Most businesses run on debt, don't they?

[SHRED]

Business loans and such.

So when CONs say, "we need to run government like a business"...WTF are they talking about? :shrug:


---

[WhiteTara]

1. It means they want to be the CEOs and get all the money

for themselves. Throw a couple of $.04 raises to the workers and move on.

[TBMASE]

2. No, they don't "run" on debt

while most have a line of credit to meet short term obligations, those lines of credit require the business meet certain operating ratios to retain it.

Businesses can't sustain themselves on debt, since they require income to service that debt.

[AlinPA]

5. They also issue bonds to finance projects like building new plants.

[TBMASE]

9. You mean they sell ownership in the company via stock

which isn't debt

[Travis_0004]

18. No, lots of businesses issue Bonds.

Bonds are debt. Most business have bonds, and the two are not the same. Stock holders get voting rights, bond holders do not. If a company fails, bond holders get paid before the stock holders get a dime. Companies are not allowed to pay dividends, unless they pay the promises to bond holders first.

Bonds are often preferred over stock, because bond payments can be written off a companies taxes. Stock dividend payments can not be written off. There are certainly companies that don't issue bonds (apple is one of them), but they are a minority.

Due to the the tax exempt status of bond payments, as tax rates go up, companies will often issue bonds, and use the money to buy back stock. Often the CFO is responsible for maximizing the value of the firm, and that means tweaking the bond to stock ratio to maximize the value.

[TBMASE]

31. The majority don't issue bonds

s

[AlinPA]

23. ??? No, I mean corporate bonds. Obviously they also sell stock. Bonds are corporate debt.

Have you ever read a balance sheet? Here is just one reference:
http://www.businessdictionary.com/definition/corporate-debt.html

[Lex]

20. "line of credit" are debt, most businesses need that to stay running

to buy new equipment, upgrade equipment, buy more inventory, etc.

[TBMASE]

32. That line of credit can be revoked if certain operating ratios are not sustained

and while, yes, it is debt, it's for short term cash flow issues that result in the payment cycle between invoicing and actualy payment.
The company doesn't "RUN" on debt, which was the statement...it RUNS on sales and payments

[Lex]

46. it doesn't "run" at all if it does have the ability to incur debt

short or long term as the business sees fit

[indurancevile]

43. yes, they do. cancel their credit & see what happens. whoops, that's what happened in the recent

recession.

[ixion]

3. No. If the government were a business, it would be out of business.

Businesses don't have the luxury of "raising their debt ceiling" themselves. You get what the banks or SBA will loan you. And if you miss a payment, they scrap your business.

[TBMASE]

4. exactly

in fact, if businesses did some of the things the government does, the CEO would be behind bars

[rfranklin]

6. The government is not a business and its not a family checking account...

But if you want to make a comparison, any business that wants to survive would raise its prices to cover its operating expenses, cost of goods and profit. The fact is that the U.S. government is collecting the lowest percentage of GDP in 60 years and thus cannot cover its expenses. Eliminate the Bush tax gifts to the wealthy and the unbudgeted wars and the problem is solved.

[TBMASE]

8. The government collects about 19-20% of GDP, on average, since the 50's

a business that spent a million more than it took in from revenues would be bankrupt in a matter of years.

Prices rise as a result of inflation, a rise in COGS and operating expenses. And, it's not at the 7-12% that government expenditures rise on a yearly basis, regardless of income.

Eliminate the Bush tax cuts, end the wars, it will be a drop in the bucket. Reduce defense, cut some redundancy in the government jobs and that would go a long way towards helping solve the problem.

[rfranklin]

sorry, Charlie, wrong again...

http://www.cbpp.org/cms/?fa=view&id=3036

Some critics continue to assert that President George W. Bush’s policies bear little responsibility for the deficits the nation faces over the coming decade — that, instead, the new policies of President Barack Obama and the 111th Congress are to blame. Most recently, a Heritage Foundation paper downplayed the role of Bush-era policies (for more on that paper, see p. 4). Nevertheless, the fact remains: Together with the economic downturn, the Bush tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years (see Figure 1).

