Smart Economy

When will the Recession End ? part 175 State of Virginia explores adoption of state currency in event of Federal Reserve collapse and Depression

Early warning signal?-What you don't read in the main stream press--What do US politicians know that we don't ?--Walter Derzko

2011 SESSION

Source: http://lis.virginia.gov/cgi-bin/legp604.exe?111+ful+HJ557

11102035D
HOUSE JOINT RESOLUTION NO. 557 Offered January 12, 2011 Prefiled January 5, 2011

Establishing a joint subcommittee to study whether the Commonwealth should adopt a currency to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major breakdown of the Federal Reserve System.

 

Report. ----------Patron-- Marshall, R.G. ----------Referred to Committee on Rules ----------

WHEREAS, the Supreme Court of the United States has ruled in In re Rahrer, 140 U.S. 545, 554 (1891), that “the police power” of a State “is a power originally and always belonging to the States, not surrendered by them to the general government, nor directly restrained by the Constitution of the United States, and essentially exclusive”; and

WHEREAS, the Supreme Court of the United States has ruled in Beer Company v. Massachusetts, 97 U.S. 25, 33 (1877), that the police power of the States “extend[s] to the protection of the lives, health, and property of the[ir] citizens, and to the preservation of good order”; and

WHEREAS, the protection of the lives, health, and property of Virginia’s citizens, and the preservation of good order in the Commonwealth, depend upon the maintenance of both an adequate system of governmental finance and a sound and robust private economy; and

WHEREAS, an adequate system of governmental finance and a sound and robust private economy cannot be maintained in the absence of a sound currency; and

WHEREAS, the present monetary and banking systems of the United States, centered around the Federal Reserve System, have come under ever-increasing strain during the last several years, and will be exposed to ever-increasing and predictably debilitating strain in the years to come; and

WHEREAS, many widely recognized experts predict the inevitable destruction of the Federal Reserve System’s currency through hyperinflation in the foreseeable future; and

WHEREAS, in the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System, for which the Commonwealth is not prepared, the Commonwealth’s governmental finances and Virginia’s private economy will be thrown into chaos, with gravely detrimental effects upon the lives, health, and property of Virginia’s citizens, and with consequences fatal to the preservation of good order throughout the Commonwealth; and

WHEREAS, Virginia can avoid or at least mitigate many of the economic, social, and political shocks to be expected to arise from hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System only through the timely adoption of an alternative sound currency that the Commonwealth’s government and citizens may employ without delay in the event of the destruction of the Federal Reserve System’s currency; and

WHEREAS, “legal tender” denotes a currency that must be accepted in payment of a debt denominated in United States “dollars” if the parties have not stipulated that some alternative currency is to be used as their medium of payment or are not otherwise required to use such alternative currency; and

WHEREAS, the Federal Reserve System’s currency has been designated “legal tender” under color of Title 31, United States Code, Section 5103; and

WHEREAS, under Title 12, United States Code, § 411 and Title 31, United States Code, § 5118(b) and (c), the Federal Reserve System’s currency is not redeemable in gold or silver coin or the equivalent in bullion; and

WHEREAS, that the Federal Reserve System’s currency is not redeemable in gold or silver coin or the equivalent in bullion is being identified by more and more experts as a, if not the, major reason for the ever-increasing instability of the Federal Reserve System; and

WHEREAS, all gold and silver coins of the United States are designated “legal tender” under the aegis of Title 31, United States Code, §§ 5103 and 5112(h), and must be so designated perforce of Article I, Section 8, Clause 5 and Article I, Section 10, Clause 1 of the Constitution of the United States; and

WHEREAS, pursuant to Article I, Section 10, Clause 1 of and the Tenth Amendment to the Constitution of the United States, each State must make gold and silver coin a Tender in Payment of Debts; and

WHEREAS, the Supreme Court of the United States in Lane County v. Oregon, 74 U.S. (7 Wallace) 71, 76-78 (1869), and Hagar v. Reclamation District No. 108, 111 U.S. 701, 706 (1884), has ruled that the States may adopt whatever currency they desire for the purposes of performing their sovereign governmental functions, even to the extent of adopting gold and silver coin for those purposes while refusing to employ a currency not redeemable in gold or silver coin that Congress has designated “legal tender”; and

