The upshot: Businesses that actually need the capital for survival will be denied.
As Howard Marks’ astutely noted in his latest memo, the Fed’s goal seems to be to lift asset prices, as the Fed did after the financial panic, and hope that the wealth effect filters down through the economy. Will trickle-down be fast enough to support the millions of private businesses that need to make payroll this Friday? Even in the best of times, there’s not a chance.
My take: As an owner of a private business, you have to think of your alternative options independent of the universe of government support. That means pulling every single lever you have to manage your cash and restructure your business, as well as exploring the pluses and minuses of raising external capital. We’ll talk about all of this in future posts.
Given it employs two-thirds of Americans, I believe the survival of private businesses will determine the severity and duration of this downturn. If a more inclusive fiscal solution is not found fast, the resulting permanent unemployment is likely to make a depression inevitable.