Wednesday, September 21, 2011

$400 billion to help the US economy?

The Federal Reserve said yesterday that it will shuffle $400 billion of its portfolio to try to drive down long-term interest rates and get the economy going. Is it going to work? I seriously doubt it!

The current economic situation is lack of confidence in the economy, in the government, and in the Euro debt crisis. Yields on U.S. government debt were already among the lowest on record, and investors drove them down further after the Fed announcement. The yield on the 10-year Treasury note, an indicator for mortgages and other long-term loans, closed at 1.86 percent, down from 1.93 percent the day before and the lowest since at least 1962. The US interest rate is already low, by lowering further won't make much difference.

If you look at Japan as an example, you will know this is not going to work for the American.

Focus on the revenue

There are actually two sides of the equation here that most economists do not see, the revenue side and the spending side that can drive the economy. However, because people are too used to the Keynesian and Monetary theories that focus on the spending side, they have neglected the most important source that can boost the economy - the revenue!

And how to get more revenue for the government? Taxation!

The US has the most millionnaires and billionnaires in the world, and the US has the most number of technology companies in the world that are rich source of tax revenue for the government. Even if the US government does not want to tax the companies, how about selling government bonds to these cash rich companies?

The following is the top 10 cash rich companies in US:

1. Apple
Market Capitalization: $330 billion
Cash Hoard: $76.2 billion Source.
2. Microsoft
Market Capitalization: $201 billion
Cash Hoard: $63.7 billion Source.
3. Cisco
Market Capitalization: $83 billion
Cash Hoard: $38.92 billion Source.
4. Google
Market Capitalization: $158 billion
Cash Hoard: $35 billion Source.
5. Oracle
Market Capitalization: $125 billion
Cash Hoard: $28.82 billion Source.
6. Siemens
Market Capitalization: $85 billion
Cash Hoard: $13.42 billion Source.
7. IBM
Market Capitalization: $188 billion
Cash Hoard: $11.76 billion Source.
8. Samsung
Market Capitalization: $92 billion
Cash Hoard: $9.04 billion [slightly dated] Source.
9. Intel
Market Capitalization: $102 billion
Cash Hoard: $7.73 billion Source.
10. Amazon
Market Capitalization: $81 billion
Cash Hoard: $6.3 billion Source.

If we total all those figures up, and this is what they sum to:

Total Market Capitalization: $1.445 Trillion

Total Cash Hoard: $290.89 Billion

So if I'm in the Obama administration, I'll suggest him to get more money from its own people!

Happy investing,

Pauline Yong


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