Wednesday, December 29, 2010
Thursday, December 9, 2010
As this financial crisis lingers on, the gap between the new plutocracy and the new Dumpies is becoming a pressing political issue. During the 1960s, the hippies dropped acid and dropped out. Today, as Dumpies, the largest demographic group (a.k.a. baby boomers, approximately 75 million strong…of which I am one) may wake up and drop back in. If they do, who knows where the political process, driven by their hippie values, will go? This is why the second decade of the 21st century will be more important than the first.
Financial education is an important objective for this next decade. We cannot allow the gap to grow bigger. We must have financial education in our schools. Money will not close the gap -- only financial education will. If we do nothing, who knows what creature will emerge as the mascot of the new decade?
To see the future, look to the past. Throughout history, political despots have emerged during times of economic crisis. Some famous characters are Mao, Stalin, Napoleon, and Milosevic.
In 1933, four years after the 1929 crash, two figures arose from the Depression. One was Adolf Hitler. The other was Franklin Delano Roosevelt. Many people believe Barack Obama is modeling himself after FDR. Which leads to the question: Who will play Hitler?
Financial education is an important objective for this next decade. We cannot allow the gap to grow bigger. We must have financial education in our schools. Money will not close the gap -- only financial education will. If we do nothing, who knows what creature will emerge as the mascot of the new decade?
To see the future, look to the past. Throughout history, political despots have emerged during times of economic crisis. Some famous characters are Mao, Stalin, Napoleon, and Milosevic.
In 1933, four years after the 1929 crash, two figures arose from the Depression. One was Adolf Hitler. The other was Franklin Delano Roosevelt. Many people believe Barack Obama is modeling himself after FDR. Which leads to the question: Who will play Hitler?
At the same time, the expanding bubble of debt created a surreal environment of monetary nirvana. You could buy what you wanted, max out your credit cards, and pay off the cards with a home equity loan, as Santa’s sleigh ride continued. Who cared if the bottom 50% were being left behind? Who cared if the top 10% earned 49% of earning’s growth? Who cared if 10% of the population got richer while 90% were left behind? We had toys, we were hip, we had designer bling from China that made us look rich, and we could buy the house of our dreams for no money down. What could be better?
We live in an age of unprecedented openness. As stated earlier, technology has made information and communication free or almost free. There is more opportunity than ever before…yet that opportunity is largely theoretical: In America social mobility will reverse as many in the middle class become Dumpies.
Between 1997 and 2001 the gap was as follows:
1. The top 1% earned 24% of earnings growth.
2. The top 10% earned 49% of earnings growth.
3. The bottom 50% earned 13% of growth.
Until 2008 none of this seemed to matter. The wonderful inventions, such as iphones, ipods, Twitter, Google, and Facebook kept us entertained like kids at Disneyland
Between 1997 and 2001 the gap was as follows:
1. The top 1% earned 24% of earnings growth.
2. The top 10% earned 49% of earnings growth.
3. The bottom 50% earned 13% of growth.
Until 2008 none of this seemed to matter. The wonderful inventions, such as iphones, ipods, Twitter, Google, and Facebook kept us entertained like kids at Disneyland
The second group you will hear more about is the new, young, global mega-rich. They are internationally minded plutocrats who are the beneficiaries of globalization and the technical revolution. They are being pushed along by the fall of communism, the spread of economic globalization, and the impact of the internet as technology makes information and communication free or almost free. Most are 40 or younger today.
This rise of the new global mega-rich is happening as established institutions are falling. The fall runs the gamut from the music business and traditional media to the Detroit automakers who find themselves obsolete, outmaneuvered, and out-priced by entrepreneurs in Silicon Valley, Mumbai, Shanghai, and even Siberia.
We live in an era of unprecedented opportunity for the smartest, most persistent, and creative among us. Whole new businesses will emerge around breakthrough products as revolutionary technologies accelerate capitalism’s creative destruction of slower industries.
