Insolvency | Ol’ remus and the Woodpile Report

A business enterprise is solvent when its operations are supported by its after-tax cash flow. Should cash flow be temporarily insufficient, borrowing against accounts receivable is the classic remedy. With serial borrowing however, operations-plus-debt-service eventually becomes unsupportable by cash flow, real or anticipated. Creditors withdraw when they see this, it’s insolvency or near enough. The business closes, its assets are liquidated and the proceeds distributed among its creditors. This is what’s happening to the US, aside from the liquidation part. Debt repudiation by inflation—watering down the currency—holds such comeuppance at bay, at least for a while. Continue reading