Fabrice Grinda

A few months ago, I started writing an analysis of our global economic situation that I wanted to present in the form of an optimistic thought experiment. That article has become so long and complicated that it has essentially turned into an economics PhD dissertation. I have shelved it for a while pending a major culling, simplification and rewrite. I still hope to publish it in the coming months.

While doing research for the section on the Euro zone crisis, I came across an article I helped write for Niall Ferguson in 2003 where I argued that the European Union was far from an “optimal currency area” with broadly homogeneous conditions. Moreover, the lack of a fiscal union, cross country labor mobility and the fiscal straightjacket of the Growth and Stability Pact would lead to a crisis.

I wondered if such a crisis was not by design. The European Union project had reached the limit of its democratic mandate. The Maastricht Treaty of 1992 which led to the creation of the euro and created the pillar structure of the European Union had proved extremely hard to get approved. In Denmark they had to hold two referendums to get the treaty through and in France it barely passed with 51.05% of the vote. Similarly, the Treaty of Nice in 2001 was initially rejected by Irish voters until they gave the “right” answer in the second referendum. Similar difficulties ensued with the treaty of Lisbon in 2007 though it was eventually approved and passed into law in 2009. It seemed clear there was no public appetite for further integration.

Knowing that they did not have broad public support for more power seeping from the individual nation states to the European Union, I still suspect the “eurocrats” made do with an imperfect system that, given its limitations, they knew would lead to a crisis. They probably thought that in the face of such a crisis, when faced with the extraordinary costs of a breakup, Euro zone countries would opt for further political and economic integration – even if they lacked the democratic mandate for it.

The recent takeover of Italy by an unelected technocratic caretaker government of bureaucrats led by Mario Monti, and the reforms imposed upon Greece, seem to lend credence to the idea. As far as conspiracy theory goes, this one is far from being “hidden” given that the European Commission president himself at the time, Romano Prodi said that sooner or later “there will be a crisis.”

I am including excerpts from the 2003 article below for your reading pleasure.

“By joining EMU countries relinquished the power to set their own monetary policy, control interest rates and let their economies adapt through foreign exchange rate adjustments. Instead, the power to decide the monetary policy for the EMU countries was handed over to an independent central bank, the European Central Bank (ECB) with a mandate of price stability. The bank sets one rate that applies to all EMU countries.

However, the EU is not what economists call an “optimal currency area” with broadly homogenous conditions. Some countries, such as Italy or Ireland, are unsynchronized with the economic cycles of others like France or Germany. As a result, one monetary policy with one type of interest rates may prove inadequate.

For instance the current short term interest rates of 2.5% are probably too high for France and Germany which are both on the verge of recession and too low for Ireland which has been growing much more rapidly and where inflation is hedging upwards.

This is all the more problematic that, contrarily to the United States, there is very little labor mobility between countries and no systematic mechanism for fiscal transfers to countries and regions that might lose out. Even in the United States where regions suffer asymmetric shocks because of local concentration of particular industries, labor movements, while more fluid than in Europe, are far from costless.

This would be alleviated if countries could use fiscal policy to smoothen the business cycle. However, the very ability to do that is threatened by the Growth and Stability Pact that prevents individual countries from running deficits above 3% of GDP with strong economic penalties in case of breach (as high as 0.5% of GDP). This was driven by the German desire to impose tough conditions for entry to countries such as Italy, Spain and Portugal. Ironically, it is now hurting Germany the most.

Budget deficits naturally increase during recessions. Tax revenues fall as corporate profits decline and national employment declines. Expenses increase as unemployment rosters and thus unemployment benefit outlays increase. Traditional economic policy suggests loosening fiscal policy even more during recessions to “prime the pump” and getting the economy started again. If countries were to follow the Growth and Stability Pact they would increase taxes to avoid breaching the deficit limit. Increasing taxes during recessions is economic folly.

In recent years, in order to avoid breaching the limit both Germany and France have been privatizing companies and counting the proceeds as income. In 1997 France relied on a one-off payment from France Telecom worth 0.5% of GDP to keep it below the limit. So far these one off sales have saved them from the disgrace of breaching the limit. Moreover, both countries have kept tighter fiscal policies than they should have imposing significant costs on their economies.

