Smart Economy

When will the recession end? Part 33 Société Générale warns clients of Global Economic Collapse scenario

Politicians of all stripes, central bankers and economists employed by stock brokerage firms are all cheering us up-claiming (more like wishing)  that things are getting better on the economic front, yet behind the scenes out of public view, bankers and hedge fund managers are in fact,getting more concerned. ( ..shades of warnings that we saw in 2006 on the Smart Economy blog about the pending US housing collapse and the imploding financial banking system.)

 

The latest to go public with warnings to its customers is the French bank Société Générale who has advised wealthy clients to be ready for a possible "global economic collapse" over the next two years, according to The Telegraph in the UK. They should know since they have been around the recession/depression block several times since their startup in 1863.  In a 68-page report titled "Worst-Case Debt Scenario," SocGen explains that the rescue packages over the past year have merely transferred private liabilities onto government shoulders, creating a fresh set of problems. Debt levels, public or private, are too high as a share of GDP. The deleveraging process will take years to undo the debt problem.

 

SocGen says that under the worst bear-case scenario, the dollar would continue to decline and global equities would retest the March lows.  Property prices would slide again and oil prices would fall back to $50 in 2010. Public debt would explode within two years, with worldwide state debt reaching $45 trillion. Further, the aging population will make it harder to erode debt through growth. As for the U.S., it could take nine years to reduce debt/income ratios to the safe levels of the 1980s.

Full story  here

 

Have you adjusted your business strategy playbook for this contingency? Where you shocked by the financial crisis and did you miss the opportunity windows the first time around in 2007-2008? Do you know how to mitigate the looming threats and seize these new once-in-a-lifetime opportunities again?

 

What could trigger this collapse? It could be a number of things such as a combination of various debt bubbles (18 at last count ) which we have discussed in length before in this blog. One growing possibility  is a country defaulting on its soveriegn debt. This is not unusual and not really out of the ordinary. We  see one or two countries declaring bankrupcy every decade, --remember Russia, or Argentina in the 1908's etc? Well the global banking system can handle a rescue of one or two countries at a time. But, what if this time around we had a cascading failure of a dozen or so failed states like dominoes all collapsing at once? The global economic and financial system is not set up to handle this disaster wild card.

 

Who could that be on that failed states list?

 

The  Top 10 Safest Sovereign Debt List (based on Credit Default Swaps thiis week ) includes Australia,  New Zealand, Belgium, Norway, France, Germany,  the Netherlands, Finland, the U.S., Denmark 

 

Countries with the highest perceived default risk include Argentina, Venezuela, Latvia, Iceland, Lithuania, Kazakhstan, Lebanon, Ukraine and Russia,   See Bloomberg...

 

Wild Card-Dubai (UPDATE Bloomberg Nov 26, 2009) or another oil/gas petro states (such as Russia) may default due to falling commodity prices and growing debt.

 

From Oct 2008.....The creditworthiness of at least 20 countries around the world has more than halved in the last six months as the global credit crisis has deepened. There are growing fears that  other countries such as Pakistan, Iceland, three Baltic states -Estonia, Lithuania, and Latvia, Hungary, Bulgaria, Romania, Serbia, Sweden, Ukraine, Russia, Greece, Italy, (and others in the Eurozone), Turkey, Kazakhstan, Vietnam, South Korea, Venezuela, Mexico, Bolivia and Argentina could all slide into a downward spiral towards bankruptcy..

 

...as Harvard historian Niall Ferguson warns today in a story in the Globe and Mail (There will be Blood Part 2) .."we are now in uncharted waters."

 

Walter Derzko 

When will the recession end? Part 27 The Sun could create a double dip depression

New Solar Cycle 24 Prediction: Fewer Sunspots, But Severe Mass Coronal Ejection (MCE) Activity possible.

 

In the past, human populations have survived 7 climate change-related mass extinction events...James Lovelock reminds us...but are we more vulnerable now and less resilient as a society?

 

Now privately, some scientists are quietly predicting two imminant wild card possibilities-a mini ice age, that could punctuate global warming,  if sun spots do not pick up in the next solar spot cycle and the distinct possibility of severe solar storms. At the extreme, both events could cause billions of deaths in a worst case scenario that we looked at last month.

 

Publically, an  international panel of experts has released a new prediction for the next solar cycle, stating that Solar Cycle 24 will peak in May 2013with a below-average number of sunspots. Led by the National Oceanic and Atmospheric Administration (NOAA) and sponsored by NASA, the panel includes a dozen members from nine different government and academic institutions. Their forecast sets the stage for at least another year of mostly quiet conditions before solar activity resumes in earnest [..they hope].

