Show me the REAL money

An economy certainly needs money so that goods and services can be exchanged. If there is too little money goods will remain unsold, prices will fall and we call this deflation. If the scarcity of money becomes serious, eventually the economy will go into recession, that is, production comes to a halt, people lose their jobs, and misery starts to reign. So it is very important that the amount of money in circulation is at all times sufficient for people to buy the goods and services that are being offered. 

            So where do we get the money?  What determines the value of our money?  The answer lies a great deal in the type of government under which you live.  A little research this week uncovered that there are four types of money 1) Representative money 2) Confidence money 3) Intrinsic money and 4) Fiat money.  Hmmmmm. 

Representative money has no value on its own, but is backed by something of value like US gold or silver certificates that have an equal value of real gold or silver.  Confidence money is money that is worth whatever people think its worth and its value is determined by the stability of the government that issues it like the US Dollar or the British Pound.  Intrinsic money has its own value because it is made of something valuable like a gold or silver coin such as the South African Krugerrand.  Fiat money is basically worthless and is used because the government demands it as payment and punishes those who don't pay in the government's prescribed form, such as the Russian Ruble in the 1980s.  At that time the international markets wouldn't even trade in it.
The difference between confidence and fiat money can most easily be seen in the inflation rate. Sooner or later all confidence monies become fiat, and all fiat monies super inflate until they are worthless. Basically, if you make more of something, its value decreases.  Sound familiar? 

This brings me to my visit this week to the Birmingham Branch of the Federal Reserve.  It was fascinating to learn a bit more about the Fed, and I came away with the feeling that I really should not only have known some of these facts better, but I certainly should pay a lot more attention to them as well.  The Federal Reserve is a Quasi-Federal structure comprised of 12 Districts of which Atlanta is one, and the Birmingham office is a sub section.  The Federal Reserve is a politically independent entity that is charged with setting monetary policy with the long view in mind.  It is accountable to Congress and is weighted with the responsibility of unifying banks and creating stability.  The Fed has a dual mandate by Congress to create price stability and full employment.  

So how are we doing?  Jim Rogers spoke to the Brock School of Business recently in a signature event sponsored by independent investing firm Fi-Plan Partners.  From the moment of introduction, Mr. Rogers has my attention.  Rogers is a famed commodity bull and legendary hedge fund investor credited with running the most successful hedge fund in history, the Quantum Fund, with now billionaire George Soros.  Rogers has a storied career that includes growing up in Demopolis, Alabama, and traveling for 3 years across 116 countries.  His message is direct to “Invest in what you know, and you will not know if you don’t go there.”  If you are interested in the global marketplace and wish to understand what it means here at home, then you must go and see for yourself.  His noted quote of Rudyard Kipling spoke volumes.  Kipling is remembered to say, “What can you know of England if England is all that you know.”  I mention it here because Rogers reminded the audience that the Pound Sterling was the standard in the 19^th century.  We see the US dollar as the standard in the 20^th century, and Rogers predicted that the Chinese official currency of the Renmimbi will be the benchmark in the 21^st Century.    Rogers opinioned that that the Chinese, while Communist, are still the best capitalists in the world.  They save 35% of their income compared to 3-4% savings here in the US.  China is our largest customer and continues to grow by leaps and bounds. 

Rogers charged the audience to learn about currency to better appreciate the economic turmoil in the world.  The largest creditor nations of China, Korea and Japan are a force to be reckoned with by the largest debtor nation of the United States.  We aren’t just the largest debtor in the world, but we hold the dubious distinction of being the largest debtor in history.  

A telling event certainly, and one that I am very glad to have participated in as I seek to understand the dynamics of not only business, but competition and planning.  

2012 Economic Forecast, Birmingham Business Journal and Samford Brock School of Business

I phone?  Check.  Business Plan?  Check.  Clients? Check.  Crystal Ball?  I wish!  What are the drivers of business as we enter into 2012?  According to speakers for the recent Birmingham Business Journal event, they include the European Debt Crisis, China, Hiring and Labor Force Expectations, Growth issues, tax policy and the election.
An esteemed foursome of speakers addressed the potentials for business as we move in to 2012 at the Birmingham Business Journal’s 2012 Economic Forecast Panel held at Samford University  Brock School of Business this past week.  The discussion was similar to last years event, and according to the panel,  the slow pace of economic recovery last year will remain relatively unchanged in 2012 and could continue into 2013 or longer Samford University Latest from The Business Journals Top of the list: Education guideBBA may form PAC targeting political cloutUA is nation's 201st most selective school Follow this company .
The four panelists included Sara Helms,  an economics professor and research associate at the Lister Hill Center for Health Policy; Ahmad Ijaz, director of economic forecasting at the University of Alabama Center for Business and Economic Research, John Norris, a wealth management and investment services professional at Oakworth Capital Bank, and Rick Davis, senior vice president of economic development for the Birmingham Business Alliance.  
The panel summed their cautious outlook from the international down to the local picture in terms of where we are and where we may be heading in 2012. Uncertainty stemming from indecision and political infighting in Washington and Europe’s sovereign debt crisis were listed as primary factors causing the slow growth.  According to Norris, “Europe is a problem that is a long time coming.”  Ijaz interjected that, “An attempt with Europe to have one currency but 17 different monetary policies will continue to struggle, and perhaps cease to exist.”  With respect to Europe and debt problems, the question is will Europe hang together or splinter apart.   “The great unknown is China with its slow down and it will have a profound impact,” Norris continued.  Citing an anticipated slow down in China’s high-speed economic growth that is expected to further impact the global economy, they projected the slow economic recovery would continue in 2013 as the private sector continues de-leveraging.
On a state level, the economy is growing, but very slowly with a suggested 2.5-3.0% growth for this year and a modest 1-1.5% growth in employment.  Davis challenged the group to “Stop calling this a Recovery.  We have not gotten out of the woods yet, and we are still ringing distressed assets out.”  “If you want 4 percent growth, you may have to wait a few years,” said panelist John Norris.
One of the greatest challenges for 2012 will be how to manage the uncertainty.  Most shift in to neutral when the future is colored with unpredictable waves.  From hiring to predictions of growth, much is unknown.  “Most businesses are just not sure what capital investments they should make or whether they should hire,” Ijaz said. 
There are two halves to the issue of hiring and labor, and proper worker expectations play a big part in any true recovery.  Some discussion was made by the group to addressing not only high school completion, but also training in tech related jobs.  There was a stated observation of a general unwillingness of new college graduates to take more simple entry level work.  According to Norris, “Goal setting should be to find a way for the (new graduates) to set themselves apart.  Do what is beneath you to get experience.  Focus on work ethic, and start at the bottom with a goal to work up.” Helms added, “The Occupy movement has shown us that people have degrees of very little value.”  Birmingham Business Alliance Latest from The Business Journals JeffCo deal breaker will cost dearlyBBA campaign sets sights on national mediaBBA may form PAC targeting political clout Follow this company
The group agreed that recovering job sectors include science, technology, medicine and health services – areas the Birmingham region is well positioned to capitalize upon.  But, commercial real estate, development in any manner related to the bubble, and manufacturing will decline.  What does the future of manufacturing look like then?  The group discussed the public service announcement by Mike Roe of Dirty Jobs and the effort to encourage students to pursue advanced manufacturing jobs.  These high tech manufacturing jobs are high knowledge base, and it “ain’t your Daddy’s work shop” anymore.  White lab coats are taking the place of the fiery shop floor, and the highly trained, tech manufacturing worker is in certainly in demand.
With respect to unemployment, Helms cited 42-45% of the unemployed as having been unemployed for 6 months or longer.  Retraining is needed because your skills start to atrophy.  Davis also cited that 15% of the businesses create 50% of the jobs, and this must change to become sustainable. 
With regard to Banking, Davis describes the state we see now as the “new normal”.  “Actually the new normal is the old normal if you take a brief glance at the past.  Remember when you had to actually save some money for a down payment?” he reminded the group.  Now you must put some skin in the game, and banks are requiring up to 35% collateral for some loans.  Norris reminded the group that banks are “those places that you go to borrow money, when you don’t need any.”   
Turning it around?  This will certainly take some time to accomplish.  Ijaz cited that while the 2001 recession took 44-45 months to recover, the 2008 recession may take 3, 4 or even 5 years. 
These are defining times.  Pay attention, educate yourself, and do a quick roll up of your sleeves to get this one done.