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Microsoft's $40 Billion On Hand
eMilkshake writes "CNN/Money magazine report here that Microsoft has more liquid reserves than 'Ford, ExxonMobil and Wal-Mart have combined' and 'enough to buy the entire airline industry -- twice. Or all the gold in Fort Knox, four times over. It is enough to buy 23 space shuttles or every major professional baseball, basketball, football and hockey team in America.' This is thanks to (according to WinInfo Update) the fact that 'Microsoft handles its investments with an inhouse software application called--seriously--the Catastrophe Hedging Program 2.5.' I wonder what I would do with $40 billion?"
Breaking News!!!! Extra Extra!!
Microsoft Rich! Really Rich.
Who'd have thunk it..
So close and yet so far from the world's perfect ID number
Man, if I had that kind of cash sitting around I'd be tempted to buy the DOJ. Oh, wait....
There is no reasonable defense against an idiot with an agenda
:wq
That's the theory. I'm sure the MS lawyers have a more profitable reality. Personally I've always thought it was a stupid law: it punishes companies that build themselves a solid shelter for the rainy times.
Miko O'Sullivan
So M$ DOES get a nickel for everytime Windows crashes...
Karma whorin' since 1999
Did you know that it is illegal for a public company to have that much on hand and not pay dividends to shareholders?
Apparently there is some murkiness to get around this for Microsoft. The reason they don't want to pay dividends are the huge tax implications for those that are own massive amounts of stock (read: Bill Gates, Steve Balmer...)
> Four US stealth fighters, or 40 stealth bombers.
Oh, oh... don't give bill any ideas now...
Don't think about the billions they have now, think about the billions they are losing because of those greedy poor grade schools who are allegedly not using properly licensed donated PCs.
So how long will it be until we see a Microsoft sponsered sporting team? Oh boy, I cant wait to see the Colorado Avalanch taking on the Redmond Blue Screens of Death.
If it won't boot, Fsck it!
Microsoft is also getting away with not paying any accumulated earnings tax. This tax is designed to tax companies that are accumulating excess earnings and do not pay dividends.
By not paying dividends, Microsoft is able to shift the tax expense to the shareholders at the lower capital gains rate when the shareholders sell stock. Bill Gates and his crew sell a large amount of Microsoft stock each year.
I believe Ralph Nader has already been looking into this.
Go Ralph!!
Q: How are all these liquid assets held? Gold? Deposit accounts?
A: Mostly greenbacks, some gold and other precious metals. It's all held in a gargantuan bin, several city blocks on a side, with a giant dollar sign on the front. Bill likes to swim in it.
Q: The bin, I assume, is heavily secured.
A: Surprisingly, no. MS Security is quite porous, considering the massive resources available to it, and is often compromised by sub-literate ex-cons and bored underachieving teenagers (including, purportedly, Mr. Gates' own nephews.)
Q: Isn't he afraid it might be stolen?
A: Occasionally, as mentioned, thuggish dog-faced brutes will attempt to break into the bin. However, what Bill really worries about is that some practitioner of the dark arts might infiltrate his mansion and steal the first dime he ever earned - the magical powers of which are the only thing that keeps MS successful in spite of the low quality of their primary product.
The good and new comes from no quarter where it is looked for, and is always something different from what is expected.
It's not even close to tax evasion. Ta evasion is illegal. Tax avoidance through compliance with the code and regulations is just being smart.
Companies are pretty much free to retain their earnings for reinvestment. There are some limitations on this general rule, but generally it is kosher (there's an old case - Dodge v. Ford Motor Co. - 204 Mich. 459, 170 N.W. 668 (1919))- in which the Dodge brothers sued Henry Ford for, among other things, retaining too much cash and not paying dividends).
There are also a number of tax cases where C corporations (whose dividends are taxable if distributed to shareholders) have been nagged by the IRS to declare dividends. The theory is that the retention of the cash has no real business purpose and it is being done solely for the avoidance of taxes. This is one way the Service can enforce what is called the "business purpose" doctrine.
Microsoft has answered claims such as you raised before, and it is a non-issue now. Especially in today's world of hyper-leveraged balance sheets collapsing, there is no way that Microsoft's war chest will be questioned by the IRS.
Lots of petrified grits
They need to get together and come up with some good fuzzy math that shows how Microsoft will burn through that $40 billion in a week and make the DOJ irrelevant. Then we can all go home.
