Enlightened Economics

Economics for an Enlightened Age

Posts Tagged ‘Ethical Investing’

• Severe Debt Scarcity Coming to US

Posted by Ron Robins on December 30, 2010

By Ron Robins. First published December 26, 2010, in his weekly economics and finance column at alrroya.com

If US consumers believe it difficult to borrow now, just wait! In the next few years credit conditions are likely to go back seventy years when private debt was difficult to obtain. Most Americans intuitively believe there is too much debt at every level of society. But the economic and political vested interests do not want them worried about that. They want to give them credit to infinity to keep this economic mess from imploding. The US Federal Reserve’s new round of quantitative easing (QE2) is clear evidence of that. However, Americans are right about their inordinate debt load, and future economic conditions are likely to create a severe debt scarcity.

The principal reasons for the coming debt scarcity are that ‘debt saturation’—where total income cannot support total debt—has arrived, say some analysts; also, the growing understanding that adding new debt may not increase GDP—it could decrease it; and that the banks and financial system are a train wreck in waiting, eventually being forced to mark their assets to market, thus creating for them massive asset write-downs and strangling their lending ability.

The realization that debt saturation has arrived will not surprise many people. But understanding that new debt can decrease economic activity might surprise them. And the numbers illustrate this possibility. In Nathan’s Economic Edge, Nathan states, “in the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!”

In fact Nathan also shows that for decades, each new dollar of debt produces less and less in return, from a return of close to $0.90 in the mid 1960s to about $0.20 by 2007. One explanation for this is that as societal debt increased it focused disproportionately on consumption rather than productive enterprise, whose return appears greater.

On the subject of consumption, the renowned economist David Rosenberg in The Globe & Mail on August 16 stated that “U.S. household debt-income ratio peaked in the first quarter of 2008 at 136 per cent. The ratio currently sits at 126 per cent, but the pre-2001 norm was 70 per cent. To get down to this normalized ratio again, debt would have to be reduced by about $6-trillion. So far, nearly $600-billion of bad household debt has been destroyed.” This data reaffirms Americans growing aversion to debt, that debt has become too onerous, and is suggestive of debt saturation.

Replacing declining consumer debt is the exponential growth of US government debt. For 2009 and 2010, the combined US government’s fiscal deficits required or require borrowing an extra $2.7 trillion or so. Yet with all that spending—combined with about $2 trillion of ‘money printing’ from the US Federal Reserve (the Fed)—it created only around $1 trillion in increased economic growth!

One may argue that the phenomenal US government borrowings will provide returns far into the future and that the present low economic returns are due to not funding areas with potentially better returns. Some economists say that spending on infrastructure and education provides the best returns. However, with economists such as Nobel Laureate Paul Krugman and numerous others predicting huge continuing deficits for years ahead, and with a Japan-like slump in economic activity, the odds are likely that any new borrowed dollar will continue to provide only poor returns for years to come.

A further, major reason for the coming debt scarcity will be the tremendously impaired financial condition of the banks. The values assigned to many bank assets are fictional according to numerous experts. QE2 is about many things but one of them is aimed at delaying the potential for implosion of the banking system. In 2009, the Financial Accounting Standards Board (FASB) caved in to government and banking industry lobbyists to allow many bank assets to be ‘marked to fantasy’ and not ‘marked to market.’

This viewpoint is best expressed by highly respected Associate Professor William Black (and formerly a senior regulator who nailed the banks during the savings and loan debacle) and Professor L. Randall Wray, who wrote an article on October 22 in The Huffington Post, entitled, “Foreclose on the Foreclosure Fraudsters, Part 1: Put Bank of America in Receivership.” They wrote that, “FASB’s new rules allowed the banks (and the Fed, which has taken over a trillion dollars in toxic mortgages as wholly inadequate collateral) to refuse to recognize hundreds of billions of dollars of losses. This accounting scam produces enormous fictional ‘income’ and ‘capital’ at the banks.”

However, the Federal Reserve may be realizing that it might not have been such a good idea to buy some of these ‘toxic’ securities. Bloomberg reported on October 19 that, “citing alleged failures by Countrywide to service loans properly… Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.”

Also, on November 2, CNBC reported that Citigroup could be liable for huge amounts of toxic security buy-backs as well. “If all four mortgage acquisition channels turn out to be equally as defective… Citi’s liability for repurchases could soar to about $100 billion dollars at a 60 per cent defect rate – and to around $133 billion dollars at an 80 per cent defect rate.”

Clearly, such numbers are staggering. These, as well as many other banks and financial entities, could collapse. Politically, in the present circumstances, it would be difficult for the US government to provide massive new funds to support the financial system. Therefore, it will be up to the Fed to decide what to do.

If the Fed prints ever increasing amounts of new money to try to moderate the financial collapse, hyperinflation could be the result. If it does not print massive amounts of new money, a deflationary depression could be born.

In high inflationary or hyperinflationary conditions, few will want to lend as they get paid back in dollars that are declining very rapidly in value. In a deflationary episode, lending is reduced due to huge loan losses. Therefore, during either, and/or after such events, debt scarcity will be in full force.

Data indicates that American consumers do not want to increase their debt. Debt saturation is occurring, and with it a declining return on each borrowed dollar—even for the US government. Most significantly, the banks and the financial system will probably soon experience a new round of massive real estate related losses and subsequent financial institutions’ bankruptcies. Thus, a new major financial crisis will likely soon engulf America, greatly impairing its lending facilities and creating a severe scarcity of debt.

