Promises on paper

Every week I speak with business owners who come to me for working capital loans. The biggest concern they have about their businesses are the rapid and seemingly uncontrolled price increases for just about everything they pay for including salaries. These increases have a dramatic affect on profitability and, in many cases, survival. Many business owners don't have large enough profit margins to withstand the increases and they're unable to raise their own prices quickly enough without losing revenues. Also, consumers are pulling back in a big way adding to the pinch business owners feel and there's nowhere for them to hide right now; I get the sense that a very big downward adjustment to everyone's living standards will happen after the election regardless of the result. There's simply nowhere else for this situation to resolve itself imho. The biggest problem most folks I speak with face is they don't really understand what's happening.

Prices aren't rising.  

"You can’t trust someone to offer you a valid solution if they’re too dense to understand the source of the crisis. You also can’t trust someone to give you valid solutions on the economy if their job is to lie to you about how great things are."

What is actually happening is the purchasing power of the dollars you're using to buy things with is crashing with each new printed dollar the Federal Reserve issues. In just the last four years the supply of newly printed, backed by nothing (other than a promise) dollars has nearly doubled. 40% of all dollars in circulation were "issued" (printed) in that last four years doubling the amount of dollars in circulation. That is, it took 250 years to reach the amount of dollars in circulation by 2020 so the Treasury issued the same amount in just four years to "stimulate the economy" causing massive shrinkage to our existing dollars' purchasing power.

Most folks I know wouldn't readily put money into an investment titled: "Promises on Paper" but that's what US Treasury Bonds, Stocks and Mutual Funds actually are! There will come a time when those promises will be fulfilled but, with what exactly? You may have a bond, retirement fund or bank account which shows a printed number in dollars and think of that as an asset; I know I do. What if those dollars can no longer purchase enough goods and services to maintain your current lifestyle? This is what's happening in real time.

“Money printing has guaranteed the linearity of our political structure, our military, our businesses, it’s everywhere. And that is the greatest danger of money printing, it’s not just the leverage and the shock when you have to take the leverage out, it’s actually the social consequences of literally 20 years of linearity”

David Murrin

There are ways to solve this problem but the people in charge wont; mainly because they are the biggest source of trouble themselves:

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“The biggest borrower at these now higher rates is the government. Janet Yellen shows you she doesn't mind borrowing short at the highest point in the yield curve - she's happy to do it. She's not going out of business. Her negative cash flow isn't driving her to the poor house. She doesn't care. She's happy to issue more 5% bills over and over and over and over again. If a corporation had her funding structure, they'd probably be in a bit of trouble, but she's not in trouble. She's the biggest borrower, and the Fed was the biggest owner, so they have the biggest unrealized loss, and their - you know, I don't want to use the word - Ponzi scheme just carries on”

Here's the big issue for me: The secret sauce the Fed has been using by printing and issuing new funny-money no longer works. They seem to still believe in their own magic so they're shocked to see it fail like, for example, the Feds most recent 1/2% rate cut which was supposed to lower market rates as well. Um, they didn't:

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Here are questions business owners should consider when making decisions about spending and borrowing:

* Where are my liquid assets and are they producing enough return to cover currency (dollar) depreciation and maintain their purchasing power?

* When I borrow capital, can I earn enough turning it over in my business to cover the cost of borrowing AND currency depreciation?

* Are my margins maintained either through cost reduction or price increases?

These are difficult times to run a business because of the confluence of events making a perfect storm of dollar purchasing power destruction, lower demand and higher interest rates.

If you want to preserve the current purchasing power of the dollars you have, one of two things must happen. Either your dollars have to earn more than their rate of depreciation which is accelerating or you need to put them into a non-depreciating asset like Gold (precious metals), property or another asset class that maintains it's value.

It seems as if prices are rising but it's the value of the dollar decreasing in reality. That is easy to prove just by looking at the difference in purchasing power with other currencies. For example, I recently saw a video of someone buying groceries in Russia; the amount of basic staples they purchased for just $12 was astonishing an I almost cried when I compared that to what I get for the same amount at my local grocery store.

It is clear to me that we are closer to the beginning of this process than we to the end of it.

Borrowing capital for business is getting tighter and amounts approved are generally lower and terms are shorter. That is, you can still get good approvals but not as much or as long as before.

SBA is approving commercial capital in only 2-3 weeks, I'm in all week funding companies; call me!

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