In 2003 and 2004 with their economies on the verge of recession both France and Germany are set to breach the 3% limit of budget deficit. Ironically, this may actually end up being beneficial. Rather than commit economic suicide both countries have wisely decided to ignore the rules set by the stability pact. The European Commission is unlikely to sanction the two countries that have done most for European integration and may even abandon the Growth and Stability Pact. Ironically, this could allow less disciplined southern countries to also flaunt the rules that were meant to keep them in line to begin with, thus planting the seeds of a future crisis.

Historically the European Union has proven practical and will probably adapt accordingly. However, even the removal of such ill-conceived policies as the Growth and Stability Pact still leaves the European Union at risk from a strong asymmetric shock which will test the Union to the limit. The European Commission’s president himself, Romani Prodi, said recently that sooner or later “there will be a crisis.”

Also, it’s unknown what will happen if a country decides to exit the EMU or the members decide a disobedient country ought to leave. The costs of exit are likely to be very high leaving the most likely outcome as further political and economic integration with mechanism for fiscal transfers between countries.”

It’s remarkable how the situation has changed since I wrote the article. At the time it was Portugal and Ireland that were growing too rapidly and France and Germany that were in recession. In fact, the first two countries that broke the rules of the Growth and Stability Pact were Germany and France in 2004. They were not punished for exceeding the budget deficit limits. The lack of rule enforcement set the stage for the southern countries to brazenly flaunt their budget deficit limits until their excesses led to the current European sovereign debt crisis. It will most likely lead to further political and economic integration, as I predicted in 2003. The ultimate irony would be if the crisis that the eurocrats caused to promote integration actually became so big that it led to the euro’s disintegration instead!

Comments (13)

I just came across this very well thought through article on everything that could go wrong for the US in the 21st century should we continue down the current path.

It covers all aspects of the problem: consumer debt, government debt, tax policy, education policy, immigration policy, political dysfunction, etc.

It should be required reading for all politicians, policy makers and voters!

Read it at: http://www.businessinsider.com/heres-how-a-22nd-century-textbook-will-describe-the-collapse-of-america-2011-10?op=1

Comments (19)

My good friend Auren Hoffman posited that existing nation states would benefit from a little bit of creative destruction and competition to maximize the welfare of their “customers“: http://blog.summation.net/2010/06/the-ultimate-startup-creating-a-new-country.html.

In light of the importance of governance on countries’ economic success I wholeheartedly agree. Bad governance has repeatedly destroyed countries or slowed their growth. We have had many dramatic examples from Mugabe’s destruction of Zimbabwe over the last 15 years to Argentina’s decline from one of the richest countries on a GDP per capita basis to a poor country over the course of the 20th century due to the populist policies of Peron and his successors. The extent to which bad policies and politicians can impact economic outcomes is disheartening and I hope that current American politicians ponder the lessons of history!

While we were brainstorming the idea, we came across an interesting article in the Atlantic by Paul Romer which suggested that poor countries should have foreign run “charter cities” within their borders: http://www.theatlantic.com/magazine/archive/2010/07/the-politically-incorrect-guide-to-ending-poverty/8134/?single_page=true

While the specifics of his idea don’t feel right – I loved the example of Henry the Lion who created a merchant’s Mecca out of Lübeck and transformed it from a backwards city in a failed region with a “bad-governance equilibrium” into a resounding success through light taxation and regulation:

“Onerous taxes and trade restrictions were ruled out; merchants who settled in Lübeck would be exempt from duties and customs throughout Henry the Lion’s lands, which stretched south as far as Bavaria. The residents of Lübeck were promised fair treatment before the law and an independent mint that would shelter them from confiscatory inflation. With this bill of rights in place, Henry dispatched messengers to Russia, Denmark, Norway, and Sweden. Merchants who liked the sound of his charter were invited to migrate to Lübeck.

The plan worked. Immigrants soon began arriving in force, and Lübeck became the leading entrepôt for the budding Baltic Sea trade route, which eventually extended as far west as London and Bruges and as far east as Novgorod, in Russia. Hundreds of oaken cogs—ships powered by a single square sail—entered Lübeck’s harbor every year, their hulls bursting with Flemish cloth, Russian fur, and German salt. In less than a century, Lübeck went from a backwater to the most populous and prosperous town in northern Europe. “In medieval urban history there is hardly another example of a success so sudden and so brilliant,” writes the historian Philippe Dollinger.

