Posts Tagged ‘GDP’

The BIG Debt Picture

June 5, 2012

I hear so much “garbage” on TV primarily from super-PACs that is simply misleading or even false, I just need to rant for a minute. Here goes:

What is the “Big Picture”? How bad is it? How much worse has the National debt gotten over time? How much worse is Greece than England than the US, for example? Than Japan? In network management terms, is this a minor alarm, a major alarm or a critical alarm (a yellow, orange or red alarm light)?

Here’s an interesting chart from the CIA:

CIA – The World Factbook – Country Comparison – Public Debt

In terms of percent of GDP, the US is number 32, fairly far down the list of indebted countries.

Another interesting link or two from Wikipedia – these are not entirely consistent, and I haven’t looked at the citations to understand why:

United States public debt – Wikipedia, the free encyclopedia

Government debt – Wikipedia, the free encyclopedia

I want a little more insight, and a slightly different view of the statistics. Some more meaningful numbers would be helpful to understand the “Big Picture” rationally:

1) Incremental Debt to GDP – more specifically, the annual addition to accumulated debt (the budget deficit) compared to the value of all goods  and services produced. This is a key ratio to look at for the National economy, but try to find it reported… This is a common business measure of the ratio of addition to Long Term Debt and Income – a relative indicator of how prudent your debt is by considering that it is an investment in future revenue growth. If this ratio shrinks, your investment in future growth is “paying off”.

This ratio is essentially captured in your “credit score”. When your credit card debt growths faster than your salary, your credit score drops.

What is the Incremental Debt to GDP ratio for the US over time?  I’ll find out, and try to make a nifty chart to add to this post.

2) Accumulated Debt to National Income – more specifically, total debt compared to the total wages paid to all American workers. This is another key ratio to look at for the National economy, and it is occasionally reported. This is analogous to a business measure of the ratio of Total Long Term Debt to Gross Profit – a relative measure of how affordable your debt is by considering that it is serviced with principle and interest payments made from money that remains after paying for the direct costs that support the mission of your company. From a National perspective, this is a measure of the ability for tax payers to service the National debt through taxes on their income – ultimately, this is how the National debt is repaid.

When you apply for a mortgage loan, the lender calculates a similar ratio of your total long term debt (including your new mortgage principle) to your household income, and there is a cap on this ratio greater than which they will not consider your loan because it is unsustainable debt.

If this ratio shrinks, your ability to perpetually sustain your debt improves. In an industry, this measure is convenient to gauge the relative health of different companies, and this ratio is useful to understand which countries are the least financially stable. There is probably a “cap” – a critical value for this measure for countries in the world greater than which their National debt is unsustainable. This critical number probably changes a bit with the prevailing interest rate and with the risk-aversion of the lenders. I wonder what that critical value is for Western nations? 1.2:1 or 1.5:1? I wonder…

This is another nifty chart for me to post – a clever 3D chart would compare countries over time.

An aside: What are the “credit scores” for the Western nations – calculated with the roughly the same methodology as my credit score or yours – that would put things into a convenient perspective for Congress and for voters. Hmmm… I’ll ask Ali Velshi at CNN and see if he’ll present a chart or two sometime soon.

So, facts trump lies, and I don’t see enough facts – I’ll dig!

Further Thoughts on the Economy

November 19, 2010

THE CHINA PLAYBOOK

– A Ten-Year Agenda for a Basis to Compete Head-On

How is the US going to compete with China and prosper in the future global economy? The US may have to play a new game with new rules put forward by China as they ascend the ladder to become the next great, global economic superpower. Our standard of living depends on working with new concepts of economy management to optimize growth, new concepts of intellectual property rights to improve the rate and scope of innovation of products and services, and new approaches to taxation. The US government must abandon the “old-world” rulebook and adopt a “New-World” framework – a ‘new “Playbook” for global competition and economic survival.

