Photo Credit: Bobak Ha’Eri (CC-By-3.0)
(Washington, DC) In the easy money environment of artificially low interest rates, Medtronic Inc. has outdone Apple Inc. and Alibaba Group Holding Ltd. The Minneapolis medical-device maker completed the largest corporate-debt sale of the year Monday, raising $17 billion in a deal that underscores the booming Wall Street appetite for highly rated bonds. That bond issuance set the total amount of corporate bonds issued this year to a record.
“The driving force behind the corporate borrowing spree is that interest rates are so low. Lots of incentive to borrow,” said Steve Lonegan, American Principles in Action’s Director of Monetary Policy. However, reports indicate that corporations are using bond proceeds largely for stock buybacks, mergers and acquisitions.
“In other words, low interest rate corporate borrowing is not focused on expanding production that would lead to more jobs. These low rates increase incentives to borrow, but not incentives to invest. That is why cash is building up on corporate balance sheets”, said Lonegan. “The Fed’s easy money policies are hurting savers and workers, leading to stagnant wages for working families while Wall St. investors profit.”
“The rich are getting richer, while working families are continuing to be squeezed,” Lonegan concluded. “Thanks to the Fed.”