Perhaps the only thing more remarkable than Lübeck’s wealth was the influence of its charter. As trade routes lengthened, new cities mushroomed all along the Baltic shore, and rather than develop a legal code from scratch, the next wave of city fathers copied Lübeck’s charter, importing its political and economic liberties. The early imitators included the nearby cities of Rostock and Danzig, but the charter was eventually adopted as far afield as Riga and Tallinn, the capitals of modern Latvia and Estonia. The medieval world had stumbled upon a formula for creating order out of chaos and prosperity amid backwardness. Lübeck ultimately became the seat of the Hanseatic League, an economic alliance of 200 cities that lasted nearly half a millennium.”

Paul Romer’s idea, while intriguing, does not feel right because in our nationalistic world sovereignty and land ownership are explosive issues. Creating cities with new foreign-run rules might solve the trust and credibility problem that many developing countries face as well as attract investments and jobs if people felt the charter would hold. However, it does not seem likely that countries would be willing to lease chunks of their land to foreign powers. The Madagascar example suggests it’s not likely to happen. Besides, Lübeck did not have foreign rule. There is no way Henry the Lion would have let a foreign ruler take charge.

I suspect that a large purchase of land from a poor country in an unpopulated area, most likely in Africa, might work if the new country’s sovereignty could be enforced.

I look forward to seeing some experimentation on the idea in the future!

Non sequitur: One of Paul Romer’s research papers in the early 90s was the inspiration for my junior paper at Princeton: Tariff Policy with Differentiated Products. Mathematically inclined readers wishing to assuage their curiosity can check it out :)

Comments (11)

Great interview of Nouriel Roubini and Ian Bremmer in Foreign Policy.

Read it at: http://www.foreignpolicy.com/articles/2011/08/05/just_how_bad_is_bad

Comments (1)

Over the last two weeks I had the pleasure of attending the eG8 Summit in Paris at the invitation of French President Nicolas Sarkozy and being invited to tea with David Cameron, the Prime Minister of the UK, at 10 Downing Street. I wanted to share my reflections on both experiences.

The fact that Sarkozy got 1,000 Internet entrepreneurs together in Paris in less than 6 weeks was actually a very impressive feat. Moreover, the who’s who of the Internet was there: Mark Zuckerberg, John Donahue, Eric Schmidt, Sean Parker and many others!

McKinsey started by sharing the findings of a very interesting study they did on the Internet where they showed that:

• For every job destroyed by the Internet, it creates 2.6 jobs
• The Internet accounted for 3.7% of GDP in the countries they surveyed
• The Internet was one of the fastest growing components of GDP in the countries surveyed

Sarkozy then gave a very eloquent speech where he stressed the importance of the Internet to France and as a force for liberty and freedom around the world as displayed during the Arab uprisings. Unfortunately, this is where my compliments end.

Sarkozy kept emphasizing how important it was for the Internet to be “civilized” (e.g.; regulated) and for intellectual property to be protected. The conference itself was boring as the old guard was talking to and at the entrepreneurs rather than talking with them. Worse, the smaller working “forums” were useless as the concluding slides had been written before the conference and their content in no way reflected the discussions in those forums (if anything, they said the exact opposite)! All the political “conclusions” had been reached before the conference even started!

The French government was not ready to heed the advice of the delegates. Eric Schmidt suggested: “Technology will move faster than governments, so don’t legislate before you understand the consequences. You want to tread lightly in regulating brand new industries. The trend is that incumbents will block new things … nobody who is a delegate here would want Internet growth to be slowed by some stupid rule.” American journalism professor Jeff Jarvis stood up and asked Sarkozy to take a “Hippocratic oath” for the Internet: first, do no harm. In response, the president of France said “of course,” but couched his reply in terms that address the need to protect security and privacy.

The event had no real point and seemed merely to be a photo opportunity of Sarkozy chatting with Internet leaders under the pretense he consulted the industry before passing any laws. From a content perspective LeWeb is much more interesting! Fortunately, the networking opportunities at eG8 were great and I took advantage of the opportunity to catch up with all my good French Internet friends.

The meeting at 10 Downing Street with Cameron could not have been more different. There were less than 100 Internet entrepreneurs, but all extremely relevant (which made it much more productive). Moreover, Cameron came in saying: “I disagree with Sarkozy’s conclusions and there are three things I want you to know:

1. The Internet represents the future of economy and is a great driver for growth and we want your companies in the UK.
2. We understand we don’t have the best environment yet, but are working hard putting in place the right and extremely friendly environment from a regulatory and tax perspective.
3. I have a great team of advisors here to help, lean on them as much as you want.”