 

 

This plot of sunspot numbers shows the measured peak of the last solar cycle (Solar Cycle 23) in blue and the predicted peak of the next solar cycle (24) in red. Credit: NOAA/Space Weather Prediction Center.

 

"If our prediction is correct, Solar Cycle24 will have a peak sunspot number of 90, the lowest of any cycle since 1928 when Solar Cycle 16 peaked at 78," says panel chairman Doug Biesecker of the NOAA Space Prediction Center, Boulder, Colo.

 It is tempting to describe such a cycle as "weak" or "mild," but that could give the wrong impression. "Even a below-average cycle is capable of producing severe space weather,"says Biesecker. "The great geomagnetic storm of 1859, for instance, occurred during a solar cycle of about the same size we’re predicting for 2013."

The 1859 storm -- named the "Carrington Event" after astronomer Richard Carrington who witnessed the instigating solar flare -- electrified transmission cables, set fires in telegraph offices, and produced Northern Lights so bright that people could read newspapers by their red and green glow. A recent report by the National Academy of Sciences found that if a similar storm occurred today, it could cause $1 to 2 trillion in damages to society’s high-tech infrastructure and require four to ten years for complete recovery. For comparison, Hurricane Katrina caused $80 to 125 billion in damage.

 

 

The latest forecast revises a prediction issued in 2007, when a sharply divided panel believed solar minimum would come in March 2008 and would be followed by either a strong solar maximum in 2011 or a weak solar maximum in 2012. Competing models of the solar cycle produced different forecasts, and researchers were eager for the sun to reveal which was correct.

"It turns out that none of the models were really correct,"says Dean Pesnell of the Goddard Space Flight Center, Greenbelt, Md. NASA’s lead representative on the panel. "The sun is behaving in an unexpected and very interesting way."

Yearly-averaged sunspot numbers from 1610 to 2000. Researchers believe upcoming Solar Cycle 24 will be similar to the cycle that peaked in 1928, marked in red. Credit: NASA/MSFC

Astronomers first noted the solar cycle in the mid-1800s. Graphs of sunspot numbers resemble a roller coaster, going up and down with an approximately 11-year period. Predicting the peaks and valleys has proven troublesome because cycles vary in length from 9 to 14 years. Some peaks are high, others low. The valleys are usually brief, lasting only a couple of years, but sometimes they stretch much longer. In the 17th century, the sun plunged into a 70-year period of spotless quiet known as the Maunder Minimum (mini ice age) that still baffles scientists.

At a recent climate change symposium at Monash University in Australia, David Archibald, an expert in solar cycles stated:

“You haven’t seen any sign of the end of Solar Cycle 23 yet and the cooling over Solar
Cycle 24 as a consequence may be as much as 2.8 degrees centigrade. We are due for a de Vries cycle cooling event every two hundred and ten years, and actually even a Bond event because the last one of those was in the Dark Ages. And severe cooling over the next twenty years is now a certainty.” 

Right now, the solar cycle is in a valley--the deepest of the past century. In 2008 and 2009, the sun set Space Age records for low sunspotcounts, weak solar wind, and low solar irradiance. The sun has gone more than two years without a significant solar flare.

"In our professional careers, we’ve never seen anything quite like it," says Pesnell. "Solar minimum has lasted far beyond what we predicted in 2007."

 

 

In recent months, however, the sun has begun to show signs of life. Small sunspots and "proto-sunspots" are popping up with increasing frequency. Enormous currents of plasma on the sun’s surface ("zonal flows") are gaining strength and slowly drifting toward the sun’s equator. Radio astronomers have detected a tiny but significant uptick in solar radio emissions. All these things are precursors of an awakening Solar Cycle 24 and form the basis for the panel’s new, almost unanimous forecast.

 

 

According to the forecast, the sun should remain generally calm for at least another year. From a research point of view, that’s good news because solar minimum has proven to be more interesting than anyone imagined. Low solar activity has a profound effect on Earth’s atmosphere, allowing it to cool and contract. Space junk accumulates in Earth orbit because there is less aerodynamic drag. The becalmed solar wind whips up fewer magnetic storms around Earth’s poles. Cosmic rays that are normally pushed back by solar wind instead intrude on the near-Earth environment. There are other side-effects, too, that can be studied only so long as the sun remains quiet.

 

Meanwhile, the sun pays little heed to human committees. There could be more surprises, panelists acknowledge, and more revisions to the forecast.

"Go ahead and mark your calendar for May 2013," says Pesnell. "But use a pencil."

Source: Marshall Space Flight Center

Walter Derzko

When will the recession / depression end ? Part 25 New Financial sector Business Models or New Creative Workarounds?

