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The fiscal cliff – why a deal will happen

The fiscal cliff deadline of January 1st 2013 is fast approaching.   It appears that no deal will be made, we will all go over the cliff, and the Mayan apocalypse will be proven correct a few days too late.   But a deal will be made, that is 100% assured, even if it is a few days late, and here is why.

The tax increases will take affect, and the public will be seriously displeased, but they will not protest in mass.    Polls have shown that while the public does not want tax increases, much of the public has come to understand that in order to solve the country’s budget deficit and national debit, tax increases combined with spending cuts must take place, even if they do not like it at all.

What will set the public into a far greater fit of anger and rage will be the automatic spending cuts.   When the sequester was put into place, it was done as a last ditch threat as part of the fiscal cliff talks of 2011.    During those talks, it was agreed that a bipartisan commission would be set up in 2012 to come up with a solution to the problem.   As an incentive to push both sides to come to an agreement, a sequester of large tax increases and spending cuts would take place.   This was only supposed to be a motivator.   It was never expected that the sequester would happen because every sensible person knew the the reality of the sequester is far worse than the items both sides objected to while trying to come to an agreement.

Once the spending cuts hit, they will be very large.   Many citizens receiving government checks will get a substantial reduction or delay, or both, in their checks.   Not much motivates people to take action as when they don’t receive money they feel they should receive.     Ultimately, the leaders of the political parties know this and will come to an agreement.

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Real Domestic Gross Product up 2% in third Quarter

According to the 8:30 A.M. November 23 rd release by the Bureau of Economic Analysis (BEA), real gross domestic product was up 2% in the third quarter of 2012, for that 3 month period.

The bureau further reported that increase in real GDP in the third Quarter primarily reflected contributions from (PCE), Personal Consumption Expenditures, federal government spending, as well as residential fixed investment that were partly offset by negative contributions from exports, non residential fixed investment, and private inventory investment.

Real federal government expenditure(s) as well as gross investment increased 9.6 percent 3rd Quarter, in comparison to a decrease of 0.2 percent in the second.  National defense increased 13.0 percent, in contrast to a decrease of 0.2 percent.  Nondefense increased 3.0 percent, in contrast to a decrease of 0.4 percent.  Real state and local government consumption expenditures and gross investment decreased 0.1%, compared with a decrease of 1.0%

Real nonresidential fixed investment went down1.3% in the third quarter, in contrast to an increase of 3.6 percent in the second.  Nonresidential structures decreased 4.4 percent, in contrast to an increase of 0.6 percent.  Equipment and software decreased less than 0.1 percent, in contrast to an increase of 4.8 percent.  Real residential fixed investment increased 14.4 percent, compared with an increase of 8.5 percent.

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3rd Quarter import prices up 1.5% third quarter

3rd Quarter import prices up 1.5% in the third quarter of 2012, per the bureau of labor statistics, after falling 3.8% in the second quarter of the year.

The bureau further reported that the increase was led by an 8.2% increase in fuel prices that offset a .4% drop on prices for non fuel imports.

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Bureau of Labor Statistics, export corn prices up 32.5%

According to the Bureau of Labor Statistics, export corn prices up 32.5% from June to August 2012.  Prices kept increasing as drought conditions kept worsening.

The bureau reported that beginning stocks were already low at the end of 2011, thus exacerbating the problem.

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Should the Government make small business loans directly?

Currently the Government does not make loans directly to businesses.   The SBA, a well known government institution, does not make loans directly.  The SBA only guarantees loans that banks make.   As long as the banks follow certain specific guidelines that are set by the SBA, then the SBA guarantees 80% of the loan in case of default, which allows the banks to feel comfortable and secure in making the loans.

However, should the Government begin making loans directly to small businesses?   There are some reasons to consider doing this.    During the time the Government was bailing out the banks and trying to get the economy going, they wanted small businesses to start getting loans.   So the Government gave billions to banks with the instructions that the banks would begin lending the funds out.     By many accounts, much of the money was not lent to small businesses, but rather hoarded by the banks.

The Government should consider starting it’s own direct lending department.    Fully credible loan officers could be hired and the department could be staffed.   Critics might well say that the last thing the economy needs is more Government intervention in the economy and more Government control.

However,  if the Government identifies certain industries they want to lend to, then currently they have to ask the banks to focus on those industries and there are no assurances the banks will do so.   Direct lending would eliminate the middle man.  Even though the Government would be lending themselves, simply eliminating large corporations in the middle of the process should speed things up dramatically.

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Do deficits matter to the U.S. Economy?

Do deficits matter and will they harm the U.S. Economy in the long term?

