Are there two economies emerging from this recession?

There seems to be a lot of data coming out that suggests that we are not “all in it together” on this economic recovery.  And while most companies do not recover from an economic event in unison, this one appears to be pointing to more stark changes that if unchecked could lead to long term or even permanent changes to our business structure.

What leads me to believe this may be the case?  Economists announced that our recession ended in June 2009.  That may be technically correct, since then a number of unique (maybe even conflicting) trends have developed that has to do with the large corporations and the mid sized and most important, the smaller business of the U.S.

The factors that separate the largest companies, which seem to be doing either much better or even quite well in recent months and quarters from the rest, are numerous.  I see these as the top five.

  1. Liquidity – namely cash.  Large companies are carrying between $1.8 and $2.2 trillion in cash on their balance sheets.  While some sectors of small and mid sized businesses are “stashing cash”, the majority are still “watching for the mailman” and starving for cash.
  2. Borrowing.  Since many large companies have such a stockpile of cash, the need to borrow has been non-existent.  Smaller businesses, on the other hand, cannot even get a loan.  I have not seen any report (government or otherwise) that has indicated a marked improvement in small business lending.
  3. Corporate value.  If the measure of our largest companies is the stock market, the run up in the value (a Dow over 12,000) leads me to believe the value of these companies is rising despite rising oil prices, government deficits, high unemployment, a weakened banking system and a decimated real estate market.  It seems all these items on this list is exactly what keeps value of mid and small sized firms down and the reasons for weaker balance sheets which leads to no loans.
  4. Interest rates.  For larger companies the lower interest rates has created an opportunity to refinance their debt – becoming stronger financially.  The lower interest rates have had quite the opposite impact on smaller businesses since banks cannot price these loans to cover risks.  Small business would likely pay higher rates to achieve availability of credit.  But as one banker said to me “we make more money NOT lending to smaller companies than lending to them”.
  5. Financing alternatives.  For large businesses there has always been alternative to bank credit lines and many are taking advantage of this as the competition for these types of borrower’s heats up.  Small and mid sized businesses as left primarily to the banking industry.  There are few or no alternatives.  At one time personal wealth, usually home equity, made up the gap.  The bankers have taken care of that one as well, canceling credit lines or reducing lines based upon lower real estate values.  Most states and communities have failed to develop gap financing options for smaller businesses that reduce banker risk and increase loans. What about the SBA?  There is not enough money, people or resources to fund the real needs of this business segment nationwide.  Many of these programs help with declining collateral values, but provide little assistance in gap financing and bankers are still not “overwhelming the system”.  And the paperwork and timetables are still more than a bit cumbersome.


As previously mentioned, there has always been a gap in the recovery of big versus smaller businesses following a recession.  This one appears to be very acute and if unchecked can lead to permanent damage to our economic structure since many smaller businesses and their owners and employees are those that make up consuming public, the ones that still make up two-thirds of GDP?  You know, the ones that still are on the sidelines?

Those in charge of monetary and fiscal policy should understand their policies over the past 18-24 months have done everything to improve large businesses and banks and to that extent they have been somewhat successful, depending on the measure one uses.  The forgotten two-thirds of our economy are still waiting and fretting and, worse yet, not spending and this is dangerous for any real recovery, any economy and any future.  Getting on the same economic page is not just an option, it’s critical.

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