Tuesday, 18. June 2013 - 07:06
23. 10. 12. - 12:45
Why canít countries act like companies asks Clem Chambers, CEO of leading investment site ADVFN.com and author of Amazon best-selling investment guides '101 Ways to Pick Stock Market Winners' and 'A Beginner's Guide to Value Investing' and the new financial thriller, ĎThe First Horsemaní. If the US was an incorporated company instead of a sovereign nation, it would be bust and filing for bankruptcy. Many European countries - including Croatia, on the verge of joining the EU proper - are in a similar financial position. First world finances are so topsy-turvy that the USís fiscal deficit is practically equal to its total collections of Federal income Tax. So why donít countries act like companies? Why canít they stay in the black? After all, the laws of economics are the same for them as for any other enterprise. The countries concerned are monopolies, so they always have an income. They have, at least in recent years, had no one to take them over and break them up. So, when they get into financial trouble, they act like all corporate monopolies; abusing 'customers' and jacking up prices of services. If Europe or the US were companies, what would each company have to do to get the 'business' back into the black? First off, the 'nation as company' would sack all its dead weights, cutting its loss-making and core divisions. Out would go anything that wasnít front and centre necessary, including all the frills and fancies that youíd typically find at a large, profitable corporation. Simplifying its offerings to focus on its most popular 'merchandise' the country-as-company would cut the inert overhead supporting everything non-essential to delivering the key products its customers valued. It would then flatten it 'head office' the one stuffed with people with non-jobs, large salaries and nothing better to do than play politics. This new, leaner enterprise would then look for ways to take its core processes and make them leaner. The goal would be to do more with fewer employees. It would then need to refinance. Refinancing is supposed to be the core process right now for developed nations strapped for cash, yet the restructuring of enterprise is not really happening. The best they can do, rather than cut the waste, is to ask their employees to take a pay cut at least in inflation-adjusted terms. Meaningful spending cuts are just not happening - although there is plenty of talk about it taking place. However you wish to measure state austerity, it is certainly not on the scale a corporation would suffer to get it back on the rails. The consequence is the sovereign government must borrow more money. A weak company will do likewise until it dies, but it doesnít have the borrowing power of a first world economy - a sovereign can keep the faÁade up for longer. Rather than restructure, the developed world is simply borrowing more on the bond market. A company would do this but it would also issue equity (in laymanís language, sell new shares for cash). But what is sovereign equity? Are its citizens the equity holders? They should be, but they arenít, they are merely 'the customers'. Who are the shareholders of a country? An answer to this question might lead to a solution for many of the Western world's problems. It would certainly give these hard up sovereigns a chance to recapitalise. ~Visit www.ADVFN.com for free, real-time stock prices ~ Clemís latest news and articles at www.clemchambers.com ~Follow Clem on Twitter: @ClemChambers The First Horseman(http://clemchambers.com/books/horseman/index.html) '101 Ways to Pick Stock Market Winners' (: http://www.amazon.com/Ways-Pick-Stock-Market-Winners/dp/1907616276/ref=la_B0034OKF36_1_4?ie=UTF8&qid=1343819636&sr=1-4) A Beginnerís Guide To Value Investing http://www.amazon.com/ADVFN-Guide-Beginners-Investing-ebook/dp/B007HAZV0K/ref=la_B0034OKF36_1_7?ie=UTF8&qid=1343819636&sr=1-7
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