I listened to US president Obama last Wednesday on the White House lawn, just before AIG’s CEO Liddy testified before the American congress on AIG’s bonuses. The significant point that Obama made at the end of his speech, was a fundamental change or shift to the status quo. Coincidentally or not, most mainstream newspaper reports missed this key idea and quote.

“People are rightly outrages about these particular [AIG] bonuses. But just as outrageous is the culture that these bonuses are a symptom of., that have existed for far too long. A situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bank. And  one of the message that I want to send is as we  get out of this crisis, as we work towards getting ourselves out of recession, I hope that Wall Street and the marketplace don't think that we can return to business as usual. The business models that created a lot of paper wealth but not real wealth in this country and have now resulted in crisis can't be the model for economic growth going forward." said Obama.

The New Yorker magazine featured this cartoon (on the right) earlier this month (March 9, 2009) , which is a more likely scenario for the financial sector….One business person says to the other….These new regulations will fundamentally change the way we get around them…

 

Walter Derzko;

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

The Opportunity Clinic-28 Tactics for managing your Business in a Recession; Part 15 of 28 Drop problem-solving and adopt opportunity surfing

Why problem-solving, Total Quality Management (TQM), Continuous Improvement (CI), Value Network Analysis (VNA) etc is not good enough in a recession…..you  need to be totally focused on designing and /or finding novel  opportunities. These tools have their place, but it's usually in the upswing part of the business cycle to improve efficiencies of existing operations, but not now.

Many companies are still applying the pre-recession, boom-time mentality to today’s totally changed and novel business environment. Driven by existing business models, mindsets and existing ongoing relationships with  consultants, experts, suppliers and vendors, who are desperately trying to maintain their sales numbers and quotas, companies are continuing to do more of the same…what seemed to worked for them in good  times..lets' work in the same box. What we need is not "out of the box thinking" [I hate that expressionm becuase it shows that you don't understand cognition and how the brain patterns information], but to design brand new "boxes".  

 

The recession is not a problem to be solved, it’s a crisis to be avoided. And you  can only do that in one way. NOW, you need to be totally opportunity-focused and opportunity-receptive and less problem-focused and preoccupied with incremental change. Radical ideas and concepts, (and not accruemental solutions to old problems, unless they lead to novel opportunity spaces) are in order, along with resulting new business models (which we often forget to explore and redesign ), that will help companies thrive and not just survive in a recession.

 

See the cartoon in this week's New Yorker....We're still the same great company we've always been, only we've ceased to exist.  I bet they were great problem-solvers at the tactical, operational level, but poor opportunity surfers at the strategic level.

 

Walter Derzko

Smart Economy,

Toronto;

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

 

When will the recession / depression end? Part 24 Wanted -a new economic driver

This week's Newsweek features a cover story with Uncle Sam urging you to stop saving and to start spending...in other words do what got you into trouble in the first place..spend or go into debt for the sake of the economy. It's not likely to happen soon.

In a recently published book, called "The Difference: How Anyone Can Prosper in Even the Toughest Times." by Jean Chatzky, the results of a 2008 Harris Interactive poll/ survey on income was pubished.

• 3% in the USA are indepently wealthy (usually bigger savers, as a rule)
• 27% in the USA are comfortably wealthy (recently earned money and wealth, and tend to save more then spend)
• 54% in the USA live pay check to pay check (driving most retail spending, the classic consumer)
• 15% going deeper into debt

These are 2008 numbers, so that the stats today are likely much worse.

So if ordinary Americans aren't going to spend their way out of this recession / depression. then who will? Business ? No liquidity yet. It may just take another country, if not another coninent to take over the "consumer" moniker from the USA.

Walter Derzko, Smart Economy, Toronto

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

When will the recession / depression end? Part 22 Why we are likely to see a protracted L-shaped or double dip W-Shaped Recession?

Collapsed container traffic  and falling electricity demand

 

 

GDP growth or collapse is a poor early warning indicator for the economy. Figures are historic -they are released several months (usually 3 months) after the fact and the are then usually revised. As politicians are fond of saying, we've seen a global symmetric  (I'd argue.. asymmetric) collapse in GDP.

 

Here are the recently released GDP numbers for the 4th quarter of 2008.

 

Canada (-3.4%)

The EU (-5.9%)

The USA (-6.2%)

Japan (-12.7%)

 

Everyone is expecting even worse numbers in Q1 2009.

 

One proxy indicator that I follow is global trade. Back in 2006 and 2007 I was  looking for early signals/signs of impending collapse and now I’m tracking trade to determine if the economy will be in a protracted holding pattern (like the lost decade in the 1990’s in Japan, although it should be called the lost 2 decades) or will we see some resemblence of any recovery of international trade any time soon?

