Sunday, Mar 21, 2010 at 15:10
I also pointed out that the states are responsible for power and water but is seems to have been conveniently glossed over by Mfewster.
Lets balance the books, If I owe the bank $100- and I have an asset worth $100-, how much balance sheet equity do I have??
Obviously nothing, the defining factor is that the $100- I owe the bank is costing me 7% and if the asset I have worth $100- is not generating enough revenue to cover the interest plus its operating cost plus a return over and above this then I am in almost every instance better off
clearing the debt by selling the asset.
Balancing the books is a broad term used in a general description of reconciling the account, which is just what I have done.
Your correct its good business to borrow to re invest in your business so long as what you are investing in adds value to the business and not only covers its cost but can contribute in a meaningful way to the earnings of the business.
In the case of government we have nothing tangible to show for the increased level of borrowings that is occurring, simply the government is now spending more than its earning and creating a negative cash burn which is funded with borrowings.
These borrowing now come with increased interest and that means a compounding effect of less money to apply elsewhere.
Its a rolling stone that if not stopped will create the problems we are seeing in countries like Greece.
Australia is a far luckier country and we started the GFC with a stronger balance sheet, IE no debt and money in the bank, I wonder how that happened???
I also wonder what would have happened if Australia didn't have the strength in its balance sheet before Rudd started to spend, how much further down the debt ladder would we be?
Simply speaking Jim's claims of a percentage increase means nothing on its own right, if I sold one set of drawers in the first year and two in the second then I have 100% increase in sales growth.
If Jim sold 5 sets of drawers in one year and 6 in the next he made his 20% growth, sounds great in a percentage but in reality it may not add up to much of a growth in cash earnings.
Any which way good for him, if he is happy. I never knock small business as I intimately understand how hard it is to be successful in this country.
But my thought has always been that its survival of the fittest in business and if anybody needs a one off stimulus to maintain viability then they are only staving off the inevitable and better to let them go down and allow the
well run, strong and viable businesses continue to thrive.
Bad business is bad business regardless of how much artificial money is used to prop it up in the short term.
I have been in business for more than 27 years and obviously regard myself as successful in my business ventures.
I have seen and survived the odd recession "we had to have" without any government handouts or stimulus, I did it by running a strong balance sheet and a tight cost base, in other words a viable business.
I have also been directly exposed to the positives and the negatives of the Rudd stimulus.
One venture I'm involved with is exposed to the gaming industry and the best trading conditions experienced in this market for a long long time was around the Nov/Dec 2008 period, quite amazing in fact how much money the pensioners of Australia spent on gambling a direct correlation to the Rudd hand outs.
It was short lived, and expected as a result of the stimulus and the same business is now retrenching its work force as it see's the spiral down as a result of the one off stimulus running out of steam and the market getting worse than was experienced before.
This is why the current concern is for a double dip recession, its not over out there, Rudd did what he needed to do to keep us out of a technical recession as its always been a case of history that recessions hit this country when Labor is in power.
He spent to protect his political image, so Rudd and Swan can puff their chest in Parliament and say "We stayed out of recession"
It will remain to be seen how much we will suffer the long term ramifications of this spend.
As I said this budget will be quite telling.
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