WHEREAS, “the police power” being the primary sovereign governmental function of every State, under Lane County and Hagar every State may adopt its own currency, consisting of gold or silver, or both, whenever necessary and proper to facilitate exercises of that power in aid of the general welfare of the State and its citizens; and

WHEREAS, under the aegis of Title 31, United States Code, § 5118(d)(2), and perforce of Article I, Section 8, Clause 5 and Article I, Section 10, Clause 1 of, and the Ninth and Tenth Amendments to, the Constitution of the United States, Americans may employ whatever currency they choose to stipulate as the medium for payment of their private debts, including gold or silver, or both, to the exclusion of a currency not redeemable in gold or silver that Congress may have designated “legal tender”; and

WHEREAS, under the aegis of Title 31, United States Code, § 5118(d)(2), and perforce of Article I, Section 8, Clause 5 and Article I, Section 10, Clause 1 of, and the Ninth and Tenth Amendments to, the Constitution of the United States, the citizens of Virginia may choose to employ as the medium for payment of their private debts whatever alternative currency, consisting of gold or silver, or both, that the Commonwealth may adopt in the exercise of “the police power”; and

WHEREAS, in light of the possible instability of the Federal Reserve System, proposals for states and their citizens to adopt an alternative currency consisting of gold or silver, or both, are receiving increasing attention throughout the United States, as evidenced by bills that have been or are being introduced in the legislatures of the States of Georgia, Indiana, Montana, New Hampshire, and South Carolina; and

WHEREAS, various systems of alternative currency employing gold or silver, or both, in the form of coin or its equivalent in bullion have already proved themselves in the free market, and could either be employed by the Commonwealth directly or be used as models for a new system created by the Commonwealth to meet Virginia’s unique needs; and

WHEREAS, the adoption of an alternative currency consisting of gold or silver, or both, would not destabilize the present monetary and banking systems, the Commonwealth’s governmental finances, or Virginia’s private economy, because it would not compel or commit the Commonwealth or her citizens to employ such alternative currency to the exclusion of the Federal Reserve System’s currency immediately, but would merely make the alternative currency available, and enable it to be used in competition with and preference to the Federal Reserve System’s currency, to the degree that the need for such use became apparent; and

WHEREAS, the United States Congress, the U.S. Department of the Treasury, and the Federal Reserve System have taken and are preparing to take no action to provide the United States with an alternative to the Federal Reserve System’s currency, in the likely event that the latter would be destroyed through hyperinflation; and

WHEREAS, because legislators in Virginia know or should know all of these facts; and because the General Assembly has the authority, the ability, and the duty to take timely action to deal with this situation without first seeking the approval of or assistance from Congress or any other state; and because the Constitution of Virginia provides, “That all power is vested in, and consequently derived from, the people, that magistrates are their trustees and servants, and at all times amenable to them”—for these reasons, the citizens of the Commonwealth will properly conclude that the members of the General Assembly will be primarily responsible if the Commonwealth is found to be without an alternative currency when the Federal Reserve System’s currency collapses in hyperinflation, or some other related economic calamity supervenes; now, therefore, be it

RESOLVED by the House of Delegates, the Senate concurring, That a joint subcommittee be appointed to study whether the Commonwealth should adopt a currency to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major breakdown of the Federal Reserve System.

The joint subcommittee shall consist of eight legislative members who shall be appointed as follows: five members of the House of Delegates to be appointed by the Speaker of the House of Delegates in accordance with the principles of proportional representation contained in the Rules of the House of Delegates and three members of the Senate to be appointed by the Senate Committee on Rules. The joint subcommittee shall elect a chairman and vice-chairman from among its membership.

In conducting its study, the joint subcommittee shall call or hear from such witnesses and take such other evidence as it deems appropriate and shall consider recommendations for legislation, with respect to the need, means, and schedule for establishing such an alternative currency.

