Meredith Whitney did a worthwhile Op Ed in the Wall Street Journal yesterday: The Small Business Credit Crunch:
Usually at this point in an economic recovery government hiring kicks in to help pull down unemployment and bump up the consumption ability of consumers. This time however, governments are doing the opposite due to staggering budget deficits:
“Over the next 12 months, disappearing state and local government jobs will prove to be a meaningful headwind to an already fragile economic recovery. This is simply how the math shakes out. Collectively, over 40 states face hundreds of billions of dollars in budget gaps over the next two years, and 49 states are constitutionally required to balance their accounts annually. States will raise taxes, but higher taxes alone will not be enough to make up for the vast shortfall in state budgets. Accordingly, 42 states and the District of Columbia have already articulated plans to cut government jobs.”
This leaves the hopes for job creation squarely on the shoulders of the private sector. Over the past 15 years, 64% of new jobs have been created by small business.
Since the onset of this credit crisis small business have cut five million jobs. Given the lingering constraints on their ability to access credit, it is highly unlikely that small business can ride to the rescue of the job market this time.
Whitney appeared on CNBC to discuss her concerns that the current proposals for financial regulation will further restrict capital and credit to small business.