Increased Rates, Debt Ceilings, John Pappajohn and Motivation
Rates keep going… up!
Yes, the Fed raised rates again. If you are a business owner and you have a line of credit that is tied to the prime rate, you have my condolences.
Why? Your borrowing costs just went up. How much? 0.25%. That doesn’t seem like much, only a 3.1% increase.
A year ago, that same 0.25% increase would have been a 7.7% increase because the Prime Rate was at 3.25%.
Now Prime is at 8.25%.
Using percentages, your interest costs have increased as much as 153% from March a year ago.
Now, let’s put that into dollars.
If you had a $100,000 line of credit and you were using all of it, your annual interest cost would have been $3,250 in 2021. This year? It’s going to be about $8,250.
If you have a million dollar line of credit, just add a zero. How’s that for perspective?
That’s a $50,000 difference, and if that’s the case, since you could be spending $50,000 more this year in interest, maybe you don’t hire that additional worker or buy some more equipment.
But that’s the whole point, isn’t it? That’s why the Fed is raising rates, so you slow your business down, hiring slows, and spending slows.
And then prices – inflation – go down. In theory.
In related news, new jobs were much higher than forecasted and higher than most months in 2019. However, at 253,000, it is still lower than most of the last 36 months but way higher than the 180,000 forecasted.
And the unemployment rate went DOWN to 3.4%. Yes, we did see that in January, but before that, it was 1968 and Rowan & Martin’s Laugh-In was the top-rated television show, followed by Gomer Pyle, USMC – Golly!
Very Interesting; just google it. Or you can sock it to me.
Back to serious topics… What type of ceiling are we looking at?
Is it an acoustic ceiling?
Is it a cathedral ceiling?
Perhaps a glass ceiling?
Nope. It’s the debt ceiling.
And it can’t be scraped off like the popcorn acoustic stuff in your 1960s house that you watched Laugh-In from. Assuming you were already around.
So, what is this ceiling of debt that I speak of?
Well, you know how you keep wanting increases on your credit card, and the credit card company keeps increasing it, but then one day, they say, “We regret to inform you that your request for an increase to your existing credit card of $31,460,000,000,000 has been put on hold while our decision team evaluates your request.”
That’s a LOT of zeros. That’s $31 TRILLION for anyone that didn’t want to count the zeros.
That day has come (and passed: it was in January, believe it or not), and the decision team – Congress – is still mulling whether they should increase the country’s line of credit and under what conditions.
While Congress figures this out, the Treasury is figuring out how to keep the country running without issuing any more debt.
Like you and me, if we were in a similar situation, they are delaying making payments or spending money they can put off spending.
Kind of like going to the supermarket in 1985 on a Friday night, writing a check for the groceries, and then hoping the check doesn’t clear until Wednesday. Or later.
Yes folks, it used to take days for a check to clear. That was the beauty of writing them.
At some point, that tactic will have to stop; you can only borrow from Peter to pay Paul so often before Peter says enough.
Or, in this case, Yellen.
At that point, some payments will, in fact, stop, but it’s not likely to be the debt payments.
Next week: What is on the table.
“If this doesn’t work out, we can always sell insurance” – Jo Muse.
I will talk more about Mr. Muse next week, but this week, we look at John Pappajohn.
He did NOT start Papa John’s Pizza.
Mr. Pappajohn was born in Greece in 1928 and shortly later emigrated to Iowa with his parents when he was nine months old.
His brothers, Aristotle and Socrates, were born in the US.
His father worked at a brick factory and then started a grocery store open 7 days a week, but died when John was 16.
The three boys ran the store, taking turns finishing their studies. It took John 6 years to get his degree at the U. of Iowa.
His first job was as a life insurance agent with Aetna.
In that position, he went to a seminar put on by W. Clement Stone, where the benefits of a positive mental attitude were emphasized.
That motivated him to start his own insurance company.
15 years later, having done well in the insurance business, he went into the little-known world of Venture Capital in the late ’60s, using those proceeds to start entrepreneurial incubators at five Iowa universities and colleges.
He also was a philanthropist, giving away more than $100 million.
On his lapel, he wore a pin reading PMA: Positive Mental Attitude. He told young entrepreneurs, “If I can do it, you can do it!”.
He also felt it was his responsibility to his companies to be the cheerleader. “It’s my job to excite them and motivate them to do better with what they are doing.”
Mr. Pappajohn passed away last month at the age of 94.
For What it’s Worth
I have always been a big fan of motivational seminars and industry conferences. I clearly remember my first one, put on by Tommy Hopkins, that was focused on sales but also wanted to get the attendees to enroll in his sales courses. Subsequent events included Colin Powell, Bob Dole, Les Brown, Brian Tracy, and of course, Zig Ziglar. All were tremendous speakers, particularly General Powell. If he had asked, half of the 10,000 in attendance would have followed him out Arrowhead Pond in Anaheim.
My point here is that as the owner of your company, or manager of your department, it is your job to motivate your employees. Conversely, you can send them to conferences that are focused on their industry with speakers that will help get them motivated. Yes, they are out of the office, and yes, it costs money. But I’ll bet you will see a very positive return on that investment. If they don’t like it, don’t send them again. If they do, make it an annual practice. If they have ideas for improvement, listen to them.
Finally, I will leave you with a quote from Les Brown: “No one rises to low expectations.” Have high expectations of your employees, and they may surprise you; just get them motivated!
Next Sunday is Mother’s Day. You have been alerted!!
