Tuesday, April 21, 2009

Global Slowdown Solution VI: Going Green and Blue!

Given that real stimulus will take a form of modified Keynesian approach- we need to know what are the "highways" of today. During the last depression, the building of highway and rail infrastructure got the US out of trouble. This time, to my mind, it has to be Green and Blue infrastructure.

Going Green
US has been victim of development invention. Most of the infrastructure / engineering of the country is based on older technology thats not green. Few years ago when the green revolution was knocking at the doorstep, it was difficult to see how US and developed world can re-engineer the entire setup to go green in a meaningful way. Luckily the current situation presents us with an opportunity to do just that. In doing so, US will lay the foundation for competitiveness for the coming decade or more while adding to comfort on global warming.

Going Blue
While green is important, blue is even more so. By blue I mean developing potable water resources. Greening, apart from using lower emission fuels, also means creating tree cover and rebuilding green-ecosystems. Initiating this will require potable water sources. Further water is the most essential commodity for sustaining life. Investing in rain water collection ponds and lakes, water seepage assistance to rebuild ground water resources etc will have to take precedence. India has got an initiative off-ground through India water portal.

Implications for cities and homesteads
If at homestead level we can create sustainable water and green infrastructure, we will have a much better self-sustaining planet. That imlies our city-oriented development models will have to be modified to make it more sustainable.

Implications for current economic slowdown
The ability of these initiatives to create jobs is under-rated. If properly deployed these initiatives may create more jobs and more self-satisfaction than most optimistic forecast. These initiatives have unique character. They need huge manpower up front and then possibly the overall manpower requirement for sustaining this effort will be about 3% of original. This means they can create enough jobs to reduce unemployment rates by some perrcentage points in initial years. And the man-power can be freed in few years as economic activity resumes full steam.

In Sum
Green and Blue are compulsions. We either take up our share of responsibility or implications are large and life-threatening. As they say, "nature does not do bailouts". The opportunity has presented itself - lets grab it!

Thursday, April 16, 2009

Elizabeth Warren on John Stewart show

Elizabeth Warren speak colloquial on John Stewart show. As he says "it feels like Financial chicken soup".

Is Recovery Just Around the Corner? | The Big Picture

Jack McHugh goes on to look for answer to famous question - Is recovery just around the corner?

Sometimes I am ashamed of how pessimistic I have become. But nothing tells me that we are closer to situations when fundamentals are sorted out. I think the bottom here is fixed - its way below from here for US markets. A slower descent implies longer time to see the bottom. Implies more pain - and slower recovery.

With current healthcare situation and age demographics as they are - I see US consumers going towards 15% saving rate as sustainable rate going forward. Under strong dollar regime it means income de-growth and therefore sustainable consumption will be a long long way below current levels. In a weak dollar regime, it would mean, higher inflation sharper fall and concentrated impact of consumption dip - with a possible under-shooting below sustainable consumption level. On a discounted basis these both will be equal impact in all likelyhood.

What this implies is that sustainable world consumption should see a 1.5 the dip seen at US (roughly). So the only way to recovery is when jobs seem safe and incomes stop falling. Note this is just the average - so we will see a dip below this to about 2X US consumption loss. So stock markets should reach corresponding levels.

Tuesday, April 07, 2009

Newer Orgnisation Structures

One of my pet implication of the global slowdown is changes in organization structures. I think this is one of areas where organization-citizen relationships are going to be redefined. We are going to see restoration of balance in this relationship. Currently, organizations have disproportionate leverage that is being misused. It means new value-chains, new types of organizations based on skills.



No one has noticed but Apple just did that - the application part was moved out of the organization into public domain - modifying the traditional value chain that Friedman mentions.


Further I think organization-employee relationships are going to change fundamentally. We will have new loose forms of organizations that can fail easily and not become tighly controlled - economic behemoths that can hold entire economies to ransom. The new form of organisation will most likely have Schumpeterean creative destrution switch built into their DNA making them more efficient, vibrant through fail-fast, fail-safe means.

Monday, April 06, 2009

Richard Koo on Balance Sheet Recessions

Richard Koo on Balance Sheet Recessions (from Paul Kedrosky) gives an interesting perspective on global crisis and how possibly Japanese way could actually be a best case scenario. At the fag end he goes into really interesting implications for politics, differences between current crisis and Japan that is critical.
Japanese crisis was essentially corporate balance-sheet crisis. Current crisis is US and European household balance sheets and financial institution balance sheet crisis. Japan has strong household and financial balance-sheets. So fiscal stimulus kept Japanese consumption going. In addition, export demand did not actually fall off a cliff. These two issues will make current slowdown actually more horrible.
US households bear weight of global production. US financial bear weight of global capital supply. Both are in a mess. The stimulus required to pull-off a Japan-style escape will be of global proportion - and definitely out of league of Fed. Even by Japanese experience - global deficit would be roughly 8% of GDP. Disproportionate amount of it will come from US which implies ~ 18-20% of current US GDP. This weakens the dollar (that is good) and probably kindle some hope for US economy.
Implications
  • Despite everything US and European GDP will have to fall structurally.
  • We are looking at structural global GDP contraction - but unevenly spread.
  • Solve household balance sheet problem - solve the crisis.
  • Global realignment of production and consumption center is evident.
  • Unstable political storms are coming - watching Af-Pak closely.
  • Increasingly worried about China - hoping sense prevails.
  • Increasingly confident of two-engine approach to economy. Wealth creation engine (entrepreneurship) and wealth distribution engine ( domestic consumption & resulting jobs)
  • India looks strangely best positioned - thanks to the fact that its government's hands are tied!

Thursday, April 02, 2009

Auto Bankruptcy will worsen the slowdown

Obama has been decisive in Auto bankruptcy case. While the intent is commendable, letting Auto companies go bankrupt will damage the US economy more.

Auto Companies represent a really big and powerful wealth distribution engine. At this point, wealth distribution engine health determines how much bailout actually reaches the common person who is at the heart of bailout.

Obama saved banks to ensure credit lifelines to the common person survive. But if auto companies go bankrupt, they take pensions, incomes and multipliers with them. It will be like preventing heart blockage but stabbing the patient! 

I hope Obama gets his team to explain these things to him before he signs off on anything! Just pray!