Administrative staff support shall be provided by the Office of the Clerk of the House of Delegates. Legal, research, policy analysis, and other services as requested by the joint subcommittee shall be provided by the Division of Legislative Services. Technical assistance shall be provided by the Treasurer of the Commonwealth of Virginia and the Bureau of Financial Institutions of the State Corporation Commission. All other agencies of the Commonwealth shall provide assistance to the joint subcommittee for this study, upon request.

The joint subcommittee shall be limited to six meetings for the 2011 interim, and the direct costs of this study shall not exceed $12,000 without approval as set out in this resolution. Approval for unbudgeted nonmember-related expenses shall require the written authorization of the chairman of the joint subcommittee and the respective Clerk. If a companion joint resolution of the other chamber is agreed to, written authorization of both Clerks shall be required.

No recommendation of the joint subcommittee shall be adopted if a majority of the House members or a majority of the Senate members appointed to the joint subcommittee (i) vote against the recommendation and (ii) vote for the recommendation to fail notwithstanding the majority vote of the joint subcommittee.

The joint subcommittee shall complete its meetings by November 30, 2011, and the chairman shall submit to the Division of Legislative Automated Systems an executive summary of its findings and recommendations no later than the first day of the 2012 Regular Session of the General Assembly. The executive summary shall state that the joint subcommittee intends to submit to the General Assembly and the Governor a report of its findings and recommendations for publication as a House or Senate document and shall specify the date by which the report shall be submitted. The executive summary and the report shall be submitted as provided in the procedures of the Division of Legislative Automated Systems for the processing of legislative documents and reports, and shall be posted on the General Assembly’s website.

Implementation of this resolution is subject to subsequent approval and certification by the Joint Rules Committee. The Committee may approve or disapprove expenditures for this study, extend or delay the period for the conduct of the study, or authorize additional meetings during the 2011 interim.

Quote of the week: Zbigniew Brzezinski on global political awakening and activism

Quote of the week: (hat tip to Democracy Watch in Ukraine at htt://www.peoplefirst.org.ua )

"For the first time in human history almost all of humanity is politically activated, politically conscious and politically interactive... The resulting global political activism is generating a surge in the quest for personal dignity, cultural respect and economic opportunity in a world painfully scarred by memories of centuries-long alien colonial or imperial domination... [The] major world powers, new and old, also face a novel reality: while the lethality of their military might be greater than ever, their capacity to impose control over the politically awakened masses of the world is at a historic low. To put it bluntly: in earlier times, it was easier to control one million people than to physically kill one million people; today, it is infinitely easier to kill one million people than to control one million people."

Zbigniew Brzezinski

Former U.S. National Security Advisor

Co-Founder of the Trilateral Commission

Member, Board of Trustees, Center for Strategic and International Studies

When will the recession end? Part 65 Designing a more robust, resilient economic system

Many people are starting to think wholesale system change when it comes to the western economy and not just treating the symptoms and it's back to business as usual. Here are some of my thoughts using China as the most current example of a potential boom and bust cycle (N.B. China is still in the pre-peak boom stage.)

Rethinking and redesigning and more Robust or Resilient Economy.

