The cost of that capital is too high to lend in this market, but low enough to fund mergers and acquisitions. The law of unintended consequences, right? Now, if only our elected officials understood this.

The cost of that capital is too high to lend in this market, but low enough to fund mergers and acquisitions. The law of unintended consequences, right? Now, if only our elected officials understood this.

Examples would be those companies that require large expenditures for constructing new buildings, purchasing machinery or retooling of factories. There can also be huge tax benefits for "smart" debt in how it can be used to lessen tax liabilities in a particular year.

All too often though, debt is used incorrectly to cover mistakes in management or to grow the overhead of the business with little or no guarantee that the growth will lead to increased revenue. For years, companies have tried to grow themselves to larger revenues – rather than letting profits (not revenues) dictate growth.

Take the auto industry for example. They are in front of a congressional panel today seeking another $25 Billion in "loans" in an effort to avoid bankruptcy. Mitt Romney has an excellent article in the NY Times today (http://bit.ly/10N7E) in which he discusses the real reasons behind the request. A bankruptcy would cause the heads of those companies to lose their jobs. There has been an utter failure in management and we've all seen it happening for years. They were hemorrhaging money even when capital was easy and cheap, but they were able to keep the status quo solely because of debt.

My point is that debt is rarely the answer. The more a company (or individual for that matter) relies on debt to sustain growth, the more likely it will be to struggle when the cost of that debt increases or the revenue to offset that debt decreases.

Thoughts?

Examples would be those companies that require large expenditures for constructing new buildings, purchasing machinery or retooling of factories. There can also be huge tax benefits for "smart" debt in how it can be used to lessen tax liabilities in a particular year.

All too often though, debt is used incorrectly to cover mistakes in management or to grow the overhead of the business with little or no guarantee that the growth will lead to increased revenue. For years, companies have tried to grow themselves to larger revenues – rather than letting profits (not revenues) dictate growth.

Take the auto industry for example. They are in front of a congressional panel today seeking another $25 Billion in "loans" in an effort to avoid bankruptcy. Mitt Romney has an excellent article in the NY Times today (<a href="http://bit.ly/10N7E) ” target=”_blank”>http://bit.ly/10N7E) in which he discusses the real reasons behind the request. A bankruptcy would cause the heads of those companies to lose their jobs. There has been an utter failure in management and we've all seen it happening for years. They were hemorrhaging money even when capital was easy and cheap, but they were able to keep the status quo solely because of debt.

My point is that debt is rarely the answer. The more a company (or individual for that matter) relies on debt to sustain growth, the more likely it will be to struggle when the cost of that debt increases or the revenue to offset that debt decreases.

Thoughts?

Examples would be those companies that require large expenditures for constructing new buildings, purchasing machinery or retooling of factories. There can also be huge tax benefits for "smart" debt in how it can be used to lessen tax liabilities in a particular year.

All too often though, debt is used incorrectly to cover mistakes in management or to grow the overhead of the business with little or no guarantee that the growth will lead to increased revenue. For years, companies have tried to grow themselves to larger revenues – rather than letting profits (not revenues) dictate growth.

Take the auto industry for example. They are in front of a congressional panel today seeking another $25 Billion in "loans" in an effort to avoid bankruptcy. Mitt Romney has an excellent article in the NY Times today (http://bit.ly/10N7E) in which he discusses the real reasons behind the request. A bankruptcy would cause the heads of those companies to lose their jobs. There has been an utter failure in management and we've all seen it happening for years. They were hemorrhaging money even when capital was easy and cheap, but they were able to keep the status quo solely because of debt.

My point is that debt is rarely the answer. The more a company (or individual for that matter) relies on debt to sustain growth, the more likely it will be to struggle when the cost of that debt increases or the revenue to offset that debt decreases.

Thoughts?

Examples would be those companies that require large expenditures for constructing new buildings, purchasing machinery or retooling of factories. There can also be huge tax benefits for "smart" debt in how it can be used to lessen tax liabilities in a particular year.

All too often though, debt is used incorrectly to cover mistakes in management or to grow the overhead of the business with little or no guarantee that the growth will lead to increased revenue. For years, companies have tried to grow themselves to larger revenues – rather than letting profits (not revenues) dictate growth.

Take the auto industry for example. They are in front of a congressional panel today seeking another $25 Billion in "loans" in an effort to avoid bankruptcy. Mitt Romney has an excellent article in the NY Times today (http://bit.ly/10N7E) in which he discusses the real reasons behind the request. A bankruptcy would cause the heads of those companies to lose their jobs. There has been an utter failure in management and we've all seen it happening for years. They were hemorrhaging money even when capital was easy and cheap, but they were able to keep the status quo solely because of debt.

My point is that debt is rarely the answer. The more a company (or individual for that matter) relies on debt to sustain growth, the more likely it will be to struggle when the cost of that debt increases or the revenue to offset that debt decreases.

Thoughts?