Should you refinance student loans during the coronavirus pandemic?

Should you refinance student loans during the coronavirus pandemic?

It can be a challenge to figure out the best way to manage your student loan in the best of times. During the COVID-19 pandemic, there are even more details to consider than usual.

On one hand, refinancing student loans may save money and help you eliminate debt faster. But taking out a new loan to combine your existing student loans isn’t the right move for every borrower.

Should you refinance student loans during the coronavirus pandemic?


A Primer on Inflationary Business Conditions (Segment IV)

Preface: ‘You build a baseball field, and you sit here, and stare at NOTHING? – Quote from the Field of Dreams

A Primer on Inflationary Business Conditions (Segment IV)

Inflation rates year-over-year since 2000 in the US have not exceeded the 2007 high of 4.1% as an estimated peak inflation rate. With this crucial tracking of historical US inflation data, why would there be any more significant or growing concerns regarding immediate or future higher inflation rates than usual inflationary effects to business conditions and corresponding risks? The answer is simply credit.

Considering the wave of upward economic mobility for all economic classes in recent decades from the financial stimulus of increasingly easy and easier credit access, there are increasing bands of comrades excited about the prospects of gain and wealth with investments in real estate, business, stocks, and other assets classes. Picture for a moment life without easy auto loans, home loans, and student loans, etc., combined with higher interest rates for debt service. The antithesis has created the best of the economic tropics sailing conditions for both business ebullience and wealth accumulation. More credit = more money = more buying power = (with the right expectations) more demand = higher prices.

The above is a critical equation because credit is the primary driving reason why more inflation is highly probable in the future. Easy credit can be compared to a successful marketing plan for a great game on a “Field of Dreams.” There will be a great crowd and lots of fun. Correspondingly, the money supply [ say M-1 or M-2] is the food supply for those at the venue. The longer the duration of the “Field of Dreams” series continues, and the larger the crowd and…..the more food will be required—is that why some individuals like to watch a robot’s reaction when given a new $100 bill.

The Feeding of the First Billion [or Trillion] of Credit

Perhaps you borrow ten million dollars from a bank? Considering current bank regulations, a lending bank is only required to hold a small percentage of those dollar funds in reserve to constitute and formalize the loan financing. That is the functional and elemental purpose of fractional credit financing. Just suppose you purchase a farm with the loan, and the seller of the real estate deposits the cash proceeds back in the same bank you obtained the financing from. That bank can fractionally lend additionally on those new reserves too.

Fractional lending practices are best exemplified with the Biblical story where Jesus feeds 5,000 from a story of one young and well-prepared attendee’s lunch that multiplies to provide a meal for more than 5,000 people. It leads to economic and financial miracles, much more, and all is well.

For lack of a better analogy, if a “Field of Dreams” game elongates and crowds prolonged, the food supply will be increasingly vital. Therefore, the money supply foundation, say M-1 and M-2, if it remains perhaps stagnate or deflations, another words a lacks of inflation, will manifest a marked shortage perhaps of proper nutrition at the “Field of Dreams” venue.

With this analogy of why inflation is the necessary decision on the path forward for central bankers to insulate and placate supply demands at the “Field of Dreams” venue, preparing for that possible risk is not irrational or amiss. This is to say that the “transitory” rhetoric from the Federal Reserve persons may not be entirely predictable because the government has a complete financial toolkit including a full set of tax management gismos, not to mention interest rates, stimulus plans, price controls, and alternative mediums of exchange for the good life.

It is essential to clarify that printing the money alone doesn’t create higher prices. Inflation is the increased velocity of the new money as it circulates through the economy. The velocity of money, new and old, is a variable managed on user expectations. These user management expectations include market prices like the S&P 500 or, say, oil prices. Therefore, emerging or accelerating inflation rates, perceptions and risks can be initially concealed with prudent management. Ultimately, as food is purposed for the perceived enjoyment of eating (survival or feast), so most money is purposed for the perceived enjoyment from spending (today or at a time in the future).   


A Primer on Inflationary Business Conditions (Segment III)

Preface: “I think that the most important issue that will reshape our lives in the years ahead will be how man-made and artificial intelligence compete and work together.” — Ray Dalio

A Primer on Inflationary Business Conditions (Segment III)

From: Donald J. Sauder, CPA | CVA

When inflation accelerates in an economy impacting business conditions (the two go hand-in-glove), perhaps one contrarian point of prudent business cash flow management is that although a cash or cash equivalents absolute purchasing power may be eroding more rapidly, ample cash and cash equivalent holdings continue to remain vital to any business with a successful long-run plan to navigate thee inflationary period.

Why should a business hold ample cash and cash equivalents during inflation? Historically, when prices increase due to new money printing inflationary conditions, transferring operational costs uniformly to customers often has an evident lag time as both entrepreneurs and customers shift to become more accustomed to the new pricing patterns from the newly emerging trend of inflationary effects.