In this second decade, you will see the middle class of the West being hollowed out, creating the Dumpies of the world…modern dinosaurs of the evolutionary process. Both globalization and technology will have a punishing impact on those without intellect, luck, or chutzpah to profit from the changes. Machines, technology, and cheap labor in low-wage countries have pushed down wages in the West, aggravating the financial crisis for the obsolete and ill-informed.
This rise of the new global mega-rich is happening as established institutions are falling. The fall runs the gamut from the music business and traditional media to the Detroit automakers who find themselves obsolete, outmaneuvered, and out-priced by entrepreneurs in Silicon Valley, Mumbai, Shanghai, and even Siberia.
We live in an era of unprecedented opportunity for the smartest, most persistent, and creative among us. Whole new businesses will emerge around breakthrough products as revolutionary technologies accelerate capitalism’s creative destruction of slower industries.
In this second decade, you will see the middle class of the West being hollowed out, creating the Dumpies of the world…modern dinosaurs of the evolutionary process. Both globalization and technology will have a punishing impact on those without intellect, luck, or chutzpah to profit from the changes. Machines, technology, and cheap labor in low-wage countries have pushed down wages in the West, aggravating the financial crisis for the obsolete and ill-informed.
All in all, the first decade was an exciting start to the 21st century. What will the second decade bring? What new character will emerge if hippies, disco-ducks, techies, and philanderers are yesterday’s news?
I believe there will be two newsworthy groups to emerge between 2010 and 2020. One big group will be the Dumpies, so named because life leaves them down in the dumps. Many in this group are old hippies who flourished during the ‘60s and forgot to grow up. Not all Dumpies were hippies. Many Dumpies became Dumpies simply because, like dinosaurs, they failed to notice the weather changing. They simply followed in their parents’ footsteps, faithfully believing that all they had to do was go to school, get a job, buy a house, save money, retire on a company pension, collect Social Security, and live happily ever after at the country club. The formula worked for their parents -- the WWII generation – so why shouldn’t it work for them?
The problem is, the rules of money changed. In 1971 President Nixon took the world off the gold standard and in 1974 the predecessor to the 401(k) plan emerged. Suddenly savers were losers as inflation took off, debtors were winners, and people turned to gambling with real estate and in the stock market as the guarantee of a retirement check for life disappeared.
In the coming decade, I believe we will be hearing more and more stories of Dumpies -- well educated, hard-working, successful, prosperous people who will find themselves out of time, out of money, and dependent upon government or family support in their golden years.
I believe there will be two newsworthy groups to emerge between 2010 and 2020. One big group will be the Dumpies, so named because life leaves them down in the dumps. Many in this group are old hippies who flourished during the ‘60s and forgot to grow up. Not all Dumpies were hippies. Many Dumpies became Dumpies simply because, like dinosaurs, they failed to notice the weather changing. They simply followed in their parents’ footsteps, faithfully believing that all they had to do was go to school, get a job, buy a house, save money, retire on a company pension, collect Social Security, and live happily ever after at the country club. The formula worked for their parents -- the WWII generation – so why shouldn’t it work for them?
The problem is, the rules of money changed. In 1971 President Nixon took the world off the gold standard and in 1974 the predecessor to the 401(k) plan emerged. Suddenly savers were losers as inflation took off, debtors were winners, and people turned to gambling with real estate and in the stock market as the guarantee of a retirement check for life disappeared.
In the coming decade, I believe we will be hearing more and more stories of Dumpies -- well educated, hard-working, successful, prosperous people who will find themselves out of time, out of money, and dependent upon government or family support in their golden years.
The first decade of the 21st century is over. Many people find themselves off to a bad start. The new century began with the Y2K scare -- the threat of computers shutting down around the world. Then 9/11 came, followed by two long and expensive wars. The Nasdaq bubble and crash were followed by the real estate bubble then subprime crash, which led to the unprecedented printing of trillions of dollars in an attempt to prevent a global depression. The result is a lingering financial crisis that has expanded the gap between the haves and have-nots.