It was widely reported in the past that former Vice President Dick Cheney said that deficits do not matter.    In general, the dollar amount and the number of years they keep happening will dictate how much they matter and the impact on the U.S. Economy.    

Saying they do not matter is only correct when they are very small, and for only one or two years.

That has not been the case for decades.

Large deficits for many years matter a great deal.   Currently, the government is using approximately 10% of revenues to simply pay interest on the current national debt.     This means that only 90% of the funds taken in can be spent.   Each additional year the Government runs a large deficit, that 90% goes down. Most State laws require the State to balance the budget every year.

So deficits do matter.  Based on federal budgets since 1980, a balanced budget amendment is the only solution to the problem that will work in practice. All of the other options are debated but they do not work because they are aspirational and later forgotten and ignored.

The notion that a stimulus will create enough revenues to repay the borrowed money has not happened. In fact, in the rare cases when there was a surplus, the government quickly legislated a massive tax cut, again largely responsible for immediate deficits.

Large shortfalls in revenue compared to spending over time creates a debt that eventually begins to starve available cash.

The borrower at some point has to make a fundamental decision that will make or break their long term financial future.

Stop borrowing and have a sustainable future or borrow into bankruptcy. The government’s share of interest on debt becomes so large they must borrow more to spend the same amount of money on programs. International and domestic lenders become alarmed at the ability of the borrower to repay and require higher rates of return. This exasperates the debt and need for more money. The debt then increases faster.

Eventually, there need to be large tax increases or large spending increases. This comes at a very bad time in which Social Security and Medicare shortfalls will also have to be corrected. Those shortfalls haven’t even been taken into account yet and have been ignored for a future crisis.

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Gas prices spike $.31 in August

Gas prices have spiked $.31 in August to an average of $3.83 per gallon.   This price beats the previous Labor Day high of $3.68 set in 2008.

Some of the increase has been attributed to Hurricane Isaac.    AAA estimates that approximately 33 million Americans will travel 50 miles or more, including 28.2 million by car.

U.S. Department of Commerce – Helps american businesses become more innovative at home and competitive abroad.

U.S. Bureau of Economic Analysis – Provides statistics on consumer spending, corporate profits, travel and tourism and much more.

Entrepreneurworld – Resource for Entrepreneurs, including starting your own business, growing your business.

Bureau of Labor Statistics – Provides companies with up to date information on employment, demand, hiring, productivity and other information that may be useful to companies.

More Small Business Loan resources:

Department of Labor – Provides information on many labor issues that can be useful to companies, such as insurance, regulation, wages, wage hours, compensation, safety and health

U.S. Patent and Trademark Office –U.S. office to file patents to protect a companies new or existing proprietary products.

U.S. Trade and Development Agency – Promotes U.S. Exports to Foreign Countries, please review if your company is interested in exporting goods to foreign countries.

CEO Refresher – A monthly newsletter on creative leadership ideas. Short articles, brief book reviews, models, management tools, quotations and commentary.

E-Network for CEOs – Online articles and much more for CEO’s

Public Radio Planet Money – All issues money related to the public.

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Foreign Born High School Dropout rate far surpasses native born

According to recently released Government statistics by the bureau of labor statistics, the percentage of foreign born residents in the United States that did not complete High School far exceeds the same statistic for native born.

The percentage of Foreign born living in the United States today that did not complete High School is 25.5%, versus 5.3% of native born.    The percent of foreign born that completed at least some post High School education was less than native born, 17.5% versus 29.9% for native born.

Where this comparison does not follow as drastically is for bachelor degrees.   The percentage is approximately 31% versus 36% for native born that have a Bachelor’s degree.

Small Business Loan Resources:

SBA Community Blog and Forum –  Blog and Forums by the SBA, Small business administration.   Questions can be asked and answers provided.

U.S. Department of Commerce – Helps american businesses become more innovative at home and competitive abroad.

U.S. Bureau of Economic Analysis – Provides statistics on consumer spending, corporate profits, travel and tourism and much more.

Entrepreneurworld – Resource for Entrepreneurs, including starting your own business, growing your business.

Bureau of Labor Statistics – Provides companies with up to date information on employment, demand, hiring, productivity and other information that may be useful to companies.

International Trade Administration – Creates jobs and economic growth by promotingU.S. companies abroad to governments in other countries.

More Small Business Loan resources:

Department of Labor – Provides information on many labor issues that can be useful to companies, such as insurance, regulation, wages, wage hours, compensation, safety and health

U.S. Patent and Trademark Office –U.S. office to file patents to protect a companies new or existing proprietary products.

U.S. Trade and Development Agency – Promotes U.S. Exports to Foreign Countries, please review if your company is interested in exporting goods to foreign countries.

Thank your for visiting our Small Business Loan resource page!

