China’s Next Crisis Lurks in Shadow Banking

As with most of the world economies, China is dealing with a growing debt problem, but the continuing use of shadow banking is causing more harm than good. Over the past few years the number of unregulated loans, investments, and financial products, has doubled. The value of this so called shadow banking industry is expanding and currently sits around 70 percent of China’s total GDP; upwards of 35 trillion yuan. There are several risks that this form of banking carries and the question that most economists and analysts are wonder is, how much of this capital must be covered by the national government. As the economy slows and businesses and local governments still have debt obligations many of them turn to shadow banking, with sometime exorbitant interest rates, to service their prior debt payments.

The official debt numbers of the various government departments sits around 30 percent of total GDP, but many analysts estimate that the true debt rate of governments, consumer, and corporations exceeds 200 percent of GDP. With no plan of action to remedy this problem, it is likely to get worse before it gets any better.

The shadow banking industry is involved in all aspects of corporate, consumer, and government, from prestigious securities firms to individuals at pawn shops. The shadow banking establishments are designed to offer borrowing and investment funds to people or organizations that want to circumvent the debt quotas or interest rate caps, because they are in dire need for the funds. The development and reliance on trusts has created organizations that are able to lend money out at rates of interest that exceed reasonable and official rates so that corporations can survive a little while longer. While the trusts usually make great returns for their investors, this profiteering is leading to a destabilization of the local economies.

Looking for Business in All the Wrong Places

Jerry’s web marketing business swung between super for two or three weeks to strangely quiet with new business the next month… or longer. Because the clients signed on for six-to-twelve month contracts, there was work to do with optimizing site structures, competitive research, building and configuring special search engine-friendly site maps, and all the rest. However, the growth of the business was a serious concern for Jerry and his loyal project managers, as well as cash flow, as new clients brought in the most new revenue.

When I sat down to talk with Jerry about his growth plan, he started to tell me how with only a few hundred thousand dollars, he could open additional sales offices in the suburbs of major cities, where many white collar businesses operate. “Great,” I said after he had gone into more details and further away from his day to day concerns. “Just tell me what you would train your sales force to say and who you would have them say it to as a first step in building your sales pipeline.”

Jerry looked at me with a flash of sternness in his eyes. That was enough to let me know the four word challenge would be coming up soon enough. Then he launched into what I call the “inevitability sales pitch.”

The Economic Clock Has Malfunctioned

Clocks are suppose to enable us to tell the time. Before the clock a sundial was used. The sundial had one problem in that when the day was cloudy, it was hard to tell the time. The sundial basically relied upon casting a shadow across a circle that had markings which designate the time of the day.

The economic clock is supposed to be a reliable means of telling what investment is the best investment to be in at the current time in the economic cycle. However, what might have seemed to be a reliable means of telling the what the market was doing for the last 200yrs appears to have come unstuck. This is because the clocks predictions were based on a model that virtually only included Europe and and North America, with the additions of Japan, Taiwan, South Africa and Australasia.

Most of the world’s population was largely excluded from wealth and economic growth that affected these first wold economies. The second world economies included the Russian Communist Countries, China and India and Arab countries. The third world was seen as Central and South America, Africa and parts of South Asia.

The Immigrant Experience: Economic Issues Affecting Migrants

Several days ago, the Commerce Department reported that May’s factory orders had increased by a 2.9 percent. This was well covered by ‘the press’, as it was to be a positive influence on ‘the market’ (yes, the quotes are intentional…..you’ll see why). The enthusiasm was understandable – the $394 billion in orders of manufactured goods is the highest level seen since the current calculation method was adopted. Although being skeptical can be wise, the figure was (and is) a clue that the economy is on a solid footing. However, too many times there’s a disconnect between what ‘should’ be the result of a piece of economic data, and what actually occurs. The economy isn’t the market. Investors can’t buy shares in factory orders……they can only buy (or sell) stocks. Regardless of how strong or weak the economy is, one only makes money by buying low and selling high. So with that, we put together a study of some of the economic indicators that are treated as if they affect stocks, but really may not.

Gross Domestic Product

The chart below plots a monthly S&P 500 against a quarterly Gross Domestic Product growth figure. Keep in mind that we’re comparing apples to oranges, at least to a small degree. The S&P index should generally go higher, while the GDP percentage growth rate should stay somewhere in between 0 and 5 percent. In other words, the two won’t move in tandem. What we’re trying to illustrate is the connection between good and bad economic data, and the stock market.