	Current Fragility  Model	New Robustness or Resilience Model
1.0	Great Hype- investment debacles generally start out with a compelling growth story- (The China Dream, Dot.com, Green tech, Clean tech)	Modest growth projections close to historic norms or fundamentals; aim for robustness and resilience
2.0	Blind faith in the competence of the authorities (The Communist Party of China We Trust. Mother Russia knows best, The Federal Reserve will protect us)	Non partisan Watchdog institutions in place
3.0	General increase in investment (Chinese investment Boom) CDS, options, derivatives	Decouple risk and banks (separate risky investment vehicles i.e hedge funds and banks who are caretakers of public money)
4.0	Corruption (rampant in China, Russia)	Oversight, transparency, watchdogs
5.0	Easy money (Money supply grew by nearly 30%, interest rates maintained well below nominal growth rates).	Tight capital
6.0	Rampant credit growth (new bank lending increased by nearly RMB 10 trillion, a sum equivalent to 29% of GDP)	Stricter lending guidelines
7.0	Fixed currency regimes (Chinese currency, the renminbi, is pegged to the U.S. dollar)	Floating currency, or a new single international trading currency for everyone
8.0	Private Banking System taking hidden risks; Precarious financial structures (Chinese banks are particularly reluctant to report problematic loans	Nationalized Transparent Banks
9.0	Bank bonuses tied to profits	Bank bonuses linked to resilience
10.0	Moral hazard (China’s leading banks, among the world’s largest by market value, are seen as too big and too complex to fail)	No bailouts for anyone, swim or sink
11.0	Strong credit growth and rapidly rising property prices (a widespread belief that the property prices can only go up)	All assets can go through boom and bust cycles. Early warning systems to reduce volatility from norm or fundamentals i.e. An early warning system for  asset bubbles> https://www.mckinseyquarterly.com/ Financial_Services/Banking/An_early _warning_system_for_asset_ bubbles_2518
12.0	Anti-regulation, off-the-balance sheet accounts, Invisible market hand controls the market, government secret Comprehnsive Annual Finacial Reports (CAFR) accounts	Oversight, Viable System Modeling
13.0	Same people who said they didn’t see the crash coming still in charge of banks	Automatic turnover clauses in governance statutes
14.0	Same politicians and regulators who didn’t see the crash coming are still in government	Dismissal, remove from office

 Walter Derzko

Economist debate: Do governments boost or hinder innovation?

The Economist magazine hosts a series of debates on current questions and issues. The current debate expores the timely question-Do governments help or hinder innovation? As of today the public vote is split evenly 50% for PRO and 50% for CON. What do you think?

Here are the details:

Does government help or hinder innovation?

Live dates: March 22nd-28th

Current round: Opening

Dear Reader,

Does government intervention stifle creative thought or does it play a pivotal role in bringing new technologies to life? Our debate starts today and our speakers have posted their opening arguments. Now we want to hear what you have to say.

Moderator's comments
What is the right role for government in spurring innovation? One side often argues that governments inevitably get it wrong when they get too involved: picking the wrong technology winners, say, or ploughing subsidies into politically popular projects rather than the most deserving ones. The other rebuts that given the grave global challenges we face today, governments need to do much more to support innovation.

This time, both sides have some exciting new arguments that will breathe life into this age-old debate. So please don't sit on the fence—tell us which side you stand on and why.

Pro: Amar Bhidé
"Entrepreneurial leaps into the dark are best sustained by great caution in expanding the scope of government intervention." Read more

Con: David Sandalow
"Governments spur innovation. Governments shape innovation. Many of the most important innovations in recent decades grew from the work of governments." Read more
==========================================

Current round: Rebuttals

Dear Reader,

Our debate on innovation has got off to a fiery start. Our speakers have posted their rebuttal statements and now we want to hear what you've got to say. Get involved and tell us where you stand.

Moderator's comments
Despite minor gestures of conciliation, it is clear that neither debater is really willing to concede much ground. The battle lines are drawn. Our combatants are intellectually clear on their differences, and not afraid to attack the other side's weaknesses. Which side do you believe has the upper hand? Cast your vote now.

Pro: Amar Bhidé
"Revolutionary advances—Darwin's research on evolution, for example—occurred even when government funding for scientific research was minimal." Read more

Con: David Sandalow
"Government functions such as basic research, education and patent protection are central to innovation. Would innovation work best with less of such things? Quite the contrary." Read more

================================

Current round: Closing

Dear Reader,

Today our speakers have posted their closing statements in our debate on innovation, making this your last chance to have your say. Get involved and tell us which way you're voting and why.

Moderator's comments
Our debate is drawing to a close, and it is running neck and neck. The side in favour of the motion started off on the back foot, but has gained enough ground to keep this an unusually close affair. The side opposite has lost a bit of the initial starting advantage, but remains just as well positioned to pass the post first. Both debaters have ginned up their final arguments in the hopes of emerging the winner. Cast your vote now, as this debate promises to be a nail-biter. Read more

Pro: Amar Bhidé
"People must see their government play the role of an even-handed referee rather than be a dispenser of rewards or even a judge of economic merit or contribution. Picking winners—this technology or that developer—makes us all losers." Read more

Con: David Sandalow
"Government has unique capabilities and a full toolbox for helping spur the innovative process. There may be times when government should do less, but there will never be a time when it should do the 'least'." Read more

This is your final opportunity to post your comments and vote on The Economist online. You can also discuss the issue on our Facebook page, or stay updated via Twitter.

