10/15/2014 - Financial Repression Causing Companies to Issue Cheap Debt to Buy Expensive Stock – Numerous Negative Adverse Consequences

FT essay below which makes the argument he has been making in the past few years: Given the Federal Reserve’s ultra-easy monetary policies, including near zero interest rate policy & quantitative easing (QE), companies have a tremendous incentive to issue cheap debt to buy expensive stock, diverting corporate cash from creating jobs & investment.

Forbes essay references the recent emphasis in economics & business on “shareholder value”, how this emphasis has resulted in unintended consequences, one of which is the simple share buybacks trend of recent years .. lists several results associated with this “shareholder value” creed:

Caused endemic short-termism
Generated combines of executives and shareholders
Fostered executive cronyism
Led to widespread stock price manipulation
Undermined organizations, communities and whole industries
Dispirited employees
Failed to renew human capital
Short-changed customers
Locked in obsolete management practices
Caused secular economic stagnation
Killed international competitiveness
Led to rampant income inequality
Caused an unhealthy concentration of economic power
Sparked successive economic crashes
Caused unhealthy concentration of economic power
Corrupted society itself

LINK HERE to the article

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.