Back once again with the fantastic Pam Atherton on A Closer Look Radio, Eric ties together the disparate topics of locavore restaurants, revolution in Egypt, and fake government shutdowns to what it all means for YOU and your business.

And they say nobody actually thinks about anything beyond the next quarter. Evidently, Wall Street is recommending that governments begin “solving” their debt issues by locking in low interest rates for forty, fifty, maybe one hundred years.

This is interesting. First of all, such a notion will change the financial logic of saving money for the long-term by locking in low interest- very interesting given the number of Boomers who saved for retirement their whole lives.

Otherwise, this gives us a fascinating opening to discuss the very long-term future of America. Let’s get speculating on what America 2111 will look like.

Zero Hedge has a copy of the latest newsletter from PIMCO’s CEO Bill Gross to his customers. The topic is the quasi-certainty of the U.S. Government continuing its deficit for decades. His tone is very unusual – especially for this member of Generation X – in that he talks about the ethical obligation to future generations in this piece called “Off with our heads!”

Perhaps you did or did not make it through the entire lecture and Q&A with Prof Niall Ferguson in yesterday’s post. Either way, you may have missed the key forecast that underlies all of his thinking about the future of the American economic system:

The U.S. is poised to run major budget deficits in addition to its current debt through 2080.

Take a second to think about that.

This morning’s papers, in advance of the Republican takeover of the House of Representatives, are reporting the upcoming “serious budget cuts” to be proposed by the new house members. It makes for good copy – after all, things might soon be different!

Let’s look at the actual projections from the Congressional Budget Office.

Ferguson points out that there is not currently the political will to reverse this trend since it involves the sweeping entitlements of Medicare and Medicaid. These two programs alone will, by 2080, equal the entire size of the United States government in 2010, never mind military and education and all the rest. Ferguson is not bullish on the notion that future generations of politicos will stare into the eyes of retiring Baby Boomers and say, “sorry, no pensions for you, and you can buy your own healthcare.”

So America, despite its headlines, will still engage in deficit spending unless something very drastic and unexpected comes to pass. That’s an important long view to have as the politicians take to the airways.

Is empire cyclical, doomed to birth, consummation, establishment, decline and desolation? Or are there other futures for large regimes? Can large complex systems create new kinds of future, or are the winds of fate far too strong? Can we predict decline, change it, improve things, create order out of chaos?

Nobody is better at exploring the large questions than Niall Ferguson. This lecture is long and well-considered, not a candidate for viral videohood. Given the subject, that is perfect.

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.

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.

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.

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. So 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?

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!”

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.

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.

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?

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 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.

For those of you who know Gregor MacDonald, you know you’re in for a treat with this podcast- a full hour of some of Gregor’s latest forecasts on energy, economics and society, insights you simply won’t get anywhere else.

For those of you who haven’t discovered Gregor yet, he is one of the top energy analysts in the world, and in our minds, one of the top analysts of anything, period.

This podcast covers sweeping ground:

• Why we’re at peak automobiles
• The end of cheap oil
• Coal’s role in the development of the world economy
• The return to human capital and small towns
• Why waterways are the future
• Our current period of “late phase economic decadence
• Why PAKISTAN holds the key to the Copenhagen Protocol

Crazier still, we could have spend ANOTHER hour talking to him and still not exhausted him of insight.

Enjoy.

I’m very excited for our upcoming inaugural meeting, this Thursday of our new, increasingly global, professional society, The Intelligence Collaborative.

The following video explains what intelligence is, why we need to collaborate, and why now is the perfect moment.

Have a look at the video, and if you’re anywhere in the MidAtlantic region, consider a trip to our nation’s capital this Thursday. Tickets are free – just bring your interest in how social media will change the practice of intelligence.

Trading Fort Knox for CASH via cash4gold.com. This is Change I Can Believe In!

US To Trade Gold Reserves For Cash Through Cash4Gold.com

If you have a certain nostalgia for 1980s Soviet advertising, or if you’re interested in the current state of the semi-nationalized automobile industry, you’ll get a chuckle out of this “scenario,” an ad for the 2012 Pelosi GTxi SS/RT Sport.

It’s funny, and yes, it contains some fairly partisan political jabs. That kind of material is something I would studiously avoid in a professional context – especially this blog. That said, we’re not in ordinary times. I would say that the current level of government involvement now means that political analysis of industry developments is more important than ever.

As I have said previously, the government is no longer simply regulating industry or financing it through monetary policy – it is now managing companies with the taxpayers as stockholders who have a right to see their investments protected. This will necessarily require an analysis of politicians and their goals. This may mean our competitive analyses will lay bare political feelings in our own organizations. That was the risk of the U.S. Government’s bailout policies, a dramatically-increased politicization of the American – and global – business environment. And here we are.

Do you read Mish’s Global Economics Trend Analysis blog? If clarity is a virtue, Mike Shedlock is a saint. Every day he is delving into some key economic statistic that will light up the future for you. He’s ahead of the curve. He IS the curve. He doesn’t need curves. He’s the Chuck Norris of economic thinking.

He has one of the top economics blogs in the world – but he’s not an economist by training. He started his interest in global economics as a result of being unemployed, and went from there. In every way he started his intellectual empire from the ground up. He is the kind of expert we need most.

Mish has a great story and a brilliant mind. Check out his most recent talk at Google, and FOLLOW THIS GUY.

