Where is the Change?

“You cannot solve a problem from the same consciousness that created it. You must learn to see the world anew.” Albert Einstein

I would love to see the economic crisis end. I think we all would. However, I have little faith in President Obama’s economic leaders because they come from the same mindset that caused the problem. They are the consummate insiders trying to restart their broken system.

I believe the root cause can be traced back to Wall Street and financial speculation. As I’ve written before, the solution resides on Main Street, not Wall Street.

Federal Reserve Chairman Ben Bernanke is a fairly traditional economist whose thoughts, beliefs and training have all been from the consciousness that created the problem. The same is true of Secretary Timothy Geithner. Both come from the world of banking that is at the core of this mess and because of their history, have mental models that can only see a solution in that arena. I believe it would be impossible for them to envision a world without our current monetary system (private bank that creates and controls money) or the behemoth financial sector from where they emerged.

As I’ve stated before, much of our financial services sector does little to add real value to our economy. Trading paper is not economic output despite what we’ve been led to believe.

I wonder where we’d be if we stopped focusing on the banks and instead focused on the American people. How far would $9 trillion go towards fixing our economic problems if we targeted that money towards Main Street instead of Wall Street?

I suspect their solution (buying worthless assets with taxpayer money) will cause as many problems as it might solve. I have a real fear of hyperinflation as the government floods the economy with more money to purchase worthless assets from private banks and investors. They’ll get the money, we’ll get the bill and in the end, will have nothing real and tangible to show for it except little pieces of paper.

“Insanity: Doing the same thing over and over again and expecting different results.” Albert Einstein

Economic bubbles

The cornerstone of the CPA profession is independence, integrity and objectivity.  I wish I could tell you that our financial system was going to be okay and that President Obama and our elected and appointed leaders in Washington were going to save the day.  Unfortunately, I'm highly skeptical and I have obligations to my friends, clients, family and readers to share my concerns.  Your future depends on understanding these matters.

Economic bubbles exists when asset price inflation rises beyond what income can sustain.  The ride up a bubble is exhilarating as everyone thinks they've found a fountain of gold and the ride down is devastating, as the economic system collapses and the artificially inflated values people assigned to certain assets retreat to their actual value.

One of the most famous bubbles was the Dutch tulip mania that peaked in 1637.  On the run up, people actually believed a single bulb was worth more than a house.  

We've actually experienced two bubbles in the past ten years (dot.com and housing).  These were partially fueled by cheap credit (corporate, governmental, private).

Ludwig Von Mises (1881-1973), an influential Austrian Economist wrote:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion.

The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

If this is true, current government actions to expand credit (print a $Trillion and get banks lending again) will ultimately lead to the collapse of the US currency.  A collapse occurs when people no longer have confidence in a fiat currency. Historically, thousands of currencies have collapsed.  Given time, is it possible that they all will? 

It would be unfair to freak you out without providing a solution.  The first step is to get educated and then to take action.  Two items I'm imploring you to read/watch are 

1. Chris Martenson's Crash Course.  The first sentence on the home page reads, "Ready to learn everything you need to know about the economy in the shortest amount of time?"  
2. David Korten's Agenda for a New Economy: From Phantom Wealth to Real Wealth

I'm on Chapter 17 of the 20-Chapter Crash Course, and I'm in Section 2 of Korten's book.  

Bullish on Sustainable Business

Our accounting firm is in the process of adding staff which means we are growing. As a new firm, it would be hard to get any smaller but still, I remain bullish on the market sectors and business organizations committed to sustainability.

Why in the face of continued negative economic forecasts am I hopeful? Because I know that humans have and will always have an economy and that the green economy is the economy of the future and will continue to grow accordingly.

While the old economy is changing, the leading green edge is vibrant. For example, here is a recent report showing LEED building starts are up five fold. Here is another story about a research report showing that 2009 will be a good year for green IT. I also suspect part of Barack Obama's economic plan will include a huge capital infusion towards building the green economy of tomorrow.

I meet every day with business owners and entrepreneurs. All of them are concerned about the economy while simultaneously excited about the future. Our job, as business leaders, is to remain hopeful and to build the types of triple-bottom line organizations we will need in the emerging economy.