Bleh!
Catastrophe (Hedging) Program
:)
I though this was the code name of their last OS!
Nope, their last OS was called Catastrophe Generating Program.
I pledge allegiance to the flag...
of the Corporate States of America...
I said it before, and now this confirms it, Gates really can make More money than Jesus at a promisekeeper's convention.
It's a pity that Microsoft doesn't do a little more with their money than sell shit at top dollar. But, perhaps it's a Geffen Good, type thing. No fucking joke: start selling Linux at $99 for an install, and maybe the fucker will skyrocket.
Oh, for the days when huge corporations like Michelin did nice things. Says a French citizen, who grew up in Clermont-Ferrand (home of Michelin): "They subsidized the schools, busses, gave their workers bicycles, and helped fund the hospitals." But that was a long fucking time ago, and now it's all about fucking money. Ye, gods, though. How much fucking money does a place need? That's just irresponsible. Maybe I'm just some fucking yahoo, which is most likely the case, but it seems like one has a fucking obligation to be less of an asshole when one has the money to rule the world.
Just think about how many copies of Linux that much money could buy.
"Have you ever thought about just turning off the TV, sitting down with your kids, and hitting them?"
Everyone else has been funny, so I'll bite on the question:
If I had $40 billion in CASH, an infallibility complex, and a slowly-dawning-realization that a) I'm not going to be able to take it with me and b) everyone doesn't love me as much as I think they do I'd sure use that money for something significant.
I don't mean "feeding the poor" significant. They'll forget it tomorrow. I mean like building the first moon base, or a space elevator, mine the first asteroid or some such thing. Be the person that really sparked civilian development in space, and you will be remembered forever (besides doing a good turn for humanity in the really-long-view).
My $0.02, so that leaves room for another 39,999,999,999.98 more good ideas.
-Styopa
Personal holding companies are targeted at people who seek to incorporate their personal lives (in a nutshell). Someone like Sarah Jessica Parker could conceivably create SJP Inc. and avoid paying payroll taxes to herself on what would otherwise be wages. She could also distribute shares to her friends and family (kids) in an effort to shuffle income off her return (personal holding companies pre-dated the kiddie tax, so at one point the PHC was necessary to prevent this sort of thing).
In any case, it is absolutely clear that MS is not a PHC.
Guac-foo.
Lots of petrified grits
They're not using MS Money for that?
Dividends are stupid. If Microsoft decides it has more cash than it needs and wants to provide shareholder value with the money (possibly with the federal government threatening to tax the "excess" cash reserve), then a stock buy back makes much more sense than a dividend. In theory, both provide the same value to the shareholders, but a stock buyback provides capital gains instead of income.
So even if the government decided to enforce the tax on "excess" cash reserves, there would be no need for a dividend.
You are correct. "Tax evasion" was the wrong phrase. "Screwing over the American public by legally avoiding taxes" would be better.
Uh oh... we all know no Microsoft product is usable until version 3.0.
This needs to be repeated over and over again because many people do not understand it. Corporations do not pay taxes. Corporations collect taxes.
Here's how it works. A corproation is a legal entity designed to make money. It has a list of expenses and a list of revenues. One of those expenses is "taxes." When the government raises taxes on a corporation, the corporation has to make up for the higher costs. It does this by increasing the price of its products or services. I.e., the consumer has to bear the brunt of the higer cost of the corporation's tax. I.e., the corporation is merely a tax proxy for the government.
All wealth in the country is held by two groups: individuals and government. People talk about "Microsoft's $40 billion," but Microsoft is owned by individuals. It does not exist without the individuals who make it run.
I don't make the rules. I just make fun of them.
Or feed all the hungry on this planet...
And what do you do the next day once the money's gone? Oh my god! The hungry are still there!
When you realize that the reason people are hungry is not lack of food, you will be Enlightened.
The reason people are hungry is not unequal distribution of wealth, it's because of unequal distribution of capitalism and freedom. Lack of food and money is a symptom, not a root cause.
Sometimes it's best to just let stupid people be stupid.
I guess I don't see how not paying taxes you don't owe (your "legally avoiding taxes") is "screwing over the American public". The rules were set by representatives YOU (not MSFT) elected, and if you don't like the rules, lobby to get them changed ... but don't accuse the people and corporations who actually follow the rules of being tax cheats.
