Bloomberg recently reported that Amazon is set to raise $15 billion in an upcoming bond sale. The funds will be used to continue Amazon’s AI buildout. Better yet for the purposes of this piece, the sizable bond issuance signals impressive market confidence about Amazon’s future.
Entities that are doing well, and expected to do better, can borrow a little or a lot very easily. Those with a less certain future can’t borrow. Money is ruthless. Amazon shows us why.
Traveling back in time to 2001, Amazon could claim roughly $2.17 billion in debt. Notable about the previous number is that it was only a slight increase on the $2.14 billion in 2000. Which isn’t surprising.
While Amazon’s share price was still ascendant in 2000, by 2001 it was in the single digits at times. In 2001, internet shares of all kinds had fallen out of favor, followed by 9/11 which further called the commercial future into question.
Where it becomes quite a bit more interesting is to contemplate Amazon’s debt in 2025. Presently the corporation has $135 billion in debt, and this doesn’t include the extra $15 billion recently announced. It raises a basic question.
Does anyone think the Amazon of 2025 with $135 billion worth of debt is in worse shape than the Amazon of 2001 with a little over $2 billion? No doubt a clown question.
The only rational conclusion is that Amazon is in much better shape now than twenty-four years ago. In 2001 its situation was a bit desperate, while in 2025 it’s one of very few companies that can claim a market cap that’s measured in the trillions, $2.32 trillion as you’re reading this.
Market capitalizations are the market’s expectation of all the dollars that a company will earn in the future. Which explains Amazon’s rising debt situation: thought by investors to be very good for monies borrowed, it borrows with an eye on making investments that will further increase its expected future earnings.
Which is a major theme of The Deficit Delusion. Governments, like individuals and businesses, can borrow in bigger and bigger amounts as their present and future incomings grow. That’s why the U.S. has $38 trillion in debt, but Russia only $300 billion.
The debt figures don’t signal a more parsimonious, Classical economic thinker in Putin, and they most certainly don’t signal market confidence that Russia’s economic future in any way exceeds that of the U.S.
After that, what you’ve read should in no way be construed as a comment that government spending and debt accrue to a nation’s economic health. Quite the opposite when the harm of central planning of resources is contemplated.
Just the same, it is a comment that as U.S. federal debt grows, that’s a sign of growing market confidence in the U.S.’s fiscal future. This is an important distinction since the consensus among government debt watchers in the U.S. is that $38 trillion (and counting) signals a looming reckoning. No, the markets for money are ruthless.
Like Amazon's, Treasury's debt continues to grow because the U.S.’s future prospects continue to grow. Which is a quick way of saying that if shrinking the debt is the aim, the only way to do it is to shrink incomings to Treasury so substantially that lenders are less prone to lend to what’s taking in fewer dollars.
The above can be done either through economic contraction, or stupendously large tax cuts for the rich. What’s your solution? Pray this is a clown question.
