The Big Zero
By PAUL KRUGMAN
Published: December 27, 2009
Maybe we knew, at some unconscious, instinctive level, that it would be an era best forgotten. Whatever the reason, we got through the first decade of the new millennium without ever agreeing on what to call it. The aughts? The naughties? Whatever. (Yes, I know that strictly speaking the millennium didn’t begin until 2001. Do we really care?)
But from an economic point of view, I’d suggest that we call the decade past the Big Zero. It was a decade in which nothing good happened, and none of the optimistic things we were supposed to believe turned out to be true.
It was a decade with basically zero job creation. O.K., the headline employment number for December 2009 will be slightly higher than that for December 1999, but only slightly. And private-sector employment has actually declined — the first decade on record in which that happened.
It was a decade with zero economic gains for the typical family. Actually, even at the height of the alleged “Bush boom,” in 2007, median household income adjusted for inflation was lower than it had been in 1999. And you know what happened next.
It was a decade of zero gains for homeowners, even if they bought early: right now housing prices, adjusted for inflation, are roughly back to where they were at the beginning of the decade. And for those who bought in the decade’s middle years — when all the serious people ridiculed warnings that housing prices made no sense, that we were in the middle of a gigantic bubble — well, I feel your pain. Almost a quarter of all mortgages in America, and 45 percent of mortgages in Florida, are underwater, with owners owing more than their houses are worth.
Last and least for most Americans — but a big deal for retirement accounts, not to mention the talking heads on financial TV — it was a decade of zero gains for stocks, even without taking inflation into account. Remember the excitement when the Dow first topped 10,000, and best-selling books like “Dow 36,000” predicted that the good times would just keep rolling? Well, that was back in 1999. Last week the market closed at 10,520.
So there was a whole lot of nothing going on in measures of economic progress or success. Funny how that happened.
For as the decade began, there was an overwhelming sense of economic triumphalism in America’s business and political establishments, a belief that we — more than anyone else in the world — knew what we were doing.
Let me quote from a speech that Lawrence Summers, then deputy Treasury secretary (and now the Obama administration’s top economist), gave in 1999. “If you ask why the American financial system succeeds,” he said, “at least my reading of the history would be that there is no innovation more important than that of generally accepted accounting principles: it means that every investor gets to see information presented on a comparable basis; that there is discipline on company managements in the way they report and monitor their activities.” And he went on to declare that there is “an ongoing process that really is what makes our capital market work and work as stably as it does.”
So here’s what Mr. Summers — and, to be fair, just about everyone in a policy-making position at the time — believed in 1999: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well-functioning financial system.
What percentage of all this turned out to be true? Zero.
What was truly impressive about the decade past, however, was our unwillingness, as a nation, to learn from our mistakes.
Even as the dot-com bubble deflated, credulous bankers and investors began inflating a new bubble in housing. Even after famous, admired companies like Enron and WorldCom were revealed to have been Potemkin corporations with facades built out of creative accounting, analysts and investors believed banks’ claims about their own financial strength and bought into the hype about investments they didn’t understand. Even after triggering a global economic collapse, and having to be rescued at taxpayers’ expense, bankers wasted no time going right back to the culture of giant bonuses and excessive leverage.
Then there are the politicians. Even now, it’s hard to get Democrats, President Obama included, to deliver a full-throated critique of the practices that got us into the mess we’re in. And as for the Republicans: now that their policies of tax cuts and deregulation have led us into an economic quagmire, their prescription for recovery is — tax cuts and deregulation.
So let’s bid a not at all fond farewell to the Big Zero — the decade in which we achieved nothing and learned nothing. Will the next decade be better? Stay tuned. Oh, and happy New Year.
Tuesday, December 29, 2009
China Charts Its Own Path
China Charts Its Own Path
Keith R. McCullough, 12.28.09, 09:30 AM EST
While America dithers, the Chinese set up a currency reserve fund against -- U.S. crashes.
"Don't look back. Something might be gaining on you."--Leroy "Satchel" Paige
Satchel Paige was an American baseball legend who played ball from 1926–66. He was the first player from the Negro Leagues to be elected to the Baseball Hall of Fame. He was one of America's great winners.
Article Controls
The saddest part about Paige's success is probably that it took America too long to realize it. The man didn't play his first game in Major League Baseball until he was 42 years old. American Groupthink isn't new. It's always been a part of our culture. We are human. So are the Chinese.