Instead of Sarkozy’s: “We want to tax, regulate and control you”, it was: “We want to set you free to do whatever you do best and let your creative spirits run wild!”. The contrast is all the more farcical as France just banned the use of the words Facebook and Twitter on TV to the astonishment of every Internet entrepreneur in the world!

Even their personal styles could not have been more different. Sarkozy’s mannerism and tone reek of condescension and arrogance. By comparison Cameron was jovial, approachable, light hearted and self-deprecating: “I sat between Obama and Zuckerberg at the G8 and could not believe I belonged in the room!”

No wonder Loic is seriously considering moving Leweb to London: Cameron’s team is offering to help while the French government seems intent on competing with him!

The conclusion is ineluctable: Cameron rules, Sarkozy sucks! Now if the Brits could just do something about the weather in London, I might even consider moving there :)

Comments (8)

I recently wrote how the world is less globalized than we suspect it is and how we now spend $88 billion a year in visa processing fees. What is not included in this figure is the extraordinary opportunity cost of time and inefficiencies imposed by the visa obtaining process. I recently experienced a telling experience which illustrates the differences between China and India.

OLX is present in both countries and I typically visit both countries every year. China unfortunately requires a visa for French citizens but has a very efficient process for obtaining and delivering it. You can pay a surcharge and obtain it the same day from their visa processing center on 12th avenue and 42nd street in New York. The processing center is very well staffed and even where there are many people in line, you rarely wait more than 30 minutes.

India by contrast makes it an ordeal to get a visa. I was supposed to keynote an Internet conference in Mumbai last December. I started going through the process in October. The application required my French birth certificate, notarized and apostilled in France, which as you can imagine is extremely difficult and time consuming to obtain from the US. It required a formal letter inviting me to India. It required a notarized copy of my visa for the US and copies of various bills proving my residence in the US. You then apply through a visa processing center where even the expedited process takes weeks during which they have your passport and you can’t travel anywhere!

You first apply online, which you need to do at least 5 times given the lack of proper instructions regarding specific requirements which seemingly vary on a case by case basis! To drop off the application you then have to wait in line for hours in front of the processing center. Several times, after waiting for 3+ hours they simply closed down the center saying there were too many people in line, asking us to come back again the next day!

Worse, it is basically impossible to get anyone on the phone at the visa processing center to get the status of your application. After several weeks of harassing them, they told me that my application was on hold because my new visa for the US was less than a year old and they would need notarized copies of all my past visas to prove the continuance of my US residency. I duly provided the required documentation and again waited for weeks before being told that because there was a gap of 6 weeks between two of my visas, I could not apply in the US and would have to apply at the Indian embassy in Paris! The fact that I live in the US and that I had no intent or reason to go to Paris did not dissuade them! By the time I finally got my passport back the conference had passed!

I pushed my trip back to late January, asked a good friend of mine in India to write a letter saying he was looking forward to hosting me during my vacation there and reapplied for a tourist visa. This time I had all the documents on hand and two weeks later, I had my visa.

Granted it is hard for Indians to get European and American visas, but imposing “reciprocity” with such complexity is insane and self-defeating, especially if it is the representation of Indian bureaucracy in general! Driving through the streets of Shanghai and Delhi, you can’t help but wonder how less stark the contrast would be if India streamlined its bureaucracy!

Comments (7)

As I was reading The Upside of Irrationality, Dan Ariely’s sequel to the brilliant Predictably Irrational, I started wondering whether there were macro implications and applications for behavioral economics and specifically to the concept of hedonic adaptation.

As I described over the years in my musings on happiness, hedonic adaptation is the process by which we rapidly adapt to changes in our life circumstances and return to our mean level of happiness. Because we disregard its existence, we humans are particularly bad at predicting how positive and negative changes in our lives will affect our happiness. People in Michigan predict that people in California will be happier than they are given the weather. Empirical evidence suggests that a move to more clement weather does temporarily improve people’s happiness, but their happiness level rapidly reverts to the mean as they get used to the gorgeous weather. Likewise, when asked to predict how they would react in the face of negative events such as losing the ability to use their legs, people underestimate their ability to cope. They predict they would be miserable forever while research suggests that after an initial dip in happiness, people rapidly revert to their mean level of happiness.

Behavioral economics suggests ways to delay or speed up our adaptation. If you are considering indulging yourself by buying a new wardrobe and plasma TV for instance you are better off spacing the purchases. Likewise, if you are receiving a massage, you are actually better off interrupting it for a few minutes in the middle.