 

Bulk goods and container traffic is a good leading 6 month proxy for the economy. Manufacturers order raw materials in anticipation of manufacturing growth. In America, the container traffic in Long Beach California (the busiest port in the USA)  totally collapsed in 2007, long before there were any signs that the economy had peaked. Container traffic, dry and wet bulk goods traffic and shipping rates have been down and flat ever since-at historic low levels. If you use these indicators, there is ABSOLUTELY NO RECOVERY  in sight for 2009. The Baltic Dry Index (BDI) is showing some signs of life, but it's a type #1 error, also known in academics as a false positive. Suppliers are using some creaive accounting by attempting to take their goods "off their books" shifting them into the F.O.B catagory, but these raw materials, assembled cars and even oil supplies are just sitting inside container ships in ports, awaiting for commodity prices to increase. (hat tip to Zavis Zeman for alerting us to this tactic)

Power consumption is another good indicator to watch that signals the health of the economy. (the same is equally true for industrial use of coal, gas and oil, if you can find the data.)

 

Historically, electricity consumption and GDP growth are closely coupled, although there is still debate in the academic literature on what causes what. Does electricity use drive GDP growth or the other way around.Energy conservation efforts are starting to confound the data too.  When I can find it, I use monthly and annual power consumption data as a proxy indicator for economic recovery. The logic is simple. If you are not running a second or third shift, or if you have closed down your factory, then energy use will drop long before we see any GDP changes in government statistics. Likewise, on the way up, energy consumption should be flat and then start to slowly rise before we see any effects in GDP numbers.

China and India have become the world's manufacturers, so their health is a proxy indicator for global economic health. Both China and Indiahave reported drastic energy consumption drops in their industrial sectors. Starting in late 2007 and right through 2008,

China reported a drop in consumption, although relative year-over-year, power consumption was positive, still growing but at a much slower decelerated pace. As the global financial crisis began to take a toll on the real economy, power demand plummeted in China, as enterprises shut down or cut back working hours in response to moribund business orders.

"Power consumption in China grew 5.23 percent in 2008, 9.57 percentage points lower than a year ago and the slowest in eight years, according to Chinese data. The slowing demand was mainly contributed by the industrial sector.  About 3.43 trillion kilowatt-hours of electricity was used by the industry last year, up 3.83 percent from a year earlier, slower than the overall social power consumption growth rate for the first time.  Electricity used by the service industry and the rural and urban residents continued rapid growth, as the group was less affected by the financial crisis."

In India, power consumption grew 13.28 % in 2007 (a combination of industrial use, consumer household use, and village electrification) and dropped off the cliff by 16.91 percent in 2008, worse then in China.

 

Walter Derzko

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

Related Recession / Depression Posts

When will the recession / depression end? Part 21 Darker days ahead , but not for all

When will the recession / depression end? Part 20 The Dog that Didn't Bark; Economists say don't pay attention to us

When will the recession / depression end? Part 19 Put Infrastructure Where it's Needed; Ontario on the Move

When will the recession/ depression end? Part 18 Hormones and Boom and Bust Cycles

When will the recession / depression end ? Part 17 Recap from the World Economic Forum in Davos

When will the recession end? Part 16 It's all over, well sort of.

When will the recession end? Part 15 Year-end predictions for 2009 starting to come true

When will the recession end? Part 14 Four options for America's race to the bottom

When will the recession end? Part 13 Thirteen economic questions that economists can't answer

When will the recession end? Part 12 Bad times are good times for startups

When will the recession end? Part 11 Bank of Canada optimism

When will the recession end? Part 10, The Conformity Trap or Don't count on your economist for advise

When will the recession end? Part 9 Humor will signal recession /depression bottom

When will the recession end? Part 8 Lessons Learned from the last Post 9/11 recession; designing brilliant winning business models

When will the recession end? Part 7 False signals of recovery

When will this recession end? Part 6 The USA Paradox; Cheer vs Fear vs Transformation

When will the recession end? Part 5 Stop Auto Industry Bailouts, start buying Electric

When will the recession end? Part 4 The double dip housing crash in the USA

When will the recession end? Part 3 The coming collapse of the American Middle Class into an Underclass

When will this recession end ? Part 2 Do you listen to the Optimists or the Pessimists in 2009?

When will this recession end?

82 Signposts to the current Recession Depression Summary from 2008

© 2005-2009

Walter Derzko -"Changing the world, one idea at a time"©

Expert, Consultant and Keynote Speaker on Emerging Smart Technologies, Innovation, Strategic Foresight, Business Development, Lateral Creative Thinking and author of an upcoming book on the Smart Economy "

The Smart Technology Blog: The Smart Economy -- Read, enjoy, explore, speculate, comment !!

