Sense on Cents

It is often difficult, if not near impossible, for an individual, company, institution, or even a government to provide a measured, honest, and unbiased perspective of a difficult situation. Given one’s proximity and emotional attachment to the situation, human nature clouds one’s viewpoint and, in turn, one’s reactions and responses.

How great it is when we can receive the sage wisdom of a neighbor, a retired executive, a former coach, or on the international level a true statesman. While we may find it difficult to hear and deal with a tough message, ultimately the greatest form of “tough love” is simple truth and honesty.

A good friend of mine was gracious enough to share some video clips of a recent interview with Paul Keating, former Prime Minister and Treasurer of Australia. Mr. Keating speaks from experience and does not sugar coat the current economic turmoil. While the three video clips (listed below) run approximately 20 minutes in total length, please allow me to provide a bullet point overview of some of the highlights. When you do have some spare time, I strongly encourage you to view these clips and gain the benefits of his wisdom. I do not think you will be disappointed, although you may be a bit dismayed as to his blunt honesty. In the meantime, here’s a brief overview:

— Australia had only 1 of the top 50 global banks prior to this crisis. It now has 4 of the top 15. 

— the top 200 global financial institutions have had an average loss of 74% of market value.

— the current global economic turmoil is worse than it appears…

— the United States can not reflate the world…

— inflation is coming…

— the G-7 and International Monetary Fund (IMF) are no longer viable entities as structured, and the international economic community needs to formulate new bodies. In the process, we will see a significant shift in power and influence toward surplus nations (primarily China) from debtor nations (primarily United States).

— the Obama administration’s greatest challenge is its engagement of China. It must embrace China and not attempt to dictate to the Chinese along the lines of Treasury Secretary Geithner’s comment about China manipulating its currency.

— Keating strongly castigates the U.S. rating agencies, regulatory bodies, and banks for their neglect and incompetence in risk management.

— a “Bad Bank” may be necessary and has worked previously in other global financial crises

— the global economy needs to work towards debtor nations (U.S. and Europe) saving more, and surplus nations (China and Japan) spending and consuming more

— Keating views himself as neither a fiscal liberal nor conservative, but rather a fiscal pragmatist

— the United States needs to appreciate that it is in for a long and deep recession that will likely last 6 to 7 years!!! (While I believe Keating is being unduly pessimistic in his assessment, I also believe that those who think the economy will turn around in the next 12 to 18 months are being unduly optimistic.)

No pandering, no nonsense. Mr Keating delivered a simple direct message that I, for one, appreciated. Tough love. 

Now let’s go to the videos . . .