China, Google, and two notions freedom
by Eric Garland
Paul Denlinger, a very astute observer of U.S.-China business relations has a fascinating piece up at China Vortex discussing two very different notions of freedom of information that are colliding soon.
One view, ostensibly “American,” is being espoused by Google, Facebook, and their respective CEOs. In short, this view is the early Internet mantra of “Information Wants to Be Free.” Opposing them is the Chinese government, which obviously believes that government should play a role deciding which information goes where in a society.
Read Denlinger’s analysis and decide whether the issue of “information sovereignty” and “individual rights” are as clear as you might think. It just goes to show the incredible role culture needs to play in all of our analyses of the market.
Economic policy and politics need to meet in the middle
While economic policy and national politics have always been a couple, sometimes the relationship can be strained by the injection of partisanship. The current crisis requires insight into the actual issues to make policy suggestions. The United States is running a risk by having its economics so colored by bitter partisan divisions, as this is one area where there needs to be solidarity.
In a thought provoking GPS episode, Fareed Zakaria interviews two very different schools of thought on the actions necessary. His conclusions are that we must meet in the middle of the political agendas and look at the economic possibilities. Essentially, his view is that the U.S. government needs to spend more now while also reviewing entitlement programs to make sure each dollar is spent in the most efficient manner – a classic centrist approach.
It is always a risk for a country when political in-fighting colors international economic policy. That is true for Greece, Spain, China, Iceland, and, of course, the United States.
The Greeks caused the oil spill in the Gulf (or something like that)
by Eric Garland
My latest interview with Pam Atherton of A Closer Look Radio, covering the superconnection between peak oil, European fiscal crises, local economics, and even the iPad. It’s all about institutions in transition and what you will do to assure your future success.
Major signs of dissolution of the global finance system
by Eric Garland
Collectively, we have desperately wanted to ignore the larger implications of what people falsely call the “Crisis of 2008” or the “Banking Crisis” or even less correctly, the “Subprime Crisis.” The implications are too big, so it’s better not to pay attention, soothing ourselves with discussions of “green shoots” and chipper news reports that “the American consumer is BACK, baby!” The last thing our news media wants to do is continue the study of what happened, what it really means, and what’s next. This is a shame, as we are guessing that there is much in the way of “crisis” to come.
Here at Competitive Futures, we absolutely recommend studying disruptive events with the goal of creating strategies for the survival of YOUR company. Over and over again, we say a crisis for some is not necessarily a crisis for you, if you plan ahead. S
o when we predict major disruption, it’s not that we want to gather up a few bottles of tequila, some old records, good friends, and just wait for “the end.” Quite on the contrary, we think that it’s time for action, no matter how disruptive the news may be.
So then, just some of the news:
- Japan, the world’s second largest economy, may begin missing payments on its bonds, rendering it functionally bankrupt.
- Los Angeles, the second largest city in the United States, the tax base of which includes media, defense contracting, and major shipping, is nearly out of cash. It’s bond rating has been reduced by Moody’s to Aa3, a medium-grade risk investment.
- Greece has been saved by preferential loans of thirty billion Euros from fifteen of the EU member states. Nobody, however, is discussing what happened, why it happened, or how to keep it from happening again.
The pattern emerging here is that we have major early warning signals that the current “crisis” is part of a much larger reorganization of society and economics. Whereas last time we focused on the debt shenanigans of private companies (AIG, Wells Fargo, Bear Stearns, Lehman, et al.) this time the focus is on nation-states themselves. This isn’t about stocks, from which people expect some risks, but government bonds, which are supposed to be the dullest part of anybody’s portfolio next to shoelace futures or large stockpiles of sugar packets.
Nobody is talking about how much of a rupture this could be, which is no surprise given how little people wanted to discuss the last “crisis.” Before, this was presented as a crisis of economy – “The economy has taken a bad turn; we will bail out the private actors and things will return to normal. Oh yeah, and regulate some stuff…maybe, so that this doesn’t happen again. Not that we knew what happened.”