The reverse applies to negative changes in your life, especially economic cutbacks. People intuit that they should spread the pain, but research suggests that are much better off reducing consumption all at one. In other words, you should move to a smaller apartment, give up cable television and cut back on expensive coffee all at once rather than in increments. The initial amount of pain will be higher, but as we rapidly adapt to our circumstances, the total amount of agony will be lower.

It strikes me that our society and politicians have been making the wrong choices over the last few years in terms of economic policies as we seem unable to take a bit more pain in the near term and thus end up enduring pain for much longer than we might otherwise have to. It was not always the case. In 1981, when Paul Volcker increased the Feds Funds Rate to up to 20% in June 1981, he plunged the US in a deep recession increasing the unemployment rate from 5.8% in 1979 to 9.7% in 1982. However he tamed inflation which peaked at 13.5% in 1981. By 1983, inflation was lowered to 3.2% and the stage had been set for a period of sustainable growth.

More recently though we have artificially propped up many sectors of the economy through bailouts, subsidies and policies which delay those markets reaching equilibrium. We thus create an impression of continued economic malaise as these markets slowly reach equilibrium. In other words, we have longer lower level pain instead of more pain for a shorter period of time.

Even assuming that the total amount of pain is the same in the case where we let markets clear on their own versus propping them up and it’s just the intensity and duration that changes (and I suspect that it’s not), we are clearly making the wrong choice. The continual arrival of bad news prevents us from adapting to our circumstances and we are thus suffering much more than we would otherwise if we had experienced the entire negative outcome in a brief period of time. Moreover, I suspect that continued arrival of negative or mixed economic news is detrimental to society at large and not just for those who have lost their jobs and/or home as the economic uncertainty makes them fear for their own well-being. In other words it’s better to have brief deeper recession than 20 years of Japan like stagnation.

This is not to say we should not act when the economy is in recession. Running counter cyclical fiscal and monetary policy has proven effective time and time again. The issue has more to do with policies that prop up real estate, car manufacturers, and banks, and delay the inevitable reform of public pensions and our overall fiscal adjustment. Despite the potential for moral hazard, you actually can’t let your financial sector go out of business because it is the engine of credit creation without which you don’t have an economy. My concern is less with the need to bailout banks (unfortunately we had to), but the fact that we did not do a good job at cleaning their balance sheets. Instead of disposing of most of their toxic assets with a good bank / bad bank approach (or a number of approaches with the same outcome), we are hoping to let them earn their way out of the problem by keeping short term interest rates low (banks make a lot of money in low rate environments because their borrowing decrease which increases the spread with the rate they earn on the long term loans they made). The result is not dissimilar to the zombie bank problem that infected Japan for the last twenty years. It took twenty years for these banks to clean their balance sheets and start lending again. Credit creation remains broken in the US and might worsen if housing takes a turn for the worse, which it very well might as we don’t seem to have reached the market clearing equilibrium as suggested by continuing price decreases.

Likewise, the entire slew of policies enacted to stem the decrease in housing prices have merely delayed many foreclosures, price decreases and decreased labor mobility as people have stayed in their home longer than they should in the hope of a price recovery. Instead of seeing a rapid adjustment to the market clearing price and acting accordingly, homeowners are enduring agonizing small decreases in prices year after year. Again, in this, we seem to be copying the Japanese example where house prices fell a few percent a year every year for 18 years from 1989 to 2007. In the end residential real estate prices fell over 90% in Tokyo between 1989 and 2007 and commercial real estate fell over 99% in some cases!

As our politicians and public unions face fiscal retrenchment, they should really focus on decreasing human misery by making more cuts and adjustments upfront rather than spreading them little by little over many years.

Hedonic adaptation is one of the most powerful tools at our disposal for stemming human misery. Let’s make the most of it!

Comments (9)

I was shocked that the statistics I came across in a recent article in The Economist which presented Pankaj Ghemawat’s research on globalization.

