Tag Archive for 'federal budget'

America needs a turnaround plan - now!

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.

America needs a turnaround plan

Americans run America, not politicians

Small businesses must be lean, mean fighting machines

Small business lessons for Washington

There are innumerable issues and circumstances that can create obstacles to small business success. Whether internal or external, most of these factors occur naturally in the course of doing business, and dealing with them just comes with the territory.

But there is one issue that small business owners shouldn’t be threatened with: poor performance of Washington’s political class.

The marketplace is indifferent to, and unforgiving of, the poor performance of any small business. But what is the small business appeal process when government behavior compromises the greater economy?

Job-one for small business owners is to keep their financial affairs in order – cash flow, profitability, etc. Failure to do so negates positive performance of all other activity.
Job-one for members of Congress is to appropriate the funds for the short and long-term financial operation of the government. Since the federal fiscal year begins on October 1, it follows that the budget and associated appropriations should be completed by September 30. At least that’s how things work in a small business – in the real world.

Without any sense of shame, it apparently seems normal to the Washington political class to still be debating the 2011 budget and funding process with less than half of the fiscal year remaining. Without any sense of embarrassment, the political class continues to behave in such a way as to be regularly compared to a Kabuki dance.

Kabuki is a form of Japanese theater in which characters dress, dance and behave on stage in ways that require the audience to suspend any sense of reality to enjoy. Sadly, few metaphors are more apt today.

We wanted to know what my radio, Internet and Newsletter audience thought about the behavior of America’s Kabuki cast of characters, so we asked this question: “Who is to blame for how Washington is handling the 2011 budget process?”

Even though both major political parties were offered up as the first two options, the response to the third is at once dramatic and hopeful. Almost 60% of our sample chose: “A pox on both houses; both are incompetent.”

If this super-majority sentiment is representative and endures to November 2012, all candidates may be required to demonstrate that they will operate the government as a successful small business owner does – in the responsible, real world.

Perhaps it would be enough just to have a sense of shame.

Last week on my radio program, The Small Business Advocate Show, I talked more about the lack of statesmanship and political shenanigans going on these days in Washington, D.C. Take a few minutes to click on the links below and leave us your thoughts on how you think the political haranguing should be resolved.

Washington’s Kabuki Dance: Without any sense of shame

America’s canary in the mineshaft

Making hard financial decisions

Congress and the Obama Administration are in a great debate over our current financial condition of deficit spending. For several years, the U.S. government has been spending more than it takes in, which for governments, businesses and households alike, is a scenario that cannot go on forever.

In order to appreciate the budget balancing task, it’s important to understand that the federal budget is made up of two key financial commitments:  discretionary spending, which Congress has to renew each year, and mandatory spending, which renews automatically. Social security, Medicare, Medicaid and certain national defense items comprise mandatory spending.

The mandatory stuff amounts to about 60% of the annual federal budget, with about 35% for discretionary and 5% to pay interest on the national debt. But about half of the discretionary budget is discretionary defense spending, which only leaves about 18% of annual federal spending for everything else.

So, there you have it:  The easiest part of the debate is over less than 20% of the federal budget. Since all of this piece of the pie can’t be eliminated, you should be getting the picture that in order to move the deficit cutting needle enough to reverse the current deficit trend, hard decisions will have to be made in defense and entitlements. And that’s the hard part of the debate.

But debate it and fix it we must. Because, while the U.S. still has more assets than liabilities, that won’t last long if we continue to spend more than we take in.

We wanted to know what you thought about this issue, so last week we asked this question in the Newsletter and on our website: Funding for “entitlements,” like Social Security and Medicare, are a major part of the U.S. government’s unsustainable long-term budget deficit. Would you be willing to include changes to these programs to reduce the long-term deficit?  The results were impressive.

Those who believe everything should be put on the debate table represented 83% of our respondents. Those who think entitlements should be off the table came in at just 11%, with the remaining 6% saying they were not sure.

One thing is for sure: The question is not whether difficult financial decisions will be made - that is coming, sooner rather than later. The question is whether Americans can gin up the discipline and leadership to make the hard decisions ourselves before our non-American creditors have to do it for us.

Based on our poll results, the electorate seems to be more disciplined than our political leaders.

Thanks for being part of my community. I’ll see you on the radio - and on the Internet.

Recently on The Small Business Advocate Show, I talked with my friend and Brain Trust Member, Rich Galen, publisher of Mullings.com and talking head of the Republican persuasion,  and Ted Fishman, author of China, Inc. and Shock of Gray, about our current budget crisis. Click on the links below, take a few minutes to listen and leave your thoughts.

Who caused America’s current budget crisis? with Rich Galen

Has the U.S. debt become a national security issue? with Ted Fishman




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