Category: Economic

Macroeconomics – 001: Trends and projections 1920-2010

New President has set high expectations. What will be the answer to the proverbial question that will be asked in the 2012 election: “Are you any better of now than you were four (4) years ago?”   Would there be any concensus on the qualitative and quantitiatve indicators?  If so, which ones? 

The following graphic provides macro level trends and projections from 1920 thru 2010. May help answer the question: Are we any better off than Americans were in 1920?  1930? 1940? ….  1990? 2000? … 2010?
It’s the Economy Stupid!, Oct 16-22, 2008. Good.

Following economic indicators provided by the U.S. Treasury – includes percent change in Gross Domestic Product (GDP), unemployment rate, personal savings, productivity,  prices, and inflation to name a few.

Monitoring the Economy — Monthly Indicators thru Sep 08.

Monitoring the Economy — Quarterly Data as of 10/30/2008.

Financial Crisis – New Industry Model – Crisis was predictable

Risk Management 2.0: Overcoming the Current Financial Crisis and Restoring Stability and Prosperity with a New Perspective on Risk by Bob Tapscott and Don Tapscott, Oct 2008.

The “risk bubble” has broken. Restoring long-term confidence in the financial services industry of the US and other industrialized nations will require more than government intervention, fresh capital, and updated regulations.

Building on the digitization of everything financial, participating organizations (issuers, investors, and intermediaries) need to become Next Generation Enterprises. This requires a new industry model built on the four principles of Wikinomics: transparency, peering, sharing intellectual property, and acting globally. Call it Risk Management 2.0.

The current credit crunch was predictable.

In 2005, Yale economist Robert J. Shiller published the now famous index tracking housing prices back to 1800 (Figure 1). Over a 200 (!) year period, housing values in the U.S. only went 20% above the inflation- adjusted 1800 price level three times, and each was the peak of a bubble that quickly collapsed.

From 1997 to 2005, U.S. housing prices rose from 10% above the inflation-adjusted level to 100% higher. How any economist, regulator, or central banker could look at the chart below and not surmise that something was amiss is astounding.

HIGHLY recommend looking at Figure 1: Historical Home Values …  from 1890  on page 4 of the report.

Economics: Mortgages

Blame Game Gets Nasty When It Targets the Poor, By Michelle Singletary, Sunday, October 12, 2008; Page F01

Community Reinvestment Act of 1977, or CRA.

CRA specifies that financial institutions cannot be forced to make loans or investments or provide services inconsistent with safe and sound banking practices.

No sir, it wasn’t lending under CRA rules that took down the mortgage industry. It was greedy, reckless banking executives, lending officers and mortgage brokers who were supposed to properly screen borrowers and apply prudent loan underwriting standards. It was lax and inadequate federal and state regulation that allowed exotic and predatory mortgages to be sold to borrowers.

Economic: "diminution of U.S. power"

Financial Crisis May Diminish American Sway
(Wall Street Journal)…Jay Solomon and Siobhan Gorman, Oct 17, 2008.

…Many nations, from Japan to Israel to European allies, continue to rely on Washington’s power to guarantee regional stability. Asked Wednesday night if the U.S. was in decline, Defense Secretary Robert Gates responded after a recent tour of allied nations: “No. … Every one of the countries wants to have better relations with the United States. They still see the country as the last, best hope.”

Even before the current crisis, U.S. intelligence agencies had begun projecting a significant diminution of U.S. power over the next 15 years. That is a key assumption in the long-range assessment of global trends — known as the 2025 Project — that the Office of the Director of National Intelligence has been preparing for the next administration.

Economic: Not Everyone Should Own a Home

POST: It Takes an Outsider Oct 6, 2008. Matt May

I’ve been disappointed in all the op-eds purporting to address the “root cause” of the mortgage mess and the resulting Wall Street collapse. And there have been plenty. But the reason I’ve been disappointed is because none of them get at the root. I know this because I can ask a further “why?” to whatever cause is trounced out: mark-to-market valuations, credit default swap complexity, indecipherable information, you name it.

