Business Talk

[The Virginian]

Or Maybe they just don't care!

[The Virginian]

[The Virginian]

By Bill Wilson – As Congress stands at an impasse over increasing the $14.294 trillion national debt ceiling, where Republicans are demanding trillions of dollars of spending cuts and Democrats trillions in tax increases, it is worth contemplating just how the nation’s finances have gotten so rapidly out of control.

After all, in just 2007, the total budget was just $2.728 trillion with only a $160.7 billion deficit. Now, in 2011, according to the Office of Management and Budget, the budget will be $3.771 trillion with a $1.597 trillion deficit. That’s a whopping 893 percent increase in the deficit in just four years. How can this be, when marginal tax rates are exactly the same as in 2007?

A part of the $1.436 trillion increase in the deficit has been the recession, when revenues plummeted from $2.567 trillion in 2007 to a projected $2.174 trillion for 2011. But that only accounts for $393 billion of the increased shortfall. The rest of it was $1.043 trillion in spending increases.

In other words, 72.6 percent of the problem is too much spending, meaning at least 72.6 percent of the solution must be dramatic spending reductions. In a recent piece for Forbes.com, Louis Woodhill writes that “etween FY 1955 and FY 2008, federal revenues increased by 1.0 percent of GDP. However, federal spending increased by 3.4 percent, causing the federal deficit to increase by 2.4 percent of GDP.”

Specifically, the biggest driver of new spending has been “the rise of the welfare state”. As Woodhill notes, “‘Payments to Individuals’ (both direct and via grants to State and local governments) exploded from 3.6 percent of GDP to 12.7 percent of GDP.”

This puts the lie to Joe Biden’s demand that “revenues are going to have to be a part of the deal” on the debt ceiling increase. Democrats are pushing for tax increases. But as noted above, revenues have not decreased because of any lowering of tax rates. Instead, they are down because of the downed economy.

So, economic growth, not tax increases, is what needs to be part of the deal, with all due respect to Biden. And there is no question that the current economic situation is untenable, with sluggish 1.9 percent growth in the first quarter, unemployment still too high at 9 percent, and inflation creeping up again. Making matters worse, first-time jobless claims were up 424,000 the week ending May 21, and durable goods orders declined 3.6 percent in April, showing the slowdown could get worse.

That, coupled with a dire warning from Standard & Poor’s of an imminent credit downgrade on U.S. debt being significantly more likely in the next two years, plus the Medicare and Social Security Trustees reporting that the programs’ trust funds will be exhausted in 2024 and 2035, respectively, and it is clear that dark skies are on the horizon.

Already, the costs of credit default swaps on U.S. debt are increasing as the number of contracts has doubled from last year, an early sign of trouble, reports Bloomberg News. That means bondholders are increasingly insuring themselves against default, which S&P warns is becoming more likely — independent of any vote to increase the debt ceiling.

Not to mention that the European Central Bank may become insolvent if even Greece, a tiny fraction of the EU’s economy, defaults, as reported by der Spiegel.
All this may be why even New York Times economist Paul Krugman warns that we may be headed for a “Third Depression,” which he defines as a “prolonged period of economic weakness.” He notes that even during the Great Depression and the Long Depression of the 19th century, there were periods of growth, but that “these episodes of improvement were never enough to undo the damage from the original slump, and were followed by relapses.”

Krugman warns we could be in the same situation now. What’s worse, we’re only in its “early stages”. He adds, “It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.”

It is a rare moment indeed, but I agree with Krugman. We may disagree on the causes of the downturn, and what to do about it, but when he writes that “we have now gone through a year and a half of a ‘recovery’ that has failed to make any progress toward closing the gap between what the economy should be producing and what it’s actually producing” he is spot on.

The trouble is that it is no longer cost-effective to set up businesses in America, and it is costing the country millions of jobs. It is cheaper to produce things overseas, and then sell them here. That is mainly because of the weak dollar, which leads to inflation, and high taxes, which make starting a business here less attractive compared to the alternatives. We have one of the highest corporate tax rates of advanced economies, second only to Japan.