A Conversation

I asked a long-standing client these questions a few days ago – the questions weren’t quite as specific, but the train of the conversation was centered on these questions:

  • Is your company investing enough in new product development? How do you know?
  • Is your company investing in new products that meet global requirements broadly enough, or are you more focused on domestic requirements?
  • Are your company’s foreign markets expanding more rapidly than your domestic market? Is your domestic market contracting, and if so, why?
  • Where is your company deriving more profit from, foreign markets or your domestic market?
  • Are your manufacturing assets fully deployed or nearly so? If not, is unused capacity growing or shrinking?

The answers were simply vague.

I was looking for a clear sense of current strategy, and I was looking for statistics and measures that would support a rational and defensible strategy. I was also looking for evidence of a sustainable strategy. What I heard from my client is that the future is not sufficiently stable or secure enough to plan confidently. Before I take a step forward on the pressing micro issues for my client, I think we will take one step backward together to understand some macro issues and how they drive the micro issues my client is asking about…

As I was about to turn the conversation to less “heady” topics over a beer, my client asked me, “Brian, how am I going to compete with China? They play by different rules…”, and that set my brain to think…

The Economy Mission of a Government

My client’s company is confronting much the same conundrum of macro issues that face national economies such as the US economy. Substitute “country” for “company” and “industry” for “product” in the questions I asked my client, and you have significant questions for a National economic policy to address. Unlike my client, I think I can clearly discern the answers to some of the questions as they pertain to the US economy today. To a great extent, I think that the US economy is stuck in an “old-world”. I wish I had more facts to support my casual observations, but facts are hard to find – I will endeavor to look harder! And this is a “fuzzy” observation. Let me draw some conclusions and propose some new strategies for a ten year agenda for modernization of the US economic system to compete in the “New-World” marketplace with new superpower economic players.

With China’s emergence as an economic superpower, it becomes critically important to evaluate how “the rules of the game” are changing, and to recast strategies, competitive tools and expectations. There are seven frameworks or “eco-pillars” for a more modern US economy to compete head-on in a “New-World”. On the surface, they are all familiar. Currently cast in the “old-world”, though, these frameworks require substantial revision.

1) Investors, enterprises and consumers must all be “willing and able” to participate in the economy.

2) Investors, enterprises and consumers must expect a “square deal” in an efficient market.

3) The economy must grow for investors, enterprises and consumers, and the growth must be sustainable.

4) Essential infrastructures and services must be accessible, reliable and effective for every economy participant.

5) Ownership and control of intellectual property must allow for easy access and efficient exploitation by all economy participants; exploitation of private information must allow for control by the individual owner.

6) Investors, enterprises and consumers must pay the Government for the benefits they derive from the Government.

7) The workforce must be adequately and suitably skilled and continuously trained.

Is Less Government Better?

I have wondered this for decades: “Is less governmental participation in the economy better than more?” Like the three bowls of porridge, the challenge is to find the bowl that is “just right.” The lawless tendency of opportunists in the “Wild West” demanded a host of new laws and measures to enforce those laws. Things haven’t changed, really. The irresponsible risk taking that created the mortgage debt crisis is a good example of reckless speculation and profiteering and how it is harmful – the “Wild West” has simply been recast in the modern-day world. It is clear to me that there is a mandatory economic regulatory and management role for the Government to play in the “New-World”. In this sense, more is better – but it must be a much more wisely crafted role for the Government than currently exists today.

See this blog by Dr. Robert Reich, past Secretary of Labor for President Clinton:

Robert Reich

See also in one of his books: Aftershock, Knopf, 2010.

Dr. Reich is demanding change, and I think he “gets it” like few others do.

I am reminded of an observation many, many years ago in elementary school:

“Too many rules, and you can’t play the game.”

And another reminder also from elementary school:

“When you can no longer play the game, it’s time to tip the board off the table and start over (press the reset button),” and that generally creates an ugly confrontation…

You can read my entire proposal for a ten-year agenda here if you are inclined:

7-Eco-Pillars