Vijay V. Vaitheeswaran
Debate Moderator
Correspondent
The Economist

Current voting

Pro 50%

Con 50%

Debate Schedule

March 26th
Closing statements

March 28th
Winner announcement

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

It turns out that morning testosterone levels in male stock traders have a direct relation to risk aversion and profitability. Susan Pinker, the author of Sexual Paradox, describes the study done by John Coates, that shows a direct relationship between elevated testosterone levels in male traders in the morning and increased profits and risk aversion. That begs the obvious question. If you extend that testosterone effect across a firm, say Leahman Brothers, and  then across the industry, which is primarily male dominated, does it lead to increased industry-wide "irrational exuberance" over time and unwarranted risk-taking, which culminates in a boom and an eventual bust? Women traders are more risk averse and cautious.

The TV commentatoror asked Pinker, if it would have been better if Leahman Brothers were Leahman Sisters. No, said Pinker. Women in senior positions in regulatory agencies would have been a better safeguard, concludes Pinker.

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 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

 

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

I was reflecting on all the economic issues over the last six month, that frankly economists have either given contradictory answers to or simply admitted that they do not know the answers to.

1)       Can government spend their way out of a recession or depression and back to prosperity? Isn’t unbridled spending and leveraged debt financing what got us into this mess in the first place? So, is the government trying to tell me that the disease is actually the cure, in the second round of spending? That’s like giving more alcohol to a drunk to cure his hangover.

 

2)       Does stimulus spending really work? How come it didn’t work for over the past two decades for Japan, whose economy has been anemic at best? FDR’s New Deal didn’t actually pull the US out of the depression which lasted 11 years, It was World War II and the shift to the military economy, which got things going again. Short of starting another world war, what crisis should we be fighting? Climate Change? My bet is on global cooling and not global warming as a greater short term risk, which could push us back into a triple dip recession. What if NASA’s warnings of a solar sun spot cycle minimum and resultant decade or even century-long mini ice age (like we experienced in the 17th century) comes to pass by circa 2020-2022?

3)       How much stimulus financing is enough? Well, nobody really know? The US still has 14 assets bubbles that have yet to burst.

4)       How many rounds of stimulus will we need? Canada thinks it will be out of this recession by mid year 2009. Their logic? Exports are expected to improve by mid year, according to the Bank of Canada. In a synchronous global downturn, who will suddenly decide to buy Canadian exports with renewed enthusiasm? Recovery in 2009?  I seriously doubt it.

5)       What or who do we spend stimulus funding on? Most countries are spending money on traditional infrastructure, but what we forget is that traditional infrastructure does not produce ongoing revenue for the country or for a municipality. Traditional infrastructure such as new roads are a cost item on a national balance sheet, requiring maintenance and money from fuel taxes, unless you have a toll gate or a congestion tax like we see in London, England. A smart road would incorporate piezoelectric sensors that harvest energy by converting vibrations caused by cars and turning it into electricity that could power lights along the roadway. Intelligent sewers could be coupled with algae streams, that would digest the waste and produce useful biofuels. More natural sewage teatment systems have been proposed by biologists and engineers. " First you'd desludge it. Then you'd filter it through nonedible barrier plants and again through a tower of zebra mussels, the best filtering organism out there. After that, the water would be pristine," says Dickson Despommier at Columbia University

6)       What should we be spending stimulus on? Again, governments have a dismal track record of picking new industry winners.

