Tax and venture capital

It is now a statement of the obvious that banking crises cause economic downturns that are very difficult to get out of. In a nutshell we (and it’s a very big ‘we’) over borrowed and the economy now needs to de-leverage. That means that debt needs to reduce in proportion to equity. For this to happen then either debt has to reduce or equity has to increase. Possibly both at the same time.

The major source of equity in business is retained profits so profitable trading over a number of years with the money being used to repay debt will achieve the objective for many businesses. However if everyone is doing this at the same time then demand will inevitably decrease and the economy is likely to enter a slump.