Why Aren't Companies Today Borrowing Money?

Why Aren't Companies Today Borrowing Money?

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Today many different economic problems affect various groups within our nation, and around the world. Some of these problems affect small groups while others have a larger, global impact. It is not easy to place a higher importance to any single problem over another, mainly because all the problems are all indeed very important to those who they involve, regardless of how large or small that number is. Today we see one trend that is affecting companies on a global base, involving many people. When you consider the number of people who support their lives via the income derived from larger scale companies, you start to understand the wide spread cost of decisions made by these companies. Companies today are not borrowing money today because of a lack of credit, but instead because of a lack of foreseen future sales revenue.

With current interest rates at a low level for a "comfortable" period of time, it is very inviting for both the business, and the private sector to borrow money. Credit lines are given out like fists full of dirt. Never before has it been so easy to borrow money. People are refinancing there mortgages, witch is unfortunately what the majority of the consumer today it doing to take advantage of the lower interest rates. Normally this would also encourage large ticket purchases, such as homes and vehicles. For large companies it encourages expansion, and hiring of employees. In any case, low interest rates can expand the working assets of an organization.

Companies today however are apparently not looking to expand there working assets. Indications are stating clearly that the fear of a lacking in future revenue is keeping them from taking on the added risk of more debt. Clearly organizations are not confident in their own ability to repay these loans in the future, and than would be facing bankruptcy. This is a scary situation. Little can be done in the economic business world today without having at least some debt. The necessary evil, as some would put it, allows for the financially incapable, to become capable of industry investment, and/or carrying out of personal business dreams.

This issue is not limited to only public and private sectors. America as a Governmental force is faced with increasing debt problems. According to the International Monetary Fund, so-called "emerging economies" in Asia held about half of the official foreign exchange reserves in the entire world, with Japan being the leading player.

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It is estimated that foreign central banks financed nearly half the US current account deficit. This is an unprecedented situation in which the world's leading economy is being financed by the accumulation of debt, not to its own citizens but to other emerging world economic powers. In the past, our nation's debt was primarily owed to its citizens, in the form of government bonds. We are seeing today, that there is now shift towards other world wide creators.

With businesses so unsure about their future, it raises many questions. One question many are asking is how are we going to do to increase revenue? There are many possibilities to consider, but it opens the door for one very large issue in America today. That issue is domestic businesses moving to other countries to achieve the benefit of a less costly work force. Unskilled, skilled and even management type positions are being filled in foreign countries and for far less than the cost to have the same jobs completed here domestically in America. Who can blame these companies? When it is more cost effective to close down an operation in America, and move it to another location else where in the world, than it is to keep the same company where it is, you would be foolish to not consider and than later act on the more economic change. This is, among other things, creating a shortage of jobs in our nation.

To look at it one step further, one can see that not only are we as a government more in debt to foreign nations, but now our paychecks and jobs are going to foreign nations. The improvement of foreign economic systems, while being a benefit to the global economy, will not, and is not, coming with out expense to what is regarded today as the greatest economic power in the world. Our government must examine themselves and think hard to make proper decisions for the very people who support them the most, their taxpaying citizens.

Works Sited:

Textbook Reference:

1. The Study of Economics principles, concepts and Applications Sixth edition, Mings, Turley and Marlin, Matthew Pages: 269-271

Outside References:

  1. http://www.wsws.org
  2. http://web.mit.edu/newsoffice/tt/1992/may27/26088.html

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