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Archive for the “Debt” Category

I was struck by a David Brooks op-ed in the New York Times this spring (3/10/11).  Brooks starts his column with this statement, “We’re an overconfident species.  94% of college professors believe they have above average teaching skills.  A survey of high school students found that 70% of them have above average leadership skills and only 2% are below average…[Recently] 80% of high school seniors said they were “a very important person.”

I went back to Mr. Brooks article as I watched dumbfounded the debt debacle debated last week in Washington.  The fear was palpable among politicians of both parties that if they don’t let Americans continue to have their cake and eat it to, they will be voted out out of office.  The assumption being that we have become a nation of spineless, self-seeking individuals incapable of responding to larger issues of communal sacrifice and the greater good.

This spiritual arrogance has been written about extensively by Dr. Jean Twenge and Dr. W. Keith Campbell.  They say, in their introduction to The Narcissism Epidemic (April, 2009, Free Press, a division of Simon & Schuster),

“On a reality TV show, a girl planning her Sweet Sixteen wants a major road blocked off so a marching band can precede her grand entrance on a red carpet.  Five times as many Americans undergo plastic surgery and cosmetic procedures a ten years ago, and ordinary people hire fake paparazzi to follow them around to make them look famous.  High school students physically attack classmates and post YouTube videos of the beatings to get attention.  And for the past several years,  Americans have been buying McMansions and expensive cars on credit they can’t afford.”

David Brooks wonders if the rise of consumption and debt is influenced by an increasingly grandiose citizenry who desire to adorn their lives with the things they feel befit their station.  Brooks says, “I wonder if the rise in partisanship is influenced by a narcissistic sense that, ‘I know how the country should be run and anybody who disagrees with me is just in the way.'”  Brooks conjectures a link between a generational “magnification of the self and a declining saliency of virtues associated with citizenship.”

(For example, I have always felt that a practical humility is my best friend in objectively dealing with the daily challenges of entrepreneurship.  Last year one of my clients sent me a book called “Crush It” by Gary Vaynerchuck.  While Mr. Vaynerchuck is clearly a smart cookie in terms of internet technology and the wine business, the hegemonic arrogance of the title (and frequently in the body of the book itself), struck me as unusefully self-aggrandizing and self-serving in an entrepreneur, not to mention in terms of being a salutary corporate citizen and resident of the larger body of humanity.)

Mr. Brooks concludes his column with the following:

“Perhaps the enlargement of the self has also attenuated the links between the generations.  Every generation has an incentive to push costs of current spending into future generations.  But no generation has done it as freely as this one.  Maybe people in the past had a visceral sense of themselves as a small piece of a larger chain across the centuries.  As a result, it felt viscerally wrong to privilege the current generation over the future ones, in a way it no longer does.”

Thank you, David Brooks.

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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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