With the bankruptcy of General Motors, our economy has finally hopped over the plane’s wing into the Twilight Zone. Not that this event was surprising to anybody with a cursory interest in money or cars – GM bet its future on the world’s endless thirst for bloated Hummers and Yukons and left quality and disruptive innovation to Asian rivals, all while locked into being America’s largest private provider of healthcare and pensions. You can get six Jack Welches, ten Peter Druckers and those guys who started Google on board and even they aren’t going to figure a way out of that hole. Like any death of a long-sick relative it is still a shock without truly being a surprise. You’ll feel the same way when American healthcare self-destructs and when Social Security cracks in half.

The reason to stockpile peyote and brown acid is not the demise of a for-profit company, which should be a prosaic activity in a capitalist system. You’ll need some strong hallucinogens to deal with how this bankruptcy was done, and what it means. The failure of GM I was expecting; a failure accompanied by an additional thirty to fifty billion of my tax dollars was the pimp slap. Not only is the original “Fortune One” company declaring the death of its business model, now my children and I get to be 60% owners of the company for the foreseeable future. It almost makes me long for the good old days of 2008 when we simply handed bankers hundreds of billions to pay off their bad investments without the need to get seats on the board to protect collective shareholder investments.

The walls began vibrating songs and the chairs began dancing a frentic rumba when a psyche-shaking question occurred to me – How many freaking companies do I own as a taxpayer now? I am a proud owner of Fannie Mae and Freddie Mac, a lovely deal for the 50/50 partnership in which government covers the “loss” part of the equation and private investors cover the “profits.” I get 80% of AIG, those masters of risk management who set the planet on fire by insuring every transaction on Earth from credit default swaps to Mexican cock fights. I have shored up most of the gargantuan banks on the planet through easy loans so big that our inevitable inflation will soon give Argentina, Brazil and Ukraine a hearty, nostalgic laugh. Now, my government has made me a majority shareholder in a automotive company that will need to atomize the oldest and most-established industrial infrastructure in the world before it could ever hope to compete with the supply chains of Korea, China, Japan and India – though not a word has been written to describe the difficulty of this transition.

As a taxpayer, behold the fantastic portfolio of my future prosperity! I will take this group of investments over any crap that Warren Buffet might cobble together! And that guy Soros will soon be proven to be no match for the investment genius of Obama, Geithner and Bernanke!

The drug trip has barely begun, my friends, and the buzz of bailout is now set to become a thrumming, pulsating multisensory experience as this new market moves ahead into the new physics of crony socialism.  There’s no longer any need to believe in gravity, density, or inertia since this new universe is created by executive fiat and is subject to change at any moment. Just consider one question about the moral hazard created in this hallucinatory plane of existence: who is responsible for competitive intelligence for all of these companies that I own?

In order to compete effectively, every company must have a system of intelligence to understand market developments and competitors behavior. This practice varies in sophistication from sending guys to trade shows once in a while to learn stuff, on up to formal intelligence bureaus working in the service of products managers, strategists, and the CEO him/herself. In a modern economy evolving as quickly – and if recent events are any indication, chaotically – making decisions without the benefit of up-to-the-minute data and analysis about the business environment is a sure way to catastrophe. In the world we used to call reality, organizations had a discrete, impermeable layer that separates “us” from “them” and “internal” from “external,” allowing us to look critically at the external world. Intelligence thus permits leaders to understand the future marketplace and take action to insure profitability.

The U.S. Government not only is providing capital to a variety of American industries, it has invested me as an American taxpayer with a majority position in several cases. Moreover, the layer between “us” and “them” is now more permeable than wet Kleenex – since corporations are taxpayers too, Ford’s taxes will make them part owner in GM. Consumers too have multiple interests at stake – buy a new Ford Fusion, and you may watch your investment in GM decline. Buy insurance from a smaller carrier and you may deny AIG, of which you own 80%, of one of the only sources of profit they have to offset their days at the craps table of global finance.

Let’s not forget the government agencies themselves – they are now shaping the market through legislation and regulation, financing the industry through the Treasury’s policy of monitarization, AND acting in the market – ostensibly – to assure the return on the billions of dollars of taxpayer capital they just promised for the coming decades. This is where some peyote may help you squeegee your third eye clean and see into the kaleidoscopic mask of the Bizarro Future. Some major questions loom:

• For America’s neo-mercantile companies, who collects the data in their search for competitive intelligence?
• Who does the analysis? The company that led itself off the cliff, or the federal government bureaucrats who have zero understanding of individual market dynamics?
• To whom do they report first? Cabinet secretaries or CEOs?
• What kind of information is the most important? Rational, measurable data about the objective business environment, or subjective data about political personalities and their connections to top companies? After all, the new shape of the market seems to have more to do with who had Hank Paulson’s cell number in October of 2008 and who had dinner with Geithner while he was at the New York Fed than it does any macroeconomic trends or intellectual property analysis.

I take it back, leave the hard drugs alone. The coming reality will rival anything that distorted neuronal activity might bring. Remember, this is about the moral hazard of the future. It is with the addition of an automotive company to the national portfolio that we finally complicate American capitalism to an unimaginable degree, like trying solve calculus regressions with ten variables. In a business world created through executive order and maintained through fake federal money, all other players in the market – if they are paying attention – should view future market dynamics with the confusion reserved for a fever dream. It makes competitive intelligence extraordinarily necessary, and partially impossible.

The future is not an academic exercise. It is about blood and tears, treasure and poverty, dreams achieved and destinies averted. It is about sweeping healthcare reform and the atrocity of war. As professionals, we are all too often trapped in our powerpoints, distracted by our petty intellectual rivalries, lost in the language of technocrats. But this is life and death, success and failure.

