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I work for a business that I think is symbolic of the model that we've built our business structure upon. The first morning of this week we heard of two other businesses that had closed their doors: one was a competitor and another was a business we regularly did business with.
Here's the issue, vendors of goods and services are all lined up like the dominoes falling now across the globe. Our business has provided services for which others owe us money. In effect we have provided credit to those businesses and homeowners. The vendors who provide us the materials we need to do our work often did so on a credit account.
Get the picture? If the people who we worked for fail to pay us, then we may fail to pay the vendors who would then fail to pay the manufacturers and the shippers and so on up the food chain. This is why having available credit is important to business. If we have to pay cash for everything we can't do business because we by California state law can only charge 10% ($1,000 max) of the bill up front. This means we are in effect required by law to borrow in order to complete our construction-related work.
Our business has already been hit hard by the housing crisis. Two major subdivisions went under and the developer went bankrupt leaving us hanging out to dry with huge bills against the work we did and bought materials to complete. Our employees got paid and our vendors will get paid over time, but the bottom line is that we will lose that money.
All I can say is that if the government can't fix this credit crunch and prices and values keep falling then it won't be over until all of the dominoes are laying flat. Then whoever is left to conduct business will be doing it on a cash or barter basis and credit as a means of conducting commerce will be all but dead. Is it an e conomic Armageddon? That may be a erring on the side of Chicken Little but I may build a chicken coup over the weekend so I have eggs and chickens for barter!
One thing I know about falling dominoes is that if one can pull a couple out of the row before they get hit then all of them won't fall. I guess what the government is trying to figure out is where the key dominoes are that will stop the clicking over. Perhaps they were handicapped by their trickle down mentality. Perhaps the dominoes were never poised to click over from the top but rather from the bottom. Perhaps there is a fundamental misunderstanding among our our leadership of where the strength - and now the systemic weakness - of the economy lay, at the bottom. The middle class is where the dominoes started to fall and now the bankruptcy has trickled from the homeowner, to the local bank, to the credit market, to Wall Street, to the government and now to the global economy. Click-click-click.
Trickle down prosperity has turned into trickle up bankruptcy. I don't know if John McCain or Barack Obama get it.
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