Let me put this another way: Do YOU give the government more tax revenue than you are required to do by law? If not, you hardly have a right to complain about others doing exactly what you are doing....
Let's look at this company for a short second...it certainly didn't have any where NEAR $40B in the bank in 1995, just prior to Win95 being released. Win 3.1 pretty much ruled the roost; and IBM was desperately trying to released the stranglehold that MS had over them due to the (favorable) DOS licensing. Microsoft was very powerful, but at that time Office hadn't yet driven EVERY OTHER competitor out of the market, and the Internet wars hadn't even kicked up yet. But there is one indisputable fact: the trend had been well established in the American (nee World) consumer mind that Intel/Microsoft was a standard and compatibility with that system was absolutely mandatory.
So, 7 years later, Microsoft made Bill Gates the richest guy around, had TONS of cash sitting in banks, runs competitors into the dirt, and basically laughed off US Gov't legal action--several times! This has to be about as clear as it gets that Capitalism as we understand it is an incomplete model. Previously in history, mega-wealth like this was built on the backs of slaves--the railroads, for instance. But not Gates'. There were no slaves...merely consumers. One could argue that this is truly "Capitalism at its best!" for certainly it was Capitalism that provided Gates with such wealth. Only that is a short sighted thought, considering it is Capitalism that ALSO states that in such a market competitors should have been clamoring to compete! And I REFUSE to believe that DOS/Win3.1/Win32 was absolutely the best, most marketable product during that period...okay, it may have been the best, but was it "97% of the market" best? I just don't believe so--I mean look how quickly Linux has stormed the scene. Are we to assume that NO ONE else but Microsoft was so astute at making operating systems until some kid sat down at his PC? Something just DOESN'T make sense here.
So what dynamic about Capitalism are we missing? What overlooked problem could explain a seemingly complete breakdown of basic competition? Or, can it be explained with what we already know? Personally, I look at Microsoft's accounting tactics. But of course they really didn't start until AFTER a pretty good amount of money had been made. I then look at the role of the US Government in making Billy G. a gazillionaire...after all, think of all those government agencies sending YOUR tax dollars to Redmond. Of course the relationship doesn't end there--military contractors would conform their systems to the Gov'ts, and state and local gov'ts would do the same. It is nearly like a viral chain of Microsoft infection. And all the while, we were supporting government research that could have/should have been capable of creating an open source operating system.
So is it the infamous Keynesian "invisible hand" run amok that created this? Does any one have a GOOD idea as to how much money Microsoft has profited (taking into account the top-down, hierarchial spread of influence) off the US Government since 1990?
Given my newfound respect for the dynamism and aggressiveness of true Capitalism, I refuse to call Bill Gates a Capitalistic success story...to do so would be to forever sully the greatness of the fair-market system.
Scott
"Hokey religions and ancient weapons are no match for a good blaster at your side, kid."
Ralph Nader pointed out that the money is a sort of a n "illegal tax shelter" for very rich people such as Billie Boy, Paul Allen, and Steve Ballmer.
/., Microsoft can do no right, so perhaps I should be unsurprised by this story. Rather than bashing them, why not download the CLR and C# source for FreeBSD and have a play with that?
Honestly, you Slashbots. One the one hand, Enron are bad because they used accounting tricks and pretended to have billions of dollars that they didn't. Microsoft, perhaps surprisingly, eschew fancy creative accounting, and have real cash money, which they invest in, among other things, T-bills, just like Grandma.
Let's put $40B into perspective. That's about a quarter of the shareholder value lost by Vodafone since it's peak. That's less than the value that Juniper or AOL/TW lost in a year. That's less than Marconi were forced to write off. It's a fraction of what Cisco or GE are worth. In other words, in an industry as volatile as high tech, it's only prudent to keep a lot of hard cash on hand - it's called "Catastrophe Hedging" for a reason.
If it were illegal, the Govt. would have busted them. The name Arthur Andersen was impeccable, far more so than Microsoft, but when the broke the rules, they were taken out in short order.
On
representatives YOU (not MSFT) elected
This is a joke right. It's gotta be. You can't possibly think for a second that you have more of a voice in government than Microsoft (any large corp actually).
I'm the big fish in the big pond bitch.
