Globalization, technology and diverse supply chains created new products with strong demand supporting GDP/person. The government does not subsidise services like social media, data storage, or analytics.

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Copyright© Schmied Enterprises LLC, 2024.

The enterprise financing approach follows the Coase Theorem. This suggests that companies will outsource projects that are cheaper to do outside. Think about franchises or driving your own car. The model assumes that a small company can finance projects just like a conglomerate. This bill will probably we the deal braker when such businesses can take off: Clarity for Payment Stablecoins Act. [1]

People and businesses can raise 100% debt in the Coarse Theorem because they have the low risk business plan to carry out the tasks themselves. Full debt projects may sound unfair from the down payment proponents and equity holders of public companies.

Remember, it is products and services that are compared in perfect competition, not people and market share. You buy the product, not the person. There is no such thing as racing people with each other, unless it is show business. Success and failure are a show, and it sells at a premium. Indeed, sometimes racing helps motivation. It is part of the show.

Problem. Corporations grew on the hard-earned equity of their investors. Debt projects may sound unfair.

Solution. Indeed. A project they carried out twenty years ago was risky. The exponential growth of companies reflect their path of learning. Companies and their customers learn how to use new tools and techniques. Carrying out the same project today is just buying the franchise.

In fact, equity of publicly listed companies depends on transparency of stock exchanges in order to lower costs by time by sharing their story. You do not race corporations. Their products compete. Enterprises with debt fill a material demand. The key to debt is education.

People do selfish decisions in free markets for themselves. They demand the products using technologies available at better price. A debt project copying the process today is a no risk decision. Remember, information has no value in itself. Using the information does create value. You have right to copy the information, not the information in itself.

Problem. What is the Ivy League edge?

Solution. It is exactly avoiding risk. If you do your homework and get access to a network of skilled advisors of the same ethics, then you can get the project done with lower risk. This secures the debt financing with lower equity. You will likely get done with your startup quicker, you will likely get funding faster. It likely secures a less risky job.

Problem. Why do people say leverage on existing capital is unfair?

Solution. Equity holders invest money with a high risk in mind. Leverage of debt assumes low risk. Equity holders may get a higher return on the debtors low risk. This sounds unfair from the lender point of view. Such debt for equity sometimes detours financing from truly low risk projects. Moreover, defaults are more prevalent.

Problem. People can finance entire projects from debt. This sounds unfair from the perspective of all equity and part equity financiers. They earned their money with hard work.

Solution. A project financed entirely from debt must be a low risk one. Such markets are perfect competition as a result. Profits will be very narrow. The present value of narrow profits will result in almost zero new equity made. It will neither change the equity ratios, nor the stock market capitalization. Still, it is growth for the economy. It is popular with voters. These projects fulfil demand. People want the final products and not the hard work.

Problem. Debt projects give hard cash for negligible early equity investment. This sounds unfair.

Solution. Indeed. Acquisitions will not look at current narrow profits and low valuation. They will see how they can cut costs or leverage the equipment better. Their extra management will bring their profits, they make a ring out of gold and a gem. They buy the stable system. In fact, down payment projects may starve full debt projects pushing up down payment limits and total principal value.

Problem. So, who gets what?

Solution. Monopolistic industries with high entry barriers having good press will likely be financed with all equity. Not surprisingly, you will see their executives on TV. The audience provides a zero-sum game. Oligopolies growing on cheap debt, but innovating in risky industries will use both equity and leverage of debt. Scale is the entry barrier. You see their management less in mainstream media. Full debt projects of railroad improvements, or electric grid upgrades rarely show up elsewhere but in thematic or local press. They typically enjoy public support of cheap energy and GDP growth. The economy is better with full debt projects. Everybody gets what they need.

Problem. How much debt will not cause inflation?

Solution. Debt for low income households will not cause inflation, especially if the money is spent with other low income households. It is pure growth unless taxes are super high, spending the earnings elsewhere. Should they receive less financing, growth suffers. Demand is not filled. The edge case: You may build your own house, car, write your software, and you grow your own food. You become "Swiss". The next step is that you share the work with somebody else in a partnership.

Problem. Will restructuring equity spending cause inflation?

Solution. Demand for zero-sum resources such as stocks, gold, premium cars may cause inflation. Ponzi schemes typically generate inflation, because they significantly distort the consumers and timing of demand during a period. They cause risk and an unstable economy. Technically a central bank pumps money into the system until people start favoring such assets. Stagflation occurs, when money is piled up abroad, so it does not reach locals. Their former living style becomes luxury. The central bank applies the policy of a smaller country on a bigger customer base. This is when people start playing with crypto, foreign debt, junk bonds, etc.

[1] H.R.4766 - 118th Congress (2023-2024): Clarity for Payment Stablecoins Act of 2023 | Congress.gov | Library of Congress (hop)