To arrange for an in house presentation or briefing on smart technology see here

To explore the opportunities and threats of any new smart technology in your industry - Contact Me or explore how we can work together

• ".....Strategy without action is a day-dream; action without strategy is a nightmare"-old Japanese proverb
• ".......Ours is the age that is proud of machines that think and suspicious of men who try to." -- H. Mumford Jones
• ".......Without changing our patterns of thought, we will not be able to solve the problems we created with our current pattern of thought."  --A. Einstein
• ".......Change is difficult, but complacency and stagnation are surefire showstoppers..." --Walter Derzko

• ".......Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it's the only thing that ever has."  -- Margaret Mead

• ".......Small minds discuss people; Average minds discuss events; Great minds discuss ideas; --Anon

P. S. if this is your first visit to my blog, please go to our Welcome page

The Opportunity Clinic - 28 Tactics for Managing your Business in a Recession Part 14 of 28 Which country is the most opportunity savvy in this recession?

Most politicians and economists now all agree that the world is in the throws of a total synchronous recession, if not depression. But which countries are the most resilient and get the fact that change and chaos produces opportunites?

 

Using the number of English language media stories about spotting or designing opportunities in a recession as a very crude proxy indicator, I started looking at several free and paid databases for public stories concerning the recession and opportunity recognition.

 

Which country is the most Opportunity Savvy in this recession? Who seems to be on top?

1)       The UK

2)       The USA

3)       India

4)       Canada

5)       China

The first two results many be biased because the recession /depression is far more advance in these top two countries, and the fact that I was just looking at the English language press only, but if media coverage is a reflection of societal mindsets, then the UK seems to be way ahead as a very opportunity savvy nation-their business people get it.

 

© 2005-2009

Walter Derzko -"Changing the world, one idea at a time"©

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

Expert, Consultant and Keynote Speaker on Emerging Smart Technologies, Innovation, Strategic Foresight, Business Development, Lateral Creative Thinking and author of an upcoming book on the Smart Economy "

The Smart Technology Blog: The Smart Economy -- Read, enjoy, explore, speculate, comment !!

To arrange for an in house presentation or briefing on smart technology see here

To explore the opportunities and threats of any new smart technology in your industry - Contact Me or explore how we can work together

• ".....Strategy without action is a day-dream; action without strategy is a nightmare"-old Japanese proverb
• ".......Ours is the age that is proud of machines that think and suspicious of men who try to." -- H. Mumford Jones
• ".......Without changing our patterns of thought, we will not be able to solve the problems we created with our current pattern of thought."  --A. Einstein
• ".......Change is difficult, but complacency and stagnation are surefire showstoppers..." --Walter Derzko

• ".......Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it's the only thing that ever has."  -- Margaret Mead

• ".......Small minds discuss people; Average minds discuss events; Great minds discuss ideas; --Anon

P. S. if this is your first visit to my blog, please go to our Welcome page

When will the recession / depression end? Part 21 Darker days ahead , but not for all

(Credit: This prophetic cartoon on the right appeared in one of the fall 2008 issues of the New Yorker magazine. It delivers several important messages from negative (depression, gloom and doom) to Positive (i.e what's the silver lining behind every cloud, or the opportunity behind every threat;  resilience, and make do with what you got!)

I was reminded of it after reading this morning's news from Canada’s  Globe and Mail newspaper-Dark(er) Days Ahead

The quarterly C-Suite survey was conducted for The Globe and Mail; Report on Business and Business News Network by Gandalf Group, and sponsored by KPMG. The survey interviewed 150 executives between Jan. 29 and Feb. 12. Respondents represent ROB 1000 companies from across Canada.

Here's a summary:

• 90 per cent of executives expect the economy to decline in the next 12 months                     (Now here is the flaw with most survey methodologies....They never tell me exactly what I really want to know...I always wonder about the extreme outliers. What do the other 10% think and Why? Why don't surveys ever focus on this "left behind" group?...Their ideas are far more significant then the majority. Are they more optimistic, expecting a quicker turnround? Will the economy  be flat or in neutral gear, anemic but not growing or dropping much? Are they just in counter-cyclical business or industry, that's level or even  growing  in a recession or have they just surfaced new opportunities that the majority of us don't see or can't even imagine yet? Are they just plain contrarians or are they still in the denial stage? or Are they doing something creative / innovative that the other 90 % don’t know about? Do they just see more Opportunity Windows, then the rest of us, because they are now more vigilant for new "opportunity spaces" and "opportunity sensitive areas"? and less gloomy? Are they more Opportunity Savvy then the rest of the other 90%. and more personally, who should I be targeting with the Opportunity Clinic workshops? the 10% who already get it or the 90% who don't and may turn out to be a recession/ depression casaulty?) see Opportunity Clinic  

• Half think it will be more than a year before growth returns ie 2010 

• Two-thirds say it is now more difficult than ever to access credit

• Two-thirds say the economy has forced them to focus on the short-term at the expense of long-term growth plans, 

• (significantly) Half are more concerned about corporate survival than they were six months ago.