This morning the Chinese are reminding us that: 1) they are still wearing the pants in this relationship; and 2) they aren't leaving this new game of global financial risk anytime soon. China is heading into 2010 with a full head of political and economic steam. If America and Europe don't let her into the major league of global finance, China may very well just start up her own.
This morning, the Association of Southeast Asian Nations (ASEAN), plus China, Japan and South Korea, have announced that they are moving forward with the Chiang Mai Initiative and forming a $120 billion foreign-currency reserve pool. In a joint statement, the countries said the move was intended to "strengthen the region's capacity to safeguard against increased risks and challenges in the global economy." In Mandarin, that means protect against American crashes.
Chiang Mai is a city in northern Thailand that sits strategically on the Ping River. This is where plenty of Asian trading has been done over the last few centuries. This is where Asia's new economic powers decided to lock arms and play some red rover with Western leaders of Perceived Financial Wisdom.
China and the U.S. are in two totally different situations,China is developing and growing trying to stabilize and manage that growth, so far successfully. We on the other hand have had the large
Like MLB ignoring Satchel Paige, Westerners ignoring the new reality of Asian economic power doesn't mean it ceases to exist. The Asians have been working on forming their own economic safety nets since the Japanese tried to form the Asian Monetary Fund in 1997. The Chiang Mai Initiative was formed in May 2006. Today is simply a recognition that the proactively prepared have a plan--and they are executing on it.
An analyst at Bank of America ( BAC - news - people ) is revealing to his squadrons of consensus callers this morning that China could see her property bubble "pop." Hello, McFly--the Chinese property stocks peaked in July of this year and have been popping for three months! Understand that many sell-siders on this side of the pond really don't know what they don’t know.
China's premier, Wen Jiabao, is very aware of his liabilities. Unlike Bush and Obama, he seems to actually know what he doesn't know. He and his financial leadership team have been explicitly targeting the property and loan markets for the last 3 months. They are not behaving as willfully blind as we were.
This morning, here's what Wen told Xinhua, the Chinese News Agency: "Property prices have risen too quickly in some areas and we should use taxes and loan interest rates to stabilize them."
Dugg on Forbes.com
Unlike the U.S., which keeps interest rates at zero to fuel debt-fueled asset-price speculation, at least China has a plan to both generate savings amongst her citizenry (with a savings rate of return greater than zero) and, at the same time, show some respect for the cost of capital.
On the currency front, Wen said that China will "absolutely not yield" to the Western calls for currency appreciation. He explained that the plan will remain the plan, and that China will move both her currency and interest rate policies whenever she darn well pleases. Sound familiar? It should. That's what we do.
2010 will be here by the end of this week, and so will China overtaking Japan as the world's second-largest economy. For a long time Americans and Europeans could see this economic and political juggernaut coming. For a long time some of us chose to ignore the power of their self-directedness.
As America moves the YouTube dials to another populist debate (whether or not we should reinstitute Glass-Steagall-like regulation in her financial markets in 2010), be certain that the Chinese are going to be moving forward at their already decided pace.
After closing up 1.5% overnight, the Shanghai Composite Index closed at 3,188. Despite the S&P 500 closing at a higher YTD high on Christmas Eve, it’s only up 24.7% for the year. Relative to China's 75.1% gain, that's puny. Kind of like how Satchel Paige made 20-year-old men look with a curveball coming from his 45-year old arm.
My immediate term lines of support and resistance for the S&P 500 are now 1,112 and 1,129, respectively.
Keith R. McCullough is CEO of Researchedge.
Keith R. McCullough, 12.28.09, 09:30 AM EST
While America dithers, the Chinese set up a currency reserve fund against -- U.S. crashes.
"Don't look back. Something might be gaining on you."--Leroy "Satchel" Paige
Satchel Paige was an American baseball legend who played ball from 1926–66. He was the first player from the Negro Leagues to be elected to the Baseball Hall of Fame. He was one of America's great winners.
Article Controls
The saddest part about Paige's success is probably that it took America too long to realize it. The man didn't play his first game in Major League Baseball until he was 42 years old. American Groupthink isn't new. It's always been a part of our culture. We are human. So are the Chinese.
This morning the Chinese are reminding us that: 1) they are still wearing the pants in this relationship; and 2) they aren't leaving this new game of global financial risk anytime soon. China is heading into 2010 with a full head of political and economic steam. If America and Europe don't let her into the major league of global finance, China may very well just start up her own.