Copyright alrroya.com

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Posted in Banking, Economics, Monetary Policy | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a Comment »

• Cultural Creatives to Dominate in the Age of Enlightened Economics

Posted by Ron Robins on May 22, 2008

For many years I have envisioned the possible psychological archetype of individuals in the coming ‘Enlightened Economics’ era. After much thought and research, I believe it is likely to resemble that of what sociologist Paul Ray calls the “Cultural Creative.” He coined the term back in the 1990s after performing two extensive surveys on Americans’ psychological values for the U.S. Environmental Protection Agency (EPA) to help understand and categorize Americans’ values to assist in the development of their environmental policies.

Who are the Cultural Creatives (CCs)?
In 2000, Dr. Ray co-authored with Sherry Ruth Anderson the book, Cultural Creatives (CCs), where they describe CCs as caring “…. deeply about ecology and saving the planet, about relationships, peace, and social justice, about self-actualization, spirituality, and self-expression.” They suggested that in the year 2000 there were more than 50 million CCs in America (about 25 per cent of the U.S. adult population) and a further 80-90 million in Europe. In a private conversation I had with Dr. Ray in 2002, he indicated that CCs could dominate western populations as early as 2020. I believe a case could now be made that this will occur much earlier than that.

Spiritual and personal development were at the centre of the values of the founding ‘core’ CCs. Referring to the early development of CCs, Dr. Ray and Ms. Anderson state, “As the ranks of beginners kept growing [in the 1960s], hundreds of thousands stayed with the process and went deeper. By the 1980s, the ‘movements’ numbers had swelled to a million or so, and by the 1990s, tens of millions were involved… But the consciousness movement-full of contradictions, shallow and deep, bubbling with new developments-is still in the phase of accelerating growth.”

CCs imbibe the values of Enlightened Economics
As explained in my various posts (The Missing Ingredient in Economics — Consciousness; Retiring the GDP (Gross Domestic Product, etc.) the fundamental shift I envisage in individual consciousness is towards that of global ecology, spirituality and social justice. This fits very well with the definition of CCs.

Though Dr. Ray has not completed further surveys in recent years as to the growth of CCs in western or global populations, it is clear from the enormous escalation of interest in green products and services, the environment, ethical investing, corporate social responsibility, spirituality, etc., that the numbers in the CC camp are growing significantly.

The ranks of the CCs are being filled from a group Dr. Ray refers to as ‘Moderns.’ The Moderns are the governing group in western societies. Their primary values concern money and status.

As the Moderns decline, the CCs gain
In the U.S., Moderns number close to half of the population. Dr. Ray and Ms. Anderson in their book explain the role of Moderns as “… the normative culture found in the office towers and factories of big business; in banks and the stock market; in university science labs and high tech firms; in hospitals and most doctors offices; in mainline churches and synagogues; in the ‘best’ schools and colleges …and most ‘mainstream’ and newspaper articles. The standard we take for granted, the rules we live by, are made by and for Moderns.”

However, the Moderns are declining in number as their values, focusing on financial materialism, status and lack of altruism, are under attack from both within and outside of their group. Increasingly, such values alone are seen as insufficient to meet the challenges of our world. The shenanigans on Wall Street – with the sub-prime mortgage and derivative fiascos and the gross irresponsibility of corporate elites – are some of the many reasons encouraging countless Moderns to re-align their values. Thus, unknowingly, they convert to the ranks of the CCs.

The expected era of Enlightened Economics necessitates a psychological archetype that reflects the demands of a new global epoch. This new epoch requires values depicting openness to the unfamiliar; a sense and inner experience of the unity of all things; and a deep caring for nature, the environment and humanity. And it also includes a realization that a new vision of global economics is critically needed. Cultural Creatives (CCs) heading to be the majority in numerous countries, imbibe these qualities. As such, their psychological archetype is the one I believe will dominate in the forthcoming age of Enlightened Economics.

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© Ron Robins, 2008.

Posted in Consciousness/Psychology | Tagged: , , , , , , , , | 2 Comments »

• Investing for the Soul

Posted by Ron Robins on November 4, 2007

Investing for the Soul (www.investingforthesoul.com) is a site I have developed since 2002. Its premise is that if we desire a better world, and/or are concerned about our spiritual development, about ethics, or the environment, etc., then we must incorporate such higher values in investing decisions. The reason for this is that when we invest in a company, or many companies in the case of a mutual fund, we share in the responsibility for the activities of those companies as well as participate in the outcomes of their corporate actions.

So let us invest in companies whose activities we believe are most helpful to us spiritually, ethically, and for life, generally! Helping you accomplish such goals and available at the Investing for the Soul website are pages covering: Ethical Investing News And Commentary, Article Archives, Books, Research Links, Ethical Investing Services and Ethical Investing Workshops.

By applying our ethical and higher values to investing, we not only help create a better life for all of us, but potentially enjoy higher profits from our investments as well. The accumulating masses of investment reports and studies (see Article Archives) suggest that outperformance of portfolio returns is frequently possible by employing ethical investing strategies.

I know investors will find the news, information and resources at Investing for the Soul invaluable with regard to their investing performance and for their personal fulfillment.

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