I am reminded of this as I read the wonderful Dinokeng Scenarios, a view of three possible futures for South Africa. Knowing the situation in that country – violence, hope, unemployment, illness, and burgeoning democracy – the stakes could not be higher. To quote the project:

We are at a crossroads, but what is wrong in South Africa can be fixed. South Africa is a country of great possibility. We have a reasonably strong asset base. But we also have a deficit – we are badly served by our leadership. There are dangerous seeds in our present which have the potential to lead us to disaster, possibly even authoritarian rule. This is a moment of choice that requires strong decisive leadership.

The project presents three guiding scenarios: Walk Apart, Walk Behind, Walk Together, representing the possibilities represented by allowing the status quo, expecting a government to provide solutions, and depending on community integration, respectively.

I suggest you download them all, for two reasons. First, to see how futures can serve as both professional and inspirational documents, since this project represents the highest level of professionalism and spirit in the world of foresight. Second, you owe it to yourself and to our neighbors in South Africa to understand their struggle, if perhaps to understand your own.

We are all in this together. When one person fights to make a brighter, more just, more humane, healthier, more prosperous future, we must all join in.

I am glad to see Douglas Ruskoff weigh in on our current situation. He’s a fantastic thinker, humanistic and often contrarian, the author of many books including the recent Get Back in the Box: Innovation from the Inside Out, which is about the foolishness of senseless innovation. If I read Rushkoff correctly, he sees economics as a distinctly human, connected enterprise, and the absolute opposite of where our commercial leadership has taken us.

He presents some major, major ideas:

• The recent goal of business has been to make every company a holding company, one whose purpose is the acquisition and/or management of debt as opposed to a group of competent people who do things for other people
• People at all levels have become more interested in the perceived value of assets (homes, shares of companies, CDOs) than the actual value that they might ever produce
• Most of these ideas are supporting people who may not even be in the system – long-gone investors, maybe even dead guys
• The monetary system is not about encouraging trade, but often preventing trade
• The American Revolution came about because England forbid people from providing each other with services
• LOCAL CURRENCIES used to be very popular and could be again
• We were probably better off economically in the Late Middle Ages (the Black Death notwithstanding)

We need to revisit our total concept of value creation. It’s great that Rushkoff is lending a hand.

This article from USA TODAY should be on its front page in all red letters.

A small but growing number of cash-strapped communities are printing their own money.

Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses.

The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.

Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.

It is not possible to overestimate this disruptive nature of this trend.

This has nothing to do with a drycleaner exchanging his services for some computer repair. This is about the nation-state shifting in importance back to the city-state, or at most the regional economy. The economic vitality that normally comes from nations is being choked by the decadence of bankrupt financiers and the inaction of feckless bureaucrats. In response, the people who actually provide the wealth of nations are walking away.

This is a statement to Messieurs Obama, Sarkozy, Brown, Hu et al. that if you can’t make a functioning international currency system, we will not take part. The printing of local currency is the sign of a revolution brewing – a bloodless revolution that is far more radical.

Watch this trend very closely. If it continues, it will change the logic of globalization for the next decade or more.

AIG claims that it believes that its business practice could destroy the capitalist system around the world.

If that is so, can any government really stabilize the system?

More importantly – won’t governments go out of their way to change the very nature of private enterprise to assure that this can never happen again?

Below is a recent internal memo from AIG about the risk it thinks it poses the world economy. What do you think?

Aig Systemic 090309

The United States Government is taking great pains to prop up gigantic financial companies that made catastrophic decisions. One Harvard Business School professor thinks that small, local businesses will be the economic engine of the future.

That is how innovation works: small companies competing like crazy and trying out new things. Across cities, there is a strong connection between an abundance of small firms and local growth. The last thing that the government should be doing is propping up big declining firms. Real innovations are far more likely to come from someone’s garage, which is where Chester Carlson came up with the Xerox machine during the Great Depression.

The Big Three automakers pose real policy problems. The government is already on the hook for their huge pension liabilities. Vast layoffs will make the recession worse. I am not arguing for complete laissez-faire, but an open-ended commitment to this industry, or any other, is pure folly. Growth requires change, not binding our country to declining industries.

I’m not certain that the current knowledge economy, often depending on broad partnerships, will be just about one guy in his garage, but this would be a radically different approach to economic development policy.

You may be watching with some wonderment the endless ability of the United States Government to write checks for trillions of dollars. A government already bleeding trillions of dollars is signing up to pour billions into banks, rogue counter-party insurers, car companies, people who bought too much house – all while supporting two nation-building wars and the rest of its mundane obligations like building roads and schools.

Forget the $1.75 trillion Obama will add onto the debt sinkhole of past president, just cast your eyes to what financial obligations lie ahead. Boomers. Retiring. Healthcare. I’ll stop there.

How could any government possibly pay back the interest, much less the principal, on such a debt. If you start examining the numbers, ignoring the fearsome quantity of zeros involved, you might think it will be like any average person and their credit card bill. Except, imagine that a single person has $80,000 of income, and $960,000 in credit cards – there is virtually no reasonable scenario in which the income will catch up with the monstrous debt obligations.

When it’s an individual, we call that bankruptcy. The courts step in to say, “Look, this person may have been honest about his intention to fulfill these obligations, but now we judge that it will never actually happen. And it’s neither reasonable nor moral to obligate this individual forever. All the debts are converted, it’s over.”

