Bloomberg Businessweek USA - 12.08.2019

E C O N O M I C S

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Edited by

Cristina Lindblad

Bloomberg Businessweek August 12, 2019

Borrowing Billions

To Buy Stock, Not Invest

When the Federal Reserve cuts interest rates, mak-

ing it cheaper to borrow, it’s supposed to deliver a

direct boost to the economy. But one key part of

that machinery has broken down.

Business investment used to rise when U.S. com-

panies took on more debt—because most companies

borrowed to add capacity. Nowadays, they’re like-

lier to funnel the money to shareholders.

Investment is stuck at low levels by historical

standards. President Donald Trump’s reduction in

corporate taxes hasn’t changed the pattern. Neither

has a decade of low interest rates, even before the

Fed’s quarter-point cut on July 31.

It’s not that business stopped borrowing. As a

share of gross domestic product, corporate debt

has climbed to a record. What’s all but vanished is

the correlation between how much companies bor-

row and how much they invest.

That long-standing relationship endured, albeit

weakened, through the 1980s and ’90s as companies

The long-standing link between corporate debt

and capital expenditures has broken down