With 2010 finally over, everyone seems to feel the need to look back over the year that was. Here at Kamatoy Media Group we are no different, and because of our strong connection with small businesses we decided to go to our own small business and SBA loan expert, Craig G. Francis, for his thoughts on this very busy year. We wanted to know what he thought about the year in business, politics, and the economy, and Craig was more than happy to oblige. In our first post we talked about the top small business stories on his list. Today we move on to the economy.
David Kamatoy: The economy, of course, was a major source of stories during 2010. I realize that many of those stories cross over into both small business and politics, but what three stories do you see as having the greatest impact this past year?
Craig G. Francis: If these responses provide small cheer there is reason for this. I have a 35-year perspective to draw from. If a budding entrepreneur thinks the waters are getting warmer because the stock market is up and SBA loans are increasing, they may be in for a shock. The statistics that point to rapid recovery are not here.
First of all, political will and economic quick fixes emanating from D.C. notwithstanding, the economy will take AT LEAST 5 years to absorb the excess population of unemployeds as well as provide jobs for the population growth in this country. This time line is realistic if we do not bankrupt the country with deficit spending. And if China does not stop buying our debt unless rates double or triple. The economy is driven by the consumers and they are not healthy despite the small orgy of Christmas 2010 spending. Aside from state and federal hiring, nothing will increase employment rates in short order.
Some of the stats that tell me we are at least 3 and possibly 5 years from recovery are as follows:
- The Savings and loan failure of the mid 1980's cost the government about $150,000,000,000 in bailout funds
- The economic recession of the early 1990's coupled with the failure of nearly 1,000 banks cost the government about $500,000,000,000 in bailout funds
- This Great Recession is responsible for the collapse of Wall Street, the failure of over 300 banks to date and $4,000,000,000,000 in bailout funds spent to date.
Seems like the cost of bailing us out has increased by several orders of magnitude.
Second of all, the inventory of foreclosed homes, those with underwater loan-to-values and those whose owners will default this year, is at an unprecedented level. The clearing of inventory will require another 20-30% drop in prices as banks and consumers rid themselves of this residential dead weight. The consumer-driven economic boom from 1998 to 2006 stemmed from the 15% annual price rise in homes. This boom in prices made consumers feel wealthy and they spent that wealth. The subsequent contraction in home prices made consumers who still had jobs feel poorer, and that has crushed the economy. Approximately $15 trillion in personal and corporate net worth evaporated in the last 4 years. This is about 20% of the entire net worth of this country. Adios Dinero.
When the US Government is $14,000,000,000,000 (yes, trillion) in debt and climbing, while facing $200,000,000,000,000 in unfunded mandates of citizen expectations for Social security and medical care, we will not soon see a recovery to match our expectations of wealth created in the last 25 years. The governments, both state and federal, are vast sucking black holes of fiscal ineptitude and bureaucratic sloth inexorably bankrupting the country and its citizens. Sorry about the bad news Mrs Lincoln, but how was that play?
Finally, if you plan to start or build your business know this - in the last four rough patches from 1975 until 2006, it took about 2-3 years to recover. In this Depression it will take at least 6-8 years to recover. And that is only if we do not have some sort of economic retracement due to an unforeseen event. Proceed cautiously if starting your firm. Take care in growth plans. Be absolutely certain you do not start or outgrow your capital in uncertain times. Make sure your expansion capital is in place BEFORE you begin your business or expand operations. Do not expect ANY sort of bailout or helping hand from anyone, most particularly any government. They are broke and spend most of our tax dollars feeding Sponge Bob and the Mooch class.
Even if your personal optimism, the hallmark of all entrepreneurs, is at high level, it is easy to overlook the economic, regulatory and financial land mines that litter the field. Form alliances or confederations of like-minded people to make sure you have as much of the intelligence that will help you guide your business as possible. Get involved in local and regional politics and use the business owner resources and alliances you have forged to force changes at all levels of government.
David Kamatoy: In our last post we will talk with Craig G. Francis about politics in 2010 and what he sees ahead for 2011.
Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981 and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722.