Capital creation too is hampered because of the antiquated Securities Act of 1933 and the Securities and Exchange Act of 1934, not to mention state-by-state blue sky laws, which require multiple filings, months of waiting, and hundreds of thousands dollars in legal and auditing fees — just to attempt to sell shares, interests, or any stake in new companies. Even then, there’s no guarantee new companies will succeed, so why such a high bar just to get started?

We need to start producing things, creating new businesses and jobs, and providing opportunities here in America.

The job picture is dismal for new college graduates. According to the Bureau of Labor Statistics, last month youth unemployment (i.e. those under 25 years old) was 17.2 percent, rising from 13.2 percent in 2008.

These are supposed to be the labor force’s most productive, promising prospects, and they are being underutilized. If Krugman is right, and we are in the early stages of another depression, this will only get worse. Sadly, we risk raising a whole generation of government dependents if the economy does not start growing robustly soon. How will that affect the U.S. fiscal picture?

One need only look across the pond to see what the future holds. In Spain, youth unemployment has reached 43.5 percent. In Italy, it’s 28.9 percent. In the UK, it’s 20.3 percent. When the sovereign debt funding crisis hits the U.S., as surely it will, this is merely a taste of what to be prepared for: A lost generation. And national default.

We need to shrink the government, and start taking care of ourselves — before it’s too late and we’re all wards of the state.

America desperately needs new leadership to confront the twin challenges of ending the welfare state and restoring prosperity. We need to start making massive cuts to government spending and paying down the debt. And we need to make America the best place in the world to start and maintain a business by eliminating startup costs, deregulating securities laws and lessening producer costs by strengthening the dollar and slashing taxes. Because otherwise what’s ahead is an incredibly dark picture.

Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @billwilsonalg.


Not looking good for Businesses now is it?



Read more at NetRightDaily.com: netrightdaily.com/2011/05/dark-skies-ahead/#ixzz1NaMIC7yd

[The Virginian]

Results for the Month of May:

May down 15% YOY
Total Sales : down 10% YOY

Hard doing Business in a Depression! Thank God for the Stock Market!

[The Virginian]

All our manufacturers are announcing price increases of 6-10%!

Some of the Major Manufacturers are:

Unique Industries; Amscan, Creative Converting; Maryland Plastics; Kama; Diploma Mill..................... We are getting notices one after another. Inflation is rearing it's ugly head again!

It hurts because say we buy something that costs $1 from the manufacturer, we sell it, then to reorder the product costs you $1.50. This eats up your cash flow; and the government taxes your inventory as if you made money when in reality you were just trying to maintain your inventory. This will be a ruff period for many stores!

[texasredneck]

When I was building houses I started a running cost sheet of price increases and increased sales prices ever time something went up. Bankers said I could not do that. I said I could and I did. Added my profit percentage to the increases also. I paid my bills while the other builders went broke in the early 80's. Copper was priced at time of invoice. You may need to price everything at time of sale.

[The Virginian]

You may need to price everything at time of sale.

Thanks, Yes I've actually considered this. We have an inventory of about 20,000 different items though - so no easy undertaking! It is especially difficult when they start raising prices on us multiple times in a year - I believe it happened in 2008 ( Mostly with Plastic products) and it was a night mare for us. You tend to make mistakes and people think you are trying to scam them. But.... Like you said .... if that's what it takes to stay in business them sometimes you have to do what you have to do!

[The Virginian]

Thank God we have business people like The Virginian out there.

Thanks WXYZ,

You just made my day! Yes most people just don't realize the amount of time and sacrifice we have to endure for the business.
And with the economy the way it is most of us are struggling just to keep our financial heads above water. All I hear each day is complaints - even though we carry around 20,000 different items people get angry if you don't have something they saw on the Internet. They don't realize there are literally millions of different items available and no one can carry them all.
The younger generation is certainly a bunch of spoiled brats in that regards!

[tyfighter3]

K for the V.

[Aman A.K.A. Ahamburger]

V I salute you. I haven been around business my whole life, i know the work that goes into what you do.

I read this thread on sun and had a few thoughts.

Do you have access to all the products that your customs are are looking for, it's just the overhead issue?

