Alternative currency and balanced living system. Alternativna valuta i uravnoteženi životni sistem. Moneta alternativa e sistema di vita equilibrato.

Linija

Search

Home Alternative News Notizie The Importance of Liquid Capital During A Global Recession

Crom Alternative News

Investigative journalism and useful articles on various topics.

In late 2008 and early 2009, the default rate on subprime mortgages began rising fast enough to garner attention from the economists and analysts throughout the United States.  In the spring of 2008, Federal Reserve Chairman Ben Bernanke testified before Congress and told a room full of senators and reporters that there were minor troubles facing the subprime mortgage industry, but he assured everyone that it was not a real cause for concern.  His exact words were, “the problems facing the subprime mortgage industry are contained and should have very little to no material effect on the economy at large.”  Then, in the fall of 2008, the world nearly ended.  Literally.

There was a span of a few days in October 2008, that the global economy was literally hours from a complete collapse.  Banks had stopped lending to one another, and banks rely on overnight loans in order to finance their day-to-day operations.  And, of course, those “minor troubles” facing the subprime mortgage industry have now caused a 4 year global recession.

Cash Is King

During the last four years, I have learned significant life lessons.  I have seen multiple entrepreneurs go bankrupt and lose everything because they were severely over-leveraged.  I have also seen extremely successful entrepreneurs shut down dozens and dozens of companies in order to liquidate everything.  What I have learned more than anything is that cash is king.  Folks who were flush with cash entering the recession were able to remain afloat during the worst of times.  Those who did not have cash took huge hits because small business loans were definitely difficult to secure.

Today, in early 2012, I am seeing something begin to happen that is very interesting.  Investors and entrepreneurs who were able to liquidate companies and other investment positions were able to sit on cash the last few years, and now they are able to begin building and investing again with significant cash positions.  Entrepreneurs and investors who were highly leveraged prior to the crisis and therefore wiped out, however, are starting from scratch with borrowed capital again—often in the form of small business loans.  It is extremely clear to me that cash is king.  Never over-leverage.  Those who handled finances intelligently before the crash are now starting out way ahead of the competition.

Better Than Cash

There is one asset that is even more valuable than cash during an economic downturn—mental capital.

Mental capital is difficult to define, but essentially it is emotional strength, power, the ability to learn, and all of our previously learned skill sets.

Mental capital is not only what empowers you to survive a difficult period in your business, but it is also what will empower you to get up, learn new skill sets, capture fresh vision, and press forward.  Physical capital in terms of real cash will ebb and flow.  That will never stop.  Mental capital is different, however.  It is possible to always be increasing your mental capital.

Read

I once read a success quote that said the average millionaire reads one book per week.  That may or may not be true, but it impacted me significantly.  There is power in reading and always feeding your mind with new and fresh information and inspiration.  Take your mental capital to the next level by visiting the local bookstore and picking up a new book.