The unique thing about this problem,the COVID-19 is that commerce came to a screeching halt. In other crises, the problem was a lack of liquidity. Banks could not lend and small and large firms have to tighten their belt. Those who cannot will default and this ends up as non-performing loans on the balance sheet of banks. Increasing unemployment rates.
What we are going to talk about today is on SMEs, Lack of Financial Slack, Re-calibration of Risk, Priority in Life and Impact to Blogging
The Little Shops Are Going to Suffer
The unique thing about this problem is that commerce came to a screeching halt.
In other crises, the problem was a lack of liquidity. Banks could not lend and small and large firms have to tighten their belt. Those who cannot will default and this ends up as non-performing loans on the balance sheet of banks. There are more unemployed. Providing liquidity to the banks lubricates commerce.
The shit thing about what we are facing now is that you can provide all the liquidity to you to facilitate spending, but if you cannot go out and carry out some services, it is very tough to lubricate.
The world comes to a standstill for a while because the manufacturing base of the world, China, couldn’t function. Your company does not have spare parts, and therefore cannot ship.
Now that they can ship, the demand drops off because other countries are on locked down. Commerce comes to a halt.
What kind of crisis does this other than the great depression?
The toughest folks are the small and medium-sized companies. They usually depend on their peers or the big companies to give them business. A hit in demand on a wide scale hurts them the most.
My friend Caveman said the working capital for these firms is usually very challenging. The government’s main support package’s job is to ensure that these companies do not fire their workers but sometimes you wonder whether they have operated a small business before.
JD Roth over at Get Rich Slowly has a good piece asking how Coronavirus has affected your life. I like that he explores a lot of the impact on his recreational and financial life.
But what captures my attention was his description of his friend’s experience: