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The Primary Deficit Sustainability Framework

The Primary Deficit Sustainability Framework or PDS Framework is a way to monitor public finances and to see whether they are heading into or away from trouble and adverse bond market reaction.

I was reminded about it in James Rickards book, “The Death Of Money”.

The Key Factors In The PDS Framework

The key factors are: [click to continue…]

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Life After Growth By Tim Morgan

The full title of this fascinating book by Tim Morgan is “Life After Growth: How The Global Economy Really Works And Why 200 Years Of Growth Are Over”.

I’ve always known that there is a money economy and a things economy. What I hadn’t focused on was how the thins economy is underpinned by energy. The author argues that in effect we have an energy based economy and while the money economy has been inflated by the explosion in debts and Quantitative Easing, the energy economy is deflating.

Why is that?

Because we cherry picked the biggest and best, most accessible, most productive sources of oil, gas and coal first and slowly but surely, the old sources are exhausted and the new sources that are developed aren’t as good. [click to continue…]

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Problems appeared in the world finance systems in 2007 related all the way back to mortgages given to poor people in America who were unlikely to be able to repay the loans. These mortgages were packed up, divided and sold into the finance markets across the world.

My intent is not to give a big explanation of what happened and why. If you want more details, I have provided links to Wikipedia. My objective is to help you to think about the future but you may benefit from reminding yourself about the recent past.

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

In September 2008 after some difficult months problems exploded in America with the saving of Bear Stearns, Fannie Mae and Freddice Mac and the collapse of Lehmans Brothers.

http://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers

This led to the Great Recession.

http://en.wikipedia.org/wiki/Great_Recession

I mentioned the efficient market hypothesis earlier. Too much faith in how well it works by policy makers and regulators has been blamed for the build up of the bubbles that caused the crash. [click to continue…]

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Ever since I’ve been ill I’ve been amazed at what an incredibly complicated and effective system the human body is.

Things have gone wrong that I’ve previously taken for granted and I’ve been forced to learn how the different control systems keep everything working together.

The economy is the same.

It is made up of the many different decisions that the billions of people make.

It is best understood by learning a little about systems thinking. [click to continue…]

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The Future Of Your Business And Wealth

The Future Of Your Business And Wealth Is In Danger In Times Of Recession, Depression, Deflation, Inflation and Hyperinflation

Hindsight is a great luxury which we don’t have for our current and future decisions but we can look back on the past with more clarity.

The great prosperity the developed world has seen in the last thirty years has been built on debt and unfinanced promises of generous future welfare payments.

Spending by consumers, businesses and governments was financed from borrowing against future income at an increasing but unsustainable rate. The crash in 2008 was inevitable and the monetary and fiscal stimulus seen since then and considered necessary to keep the wheels turning, is storing up more problems in the future.

You can’t get out of a debt crisis by borrowing more and printing so much “funny money” that it debases the major currencies of the world.

Business Owners Don’t Have To Be Victims Of The Economy [click to continue…]

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Creating Your Stop Start More Less Grid

The Stop Start More Less Grid or process is a very effective way to keep track of the changes you will make to create the improvements you want.

It begs a question – what form should the grid or matrix take?

The Background To The Stop Start More Less Grid or Matrix

To my knowledge, I was the first person to start to write about the Stop Start More Less grid in my blog posting from July 2009 on my Business Coaching Blog although I’d used it for some time.

It was based on my thoughts on how to improve results using the 80/20 principle and recognising the constraints that every business owner works with – time, money and other resources. [click to continue…]

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How To Reduce Fixed Costs

If you want to improve the profit performance of your business, break even point analysis suggests that there are three main ways:

  • To increase sales volumes
  • To increase contribution rates
  • To reduce fixed costs

Actions taken by turnaround consultants and business recovery experts suggest that in many cases, the fastest acting of these initiatives is to reduce fixed costs.

What Are Fixed Costs?

First a reminder of definitions.

Fixed costs are fixed in relation to volume over a normal level of business. [click to continue…]

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Unique Selling Proposition Videos Review Volume 2

When I discovered how many videos there were on YouTube and the other video sharing sites on unique selling propositions or the idea of having a USP, I decided that I could add value by reviewing them.

If you missed the first set of videos you can see them and my comments at:

>>> Unique Selling Proposition Videos Review 1

Karl Bryan USP Marketing Tips

Karl Bryan is the man behind Profitable Growth Strategies (the excellent monthly small business training membership website that I promote) – which you can review at ProfitableGrowthStrategies.org so you will know that I like his ideas and I like him as a person.

The first six minute video starts with a review of the Domino’s, Fedex and Robert Allan. Karl discusses how these have powered the companies involved to massive success. [click to continue…]

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The Heart And Mind Of An Economist

I promote myself as having the mind of a finance director and the heart of a marketer to both emphasise my main skills (and a big factor of difference to my competitors) and also to stress the two main stakeholders each business must strive to meet:

  • Delighting customers so they buy and buy again
  • Making enough profit for the owner to keep him or her in the game and continually innovating to add customer and shareholder value.

These two forces can be portrayed as opposing each other (e.g. a customer gains with a low selling price, a business makes more money from a higher price) but I believe there’s an optimum position that meets both.

As I intend to look deeper at the next economic crisis, which I expect to make the 2008 to 2013 contraction look like a baby, I think it’s important you understand my views on economic theory and politics.

The Mind Of A Free Marketer [click to continue…]

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The Depression of 2016 by Rafael Aguayo

The Depression of 2016 by Rafael Aguayo

Book Review Rating – 4 Stars

This is a fascinating book that takes virtually all of the politics out of the debate on the economic situation by building and discussing a systems dynamics model.

You hear about the annual deficits in the USA and the UK, the high growth in China and India, the troubles in the Eurozone and like me, you probably think about how these things can be connected.

Well this book helps to answer those thoughts although its main focus is on the relationship between the USA and China.

The Origins Of The Crisis – The Boom in the USA – 1980 to 2000

Statistics analysis shows that this was a remarkable period that caused the Dow Jones index to soar. The authors research traces this back to two connected but compensating forces that have caused a great imbalance:

  • The annual fiscal deficit in the USA that has pumped up the economy
  • The annual trade deficit in the USA that has deflated the economy and at the same time caused the stock exchange bubble and then the real estate bubble.

The net results is a high debts and few manufacturing jobs in America. It’s a terrible situation to be in but it is echoed in the UK, the numbers are just smaller.

Since 2000, the governments have been propping up the economies, refusing to allow the harsh recession that the free market demands. Yes things have been bad but they should have been much worse.

Who’s to blame? The central bankers and the respective governments of Reagan, Bush, Clinton, Bush and Obama all had the chance to do things differently and which could have reduced the impact of the coming crisis.

Systems Dynamics

The world is full of cause and effect relationships. These naturally break into two kinds:

  • Positive reinforcement – this is the virtuous circle when things are good and the vicious circle when things are bad. These systems are unstable and out of control. This is bubble economics where values rise sharply and then collapse.
  • Negative reinforcement – these are compensatory systems that identify and automatically help to bring things back into control and closer to a target. In the physical world, think of a thermostat, in the economics world, think about the automatic stabilisers that the deficit financed unemployment benefits provide during recessions.

These systems can be linked to create a more comprehensive model of compelling cause and effect logic.

This is exactly what Rafael Aguayo has done and it helps to explain how the world economy works at a level that can be understood.

Conclusions

There is no easy way out.

The depression may happen in 2014 or 2018 but it’s hard to refute the conclusion that a major economic collapse is coming.

While the 2008 financial crisis has been papered over by massive fiscal and monetary intervention, it has just delayed and worsened the day of reckoning.

Rating

The thinking and analysis behind this book deserves 5 stars.

The world needs to understand what is happening and why.

The book lost two half stars:

  • the message is vital but the book needs better editing. It doesn’t flow as it should although I accept that this is a hard topic to write about because of the need to understand economics and systems dynamics.
  • the diagnosis of the problem makes a great deal of sense to me but there is little discussion of how things can be made better at the level of national policy makers and (more importantly for the majority of readers) at the individual level. A crisis is coming after the fake illusion of a recovery but what should you and I as business owners, house owners and savers do about it?

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