Latest Poll

Big Businesses in a Big Mess

Businesses in a Big Mess!

Yesterday, we introduced about the major players in the economy and learned about the role consumer spending.

Today, let's take a quick look at the role of business spending.

Business spending is understood to happen in one basic way: Businesses invest in capital spending. What does this mean?  They spend money on good and services that help them create the good and services consumers buy. 

Specifically, the Bureau of Labor Statistics, short for BLS defines this as:

1. Investment in equipment and software

2. Investment in the construction of factories and residential structures

3.  Changes in business inventories or in other words their stocks of consumer products and services and stocks of capital goods

So, why help these businesses out in this time of crisis in the credit markets?

Paulson's TARP (Troubled asset relief programme) was created to deal with the credit crunch faced by banks who now can't lend to businesses or conusmers or to each other.  If businesses can't get loans for capital spending, that slows down their ability to produce goods and services.

So, okay they can't get loans. They can still sell good and services they have in current inventories to get money to fund their capital investments, right?  Wrong, consumers are now spending less. 

So, Their main channels for access to money, consumers and wall street & banks or the capital markets, are not available.

The role of business in spending while sginificantly less than consumer spending, has a big impact.  When a business spends a dollar, the net effect of that dollar mutiplies as it changes hands down their supply chain and across industries.  This is why the government knows it has to provide some assistance to businesses.

So, the issue is not really whether the role of government should be to help? The question is simply how much and with what controls?  In other words, will their be enough transparency built into the help so we can monitor and track their use of the funds.

We should not allow money to be given or spent without accountability or oversight?  Would you give you children unfettered access to your retirement accounts just because they need a loan?  Would you give them siginificant funds in a time of need without fully knowing how it will be used or repaid?

This would be bad parenting and bad money management.  Can't we expect from our elected officials?  They are the bug in this whole mess.

It is ironic that the same elected officials who are asking for oversight now were the same ones saying it wasn't needed for the real estate market and the credit markets a few years ago.