The Debt Deal and Small Business: The Good, the Bad, and the Ugly

Last Updated Aug 2, 2011 1:28 PM EDT

The good news is that the deal is done and the President is expected to sign it imminently. The bad news is almost too long to list.

But let's start on the positive side. By now it's no secret that Congressional leaders and the President had little choice but to raise the debt ceiling. The consequences of not doing so were too dire to imagine. While there has been no shortage of analogies attempting to explain the negative impact of not raising the debt ceiling -- on both the country and your business -- the best I have seen so far is this:


It would have been akin to all of us, both collectively and individually, not paying the mortgage on the house.

Had Congress and the President not done their job and raised the debt ceiling, the consequences would have been as bad for your business as advertised. Because our country's credit rating would have been lowered from a AAA rating, our banks would have ended up paying more for the money they get and in turn, they would have started to charge you more for the credit you need for your small business -- for business credit cards, equity lines of credit, small business loans, etc. So the first piece of good news is that that is not going to happen.

Also, had they not raised the debt limit, credit would have dried up, and we all saw what happened when credit dries up since we lived through that unenviable experience just a few short years ago. Credit dries up and the economy dams up. Business stops. Deals die. So fortunately, that is not going to happen either.

As Bill Murray sort of said in "Caddyshack," "At least we got that going for us."

Here's a quick recap of the deal:

  • A multi-billion dollar down payment on a $2.4 trillion spending cut spread over ten years.
  • The debt ceiling will be hiked immediately (so we can borrow more, pay our bills, and keep our illusionary good credit rating.) A bipartisan congressional committee will recommend a second round of cuts by November. (But hey, didn't we just ignore the recommendations from a blue-ribbon debt-reduction commission?) Alas. If the new committee can't agree, mandatory cuts to Medicare, defense, and other government spending would occur automatically.
  • Congress will also vote on a feel-good (for the Tea Partiers) balanced budget amendment that has zero chance of becoming law.
So the good news for your business is that credit won't dry up and cost a fortune. No small thing, that.

But the bad and ugly news is not insignificant:

While the deal cuts spending, it will do little to help an already weak economy; in fact, it may hurt it, and that's bad for your business. The economy grew at an annual rate of only 0.8% during the first six months of this year. People remain out of work, homes are in foreclosure, and federal and state spending is down. That is a recipe for stagnation. Add this cost-cutting measure on top of that and there is little reason to believe that this law will do anything at all to help your business.

As my sweet Jewish grandmother used to say, "It doesn't hurt, but it sure doesn't help either."

Political gridlock will also hurt your business: What if I were to tell you that the only way to make more money in your business is to cut your overhead? Wouldn't you tell me I'm nuts, that borrowing and growing, or making more money would also work? Of course. But with the Republicans having gone completely loony over their no-new-taxes philosophy, that is essentially what they are saying. Cut, cut, cut your way to growth!

At some point, we have to pay our bills, people.

The Democrats are no better. By refusing to see that people live longer and healthier lives such that Medicare and Social Security both need tweaking, the stalemate in Washington means that sensible legislation to move this country economically forward is ever more far away.

The business of this country is small business, and the sooner Washington gets that and acts accordingly, the better off we will all be.

(Photo credit courtesy of Flickr, creative commons, wwworks.)

  • Steve Strauss

    Steven D. Strauss is one of the world's leading entrepreneurship and small business experts. The senior small business columnist for USATODAY, he is also a recovering lawyer and author of the "Small Business Bible." His latest book is "Get Your Business Funded: Creative Methods for Getting the Money You Need." And whether it's giving a keynote, moderating a panel, or hosting a breakout or webinar, Steve speaks around the globe (including a recent visit to the United Nation) and sits on the board of the World Entrepreneurship Forum. A popular media guest, Steve regularly appears on network and cable television and radio, and is often asked to be the small business spokesman for Fortune 500 companies. His business, The Strauss Group, creates unique, actionable, entertaining, and informative multi-media small business content. To learn more, or to sign up for his free newsletter, "Small Business Success Secrets!" please visit www.MrAllBiz.com.