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Will Super committee cuts affect small business?

Super committee cuts small business

The super committee was established to recommend solutions to the federal budget deficit. It’s due to report recommendations by November 22nd.   Will it’s recommendations affect small businesses?




The answer is most certainly yes.  Indications are it appears the expected decision by the super committee will affect businesses in a negative way in the short and medium term.

The super committee has to decide whether to recommend only spending cuts, or a combination of spending cuts and higher revenues.   Increased revenues is considered code for higher taxes.   If the super committee provides recommendations that are heavy or solely cuts,  expect steep cuts to major government programs in the next few years.     This will have to include cuts to major programs such as Social Security, Medicare, Medicaid, NASA,  and defense.    That will be true if the reason for the existence of the super committee and it’s goals are to  be met.   It will have to include cuts to many smaller programs such as farm programs, the small business administration, the department of Transportation, and others.    This will affect small businesses in many ways.

Medicare / Medicaid –   Many physicians accept Medicare and Medicaid patients.     When Medicare and Medicaid are cut, both programs will likely be forced to lower the reimbursement rate to doctors.  This will further cut into the profits of medical practices, lowering their gross receipts and profit margins.     Many physicians already may feel that they cannot run a profitable enough business.   This will result in many physicians and medical practices discontinuing to accept Medicare and Medicaid patients.  Some may totally discontinue accepting new Medicare and Medicaid patients.

Defense and NASA –  Major cuts to the defense department may occur.  if so, it will have a major affect on many businesses across the country. In addition to the large defense contractors,  there are thousands of smaller contractors that work with the larger contractors.   There are even smaller companies that contract with these smaller contractors.   Many more businesses derive their revenue simply by being located in the area of the largest contractors.    Businesses such as restaurants, gas stations and retail shops will all take a hit.  The defense department is at the top of the food chain and any changes have long tailed effects.  With a budget in the $700 billion range, a $100 billion or $200 billion dollar cut can have a major affect on the economy.

Other programs –   Other cuts by the super committee may affect the Small Business Administration, farm programs, the department of transportation, the department of education, and a long list of programs.

There is major pressure on the super committee to cut spending, and that doing so is a good thing.  There has been very little discussion of how it will affect the economy.     Long term effects of a lower budget deficit will be positive 5 to 10 years out.    However, cutting spending in the short and medium term, as outlined above, will negatively affect many businesses.    Revenues will be lower, contracts will be cut, businesses that are indirect recipients of the government programs will see lower sales as the businesses they feed off of have lower revenues.

In short, spending cuts by the super committee means less money to businesses, regardless of the issue whether the government has been overspending or not.

A –  The SBA (small business administration) may get hit with cuts along with the many other non defense programs.   Small businesses are having a very difficult time now getting loans from banks.    If the SBA loan programs are cut back in funding, businesses will have even fewer options than they had before.

B – Farm Programs –  Currently, farmers and businesses related to farming sometimes need government programs to assist them during times of droughts,  early frosts and other times of crop destruction.    Reductions in these programs will put farmers and related industries under greater pressure and more farmers may  be forced out of business.

C – The department of Transportation – New highway construction programs, highway repair, rail programs such as Amtrack, funds for building and updating shipping ports will all take a hit if the department of transportation is cut.

Small Business Loans Resources:

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Now may be the time to expand your business.

With demand ramping up and companies beginning to add jobs along with somewhat more accessible financing in the last year, now may be the time to take out a small business loan to expand your business.    Many large corporations actually have significant cash on hand but did not want to invest with the economy still with very limited expansion, and have been waiting on the sidelines.

Now many larger companies are worried that their competitors will start hiring first, and in doing so, hiring the best candidates first.   Fearing such a position, some companies have begun venturing into hiring, which will ramp up demand.

Also, some companies have begun hiring out of necessity as demand has ramped up in the face of bare bones staffing.

Small Business Loan Resources:

U.S. Department of Commerce – Helps american businesses become more innovative at home and competitive abroad.

U.S. Bureau of Economic Analysis – Provides statistics on consumer spending, corporate profits, travel and tourism and much more.

Entrepreneurworld – Resource for Entrepreneurs, including starting your own business, growing your business.

Bureau of Labor Statistics – Provides companies with up to date information on employment, demand, hiring, productivity and other information that may be useful to companies.

More Small Business Loan resources:

Department of Labor – Provides information on many labor issues that can be useful to companies, such as insurance, regulation, wages, wage hours, compensation, safety and health

U.S. Patent and Trademark Office –U.S. office to file patents to protect a companies new or existing proprietary products.

Public Radio Planet Money – All issues money related to the public.

Thank your for visiting our Small Business Loan resource page!