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Archive for September, 2010

Monetizing the debt. Learn that phrase. It is your future.

Last week I attended the estimable International Economic Alliance meeting at the Harvard Club in NYC. The day was chaired and keynoted by Paul Volcker. (Of course, Mr. Volcker is a legend for his conquest of U.S. inflation in the late ’70s and 80’s.) At the end of his opening remarks, Mr. Volcker was interviewed by David Asman of Fox Business Channel. Mr. Asman opened his interview by handing Paul Volcker a single 100 trillion dollar bill from Zimbabwe. That’s right–a 100 trillion dollar bill. It was a good way to kick off a discussion of the direction of our current economic health.

It behooves each of us in the small business community to keep an eagle eye on macro-trends nationally and internationally. The agile entrepreneur should make money in good times and bad, but it requires realistically thinking ahead of the curve. Which brings me to my topic: monetizing the debt.

The massive debts now being accumulated by our government will not be repaid. I 100% guarantee it. Neither the Republicans, the Democrats, or, frankly, the American electorate will conjure up the hard-eyed, honest, morally-direct courage to deal with our debt. This pusillanimous evasion of responsibility can have but one result: monetizing the debt. (The only alternative being national bankruptcy.)

What is monetizing the debt? The simplest description of monetizing the debt is this: Massive Inflation. Think Zimbabwe and the Weimar Republic. Essentially our debt becomes less because our money is worth less. (My apologies to my clients at HBS and Columbia Business School for the wild oversimplification. I ain’t an academic.) What does monetizing the debt amount to? A huge hidden tax on us all.

As I see it, the Fed and the present government have begun an inevitable and conscious, but unspoken, march toward monetization. Another word for monetization is “quantitative easing” which technically means printing extra currency to buy bonds from banks, who will hopefully lend it to peons like us entrepreneurs. (They’re not lending to us, however.) My belief is that the printing presses will run non-stop indefinitely. This will eventually collapse the dollar, solve our debt problem, cause our interest rates to skyrocket to Carter-era highs (and above), and cause a fundamental change in business assumptions. It is only a question of when. As Joe Willie Namath of the NY Jets said memorably before Super Bowl III, “I guarantee it.”

But this need not spell disaster for the nimble entrepreneur. (I certainly pray it doesn’t for my executive sales outsourcing company Corporate Rain.) It is simply another calculation to anticipate and add to a business plan. How can inflation increase the value of my company and the desirability of my product?

I don’t pretend to know when this tsunami of monetization will hit us, but Helicopter Ben Bernanke is running those printing presses like a madman. As the Wall Street Journal said in a lead editorial on Thursday, September 23, “Central bankers who wish for more inflation usually get their wish, and the result is rarely benign.

Thank you, Wall Street Journal.

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In her book, Stephen Sondheim: A Life, Meryle Secrest quotes composer Steven Sondheim on his friend and colleague Leonard Bernstein’s consistent failure to produce any significant music after his great masterpiece “West Side Story.” Sondheim says Bernstein developed “a bad case of importantitis.” That is, anything he touched, by self- definition, had to have the weight and portent of the great.

Importantitis can sure be a killer of creativity and corporate health for the entrepreneur, as well as for the artist. I was reminded about this by the dizzying fall from grace of Mark Hurd at Hewlett Packard, a man of achievement and power brought low by ethics violations and the apparent attitude that he was above the rules. (Or who can forget Leona Helmsley‘s famous statement that the rules apply only to “the little people.”)

Jonah Lehrer recently wrote an article on this in the Wall Street Journal called “The Power Trip” (August 14, 2010). Lehrer notes what psychologists call the “paradox of power.” That is, the very traits which help leaders rise to power disappear once they ascend. Instead of being courteous, honest and outgoing they often become impulsive, reckless and rude—subject to hubristic overreach and Icarus-like arrogance. He quotes extensively from University of California, Berkely psychologist Dacher Keltner‘s scientific findings from studies of power and success. Dr. Keltner states, “When you give people power, they basically start acting like fools. They flirt inappropriately, tease in a hostile fashion, and become totally impulsive.” Dr. Keltner goes on the compare the feeling of power to brain damage, stating that people with great power tend to behave like neurological patients with a damaged orbito-frontal lobe, a brain area essential for empathy and decision-making.

An entrepreneur is usually a boss. He is a person of power, if only in his own very small pond. As such, I believe it is crucial to avoid importantitis. At my own outsourced executive sales firm, Corporate Rain International, I try to guard against this in several ways. One is I never stop cold-calling. At this point I could have other people take over this task completely for me. But I want to experience what my associates and employees experience for clients each day, which includes a great deal of rejection. Another way Is that I genuinely try to never employ anyone who isn’t better than myself, and then I listen to their input.

In a recent article, Patrick Caddell, a Democratic pollster, observes there is an increasing inability of executives to admit mistakes, even including both Presidents George W. Bush and Barack Obama, and how unuseful a quality this is in an executive. He says, “As we’ve seen again and again over the past few years, admitting a mistake is almost constitutionally impossible for today’s corporate chiefs and even harder for politicians.

Thomas Bailey Aldrich states in “Ponkapog Papers” (1903), “The possession of unlimited power will make a despot of almost any man. There is a possible Nero in the gentlest human creature that walks.” Thanks, Thomas.

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Today I want to hark back briefly to last week’s blog.

I received some utterly disbelieving correspondence from small business colleagues last week concerning the business mandates in ObamaCare (as well as FinRe) legislation. Well, accept it. It’s for real. Citing again last week’s prime example, it is utterly true that starting in 2011 all businesses must file separate 1099 forms with the IRS to report any purchases totaling more than $600. $600 for paper clips? File a 1099. $600 for a new computer? File a 1099. $600 for toner? File a 1099. $600 for Christmas cards? File a 1099. $600 for coffee? Yup. File a 1099. The National Federation of Independent Business says this will impact 40 million businesses. Congress should call ObamaCare “The Accountants’ Full Employment Act.”

The reason for this onerous bureaucratic burden is that the Congressional backers of ObamaCare hypothesize a ten year realization of new revenue of $17 billion from tax cheats. Well, I pay my taxes and I am all for those lousy tax cheats paying theirs. But, damn, the lost productivity from such madness will be phenomenal. Surely, there’s a better way to raise funds without impeding the free enterprise system.

Suffice it to say that this egregious single example of Congressional overreach (ObamaCare) is one of a plethora of expensive disincentives and distractions for most of us in growing our businesses or adding employees. If unemployment is to decline and this recession is to recede they will do so in tandem with the fortunes of entrepreneurs and small business. Why hamstring us like this? Regardless of your political persuasion, this level of bureaucratic interference is impractical and counterproductive.

As Rev. Henry Ward Beecher said in 1887, “The worst thing in the world, next to anarchy, is government.” Amen, Brother Henry.

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