 

7)       What will the recession bottom look like ? We do not know but it will be different from previous recessions / depressions for sure Why? Economist can’t explain the complexity of driving factors to predict the length and depth of the next bottom. Six months ago most of the business community were in denial that a recession was possible and were not considering contingencies or recession-related opportunity scenarios. As the Guardian newspaper is asking this morning about the annual Davos economic love-fest:" Davos is not holding a capitalist show-trial this year. Instead it wants to be the place where the rebuilding of capitalism begins. The event is attempting to slide guiltily into what the organisers call the "post-crisis world" without ever confessing to its role in the crisis....The obvious question is why, if everyone at this meeting is so smart, did almost none of them predict the scale of the crash? The few who did are this year's stars – led by economists Nouriel Roubini and Stephen Roach. And the greatest sinners have stayed away."

 

8)       Who will be the recovery leaders and laggards? We don’t know, despite that stock analysts claim example- Industry x is always a leader or laggard. Not true. Each recession has had a different profile and economists can’t explain why or predict the next one.

 

9)       Will gold and silver be a hedge against future devaluations of currency? Not, if everyone decides to trade in gold back in for cash like we saw in the stock market crash in 2008, when traders suddenly needed cash to cover margin calls.

 

10)   How will the global economy deal with pending strategic material and water shortages that are forecast over the next 15-20 years?  Peak materials ? Wars ? Embargoes? Rationing? Prohibition? Substitution?

 

      "If it can't be reduced, reused, repaired, rebuilt, refurbished, refinished, resold, recycled or composted, then it should be restricted, redesigned or removed from production."
Pete Seeger

 

11)   Are we going back to an economy predicated on unsustainable growth or can we develop a steady state, near zero growth and still be economically healthy? The 2 decade long extended L recovery in Japan could be a forwarning of what the USA faces. - the japanese economic flu.

 

 

 

 

12)   What new economy and technologies  will replace the one that’s currently crumbling before our eyes? The Smart Technology economy?

 

13) Why did Alan Greenspan warn of "irrational exuberance in 1996, but when he became the US Fed Chairman, did nothing to restrain it back into check?

 

Walter Derzko, Smart Economy, Toronto

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

Related Recession Posts

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

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

Instead of offering more unconditional bailouts to the big three North American automakers, the Canadian government should shift from supply to demand and change its procurement policy to promote green electric vehicles. When it comes time to replacing fleet vehicles, vans, trucks and buses or trains they should purchase electric vehicles from local manufacturers including Bombardier, GM, Ford or Chrysler or Toyota or Honda if they are made in Canada. This procurement policy could be extended to the army, crown corporations, provincial governments, municipalities and utilities. That would provide a financial incentive to the auto industry to retool and take them through dificult recessionary / depressionary times as well as indirectly supporting the auto-parts manufacturers. Increased production runs should bring down the costs eventually to normal consumers.

Walter Derzko, Smart Economy, Toronto

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

Related Posts

82 Signposts to the current Recession Depression Summary from 2008

When will this recession end?

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

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

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

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

© 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 

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

Why will this recession / depression be longer and deeper then most of the downturns in the last 100 years?

In each of the post war downturns, it was the consumer, namely the middle class that spent its way out of a recession, using either savings or bank credit.

Today the  consumer is maxed out and the middle class in the US is shrinking, turning into an underclass-- bad news for any business who relies on this cohort of consumers for increasing business sales.

Elizabeth Warren a Harvard  Law professor, and author of the Two Income Trap, has been studying the middle class  over an entire generation. She’s been comparing spending patterns of a typical family with two kids today (data from 2005-2006) and a generation ago ie in the 1970’s. and is warning of the coming collapse of the Middle Class. Her presentation at UC in 2007  summarizes her research that shows that over a  generation, a typical family is

• A) more in debt  ie. 1.47% revolving  credit and 14% savings in 1970 vs over 15% of income in revolving credit and negative savings of 0.8% in 2005-2006) and
• B) now spending less of their family income on clothing (down 32%), food (down 18%), per car ownership costs (down 24%) and appliances (down 52%), but is spending far more on Child Care (up 100%), Mortgage Payments (up 76%), Health Insurance (up 74%) ,the second or third car (up 52%) and all sorts of taxes (up 25%)

She makes the insightful point that all of the expenses in the first category that dropped over a generation are all flexible. You have the choice not to buy fashionable clothes or eat at restaurants but shop at discount malls or eat more at home.

All the expenses in the second category are fixed, so that the loss of one or two income earners due to layoffs can quickly drive a family into bankruptcy and foreclosure.

