Wall Street employs hundreds of thousands of regular folks. They work hard and make good money. Averages in the $90,000 to $150,000 range which is middle class in the Metro Area. Oddly Long Island Teachers and Cops make similar money (more if you factor in the benefits and pensions). In my town Of Clarkstown NY we have the 3rd highest paid police force in the country. Average salary of $120,000 before overtime and not counting the value of the pension. Teachers here are similar. Our Police commissioner made over $300,000. These people make more than most wall street workers. The difference is that while the teachers work close to home, 8-3 jobs with summers off and more than 4 additional weeks vacation and 10+ personal days etc, many wall streeters work 60+ hour weeks, commute for 2+ hours a day, rarely get to spend time with their families, etc. with no pensions to speak of.

    We truly have a backwards perception in this country of who gets what and why.

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    I am sure that Wall Street has a percentage of the 1% that hold an incredible amount of wealth in this nation/

    In general terms, Wall Street are the firms that benefited from the bailouts

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    [QUOTE=chiefst2000;4089268]Who? Wall Street is not a person. Are we talking about hedge fund managers? How many of them exist 500? 1000? Wall Street employs hundreds of thousands of regular folks. They work hard and make good money. Averages in the $90,000 to $150,000 range which is middle class in the Metro Area. Oddly Long Island Teachers and Cops make similar money (more if you factor in the benefits and pensions). In my town Of Clarkstown NY we have the 3rd highest paid police force in the country. Average salary of $120,000 before overtime and not counting the value of the pension. Teachers here are similar. Our Police commissioner made over $300,000. These people make more than most wall street workers. The difference is that while the teachers work close to home, 8-3 jobs with summers off and more than 4 additional weeks vacation and 10+ personal days etc, many wall streeters work 60+ hour weeks, commute for 2+ hours a day, rarely get to spend time with their families, etc. with no pensions to speak of.

    We truly have a backwards perception in this country of who gets what and why.[/QUOTE]


    The reason I left NY.....

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    [QUOTE=Jetdawgg;4089289]I am sure that Wall Street has a percentage of the 1% that hold an incredible amount of wealth in this nation/

    In general terms, Wall Street are the firms that benefited from the bailouts[/QUOTE]

    Wall streat employment is down almost 8% since the crash with another big round of cuts coming this year. They are likely to be at 2003 numbers by the end of the year.

    The bailouts to a large extent where done to stabilize the financial markets which have the pension funds of almost every State and Municipality in the US invested in them. In general terms the bailout was essential to anyone with a pension invested including thousands of Public employee Union members.

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