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(I think this is the wrong group for these questions... What might the
right group be?)
Why is it, that because people are having a hard time borrowing money,
our entire economy is falling apart?
Why must our farmers borrow money every spring in order to have any hope
of harvesting in the fall? Why can't American small business do
something as simple as make payroll without borrowing money?
I have been told that if people don't spend more than they have, our
entire economic system would fall apart, and here it is happening, but
why is that?
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"Daniel T." <d...@e...net> wrote in message
news:daniel_t-88392F.11043012102008@earthlink.vsrv-s
jc.supernews.net...
> Why must our farmers borrow money every spring in order to have any hope
> of harvesting in the fall? Why can't American small business do
> something as simple as make payroll without borrowing money?
Because if you are running a business that provides a 15% return on
investment, you are better off by borrowing at 6% than you are by sitting on
cash. By holding on to cash you are effectively losing the 15% per year
that you would make if you invested the cash in your business.
--------------------------------------
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to keep the conversations on-topic for financial planning. Other posting
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In article
<d...@e...vsrv-sjc.s
upernews.net>,
"Daniel T." <d...@e...net> wrote:
> Why is it, that because people are having a hard time borrowing money,
> our entire economy is falling apart?
Because businesses use borrowing to even out cash flow. At the
moment, they are having a hard time borrowing to meet payroll and
pay suppliers. Since they are slow to pay suppliers, this trickles
down from business to business where even though you may be in good
shape, the people that you sell to are either late or unable to pay
you what they owe. This leads to suppliers not sending parts and
materials, so manufactures inventories are backing up and plants
are shortly going to close down.
> Why must our farmers borrow money every spring in order to have any hope
> of harvesting in the fall? Why can't American small business do
> something as simple as make payroll without borrowing money?
In the case of the farmer, he/she has to pay property taxes in
the spring, pay for seed, pay to get the equipment ready to go,
pay for fuel to till and plant, then pay for top dressing and
chemicals, then pay for the crops to be harvested, and then
truck it to the elevator or market. This all happens before
they are paid one single dime. So, unless the farmer is wealthy,
they have to borrow this money, then pay it back if they have a
good crop.
Many farmers are in a position where they had one or two bad crops
due to the drought and recent floods that they borrowed the money
and did the work, but now have no crop to harvest. These folks
are behind the 8-ball, and if they cannot get a loan on good terms
in the spring, they are done & will lose the farm.
> I have been told that if people don't spend more than they have, our
> entire economic system would fall apart, and here it is happening, but
> why is that?
You have to invest to make a rate of return. Very few people have
enough money to both live and take care of a family from day to day,
and fund a business that produces a product. Even someone like a
plumber, someone who collects for a job at the end of the project,
has to have working capital to pay for the time spent on the job,
buy tools, and pay for materials during the time it takes to complete
a plumbing job. Yes, small projects like a 2 hour leak fix can be
self funding, but something like doing the plumbing in a new house
requires a lot of up front money, and it make take months to get
paid.
-john-
--
====================================================
==================
John A. Weeks III 612-720-2854 j...@j...com
Newave Communications http://www.johnweeks.com
====================================================
==================
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
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"Andrew Koenig" <a...@a...org> wrote:
> "Daniel T." <d...@e...net> wrote
> > Why must our farmers borrow money every spring in order to have any hope
> > of harvesting in the fall? Why can't American small business do
> > something as simple as make payroll without borrowing money?
>
> Because if you are running a business that provides a 15% return on
> investment, you are better off by borrowing at 6% than you are by sitting on
> cash. By holding on to cash you are effectively losing the 15% per year
> that you would make if you invested the cash in your business.
But then when your business stops providing a return that is higher than
your loan rate, you are screwed. Right?
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
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"John A. Weeks III" <j...@j...com> wrote:
> "Daniel T." <d...@e...net> wrote:
>
> > Why is it, that because people are having a hard time borrowing money,
> > our entire economy is falling apart?
>
> Because businesses use borrowing to even out cash flow. At the
> moment, they are having a hard time borrowing to meet payroll and
> pay suppliers.
That means that rather than using past successes to get them through
current problems, they are using assumed future successes to get through
current problems.
It seems to me that there is an inherent bias there; when the company is
making a lot of money, they assume they will still be able to do so in
the future, while when they are loosing a lot of money, they still
assume that they will make a lot of money in the future. That doesn't
sound reasonable to me...
> > I have been told that if people don't spend more than they have, our
> > entire economic system would fall apart, and here it is happening, but
> > why is that?