The deficit for fiscal year 2009 was $1.4 trillion and, at nearly 10 percent of Gross Domestic Product (GDP), was the largest deficit relative to the size of the economy since the end of World War II. If current policies are continued without changes, deficits will likely approach those figures in 2010 and remain near $1 trillion a year for the next decade.

The events and policies that have pushed deficits to these high levels in the near term, however, were largely outside the new Administration’s control. If not for the tax cuts enacted during the presidency of George W. Bush that Congress did not pay for, the cost of the wars in Iraq and Afghanistan that were initiated during that period, and the effects of the worst economic slump since the Great Depression (including the cost of steps necessary to combat it), we would not be facing these huge deficits in the near term.

[stklurker]

28. Past

Unfortunately that is woulda, coulda. We owned the house, senate, and potus in 2008 and didn't fix it. Everyone wants to blame obama... But to me it's on Pelosi and Reid, they flat out blew it and now it is what it is....

[jmowreader]

50. Oh, please...

This one belongs to Mitch McConnell, who at the beginning of the 2009 session of Congress introduced a rule that all legislation required a 60-vote majority to pass in that chamber.

Add the permanent filibuster and Joe Lieberman together, and you have another Congress that does nothing but name post offices.

If the Senate in 2009 was running under the same rules it ran under in 1993, when President Clinton needed Vice President Gore to break the tie on the tax increase, we'd be looking at a far different America.

[TBMASE]

30. You didn't really address what I said

Since you didn't address the fact that no matter the tax rate, the government only collects, on average, between 19 and 20% of GDP

Eliminate the Bush tax cuts, raise the tax rate to 90% and we'll still only collect about 20% of GDP.

[rfranklin]

38. Please provide a source for those statements...

The government could collect a much higher percentage of GDP if we taxed like they do in Sweden where the top earners pay almost half their income in taxes. Are you talking about a marginal tax rate of 90% or a total tax rate of 90%? Are you clear on the difference?

[TBMASE]

39. I'm talking about US Tax Rates as a % of GDP

http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/

It references the original articles

[rfranklin]

44. That chart doesn't indicate that the government can't collect more revenue...

It only indicates what the U.S. collects as a percentage of GDP. As I mentioned, there are governments that collect double that and more. Denmark, Sweden and Austria to name a few collect almost half of their GDP in taxes.

And please explain to me what you mean by 90% taxes. I don't think you understand what "marginal tax rates" are.

[TBMASE]

52. So you want to ignore the tax rates for the periods covered

from 1950-2009 and just invent a way to increase revenues.

and I know far more about the tax code than you do, just as I know far more about how a business operates.

I'm a CPA with an MBA and 20yrs in consulting and working for companies. You wan to compare the US to a country smaller than a US State, be my guest

[rfranklin]

63. I would ask for my money back on those degrees...

The EU has a bigger GDP than the U.S. and its tax burden is about 40% of GDP.

[TBMASE]

64. The EU is collapsing as we speak

[rfranklin]

73. another falsehood

you are just a fount of right wing crapola.

[TBMASE]

75. Yeah, me and George Soros...just a couple of RWers

[rfranklin]

25. DUPE....

[Kingofalldems]

27. So you agree with the republicans?

[TBMASE]

29. About what, exactly?

[stklurker]

33. Agree?

I don't see where the post says that... Merely points out the math of the current state. Looking how we got here is good to recognize, but does not change anything about where we are today.

[TBMASE]

40. Obviously if you point out the truth here

you've got to be a republican of some sort. Honesty isn't allowed

[girl gone mad]

61. You haven't been pushing honesty, whether you realize it or not.

Government debt isn't true debt, it functions more like a bank savings deposit account. Treasury bonds basically provide a safe haven for savers to store up their money and earn a little interest. No one is taking money away from anyone else, it's just a voluntary transfer from the bondholder's bank account to the government's account. When the bond is redeemed, the reserves are switched back by crediting and debiting accounts on a computer.