This morning, the Association of Southeast Asian Nations (ASEAN), plus China, Japan and South Korea, have announced that they are moving forward with the Chiang Mai Initiative and forming a $120 billion foreign-currency reserve pool. In a joint statement, the countries said the move was intended to "strengthen the region's capacity to safeguard against increased risks and challenges in the global economy." In Mandarin, that means protect against American crashes.
Chiang Mai is a city in northern Thailand that sits strategically on the Ping River. This is where plenty of Asian trading has been done over the last few centuries. This is where Asia's new economic powers decided to lock arms and play some red rover with Western leaders of Perceived Financial Wisdom.
China and the U.S. are in two totally different situations,China is developing and growing trying to stabilize and manage that growth, so far successfully. We on the other hand have had the large
Like MLB ignoring Satchel Paige, Westerners ignoring the new reality of Asian economic power doesn't mean it ceases to exist. The Asians have been working on forming their own economic safety nets since the Japanese tried to form the Asian Monetary Fund in 1997. The Chiang Mai Initiative was formed in May 2006. Today is simply a recognition that the proactively prepared have a plan--and they are executing on it.
An analyst at Bank of America ( BAC - news - people ) is revealing to his squadrons of consensus callers this morning that China could see her property bubble "pop." Hello, McFly--the Chinese property stocks peaked in July of this year and have been popping for three months! Understand that many sell-siders on this side of the pond really don't know what they don’t know.
China's premier, Wen Jiabao, is very aware of his liabilities. Unlike Bush and Obama, he seems to actually know what he doesn't know. He and his financial leadership team have been explicitly targeting the property and loan markets for the last 3 months. They are not behaving as willfully blind as we were.
This morning, here's what Wen told Xinhua, the Chinese News Agency: "Property prices have risen too quickly in some areas and we should use taxes and loan interest rates to stabilize them."
Dugg on Forbes.com
Unlike the U.S., which keeps interest rates at zero to fuel debt-fueled asset-price speculation, at least China has a plan to both generate savings amongst her citizenry (with a savings rate of return greater than zero) and, at the same time, show some respect for the cost of capital.
On the currency front, Wen said that China will "absolutely not yield" to the Western calls for currency appreciation. He explained that the plan will remain the plan, and that China will move both her currency and interest rate policies whenever she darn well pleases. Sound familiar? It should. That's what we do.
2010 will be here by the end of this week, and so will China overtaking Japan as the world's second-largest economy. For a long time Americans and Europeans could see this economic and political juggernaut coming. For a long time some of us chose to ignore the power of their self-directedness.
As America moves the YouTube dials to another populist debate (whether or not we should reinstitute Glass-Steagall-like regulation in her financial markets in 2010), be certain that the Chinese are going to be moving forward at their already decided pace.
After closing up 1.5% overnight, the Shanghai Composite Index closed at 3,188. Despite the S&P 500 closing at a higher YTD high on Christmas Eve, it’s only up 24.7% for the year. Relative to China's 75.1% gain, that's puny. Kind of like how Satchel Paige made 20-year-old men look with a curveball coming from his 45-year old arm.
My immediate term lines of support and resistance for the S&P 500 are now 1,112 and 1,129, respectively.
Keith R. McCullough is CEO of Researchedge.
Monday, December 28, 2009
From Outsourcing To Multi-Sourcing
From Outsourcing To Multi-Sourcing
Ed Sperling, 12.28.09, 06:00 AM EST
Much has changed since outsourcing was introduced.
IT outsourcing has been around for decades, but in the past it was a one-for-one handoff. Either a company ran the IT department or an outsourcing contractor did it for them.
Much has changed. Companies are choosing from a menu of options and a list of competitive offerings, with results that still aren't fully understood. To help shed light on what's changing, Forbes caught up with Jamie Erbes, chief technology officer for Hewlett-Packard ( HPQ - news - people ) Software and Solutions.
Forbes: Outsourcing IT is hardly a new concept. What's different this time?
Erbes: We've certainly seen this outsourcing trend in the past, but what we're seeing now is uptake of more selective sourcing. The CIO and IT organization are looking at sourcing some of their operation to cloud providers, but not all of it. They're also looking at ways to keep tabs on the integrity of IT as it all blends back together into the business services that they need to offer back to the business units.
What's driving that change?
A lot of conversations I've had recently with customers is how they can capitalize on the resources from various providers including the Amazons and Rackspaces of the world or enterprise services from companies like HP. How can they take advantage of that sourcing model and put an effective framework above it--one that comprehends IT financial management, for example, or service-level aggregation and management? Those are the questions we're starting to hear.
