1 http://firecracker-report.blogspot.com
September 21, 2009Small Businesses Not Smoking Green Shoots -
Why this “Recovery” is Fake
andHow the Bailout Money has Gone to Financial Speculators
Although the media and the sky-rocketing stock market have been smoking the V-shapedrecovery green shoots, folks on the ground see this recovery talk for what it is - Fake. Casein point being t
Odland, FedEx CEO Fred Smith and Cisco’s John Chambers.
While we don’t
give muchcredence to anything that John Chambers has to say, the other two CEOs whose businesseshave been front and center in bearing the brunt of economic collapse make some veryinteresting points. We lightly paraphrase here from their interview:
Are you seeing a turnaround?Steve Odland (Office Depot)
: Office Depot's customers are small businesses and so theCompany is a good barometer of the health of the U.S. economy. What we've seen is thatthe small business customers have been hurt disproportionately in this downturn.Traditionally, housing has been an important source of liquidity for these people. They starttheir businesses with a second mortgage and they fund them with home equity lines of credit. As that credit has dried up these businesses have not been able to recover.Last year the economy went off the shelf, and right now we're rocking around at the bottombut we're not seeing a meaningful recovery at this point. And I'm worried that we're notgoing to see a meaningful recovery until the liquidity returns to the small businesses.
Have the Obama policies, Fed
’s
actions and the Stimulus eased the credit crunch?Steve Odland (Office Depot)
: The stimulus money has not gone to small businesses. Thisis an unusual recession in that it has been banking led and housing led. As these sources of cash have dried up for small businesses, they haven't been replaced by stimulus money orany other money. The issue here is that every modern recession is led out by smallbusinesses as they create jobs. All net job creation happens in small business. We are notgoing to see jobs rebound until we see small businesses get more access to liquidity.
Fred Smith (FedEx)
: Although the Obama policies are not hurting the economy, I am notsure they get to the heart of the fundamental problem. The economy got way too investedin finance and housing. And it did so because the tax policies of the United States favor debtand speculation in the financial services sector as opposed to investment in the industrialsector. So if you want to improve the earnings power of blue collar folks you've got tostimulate the industrial sector. And our tax policies just don't do that at the present time.So there are two things that need to happen: One, the tax rate in the United States at thecorporate level is 38%. Other than Japan it's the highest in the industrialized world.Secondarily interest is completely deductible. So if you borrow money to speculate on Wall
Leave a Comment