Archive for the ‘Finance’ Category

Why does the UK and the EU lag behind the US in the “tech industry” ?

May 22nd, 2014 No comments

So a US friend now working in the UK asked: “Why does the UK and the EU lag behind the US in the ‘tech industry’ ?”.

The largest factor is market size. The EU is fragmented by language into separate markets for talent, ideas, funding and products. The US’s economic size and remoteness have made it a safe haven for money causing currency stability, pricing stability and fewer economic surprises than individual smaller economies. The lack of effective central decision making with the devolved states in the US has caused problems, but causes fewer regulatory shocks, and allows more workarounds for businesses.

The US federal focus on military development has been a significant factor. In the early days of the semiconductor industry 60% of semiconductor sales were to NASA and the remainder were for defense projects at IBM etc. This did cause large amounts of money to be brought into the silicon valley area over many years and that money was later reinvested as the Fairchild and other businesses devolved into the thriving civilian businesses that we know in the valley area today.

The cultural origins of an expanding US territory have led to a relaxed attitude about risk and investment as people were not comparing with stability. This expansion has been able to continue during the mid 20th century as overseas markets pulled in US goods post world war II, and later due to an expansive US foreign policy. That historical trend though is now over so sustaining growth has been a challenge for the last 30 years in the US. This leaves language barriers in Europe as the primary differentiator.

The short answer is that adopting a single European language is the only thing that, in the long run, will give the EU competitive market scale. The political changes and relationships that build a single market for products will follow from that.

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Visa is planning to launch a PayPal like service.

March 16th, 2011 No comments

Visa planning to launch a service that allows you to send money to a card number, or email address. The service has not yet launched. There is not timeline and there is no place to register an interest yet. Some of this will happen as institutions roll out the service but some consistency and information about the features of merchant interfaces would be very useful for developers. The service is apparently already available over Visa for some customers of institutions outside the US.

Bank customers of participating financial institutions will have the option to select a Visa account as the destination for funds when making a personal payment. By simply entering the recipient’s 16-digit Visa account, email address or mobile phone number, consumers can send funds directly from their bank account to a recipient’s Visa account. This makes sending money to a niece for her birthday or to a son in college simpler, faster, and more convenient than before.

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Do we deserve all the world’s credit?

February 21st, 2009 No comments

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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The Aftermath of Financial Crises

January 2nd, 2009 No comments

A quote from a paper prepared for presentation at the American Economic Association meetings in San Francisco this coming Saturday, January 3, 2009 by Carmen M. Reinhart, University of Maryland. NBER and CEPR and Kenneth S. Rogoff Harvard University and NBER:

Broadly speaking, financial crises are protracted affairs. More often than not, the aftermath of severe financial crises share three characteristics.

First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years.

Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment.

Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes.

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