During this cash flow lag time between balancing increasing operating costs and increasing operating revenues, often financial margin pressures can crimp both a business’s cash flows and profitability. This can create increased cash flow stress for economic governance. Corresponding with the cash flow lag is that maintaining key business performance indicators such as accounts payable days or inventory days to within moderate or accepted vendor parameters is increasingly impractical for the unwary.

Therefore, companies who enter the race with inflationary periods with higher accounts payable days are early indicators of these rising cash flow pressures. This is because they may not have adequate cash reserves to pay timely, i.e., the financial indicator since they have already drawn more of the aggregate available excess credit, say from 25 or 40 days for permitted vendor payment(s).

On the contrary, as inflationary conditions initially erode profit margins and net business profitability, a business that, through keen and sharp management foresight, have built a strong balances sheet intentionally with either ample cash reserves, paid-off debt, or low accounts payable days will have a more extended runaway and more success manage the inflationary business lift.

Secondly, and more importantly, if inventory increases in cost, then retail, wholesale, or manufacturing balance sheets will need to expand along with accounts receivable? Understanding and managing working capital levels adeptly is therefore most necessary. For discussion purposes, if your inventory increases two or three hundred percent in cost, it will require twice or thrice the amount of cash (working capital) to hold that level of goods. This inflationary pressure leads to necessary astute management of working capital levels requiring greater access to revolving lines,  etc., all perhaps during a critical time of increased financial risks. Any entrepreneur working on just-in-time working capital levels will be like a cruise ship in the ocean and lacking consumable drinking water, i.e., working capital.

A divergent approach believes that inflationary conditions lead to cash being trash, e.g., losing value rapidly, while maybe very relevant for cash profuse prime-time investors. It is not entirely applicable for a prudent small business cash flow manager.

A prudent cash flow management strategy is an essential concept during times of inflation. If prices rise if inflation gains altitude vertically for a longer duration than traditional cash flow management strategies permit, a business will be increasingly subject to borrow on revolving lines or, say, an emergency line of credit.

Again, this is all when the traditional lending environment is likely shifting credit strategies with perhaps corresponding higher interest rates: these factors compound management cash flow stressors and economic convergence with margins and profits. While predicting the duration and acuteness of these cash flow lag times is best deferred to top experts, If a business doesn’t plan appropriately nor have deep enough pockets or revolving credit facilities, it will lead to financial stress, crisis, or more adverse conditions.

While some cash flow managers may say that inventory builds are the better choice for excess cash, it does have merit that some businesses lack ample working capital to manage annual cash flow reserves without a material line of credit draw. With the unpredictable features of inflationary business conditions, keep foremost in mind that the classic adverse financial constraints are when a line of credit is at the limit, and additional cash is required. Like Rapid City, South Dakota weather, and other towns in the Great Plains, only the insiders understand the true implications and value of being appropriately prepared when inflation accelerates.

Therefore, a successfully inflationary business preparedness plan is likely unique based on industries, locations, and other financial, geographic, and demographic variables. If you appropriately manage cash or cash equivalents, you will have the economical fuel you need to successfully navigate and deliver on your business route.

To be continued….

A Primer on Inflationary Business Conditions (Segment II)

Preface: Inflation is taxation without legislation – Milton Friedman

A Primer on Inflationary Business Conditions (Segment II)

Credit: Donald J. Sauder, CPA | CVA

To maintain the assumption that the financial utility of a subway token only has intrinsic value for an entrepreneur when riding a specific subway system and not for purchasing a coffee at Starbucks would be sensible, therefore, if progressive printing of any Scrip (or subway tokens as a proxy for a currency), those who can benefit from that intrinsic token’s utility will obtain the most significant, immediate and perhaps only economic advantage, such as riding the subway system.

Economically, a currency is a rainwater to a currency watershed. Excess rainwater ultimately changes a landscape, and sometimes permanently, not to mention the times of clouds. Let’s look more closely at this financial rainwater and landscape illustration.

Moderate inflation rates, i.e., appropriate rain precipitation levels, will bring economic sunshine and an apparent healthy financial eco-system with periodic recessions to drain excess liquidity. With these moderate and predictable financial weather patterns, the financial weather cycle continues successfully. A little inflation is certainly a key characteristic that can lead to all balmy economic conditions because the financial eco-system has adequate precipitation for seedtime and harvest.

Unlike the global water supply, where perhaps there is little change in the worldwide aggregate gallons in recent decades, i.e., more water is not being created, money supplies increases – finitely. Therefore, absent expansion, only the water allocation in the global weather patterns is shifted per evaporation, clouds precipitation including changes in glacier sizes. The only changes that occur are in the form of, say, glacier ice and the location., e.g., there is a minimal expansion in the gallons of global water the can cause immediate or cataclysmic changes.

