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Back from the netherworld

by Paula | 2 December 2009 | permalink | comments [3]
Tags: collapse, recession

Has it really been six months since my last entry??

Like so many others I too fell on hard times this year. I’ve spent the last several months descending to an underworld of Western distress and clawing my way back up to the land of the living. Happily, things have stabilized once again and I now have a new address for both my studio and my home. I have electricity, food, a working vehicle, plenty of personal hygiene products, telephone and internet service, furniture and appliances. It feels like palatial opulence.

Over these last months I’ve gotten a small peek into what Dmitry Orlov means when he says, “Collapse, for you, is likely to turn out to be a deeply personal experience.” Although my experiences pale in comparison to those Dmitry’s long blockquote cites, they did provide me with an unexpected perspective as an outsider looking in on the true heart lurking beneath nice, clean, suburban, Christian America.

I knew it was cold and nearly retarded in its stupidity. I guess I’d hoped it wasn’t as bad as I’d feared.

I’ve learned a lot this year, important things that have deeply informed my approach to both life and business. My time this morning is too short to get into detail but I plan to share some of these things as I get back into the swing of blogging again.

For now I’d just like to say it’s good to be back and many thanks to those who continue to stop by on the off-chance I’ve posted something new.

(Sidebar: due to an inordinate amount of spam, comments are now moderated. Rest assured if you post a comment I’ll release it to the blog shortly.)

Obama's economic advisory team

by Paula | 10 November 2008 | permalink | comments [1]
Tags: entrepreneurship, recession

Dallas Mavericks owner and fellow Pennsylvania native Mark Cuban makes an outstanding observation:

There are a lot of great minds on the list.

“Robert Rubin, Larry Summers, Laura Tyson, who served as Clinton’s top economic adviser; former Fed Vice Chairman Roger Ferguson; Time Warner Inc. Chairman Richard Parsons; former Securities and Exchange Commission chairman William Donaldson and Xerox Corp. Chief Executive Officer Anne Mulcahy.

Google Inc. CEO Eric Schmidt, Michigan Governor Jennifer Granholm and Roel Campos, an ex-SEC commissioner, and Warren Buffett are also on the advisory board.”

Notice anything missing?

Not a single entrepreneur. …

If we are going to solve our current economic problems, our President needs to get first hand information on the impact his proposed policies will have on real Joe the Plumbers. People who are 1 person companies living job to job, hoping they get paid on time. We need to know what the impact of his policies will be on the individually owned Chrysler Dealership in Iowa. The bodego in Manhattan. The mobile phone software startup out of Carnegie Mellon. The event planner in Dallas. The barbershop in LA. The restaurant in Boston.

Entrepreneurs that start and run small businesses will be the propellant in this economy. PE Obama needs to have the counsel of those who will take the real risk inherent in creating companies and jobs. Those who put their money and lives on the line with their business.

Without it, the rules of unintended consequences of any economic policy could hit you in the mouth in ways you never expected. Things like forcing companies from being taxpayers to the underground cash economy, or forcing new hires to be independent contractors to avoid having to pay their insurance or higher matching social security amounts. Your current group has no one with 100pct of their networth on the line. I promise you that the possibility of losing it all will provide a completely different perspective than any of the “knowledge” the esteemed, learned members of his current advisory team offer.

PE Obama, I’m always available to help, but my recommendation would be to randomly go through the new incorporation filings and ask for volunteers to give feedback. Ask the people who are actually starting new businesses what they need.

Entrepreneurs will lead us out of this mess. Talk to them.

Amen brother.

Bailing out Detroit

by Paula | 9 November 2008 | permalink | comments
Tags: car culture, recession

Keith Johnson at WSJ’s Environmental Capital blog asks:

The fundamental problem, as Detroit keeps pointing out, is that new rules mandating more efficient cars cost money that the Big Three don’t have. Many analysts are worried that U.S. automakers are already stretched to the limit trying to meet existing standards, let alone Sen. Obama’s proposals.

So, given Detroit’s history of floundering in the wake of government bailouts, the question becomes: Is there any way the new administration can both bail out Detroit and make it a marquee player in its clean-energy push? Or are the two goals mutually exclusive?

Has everyone forgotten the EV-1? Once upon a time, Detroit was on the cutting edge of green auto technologies and even produced hundreds of EV-1 beta models, every last one of which was leased and which generated massive wait lists. GM closed down the EV-1 plant in 2000 and axed the EV-1 program altogether in 2003 amid protests. Protests! What company wouldn’t sell its soul to have people protesting the absence of its product from the market?

