Don’t De-Leverage — If inflation is not transitory

This is a general guide to post-pandemic business management.How do you manage the company’s balance sheet in the post-pandemic era? Do you increase leverage, or do you de-leverage? The general advice is to de-leverage. Reduce debt. This is generally sound advice which is generally true in most economic environments.I would like to posit a slightly different theory with regards to leveraging and deleveraging. The decision to leverage or de-leverage should be viewed in the context of the wider macro environment. It should not be solely based on the analysis of the company’s balance sheet. The decision matrix should incorporate national and global balance sheets. The company does not exist in a vacuum, it exists within an economic system.It is an open secret that the economic system that we are living in is already leveraged to the hilt. Keynesians and MMT theorists tell us debt doesn’t matter, but we all know that debt matters, if it didn’t it there would not be a financial system to talk about because the global financial system is debt-based.The corporate balance sheet should be managed with the same degree of seriousness that managers exude for the profit and loss. Business managers scan the external environment when they make sales forecasts and budgets.Any post-pandemic approach to business management should take the prevailing high debt levels as a given factor, that is, something not to be debated. It is an economic reality that the company lives in. The financial system is hinged on interest rates; thus, the business manager should develop or adopt an interest rate outlook. This is no longer the prerogative of bankers and financial analysts alone. Most importantly, the business manager has to ponder on the inflation question more seriously. Lastly, the business manager should look at the corporate balance sheet and then decide…