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Archive for February, 2009

Do we deserve all the world’s credit?

February 21st, 2009

In the US we have consistently been the largest single country economy and provided a safe place to invest through world wars, cold wars and crises. We are currently home to 14.3 of the 78.3 trillion global GDP (18%). Dwarfing the next largest, Japan with 4.8 Trillion or 6%.

From the initial European settlements in North America forward, development was funded by states and corporations on the understanding that there was opportunity for agriculture, mining and settlement in the US and that what was needed to realize it was inward investment. America grew up, as a result, with a more positive view on credit and continued its growth with continuous net inflows of capital to the current day.

We borrow from the historical sources of Europe but also Japan, Switzerland and now China. At present if we thought about our government’s flows (i.e. excluding private capital) and mapped it down to the level of families, every family in the US has borrowed $3,000 each from five families in China who have worked all hours to produce the resources we wanted. Additionally we also borrowed from the families of Japan etc. This allowed us to finance government spending, agency purchases of mortgages and the life we currently enjoy.

All too much of that money has gone into financing credit for larger homes and larger SUVs and a lower proportion into education, infrastructure or other key elements of a competitive economy. We are now in a position where the tools of advanced manufacturing and management training are available in any region of the world and where capital is fungible and flows to where it can be best used. This has led to greater global growth and a more equitable distribution of opportunity.

With the more level global playing field though, we can no longer assume that the US is the only opportunity for growth or the rightful home of the world’s capital. The financial collapses have a significant impact because when the recovery occurs it is a global financial system made up of global banks from many homes. Global markets will no longer be run by people who grew up with baseball and are only familiar with our culture. As liquidity returns it will flow more equitably to all corners of the world.

The current stimulus plans will inflate the economy and are an important part of moderating unemployment. There are strong grounds beyond economics for wishing to keep unemployment below 20% and avoiding the wrenching pain on the social fabric that high unemployment causes but the stimulus plans will not make us globally competitive in a rapid timeframe.

We will remain a premium economy, as does Europe, with a strong work ethic but not as strong as Asia’s. Asia will become like us but is starting from a base which learnt its attitudes in a very tough world. Our educated people will continue to have expectations of their lifestyle which are different to those of much of the world. As a result we will get a fair allocation of the capital on a recovery but will not return to the world of the 90s let alone the 50s.

We are still the world’s global reserve currency if we don’t cause alarm by searching for excuses as to why we won’t repay our creditors or race headlong into hyper inflation. The level of debt that we have, and are about to incur, is substantial and paying for it will absorb an increasing proportion of Federal tax revenue so we can’t rely on mindless spending as the main solution.

We make up a very flexible, nimble economy, which will be able to adapt far better than many in Western Europe but we need to focus on building our competitive position and setting realistic expectations for our lifestyles going forward. The days of earning $1 and with the help of mortgages, equity credit lines, loans and cards spending our current average of $1.33 on lifestyle are over, if we like it or not.

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Finance , , ,

Bloomberg To Help Ex-Wall Street Execs Start New Firms

February 20th, 2009

Bloomberg has announcedĀ  a series of actions to assist ex-Wall Street executives start businesses:

  • Low-cost incubator office space (160 Varick Street, Beginning March 1, from $200 per person per month; 90 John Street that will open in April etc.)
  • A NYC angel investment fund: New York City will create several funds totaling between $9 million and $10 million to make angel investments of $20,000 to $250,000 each.
  • An annual international financial services business plan competition
  • A “VC Connect” online information portal and VC support services
  • FastTrac, a business training program to help emerging and existing entrepreneurs.
  • JumpStart NYC, a free job training and placement pilot program
  • Incentives for financial services companies locating in lower Manhattan
  • The city will work with established and developing exchanges like the New York Mercantile Exchange’s Green Exchange and SecondMarket (Carbon credits etc.)
  • An international recruitment campaign attracting commercial banks and insurance companies headquartered in China, India and other developing economies.
  • Financial Services Advisory Committee to be led by Deputy Mayor Lieber that will meet regularly through 2009 to maintain a dialogue between City Hall and the industry, as well as within the industry.
  • Regulatory advocacy: Bloomberg has tasked Deputy Mayor Lieber and EDC President Pinsky to work with the Financial Services Advisory Committee

More details here.

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