Economic Observation

The Economist reports this week that consumer spending was up, but "was offset by a sickening plunge in business investment, which fell at a 38% annual rate, the steepest on record."

Small business is now at the highest percentage of the economy in US history, at over 50% of private sector employment. How do small businesses invest in themselves? Cash would be nice, but it's accepted practice to borrow money. The means for small business loans has been home equity (gone) and credit cards.

Credit cards interest rates are trending higher at an alarming rate, both business and personal cards, despite the fact that interest rates are at a historic low. For a small business, using credit cards is now dangerous for anything but the shortest term debt. It also means that if you already have credit card debt, you're working harder to make payments, rather than looking forward with your business.

My business is relatively unaffected by rate changes, as we generally pay off credit card balances each month, but if you want to know why the economy is likely to stall out, look no further. There is no money for the future. It's the banks, the ones who sucked up all of that bailout money who are responsible for this. Sure, they're using risk analysis for a lot of this, but the effect is a general rate increase for everyone, regardless of credit history.