The Debt Ceiling and what it means for YOUR business

** writtten July 21st, 2011

I was meeting with a successful Executive Sales Director; she and I were discussing her investments and changes I was recommending. She said, “LeAnne, can you explain to me what’s going on with this whole Debt Ceiling thing? My brother was telling me to pull all my money out of the stock market before August 2nd. I don’t understand how any of this applies to me, or my business. Help!”

You’re a smart business person. So it behooves you to learn just a bit about this whole debt ceiling thing. Here are the basics (in real English):

1. The Government’s Line of Credit -Government asks for credit by issuing bonds (named Treasuries) and Investors buy them up like crazy. The bond buyer is actually “loaning” money to the Government, and it contractually agrees to pay interest on debt, and pay the principal back in x # of years.

2. The Government’s Credit Score - I know it’s hard to imagine, but even the US Government has a credit score. Just like you and me, if they fall behind in payments or can’t pay, then their credit score is affected.

3. The Ceiling is a Self Imposed Credit Limit - In simplest terms, the “Ceiling” in question is a credit limit the government has imposed on itself.

4. What’s the Big Deal about August 2nd? August 2^nd is the day that the US Treasury says it officially doesn’t have enough money to make minimum payments on its Bonds. Yikes! So what they’re trying to do is borrow more money so they can make loan payments. Think of it as using one credit card to make the minimum payment on another.

5. Political Tug of War: The House has a Republican majority, and they’re demanding that if the credit limit is raised, that it be tied to budget cuts. Additionally Republicans are demanding a Constitutional amendment that requires the Government to operate with a balanced budget. The President and Senate are saying no way, because such budget cuts would likely hurt Social Security and Medicare. Everyone knows that messing with Social Security and Medicare is essentially suicide for the Official.

6. Your Income, Their Collateral Regardless of whether you think like the House or President, here are the facts! The Government’s ability to borrow money is backed by their sovereign power to TAX! In other words: your income, and the government’s power to tax it, is the collateral they use to secure loans. (Now I have your attention, right?)

Personally, I don’t believe that Lawmakers are willing to commit political suicide, and I do think they’ll play this out till the last moment. I think the Debt Ceiling will be raised, I think the Government is going to collateralize more of your income (and your grandchildren’s) to take on more loans. Bottom line, it affects your business because it affects the overall economy.

I think the biggest risk for your small business is taxation risk, which affects the amount of money that goes home to your family for the same amount of work and product sold. Additionally, the true risk for every American family and business is an “indirect tax” by an increase on interest rates across the board.

What should you do? You should stay focused. Make audacious goals for the rest of this year. Work your business full circle. Run it cash flow positive. Listen to your leadership on how to build your business deep and wide. Manage your money in Prosperity. Take a profit, always hire a CPA, and don’t panic. Pick up the phone and call your elected leaders (whether you like them or not) and tell them what you think they should do with your new knowledge.

At your Service,

LeAnne and the Ascend Financials Team