>
> You have to invest to make a rate of return. Very few people have
> enough money to both live and take care of a family from day to day,
> and fund a business that produces a product. Even someone like a
> plumber, someone who collects for a job at the end of the project,
> has to have working capital to pay for the time spent on the job,
> buy tools, and pay for materials during the time it takes to complete
> a plumbing job. Yes, small projects like a 2 hour leak fix can be
> self funding, but something like doing the plumbing in a new house
> requires a lot of up front money, and it make take months to get
> paid.
So, because the company started out in debt, it is beholden to remain
that way forever?
It seems to me that the entire system, or maybe it is just the mindset
of the participants, requires every year to be more successful than the
last, or the whole "house of cards comes tumbling down" (as someone put
it in a different thread.)
It seems to me that I am always told the importance of keeping money in
reserve so that I don't have to borrow just to meet basic household
expenses. Isn't that the same case with companies? Yet, it seems our
economy built under the assumption that it isn't.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
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On Oct 12, 8:16 am, "Daniel T." <d...@e...net> wrote:
> (I think this is the wrong group for these questions... What might the
> right group be?)
>
> Why is it, that because people are having a hard time borrowing money,
> our entire economy is falling apart?
>
> Why must our farmers borrow money every spring in order to have any hope
> of harvesting in the fall? Why can't American small business do
> something as simple as make payroll without borrowing money?
>
> I have been told that if people don't spend more than they have, our
> entire economic system would fall apart, and here it is happening, but
> why is that?
>
One of the huge problems is inter bank loans. Banks rely on inter
bank loans to move money. When banks are reluctant to loan money to
other banks, it creates a huge block of money flows.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
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In article
<d...@e...vsrv-sjc.s
upernews.net>,
"Daniel T." <d...@e...net> wrote:
> "John A. Weeks III" <j...@j...com> wrote:
> > "Daniel T." <d...@e...net> wrote:
> >
> > > Why is it, that because people are having a hard time borrowing money,
> > > our entire economy is falling apart?
> >
> > Because businesses use borrowing to even out cash flow. At the
> > moment, they are having a hard time borrowing to meet payroll and
> > pay suppliers.
>
> That means that rather than using past successes to get them through
> current problems, they are using assumed future successes to get through
> current problems.
The duty of a company is to act in the stockholders best interest.
It is not currently in the interest of a stock holder to earn a profit,
and then sit on the money. The stock holder didn't capitalize a
factor to be a bank, they want the factory to be a factory. As a
result, if the factory is not using the money, they need to return
it to the stock holders as dividends (or buy back stock to bump up
the stock price).
> It seems to me that there is an inherent bias there; when the company is
> making a lot of money, they assume they will still be able to do so in
> the future, while when they are loosing a lot of money, they still
> assume that they will make a lot of money in the future. That doesn't
> sound reasonable to me...
That is how life works on a 90 day cycle. Some say that is how the
Soviets were able to accomplish much with little was by planning in
5 year cycles, and the Japanese often have 20 and 50 year time frames.
> So, because the company started out in debt, it is beholden to remain
> that way forever?
That is again how it works. If the company starts to pay off things
that it can lease, it isn't matching costs to revenue. If a company
gets too fat and happy, they become the target of a raider who is
able to come in, break up the company, sell off assets, and then
leave the carcass as a heavy debt-laiden public company. That is what
happened when Ponderosa Steakhouse Co paid off their corporate jet,
and what happened to Northwest Airlines when they paid off their
fleet of jets.
> It seems to me that I am always told the importance of keeping money in
> reserve so that I don't have to borrow just to meet basic household
> expenses. Isn't that the same case with companies? Yet, it seems our
> economy built under the assumption that it isn't.
Don't think of a large public company as a on-going business. Rather,
think of it as going to Las Vegas every 90 days. You put down your
bet, spin the wheel for 12 weeks, and then see what you come up with.
You either create value and your stock goes up, or you fall short
and the stock goes down.
-john-
--
====================================================
==================
John A. Weeks III 612-720-2854 j...@j...com
Newave Communications http://www.johnweeks.com
====================================================
==================
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
On Oct 12, 8:16 am, "Daniel T." <d...@e...net> wrote:
> I have been told that if people don't spend more than they have, our
> entire economic system would fall apart, and here it is happening, but
> why is that?
John A Weeks III has a lot of good reasons. We punish saving and
reward borrowing. Borrowing and inflation are built into our
financial system. Gold backed dollars make this difficult, but with
fiat money it is a snap of the fingers. Modern financial history
started August 15, 1971 when President Richard Nixon took us off the
gold standard. We are living in year 37 of modern financial history.