Inflation in a currency of a financial system can be clearly understood by illustrating that in an eco-system in a [financial] watershed with an expanding amount of water, other than aquatic creatures that thrive in such an environment, there are incrementally and logarithmically increasing risks with the monetary supply expansion, .e.g. inflation from printing of currency.

Since currency is not fish, paper currency printing eventually floods and saturates a financial system watershed beyond the point of sustainability for seedtime and harvest. An economy with that higher than averages rates of inflation in its currency will wane in operational success. This, unfortunately, is the proven history of each currency in the millenniums of financial history. Perhaps, the US dollar will be the first currency to avoid that currency destiny.

Again, to use a weather analogy, inflation is an expansion in specific financial watershed precipitation. At some point, that liquidity necessitates either a deflationary adjustment to maintain economic equilibrium or some financial reset equivalent to a financial Noah’s Ark moment.

For business management purposes, tracking the money supply (water levels and precipitation in the financial watershed) is becoming increasingly opaque because of how liquidity expansion or money supply growth is followed, according to Federal Reserve data. Therefore, if rainwater levels are increasingly non-quantifiable, e.g., the printing of currency raining in the financial watershed, the ability to make informed and sharp business decisions grows increasingly challenging and requires adaptive approaches.

I am not stating that the US Dollar is imploding for the record, although perhaps that is not a remote possibility. That is entirely the Federal Reserve’s discretion to manage the money supply, interest rates, and the government’s concerted ability to adjust tax rates.

These three economic items are crucial to business conditions and entrepreneurial management, although only interest rates and taxes have been chief concerns to most entrepreneurs in recent decades.

To be continued…..

A Primer on Inflationary Business Conditions

Preface: During inflation, Goodwill is the gift that keeps on giving.                             Warren Buffett

A Primer on Inflationary Business Conditions

Credit: Donald J. Sauder, CPA | CVA

As an elementary definition, inflation is simply a currency problem, e.g., the progressive destructive process [or policy] of printing more and more currency. A currency is a system of money used in a particular [national] jurisdiction. Inflationary policies therefore devalue the purchasing power of the specific currency.

When a government uses tax proceeds for spending, it correspondingly reduces excess cash among its taxpayers according to the specifics of its tax codes and the taxpayers earnings thresholds. Therefore, those who pay any taxes accordingly have less to spend or invest, resulting in less demand for goods and services. Therefore, taxes serve as an economic engine governor to effectively manage the speed of the price acceleration. Inflation is not the process of spending money; it is the intrinsic printing process of obtaining money to be spent that creates inflation.

When a government prints money to invest in projects, e.g., infrastructure, the diffusion of those proceeds creates a disequilibrium amongst the benefactors. Those who receive the newly minted money are now buyers with additional funding sources.

Since those fortunate benefactors have extra capacity to purchase, they begin to aggressively compete to buy goods and services, leading to an upward inflationary effect on prices. More money = more capacity to bid up prices = higher prices. This simply equation corresponds equally with a currency’s value following the value exemplified in an ticket’s for a virtual event, e.g., if an unlimited number of people say can more easily attend, then cost or value correspondingly often does not increase.

When inflation begins initially, it shapes each unique segment of an economy differently. The early components which get the money first gain the first and most significant benefits. Likewise, when inflation begins, there are always consequences; that is, the currency purchasing value declines as prices increase to expand the money supply.

Yet, notably, inflationary measures are essential emergency measurements for a concise economic resolution to high unemployment. A level of wage expectations in currency terms is more easily affordable for employment. After all, the value expectation with the wage is lowered in absolute value terms.

Some economists believe that without inflationary progress, a country cannot easily maintain full employment for its people because those who cannot find employment will decrease their idea of the acceptable wage for employment. Therefore a $700 per week wage ideal will reduce to $600 in a devaluation race of wage levels for each occupational task until some people choose to stay unemployment instead of working because of the minor variations in price differentials. For this purpose, the questions continue of whether a sound currency or full employment is the better alternative.

When managing a business in inflationary times, it is helpful to understand that your underlying accounting is in the realm of your tangible currency. Indeed, monitoring any change in the that money supply must contain predictive steps to its translation into costs and revenues. This includes the cost of sales, wages, and yes, taxes, as well as revenue factors in pricing and bidding.

Your business accounting ledger represents revenues and expenses in the a form of Global company scrip. Scrip is a currency form that includes vouchers, token forms like subway tokens, tickets, or arcade tokens. Those who account for transactions in US dollars vs. scrip of other “resorts” have a tremendous financial, competitive advantage that is too often underappreciated and undervalued.

To be continued…..


Easter Blessings

Easter Blessings 

This Easter may we foremost remember the significance of Redemption and God’s saving plan that brought us the gift of our salvation and a truly successful exit-plan to all who faithfully believe on his Name.
Blessings this Easter and in the months ahead, as we await the fulfilment of each one of God’s eternal Promises from his Word.
God Bless you and yours,
Sauder & Stoltzfus, LLC