Hey, see that? I created an infinite money machine! Now that's a good argument for those original $200 billion being super useful when "put to work" by storing them in bank accounts, right?
Anyway, since the parent implied that "hoarding cash" (a.k.a. saving) was somehow bad, I wanted to clear that up. They would only be reducing the money supply if they were literally hoarding physical bills in a private vault.
So the actual trick is not that banks lend out more money than they have previously gotten as deposits, but that the fraction they lend out is eventually stored at different banks, while the original deposits that allowed for these loans to be created still continue to exist at the first bank and thus the loans practically are a duplicate of these deposits, hence "money was created out of thin air". As long as the banks all manage to keep the fraction of reserves above the pre-set limit, this indeed guarantees a maximum total money supply not to be exceeded.
Banks are constrained by demand, they can create credit at will.
If Apple deposits $200 billion and the ratio is 1/10, then the bank can loan out $180 billion of that 200; it must keep $20 billion in reserve - 1/10th.
In your scenario, the bank has negative $1.8 trillion in reserve.
But exactly how it all works out depends on a countries legal and financial implementation details.
https://www.investopedia.com/terms/c/cashandcashequivalents....
In 1997, Apple was on the verge of bankruptcy [1]. That experience deeply scarred the company's culture. Prior to that, Apple didn't hoard cash (relative to revenues). Afterwards, it did.
At this point, the instinct is overplayed. But cultures are difficult to change. So the obsession with runway remains.
[1] https://www.businessinsider.com/apple-comeback-story-2010-10...
It's pretty simple why they have such a big cash pile. They literally don't have a better place to put it.
Not saying it is.
The last time Apple’s culture was re-forged, runway was an existential priority for Steve. It remained a priority for the rest of his life. As such, it remains one today. Call it a ritual, if you like; an act once practical, now maintained for being part of a culture.
The limitless alternative to amassing cash piles is returning it to shareholders. Apple does that, but it is averse to accelerating its pace.
iPhones produced in India, presumably.
https://asia.nikkei.com/Business/Technology/Made-in-India-iP...
Or in any other place.
https://www.gizchina.com/2020/04/21/apple-plans-to-assemble-...
Even if they sold zero iPhones next year, there's still a lot of iPhones in the world that need services and apps.
How exactly is that “a lot more”?
Perhaps they want to be prepared for losses much larger than their peak historical losses.
In 1996, Apple's market cap was ~$3B and they had about $1.7B in cash and short term investments.[1] That's over half the value of the company. If they had proportional amounts of cash today they would have a trillion dollars.
I think the context of the talk about bankruptcy wasn't leverage like most companies have now, but simply that people might stop buying Macs and no revenue would be coming in.
The hoarding of cash I associate with Fred Anderson, who was CFO from 1996-2004.
[1]https://www.sec.gov/Archives/edgar/data/320193/0000320193-96...
This is a sign of distress. The equity markets were attributing minimal value to the non-cash parts of the business.
In 1996, Apple had about one fifth of its net turnover in cash. Today, it’s close to four fifths. Operating-to-operating metrics are a better indicator of management’s preferences than operations-to-markets.
[1]See "Item 6. Selected Financial Data"
...which is closer to the 1996 ratio of cash to revenue than today’s.
There is a lesson on corporate financing here, but I am not sure what it says.
In the past 10 years, Apple has bought back over $400B worth of Apple stock, mostly at under $200/ share. This has massively reduced the number of shares on the market and been hugely rewarding to shareholders. They have shared their plan with shareholders, pretty much every quarter they put updates on how it's going.
They have a good summary of how they are performing on their plan on their site: https://s2.q4cdn.com/470004039/files/doc_financials/2020/q3/...
I'm not sure what kind of plan you had in mind, but what Apple has done has been spectacularly good for shareholders.
Meanwhile they think it's better to hold the cash rather than pay tax on it. The shareholders own the money either way.
Most people who want to tax corporations actually just want to tax the super-villanous rich people. But here's an interesting idea: just tax rich people more.
By increasing costs for all companies, you are making products more expensive for all consumers. It's effectively a regressive tax.
You also need to remember that a majority of Americans are invested in the stock market[1]. A healthy economy is good for everyone.
I believe that money that gets paid out from a company to investors (dividends) should be taxed as regular income, but the income of the company itself should be untaxed. That way we avoid the distortionary effects of double-taxing money but we still tax the evil rich people you're so concerned about.
[1]https://news.gallup.com/poll/266807/percentage-americans-own...
Taxing profits has zero impact on costs. The most it would affect is the viability of companies that are on the border of profitable/not profitable because it would detract from their ability to attract capital.
Apple is quite possibly the furthest away from this scenario you could possibly imagine. Taxing their profits will have zero impact on apples costs.
>here's an interesting idea: just tax rich people more
The funny thing is that whenever you try to do that a coterie of economically illiterate paid-to-be-wrong journalists come out telling you how much you're ruining things for everybody else and how little the rich will really be affected.