 

So a family with  a single income earner in 1970 averaging $32K, who  spent half of their income on fixed expenses had more money left over then a two income family earning on average $72 K in 2003 with 3/4 of their income going to fixed expenses.

 

THE BOTTOM LINE: Families are now far less resilient to financial shocks, despite having two income earners then they were in previous recessions with only one income earner.

 

See video from March 8, 2007 lecture  of Coming Collapse of the Middle Class Increased Risks, Lower Rewards and Shrinking Safety Net

 

Related Posts

When will this recession end?

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

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

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

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

82 Signposts to the current Recession Depression Summary from 2008

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

 Last week I asked the question on Christmas Eve-When will this recession end?

Today I'd like to continue the debate. Have you noticed lately the the recession prediction market has neatly sequestered into two opposite and distinct camps. The  middle camp (stay on the sidelines) is all but vacant.

The Optimist economist camp all unanimously predict that we will see this recession bottom out quite shortly --by mid 2009 or at year end at the least....”If the dominoes fall the right way, the economy should bottom out and start growing again in small steps by July 2009, according to the December survey of 50 professional forecasters by Blue Chip Economic Indicators.”  See New York Times Some Forecasters See a Fast Economic Recovery

 

Note that these are all the same people that up until the fall of 2008 were all in total denial that the recession was in fact a reality and raging since late 2007 What’s their sole justification for their Pollyannaism? Obama's stimulus package will be enough to breath optimism and hopefulness back into stock markets, get people investing their money in equities and to get banks lending back to the same people that got in over their heads into debt in the first place.  Look more closely and you'll find that these are all people who work for banks, investment houses, derivative funds, and stock brokerage firms who have a stake in you not taking your money out of your accounts or putting more of your money back into their accounts. Their pay checks and careers depend on creating a rosy future economic picture, and not a realistic picture. They rely exclusively on econometric models and simulations and not on gut feel and anticipating huan emotions and behaviors.They are in fact glorified overpaid cheer leaders and not independent economic thinkers, that can subjectively explore both sides of an arguement..Just look back at their predictions in the last two years.Their dismal track record speaks for itself. Yet the media continues to give these economic voices top billing.

 

 

The Pessimist Camp

 

In the other camp, we have economists whose jobs, pay checks and incentive bonuses don't depend on the size and growth of your bank accounts or equity portfolios.

These are economists who are typically retired or teach at universities or work at independent 3d party think tanks. You read about their analysis in working papers or academic journals which only a handfull of other academic read or have access to.

So in the interest of balance and fair play, here's their point of view. 

 

Nouriel Roubini, New YorkUniversity

Many economists are far more pessimistic, of course. Nouriel Roubini at New York University, who called the 2008 market disaster correctly, wrote in a recent commentary on Bloomberg News that he foresees "a deep and protracted contraction lasting at least through the end of 2009." Even in 2010, he added, the recovery may be so weak "that it will feel terrible even if the recession is technically over."

Writing in Foreign Policy this month in a story called Warning: More Doom Ahead  Nouriel Roubini  warns:

“The global financial pandemic that I and others had warned about is now upon us. But we are still only in the early stages of this crisis. My predictions for the coming year, unfortunately, are even more dire: The bubbles, and there were many, have only begun to burst.

 ..[..].."The prevailing conventional wisdom holds that prices of many risky financial assets have fallen so much that we are at the bottom. Although it’s true that these assets have fallen sharply from their peaks of late 2007, they will likely fall further still. In the next few months, the macroeconomic news in the United States and around the world will be much worse than most expect. Corporate earnings reports will shock any equity analysts who are still deluding themselves that the economic contraction will be mild and short.”

Martin Feldstein, Harvard

Reuters reported yesterday that the current U.S. downturn could easily drag on for the rest of this year, according to Harvard economist Martin Feldstein , the former president of the National Bureau of Economic Research, who was speaking  at the American Economics Association annual meeting in San Francisco

.

