I have decided that each Monday I will post a Business Weekly blog which summarizes what I feel was important information and insight from the prior week. I thought it might be useful for those in business to keep updated on key business issues and also gather some insight on what they might mean to business owners. Awareness is a key factor in good decisions. While there is so much information out there, I think sharing what I found useful and interesting each week could possibly help some of you entrepreneurs keep better educated on the world we live in today.
The US Elections
The expectation before the US presidential election was that since voters were not happy they would probably demonstrate their unhappiness at the polls. When Obama and the Democrats took control two years ago, there was much expectation for “hope and change”. For many, both turned out to be empty promises. These mid-term elections saw the biggest swing to the Republicans in the last 72 years! Politics seems to have a lot of volatility these days which is a real testament to (1) people want quick and swift change, and (2) their tendency to change direction when they do not get it. Personally, I think the election represents that our political system is the problem, not democrats or republicans. It is a system controlled by big business vs. a voice for the people.
All major economic movements are based on one principle – character of leadership. Character to me has always been a measurement of self interest. When leaders look to serve their own agendas (or big business) vs. the voice of those they serve, the abuse, over time, causes major problems. It is often lead by deregulation and lowering taxes. It often takes years before society suffers to a point where it demands something different from leadership. In the end, the political system will work again when serving the people becomes the priority and the values of society support growth (self responsibility, productivity, doing for others, etc.).
My Bottom Line: You can put whoever you want in office but you won’t change what is facing this country. We have fundamental problems (economic, social, infrastructure, government, leadership, etc.) that ultimately will require massive sacrifice and a paradigm shift in thinking from leadership down to every one of us. We are going to have to work harder to compete and to succeed. Things we take for granted will change. Taxes and fees will be a bigger burden for all of us.
Finally, American’s will look to take more financial control of their own lives. Small business will become the economic engine that drives every aspect of society. I continue to believe that owning a business is always the best strategy for taking long-term ownership of your financial future. Rest assured we are not alone in the paradigm shifts we will face in the future. If you think I am wrong, do some reading on what is going on in Europe these days because of the dramatic changes being made to insure long-term economic stability. In the end, remember one of the “life rules” – focus on what you can control. You cannot control politics. However, you can control your thinking and your decisions.
Quantitative Easing Part 2 (More Printing of Money)
You are going to start seeing a new term in the media – “QE2”. It represents a term for the second round of quantitative easing unveiled by the Federal Reserve last week. In essence, they are printing and adding about $600 billion of additional money into the economy between now and next June (about $75 billion per month). Keep in mind that this is significantly less than the $1.75 trillion of debt added between early 2009 and early 2010. That money is what has basically kept our economy stable in the last couple years (stable economy = slow growth or going from a recession to a more severe recession or depression).
As the Fed noted in their release, they have a negative view (bearish) on the stalling economy saying “the pace of recovery in output and employment continues to be slow”. Consumer spending continues to be historically low. Businesses seem reluctant to hire and invest. Inflation is dangerously low and we could get caught up in a real economic mess – a deflationary spiral (this is what has happened to Japan over the last couple decades). The interest rate on savings is about zero. Although lending is cheap, the lending environment is very tight. The Fed cannot lower interest rates any farther, so the only way to drive economic growth is for them to add money to the system.
My Bottom Line: In the short run, it seems like the Fed is doing what they feel is necessary to stimulate growth. This invites two big questions. First, will it work? Clearly the first round wasn’t enough and who knows if we won’t end up with a similar result this time. Second, what are the long-term effects of adding money to the system in this way (printing money)? In theory, if you print money it should be followed by inflation. However, that has not been the case. What the Fed wants is MANAGEABLE inflation, not run away massive inflation. Only time will tell how it plays out but clearly there will be consequences to all of us. In my opinion, this is a slippery slope and one that can be very dangerous. Our entire financial system is based on trust (Fiat monetary system). We are pushing this economic model like never before. Only time will truly demonstrate the benefits and consequences of this type of an economic strategy. One thing is for sure. The consequences could be very drastic although I hope that is not the case.
I continue to believe we will see a bifurcation when it comes to deflation and inflation. We will see deflation (shrinking values) in assets (real estate, cars, boats, etc.). I suspect we will see inflation (increasing values) in taxes, fees and commodities that society needs (i.e. food and fuel). For the business owners, I would offer the following advice. Run a tight ship and be smart about over spending. Be careful of taking on too much debt. Adjust your lifestyle because the expenses you cannot control are going to grow. The right financial formula is to (1) strengthen cash flow, (2) tighten expenses, (3) get rid of debt, and (4) build cash reserves. Focus your business resources on driving income. Finally, if you are buying anything, shop around. A deflationary asset economy means the buyers are in control. That means there are lots of deals for those willing to take the time to find them.
Closing Comments
As always, there were many other events worth discussing but these two were the most important to me. It is important to pay attention to what is going on so you have enough education and awareness to make good decisions. I know that many people are NOT experts on economics which is why I wanted to provide some type of interpretation and advice to those readers. If you are interested in these topics, then there are many other sources that can give you more information and insight.
On a side note, I have copied two links on The Small Business Jobs and Credit Act of 2010 that was passed into law on September 27, 2010 (H.R. 5297). The Act provides both tax and non-tax incentives that could help your business. It is worth reviewing with your accountant or financial advisor to see if any aspects of the new Act can help your business.
http://www.sba.gov/jobsact/
http://www.allbusiness.com/government/government-procedure-lawmaking-legislation/15154419-1.html
I hope you enjoy this new weekly feature. My goal for this website is to continue to increase the value of the information (and insight) I share to help my readership learn and grow. As always, I appreciate your support and confidence in me.