• Hunkering down for survival now seems to be top of mind for many executives

• The key, said on exec, is to conserve cash and be ready to expand when the economy improves. But he does not expect a turnaround at least until 2010. (N.B.the concensus used to be end of 2009)

• The goal, for everyone, is to ensure survival.

• "If there is an upside to the recession, it is that some competitors will be "weeded out," said one C-suite exec. There might also be deals that can be arranged with landlords who will be willing to offer better prices on available retail space.

• All companies have to ensure they come out of the recession healthy enough to exploit those opportunities..(see the Opportunity Clinic)

Do you agree? (out of 150 c-suite execs)

• I'm confident our company will weather this downturn: 97% agree

• This is the worst economic environment in my time: 82% agree

• The economy has forced us to focus on short-term at the expense of long-term growth: 67% agree

• I am more concerned about our company's survival than I was six months ago: 53% agree

See survey story here>> 

 

Walter Derzko

Smart Economy

Toronto

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

Related Recession / Depression Posts

When will the recession / depression end? Part 20 The Dog that Didn't Bark; Economists say don't pay attention to us

When will the recession / depression end? Part 19 Put Infrastructure Where it's Needed; Ontario on the Move

When will the recession/ depression end? Part 18 Hormones and Boom and Bust Cycles

When will the recession / depression end ? Part 17 Recap from the World Economic Forum in Davos

When will the recession end? Part 16 It's all over, well sort of.

When will the recession end? Part 15 Year-end predictions for 2009 starting to come true

When will the recession end? Part 14 Four options for America's race to the bottom

When will the recession end? Part 13 Thirteen economic questions that economists can't answer

When will the recession end? Part 12 Bad times are good times for startups

When will the recession end? Part 11 Bank of Canada optimism

When will the recession end? Part 10, The Conformity Trap or Don't count on your economist for advise

When will the recession end? Part 9 Humor will signal recession /depression bottom

When will the recession end? Part 8 Lessons Learned from the last Post 9/11 recession; designing brilliant winning business models

When will the recession end? Part 7 False signals of recovery

When will this recession end? Part 6 The USA Paradox; Cheer vs Fear vs Transformation

When will the recession end? Part 5 Stop Auto Industry Bailouts, start buying Electric

When will the recession end? Part 4 The double dip housing crash in the USA

When will the recession end? Part 3 The coming collapse of the American Middle Class into an Underclass

When will this recession end ? Part 2 Do you listen to the Optimists or the Pessimists in 2009?

When will this recession end?

82 Signposts to the current Recession Depression Summary from 2008

 

 

When will the recession / depression end? Part 20 The Dog that Didn't Bark; Economists say don't pay attention to us

Why should we be listening to economists, when so few of them saw this whole mess coming? The Canadian CBC TV Sunday Morning program put that question to two top economists - Dean Baker, of the Center for Economic and Policy Research in Washington, and James K. Galbraith of the University of Texas, son of the famed Canadian economist John Kenneth Galbraith - and ask: whose predictions should we believe now?

These were two of the small group of "minortity" economists, warning of the coming crash, who I have been tracking since the early 2000's ...[BTW, I track "outliers" on all the emerging issues that interest me...ie. I started warning clients about the imminant US  banking system collapse and housing collapse in 2006.]

Why did so few economists see this economic crisis coming? Asks the CBC TV reporter, or what I call the  Dog that Didn’t Bark question.

 

 

Here’s a transcript of what James K Galbraith said:

“…Well I think the  economics profession over that last few decades has kind of closed in on itself, it ceased to discuss history in a serious way and it basically excommunicated that relatively small number  of people, who worked on problems of financial crisis and financial instability.

So, there was no dialogue going on, the prospect was not being raised, the profession was busy congratulating itself on having solving the economic problems, on having basically come up with the right formulas for stable expansion, for the control of inflation and they had completely forgotten that the capitalist system has enormous vulnerabilities that come from of the financial sphere, and in addition to that, they were just unequipped to deal with the catastrophic malpractice that was coming from the financial sector over the last five years, they didn’t have the tools, they weren’t studying it, they were caught blind sided by it.”…[…]….Until the crisis actually broke, nobody was paying attention to us."