GM snubbed not only the market, but also the citizenry from whom it is now asking for a massive bailout. And for what, so it can continue snubbing the market in the future and ask for more bailouts next time gas prices spike?

Somewhere, GM has a factory that is at least partially tooled for turning out electric vehicles. All three are also currently turning out production hybrids. How can it be too expensive to produce more efficient vehicles when they’re already doing it? Is Detroit completely blind to the fact that Japanese hybrids and German clean diesel vehicles are selling like crazy, regardless of dollar fluctuations against the Yen and the Euro? And especially in the case of German cars, which come from a nation with far greater tax, labor, and environmental controls than anything Detroit has ever seen.

None of this makes any sense. No angel or VC would invest in a company with a track record like that until it axed the whole of upper management and came up with sound plan for making money in the future. Yet we the people are being asked to pony up… what is it now, an additional $25 billion?… to save these companies because of “systemic risk,” and we are being given no information about our return on investment in either Detroit or the “system” that enabled it to shove its head that far up its ass.

Throwing good money after bad will create a much worse situation down the line than if Detroit were forced to play by market rules once and for all.

Maybe what we need is this: a business planning contest in which entrepreneurs submit plans, including detailed financials, for how that money can be used to get Detroit profitable and to make good on taxpayers’ investment. The prize? A Tesla, naturally.

One (of two) currency alternatives available right now

by Paula | 28 October 2008 | permalink | comments
Tags: currency, recession

Yesterday I wrote about some of the problems I see with local currency models currently popular here in the States and elsewhere. However, I neglected to list the most obvious issue: if you don’t live someplace that has instituted an alternative currency, you can’t use any of them.

Fortunately there are alternative currencies available that any small business can start utilizing immediately to shore up customers’ purchasing power and even to help mitigate credit problems. These are two with which I am familiar; I’m sure there are lots of others.

Preserving purchasing power: digital gold and digital silver

I should note right off the bat that I have no experience with any digital gold currency (DGC) or digital silver currency (DSC) other than GoldMoney, so that’s what I’ll be talking about here. I just adore GoldMoney and its founder, James Turk.

DGCs and DSCs can preserve customers’ purchasing power by protecting the value of the money they have to spend with you, particularly during times of inflation. If your customers can transact with you in gold or silver, it means that instead of curtailing their spending as prices rise, they are able to continue buying the same amount of stuff because the values of gold and silver increase right along with whatever you’re selling. If you’re a grocer, for example, a customer who transacts with you in gold will discover that his weekly grocery bill costs fewer goldgrams instead of more dollars. That helps you offset the smaller grocery orders of your dollar customers and keep up with rising expenses of your own.

DGCs and DSCs work just how people mistakenly think Fort Knox works: there is a big ol’ pile of actual, physical metal, with currency notes circulating around that each represents some small portion of the pile. The primary differences are that 1) DGCs and DSCs actually do have all the metal in their vaults to back the circulating currency notes (GoldMoney does, at any rate); and 2) the currency notes are digital rather than paper.

GoldMoney’s digital gold currency note is called a “goldgram” and, just as the name implies, it represents one gram of gold. Goldgrams break down into smaller digital increments, with the smallest usable increment being one “mil,” or .001 grams of gold. Digital silver is measured in ounces.

The big drawbacks with GoldMoney and other DGCs are that in order to use them, your customer has to be a signed up for a DGC account somewhere, preferably with the same DGC you use. Also, all your transactions have to take place on the internet, which doesn’t necessarily translate well into a brick-and-mortar situation. But these are problems that can be overcome with a little ingenuity. The purchase of goldgrams may have to take place online; however, there’s nothing to stop anyone from reselling those digital goldgrams in meatspace and issuing paper receipts for the purchase.

Back to the example of the grocer: he could use digital gold to offer his customers “grocery bonds” denominated in goldgrams. A (smart) customer purchases a $100 “grocery bond,” and the grocer issues her a bond worth $100 equivalent in goldgrams — I’ll say 4 goldgrams for illustration purposes. The grocer then purchases $100 worth of gold — 4 goldgrams — through his GoldMoney holding to cover the value of the grocery bond.

Three months later, the price of gold has gone up to $30 per goldgram and the original 4-gram bond is now worth $120. The customer returns to redeem her bond, at which point the grocer sells the original 4 goldgrams through his GoldMoney holding and hands the customer a $120 prepaid store debit card. She can now purchase the same amount of stuff she did before prices went up, and the grocer has been spared the effects of inflation on her purchasing power — this, with almost no up-front investment beyond his time and the cost of having the paperwork printed.

