| Remember the saying from one of Clint Eastwood's | | | | rates will go up no matter who is in the White |
| Dirty Harry movies---"A man has got to know his | | | | House.This is unfortunate because large cuts in |
| limitations". This applies equally well to the art of | | | | marginal tax rates is the one thing that can produce |
| economic forecasting. The art (not science) of | | | | both sustained and substantial increases in economic |
| economics is useful in forecasting what the | | | | growth. In the l920's then Secretary of the Treasury |
| predominant risks are facing our national economy and | | | | Mellon went through an exhaustive study to determine |
| the resulting consequences. With this in mind, let's | | | | what top incremental tax rate would maximize income |
| examine our national economy and see why liquidity, | | | | to government yet, also, provide meaningful incentives |
| both on a professional and personal level, will be king | | | | for individuals to take business risks. The answer was |
| for the next decade at least.Do you have a metal | | | | a top rate of 25%. This is far lower than the current |
| chain in your house? Take a look at it. You will notice | | | | top rate of 35%.The question, then, is how do you |
| all the links are of equal size. The U.S. economy can, in | | | | grow your business in an environment that will be |
| a way, be represented by the links in a chain. But, the | | | | highly competitive and turbulent. The most logical |
| difference is that the economic links are not of equal | | | | answer is to increase prices of the goods and |
| size. In addition, some links are weaker than others.The | | | | services your company offers. Logical-- yes, but it is |
| biggest link in our national economic chain is the | | | | not realistic. If anything, with the economic environment |
| consumer or more explicitly, consumption expenditures. | | | | described above, the market will be dictating |
| This link now represents 70% of our Gross Domestic | | | | downward pressure on prices--not upside. This leaves |
| Product (GDP) and dwarfs all the other economic links | | | | one other alternative: going after market share.We |
| combined. This link is also the weakest link in our chain | | | | have had the mistaken belief in this country that the |
| and is the one of most concern.To put it succinctly, the | | | | business future belongs to the big and the mighty. This |
| consumer is tapped-out. With the direction of interest | | | | is nonsense. The future belongs to the swift. The swift |
| rates trending higher, Americans can not continue | | | | are those men and women whose businesses have |
| spending money they do not have. Household | | | | liquidity (low debt levels) and are generating sufficient |
| borrowing is increasing substantially faster than | | | | levels of free cash flow to take advantage of |
| incomes. In addition wages earned are bearly keeping | | | | opportunities that will be presenting themselves. Free |
| up with inflation. This trend can not continue forever. | | | | cash flow is the wherewithal, the stuff, that successful |
| We use to talk about a healthy savings rate in this | | | | business people can use to innovate new products |
| country. Now, we have little to none. The most | | | | and services, which along with effective marketing and |
| important link in our economic chain is extremely illiquid. | | | | customer relations can be used to grab market share |
| This will have long-term consequences for economic | | | | from your competitors.Additionally, those businesses |
| growth and, hence, the ability of companies to maintain | | | | that have liquidity and cash flow can also secure |
| their profitability and grow their top-line.There are some | | | | market share by lowering prices while still maintaining |
| things worse than having a recession, which is, having | | | | profitability. This line of survival thinking falls under the |
| none at all. Recessions provide the impetus for both | | | | category of guerrilla marketing. Let's face it--it is a |
| consumers and businesses to rebuild their liquidity. It is a | | | | jungle out there, and the swift and nimble are the ones |
| painful process, but it sets the stage for the next | | | | who will prosper in this environment.People tend to |
| strong upward expansion. For example, in the early | | | | make situations more complex than they are are. This |
| l990 recession the average American household pared | | | | evolves from a tendency in human nature to drift from |
| their debt by an inflation adjusted $410. This helped set | | | | the simple to the complex. But, in business it does not |
| the stage for the strong expansion in the l990's. In the | | | | have to be this way. If you can focus on building-up |
| 2001 recession, the average U.S. household added | | | | the free cash flow in your business (and it wouldn't hurt |
| $1,420 to their debt levels.It is possible for awhile to | | | | your personal life either), you will both increase its value |
| avoid a business recession through Federal Reserve | | | | and have a competitive edge in the marketplace. It is |
| policy of manipulating interest rates. But, the price to be | | | | that simple. Good hunting!Sanford Kahn, Business |
| paid is high. The economy can flounder along in a tepid | | | | Author/Speaker, has been a professional speaker for |
| sluggish manner and can easily stumble into a more | | | | over 30 years to both the corporate and national trade |
| serious recession. You are sort of operating in an | | | | and professional association markets. He was the host |
| economic Twilight Zone between growth and | | | | and producer of the popular Times mirror cable vision |
| stagnation.Another consideration is the unusual political | | | | series "Ask the Economist". Mr. Kahn has authored |
| alliance in Washington. Democrats and Republicans in | | | | many articles on the business impact of future |
| Congress disagree on many political matters, but there | | | | economic trends. His most recent publication is The |
| is one fundamental economic point they do agree on. | | | | Great Economic & Business Myths That Dominate |
| They both like to spend increasing amounts of money | | | | Our Lives. |
| on programs that can't be sustained. Eventually tax | | | | |