The economic problem with government bail-outs and intervention is they act as a huge economic player, keeping rates artificially low and stimulating those companies that work directly with the government. The economic problem with this is that while the large companies can remain afloat with this support, very little 'trickles down' to small enterprises which make up as much as 80% of many countries' economies, and are one of the largest drivers of employment.
The worst thing about the situation, however, is that the reason a blue chip company like Nestle can borrow at less than one percent in the capital market is the lack of alternatives for banks and investors. Less creditworthy small and medium enterprises (SMEs) which make up as much as 80 percent of many countries’ economies are not allowed to borrow. They are deemed too risky to lend to at the current “market rates” even though they hold the key to improving the employment and productivity picture.
They are willing to work cheaper, longer, harder and with higher risk tolerance in order to survive. So the remaining 20 percent of the economy occupied by large and publicly listed companies and banks gets 95 percent of all credit and 99 percent of all political capital. In other words, blue chips receive artificially low interest rates only because the SMEs don’t get any credit. Herein lies my continued belief in the my traditional opening statement: things must get better soon because they can hardly get any worse.
We have never been in a more dysfunctional state at the corporate, political and individual level in history. It’s time to realise that the reason capitalism won the war against communism in the 1980s was its strong market based economy—itself based on price discovery. Now the policymakers in their “wisdom” are copying everything a planned economy entails: central planning and control, no price discovery, one supplier of credit, money and the corollary effect of suppressing SMEs and even individuals.
Policy makers should accept that some failures are built into a debt-based monetary system; it's not possible for every business to succeed, ultimately some will not be able to pay back their debts and will bankrupt. The alternative economic system is a centralized 'planned' economy which was what the powers in the west fought against during the Cold War. But due to the lobbying system, and that some of these large companies are vendors of the government who is now outsourcing much of their services needs, a built in conflict of interest exists. Until this is somehow unwound, we may be heading for a continued economic crisis.
“I am the most optimistic I have been in almost thirty years in the market—if only because things can’t get any worse.” - Steen Jakobsen, Chief Economist & CIO, Saxo Bank