You can almost measure the actual impact of a tax by the intensity of the screams in the popular press about how much the average joe will get screwed and how little the rich will be affected.
And, of course, taxes that really are like that get branded differently - they're "necessary evils" or simply just ignored.
The stock market is not "the economy", "the economy" is not doing too well, but the stock market keeps steaming along while a lot of people struggle and congress does its handwringing over the cost of meager stimulus packages. Maybe some extra tax revenue would be useful.
Dividends can already get special tax treatment, and many corporations are averting taxation entirely. For a lot of situations we're already at your ideal scenario in a round about way, except we're failing to tax the super rich.
I'm more concerned about how that tax revenue could benefit society.
How much in taxes does the average worker pay over their lifetime?
Not to mention, this money was already taxed, just in another country where that money was earned. Seems like a good deal, to bring that money back into our economy and get it spent on goods and services domestically.
"We'll allow you to bring back $185 Billion and spend it here locally, helping the entire economy, but only if you pay us $10.5 Billion!"
I'd be OK with zero tax on this money. Get it flowing back into the economy where it can do real good things. The US Government isn't going to miss $10.5 Billion at the rate we're already giving it away to people.
The alternative is what we have already. Everyone loses; no one gets any piece of that money in the US.
How much does the average worker make over their lifetime? Not fucking 200Bn
Right now, we get zero, and I'm pretty sure we wouldn't be able to come up with some way to compel them to give us a sinlge penny of it.
I'm not, personally, very concerned with giving another $10 Billion to the US Government. It's a small amount in the scheme of things.
However, getting $200 Billion injected into the local economy would have a profound effect.
Cutting off your nose to spite your face, sort of thing.
The exact opposite is true. Taxing revenue and salaries affects workers and the overall health of the company. Taxing profits affects mainly just shareholders - especially for larger companies.
There are several papers on this.
If nothing else, it can keep paying their all of their employees, not just the work-from-home IT crowd, during a pandemic shutdown.
With $260bil revenue and $55bil net income, Apple’s monthly expenses are around $17bil. That means they need $102bil cash on hand for emergencies.
As someone else mentioned, they’ve experiences near bankruptcy before. Maybe they never wanna be there again.
That’s the point of an emergency fund. It’s for when the unthinkable happens.
Croatia for example is a country with a GDP of $63bil. 20% of their whole economy is tourism.
This year tourism is down 90%+. Oops
Even if Apple sold zero iPhones next year, they would still collect a lot of revenue from all the App Store Sales and iCloud services.
It would probably take a decade of zero iOS updates and no new iDevices being released to make Apples revenue decline so dramatically.
The risk an emergency fund has to guard against is of course offset by your level of diversification of revenue streams. And again, Apple knows better about their situation and risk tolerance than I would.
Emergencies.
I was completely ignorant about this menace until I started reading couple of books to educate myself —- Treasure Islands and Moneyland...recommend them both.
Since then I just use the term offshore to encompass any of those hundreds or so possible structures.
Not only can Apple finance those factory and process investments (if they chose to), having a letter of intent from a deep-pocketed customer like Apple helps Foxconn et al. procure loans and offset the risks.
Imagine if they started engaging in pointless acquisitions in the idea that this cash should be put to use. You'd have another Nokia, another Sun..
From an external standpoint, competitors have to be aware that "you can't manufacture like apple" and that they will always be forced to make compromises on features/packaging/price in comparison to an apple product.
https://www.wsj.com/market-data/quotes/AAPL/financials/annua...
and $100 billion is only one year's worth of Apple's earnings:
https://www.wsj.com/market-data/quotes/AAPL/financials/annua...
Ah, finance sites claim 100B in cash. Rest is not cash, nor on hand, but 100B in securities awaiting maturation.
Maybe the know what technology will break out, but is not ready yet (autonomous cars, AR), and waiting to invest when the time comes.
Apple designs an iPhone, has it produced in China, sold to Apple HK, then sold to Germany.
Profit margin in China by Foxcon? Small Profit margin in the offshore jurisdiction (e.g. Hongkong). Big. Taxes in HK for this transaction: Zero
This transaction also does not show up in the US trade balance. ("Black matter in accounting")
For example: Between 2014 and 2017 Apple paid $35 billion in taxes.
While you can argue they should pay more in taxes, the fact is they pay vastly more than their peers. Amazon in particular is notoriously good at keeping their tax bills low.
I don't know what is fair in terms of taxes and I'm not suggesting Apple is a perfect tax citizen, but they do pay a good chunk of cash out to keep the White House lights on.
https://observer.com/2019/09/apple-ireland-tax-lawsuit-europ...
1. I don't know why I get downvoted
2. I would not say a corporate tax rate of 0.005% is high.
This is on public record: https://www.macrotrends.net/stocks/charts/AAPL/apple/total-p...
> I would not say a corporate tax rate of 0.005% is high.
I'm not sure what that number comes from so I can't say, but since they paid $10b/ year for the past 9+ years, they'd have to have 2 trillion dollars in profit in a single year for that rate to be accurate.