“Pay me now … or pay me later.”
It’s part of the law of unintended consequences that when you act irresponsibly others will see those actions as permission to act irresponsibly also. Financially it was really no big deal that the current Bush administration decided to cut taxes and wage a costly war on borrowed money. I mean foreign governments and businesses were willing to lend the US the money at low rates, why wouldn’t you take their money. The lenders know that the US government is always good for it.
One of the rules of real estate investing is buy land, they ain’t makin’ no more. So, smart guys on Wall Street put together an investment package for foreign investors based on property ownership in the US. I mean, what could be better than land in the US and mortgages insured by quasi- government agencies. And, if you wanted a higher return on your money, take a higher risk on sub-prime mortgages.
There is wonderful old TV commercial about auto maintenance. At the end the greasy old mechanic looks into the camera lens and says “You can pay me now (pause) or pay me later.” The implied final phrase is “But, you’re gonna pay.” Well, the US economy has reached that point.
In the ’70’s we had reached the end of a guns and butter spending mentality. Lyndon Johnson, Democrat of Texas, had instituted the social programs of “The Great Society” while escalating the war in Vietnam, because nobody was going to say he was soft on Communism. Richard Nixon and Jimmy Carter got stuck with the wrong of that stick and we had a very bad time economically until we finished paying. Today, we have pursued a guns and butter mentality. George Bush, Republican of Texas, did the little thing about the war and taxes I mentioned in the beginning. (I find it interesting that Texas keeps coming up. Maybe, it’s the water.)
I’ve read half a dozen articles in various financial publications and websites that list the ways that today is not like the ’70’s. Those are all good points. The one thing that hasn’t changed is that people who lend you money want it back. In riskier times, they want it back sooner and with more interest. We have reached one of those times.
What does that mean for small business? Money will become harder to come by and more expensive for business people and their customers.
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