You are either a 1) liberal that believes in a finite amount of money. 2) Never taken econ classes. The latter is forgivable, the former isn't. :)
MS has to have their 40b deposited in banks. Those banks don't just pay interest for fun; they take that 40b and loan it to others (you, me, etc.) and we use that money to build houses, buy cars, and do other things that stimulate the economy and create more wealth. The banks take the interest we pay, take their cut, and pay interest to those that have deposited their money with the banks (MS, IBM, you and me, etc.).
It's all a nice little system called capitalism and banks allow wealth to be PRODUCED, not confiscated by a single individual or company.
Don't worry; MS really ought to pay dividends with that money, but they're not hurting you or me by doing it. In fact, they're making more money available that banks can loan us to buy cars and houses.
All companies have to pay out dividends eventually, otherwise the price of the share would be zero (since the price of the share is basically the net present value of the the stream of expected dividends).
The value of a share of stock is whatever people will pay for it, same as everything else. There are a lot of factors going into that, but I think anyone who follows the stock market would agree that the prime determinant of a share price is far more random than the one you suggest. The amount someone will pay for stocks today is related to how likely they think it will be that the stock will be worth more tomorrow. (i.e., I'm paying $15 a share because I think I will be able to sell it for at least $16 a share sometime in the future.)
It has little or nothing to do with dividends or anything else related to how much money the company has on hand, or even whether it's turning a profit. If it had much at all to do with those factors, there would be no way to explain the share prices that dot.coms were hitting during the last decade. I don't think it was exactly a big secret that most internet firms are considered fiscally fit if they succeed in having a net profit somewhere in the area of zero.
Comment removed based on user account deletion
MS has to have their 40b deposited in banks. Those banks don't just pay interest for fun; they take that 40b and loan it to others...
You're more correct than you say. They actually loan out the money many times. The very act of MS depositing $40B in the bank probably actually creates (and I do mean creates, yes) an additional $160B over the original $40B.
C//
And the truth about the USA is, it wasnt built by capitalism, it was built by slavery
COMMUNISM built the USA!!! Yet capitalism takes all the credit.
Its kinda funny how the USA is built off of Communism, yet everyone expects to be able to build a country from capitalism when its never been done.
NEVER. Every capitalist country was built from slavery, including england and australia.
If you use Linux, please help development of Autopac
Here's an old link I found about Gates' philanthropic tendencies: In 1999, the Bill and Melinda Gates Foundation awarded more than $2 billion in grants. That's generous amongst the rich or average or poor.
He's intimated that he will give more than 90% of his wealth away before he dies, as do many of the superrich. So they don't attach as much wages as many other 'average' earners do--which is more effective?
Most of these guys invested in the economy, providing capital through stock purchases and cash holdings that allowed new companies to thrive, houses to be built, etc. And most, yes most, of these ultra-rich give much (most?) of their dollars away after they die. I'd rather see these "10% tithers" save their money, and rev up a large fortune.
Unfortunately, I can't find good statistics on the financial donations. I suspect you won't either--private donations are usually cash-type, non-entity sponsored form. In other words, if the UW gets a $1000 donation from John Smith, they don't and can't really do an analysis on what Mr. Smith's income is. There's some data derived from write-offs on federal tax forms, and this seems to show that the top 5% of the wage-earners represent most of the increases in charitable donations from year to year (a quarter of the increase in institutional contributions was from Bill Gates in 1999).
And don't forget that 91% of the taxes are paid by just the top 5% of the taxpayers. I know that our tax duties aren't philanthropic, but dammit, people want to act like the rich do _nothing_ but capitalize on those beneath them, and it just ain't true.
On that we agree. My statement is not that there is an infinite amount of CURRENT wealth, but that there is an infinite amount of potential FUTURE wealth. If I make a billion dollars today that does NOT need to mean that the rest of the world lost a billion.
The statement that the rich are getting richer and the poor are getting poorer is about the trends in wealth distribution towards fewer, wealthier people and more, poorer people. Attempting to dispute this by claiming that "liberals believe in a finite amount of wealth" is disengenious at best and just insulting at worst.
If you'll re-read one of my previous posts, I said that those that say that "the rich got richer" SO "the poor got poorer" is an indication that they believe in a finite amount of wealth. If they believe that as a RESULT of the rich getting ticher the poor got poorer then, yes, they believe in a finite amount of wealth.