Are you also freaked out about how much Bank of America owes to depositors, despite the fact they don't have anywhere close to the cash reserves on hand to pay out all of these deposits?

[TBMASE]

65. LOL! Soooo there is not 15 trillion dollar debt with 65 trillion in

unfunded liabilities.

Bank of America can't print its own currency, so making a comparison there is a little ridiculous. And their cash reserves are set by the Government.

[girl gone mad]

66. That's right, Bank of America isn't the monopoly currency issuer..

the US government is.

One more reason to drop the "ZOMG!!Debt!!1!" routine.

[TBMASE]

69. you're clueless about reality

and ignored going forward

[girl gone mad]

70. In other words, you lack the ammunition and/or the skill..

to dispute my points.

Do a little thought experiment.

Imagine that instead of offering a safe place for savers to store their money at interest via bond issuance, the government decides to run a "balanced budget" and taxes away that private savings. What do you think will happen to the economy?

[stklurker]

71. ??

You lost me with the last two posts as well.. who do you think funds our debt...

[girl gone mad]

42. The government is the monopoly issuer of currency.

They don't have to collect a dime in taxes or issue a single bond to spend.

[Ikonoklast]

45. Oh, really?

"a business that spent a million more than it took in from revenues would be bankrupt in a matter of years."

There have been start-ups that lost much, much more than that for years before generating one cent in earnings.

They ran on debt.

[TBMASE]

53. You're talking about Venture Capital businesses

where investors took equity ownership for the money they put in. It wasn't debt

[Ikonoklast]

55. I'm talking about burning through investors cash, not a debt for equity deal.

Money borrowed from private financiers at a rather high rate in a risky venture that may pay off in a big way, or go bust in the same fashion.

No equity position is taken by the lender.

[TBMASE]

59. LOL! You obviously have no idea what you're talking about

[Abq_Sarah]

67. The difference between a business raising prices

And the government raising taxes is huge.

I can raise prices for my business but unlike government, I can't force people by law to buy my services. If I raise them in a recession, I'll lose some customers. Will the price increase offset the lost revenue?

[AlabamaLibrul]

22. lol, that's funny

a CEO behind bars

:rofl: :rofl: :rofl:

[bluestate10]

13. True governments are not businesses. If the US GOV was a business,

we would be paying $2 to mail a letter, or $0.25 to drink at a public fountain, or $5 for a day on the National Mall. Republicans are freaking blind dumb asses that have no idea of how central government is to a well functioning society.

[rfranklin]

26. +1

Correct!

[Warren Stupidity]

7. most families take on more than 100% of their GDP when they buy a house.

but nobody ever calls out the bullshit artists on their FUCKING STUPID analogies.

[TBMASE]

10. A debt that can be settled in 15-30 years and is based on income

and credit rating

[Lex]

21. of course, but it IS still a very large debt

that has to be paid on for years and years . . .

[stklurker]

34. Debt

And right now we can't pay and want to borrow more and our credit rating is in the ditch...

[Lex]

48. We CAN pay but some want to continue to give corporate tax breaks.

And shelter rick folks from taking on their share.

[TBMASE]

41. A few hundred thousand is a far cry from 15 trillion

the comparison, itself, is ridiculous

[Lex]

47. proportionate is all . . . it's hard for for some folks

to comprehend

[TBMASE]

54. It would be proportional if you were speaking of mortgages in the billions

instead of hundreds of thousands

[Warren Stupidity]

37. Consider 'us' a family with a perpetual lifetime.

There is no structural problem with a debt load of some small integer multiplier of the GDP.

[Coyote_Bandit]

11. I've known several that had no debt at all

Usually operating in industries where the revenue flow could be very erratic - and usually family owned - but not necessarily small.

