“However, in business, it is the various forms of debt that allows new ventures, massive growth, inspiring ideas to become reality, the real investments that bring a return..........”
It is also those various forms of debt that allow otherwise profitable companies to go bankrupt due to liquidity shortfalls, and are ultimately responsible for the economic problems we’re seeing right now.
Debt is not necessary for business expansion. It’s often better to start small and expand out of retained earnings, and if necessary, raise capital through sale of ownership interests. While that’s definitely the road less traveled, particularly amongst the overpaid MBA’s that have run so many companies in the U.S. into the ground in recent days, running a business without debt is not only possible, it is in many cases highly desirable.
The problem is that there is a difference between dumb consumer debt and an investment. Most credit cards are filled up with frivolous TV’s, stereos, cloths, jewelry, watches, etc. Most businesses look at debt differently and they use it differently, and making debt out as something evil or bad makes as much sense as demonizing guns or knives. Yes debt is necessary in the macro and micro. Without taking on debt to grow, many businesses will fail because they can't stay competitive. You're thinking works for a “mom and pop” shop.
Much of what we face today economically is “fear itself,” a sort of self fulfilling prophesy created by a media and political process that emphasized all the negatives and harped on them for months. We had a candidate of “hope” essentially telling everyone an economic apocalypse had arrived and that we need his “change” to cure all the worlds’ ills. 50% of what you consider being hard cold economics with facts and figures in reality boils down to psychology and perceptions. Some of the structural issues we do have are constructs of a “do good” policy of giving out bad loans to people who really shouldn't have gotten them in the first place. But that’s not because debt is bad, but because a government applying typical redistributive concepts creates these structures for its own internal reasons, politics. Much of what we see today in our economy is a running together of various problems which has created this overall malaise.
High interest and tight lending is bad economically. It’s not the banks that caused the problems, but rather the same people that point their finger at these CEOs and banks today. A government that through Community Reinvestment Acts, the application of equal opportunity principals to lending and forcing financial institutions to more or less suspend building risk into cost structures set the stage for failure years ago. Why do credit cards charge so much? Largely because many people go default, and they simply build into the interest rate this risk. The problem arises when a government “by law” forces financial institutions to give out loans to folks that don’t really qualify, and when they then turn around and call it “reverse redlining” and discriminatory when these high risk people are charged higher interest rates. Surprise, surprise, many people can’t pay. And the answer is what? That debt is bad? That makes as much sense as what our government will and fail to do; bail everyone out and not address the laws/policy that help drive much of the sub-prime mortgage lending. (IMHO)