Dean Baker replies:

"…I was actually tipped off by Alan Greenspan, back in 2002. He was testifying before Congress and he said there was no problem, no bubble in the housing market. And I was reading his testimony and everything he said did not make any sense. He was giving explanations to why there was this sudden rise in house prices. The basic story is that we have a hundred year long history 1895-1995 where nation-wide at least, house prices had just kept pace with the overall  rate of inflation. In other words, House prices has risen at roughly the same rate as the average  other goods, car prices, clothes, gas, whatever it  might be. Suddenly beginning  in the mid 90’s, house prices began to substantially outpace the rate of inflation and by 2002 they had outpaced the rate of inflation by about  30%. And there was no explanation for it that made any sense, based on fundamentals. So to my mind, when you see a hundred year long trend broken, and there is no explanation,  that’s based on fundamentals, it was sort of crying out: Bubble! Bubble ! Bubble!  And I sort of had bubble on my mind because we had just gotten through the stock bubble, and stock crash. We had two explanations. One -this is being driven by something in the fundamentals that no one could identify or  two --the stock bubble had fed over into the housing bubble as was the case in Japan. So that was seemed to be a pretty easy call to me."

Listen to the full interview..a real eye-opener…

 

And what are most of the mainstream economists saying now..don't worry, it will all be over soon...depending on how you take that....that's what I'm worried about--Walter Derzko.

 

Walter Derzko

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

Related Recession / Depression Posts

When will the recession / depression end? Part 19 Put Infrastructure Where it's Needed; Ontario on the Move

When will the recession/ depression end? Part 18 Hormones and Boom and Bust Cycles

When will the recession / depression end ? Part 17 Recap from the World Economic Forum in Davos

When will the recession end? Part 16 It's all over, well sort of.

When will the recession end? Part 15 Year-end predictions for 2009 starting to come true

When will the recession end? Part 14 Four options for America's race to the bottom

When will the recession end? Part 13 Thirteen economic questions that economists can't answer

When will the recession end? Part 12 Bad times are good times for startups

When will the recession end? Part 11 Bank of Canada optimism

When will the recession end? Part 10, The Conformity Trap or Don't count on your economist for advise

When will the recession end? Part 9 Humor will signal recession /depression bottom

When will the recession end? Part 8 Lessons Learned from the last Post 9/11 recession; designing brilliant winning business models

When will the recession end? Part 7 False signals of recovery

When will this recession end? Part 6 The USA Paradox; Cheer vs Fear vs Transformation

When will the recession end? Part 5 Stop Auto Industry Bailouts, start buying Electric

When will the recession end? Part 4 The double dip housing crash in the USA

When will the recession end? Part 3 The coming collapse of the American Middle Class into an Underclass

When will this recession end ? Part 2 Do you listen to the Optimists or the Pessimists in 2009?

When will this recession end?

82 Signposts to the current Recession Depression Summary from 2008

 

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Walter Derzko -"Changing the world, one idea at a time"©

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

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The Opportunity Clinic- 28 Tactics for Managing your Business in a Recession Part 13 of 28 Thirteen Recession wild card scenarios

The Opportunity Clinic- 28 Tactics for Managing your Business in a Recession Part 13 of 28 Thirteen Recession wild card scenarios

 

Most people acknowledge that we are heading into uncharted waters in this recession / depression. Expect unexpected events seems to be the rule of thumb. So how is business supposed to function and plan for the near-term future? One way to reduce uncertainty is the use scenario planning and test “wild card’ assumptions. Here’s one that we offer to clients in the Opportunity Clinic:

 

Recession Wild Card #3 -Second global run on American banks ... What would your business do, if we saw a second global run on American banks?

 

Now just wait a minute? At this point, you are likely asking yourself….”I didn’t hear about the first run on US banks…when did this happen?

I bet 99.999% of North American didn’t hear about this either, unless you are a member of the UScongress or a political news junkie and watching the American  C-Span cable channel all day long. (hat tip to several Smart Economy blog readers from around the globe, who alerted us to this meltdown event, that’s been kept secret from most of the world…) see C-Span video entitled: Rep. Kanjorski: $550 Billion Disappeared in "Electronic Run On the Banks" below.

At 2 minutes, 20 seconds into this C-Span video clip, Rep.  Paul Kanjorski from Pennsylvania explains how the Federal Reserve told members of  Congress about a "tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars, back in September 2008." According to Kanjorski, this electronic transfer occurred over the period of just  two hours, before it was halted.