We seem to take it as a given that we live in a globalized world, but on many indicators global integration is far from complete:

• Only 2% of students are at universities outside of their home countries
• Only 3% of people live outside their country of birth
• Only 7% of rice is traded across borders
• Only 7% of directors at S&P 500 companies are foreigners
• A few years ago less than 1% of all American companies had any foreign operations
• Exports only represent 20% of global GDP
• Air travel is restricted by bilateral treaties and ocean shipping is dominated by cartels
• Foreign direct investment (FDI) accounts for only 9% of all fixed investment
• Less than 20% of venture capital is deployed outside a fund’s home country
• Only 20% of shares traded on stock markets are owned by foreign companies
• Less than 20% of Internet traffic crosses national borders

More worryingly globalization seems reversible. Emigration levels today pale with those 100 years ago when 14% of Irish-born people and 10% of native Norwegians had emigrated. Back then you did not need visas. Today the world spends $88 billion a year on processing travel documents and in a tenth of the world’s countries a passport costs more than a tenth of the average annual income. Nearly a quarter of North American companies shortened their supply chains in 2008. It takes three times as long to process a lorry-load of goods crossing the Canadian-American border as it did before September 11th 2001. Even the internet is succumbing to this pattern of regionalization, as governments impose a patchwork of local restrictions on content.

Read the full article at: http://www.economist.com/node/18584204?story_id=18584204

Comments (2)

I posted a while back a written transcript of the speech.

Stephen Meade recorded the speech and was nice enough to share it with me.

Comments (0)

I wanted to share with you something that has been on my mind lately as I have been suffering from a severe case of cognitive dissonance.

I am the most optimistic person I know. I suppose it comes with the territory if you are an entrepreneur. If the 5 year survival rate of startups is below 5%, you have to delusionally believe the odds do not apply to you. My optimism is actually more fundamental than that – despite the fact that individuals are mostly petty, small minded, selfish, self centered and egotistical, humanity has accomplished amazing things – we’ve created artistic masterpieces, eradicated horrible diseases, put people on the moon and invented awesome devices like iPhones. The life that most of us live today would put the lives of kings of yesteryear to shame! Better yet, this progress shows no sign of abating and I look forward to experiencing all the wonderful and amazing things that Ray Kurzweil and Aubrey de Grey predict the future has in store for us. In other words, I am fundamentally optimistic about the long term future of humanity.

The problem is that the economist in me is profoundly pessimistic about our short and medium term economic outlook. During the past 2000 years every financial crisis has been followed by a fiscal crisis. During the last few years people have talked about how we have been deleveraging. The problem is that it’s not true. Companies and individuals have deleveraged but as a country, we have not deleveraged. We moved leverage from the individual and corporate balance sheets to the government balance sheet and if anything we’ve become more levered as the government has borrowed at unprecedented rates. Moreover, the imbalances that got us into the crisis are far from being resolved.

The federal government deficit is clearly not sustainable. When faced with such dire fiscal position there are three potential solutions. We can grow ourselves out of it as happened after World War II which allowed us to repay our war debts. We can attempt to inflate our debt away. Or, more likely given the current deflationary pressures the economy is facing, we can make the painful economic realignments during a deflationary period. Note that by deflationary period, I don’t mean that we will actually experience deflation, just that our growth will be below potential.

To give you a sense of what the economy is up against: the job losses have been far more severe than during any recession since World War II hampering consumer demand. There is $1 trillion in commercial real estate debt that is underwater and needs to be rolled over in the next few years. A quarter of households have negative equity in their houses. Credit creation is still broken. People are showing bailout fatigue. The politics seem massively deflationary. In Europe, Ireland, Latvia, Greece, Portugal and Spain are undergoing austerity measures with increased taxes and decreased spending in the middle of a downturn. The same is happening in the US at the state and city level where states like California are basically bankrupt. China is now doing its best to burst some of the bubbles that are forming there potentially taking away the world’s last growth engine. Any of those alone could mean a few years of subpar growth, but together they seem to suggest that the most likely outcome is a Japan like scenario of 5 to 10 years of subpar growth with a real risk of a second downturn. That’s excluding other exogenous risks like an oil crisis potentially caused by Israel bombing Iran, Iran invading Bahrain as it faces becoming an oil importing nation or a global sovereign debt crisis which could push long bond yields way up even on US, Japanese and/or UK debt.

What does this mean for all of us? As consumers we should be careful with large purchases and generous to those less fortunate than ourselves, as entrepreneurs we should be careful with our burn rates and raise more money than we would typically raise and as policymakers we should be mindful of the long term consequences of our policies.

To end on a positive note, if we have one shot of growing ourselves out of this, it will be because of the energy, passion and ingenuity of people like you! So, as Ted Turner’s advisor said: “all seems lost, but you never know!”

Thank you!

Comments (8)