Most decades have their characters. In the 1960s, we had the hippies. By the 1970s the peace movement evolved into John Travolta and disco. In the 1980s, capitalists took center stage. Techies dominated the 1990s and suddenly geeks were cool.
The question is, what character will emerge to represent the first decade of the 21st century? Will it be the religious terrorists flying into tall buildings or the financial terrorists stealing our wealth from inside tall buildings? Will the first decade be known for Ponzi scheme notables such as Bernie Madoff and Allen Stanford… or Social Security and mutual funds? Could it be known for odd couples such as Barack and Hillary or John and Sarah? Or will the first decade be known as the era of celebrity philandering with confessions from the likes of Tiger Woods, Elliot Spitzer, and John Edwards? (All three should get together to co-author a book entitled “Family First”.)
Most decades have their characters. In the 1960s, we had the hippies. By the 1970s the peace movement evolved into John Travolta and disco. In the 1980s, capitalists took center stage. Techies dominated the 1990s and suddenly geeks were cool.
The question is, what character will emerge to represent the first decade of the 21st century? Will it be the religious terrorists flying into tall buildings or the financial terrorists stealing our wealth from inside tall buildings? Will the first decade be known for Ponzi scheme notables such as Bernie Madoff and Allen Stanford… or Social Security and mutual funds? Could it be known for odd couples such as Barack and Hillary or John and Sarah? Or will the first decade be known as the era of celebrity philandering with confessions from the likes of Tiger Woods, Elliot Spitzer, and John Edwards? (All three should get together to co-author a book entitled “Family First”.)
In 1971 President Richard Nixon took the world off the gold standard. Here we are again on the edge of a new depression. After the last depression, America emerged as the richest creditor nation in the world. Because our homeland wasn't bombed like the European countries, we had factories exporting products to a world rebuilding from the war.
Today leaders like Ben Bernanke want to rewrite history. They want us to believe that spending and debt are the solution. They want us to buy their version of history and continue to get deeper and deeper into debt. They want us to trust that printing more money will pull us out of our great recession.
True history speaks a different story. It speaks of collapse when a nation or empire overextends itself. The true fear should not be a depression or a double-dip recession. It should be an economic collapse. You can only tip the system so many times before it falls completely apart.
Today America is the biggest debtor nation in the world. Our factories have moved overseas. Now we're net importers paying our bills and fighting two wars with counterfeit money as our leaders use the same accounting rules WorldCom and Enron used -- and as you know, those companies no longer exist.
Today leaders like Ben Bernanke want to rewrite history. They want us to believe that spending and debt are the solution. They want us to buy their version of history and continue to get deeper and deeper into debt. They want us to trust that printing more money will pull us out of our great recession.
True history speaks a different story. It speaks of collapse when a nation or empire overextends itself. The true fear should not be a depression or a double-dip recession. It should be an economic collapse. You can only tip the system so many times before it falls completely apart.
Today America is the biggest debtor nation in the world. Our factories have moved overseas. Now we're net importers paying our bills and fighting two wars with counterfeit money as our leaders use the same accounting rules WorldCom and Enron used -- and as you know, those companies no longer exist.
So the question becomes, if the world's economic systems are so fragile, and if collapses are common in a world of competing systems, why are we not talking more about the possibility of collapse? Obviously our leaders don't want us talking or thinking about that. And they try hard to frame the discussion so we don't.
Most people would agree (including many historians) that the best way to anticipate the future is to study the past. But what if our version of history is wrong? What if our history is distorted to sell an agenda? After all, the word "history" is made up of two words: his and story.
Fed Chairman Ben Bernanke, the Princeton University scholar of the Great Depression, often says that the depression could have been averted if only the government had printed more money. That's his story, but that's not what history says.