Here is a transcript of what Kanjorski actually confessed  in the video:

”Look…I was there when the secretary and the chairman of the Federal Reserve came those days and talked with members of Congress about what’s going on. .  It was about Sept 15 here are the facts and we don’t even talk about these things…. On Thursday  [Sept 15, 2008] at about  11 o’clock in  the morning,  the Federal Reserve noticed a tremendous draw down of money market accounts in the USA, to the tune of $550 Billion dollars… was being drawn out, in a matter of an hour or two. The treasury opened up its window to help . It pumped $105 billion dollars into the system. …and quickly realized  that they could not stem the tide….we were having an electronic run on the banks…they decided to close the operation....close down the money accounts, and announced a guarantee of $250,000 per account, so there wouldn’t be further panic out there and that’s what actually happened. If they had not done that, their  estimation was that by 2 o’clock that afternoon,  $5 and a half  trillion dollars would been drawn out the money market system of the United States, would have collapsed the entire economy of the United States and within 24 hours the world economy would have collapsed. Now, we talked at that time about what would have happened if that happened….. it would have been the end of our economic system and our political system”..

After some deep digging on the net and through various databases, we only found two sources that mention  this "secret financial meltdown, See full C-Span video clip here 

and Kanjorski: We came so close to complete financial collapse

 

Paul Kanjorski, who  serves on the US House Financial Services Committee and chairs its Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, does not provide further details.

 

Not a hint officially from the US government or the Treasury about this e-run on banks..The only sign that something was wrong, in hindsight we see in the following press release, the day after the bank run:

 

September 16, 2008 HP-1142

Remarks by Treasury Under Secretary for International Affairs David H. McCormick at Future  of Consumer Payments Conference

Washington

– Good afternoon. Thank you for that kind introduction, Martin. And thanks to you, to Bob and to Ken Chenault for the invitation to be here today. I am pleased to join with you for this conference on "the quiet revolution in money," the implications for our citizens, our economy, and financial system of the dramatic change in consumer payments. I'd like to begin by passing along the regrets of Secretary Paulson who is focused today on market developments and has asked me to speak on his behalf.

 

 

Remember-this was right after the Leahman Brothers and AIG affairs. Who got spooked? who panicked? and who was taking their  money out? The Russians? The Asians? The Gulf Petro-Sates? The Sovereign Wealth Funds? All four? Who had a total of $5 and a half trillion dollars invested in US money market accounts? We may never know for sure.

 

 

Are you shocked yet?  Did you hear about this in the mainstream American or Canadian press? Well, I didn’t either. Just goes to show you that openness and the truth were the  first casualties of this recession / depression.

Thirteen Recession wild card Scenarios

“Chance favors the prepared mind said L Pasteur.  

 

So, in the Opportunity Clinic we’ve conceived and  offer 13  “Recession wild card scenarios” that every business person, entrepreneur and entrepreneur want-to-be  should devote some thinking time to,  explore the consequences of  and consider alternative courses of action in advance of the event hitting you.

 

If  “Recession wild card scenario #6” were to happened:

• what early warning signals could I look out for?
• what circumstances could trigger each wild card scenario?
• how do I mitigate its negative impacts?
• how do I identify, cease and leverage the opportunities?
• do I have a “game plan” drawn out in advance, should each of these wild card scenarios come to pass?

Walter Derzko

Smart Economy

Toronto

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression features 45 opportunity scenarios.

 

Related posts in this series:

The Opportunity Clinic- 28 Tactics for Managing your Business in a Recession Part 13 of 28 Recession wild card scenarios

The Opportunity Clinic- 28 Tactics for Managing your Business in a Recession Part 11 of 28 Pretending and Deception as an Opportunity Space

The Opportunity Clinic- 28 Tactics for Managing your Business in a Recession Part 10 of 28 "First Impressions” trap

The Opportunity Clinic - 28 Tactics for Managing Your Business in a Recession Part 9 of 28 The dichotomous thinking trap

The Opportunity Clinic - 28 Tactics for Managing Your Business in a Recession Part 8 of 28 Industry Architecture Opportunities

The Opportunity Clinic - 28 Tactics for managing your business in a recession Part 7 of 28  Geopolitical Opportunities;

The Opportunity Clinic; 28 Tactics for managing your Business in a recession Part 6 of 28 What's in your Recession Playbook?

The Opportunity Clinic; 28 Tactics for Managing your Business in a Recession Part 5 of 28 Category Killer Innovation-India's $10 laptop

The Opportunity Clinic - 28 Tactics for Managing Your Business in a Recession Part 4 of 28 “Left Behind “Opportunities- Go Green & Go Slow

The Opportunity Clinic - 28 Tactics for Managing Your Business in a Recession Part 3 of 28 Design Opportunities- Hope or Nostalgia

The Opportunity Clinic - 28 Tactics for Managing Your Business in a Recession Part 2 of 28 Innovation or Efficiency?

The Opportunity Clinic - 28 Tactics for Managing Your Business (& surviving and thriving) in a Recession Part 1of 28