"The current downturn is likely to last much longer than previous downturns. ... We will be lucky to see the recession end in 2009," said Feldstein, former president of the National Bureau of Economic Research, said at the American Economics Association annual meeting in San Francisco. The NBER said last month that the U.S. economy had entered recession in December 2007.

Feldstein, called for fiscal stimulus that is "big, quick and targeted at increasing aggregate activity." Levels of $300 billion to $400 billion "seem like good targets" for both 2009 and 2010, he said. “Some of the areas that could be targeted for more spending including the military, the FBI, and funding for research through increased grants to universities and hospitals, Feldstein said.”

"In each area, the government budget must go beyond business as usual," he said.

He warned that even those efforts might fall short, leaving unemployment levels high two or three years from now and necessitating more drastic measures.

Crmen M. Reinhart University of Maryland. NBER and CEPR and Kenneth S.Rogoff HarvardUniversityand NBER

These two economists, who we have profiled before on the Smart Economy blog,  have done some interesting historical comparisons in a working paper called  "The Aftermath of Financial Crises"

They remind us that a banking crisis combined with a recession is a totally different financial animal. They conclude:

“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. Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system. Admittedly, bailout costs are difficult to measure, and there is considerable divergence among estimates from competing studies. But even upper-bound estimates pale next to actual measured rises in public debt. In fact, the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn."

This is supported by the follow charts

 

 

 

 

 

 

 

 

 

 

 

 

Walter Derzko

Smart Economy

Toronto

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

 

Tomorrow: When will this recession end? Part3 Collapse of the US middle class

 

Related Posts

When will this recession end?

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

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

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

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

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

 

Top 10 smart technologies for Obama and Harper to consider for their infrastructure / cyberstructure / cognistructure program

Both US president elect Obama and Canadian Prime Minister Steven Harper have promised "New Deal" like infrastructure programs for the USA and Canada to spend their way out of a depression / recession (pick one). A new term is needed to describe this type of new intelligence-infused infrastructure. I call it the cognistructure-an infrastructure that thinks for itself.

Here's my list of top 10 smart technologies that both Olbama and Harper should have their eye on and on their planning radar screens; (Niche applications 10-6, more ubiquitous applications 5-1)

10. Smart home fabrication (supersized 3D printer that prints your home on site) to improve construction efficiency and effectiveness and waste reduction in conventional house building (but there is little chance of seeing North American building codes reformed any time soon)

9. Smart sensors in bridges, levees, roads, buildings, vehicles, satellites  etc (smart dust) to provide a dynamic sense and respond environment- eco cities-earth with a fast track  nervous system

8. Move toward the electrification of transportation (GM, Ford, Chysler shifts production to electric cars and trucks)and smart road networks (ie smart retractable speed bumps, movable road mediums that adjust to traffic flow and congestion)

7.Biomimicry -- designing systems, objects and surfaces  based on natural biological models

6. Smart "emergent and self-organizing" traffic congestion systems that deal with natural complexity in unconventional ways

5.Infrastructure / congnistructure for Smart cities, that address and enforce  "system resilience" and mitigates the consequences future potential catastrophies (climate change, severe weather, man-made disasters, riots, etc)

4.Modermizing the electrical grid to accept consumer and commercial inputs from alternate energy and reducing power loss during distribution ( via super conductors and nanowires)

3.Adoption of smart alternate energy technologies (wind, water and sun) that approach price parity with gas, coal, nuclear and electricity. Move toward distributed and diversified energy production vs centralised energy production.

2. Energy harvesting- various smart technologies that convert latent heat, all light spectra and mechanical vibration into electricity. Objects that create their own energy

1. Internet of things (IofT) (or ObjectNet or O-Net) & the Internet of Services (IofS) or S-Net -Intelligent objects, systems and environments have their own unique IP address and are connected together, just like web pages are linked on the web today.

© 2005-2008

Walter Derzko

Expert, Consultant and Guest Speaker on emerging Smart Technologies, Strategic Planning, Business Development, Lateral Creative Thinking and author of an upcoming book on the Smart Economy "

To explore the opportunities and threats of any new smart technology in your industry - Contact Me

.....Strategy without action is a day-dream; action without strategy is a nightmare"

- old Japanese proverb

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