It’s surreal to watch the economic and political warfare going on in Washington over the past few months as the US grapples with its debt crisis. The US government has never missed a payment on any of its debt obligations. There is little time for the US politicians to reach a settlement before August 2, the day the Treasury Department says it will run out of ways to pay the US government’s bills without renewed borrowing.
The US’s financial troubles are a result of years of overspending by all political parties that have contributed to the current debt problem. What is most troubling is the American government’s inability to reach a reasonable solution in time for the August 2 deadline. It’s beginning to look like the US can no longer govern itself. This bitter stalemate has far-reaching repercussions for the fragile US economy as well as global markets.
The reality is there’s no easy way back for the US from its credit bust. After months of wrangling, the likeliest outcome of the debt-ceiling fight is a temporary fix linked to a promise to confront the problem another time. The notion of fixing a debt problem by taking on more debt does little to solve the political dysfunction in the US. Unless Washington can deal with its political in-fighting, the resulting mess is going to get worse.
Government debt is not the only issue grappling the US economy – there’s also a jobs crisis that needs urgent attention. More than eight million people lost their jobs in the recent recession and less than two million of those jobs have been regained. Nearly half of the unemployed have been without work for more than six months, the highest ratio in the postwar period.
Fortunately Canada’s finances are in far better shape but the reality is our economy is closely tied to that of the US so we can anticipate some financial turbulence ahead. Canada’s inflation rates have recently risen and Mark Carney has put borrowers on notice that he is not afraid to raise interest rates even in the face of global turmoil, if that’s what it takes to keep inflation under control.
In the midst of the financial uncertainty, entrepreneurs have to plan for their companies’ future success. The debit crises in the US as well as in Europe have the potential to create uncertainty about our economic future here in Canada. Despite banks starting to lend again and consumer confidence improving, no one feels entirely sure that Canada’s improved economic situation is permanent.
In the midst of these uncertain times, companies should re-evaluate their strategies and re-assess their plans. In some cases, they may need to restructure their financing so their cash flow can support their debt requirements in a potential down market.
Another important strategy is to reduce your financial exposure and count on an extra layer of protection by insuring your accounts against bad debt through Veri-Cheque’s Accounts Receivable Guarantee program. It’s certainly a very good defensive move for companies looking to stay solvent over the long run. Feel free to give us a call 800-268-3284 to get more information about how we can help your business.