Friday, May 27, 2005

Surprise--America Owes Too Little -

Surprise--America Owes Too Little -

After reading LJ's post at Scroogeview about leverage, I could not resist re-posting a link to an article by Ken Fisher in Forbes. Ken is one of the all time best--a professor of stocks. He makes a clear case that America could use more leverage and make more profits.

This point is a little different than the point made by LJ. Fisher shows that the total debt owed by the Federal Government is low relative to our total assets. Furthermore, the US is extremely efficient in its use of capital and the country could take on more loans at a profit. Like a business who has a marginal cost of capital that is below its operating margin, it makes sense to borrow more.

The naysayers who whine about investments from China are confused at best. It is in the best interest of Americans to buy goods cheaply from China and to sell them treasury bonds at low interest rates. What business would not want such a sweet deal? Think about it, if you could buy goods from China at very cheap prices and China offered to floor-plan the goods at treasury bill rates, would you not quickly become a major importer of goods!