When a nation does the same thing, evidently it is called debt repudiation. I had never heard of this term until recently. Energy analyst Gregor MacDonald is writing about this cogently and often these days:

For example, we now know that an industrial depression will collapse tax revenues to Washington. This is already in the pipeline, as States from California to Kansas cannot even issue their own tax refunds. So the first path to repudiation comes from a collapse of GDP.

We also know that flagrant monetization will not be allowed to go on forever. That too is in the pipeline, as the FED has expanded outright non-sterilized purchases of financial assets. They have backed-stopped trillions in assets already with Treasury lending, but have since moved on to outright purchases. It’s likely that any month now they will start classical monetization of Treasuries. The FED has told us so. Thus, the second path to repudiation will come via quantitative easing, and inflation.

Let us begin to entertain scenarios in which the United States walks away from its debt obligations to China and the Middle East. Bankruptcy is a renegotiation of terms; there seems to be a decreasing chance that our financial terms of the past few decades will stand. This seems awfully dire a scenario, but I think that open-minded analysts should open themselves to what this means.

Niall Ferguson is without question one of the great public intellects of the world. His books on empire, war, currency, and civilization show an incredible range and depth of perspective in the man. I don’t agree with all of his ideas, but they must be considered. He has been especially prolific on world finance these days. His book The Ascent of Money is a best-seller, and has been made into a great television program as well.

In preparation for my next book, and in consideration of the incredible change unfolding daily, I am returning through the writings of many of the propronents of this Gordian knot of failure in which we find ourselves. A couple days ago, I picked a copy of Why Globalization Works, a 2004 book by Financial Times economic correspondant Martin Wolf. The author’s goal is to give an impassioned defense of global free-trade capitalism, showing the benefit to all involved, demonstrating the suffering of those who do not participate, and silencing definitively those who oppose it. The enemy to trade and progress, it seems, are misguided liberal optimists who imagine some vague and muddy local economy, one which the author sneers at on virtually every page.

However, what is immediate evident about the work is the highly detailed use of statistics on most every page, a really elegant technocratic argument that shows the plus-side of global free trade. Here’s where our friend Mr Ferguson comes in:

“No one has summarised more coherently the recent, voluminous research… Elegantly and persuasively, Wolf marshals the facts.” Niall Ferguson, Sunday Telegraph

I’m assuming here that Ferguson put his name on the front of the dustjacket because he believed in the books central argument – that communists in favor of centrally-planned economies are wrong, and free trade is right and holy. My problem is that my head has been filled with this screeching question while reading it: Who in the hell is still arguing for centrally-planned Soviet economies?

Many of the arguments about globalization and free trade were that speculative, uncontrolled global financial schemes were quite dangerous – and lo, behold, they are. Many of the arguments were that the only organizations able to straddle nation-states were corporations, groups not necessarily designed to make conservative fiscal policy decisions, and holy Moses, they aren’t. The advocates of runaway global finance ignored their critics and derided them as throwback socialist cranks, even those critics who believed in free trade, but had issues with the uncontrollable howling chaos of it all.

Perhaps I’m being unfair to Mr Ferguson, who seems to understand better than most what is happening to us. But media seems to be rife with people who six months ago told us Bear Stearns was fine and stocks were a great buy.

I would just like some of the people who cheerled the management of this system to come clean and pause for a moment to explain what they didn’t understand about globalization before setting themselves up as experts in the “next economy.”

I studiously avoid day-to-day politics into the discussion of strategic trends, but in this moment of critical government decision it is unavoidable.

Listening to President Obama’s speech before a joint session of Congress, I tried to imagine the impact of the trillions in deficit spending on the global economy. America’s recapitalization of banks, according to the President, is to stabilize the economic system but also to get banks lending again.

The concern is that if we do not re-start lending in this country, our recovery will be choked off before it even begins.

You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education; how stores stock their shelves, farms buy equipment, and businesses make payroll.

But credit has stopped flowing the way it should. Too many bad loans from the housing crisis have made their way onto the books of too many banks. With so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or to each other. When there is no lending, families can’t afford to buy homes or cars. So businesses are forced to make layoffs. Our economy suffers even more, and credit dries up even further.

That is why this administration is moving swiftly and aggressively to break this destructive cycle, restore confidence, and re-start lending.

I have placed several graphics on this blog about the trillions of dollars in debt that have been created through this culture of debt in the past twenty years. This crisis is due largely to that culture. Surely, rolling lines of credit are necessary to running most businesses. There are fluctuations in cash flow that require a certain percentage of your annual revenue to be offered to you in credit to keep things functioning.

That’s not what has been going on. We’ve financed trillions of dollars of GDP through rampant debt. Note the difference between real GDP and economic activity financed through leverage:

This culture has destroyed the Anglo-American banking system. Many corporate mergers have been made possible only through billions in available debt. Education prices shot well ahead of wages due to availability of private student loans. Housing is crushing the middle class now that the bubble has burst – a bubble that would have been impossible without a reckless culture of debt.

If we are to recover, the culture must change. According to Mish, who should be one of your favorite economic bloggers:

With all due respect Mr. President, you and Congress want to force banks to lend when banks (by not lending) are acting responsibly for the first time in a decade. Mr, President can you please tell us who banks are supposed to lend to? Do we need any more Home Depots? Pizza Huts? Strip malls? Nail salons? Auto dealerships? What Mr. President? What? And why should banks be lending when unemployment is rising and lending risks right along with it?

Note that he mentions retail, also at an all-time high bubble, and which also will come down.

I’m in a mood to make short-term predictions about management: The future is in growing your business from organic growth, recapitalizing cash from operations. It will not be from exuberant bank lending policies, or this malaise will last an extra five years.