Now, with the bankruptcy of major cities and states and entire countries, we have a crisis of the global system. Nation-states are attempting the regulate financial actors that are orders of magnitude larger than the agencies that purport to have legal control over them. It doesn’t really work, but when push comes to shove, the people accept the sovereignty of their elected governments to print currency, engage a stimulus, or create new regulatory regimes. The inverse is not true for nation-states. Once nations have failed, our final unit of geopolitical analysis is finally gone. If Japan defaults, they can’t really send out Mizuho Financial to negotiate on their behalf or print a stimulus. The Yomiuri Shimbun isn’t really the official spokesperson for the nation – their foreign ministry is. And after all, it’s the government that backs the currency the businesses use, not the other way around.
You might imagine, after being caught flat-footed in 2008, that our managerial culture would be more sensitive to these emerging patterns and their potential implications.
Some will pay attention, and those people can position themselves for success. Will that be you?
Assuming a bright future – pensions drag down General Motors
by Eric Garland
One of our more accurate predictions at the end of 2008 was the soon-to-be-discovered catastrophe of unfunded pensions. As 2010 develops, we see that many of the current hotspots in the ill-defined “financial crisis” are tied to this one issue of having overvalued the future at the expense of the present.
California is sitting on around $500 billion (!) in liability. The state of Illinois is short $78 billion for it’s pensions. Now, here comes The New General Motors, still losing billions after a taxpayer bailout. The Government Accountability Office has recently released a report about how pensions will likely drag the ailing manufacturer down starting in 2012 or so. (h/t to Megan McArdle at The Atlantic for quality analysis here – also, the comments section is a stitch)
What happens in 2012? The bulk of the Boomers start cashing in those defined-benefit pension plans, heading to the doctor’s more often, and generally turning 65 at the rate of 7000 per day. Aren’t forecasts useful? This is why we call it a megatrend – it will impact car companies, state governments, universities, national governments, baseball teams, travel agencies – everybody.
Nothing is more dangerous than a business decision based entirely on, “sunny, bright scenarios of fantastic success at 8% returns for all of our investors, forever!”
Fraying at the edges – Los Angeles out of cash
One of the great economic tensions right now in the Great Transition is between national organizations and smaller bureaucracies at the edge. For example: the economy melts down from an incredibly predictable housing bubble crash after a decade of equity destruction and flat GDP growth. Banks should fall, currencies should be scrambled. At the last minute, national governments step in, flood new printed money into the market, force stronger megabanks to buy weaker ones and – WHEW – everything can go back to normal.
The problem is, not everybody is a national government or a megabank with cellphone access to the Secretary of the Treasury. That’s when we see the smaller organizations at the edge begin to suffer the long term effects of this Transition.
We’ve spoken quite a bit about states, provinces, and smaller countries. Now, cities, municipal corporations, are on the chopping block. Harrisburg, capitol of Pennsylvania, is considering Chapter 9 bankruptcy as it considers its inability to meet the debt payments on critical infrastructure investments.
Today, it seems that a little backwoods village out west called Los Angeles is out of cash, may miss payments to vendors, and is in bad need of emergency financing.
Nation-states have rights that smaller units do not. Nations – provinces – cities – neighborhoods – individuals. If systems don’t work from the individuals on up, we predict an increase in bureaucratic peccadillos that nobody can solve through talent and hard work alone.
Rupture! from Michel Cartier
by Eric Garland
I have no idea how I managed to miss this incredible video for so long:
Are You Ready for the 21st Century ? from Michel Cartier on Vimeo.
Local currencies in distressed towns
by Eric Garland
Between the Greeks staying in the European monetary union, or Detroiters keeping their dry cleaners and doggie-daycares afloat, there is a considerable amount of talk about the role of currency. The crux of the European issue is that the Portuguese and Greek economies are so different from the French and German ones, it is difficult to keep one currency with the same rules and assumptions in play. The fringe actors are no longer able to keep up the facade required for membership in the club.
