I do not look on mountainous debt loads with favor; and I have some pretty big hills of my own. But there is debt and then there is debt. Right now with the mortgage situation banks are leery of lending and are keeping rates high to pay for their previous bad bets. People with ordinary credit asking for good loans are meeting rejections or high rates which dissuades purchases. Businesses with solid balance sheets are finding short term loans difficult, expensive, or impossible and that means that good projects are delayed or lost. These difficulties drive straight back into the employment picture.
Some people find short term loans for business hard to understand, it is a different thing than running up your credit cards. My suppliers run on a 30 day/10th of the month billing, materials I buy are due the 10th of the following month and I receive a discount for paying on time - that discount is built into my bids helping keep prices down. If a project cannot be completed and paid in time for the billing cycle I lose the discount and if it is sufficiently large I lose good will and possibly access to that account. Normally I run projects of various sizes, most of which will fit the window or can be covered, some cannot be. In the case of those that will not fit and are too large to cover with ordinary income a short term loan is the answer. That larger project means wages for employees and possible hiring, its loss may mean there are no projects sufficient to require employees. When those jobs go away, so does the economy and with that go the projects and a vicious circle is created. That circle is reinforced by employees now defaulting on loans that were perfectly good when issued - not junk, reasonable loans. If reasonable loans begin defaulting the credit industry is in very serious trouble. I'm using a personal example for a broad topic as an illustration.
When the stock market begins to take hits people see lost money, that is the case if one needs to sell at the time, otherwise it is a fiction because that money doesn't actually exist until a sale is made. Your 401k may look ugly right now, but unless you're shedding it or living off it that is meaningless. If people begin to look at it as present day losses and try to mitigate that by dumping, a real downward spiral begins and that goes directly to the credit market. Stock is the value of a company, its assets unless it is liquidated. Loans are based on those measurable assets, its stock price. The people who really look at a company's concrete assets in the stock market are the raiders who buy out a company when its stock is less expensive than the value of the assets sold off, good-bye company.
This little article is not about expansion, it is about maintaining a business climate. If these factors of stock prices, loan availability, and employment hit a certain level of difficulty things will get out of hand quickly. The housing market could have taken a hit resulting in a large slow down without extensive damage to the economy but the hit is much wider than that, foreclosed homes are slamming the market and those bad loans are hurting banks spreading the damage wider and quicker than a housing drop alone. A burst housing bubble was going to hurt, particularly in the bubble markets, but the credit hit is horrid. A new or remodeled house isn't just a matter of some lumber and sheet rock, generally furnishings and appliances get replaced and landscaping gets done so slowing that already gets into the manufacturing segment and reduces employment and company value - adding the credit mess in makes things very grim.
When the Fed decided to let Lehman Brothers go under they sent a signal that investment firms are now pretty much on their own, that may seem a gain to taxpayers unwilling to be even more a part of socializing the risks of the plutocrats, but it may be a very short term gain. I find myself very torn and I'm sure our politicians that recognize the possible fallout are at least as torn. My business is already hurt but that isn't my real concern, having this mess spiral out of control would be a very real disaster making my hurt look like nothing. We are looking over the edge of a very long drop and it is crumbling under our feet and solutions seem sorely lacking.
I have nothing like the economic expertise to suggest fixes that wouldn't have unacceptable drawbacks. I am not sure anybody has, but I am real confident that the Republicans do not and some shortcomings are preferable to others. Their ideology is what has brought us into this mess, the idea that government and regulation are impediments has natural outcomes. I certainly am not in favor of an intrusive government but I am also very aware that there are segments of this economy that we cannot count on corrections to control. It seems that history is no guide to the plutocratic agenda, and factually there is little reason for it to matter to them - they do well anyhow. A couple hundred years ago not only would their wealth be at risk, their very lives would have been - these are much more civilized times... Now we allow them to do as they please to us, and hell, even reelect their largest enablers. Some will label this a call to class warfare, the truth is that they've been waging class warfare on us from St Ronnie on - and winning not only the battle but, oddly, the hearts and minds. Somehow, in the midst of all this, Barack Obama and the Democrats get successfully labeled leftists and even socialists - that is a nearly criminal misuse of language. Go figure...
No comments:
Post a Comment