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Posts Tagged ‘bailout’

Local currencies in distressed towns

Tuesday, 16 February 2010 08:03 Written by Eric Garland 0 Comments

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?

Greece, Portugal, and sovereign debt: The next phase

Thursday, 11 February 2010 10:18 Written by Eric Garland 0 Comments

Somewhere between California’s budget shortfall and Vermont’s neosecessionist movement, somewhere between Arizona thinking of sell the gold off the dome in the state capitol building to Michigan pulling away police department units, somewhere between Portugal and Greece, it has become evident that just because the American and European Central Banks could solve “the crisis” through deficit spending, not everyone would be able to keep up the illusion.

Tyler Durden at Zero Hedge says it in typical brilliant, pithy, fin-de-siècle wit:

The only thing in this world worse than Hank Paulson showing up in Congress with his initial 3-page TARP proposal giving him unlimited control over the US printing press? 12 non-Hank Paulsons, all of whom speak different languages, all of whom are hell bent on bailing everyone and everything out (just not on their political or physical dime…or 10 eurocents as the case may be), and all of whom have no idea how to bail out others’ (and soon their own) economy… oh, and none of whom have access to Hank’s reserve currency printer. In short, more than 24 hours after announcing a “bailout” of Greece, nobody in Europe has any idea what they need to do to actually “bail” Greece out.

The larger issue here is the primacy of centralized banking authorities, central currencies, even central governments. Those large and unwieldy organizations can resist a great number of insults, and they have more options available to them that their smaller counterparts – but they are not invincible. When faced with a large enough catastrophe, they too must feel the pain, react, choose a new path.

It’s time to think in terms of scenarios. One scenario would be that the world’s central banks manage to keep the cash flowing among countries and banks and bond holders and municipalities, even in the face of expensive entitlements, shifting asset values, rising unemployment, and stagnant wages. Status quo. Now, what are the chances that things don’t change in the face of the trends that are so evident.

One other scenario is a series of defaults from smaller nations, regions, and municipalities unable to make their minimum payments, challenging the legitimacy of central control, requiring additional taxes levied on those areas who are tax-cashflow positive. What happens when entire cities, regions, and sovereign nation-states simply withdraw from the global system? What happens to currency? Which geopolitical tensions will flare up? What goods and services might stop flowing? What could happen in the next phase?

Look, if you’re running a business of any size, this is probably pretty heady stuff. Most of us never went to school to remake the geopolitical and financial systems. Nobody woke up this morning hoping to re-justify the fiscal reasoning behind the European Union, or the constitutional relationship of the U.S. federal government with the States.

Then again, nobody really wanted to be all that interested in subprime versus Alt-A mortgages, nor their relationship to CDOs and CDSs, did they? But we all got a good lesson.

If there’s a forecast in here from us, it’s this: we have a surplus of complexity in the world’s fiscal and financial dealings. Nobody can really understand them, which is why they are so hard to manage, even from New York, Washington, Brussels, and Hong Kong. And for that reason, things may get much less complex in the years to come.

Think about what that means.

One out of six construction loans in trouble – still a sunny forecast?

Sunday, 06 September 2009 10:10 Written by Eric Garland 3 Comments

Many of my colleagues have been recently wondering how the media regarding the American economy could be so sunny in the face of increasing unemployment. Aug2009U6unemploymentIndeed, how could any recovery happen having doubled the unemployment rate? The U-3 unemployment rate hovers around 9.7%, while underemployment is at a record 16.8%. How can an economy supposedly based on consumer spending come back with twice as many people unable to spend?

Americans have a strong bias toward good news. We are historically, as a people, motivated and entrepreneurial, so rather than dwell on things like history or future trends, we would prefer to get right back to work. This is an admirable trait in general. So long as you are focused on the right things, unthinking hard work is preferable to endless bureaucratic meetings in which you decide a suitable course of action, only after multiple hearings from all parties, et cetera.

There are moments where a sunny disposition is the wrong thing. To be sure, there’s no point in whipping people into a depression-related psychosis, causing a run on the banks and prodding people to fling themselves off bridges because the end is nigh. And economics is at the end of the day a social science; sometimes when people simply think positively, things turn around.

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Commercial developers headed for bankruptcy, naturally asking for a bailout

Monday, 22 December 2008 14:52 Written by Eric Garland 0 Comments

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?

City economies now collapsing: OK, let’s take a breath

Friday, 14 November 2008 14:37 Written by Eric Garland 0 Comments

You know, we spend our time on the long-term future here, but it seems like everybody needs to pay attention to the next few weeks.

Today, several American mayors went on record saying their finances are in shambles, and now THEY need a bailout too.

Did the bailout plan really take none of these repercussions into account? Can we maybe stop and do a little scenario planning about what the next two months could look like before acting with $700 billion in our pockets?

Note to the Treasury Dept: we’re only one block away.

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This is the official trend blog of Competitive Futures, a management consultancy that provides trend research and analysis for business and government around the world. Here, we update you on interesting trends we see as part of our work for our clients.


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