So there's more CIO involvement in the outsourcing?
Yes. If you go back 20 years, the message behind outsourcing was, "Come and take over my IT." The IT organization handed over responsibility for everything including interaction with the business units. It was not just a portion of IT or a piece of the data center. It was all of IT, and in some cases that included the CIO. The change that we've seen is there's a step toward multi-sourcing. There may be a line cut, for example, between infrastructure outsourcing and applications development. Some of these services are best-of-breed outsourcing selections and a lot of analysts are encouraging clients to do multi-sourcing. But when they outsourced to a sole provider, the management level on top and the reporting and transparency was intact. With multi-sourcing you have silos of management and reporting, limited visibility and service-level agreements in silos.
What's the best way to deal with that?
The next step will be to pull all of that together into business services. There's a layer of service management at the enterprise level that is necessary to do all of the translation from the intricate specific detail around service levels, availability and outages, for example.
What does the corporate IT department do in the future?
Before we used to counsel the client on how to be the best they could be at planning, designing, building and running IT. There's still some of that activity, but they need more of a skill set for sourcing, integrating and managing. That's an evolutionary need now within IT.
And it's no longer just about data, right?
That's correct. The whole concept of portfolio management is taking on a new life in these organizations. It's almost like a product manager role that's evolving within IT. One CIO told me he needs a sales and marketing team--and a product management team. They have to understand what they're crafting in terms of cost models and pricing models back to their business. If you look at the aptitude of the type of person that takes, it is like a product manager. You have to be able to talk about the IT capabilities you have and what you can offer to the business because now the business has choice. The last thing you want is for them to avoid IT. If IT is a hidden-cost overhead that's a pain to deal with, it's going to be avoided. The IT organization has to draw the client in with products and services their business wants to consume. That mitigates the desire for businesses to go out and directly obtain these cloud services or software-as-a-service--basically an end-run around IT.
It used to be a matter of assessing technological capabilities and applying them to a business. Now it appears to be less about the technology.
IT always will have to have a competency for understanding the technology, but it's unlikely they'll have to be the expert on server technology in the future. If they do a smart sourcing strategy, they don't need the server experts. But they will need the platform expert to blend the server and storage and the application types to make sure the outsourcing decision they make around the infrastructure-as-a-service fits well with their application strategy.
Who are you selling this stuff to? Is it the companies or the cloud providers?
Our strategy has three prongs. The first is we are a cloud service provider. The other two are in terms of aligning products and consulting and enablement services for the service provider. We helped Verizon ( VZ - news - people ) craft their compute-as-a-service strategy set, for example. We also help the enterprise business to be a better and wiser consumer of services, and to be a better provider of services internally.
Will the software in a cloud be customized, and if not, what is the penalty?
We think the question should be, "What is the cost of all that choice and heterogeneity in the data center?" The penalty you pay is one of the concerns. Customers need to understand application or workload characteristics and to be able to construct private clouds or pooled infrastructure within their own data centers. They need to manage workload against that target, as well as provision applications out to other cloud providers such as Amazon. If you have several choices, each with different compute styles, that should give you the right granularity so you can run them where they should be run. But too much choice and variety is a bad thing. There are some specialized applications such as airline systems where that's required, but for most it is not.
Aside from those specialized cases, is there a difference from one organization to the next?
Some of the mature organizations--those with a concept of ruthless standardization--have normalized their hardware platforms and their networks and their compute styles. They have a handful of compute styles. That's compared to the immature organizations, which may have grown by acquisition or decisions that were made without a clear sense of architecture. Those are very messy environments. Our challenge is to span both environments and hide some of the complexity.
Ed Sperling is the editor of several technology trade publications and has covered technology for more than 20 years. Contact him at esperlin@yahoo.com.
Ed Sperling, 12.28.09, 06:00 AM EST
Much has changed since outsourcing was introduced.
IT outsourcing has been around for decades, but in the past it was a one-for-one handoff. Either a company ran the IT department or an outsourcing contractor did it for them.
Much has changed. Companies are choosing from a menu of options and a list of competitive offerings, with results that still aren't fully understood. To help shed light on what's changing, Forbes caught up with Jamie Erbes, chief technology officer for Hewlett-Packard ( HPQ - news - people ) Software and Solutions.