[bluestate10]

15. I know several like that. For small and mid-sized companies in businesses

where cash flow can be unsteady, debt is bad, debt can force them into bankruptcy. While I agree that debt is bad for some businesses, the US government is not a business but is the embodiment of the social compact that we were born into. Republicans holding society hostage is low, they must pay at the 2012 polls.

[bluestate10]

12. The really good, sound companies don't run on debt. But they do use debt

as a tool. If you study their histories, most of the teabaggers that are crippling government are failures, Rep. Walsh is only the most public example of that. Like Boner wailed to them, time to stop holding the government hostage and get their teabagging asses in line.

[nevergiveup]

14. As a very small business

I run on debt Aug through Oct in order to build inventory for the busy fall and Holiday season. The other 9 months I have no debt but it has become increasingly difficult the last couple of years to pay off these late season loans. People are not buying and if the debt ceiling isn't raised it will probably be the straw that broke the camel's back for my 35 year old business. Business during this debt ceiling raise debate has been almost nonexistent.

[bluestate10]

16. What type of business are you in? nt

[nevergiveup]

17. I sell country decorating items

such as rugs, chandeliers, quilts etc. I have both a retail store and mail order/internet business. We have gone from 5 employees to 2 plus one part timer. Sales have dropped 35% since 2007. Before 2008 we had 33 straight years of increase in sales. We had been up a little this year but the last few weeks have been terrible and we are once again falling. I buy mostly from small American companies and they are all in huge trouble.

[Lex]

19. Most HOUSEHOLDS and BUSINESSES have debt.

I have a small business and I have some monthly debt, like a business equity line, that goes up and down as I need it.
I have a home that has a mortgage debt.

Yes, debt is not a bad thing and most businesses and households have it. As long as we are taking in enough money to manage the debt, it's not a problem.

[rucky]

24. Not only that, but how many would survive under a BBA?

If they could only spend what they take in that year?

[Abq_Sarah]

68. I am

I do not run a line of credit and I depend on good months to tide me over bad months. I sell services, not physical products so I don't have to keep an inventory. It would be very difficult to run a business that depended on large inventory purchases without a line of credit under this shitty economy.

[former9thward]

35. No, they don't actually.

[dissidentboomer]

36. Post not worth a response. Once again, government is NOT a goddamn business. Jeeezus.

[Hosnon]

49. Not sure about "most" but I'd wager "many" do.

Debt helps even out monthly fluctuations. A business might not do well one month but do doubly well the next month. Access to credit bridges that gap.

[derby378]

51. It's not that a balanced budget amendment is by itself a bad idea...

...admittedly, our government needs to find a way to grab this debt bull by the horns and wrestle it to the ground. But for a government to be unable to undertake any enterprise without it being paid for first? If Congress consisted mainly of gold prospectors who were good at striking it rich, this might work, but instead we've got a bunch of lawyers. And our government workers, our military, our senior citizens - they're all depending on Capitol Hill to get this shit done.

[RegieRocker]

56. Well let me put it this way

Corporations have assets. Our government has ass sets

[Lugnut]

57. My son's business does.

He's an independent owner/operator and he uses his credit line to pay his bills on the advice of his financial advisor. He used his own personal credit card before he got the credit line.

[WillyT]

58. Shit... Buying A House Is Running On Debt, Isn't It ???

I promise to pay you what I owe you over the next 15, 20, 30 years.

:shrug:

[TBMASE]

60. Not only is that debt secured with a tangible asset

but you're talking 100's of thousands, not trillions
If it were a billion dollar mortgage where the lender didn't get to take the propertry on default, you might have a proper analogy

[quaker bill]

62. I do not know

but I am sure they would not like government run like Enron.

[Dawson Leery]

72. Many companies (of all sizes) use "lines of credit"

to finance short term obligations/inventories. Many businesses also use long term debt to finance growth.

[Yo_Mama]

74. Well, the thing is that when the business debt gets too high

No one will lend to them and generally the business ends up in bankruptcy court.

Still, government isn't a business and can't be run like one. There's a fundamental difference that's unbridgeable.