After the crash of 1929, FDR was elected in 1933. He immediately took the U.S. off the gold standard through the Emergency Banking Act and introduced his New Deal. This allowed him to print more money and rack up huge amounts of national debt. At first it seemed that FDR's plan was working.
Yet in 1938 there was a "depression within the depression." Economic output collapsed and the unemployment rate rose from 14.3% to 19%, in the face of a year-over-year decline from the peak of 24.9% in 1933.
History proves Bernanke's claim (that FDR didn't print enough money) to be wrong. This is what Roosevelt's Secretary of the Treasury, Henry Morgenthau, wrote in his diary in May 1939: "We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong, somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot."
World War II broke out in 1939 and many people credit that war with saving the economy. While the war did boost the recovery, it was the Bretton Woods Agreement, signed in 1944, that put the world back on the gold standard, which stabilized the global economy.
Most people would agree (including many historians) that the best way to anticipate the future is to study the past. But what if our version of history is wrong? What if our history is distorted to sell an agenda? After all, the word "history" is made up of two words: his and story.
Fed Chairman Ben Bernanke, the Princeton University scholar of the Great Depression, often says that the depression could have been averted if only the government had printed more money. That's his story, but that's not what history says.
After the crash of 1929, FDR was elected in 1933. He immediately took the U.S. off the gold standard through the Emergency Banking Act and introduced his New Deal. This allowed him to print more money and rack up huge amounts of national debt. At first it seemed that FDR's plan was working.
Yet in 1938 there was a "depression within the depression." Economic output collapsed and the unemployment rate rose from 14.3% to 19%, in the face of a year-over-year decline from the peak of 24.9% in 1933.
History proves Bernanke's claim (that FDR didn't print enough money) to be wrong. This is what Roosevelt's Secretary of the Treasury, Henry Morgenthau, wrote in his diary in May 1939: "We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong, somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot."
World War II broke out in 1939 and many people credit that war with saving the economy. While the war did boost the recovery, it was the Bretton Woods Agreement, signed in 1944, that put the world back on the gold standard, which stabilized the global economy.
The world is made up of systems, systems often competing against one another. For instance, BP's latest gusher in the Gulf brought home the fragile relationship between the world's eco and economic systems. The environmentalists say capitalism is killing our oceans, air, land, and forests. Capitalists argue that they provide food, fuel, and building materials for a growing world.
Because the world is made up of systems in conflict, it's not only uncommon (but, rather, normal) to see systems collapse.
History is full of economic collapses from the Roman Empire to Weimar Germany to, most recently, Iceland. Economic collapses most often precede the collapse of empires.
In families, if the breadwinners lose their jobs, the family economy often collapses.
We should not be surprised when collapses happen. Rather, we should be surprised they don't happen more often.
As you may have already guessed, a minor collapse can create a ripple effect that may cause a domino effect of bigger crashes. This is why Greece was such a hot issue. If Greece failed, it might have taken the mighty German and French economies down. This would have caused an economic tsunami and collapsed the world economy.
Jared Diamond's Collapse is a great book for history buffs of collapses. Diamond traces the causes that led to the fall of civilizations such as the Maya, Easter Island, the Anasazi Indian tribe of Arizona and Utah, the environmental and economic collapse going on in Montana today, and more. The book reads like a murder mystery. It's easy to read, disturbing, frightening -- and hard to put down. Looking into the history of collapses, we see many parallels to today.
And, it seems to me, we know this intuitively. Our pop culture is becoming obsessed with apocalyptic stories. There are more and more movies about what would happen to our world after a collapse. The latest are 2012, The Road, and The Book of Eli. There is a new TV series titled The Colony that is created on the same theme. Even TV commercials are picking up on the post-apocalyptic world. Bridgestone tires runs a commercial about a rogue gang of dark and dangerous looking thugs stopping a car on a steep mountain road demanding, "Your Bridgestones or your life." The driver throws out a gorgeous, sexy, long-legged young woman, turns around and drives off with the thugs screaming, "Your life, not your wife!"