Funny, FARK listed this as a scary bit of news, but I’m not sure. Watch this interview about how Americans can no longer tap homes as a source of perceived wealth, and are thus curtailing spending and increasing savings rates dramatically.

The title is “Worst Is Yet To Come: Americans’ standard of living permanently changed.”

Curiously, why is running a solvent financial system the worst thing to happen?

Gerd Leonhard is one of the hardest working guys in the world right now, criss-crossing the globe and trying to figure out the future of making money off music, books, movies, and other content. (Guys like me really appreciate that!)

He has noticed that the “sue the customer” trick didn’t work (ahem) and that a new business model for content is badly needed.

Here, his mantra is “compensation, not control.” Watch the whole thing:

If you don’t read Jim Kunstler on a regular basis, you ought to. His book “The Long Emergency” predicts the end of peak oil and more importantly the end of suburban consumer life in America and around the world.

He sees a significant strategic shift – to put it mildly – in the coming years. His doubt about the stimulus package is caustic:

The attempt to restart “consumerism” will be equally disappointing. It was a manifestation of the short peak energy decades of history, and now that we’re past peak energy, it’s over. That seventy percent of the economy is over, especially the part that allowed people to buy stuff with no money. From now on people will have to buy stuff with money they earn and save, and they will be buying a lot less stuff. For a while, a lot of stuff will circulate through the yard sales and Craigslist, and some resourceful people will get busy fixing broken stuff that still has value. But the other infrastructure of shopping is toast, especially the malls, the strip malls, the real estate investment trusts that own it all, many of the banks that lent money to the REITs, the chain-stores and chain eateries, of course, and, alas, the non-chain mom-and-pop boutiques in these highway-oriented venues.

Here’s a huge question then: are we merely (!) at a major disruption in the economy that will eventually right itself, or in a complete shift away from old values, something that will require major restructuring of the global economic system?

Either way – is Keynesian economics going to work this time around?

Jump in the discussion at The Future Forum.

Too funny not to share…

Stop what you’re doing right now and read through this slide deck from David J. Williams, author of the science fiction novel (soon-to-be-classic) The Mirrored Heavens. David started life as a futurist of some repute for companies around the globe, and then made the logical transition into writing a trilogy of novels on the future of global security.

While many thinkers are grappling with the “Long War” of asymmetrical warfare against terrorists, Williams is going straight for the implications of this transition and what’s likely to come next. Essential reading.

With the release of Future, Inc. in Korean and Chinese, I’ve had the great opportunity to do interviews with Asian business magazines. I find that they ask more interesting, more insightful questions than many of their Western counterparts, so they are often fun interviews. The only problem is, once they are translated, I have NO IDEA what they said.

I just finished an interview with Korea’s KRX Magazine, which covers the Korean stock market and business in general, and I decided to post the whole text in English, so someone can appreciate it.

The questions:

Companies have hard time in business due to the global financial crisis. What new trends can we look for?

The most important trend is away from the philosophy of growth at all costs. For years, particularly in the United States, management has followed a typical playbook – get big, quickly, through borrowing money from private venture capital or public offerings. Then, you can go national or international, reaching bigger markets and gaining leverage over vendors and distributors. Once you have leverage over vendors and distributors, you cut costs by firing excess employees and force downward price pressure on the market. With the extra cash from operating expenses, you buy more national or international companies. For around forty years companies have repeated this formula.

The theme here was BIG BIG BIG. The problem with “big” is that it sometimes comes at the expense of “smart.”

The financial crisis in the United States illustrates this theme perfectly. Financial institutions were merging at an unprecedented rate, devouring already huge national banks until only a few savings banks, investment banks, and insurance companies remained. The international approach leaves managers little room to be creative or to make exceptional strategies. Once you are at a global size, you are less able than ever to adapt to a changing world. All these companies had the same goals and the same risk models. To obtain profits for their international stock holders, they felt obligated to balloon the size of the housing market – even though this ultimately destabilized the world economy. Presumably, smaller companies would have had the agility to choose different strategies in response to these unprecedented changes.

As a result, I believe the counter-trend of the next couple of decades will be SMALL, ENTREPRENEURIAL, and LOCAL. This is the opposite of many of the trends we have seen in the past decades, which is why I believe we are in such a critical moment in history. This point should be of particular interest to Koreans, since this change will have important implications for the chaebol system.

The pharmaceutical industry illustrates why small and smart companies may likely beat large organizations in the future. The past decade has seen unprecedented mergers and acquisitions in the pharmaceutical sector, making enormous global corporations like  Pfizer, GlaxoSmithKlein, and Novartis. The thought was that large corporations could combine their research and development budgets and make new, maybe even revolutionary drugs faster and more profitably. That simply hasn’t happened. New drug applications at the Food and Drug Administration appear to be unchanged since 1999. The strategy today, as a result, is to find small, innovative companies and to buy their intellectual property while it’s cheap. The implication is interesting -  it says that size is not the benefit it has been assumed to be.

What efforts should countries make home and abroad, respectively, in order to be a leading power.

The future of economic prosperity will be dependant on a number of social, economic, and political factors, but there are some characteristics that will make the winners of tomorrow.

INFRASTRUCTURE: A country’s infrastructure – railways, airports, roads, hospitals, electrical grids, telecommunications, etc. – leads the way for entrepreneurial companies to create new business. Look at Asia versus Latin America. The Western countries have moved significant portions of their manufacturing sector to Asia in the past twenty years.  The theory behind this is that companies wanted to take advantage of lower labor costs – after all, China is a long way from France and the United States!

