Banks Raise Interest Rates

Earlier this week the Federal Reserve Bank announced it would raise interest rates three times next year beginning in the spring. The Fed is doing this to cool down the economy, in hopes that the increased rates will decrease inflationary pressures on prices.

This means that the interest rates your local bank charges will also increase. During the ’78 – ’81 recession, most businesses were happy to borrow money at 15%.

You may need to get ahead of this. Only whatever God you pray to knows how far it will go. As the interest rates you are charged increase, you may need to raise your prices in response.

Another issue is the availability of lending. Banks normally tighten up their lending practices during prolonged inflationary periods.

Inflation causes bank clients to go out of business. As loans go bad, on the bank’s balance sheet, the bad loans go from being performing assets to liabilities.

If the bank has more liabilities than assets, they become insolvent and the FDIC takes over the institution to protect the bank’s depositors. Knowing this can happen, banks generally don’t lend. They need to hoard as much cash as possible so they don’t become insolvent and lose the bank.

If you have any loans that need to be renewed, I’d suggest you get to it. Getting a renewal done now might be a lot easier than could become later.

Let me leave you with this.

On Sunday, December 7th, 1941, a few hours after Pearl Harbor had been bombed, Admiral Chester Nimitz was attending a concert in Washington, DC. He was paged and told there was a phone call for him. When he answered, it was President Franklin Delano Roosevelt.
Adm. Nimitz was told that he would now be the Commander of the Pacific Fleet. The Admiral flew to Hawaii to assume command. When he landed at Pearl Harbor, he walked into a cloud of despair, dejection, and defeat.
On Christmas Day, 1941, Adm. Nimitz was given a boat tour of the destruction wrought on Pearl Harbor by the Japanese. Sunken battleships and navy vessels cluttered the waters. As the tour boat returned to dock, a young helmsman asked, “What do you think after seeing all this destruction?”
The Admiral’s reply shocked everyone within the sound of his voice.

Nimitz said, “The Japanese made three of the biggest mistakes an attacking force could ever make. Either that or God was taking care of America. Which do you think it was?”
Shocked and surprised, the young helmsman asked, “What do you mean?”
Nimitz explained. “Mistake number one was that the Japanese attacked on a Sunday morning. Nine out of every ten crewmen of those ships were ashore on leave. If those same ships had been lured to sea and sunk, we would have lost 38,000 men instead of 3,800.”
Next he said, “Mistake number two happened when the Japanese saw all those battleships lined up in a row. They got so carried away sinking the ships, that they didn’t bomb our dry docks opposite the ships. If they had destroyed our dry docks, we would have had to tow every one of those ships to America to be repaired. As it is now, the ships are in shallow water and can be raised. One tug can pull them over to the dry docks, and we can have them repaired and at sea in the time it would have taken to tow them to America. I already have crews ashore anxious to man those ships.”
The Admiral continued. “Mistake number three was that every drop of fuel in the Pacific theater of war is in ground storage tanks five miles away over that hill. One attack plane could have strafed those tanks and destroyed our entire fuel supply.”
Think about it. Admiral Nimitz, while surrounded by defeat and despair, was able to see a silver lining that no one else could possibly fathom.

Isn’t that the job of an entrepreneur?

The last couple of years have been difficult, and it looks like the next couple will also have their challenges. Optimism can be difficult at times, but it’s a necessity in leadership.

There’s always a way through. Be the leader that sees success and opportunity in failure. Be the leader your employees, your clients, and your family needs in difficult times.

We’re all going to get through this. Let’s get through it together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, PPP Loan Forgiveness, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500

www.AccountingSolutionsLtd.com

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