I will agree that those that observe that "the rich got richer and the poor got poorer" are not necessarily saying that there is a finite amount of wealth. Actually, the people saying this are just wrong at best or insulting at worst, to use your words, since looking at government income per population segment since 1970 I have yet to find a single year where the rich got richer AND the poor got poorer. I've found years that the rich got richer faster than the poor got richer, but I have yet to find a year where the poor got poorer as the rich got richer...
But, that's beside the point. The point is that the people that use that cliche don't automatically believe in finite wealth. But those that say "the richer got richer so the poor got poorer" DO believe in finite wealth.
You're not possibly agreeing with the labor theory of value are you?
Are you suggesting that I ever said we just all sit on our butts and somehow let banks create income for us? Never said that.
*labor* produces wealth. Someone who can loan you money to more efficiently utilize your labor (ie, buy a truck instead of walking to deliver your product).
Labor produces wealth, banks multiply it. I might be able to earn $100 today. But if I deposit that in the bank the bank will be able to use it in ways that may be able to create $400 of wealth for the economy as a whole. THAT'S what I'm saying.
Both are necessary, although there is far more emphasis and reward through finance-based wealth generation than labor-based generation
I agree, both are necessary. Banks can't function if no-one works and no-one earns money. But, given the reality that people need to work to earn a living, banks actually create more wealth than a labroer. I.e., my example above where my $100 turns into $400. I generated $100 of wealth, and the bank generated $300 of wealth with that. So, yes, there is more emphasis on the financial side because it does produce more wealth than a laborer. Of course, if all the laborers stop laboring then we're toast. But that's not reality.
All communist countries lie about their accomplishments
Nicaragua wasn't communist in the sense of Cuba or the USSR. I'm not talking about governmental systems here, I'm talking about economic systems. Even then, capitalist countries aren't completely honest, too. Admittedly, democracy seems to help keep corruption levels down, but that's a function of democracy and totalitarianism, not capitalism and communism. I will also agree that communist countries tend to be totalitarian, but using that as a justification for blanket statements is just as irrational as blindly following every statistic a government publishes.
We won't know the truth of Cuba until communism falls, just as we didn't know the truth about the Soviets until they fell.
We can't know with 100% certanity, but our concept of life behind the iron curtain in the USSR didn't prove to be all that different from the fact. About the only difference I see is that we now know that the USSR's technology level wasn't as high as the Cold War hype held it to be.
Efficient countries create surplus capital (even Marx agreed) and in capitalist ones, they end up making more and more until all are satisfied. Communist ones are inefficient and try to satisfy everybody but year after year, they make less and less. This fact is what makes the leadership eventually flinch and change from communist to capitalist societies.
I think I mentioned that in my original post. But economic efficiency is not a good measure of public health, since it includes not just things like the amount of food, but also things such as the number of TV's a people owns, and it tends to measure only efficiency, not equity. No, places like Cuba didn't have the number of fatiron computers and such that we have, but a country's ability to produce enough food for its people is not so directly related into GDP. Again, look at Nicaragua. Since it went capitalist, its GDP has increased while its ability to take care of its citizens has decreased markedly.
The classic example of wealth is a man stranded on an island. He must attend to his basic needs (hunting/foraging mostly) for most of his day, but can set aside a little spare food. In this most primitive scenario, the stored food (we'll pretend for the moment that it won't rot) is his wealth.
He can consume his wealth unproductively (by taking a day off) or by saving up food and then using the time he would be hunting to, say, make a better spear. If he invests his spare time into productivity, he can hunt faster, and generate more 'wealth'. Once he has stored up enough food to, say, not hunt for a month... maybe he can build a farm and increase his productivity again. Note that currency is not involved here in any way.
In a more complex example, you have a barter system, where each citizen specializes into something. People working exclusively on one job become better at it than generalists. This allows the society to create more goods per hour worked (productivity again). People can trade their goods for other goods. In very general terms, the cobbler can work a week on shoes, and then sell those shoes for enough food to eat for two weeks. The farmer who buys the shoes can focus on farming and can, in a week, generate enough food to feed himself and, say, three other people. He can trade his food for the goods they produce. The overall standard of living rises sharply.
