The Schizophrenic news reports of the economy are starting to make us “Lay Economists” realize what we all believed all along is actually fact: The mainstream media and Gov’t officials are actually quite clueless to what Small Business Owners are really facing. Business owners are dealing with continued stagnation while decreasing cash flow and limited credit sources.
We are usually able to decipher a real story through the “political lenses” now commonplace from most news outlets.
This is nothing new… For example, you may recall the news leading up to the 2004 U.S. Presidential election (Bush/Kerry) with reports stating that the (increasing) employment numbers (Unemployment was at 5.4%) in the jobs reports were being called“the worst economy since Herbert Hoover” (the U.S. President during the ‘Great Depression‘).
What are they reporting now?
Now, during what is evidently clear to most non-partisans, we ARE in the worst economy since the Hoover Administration, and in fact, some would say things are even worse. However what IS being reported is that we are apparently actually in a recovery!
According to the Fed, we are experiencing growth, low inflation and improving job numbers. (Has anyone at the Federal Reserve filled their own gas tank lately, or bought a gallon of milk?… Gas and Food, the 2 biggest expenses, are not included in inflation statistics!)
Why do I use the term Schizophrenic? Well, it’s been several years since I relied solely on the MSM for my daily intake of news. According to recent polls, I am not alone. However, I would want to think that at least the Federal Reserve would be reliable.
Unfortunately, the Federal Reserve, lead by the bullish Ben Bernanke have members who seem to have different opinions as to what is really happening in the largest economy in the world – in some cases 180 degrees different.
The Truth Leaking From the Fed
This week a sobering report by Richard Fisher, President of the Dallas Federal Reserve Bank, painted a bleak and concerning picture regarding the potentially imminent “insolvency of the United States of America“. This is not a “doom and gloom” type report, the likes we see from Faber and Roubini, both who are well respected in their own right. This is a report by a Federal Reserve Official!
We do not claim to know all aspects of the U.S. economy. There are certainly some sectors that are seeing some incremental level of improvement.
Yes, the largest corporations and banks, many of whom benefited from the bail outs are now showing profits, dividends are up and shareholders are pleased, as it evident in the broader stock market.
Factory orders have been slowly increasing (although todays report shows otherwise). Unemployment is arguably improving. This isn’t simply due to people getting jobs, but also related to peoples benefits expiring and people having given up looking. Even with these numbers decreasing, the U-6 True UE# still sits above 16%.
You recall the saying “every dead cat bounces”? The sheer amount of capital invested into the economy through TARP, the Stimulus, Quantitative Easing I and II had to have even a minimal effect, which is all it appears to be – Minimal.
The Current Crisis
In the meantime, the U.S. National Debt has exploded to over $14 TRILLION (almost $5 Trillion in the last 2 years alone) which equals the entire U.S Economy! This is causing concern with the U.S. Credit Rating. Any downgrade of the U.S. Credit Rating will cause interest rates to skyrocket causing an already slow economy to virtually come to a standstill.
Meanwhile, small business owners do not have the luxury of bail-outs, tax payer subsidies, or the whims of the politicians ‘ear-marking”. They are only as strong as their balance sheet and cash flow and with business loans harder to qualify, business owners no longer can rely on ‘back up’ lines of credit.
We applaud efforts to initiate lending through the SBA, although the promised $30 Billion has yet increase levels of lending. Many businesses have had their corporate credit lowered due to their challenges and slowdown in receivables, and therefore are unable to even qualify.
From our perspective as small business consultants, we are seeing nothing less than catastrophic results on the street. Many business owners are trying to find a way, anyway, to stay solvent and meet their obligations to creditors.
The livelihood of their employees depend on it. Unfortunately, as commercial and residential loans continue to default, banks are continuing to close their doors and remaining banks remain skittish and unable to lend.
Our network of Licenses all seem to agree, what is actually happening on the ground is the true representation of the economy. After all, over 80% of jobs are relying on small business, to stay solvent. At this time, with receivables still slow, lending all but non-existent, and companies still sitting on trillions in cash yet scared to spend, small businesses are not feeling the benefits of the attempts at recovery.
Small business owners may have to continue hunkering down for some time.