It seems to me that the geniuses making economy wide financial decisions around the world, but particularly in the US and Europe are making the same mistake many of my SME clients make. They are failing to distinguish between the short term, tactical decision making that can reshape a P&L in any given month, whilst ignoring the long term strategic decisions that shape the balance sheet.
What is the difference between giving Woolworths a big discount to enable a deep price cut on your product, then promptly turning around and borrowing to produce more, and the so called “Quantitative Easing” being practiced by the EU & US? Giving Woolies the discount may make the P&L look better for the month, but when the discount is borrowed, all you are doing is loading the balance sheet up with more debt that needs to be repaid at some point, or you go bankrupt.
You do not have to be a brain surgeon to understand that when the credit card is full, and the debt is bigger than the income, some radical spending surgery is required, partnered with an increase in the value extracted from every dollar that is still spent. Most consumers understand this, and manage it, those who do not, have their credit card taken away.
Why is it so hard?