Because the world is made up of systems in conflict, it's not only uncommon (but, rather, normal) to see systems collapse.
History is full of economic collapses from the Roman Empire to Weimar Germany to, most recently, Iceland. Economic collapses most often precede the collapse of empires.
In families, if the breadwinners lose their jobs, the family economy often collapses.
We should not be surprised when collapses happen. Rather, we should be surprised they don't happen more often.
As you may have already guessed, a minor collapse can create a ripple effect that may cause a domino effect of bigger crashes. This is why Greece was such a hot issue. If Greece failed, it might have taken the mighty German and French economies down. This would have caused an economic tsunami and collapsed the world economy.
Jared Diamond's Collapse is a great book for history buffs of collapses. Diamond traces the causes that led to the fall of civilizations such as the Maya, Easter Island, the Anasazi Indian tribe of Arizona and Utah, the environmental and economic collapse going on in Montana today, and more. The book reads like a murder mystery. It's easy to read, disturbing, frightening -- and hard to put down. Looking into the history of collapses, we see many parallels to today.
And, it seems to me, we know this intuitively. Our pop culture is becoming obsessed with apocalyptic stories. There are more and more movies about what would happen to our world after a collapse. The latest are 2012, The Road, and The Book of Eli. There is a new TV series titled The Colony that is created on the same theme. Even TV commercials are picking up on the post-apocalyptic world. Bridgestone tires runs a commercial about a rogue gang of dark and dangerous looking thugs stopping a car on a steep mountain road demanding, "Your Bridgestones or your life." The driver throws out a gorgeous, sexy, long-legged young woman, turns around and drives off with the thugs screaming, "Your life, not your wife!"
"Is the crisis over?"
"Is the economy recovering?"
These are questions I'm often asked. People who ask such questions are praying for a "V-shaped" recovery, hoping that the worst is over and that we're on our way to economic recovery.
Some experts say that we're in a "U-shaped" recovery, meaning the recovery will take longer, maybe another two to three years. Others fear a "W-shaped recovery," a double dip, which could result in another crash before full recovery. Some experts are calling for a zombie recovery similar to the Japanese economy's 20-year stagnation.
There's also a growing chorus of experts who are warning of our greatest fear, a depression either in the form of hyperinflation like the German Weimar Republic experienced in the 1920s, or a deflationary depression like the Great Depression.
A depression would be devastating, but could there be something worse than a depression?
The answer is, "Yes." There could be an economic collapse.
"Is the economy recovering?"
These are questions I'm often asked. People who ask such questions are praying for a "V-shaped" recovery, hoping that the worst is over and that we're on our way to economic recovery.
Some experts say that we're in a "U-shaped" recovery, meaning the recovery will take longer, maybe another two to three years. Others fear a "W-shaped recovery," a double dip, which could result in another crash before full recovery. Some experts are calling for a zombie recovery similar to the Japanese economy's 20-year stagnation.
There's also a growing chorus of experts who are warning of our greatest fear, a depression either in the form of hyperinflation like the German Weimar Republic experienced in the 1920s, or a deflationary depression like the Great Depression.
A depression would be devastating, but could there be something worse than a depression?
The answer is, "Yes." There could be an economic collapse.
The S&P 500 remains 21 percent below its 2007 highs. Still, many analysts foresee higher stock prices as the economy improves further.
"We expect household net worth to keep its momentum," said Gregory Daco, senior economist at IHS Global Insight. "Financial gains should offset real estate losses resulting from lower housing prices and very weak sales."
The stagnant values of homes and other real estate holdings are limiting the improvement in Americans' wealth, the Fed's report showed. The value of those holdings fell 3.7 percent last quarter. That followed a scant 0.5 percent rise in the prior three months.