But wait, if all America needed was cheap labor, Latin American countries featured low-cost labor forces, all of whom speak a language closer to English than Mandarin, and much, much closer. The difference was infrastructure – the port of Shanghai can process container ships in a few hours, while the ports of San Salvador can require WEEKS of wait time. Interconnected rail, roads, airports, and seaports made the difference in the economic fate of nations.

You can thus see the potential winners of the future today. China is investing 9% of its GDP in infrastructure. The Korean government’s “Vision 2030” program focuses heavily on infrastructure investment, which you can see in that it has the best Internet connectedness in the world (I believe.) Meanwhile, the United States is investing less than 2% of its GDP in infrastructure – and our levies are bursting (Hurricane Katrina) and bridges are collapsing for no reason (Interstate 35 in Minneapolis.) Europe is fixing bridges and building more high-speed rail.

Another part of infrastructure is EDUCATION. This will be particularly interesting in light of the trend in online education, which could bring all sorts of training to the developing world. We’re evolving into a knowledge economy, moving to higher value-added products. Education and job skill training will determine who will win and lose in the coming decades. Once again, I am particularly worried for the United States, which has been increasing the cost of education at a rapid pace without increasing the quality. As a result millions of our young people enter the job market with thousands of dollars in debt.

Also part of national infrastructure is HEALTHCARE. Since the population of the developed world is aging at such a rapid pace, success will come to those countries who can provide their citizens with good quality healthcare without overly taxing businesses and citizens.

What strategies and blue prints for the future should business leaders have?

ANY plan for the future would be nice. I think that a professional approach to foresight must be standard skills for every leader of business and government. I travel the world talking to executives, and it shocks me how few leaders are able to answer the following question: “What are three major trends in the world, and how will they affect your organization in the long-term.”

So I don’t have specific recommendations for future blueprints – I simply recommend that leaders learn how to make them.

What would happen in the global economic landscape when all the dust in the financial markets settles down?

My prediction is for an increase in trade barriers, slowing of globalization, and increase in national regulations.

Globalization is positive in the way it has increased prosperity and alleviated poverty – but the downside is that it is very hard to manage. We can trade together, but it quite difficult to manage multi-national problems such as global warming and the credit crisis because all leaders must answer to their own citizens, each with a special set of values and goals. The credit crisis has been particularly toxic, since so much of it began in the United States and its decisions about regulations in finance and housing. What do you do if you are affected by one set of decisions, but you can’t really influence them? I think the answer will be to insulate nations from the decisions of other countries, at least in the short-term.

What are the challenges for the new president of the United States regarding the financial debacle?

The challenge is to regulate while allowing innovation. It’s not fair to any one president -  an incredible task in the face of decades of policy that lacked foresight – but I believe the Obama Administration can set the stage for decades of success or failure in its reaction to this crisis.

Many American policymakers, unlike their Asian and European colleagues, have been operating under the assumption that private industry can act in its own interest with minimal guidance from national policy and regulation and that the result will be positive for both individuals and nations as a whole. The financial crisis shows that actually, companies can act in their individual interest and lead both individuals and the nation off a cliff.

The answer is NOT the establishment of giant national regulatory bureaucracies that remind us of Soviet-era politburos – it was a disaster then, it would be a disaster now. So this government has to strike a very delicate balance – it must set up a strong national economic and industrial policy, accompanied by regulators who can exact penalties on companies that commit transgressions. But it must allow those companies to be started quickly and easily and to choose innovative strategies, to keep the spirit of American entrepreneurialism alive and well.

I think the Obama Administration has a lot of work ahead of it.

Let’s say the America used to be the center of the world in the past and China would take over the U.S. in the future. What changes would the ordinary people on the globe experience in a world where China is the most powerful country?

First, it will be difficult to directly compare China directly to the United States in the post-Cold War era. The United States had an economic, industrial, political, and culture advantage in a way that might not ever be duplicated. The rest of the world has been developing economically in the meantime, and the United States is unlikely to disappear from the world.

Also, language will change how China can extend its power in the 21st century. English is currently the international language, and that is unlikely to change no matter what China does. There are already billions of people who use English as a first or second language.

What is your outlook on the Asian economies, including Korea?

One of the biggest issues is AGING POPULATIONS. Japan, China, and Korea all have unprecedented proportions of their populations reaching old age in the coming decades and an insufficient number of young people of working age to support social programs. This is no different than Europe and the United States, but both of those regions will benefit from more liberal immigration policies to attract talent workers. The future of Asian economies will depend significantly on the responses to this issue.

Otherwise, I’m interested to see how China will balance its rural populations and its newly urbanized industrial population on its east coast. The difference in the values and needs between both populations will cause much difficulty for the Chinese government, and there is already the spectre of unrest that threatens growth in the country.

Could you tell me ‘keyword of future’ that people need to know.

Entrepreneur. The future belongs to those who can create new businesses quickly in respond to rapid change. Nations need to create a culture and an infrastructure to encourage entrepreneurial activity, or these changes will appear very unwelcome.

The last question. Could you give some advice to Koreans as to what they must do to prepare for the future?

Maintain your national identity! The age of undifferentiated global brands and mass manufacturing seems to be coming to an end, and those who are thriving (nations and companies) have a competitive advantage because they do something very well that nobody else does. France still does luxury very well, as does Italy. Japan and Switzerland excel at ultra-complex manufacturing because as a people, they love details.

Besides if you give up kim chi, bulgoki, and tae kwon do, I’ll be very upset.

