Deficits, the National Debt, and Economic Growth: What many politicians don't want you to know.
Debt is the wrong enemy.  Growth is our forgotten friend.
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One of our debt-hungry corporations

"The greatest pleasure in life is -- doing what other people say can't be done."
--Sam Walton

If you think the federal government's debt-pileup is bad, take a look at this publicly-traded company's debt record...

Page
Sad Story; Happy Ending

This company has really outdone the federal government in the last decade -- it has multiplied its debt nine times in the last ten years. "What a disaster!" the debt-phobes would say.

Rhetoric

This is a sad-looking history of debt, piled on top of debt, piled on top of more debt. Obviously, this company is headed for the scrap heap, right? Ten billion dollars of debt makes this one of the biggest debtor-companies in existence. How can they possibly continue to hang on? This ugly track record must be a huge embarrassment to the stockholders --how could they possibly have been so stupid to invest in such a spendthrift, out-of-control drag on the economy such as this corporation? Bankruptcy must be just around the corner, wouldn't you agree?

Before you answer, I'd better tell you which company we're talking about here. It's none other than...

Wal*Mart.

Yes, Wal*Mart. One of the best-managed, fastest-growing, highly-respected companies in the whole world, as well as on the New York Stock Exchange. So well-run that it was recently awarded a spot in the Dow Jones 30 Industrials. Millions of people love to shop at Wal*Mart, and millions love to invest in Wal*Mart.

Hmmm. Something doesn't quite add up, does it? How can such a debt-hungry corporation be so well respected? In all those gloom-and-doom books, the debt-phobes tell us that piling up debt is a sure recipe for disaster. What's going on here?

Here's what's going on: Debt is a single number. Single numbers don't tell us much when we're trying to evaluate financial health.

What's missing?

Assets and income, that's what's missing. The assets that are backing up the debt, and the income the assets helped to generate. The assets that were purchased with the money that was borrowed. The assets that are helping the borrower become wealthier (i.e., helping future income grow larger than it would have been otherwise).

Reality

Wal*Mart's management purchased assets with the money they borrowed -- they didn't burn the money; they invested it in their business. They purchased productive assets like stores, trucks, warehouses, and computers. Assets that generate more than enough additional income to cover the interest on the debt that was used to fund those assets. (The United States of America is no different, either. I explain this elsewhere; see What's an Investment?.)

So let's fill in the missing piece. Here's the rest of Wal*Mart's financial story...

The debt story sure looks different when it's placed next to assets (i.e., the stuff the debt helped to purchase), doesn't it? No wonder so many investors love Wal*Mart (irrespective of its debt-pileup). Wal*Mart knows how to use borrowed money wisely. They know how to use it to get wealthier.

Moral:

Do not listen to single, scary-sounding debt numbers. Don't fall victim to Single-number-itis. We must demand more information. A single number doesn't tell us enough.

End of this article
Last update of this page: June 24, 2001
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