The next development is some sort of currency. In the Austrian school of economics (which seems much more intelligent than other sorts I've looked into), money is simply the most marketable commodity... the one thing that people, in general, will be most likely to accept. On our world, that happened to be gold and silver. This was a HUGE advancement because it allowed the storage of wealth in a way that did not decompose. If someone worked for a long time, they could store up enough money to invest into large things that made big changes in productivity. This also made the process of trade itself much faster, because people didn't have to spend time finding someone who wanted their chicken in exchange for shoes.
The next major development was 'token' money, where gold and silver were stored in a vault someplace (which is convenient, because they are heavy) and lighter, smaller coins, or pieces of paper, were issued to indicate ownership of a portion of the gold.
This is where things start to get complex. The use of tokens to represent gold allowed the issuers of tokens to play games they had never been able to do before. Someone must have thought... 'gee, I have 1000 ounces of gold in my treasury, I could probably issue 1100 tokens, because they're not going to want to withdraw all their money at once.' This was a VERY BIG DEAL, because for the first time, 'currency' (tokens) became DIFFERENT FROM wealth (the most marketable commodity).
Over time, the amount of gold held in reserve became less and less. This resulted in huge multipliers in the amount of currency circulating. If you have a 10% reserve ratio, for every ounce of gold you take in, you can issue tokens for 10 ounces of gold. Our banks presently are required to hold something like 3% reserves, which means that currency is multiplied by 33 1/3 times.
Now we're getting into an area where I understand less, and where even experts disagree, so take what I say from here as partially fact and partially opinion. The above is pretty much all solid fact, but it gets murky from here.
The rise of fractional reserve banking was a huge change in economics, but it has been a mixed blessing. It allows the economy to expand at a much faster rate in good times, but when things go bad, it appears to make contractions much worse. When bankers see that the sun is shining, they tend to lend more, thus creating more currency (and the APPEARANCE OF WEALTH), but they *do not* create wealth in so doing. In essence, they themselves are borrowing against future production. By issuing new debt, they allow things to be built that otherwise could not have been afforded. This devalues the currency to some degree, and also tends to encourage the building of things that are marginally profitable. The bigger the boom, the more demand is magnified, and the more things are built that cannot be sustained in lean times. (malinvestment)
Eventually, either due to the malinvestment or due to other outside shocks (wars, for instance), times start to get harder. The banks become worried and lend less. The lowered availability of money removes currency from the market, making it more precious. This tends to make people spend less, and increases the risk of defaults on other loans, which in turn reduces the money supply even more. Thus, just like the boom was magnified, so is the bust. Businesses that would be perfectly profitable in 'normal' times can and do fail in 'busts', which destroys yet more wealth.
Eventually things start to look rosy again, the bankers do more lending, and another boom cycle ensues. The overall heights of the booms and busts are limited, primarily by the percentages required in fractional reserve banking. The commodity underneath the tokens restrains the worst of the potential excess; it keeps the economy on relatively honest footing.
Overall, it appears that fractional reserve banking seems to have more benefits than drawbacks. It also makes the bankers one hell of a lot of money (wealth, not currency!), so they have pushed hard for the practice to continue.
However, there has been a major change, quite recently by economic standards:
In 1971, Nixon took us off the gold standard. This set off a confidence crisis in the dollar, and the 1970s were a very unpleasant time. It is probably no coincidence that personal income peaked in the early 1970s, and has been on a steady slide downhill ever since.
What replaced gold? Nothing. Literally. The Federal Reserve could now create bank reserves by waving their hands. There was no limit on the amount of currency they could create; there was no fundamental check-and-balance there. The 1970s were a very un-fun time in the economy.
Starting in about 1980, Volcker restored confidence in the dollar by restoring the Fed to fiscal prudence. He did this by reducing the money supply growth rates to reasonable figures and by jacking up interest rates to the moon. Throughout the 80s, we had a pretty stable currency.
However, starting in the early 90s, the Greenspan Fed has been wildly profuse in its generation of currency. Anytime we have had a problem, it has just opened the spigots and let the money flow. Note that this is not related in ANY WAY WHATOSOEVER to actual wealth. It is just currency.
Because we were globalizing for the first time, there was an endless appetite for dollars overseas. This let Greenspan print money like mad without seeing many signs of inflation. (which is generally considered to be consumer prices going up, but this is a bad definition.) Instead of CPI gains, the inflation went into the stock market and, now, into real estate. This kind of inflation is seductive and terrible; it does enormous damage to an economy, while everyone LOVES IT and wants it to CONTINUE.