And then I read an opinion by a columnist for The Australian by the name of Janet Albrechtensen, in today’s Wall Street Journal, entitled “Not Everyone Should Own a Home.” And she nailed it.

Terrorism: Consensus on Next Steps

New Consensus On Terrorism
(Washington Times)…John McLaughlin, Oct 6, 2008.  One of the major tasks for our next president is repairing the frayed consensus on how to deal with terrorism.

John McLaughlin is a senior fellow at the Johns Hopkins School of Advanced International Studies and served as deputy director and acting director of Central Intelligence from 2000-2004.

Accountability: Defense Spending – DFAS

Crisis Shows Efficiency Need, Pentagon’s Jonas Says, By Tony Capaccio, Bloomberg News, September 26, 2008

The U.S. financial crisis may lead to lower defense budgets and more public demand for accountability over spending, Pentagon Comptroller Tina Jonas said.

“Any crisis of this nature is going to affect — must affect — other federal spending,” Jonas, the Defense Department’s top money official since July 2004, said today in an interview on her last day in office.

Congress is weighing a $700 billion rescue package to help the economy as lenders cope with a credit crunch triggered by declining home prices and bad loans. Any analysis that suggests defense budgets will escape impact is too sanguine, she said.

“The broader commitment to national security is there to keep our forces ready and capable, but I think it’s yet to be seen what the potential impact is on future defense budgets,” she said of the crisis. “You cannot look at defense by itself. It is a subset of our macro financial picture.”

Jonas has focused on trying to make accounting more transparent at the Pentagon, which for years was unable to have its books successfully audited. Now about a third of its $3.4 trillion in assets and liabilities can pass a federally approved audit, a percentage that she said will reach two-thirds in 2009. Military spending under the Bush administration has increased almost 43 percent since 2000 when adjusted for inflation.

“The spotlight will be on how the government manages its money and that will include us” in the military, she said.

Jonas said the Pentagon’s books should live up to the standards of Sarbanes-Oxley, the 2002 law that tightened scrutiny of financial results after corporate accounting scandals. “We should be accountable just like any other private organization,” she said.

Making two-thirds of the Pentagon’s books able to be audited by next year is “substantial and serious progress,” she said. “The remaining third will come with the next administration.”

A clean audit for the Pentagon means “we know where our money is and where it is going in way that is done on an accrual basis and not a cash basis,” Jonas said. “That means if I write a vendor a check, that transaction can be traced — all the pieces needed to document the correctness of the transaction are validated according to generally accepted accounting standards.”

Jonas, 48, is a graduate of Arizona State University and Georgetown University. She was sworn in as comptroller in July 2004 after serving as the Federal Bureau of Investigation’s chief financial officer and earlier as Pentagon deputy undersecretary for financial management. She also worked for four years at the Office of Management and Budget.

Jonas reports to work Sept. 29 as director of operations, planning and analysis for United Technologies Corp.’s Sikorsky Aircraft unit in Stratford, Connecticut, said company spokesman Paul Jackson.

State Department: Smarter power

POST: Match and close. Thomas P.M. Barnett on July 11, 2008

ARTICLE: The State Department Confronts the Synergy Crisis, by Austin Bay, Strategy Page, June 24, 2008

Good and interesting sign. The program is basically what Enterra does in Kurdish Iraq, except we go way beyond matchmaking to actual deal closing with our investment centers.

But the underlying logic in each is the same: jobs are the only exit strategy and jobs are a private-sector function.

Referenced article introduces the State Depatment’s Economic Empowerment in Strategic Regions (EESR) with the aim to leverage internet connectivity in support of economic development.  

Enterra provides systems and processes (see development-in-a-box) that accelerate development and growth.  Similar concept to what Toyota  applied to become one of the  most successful auto manufactures in the world.   Using a sports metaphor, would be similar to applying a proven strategy that would include offensive and defensive playbooks, training plans, etc.