Forbes: Outsourcing IT is hardly a new concept. What's different this time?
Erbes: We've certainly seen this outsourcing trend in the past, but what we're seeing now is uptake of more selective sourcing. The CIO and IT organization are looking at sourcing some of their operation to cloud providers, but not all of it. They're also looking at ways to keep tabs on the integrity of IT as it all blends back together into the business services that they need to offer back to the business units.
What's driving that change?
A lot of conversations I've had recently with customers is how they can capitalize on the resources from various providers including the Amazons and Rackspaces of the world or enterprise services from companies like HP. How can they take advantage of that sourcing model and put an effective framework above it--one that comprehends IT financial management, for example, or service-level aggregation and management? Those are the questions we're starting to hear.
So there's more CIO involvement in the outsourcing?
Yes. If you go back 20 years, the message behind outsourcing was, "Come and take over my IT." The IT organization handed over responsibility for everything including interaction with the business units. It was not just a portion of IT or a piece of the data center. It was all of IT, and in some cases that included the CIO. The change that we've seen is there's a step toward multi-sourcing. There may be a line cut, for example, between infrastructure outsourcing and applications development. Some of these services are best-of-breed outsourcing selections and a lot of analysts are encouraging clients to do multi-sourcing. But when they outsourced to a sole provider, the management level on top and the reporting and transparency was intact. With multi-sourcing you have silos of management and reporting, limited visibility and service-level agreements in silos.
What's the best way to deal with that?
The next step will be to pull all of that together into business services. There's a layer of service management at the enterprise level that is necessary to do all of the translation from the intricate specific detail around service levels, availability and outages, for example.
What does the corporate IT department do in the future?
Before we used to counsel the client on how to be the best they could be at planning, designing, building and running IT. There's still some of that activity, but they need more of a skill set for sourcing, integrating and managing. That's an evolutionary need now within IT.
And it's no longer just about data, right?
That's correct. The whole concept of portfolio management is taking on a new life in these organizations. It's almost like a product manager role that's evolving within IT. One CIO told me he needs a sales and marketing team--and a product management team. They have to understand what they're crafting in terms of cost models and pricing models back to their business. If you look at the aptitude of the type of person that takes, it is like a product manager. You have to be able to talk about the IT capabilities you have and what you can offer to the business because now the business has choice. The last thing you want is for them to avoid IT. If IT is a hidden-cost overhead that's a pain to deal with, it's going to be avoided. The IT organization has to draw the client in with products and services their business wants to consume. That mitigates the desire for businesses to go out and directly obtain these cloud services or software-as-a-service--basically an end-run around IT.
It used to be a matter of assessing technological capabilities and applying them to a business. Now it appears to be less about the technology.
IT always will have to have a competency for understanding the technology, but it's unlikely they'll have to be the expert on server technology in the future. If they do a smart sourcing strategy, they don't need the server experts. But they will need the platform expert to blend the server and storage and the application types to make sure the outsourcing decision they make around the infrastructure-as-a-service fits well with their application strategy.
Who are you selling this stuff to? Is it the companies or the cloud providers?
Our strategy has three prongs. The first is we are a cloud service provider. The other two are in terms of aligning products and consulting and enablement services for the service provider. We helped Verizon ( VZ - news - people ) craft their compute-as-a-service strategy set, for example. We also help the enterprise business to be a better and wiser consumer of services, and to be a better provider of services internally.
Will the software in a cloud be customized, and if not, what is the penalty?
We think the question should be, "What is the cost of all that choice and heterogeneity in the data center?" The penalty you pay is one of the concerns. Customers need to understand application or workload characteristics and to be able to construct private clouds or pooled infrastructure within their own data centers. They need to manage workload against that target, as well as provision applications out to other cloud providers such as Amazon. If you have several choices, each with different compute styles, that should give you the right granularity so you can run them where they should be run. But too much choice and variety is a bad thing. There are some specialized applications such as airline systems where that's required, but for most it is not.
Aside from those specialized cases, is there a difference from one organization to the next?
Some of the mature organizations--those with a concept of ruthless standardization--have normalized their hardware platforms and their networks and their compute styles. They have a handful of compute styles. That's compared to the immature organizations, which may have grown by acquisition or decisions that were made without a clear sense of architecture. Those are very messy environments. Our challenge is to span both environments and hide some of the complexity.
Ed Sperling is the editor of several technology trade publications and has covered technology for more than 20 years. Contact him at esperlin@yahoo.com.
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