Mark Zuckerberg makes that comparison in a recent post on his blog. At 150,000,000 inhabitants, Facebook would be a country with more population than Japan, Nigeria, and Russia.

I’m not sure about this comparison, but the implication for politics are very real indeed. We have typically defined the nation-state as a collective that shares ethnicity, borders, language, and a common set of myths and historical beliefs.

As jobs shift back and forth across continents, old industries die, ideas flow effortlessly, and governments seem a bit clue-less about what to do next, it seems that self-organizing systems will affect how humans design their politics.

How exactly will this change the world? I’m still working on that one…

Sounds awesome.

These are the kinds of cool things you can do when your country is:

a) small

b) starting an infrastructure from scratch after Soviet occupation

According to Raul Kaidro, spokesman of the SK Certification Center, which issues personal ID cards in Estonia, security will not be an issue as the cell phone, “is the most secure way to authenticate digital signatures.”

What does this mean for large countries for whom this would be punishingly expensive and/or difficult? As American, I feel like we won’t win the science fair this year…

Again, stop whatever elese you were doing, like reading things I wrote about 2009, and read Jim Kunstler’s forecasts about 2009. The author of The Long Emergency is experiencing the unenviable task of seeing dire structural change ahead, change that won’t be mollified by new gadgets, and being right about its consequences.

Some highlights:

He’s not a fan of techno-solutions. (not unlike yours truly)

The various tech industries are full of MIT-certified, high-achiever Status Quo techno-triumphalists who are convinced that electric cars or diesel-flavored algae excreta will save suburbia, the three thousand mile Caesar salad, and the theme park vacation. The environmental movement, especially at the elite levels found in places like Aspen, is full of Harvard graduates who believe that all the drive-in espresso stations in America can be run on a combination of solar and wind power. I quarrel with these people incessantly. It seems especially tragic to me that some of the brightest people I meet are bent on mounting the tragic campaign to sustain the unsustainable in one way or another.

He sees Dow 4000:

A consensus in the blogoshpere says that the stock markets will rebound strongly during the first Obama months. This is possible just on the basis of pure “animal spirits,” but the Obama Bounce will occur against a background of continued dismal business and financial news. It will appear to defy that news. By May of 2009, the stock markets will resume crashing with the ultimate destination of a Dow 4000 before the end of the year.

He believes that you’ll actually need positive cash flow to make a business run (old-fashioned, but radical!):

We’ll turn around early in 2009 and discover that we are a much poorer nation than we thought because from now on credit will be extremely hard to get for anyone for anything. The businesses that survive will have to keep going on the basis of accounts receivable…Giant enterprises requiring giant loans to get from quarter to quarter will tend to not make it. Borrowing from the future will become a practical impossibility as past bad debts from previous borrowings continue to unwind, cease performing, and get written off.

Real change. Not new technologies for old philosophies. Nobody will save the day. We’ll need to make workable solutions for many different types of people.

And still – people will need things. Goods and services will be required, perhaps just different types.

Business development will need to be on its toes! Are you ready?

The most important part of thinking about the future is systems thinking. In our Future Intelligence method, the first part of every project or exercise is to map out the system of any business, activity, or market. Thinking about the beer market? Don’t just stop at consumer tastes, think about packaging, trasnportation, distribution, leisure, sports, etc. That way, you think not just about one kind of change, but the relationships.

This financial crisis is one long lesson on the interconnected nature of all industry, governance, finance, and geopolitics. This is going to surprise you all, but now, since they are part of the whole system, the commercial developers are now asking for bailouts from the federal government.

Let us not consider the merits of such a proposal, but just marvel at how much all of these industries are interconnected. Every actor in the system requires certain behavior from the others in order to survive. When one actor changes (e.g. suddenly ballooning the amount of credit) all the others respond.

Subprime mortgages are now changing the dynamics of the construction of mini-malls around the world.

It’s a mess, but at the very least it’s interesting.

If retail and commercial development are melting down, what comes next?

This strikes us as a really positive sign: despite calamitous financial events everywhere on earth, California is not throwing its ecological goals out the window, still adopting one of the most aggressive plans to put carbon back in balance in the world.

In crisis, it’s easy to forget our long-term plans we had just moments before. If the world’s fifth largest economy can keep from losing its head, think about how the rest of us can make positive moves in 2009!

President Elect Obama, along with America’s Mayors and governors say that massive infrastructure projects are the key to pulling us out of recession.

Incidentally, this was the subject of one of our first STEEP Reports around one year ago.

The whole set of ten STEEP Reports to be available soon…watch this space.

Declan McCullagh at CNET posts an interesting bit of news that is of interest to those concerned with Net Neutrality debate and also those D.C. policy dorks who love terms like “astroturf payola punditry.” (Incidentally, that’s me, and everyone within five blocks of our office)

The story is actually about how a number of telecom companies have been paying a certain D.C. pundit to slam Google’s pursuit of Net Neutrality, arguing that Google (and, unmentioned, the 96% of the planet which uses Google) doesn’t pay their fair share.

The arguments are less of concern to me than the fact that I have been hearing about this topic for years now. It has slipped below the radar, but clearly, given the lobbying efforts going on, somebody sure thinks it’s important. So it bears keeping an eye on in the years ahead.

Any bills coming up in the new Congress?

Steve Clemons runs The Washington Note, one of the truly essential blogs for anyone who has an interest in America’s foreign policy.

