Lessons From the Front Line of the American Economy
|Valcor and it’s Network of Certified Licensees works directly with small business owners who are requiring Business Restructuring, Mediation and Capital Acquisition. Under siege by increasing debt, slowdown in receivables and lack of financing, these are the companies that make up the American Economy. These are their concerns:|
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Because of the service we provide (Business Debt Restructuring and Mediation), we see our clients at a time when they are most concerned about the viability of their company. They have creditors calling, and they have minimal cash flow to meet their obligations, usually due to the slowdown in their sector of the economy. So, our clients do what most families have to do in the same circumstances… they tighten their belts. They decrease costs, reduce overhead, and in some cases, they make payroll cuts and even lay off employees.
While the current administration has justified certain bailouts of U.S. companies (AIG, GM, Citigroup, etc.) as “too big to be allowed to fail”, the same can be said about China investing in America. China has too much money invested in the U.S. and cannot afford for America to fail. After some of our elected officials completed trips to China over the past week, a reality is starting to seep into the D.C. mindset. As discussed on the Daily Reckoning Blog “Simply stated, AAA credits do not repay their debts with currencies they print for themselves; they repay their debts from the proceeds of profitable capitalistic enterprises.” The fact is, the U.S. is printing money to fund our deficits, thereby reducing the value of our currency. Many have said that this will lead to high levels of inflation. Remember the old proverb “water always finds its own level”. Inflation (and some say hyper-inflation) is imminent. Unfortunately is a matter of when, not if. The rising cost of crude oil (today reaching $70 a barrel) may a harbinger of things to come.
As Bloomberg reports, “The deficit should reach $1.85 trillion in the fiscal year ending Sept. 30 from last year’s $455 billion, according to the Congressional Budget Office. Goldman Sachs Group Inc., another primary dealer, estimates that the U.S. may borrow a record $3.25 trillion this fiscal year, almost four times the $892 billion in 2008.”
Federal Reserve Chairman, Ben Bernanke is starting to sound somewhat bearish about the U.S. prospects for recovery. In fact, he is now ringing alarm bells in regards to the astounding levels of debt the U.S. is now racking up. Bernanke said large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall. “Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke continues his testimony, “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”
These unsustainable debt levels will have a continued detrimental effect on business, as interest rates will continue to increase in response. This will cause any available financing (which is still not widely available) to become more expensive. Therefore, companies will not be able to acquire capital for hiring, equipment and investment. This will therefore result in further layoffs. Bloomberg reports “The U.S. may suffer additional “sizable” job losses, Federal Reserve Chairman Ben S. Bernanke said this week in testimony to lawmakers. While economic growth will return “later this year,” he said, unemployment will rise “into next year.”
This article is apolitical (concerns over deficits cross party lines).
It is time for our elected officials, in both parties, to take a lesson from the backbone of America: The Small Business Owner.
David H. Sussman M.A. is C.E.O. of Valcor Arbitration Services, a business debt restructuring and mediation firm.