Feature Article June 5, 2002
LAND O' LAKES NewsWeb HomeContact Us
Accounting, I.O.U.I am confused, not an unusual situation, some of you who know me may say. I am confused about the present situation in the world where I am being deluged by business and politicians to spend, spend and spend. Rates for borrowing have been lowered dramatically. I cannot only spend my own money, but I can easily borrow from others to spend. Go into debt, deeper debt for many, just to buy what big business thinks I want or need; this confuses me.
One accounting fundamental drummed into my head many years ago is probably the best and simplest piece of financial advice given to a young lad starting out in life. If income is less than expenditures you are in debt, and in those days debt was a naughty word, something to be shunned at all costs. It is a simple concept unencumbered by accounting's mysterious terms like bankruptcy, refinancing, liquidation, restructuring, loss, and insolvency and, in an extreme situation, fraud.
I find it difficult to understand why I must have the latest in fashionable clothes when I have a closet full of warm comfortable attire. Why do we need beauty-enhancing dyes, lotions and powders if we have the self-confidence to face the world with our natural looks? Generally speaking, the latest editions of cars, computers, entertainment centres and other items are flashier and faster but inferior to what was built previously; why replace them when satisfactory service still exists in the old ones? Save the world's economy by borrowing money to buy, buy, buy, does not make sense to me. Spend your total income and you come out even, spend more than your income and you are enriching someone else's pocket by paying them interest; that is the basic accounting I understand.
I realize that big business and industry are powered by debt financing and ready access to credit. It makes the wheels of industry go round but it also spins a web in which most of us get caught. It is a never-ending cycle that is very difficult to stop. Now industry is finding out that they also get sucked into the whirlpool and have difficulty escaping.
Consumer spending slows as consumers get frightened; they become more discreet in buying and use some common sense. Those who financed businesses whether by stocks, bonds or other forms of credit are paying the piper, fortunate to recoup cents on dollars loaned. This is where big business has the advantage over we Little Guys; they use someone else's money for their endeavours. They go broke but it is our money that is gone.
Those who gamble by establishing businesses use the money of others and there are many willing to contribute for what they think may be an easy buck. Let them do it but when they miscalculate they should not ask me to finance their luxuries, their whims and their excesses by spending more money than I wish. Nor should the government use my taxes to bail out the companies that foolishly spent their resources to satisfy customer fickleness. The same companies that appealed to our vanities and our weaknesses are now directly appealing for our money. Let them beg until they promise to reform and produce necessary goods and services that are worth the price asked.
Perhaps the present slow down is a good thing and will force us to re-establish a reasonable sense of value and dwell more on need and usefulness rather than on greed and vanity.