If yes, is there a way to work it out with your suppliers so that you could basically become a middle man in the on line ordering process. Even if your reducing the margin of that item to say 10%, it's still money in your pocket from a sale that would have walked out. The catch to the idea is that you offer your customer the option to have it shipped directly to their house, you can say;

"I wanted to give my customers the security of a store, with the selection of on line shopping."

Or something like that. Rock on V! you da man

[The Virginian]

The problem is A is that most manufacturers have minimum order amounts that range from as low as $100 to as much as $5000. In addition they have minimum order amounts for shipping costs so you have to meet both thresholds to be competitive in pricing. So if a person comes in and wants a "pig" for a "Pig Roast" ( Actual Request) You have to have an account with a "Pig Manufacturer" (Setting up Wholesale accounts can be a long tedious process in most cases especially if you are seeking credit terms) the Pig Manufacturer may require you to purchase a minimum of 20 Pigs, but for "free shipping" it may require you to order 24 pigs to qualify. So if that person only wants 1 Pig - You are stuck with 23 pigs that may not sell easily and your money is tied up in inventory, which at the end of the year our fabulous government considers this inventory profit so now you have to pay taxes on those 23 Pigs sitting on your shelves!

It's very complicated and confusing I know!

[usaone]

V Do you have a Website?

Amazon, ect may be part of the reason for slower sales.

[Aman A.K.A. Ahamburger]

I understand what your saying V. My thoughts were that you might be able to work something out with your current suppliers, if you had access to everything that was being requested, even if you reduced your profit margin on an item to 10%.

[Aman A.K.A. Ahamburger]

I don't mean to harp V, I just had another thought today. The farmers around here have always had a co-op. I doubt that your the only party store experiencing what your experiencing, what about networking with some others to increase selection and PP??

[The Virginian]

I doubt that your the only party store experiencing what your experiencing, what about networking with some others to increase selection and PP??

Actually not a bad idea A!
We do belong to a buying club for Party Stores - about 700 stores in our club total. Maybe I can suggest some sort of clearing house for small orders. I think I will bounce it off the club management!

[domeasingold]

V
You aren't really Ray Ramano, are you? Men of a Certain Age.

[The Virginian]

You aren't really Ray Ramano, are you? Men of a Certain Age.

I don't know - I have never seen the show! My wife says I'm like that guy on Rules of Engagement though if that helps! ;D

[The Virginian]

does you store have a free LinkedIn page?

I'm not familiar with Linked In. I'll check it out.

[Aman A.K.A. Ahamburger]

Jun 17, 2011 7:11:04 GMT -5 The Virginian said:

I doubt that your the only party store experiencing what your experiencing, what about networking with some others to increase selection and PP??

Actually not a bad idea A!
We do belong to a buying club for Party Stores - about 700 stores in our club total. Maybe I can suggest some sort of clearing house for small orders. I think I will bounce it off the club management!

Nice!

[The Virginian]

June numbers:

Month - -13% YOY
Year - -11% YOY

[Aman A.K.A. Ahamburger]

That sucks V, hopefully the numbers are turning and the right people will start to see the recovery soon! Your a Keep it up.

[The Virginian]

Thanks A - Someday it will pay off - I believe!

[The Virginian]

Halloween is always great for us. Like Christmas for other stores. It makes or breaks us for the year!

July is starting off bad.
-39% YOY as of today!

[Aman A.K.A. Ahamburger]

That sucks Mr V!... I'm glad that you believe, there are lots of solid numbers out there!

How about Canada Thanksgiving??.. Oct 10.. ;D

[The Virginian]

How about Canada Thanksgiving??.. Oct 10..

Do you guys wear costumes, Wigs or Hats for it?
If so I'd be glad to supply you with them! ;D

[The Virginian]

Frank,

I'll provide you with a free Bat Costume if you'll be my marketing director! ;D

[Driftr]

I've got an old bat costume in the attic right next to my Darth Maul and Scarecrow ones. None of them fit any more. Who knew storing stuff in the attic caused it to shrink...

[The Virginian]

Sales down 13% year to date. Last year was terrible - no hope for this year!

[smackdown]

"I" am better than "I" was 20 years ago"

It's all the steroids in those steaks you rich people eat. HGH-induced muscles over brittle bones won't work. The rest of us go for well-rounded health and endurance.

[jarhead1976]

Women love endurance, run forest run .