Sources of DIP Financing
As mentioned in the previous article, the financing required by companies in order to keep their operations afloat after filing bankruptcy is known as DIP financing. With regard to DIP financing, there is a standard market for lenders who offer DIP financing. There are investment bankers who specialize in helping clients obtain DIP financing. However, […]
Job Costing and Service Firms
Law Firms: Law firms all across the world practice job costing. Most law firms charge an hourly rate to their clients. This rate is derived on the basis of the same factors direct material, direct labour as well as overheads. In case of law firms, the direct material used is negligible. The majority of the […]
Present Value and Future Value of Money
Value of Money Depends Upon Time In the previous article we learned about the concept of nominal and real values of money. We realized that money today is more valuable than the same sum received at a future date because there is no risk involved in obtaining it and also the real value of money […]
Investment Banking and Special Purpose Acquisition Companies (SPACs)
Special Purpose Acquisition Companies (SPAC) have become all the rage in the investment banking industry. They are not a new concept. They have been around for quite some time. However, they have become quite popular in the recent past. For instance, in the first half of 2020, $13.5 billion dollars were raised by Special Purpose […]
The Whatsapp- Facebook-Instagram Merger
Facebook, Instagram, and Whatsapp are three major social media applications. These three applications have a combined user base of about 3.6 billion users! This means that on average half the world uses at least one of these apps! Facebook currently owns all three applications. However, up until now, all these apps have operated in an […]
The world is in crisis and one of the reasons for that is the excessive debt held by people, companies, and countries. The west is especially hit hard because of the profligacy of the last three decades starting from the 1970s, which have resulted in a consumerist lifestyle, and an accumulation of debt at all levels of society. The acceleration of this trend during the 1990s and the 2000s with the inevitable implosion happening in 2008 meant that the world and particularly the west are sitting on a time bomb that can explode anytime. As people, companies, and countries in the west pay down the debt, they are faced with a choice of either curbing the present consumption and paying down the debt accumulated so far or taking on more debt to pay off the existing debt and bankrupting future generations.
In other words, as all levels of society take on more debt to continue the present consumption, the situation is such that this debt has to be paid off sometime in the future and most likely, the future generations would be saddled with this debt. Like a head of the family who accumulates, debts and leaves to the future to pay it back, all levels of society in the west are continuing the present unsustainable way of living.
For instance, the United States is embarking on increasing its present debt and taking on more debt to pay off in the future.
Further, as there are many social welfare oriented schemes like Medicaid, Medicare, and Social Security that are entitled to be for the cause of social justice, the country has to budget for these entitlements as well so that the fabric of society is not ruptured. However, there are many experts in the United States who believe that the government must not honor its commitments to the elderly and the sick and instead, must give tax breaks for the rich and subsidies for the giant corporations. Coupled with the line of thinking that advocates more spending and more consumption, this line of action is a surefire recipe for disaster.
The point here is that the accumulated debt would be passed on to future generations who would find that they have to do without subsidized education, less spending on social schemes, and have to pay more taxes to repay the debt that has been accumulated so far.
The situation in Europe is slightly different, as the policymakers there have embarked on a debt reduction program by focusing on austerity. Of course, the existing debt is also being carried forward which means that in addition to cutbacks on social schemes and a general sense of lack of basic spending, they would also have to repay the debt.
The point here is that the situation in Europe is more severe than in the United States, which for the moment is postponing the problem. However, there are many experts who believe that the US would face this “Tsunami of Debt” and the “Debt Bomb” pretty soon and that the day of reckoning cannot be postponed forever. The clear implication of this is that eventually the world would have to wake up and face the reality of low growth, more austerity, and more taxes along with sacrificing comforts to just get along. This means that there are tough choices ahead for the present generation and the generations to come and therefore, it is better for those who are graduating now or are taking up jobs to be aware of these facts.
Finally, the present generation can limit the damage done so far by living sustainably and trying to innovate and ensure that growth returns through inventive and creative solutions. The other alternative is to live through an economic depression that would impact their lives drastically.
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