The most popular keywords in Washington are "small business" and "jobs." Everyone is waiting for small business to revive and generate jobs as the job-creation engine of our economy. Don't expect this to happen soon.
The game changer in this recession is the massive loss of home equity resulting from the housing boom and bust. Furthermore, the depressed housing market and the continuing drop in home prices, especially in certain problem regions of the country, will perpetuate the inability of small business to create jobs based upon lackluster consumer spending.
The last period of growth was driven by consumers spending more than their household income. In fact, many used their homes as an ATM whenever they were tempted to spend.
Today, consumers are not spending because they are either deleveraging or saving. This lack of consumer spending has small-business owners complaining about sluggish revenues that are restricting business growth and job creation.
The massive drop in home prices has additional implications for small-business startups and the funding of existing businesses. In the past, small-business owners often used their homes' equity to easily access cash for their newly created or existing businesses. Today, this is not happening because of restricted credit card use and the lack of home equity.
We may be in for a rough few years as many expect another wave of foreclosures as the alt-A and option adjustable-rate mortgages reset and recast in 2010 through 2012.
Small business is the key to a solution, but we must determine the most effective course of action before it is too late. We will not solve the problem by simply passing legislation with the words small business and jobs. Any effective legislation must addresses the relationship between small business, jobs and the housing market.