In essence, by taking us off the gold standard, Nixon has removed one of the fundamental checks on the power of the banks. As a result, the boom we had was titanic, extraordinary -- the biggest boom in the history of the world.
Likely outcome of the bust left as an exercise for the reader.
I don't know, as much as I hate Microsoft's business practices, I think I owe a great deal to the success of Microsoft.
The dominance of a single, cheap OS running on commodity hardware greatly uncomplicated and accelerated the rollout of technology to the masses of middle class Americans with surplus capital.
I benefitted from this. I've had a stable job for 10 years, I got health benefits, stock options, training. This was not the norm in the early 80's. If it weren't for the tech boom, I might very well otherwise be a 10 year burger-flipping veteran. Through no intelligence or skill posessing shortcoming of my own, mind you. Simply through a lack of opportunities.
Microsoft has created opportunities for tens of millions. But on the other hand, it has also destroyed opportunities for many as well. The demand for computers created and destroyed companies like Word Perfect.
How would this all have played out without Microsoft? I have no idea. Maybe we'd all be complaining about IBM right now. Maybe OS/2 would be the dominant OS. But it would cost $1000. Probably Linux would not have ever been made - and we might all be BSD freaks instead. Who knows? Impossible to speculate.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.
I assume you're talking about the velocity of money (where-apon a dollar is respent many times over, so long as it never sits still). While it's true that investing money in an institutions which immediately re-issues can produce a >1.0 velocity during average to strong economic times, when the economy eventually falters (which it didn't really do during our little American recession), that multiplier contracts and can go < 1.0. At which point, the artificially inflated money suddenly dissapears.
The larger the mulitplier, the more it hurts during a real recession.
As part of the multiplier, is the idea of financial float; checks are written that are immediately deposited by the federal reserve into bank A, but funds are not immediately withdrawn from bank B. Thus extra money temporarily exists. So long as the number of transactional cash-flow remains constant, this temporarily created money sticks around. Once a recession hits, purchasing slows/stops, and checks clear...
Since recessions are cyclical, anything that artificially heightens an economic boom will effectively over-stear the economy and make the ensuing correction more powerful.
I personally believe the 90's represented an incredible growth of efficiency in our economy. Banks were allowed greater freedoms, computers reduced transactional costs, demand shifted from expensive goods to high-profit-margin-goods (like software solutions, and raw experienced human labor such as IT and effective middle-management). Since people were generally required to do more, their higher pay was justified; we simply did more work per day than we did in the 80's as a whole.
I believe this growth allowed us to avoid a catastrophic recession / depression on our economic correction. Aside from another socio-technological revolution, we can't sustain such growth as in the 90's, and thus such augmented multipliers are not ultimately to our benifit.
Disclaimer: I've taken several undergraduate economics courses, but I don't claim to be an expert, so comment-accordingly.
-Michael
-Michael
There are approximately 5 million dead of famine during Russian Civil War (1917-1922), plus 30-50 million dead (excluding WW2 casualties) in Stalin's Russia, and 30 million dead of famine in Mao's "Great Leap Forward" who might beg to differ with you.
(Actually, Stalin's count may have "only" been another 5-10 million from famine. The other 40 million were executed in purges or worked to death in labor camps. So I suppose you were right - not as many people starved, per se, under Stalin.)
I'll take my changes with Capitalism, if you don't mind.
Likely outcome of the bust left as an exercise for the reader.
... from seeing friends to putting one person's junk to the service of some less demanding cause.
... and at which those best at spreading FUD continue to have the greatest success, be they involved in hyping upgrades or the war against drugs.
Living in a lucky country where the economic measures didn't even shorten stride as they gallop into the unknown, I have noted a few other people starting to bemoan the degree to which money is starting to get in the way of even the simplest things which are essential to our very humanity
But every day it looks more likely that we do not have to wait till after the boom for depression, but that depression has already set in, both for those whose ever harder work continues to underpin the indicators and for those struggling to find their way into the loop.
There is something primitively natural in the cycle of long growth and rapid death which flies in the face of human aspirations to fairness, the kind of overgrowth which our granting veto to the bean counters has made has made an inescapable aspiration of every human institution
So you don't have to wait for the depression to follow Wired's long boom, you just have to look around and ask people how they feel.
-- Our systemic servants do not good masters make.