The current jobless report along with this morning’s announcement from Caterpillar that it would reduce its workforce by about 20,000 employees adds to the growing concern that the economy is getting worse.
As much as this is bad news, we seem to forget what has caused such failure in the economy. Remember when business and consumers spent money like it was nothing?
In fact what business and consumers were spending was in fact credit. The economic expansion of the last 12-15 years was due to everyone using credit to get things done.
It’s that plain and simple.
The problem now is that those institutions that lent money, now want it back. Unfortunately, what we used as collateral for that credit is not worth what it used to be.
Truth be told, we needed that credit o not only satisfy creature comforts, but we also need that credit to fortify business.
So now business is faced the difficult choice either laying people off or getting their financial house in order.
We have obviously chosen to take the easy way out and lay workers off.
Unfortunately, this is a natural process of business and as business owners we now have to live with the notion that we could have seen this coming by planning, being organized and financially solvent to manage these tough times.
We now have to reorganize and redesign business processes around operational accounting methodologies and prepare for the tough times ahead.
The realization of managing cash flow and structuring operations to meet the challenges of the next two years is of paramount importance.