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Debt is not a good business plan.

The Bank of England is going to print numbers on bits of paper and call it money.

It's not money. It's paper with numbers on. In and of itself, it has no value at all. There is no gold or silver backing this up. Yet they are going to call it fifty billion quid and throw it at the economy, along with the paper they've printed so far. Note that we won't be getting any of this new paper. We are to be 'loaned' these printed sheets against real collateral so when we can't find enough printed sheets to give back, the banks who have printed the stuff can take our actual, real things away from us.

I don't have any loans at the moment. I learned my lesson on loans a long time ago. They lend you paper and you pay back real, tangible assets until you have nothing left. It's not a good deal. Well, I do have a mortgage but that's not onerous and I hand over batches of paper whenever I can to bring down the interest on it. No other loans disturb my sleep. My business runs on the line sometimes but if it all goes pear shaped, I have no creditors to bang on my door. I'd just stop. I can go bust but not bankrupt.

Yet the banks are to be encouraged to lend this pretend money to businesses, secured on premises, plant, whatever real stuff you own. Avoid, if at all possible, would be my advice. Look at the banks who refused the Government handouts. They're in profit. Northern Rock and Lloyds are posting big losses. As for RBS, even tramps avoid discussing money with them.

The recession is rough, but survivable. My income is dented this year but I have a reserve in case of such an event so I won't die out for a while. I employ nobody and that won't change. I certainly won't borrow money to employ people. That's asking for trouble. There's no chance of business expansion when those I rely on for work are all cutting back so I'm not going to try.

I'm no economist. I hear of theories on other blogs and I can't follow them at all. I have a simplistic view of my own economy. Either I have things, or I don't. Either I have money, or I don't. If I can't afford something, I don't buy it. If it's important to me I'll save up for it but I will not borrow to buy something (except the mortgage. By the time I saved enough to buy a whole house, I'd be dead). Most times, I find I didn't really need the thing I wanted after all. If I had borrowed money to buy it, then realised I didn't need it, I'd be stuck with a useless purchase and a debt on top.

So it is with business. An incubator costs a couple of thousand. Recently I needed a small incubator for a short job. I used a polystyrene box and the heater and thermostat for a reptile vivarium to build a 30 degree incubator for around £25. It still works, so if I get another short job I have the incubator ready. Most of my equipment is cast-offs. Labs throw things out if they are no longer pristine. A bit of sandpaper and Hammerite and it's back in service. As long as it's electrically safe, it's usable.

You don't need the latest computer equipment for your business. You don't really need to refit that office with all new stuff. You need shelving? Go to B&Q. Ask your existing staff if they're willing to earn some overtime repainting the place at the weekend. They're not professionals but most of them paint their own houses and do a decent job of it. Look at the box file and paper prices in Tesco. Look at online stationers.

In my old job, we were restricted as to the suppliers we could use. They had to be approved by the company (ie they only used the ones who didn't make too much fuss if the payments were late). Now I'm on my own, I can shop for stationery at the supermarket. I can buy one item from a retailer without fifty layers of administration checking, rechecking, setting up accounts and finally forgetting to pay. If I have a three-week job and I need something specific for that job, I don't need the best. It only has to last three weeks. Tesco Value brands grace my  lab. I don't pay £20 for a bottle brush to clean my glassware. I buy two for £2 at the local cheapo shop. I use a lot of bleach, but the own-brand stuff is just as effective as the super-duper-branded chemo-death blastorama bottles.

This whole ethos of 'we must have the latest, we must have the best' is what bankrupts companies in lean times. They'll borrow to refit an office with the latest and best to look good, when they could have achieved the same effect with a few tins of paint and some laminated MDF. Databases work perfectly well in MS-DOS. Lotus Works was a good one, it ran on 8086 machines with two floppy drives and no hard disk. You don't need all those bells and whistles. On a Pentium, it finds files before you even know you needed them. You don't need the latest word processor, stuffed with features you'll never use, to write a report. You need a text editor. No flashy crap. Just the information.

Borrowing to run a business should be the last resort, not the first. When there's no other way to get stock, consider borrowing. Otherwise, work with what you have now and build up slowly.

Remember, the taxes you pay are going into dud banks who then lend the same moeny back to you and take it away again with interest. You're paying interest on the tax you've already paid!

It's a recession. Cut back. You don't need the latest or the best. You need stuff that works for long enough to get through the lean times. The reaction 'it's a recession, we must increase our borrowing' is the wrong one. Borrow less. Borrow, if you must borrow, the absolute minimum.

Interest rates are low now, so borrowing looks cheap. That will change. And you'll still owe the money.

Encouraging indebtedness in a recession is a very silly idea. I wonder where it came from?

Oh, of course...

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( 6 comments — Leave a comment )
(Deleted comment)
7th Aug, 2009 23:26 (UTC)
I have a chimenea. One day I expect to use fivers as kindling because they're cheaper than newspaper.

That's equality. It's not just the rich who can burn money. We'll all have to.
7th Aug, 2009 11:44 (UTC)
Wise words indeed. I run my business on similar lines. If I can't afford it I don't buy it, or make it myself, or buy an old one and repair it. Simple. Any spare money I do have I try to invest in good quality machinery, because any day now the value of the paper money is going through the floor. I don't want to be caught holding too much of it. A decent bit of machinery, capable of earning money will hold its value. Bits of paper with numbers on, you can keep them.
7th Aug, 2009 23:23 (UTC)
I recall the old Andy Capp cartoons (dad was a Mirror reader, I was a cartoon page reader and if anyone could revive the Perishers, that would be great!)

In one, Flo came home from shopping and said 'It's frightening how the pound is going down in value'.

Andy's response was 'It's a good job we haven't got many of them'.

I think, in the coming months, that might be a good attitude to take.
7th Aug, 2009 12:59 (UTC)
You said "I'm no economist." Then wrote several sentences of very sound economics (backed up by Anon this morning). If only the country was run along similar lines we wouldn't be in the terrible mess we are currently.

It's been said before (and no doubt will be again) your talents are wasted at the moment!

7th Aug, 2009 23:27 (UTC)
Talents? Me? I don't have the talent to make idiots think I'm right, so no chance of a political career.

It would get me out of jury service though...
8th Aug, 2009 13:43 (UTC)
Encouraging indebtedness in a recession is a very silly idea. I wonder where it came from?

It basically came from Keynes in his General Theory and it's an excellent idea to create a stimulus for the economy during a recession. Trouble is, when he was writing the state accounted for about 20% of GDP, now it's about 50. Which means we've been running a massive fiscal stimulus for over a decade, and we've used that and the house price bubble to hide the fact that the real economy has disappeared before our eyes.

Like you I have no debt. I've lived in a run-down dump for five years which I've been gradually doing-up as income allowed. And all my savings bar the money for the new kitchen are in Euros.

If market sentiment turns against the UK we're gonna hit the ultimate financial shitstorm, and I'm well prepared for it.
( 6 comments — Leave a comment )