Quick thoughts on the bailout
When congress was finally able to effectively market the bailout to constituents, one of their best arguments was that normal businesses were coming close to a situation in which they would be unable to access the credit markets to meet payroll.
This would have been terrible, but it made me wonder just how many major corporations rely on short-term debt to meet something as simple as payroll. Obviously, with a working credit system it makes sense that you wouldn’t want your cash deployed or credit lines accessed except at the last possible moment. I wish I could pay my landlord using a credit card, because I’d be able to earn more interest on my cash. As it is, he rarely deposits my check earlier than the 10th. He’s also the only reason I need to maintain a checkbook.
However, even though this is a benefit I might want, I wouldn’t ever allow myself to have $0 in my checking account, relying on my credit card company to make my rent. Similarly, I am absolutely astounded that corporations actually rely on someone to extend credit to them so that they can meet their payroll, the most fundamental of obligations. This really is the equivalent of corporate America keeping no cash around for a rainy day.
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6. October 2008 at :
I think this ties into some basic economic questions Sandra was asking me yesterday. Now with my very limited knowledge of economics I was only capable of providing the most cursory of responses.
The questions centered on the existence of currency governments producing more of it and banks not being able to support the loans they’ve made. Basically all the problems that exist now.
The interesting truth of the world we live in is that there isn’t actually enough currency in existence to support all the virtual money in existence. That is to say if every individual and business wanted to cash out their savings today they couldn’t do it. There simply isn’t enough cash to go around. If I’m not mistaken wasn’t that one of the major causes of The Great Depression? Didn’t everybody, in fear of losing their bank savings, start pulling their money out of the banks thus causing the banks to crash?
Beyond the absence of currency to support all our virtual savings and investments, there isn’t even anything supporting the currency - like gold, for example.
So this is the world we live in. And as long as banks and business and governments are responsible, frugal, wise and regulatory there shouldn’t be any major catastrophes. But apparently we can’t trust these people to do the right thing.
6. October 2008 at :
There isn’t a paper dollar equivalent for every dollar of debt, but it would be massively inefficient if there were. The problem is that the fiat money loonies are now coming out of the woodwork claiming that the whole banking system is a sham when it’s not. I could write more, but they’d find me…
6. October 2008 at :
If a company has to access a credit line to meet payroll its cash flow is insufficient to keep the business running. It is one thing to occasionally borrow to meet payroll, such as when a major capital expenditure has arisen and taken more of the available cash than usual, but to do it on a regular basis indicates a company that is on the skids. When the “Experts” began talking about this practice as a necessity on the various television and radio shows I almost threw up. They were so intent on creating fear of the possibilities if the government didn’t pass a rescue plan that they were lying about ordinary business practices. If you can’t pay your people you have too many employees or you don’t have enough revenue, simple as that.