Take a look at the chart first, then read our thoughts immediately below that. By the way, the raw GDP figures are represented by the thin blue line. It’s a little erratic, so to smooth it out, we’ve applied a 4 period (one year) moving average of the quarterly GDP figure – that’s the red line.

Staffing For The New Economy

Staffing your office in this new economy has never been more challenging. Posting on job boards will get you hundreds of non qualified candidates that will waste valuable time for your already limited office staff. You may have already faced some of the challenges listed below.

Do you have current employees that you should replace but do not have the time and/or ability to do it in secrecy?
Are you wasting time talking to applicants who can’t follow directions, show up dressed inappropriately, or just don’t qualify?
Do you have a current database filled with 14,000 candidates that were previously interviewed to assist your screening process?
Are new employees drug screened, background checked, and is past employment being verified?
Do you have a plan for the H1N1 (swine flu) outbreak when it attacks your office?
Are immigration laws being followed so Sheriff Joe does not pay a visit to your facility?

Many staffing companies claim that they perform duties you take for granted. What would you do if you had a legal issue and your staffing company was not doing the proper due diligence? Most companies believe in error, that this will be a problem for the staffing vendor. THAT IS INCORRECT. The company will be the ultimate backstop for any litigation. Deeper pockets (your company?) require protection from the staffing company doing the job you pay them to do. Please make sure you ask your staffing vendor for a ‘shadow file’. This is file that shows you the completed work on the candidate, including pre-employment drug screen. This way you will be sure your investment is being put to good use.

Units of Capitalism at the Dawn of Globalization

In 1954 America, the average middle class family had one black, metal telephone wired to a wall near the kitchen, one car with no seatbelts or GPS system, and one television receiving a handful of free, snowy channels from an antenna on the roof. By most measures, fifty years is not a long time, but in America, fifty years can be precisely measured in price tags, pie charts, top-ten hits, hairstyles, hemlines, movies, TV commercials, and a decade-by-decade calendar of trends and products we created, manufactured and sold to each other. In the developed world, America represents the best working model of capitalism and free enterprise. Muddled by our democratic process, and flawed by its inherent inequalities, our interpretation of capitalism is the most influential economic force in the global community.

Fifty years has so many markers in our country because in our economy change must rule the day. Change means new ideas, new products, new jobs, and new money to fuel new ideas. One of the downsides of the system, however, is that people become so consumed by the process of managing their own complex lives, that they lose perspective of their true context as elements of the economy, and by extension, as a nation in the global community.

In America, the emphasis on today is trend economics by design, but it is important to step back and include the valuable lessons of history in today’s thinking. This is a nation built on the pursuit of ideals, and strengthened by the ingenuity and diverse fabric of its society. A nation of immigrants that became a nation of Americans with many faces, in a world of nations that became a global community. The realities that flow from these truths are the foundation of the future for an America that is no less capable, but as a society, perhaps less able to see the bigger picture, and less willing to evolve. This is no more evident than in the debate over who gets the jobs of American companies. It is less a question of entitlement than a matter of understanding history and of how our economy works. A system that demands more of everything to survive cultivates a society of individuals that functions on the same premise. The very nature of capitalism imposes powerful influences and pressures on society to achieve and consume, but in that process the broader context of issues is over-shadowed by an ever-narrowing focus on achieving personal goals. Objectives become expectations; opportunities become entitlements.

Reinventing Business For the New Economy

Many commentators are saying that the recent economic downturn is not just another recession but a “resetting” (or “rebooting”) of the economy. There are a number of different reasons for such statements, and they tend to vary according to any commentator’s personal interests or field of expertise. This in no way invalidates them, but you do need to be careful how you interpret them.

You see, any recession is, virtually by definition, a resetting of the economy. Furthermore resetting an appliance or rebooting a computer implies that the device will effectively sort itself out and restart quite normally. There is no clear expectation of change from this analogy. Thus there is a danger in glibly accepting it, for without any shadow of doubt, this economic crisis presages change. We simply cannot afford to continue the way we were going.

In previous recessions the remedy has been to spend our way out of trouble. This has been facilitated by stimulating borrowing. Cheap credit has encouraged optimism and fueled growth. In this instance, however, excessive lending caused the recession and makes that a more risky strategy. You can argue that excessive borrowing is the cause of all recessions, but this one is different because the amounts borrowed to rescue the failed banking system have created unprecedented levels of debt. This limits the potential for future borrowing. Consequently, there is no longer the same scope to grow through additional borrowing. You could say that there will be a new normal for the amount of trade that will be possible and it is likely to be considerably lower than the pre-recession trade levels.