The opening scene of KatyÅ„ – a World War II film focused on Poland – shows a group of Polish refugees attempting to cross a mist-covered bridge. They are fleeing from the invading Germans. At the other end stands another desperate group of Polish refugees fleeing from the Russians. And after the fog over the bridge dissipates, individuals from both groups shout across the bridge demanding to know where safe haven is.
Today’s refugees are taxpayers who are tirelessly chased by Big Business (the banking establishment) on one end and Big Government on the other. Yet this clash can be wholly prevented.
The Smoot-Hawley Act of 1930 is widely considered a major cause for a lengthening the depression. Prior to its enactment, over 1000 economists signed a petition calling for President Hoover to veto the act (the same Hoover who is continually cited as being hands off). He didn’t.
Contemporaneously, several government organs are creating legislation that could be just as damaging to the long-term economic growth as this Act. And the growing consensus among economists of all political persuasions is that these actions are wholly unnecessary, unjust and would only exacerbate the problem in the long run.
For instance, the SEC, led by Christopher Cox continues to add firms to the short sell ban list. Last weekend it started at 799 and it has increased to 926 firms (two have heroically removed themselves from it).
One wonders since diversified companies like GE are on the list, why not just add every public company? Why let any stock price decline?
Meanwhile, Treasury led by Henry Paulson, continues to not only be given unilateral control over vast swaths of financial regulation, but has authored the largest socialization plan ever. Not only does it force taxpayers to deleverage domestic firms that made poor business decisions, but it now includes the power to bailout foreign firms operating in the US.
Combined with the never ending subsidies from the Fed, these organs have the potential to repeat the disasters of the 1930s.
Contra Krugman, we are all Polish now.
See also: Will banning shorts help win an election for the GOP?
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So how do I handle the immediate cash flow for my business? My bank won’t give me credit using my savings account as collateral. Without credit I’m using up capital swiftly. What would you suggest…that I simply close up shop and layoff my employees to protect assets?
Gordie,
You are, unfortunately, exhibit A in Austrian business cycle theory.
Economic activity generated by artificially cheap credit requires continued artificially cheap credit to be sustained. When these infusions of credit stop, those activities not supported by the pool of real savings end. This is not to say you are a bad businessman. As the new money and credit works its way through an economy, its effects are way too complex to be traced. Nobody can really say until after the fact what part of the economy is “bubble” activity and what part is “real” activity.
You have my sympathies. There are many people in this same dilemma.
Gordie
Raise equity by selling shares.
You could also reduce the amount of working capital in your business by selling down inventory, being more aggressive with receivables, or slowing payments to your vendors. Any of these three actions would raise cash.
Alternatively, raise your prices or reduce your expenses such that cash flow from operations are sufficient to fund your business.
If your business actually does not generate cash without the use increasing amounts of indebtedness, and the day when cash flow becomes positive is not within view, the best move for your personal finances, as well as for your existing creditors is indeed to liquidate the firm.
Hope that helps.
As a final note, I find it worse than insulting to the readership’s intelligence when people claiming to be businesspeople argue that the only alternative to expensive short term credit lines is a $700b bailout of failed banks. As noted above, there are many ways to raise cash without borrowing.
Is Katyn some kind of dark comedy or something? The scene you described sounds like typical Polish dark/ironic comedy during the Soviet era.
Kaju, it’s a recent film. Quit good actually, I heard the current Russian government denies Katyn even happened.
We are Poland in a way.
We are all Polish if like Lawrence Reed, former president of the Foundation for Economic Education, you are inspired by the underground band of freedom fighters in formerly communist Poland as Isaac Morehouse recounts in one of the latest Mises daily articles:.
“Their spirit of freedom was kept alive despite a tyrannical Communist regime. Indeed, they not only held onto their belief in freedom, but they spread it, often at great risk to their lives. When the Communist authorities finally announced that they were relinquishing their power the reason they gave was that the Polish people had become “ungovernable.” No regulations, no prisons, no secret police, no propaganda, no physical or political suppression could take away the people’s freedom. They were free, whether the government liked it or not.”
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