The outlook for housing remains dim. Homes are most people's biggest asset. But their values are still depressed in many markets. Most economists expect home prices nationally to decline 5 percent to 10 percent by the middle of next year. In some markets, declines will likely be steeper
"We expect household net worth to keep its momentum," said Gregory Daco, senior economist at IHS Global Insight. "Financial gains should offset real estate losses resulting from lower housing prices and very weak sales."
The stagnant values of homes and other real estate holdings are limiting the improvement in Americans' wealth, the Fed's report showed. The value of those holdings fell 3.7 percent last quarter. That followed a scant 0.5 percent rise in the prior three months.
The outlook for housing remains dim. Homes are most people's biggest asset. But their values are still depressed in many markets. Most economists expect home prices nationally to decline 5 percent to 10 percent by the middle of next year. In some markets, declines will likely be steeper
Most economists think consumer spending, led by the wealthy, will rise further in the months ahead. But they still don't think most shoppers, especially low- and middle- income Americans, will spend lavishly. Shrunken home equity, scant wage gains and high unemployment will keep spending in check.
More Americans are building up savings and paring debt. That's helping repair their personal finances. But it doesn't help fuel the nation's economic growth.
Consumers saved 5.8 percent of their disposable income last quarter. That was down slightly from 6.2 percent in the April-June quarter. It's still much higher than the 1-percent-plus rates just before the financial crisis.
People are steadily trimming debt. The Fed said overall household debt dipped to $13.4 trillion in the July-September period. That's a 3.5 percent drop from a peak in early 2008.
Households, on average, are carrying around $43,321 in debt, ranging from mortgages and credit cards to auto loans and home equity lines.
Debt now accounts for 122 percent of Americans' disposable income -- down from a peak of 135 percent in late 2007
More Americans are building up savings and paring debt. That's helping repair their personal finances. But it doesn't help fuel the nation's economic growth.
Consumers saved 5.8 percent of their disposable income last quarter. That was down slightly from 6.2 percent in the April-June quarter. It's still much higher than the 1-percent-plus rates just before the financial crisis.
People are steadily trimming debt. The Fed said overall household debt dipped to $13.4 trillion in the July-September period. That's a 3.5 percent drop from a peak in early 2008.
Households, on average, are carrying around $43,321 in debt, ranging from mortgages and credit cards to auto loans and home equity lines.
Debt now accounts for 122 percent of Americans' disposable income -- down from a peak of 135 percent in late 2007
In the global race for jobs and economic prosperity, the United States is No. 2. And it is likely to remain there for some time. That's the glum conclusion of most Americans surveyed in the latest Allstate/National Journal Heartland Monitor poll. Henry Luce famously labeled the 20th century the "American Century." This survey suggests that most Americans now doubt that this new century will bear that name.
Is There a Future for 'Made in America'?
In the poll, only one in five Americans said that the U.S. economy is the world's strongest--nearly half picked China instead. Looking forward, Americans are somewhat more optimistic about regaining primacy, but still only about one in three expect the U.S. economy to be the world's strongest in 20 years. Nearly three-fifths of those surveyed said that increasing competition from lower-paid workers around the world will keep living standards for average Americans from growing as fast as they did in the past. Ruben Owen, a retired Boeing engineer in Seattle who responded to the survey, spoke for many when he said, "We're still in a reasonably good place … but it's going to get harder because other places are growing stronger."
Is There a Future for 'Made in America'?
In the poll, only one in five Americans said that the U.S. economy is the world's strongest--nearly half picked China instead. Looking forward, Americans are somewhat more optimistic about regaining primacy, but still only about one in three expect the U.S. economy to be the world's strongest in 20 years. Nearly three-fifths of those surveyed said that increasing competition from lower-paid workers around the world will keep living standards for average Americans from growing as fast as they did in the past. Ruben Owen, a retired Boeing engineer in Seattle who responded to the survey, spoke for many when he said, "We're still in a reasonably good place … but it's going to get harder because other places are growing stronger."
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