When a company is in danger of failing, a turnaround specialist is often engaged to create drastic changes to help the business turn itself around before a default happens. After a failure, the same people - now called work-out specialists - try to salvage what they can from the catastrophe.
If your small business were in the same condition the U.S. government is in today, it would definitely be in immediate need of a turn-around pro now, or a workout specialist later.
Perhaps you’ve heard experts say America is bankrupt. However, the classic definition of bankruptcy is when financial obligations exceed the value of assets. By some estimates, the U.S. has over $50 trillion in sovereign assets, which is more than three times the current national debt.
We’re not bankrupt - yet. But the government does have an unsustainable business model. Remember, you will be out of business long before bankruptcy if your business model consistently fails to generate positive cash flow. And in such an operating condition, no creditor will make even an asset-collateralized loan to merely extend the inevitable collapse of a defective business model.
The recent steep rise in our national debt is caused by the government’s deficit spending, which results from a combination of current operating cash requirements, including servicing the debt. If your small businesses were in this condition, it would be said to have unsustainable negative cash flow and, therefore, not creditworthy. Plus, the national debt is now on par with GDP (about $14 TRILLION). The creditworthiness of any business with this debt-to-revenue ratio would diminish rapidly.
Government entitlements are almost 60% of the federal budget and growing because they were committed without actuarial basis to allow for sustained funding. Consequently, more than anything else, America’s business model is unsustainable due to generous 20th century expectations being redeemed in an austere 21st century reality.
Against the laws of economics, the only advantage a government has over a business is that it can print money. But that advantage only provides time, not solutions. We can’t kick this can down the street any longer. America has to have a national gut-check about how we will self-impose a drastic financial turnaround plan before our creditors demand an ugly and likely catastrophic workout.
As in your small business, only leadership can solve our national financial problems.
On my radio program, The Small Business Advocate Show, I talked more about what we need to do to take America back from the political class and work out of this economic slump. Take a few minutes to listen to click on the links below and listen to what I have to say. As always, please let me know your thoughts on the economy and what needs to be done.