Clemons thinks like a natural futurist, always considering strategic trends in a holistic, intellectually honest manner. But he’s also is interested in new technologies like Facebook and Twitter that will connect people around the world in a way that impacts America’s diplomacy. Cutting edge stuff. Check out this speech on social media from the New America Foundation:

Interesting piece by Gideon Rachman in today’s Financial Times regarding the upcoming meeting of the G20, dubbed Bretton Woods 2. Given the shambles of world finance, established and emerging economies are given a chance to sort of remake the world financial system.

Rachtman makes a good point that in 1944, the destruction of the world let us start with a clean slate. This time, we seem much less willing to upset the established order. Really, bankers aren’t even willing to give up their bonuses in the face of disaster, so completely overturning the power structure seems unlikely.

It seems that a whole host of institutions are going to receive makeovers. Will they be superficial or substantive?

My intelligence buddy August Jackson just made an interesting point: given the fantastic new AUTOMOTIVE BAILOUT that’s flirting with us, will the world lose its taste for giant, conglomerated corporate entities?

Seriously, what’s the upside of having businesses so large that governments believe they shouldn’t fail? We’re spending ludicrous amounts of tax dollars to keep banks alive. The U.S. federal government is running a debt that would cause any individual to choose bankruptcy. Now, the car companies feel that they need more of (my) tax dollars to keep afloat, because letting them fail would be far too painful for all concerned.

What is the benefit of companies so big, we can’t let them fail?

And if consolidation is so bad, why is the pharmaceutical industry considering even more of it?

Questions for this new age.

For sometime I have been saying that we’re on the cusp of a wave of interest in the long-term future that is not driven by economic bubble or apocalypse per se. The normal cycle is that people are interested in the future when we’re inventing new technologies and profiting, or when we think we’re going to nuke each other. This time, perhaps for the first time, we’ve got a mix of both: technologies will likely be influential, the economy’s a mess, the world is largely peaceful, the climate is changing, etc. People are finally interested in the future not as a gimmick, but as the only way to wise management of public institutions.

Pretty cool.

The most recent edition of Business Week has a great example of this emerging mindset. Michael Porter, the intellectual godfather of competitive analysis, has written an article that is desperately needed today: “Why America Needs an Economic Strategy.”

You should read this in its entirety, but to sum up, Porter says that America has a lot of valuable assets, and no plan whatsoever for long-term prosperity. The United States has a great science and technology engine, the best technology transfer in the world, and a still-vibrant culture of entrepreneurialism. However, we are hobbled by our lacking social net, a mess of a public health system, decaying infrastructure, and creeping neo-mercantilism in the form of giant corporations that distort markets. The only way out is to think long-term, from small businesses up to national policy makers.

We couldn’t agree more! Too bad the economy had to be smashed into flints before we could notice it, but better late than never.

God bless YouTube, this is very cool.

In case you want a taste of the logic behind major change, this is JFK reading the Declaration of Independence, in its entirety.

Words written by fallible human beings, but powerful, and remembered.

Alan Greenspan is apparently shocked that the financial crisis was so broad reaching.

Greenspan also blamed the problems on heavy demand for securities backed by subprime mortgages by investors who did not worry that the boom in home prices might come to a crashing halt.

A quick question: did nobody in the banking industry stop to ask whether doubled home prices might cause a problem for future homebuyers?

Did they really think that Generation X and Y would start their lives with massive student loans and a $500,000 starter home?

Nobody even pondered whether doubling home prices would have a impact on other systems. All it would have taken is to talk with a young person and ask them if they can imagine purchasing such a home.

Not everyone is so blind to the broader implications:

“It wasn’t deregulation that allowed this crisis,” Rep. Tom Davis, a Virginia Republican said. “It was the mish-mash of regulations and regulators, each with too narrow a view of increasingly integrated national and global markets.”

Broad thinking is the answer. Short-term, parochial thinking locked in the current business model leads to missing even the biggest trends.

The Washington Post has a worthy piece about the deeper roots of the current financial calamity. Dating back to the 1990s, it seems that the uses of derivatives created an investment zone without accountability.

Unlike the commodity futures regulated by Born’s agency, many newer derivatives weren’t traded on an exchange, constituting what some traders call the “dark markets.” There were now millions of such private contracts, involving many of Wall Street’s top firms. But there was no clearinghouse holding collateral to settle a deal gone bad, no transparent records of who was trading what.

With the establishment of these derivatives, there were places that financial transactions could disappear into and quietly slip out of, changing form, donning disguises, padding away quietly into the night. It was the Mos Eisley cantina of the financial world.

Shortly following the establishments of the derivatives markets, the world was entranced by the disastrous excesses of Enron, Worldcom, and Global Crossing. There, accounting was found ripped to tatters, covered in filth, abused in every way. The result was the establishment of the cantankerous jalopy known as Sarbanes-Oxley, a set of accounting standards so complex they would give a Jesuit an aneurysm. In addition to millions of hours of accounting time required, CEOs now had to sign tax returns in multiple places. Life was different.

Yet the new market for derivatives remained, and despite the hullabaloo in the calls for transparency, the financial world had well enough space to hide gains and losses when necessary.

We don’t just need intangible things like leadership, foresight, ethics, and a sense of social justice to get our economic system back on track. We need ACCOUNTANTS and FLASH LIGHTS. The real issue here is that we have ample trap doors for trillions of dollars to fall into. Sarbanes-Oxley was clearly not enough.

We will need accountants, endless phalanxes of methodical, numbers-minded paladins who are willing to prevent fraud in the financial industry. We don’t need more laws. We need more people enforcing them.

The “dark markets” seem like the source of our woes if they are able to remove trillions of dollars from accountability.

I’d say you can plan on a strong future for forensic accounting.