Comparing now to before then is comparing apples and oranges. Since
you seem to be looking for "big picture" answers I'll refer you to:
http://www.chrismartenson.com/crash-course/chapter-6
-what-money
http://www.chrismartenson.com/crash-course/chapter-8
-fed-money-creation
http://www.chrismartenson.com/crash-course/chapter-9
-brief-history-us-money
Click on the video to start.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
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On Oct 12, 11:16 am, "Daniel T." <d...@e...net> wrote:
> (I think this is the wrong group for these questions... What might the
> right group be?)
>
> Why is it, that because people are having a hard time borrowing money,
> our entire economy is falling apart?
>
> Why must our farmers borrow money every spring in order to have any hope
> of harvesting in the fall? Why can't American small business do
> something as simple as make payroll without borrowing money?
>
> I have been told that if people don't spend more than they have, our
> entire economic system would fall apart, and here it is happening, but
> why is that?
>
Daniel T -
I like your economic horse-sense. (And I can tell you haven't been
brainwashed with new math / new economy MBA hypotheses :-) Part of
wisdom is, I believe, an ability to analyze to the really important
stuff, and see through the fads of thought and other tulip bulb
manias.
In this age of global warming and resource concerns, some aspects of
the American Indian way of life don't seem so uncivilized. In this age
of greed, honesty and friendship seem to gain value - as does a solid
money footing.
The deleveraging process applies mostly to the 20+ to 1 financial
sector. The consumer probably will reduce spending below income again,
and begin paying down some debt, but that is easy compared to the
gross excesses of the financial sector, and the consumer is not the
one to blame for this financial crisis, IMO. All businesses may find
other sources of funds than short-term borrowings from banks.
I don't see the economy falling apart. I wonder if anybody else does?
(I do see a lot of 'banks' that have been unbelievably mismanaged, and
that sector has already fallen apart. The eggheads turned out to be
Humpty-Dumpties, after all.)
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
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In article
<f...@r...go
oglegroups.com>,
c...@a...net wrote:
> On Oct 12, 8:16 am, "Daniel T." <d...@e...net> wrote:
>
> > I have been told that if people don't spend more than they have, our
> > entire economic system would fall apart, and here it is happening, but
> > why is that?
>
> John A Weeks III has a lot of good reasons. We punish saving and
> reward borrowing. Borrowing and inflation are built into our
> financial system. Gold backed dollars make this difficult, but with
> fiat money it is a snap of the fingers. Modern financial history
> started August 15, 1971 when President Richard Nixon took us off the
> gold standard. We are living in year 37 of modern financial history.
> Comparing now to before then is comparing apples and oranges.
I guess I have to disagree about the value of gold. Gold has no
real value, and tying currency to a shinny metal just makes a
mess of the system. Gold is hard to move, expensive to store,
costly to buy, and even more costly to sell. You cannot eat it,
feed it to cows, to make any useful productive product out of it.
It never changes in real value, and it doesn't throw off dividends
or interest.
Calling something "fiat money" is a code word for those who want
to go back to the happy times of the 1890's when we had financial
panics ever 18 months or so that wiped out everyone's stock values.
It was a system where the ultra rich got richer, and everyone else
was more or less a serf to the few factory and railroad owners.
There is nothing wrong with paper money. For example, lets say
a farmer has an apple and a leaky pipe. I am a plumber, and I
haven't eaten lunch yet. I meet the farmer. We agree that I
fix the pipe in exchange for the apple. We both are happy, and
it is a win-win deal.
The very same thing could have happened as follows. I value my
pipe fixing at one piece of green paper, and the farmer values
the apple at one piece of green paper. The farmer gives me a
piece of green paper for fixing the pipe, and I give a piece of
green paper back for the apple. As long as we all agree that the
green paper represents value, we have a system of money. There
is nothing evil, illegal, or even immoral about that.
In fact, one can argue that the gold standard is evil and unfair.
It makes nations with gold deposits wealthy, and they dominate
the nations that have little or no gold deposits. Same thing
with silver. China was wealthy when silver was used to back
currency, and they went bankrupt with many nations abandoned
silver-backed currency in the early 1900s.
The problem we have today has nothing to do with gold backed
currency. The problem is that a number of firms are holding
mortgage paper that is worth far less than they thought, and
now they cannot pay their bills. Since those are the same firms
that make a lot of loans, they are not able to make loans right
now. That has rippled back to clog up the whole economy. The
way out the mess is to get lending moving again, and so far,
the only people with enough money to do that is the federal
government. Once the rescue money starts hitting, and money
starts flowing, this crunch will work itself out just like a
pig through a python.
-john-
--
====================================================
==================
John A. Weeks III 612-720-2854 j...@j...com
Newave Communications http://www.johnweeks.com
====================================================
==================
--------------------------------------
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guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
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