It’s worth pointing out that in the event of a total currency collapse — a real possibility in the foreseeable future — the “grocery bond” scheme could potentially end up being the only means people have of buying anything. The bonds could quickly become the only usable currency in town… and the grocer is the originator of them all.

I see no reason why this model couldn’t be duplicated in any sort of brick-and-mortar retail environment. Moreover, I see no reason why multiple businesses couldn’t join together to honor each other’s bonds, or even issue a single bond redeemable among all participating businesses. For that matter, an enterprising entrepreneur could set up the gold retail bond scheme as a bona-fide business, sparing retailers the hassle of managing a digital gold holding.

I’d hoped to get to the second currency alternative today but this post has gotten much longer than I anticipated. Tomorrow I’ll cover the second, which is potentially useful in addressing credit problems.

Liquidity, ’flations, purchasing power, and local currencies

by Paula | 27 October 2008 | permalink | comments
Tags: currency, recession

Local currencies come up frequently in discussions of relocalization and how to make it happen. Currently there are a number of successful local currencies to which advocates often defer, including Ithaca Hours, the Totnes Pound, and Berkshares, among others. The goal of these currencies is to keep wealth and liquidity circulating in a particular geographic region, with the anticipation that doing so will bolster local wealth and create a buffer against problems — even very serious problems — in the global economy.

As a small business owner I can state with confidence that the current crop of local currency models are either not helpful, or decidedly harmful, to small businesses in general and I would not be able to participate in any of them.

As we head into uncharted economic territory, my primary concern is that my clientele is losing its ability to purchase my services on two counts. First, most of my clients use some form of credit to pay me, whether through credit cards, withdrawals against revolving credit lines, or what-have-you. It would be very difficult, if not impossible, for them to secure enough local currency denominated credit to cover the cost of a website design & development project. Moreover, since local currency by definition cannot circulate outside the local economy, even if they could secure enough alternative currency notes to pay me, I cannot use these for the vast majority of my business expenses. Literally nothing my everyday operations require can be manufactured locally or even regionally, and many things cannot even be purchased locally. Accepting these local currencies in anything but nominal amounts would be, for me, a fast track to bankruptcy.

Running a close second is my concern that inflation, deflation, and/or stagflation is eroding my clients’ purchasing power. In just the past year prices for various things have both risen and fallen dramatically, with the net effect being that whatever cash is circulating out there can no longer buy what it recently could. A local currency pegged to the value of the national fiat currency, when that currency is unstable, also makes the local currency unstable and does not support my clients’ purchasing power. For example, one Ithaca Hour is valued at US$10, because when Hours were initially conceived in 1991, US$10 per hour was the average wage in Ithaca. Adjusted for inflation, one Ithaca Hour was worth US$6.56 in 2007. That doesn’t help me or my clients.

The Berkshares example is even worse. Berkshares were set to exchange at 10:9 against the dollar — that is, 10 Berkshares cost US$9 to purchase. It seems crazy to me that any business owner would have participated in the Berkshares scheme: not only do Berkshares lose value at the ‘flation rate of the national currency, they force business owners to take an additional 10% hit on any Berkshares transactions. Berkshares were essentially 10%-off coupons, infinitely reusable until their expiration. In June, 2007, Reuters reported that there were “…about 844,000 BerkShares in circulation, worth $759,600 at the fixed exchange rate of 1 BerkShare to 90 U.S. cents.” In other words, from October 2006 to June 2007, Berkshares deleted US$84,400 from the Berkshires economy, entirely at the expense of small business. Ouch.

I certainly hope that in the future designers of alternative currencies take the needs of small business into account. In the meantime, here are some properties an alternative currency needs to have in order to help my business stay afloat:

1. It needs to be measured in some value of its own, separate from the national currency, in order to preserve my clients’ purchasing power
2. It needs to be readily convertible to the national currency in order to allow me to continue paying my non-local business expenses, and for tax and accounting purposes
3. It cannot have any sort of built-in penalty for its use or conversion over and above relative value and reasonable processing fees, such as national fiat currencies’ inflation rate or Berkshares’ 10% discount, in order to preserve my own purchasing power
4. It needs to be available as credit without an onerous interest burden
5. It needs to be a for-profit product issued by a for-profit organization so I can understand and trust its goals, and maneuver my business appropriately within them

I have some ideas regarding how this can be achieved, and how small businesses can implement currency-like solutions on their own without waiting for some external organization to plan & execute. I’ll post these tomorrow.