We are seeing a microcosm of this in local towns in America, and the issue comes down to the ability to maintain a central currency. We note with interest an uptick in stories about local currencies not seen since the banking meltdown of 2008 and 2009.
Last year, two Detroit tavern owners were sitting at the bar, sampling their beverages and bemoaning the local economy — no one in the city had cash, and when they did, they spent it in the suburbs. Then the pair hit on a solution: Print their own money.
It is, after all, perfectly legal for anyone to issue currency, as long as it doesn’t look too much like a U.S. dollar. Thus was born the Detroit cheer, a local scrip accepted by a handful of city businesses, including a pizzeria, an electrician and a doggy day care center.
But why would people go to such trouble? Money is money, right?
When the Treasury prints billions to bail out banks and automakers, people look for alternatives. These folks may look nutty now, goes the quip, but wait till the dollar goes the way of the Argentine peso. Then you’ll be exchanging a wheelbarrow of cash for a bay buck, local currency boosters say.
What could this mean in terms of business strategies? One of the most likely implications would be a return to local distributors, those able to deal best with the local market and even local currencies. Compare this to the recent trend of market consolidation in a variety of industries. It just doesn’t match.
First Greece and Portugal, but they are on the outskirts of civilization. First Detroit and Western North Carolina, but those places aren’t prime time.
Next…California? Spain? Iceland? New York State?
Spanish intelligence services: financial crisis is a conspiracy
by Eric Garland
Usually, it’s the job of tin-pot dictators like Chavez and Ahmedinejad to trot out their intelligence services and declare that the world is out to get them.
But when the Spanish intelligence service says the country is under attack from speculators in a clear conspiracy, it’s a sign of something deeply interesting. First, it’s a telltale sign that people high in the Spanish government are concerned that greater instability is on the way from the sovereign debt crisis, and they are attempting to control the narrative.
For those of us practicing future intelligence, this is a call for us to examine the broader political trends at play. Most views of the future take the Euroland to be a stable economic entity for all scenarios. Generally, a meltdown of the single currency and a brushfire war between Belgium and Portugal are considered far out. At the very least, most people consider the continued operation of the EU to be a given – after all, it has resulted in one of the most successful, peaceful, prosperous times in the history of the continent, especially after the tumult of the early 20th century.
Still, it may be that the success of Euroland has required all countries to play a part for which they are ill-suited. Spain still has 20% unemployment. Greece’s debt is out of control. In the days before the single currency, each country would have been free to fail, unsupported by the largesse of France and Germany. Today, they have been supported through their use of a stable, global reserve currency. Like so much, this may be borrowed equity, and borrowed time.
Imagine a future for your business, and indeed your nation, in a world where Europe re-fragments. It may be less far-out than previously thought.
Tim Geithner: Competing for worst forecast of the year
Tim Geithner says the United States will never lose it’s AAA bond rating.
Sure it will: if it does those things that cause countries and corporations to degrade their credit ratings. Those things specifically include printing lots of money – which the United States is doing, and has been doing for decades. And all this before the Boomers start to really tap Social Security and Medicare and cease flipping homes and buying new cars and receiving taxable income. And last time I checked, the United States is still engaged in two sprawling wars in Central Asia, noted to be a bad idea. Those cost money, too.
In the world of professional futurists, the words “never” and “always” indicate a rich vein of assumptions which leaders refuse to examine. They almost always beg us to examine the potential implications of the scenario which is never to occur. For example, “What if the United States loses its AAA bond rating.”
That said, there is a way Geithner’s forecast could be true. If bonds are rated according to the assumption that the United States is the gold standard, as the governor of the Bank of Israel indicates, then perhaps bond ratings might disappear or become quite un-indicative of reality rather than ever betray that standard.
But by that point, what would all this analysis of central banking really matter? We would be well on our way to new systems of investment and public financing, however painful the transition might be.
About Eric Garland
Eric is one of the world's pre-eminent thoughtleaders in forecasting and strategy. He helps leaders of business and government make critical decisions about their futures.Connect with us
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