Bubble Watching

I knew something bad would eventually happen.  As a young boy in Shreveport, we would regularly ignite fireworks without adult supervision. Often these fireworks were loaded as if we were going to war. Being boys with unlimited courage (or foolishness), we would deviate from the prescribed manufacturer’s guidelines (there were none). 

Typically, we would get the most potent firecracker a/k/a Black Cats.  We would light the firecracker and release it at the last minute.  Of course, someone would attempt to be most courageous and wait even longer.  Yes, you may guess it.  Someone would eventually get hurt. However, we dared not to let an adult know.  

Likewise, our financial situation is in a crisis across the globe.  Yet, most business institutions continue to act in an unwise behavior which eventually will get them into trouble, a/k/a a bubble burst.   

A bubble can be defined as “whenever an asset’s perceived or psychological value exceeds its real economic value.”  It’s not rocket science in understanding bubbles. For example, people purchased overpriced homes that they could not continue to pay for.  The housing market’s bubble burst.  Millions of dollars came tumbling down with this bubble.  Therefore, bubbles can be toxic.    

Some bubbles are easier to see than others.  For example, Europe may be looking at a very rocky financial future.  In its book Beyond Austerity: A Path to Economic Growth and Renewal in Europe, the McKinsey Global Institute outlines the trouble that Europe faces: “The challenges Europe faces are serious-more so for some economies than others.”  

Europe’s political will is unable to change its social model.[1]  In 2009, EU-15’s productivity rates were 15% lower than the United States. In fact, Europeans work, on average, 5 weeks less than workers in the U.S. (U.S. workers are among the best in the world in productivity).  

Their seasoned citizens (ages 55-64 –years old) do not actively participate in work activities compared with the senior population in America. Many of their social services are provided by the government which puts a heavier burden on resources. Europeans are reluctant to change their current social model that is driving them into an economic ditch.  Consequently, a bubble will eventually burst. 

However, America cannot believe it’s immune to a bubble crisis like Europe.  John Wiedemer, Robert Wiedemer, and Cindy Spitzer, authors of America’s Bubble Economy, correctly predicted the 2008 economic crisis several years before it happened. 

 

Additionally, they predicted that America is headed for an even worse economic crisis, regardless of the political parties in charge.  They understand the power of understanding bubble trends:  “…the bursting of America’s bubble economy will create a temporary Bubblequake of shockwaves here and around the world, depressing stock and real estate values, driving up interest and inflation, and throwing the U.S. and other economies into temporary global recessions.”[2]  The following elements are what the authors saw as bubble busters for the American economy before the 2008 bubble burst:

  • Huge international trade deficits that just keep getting bigger.
  • An astronomical $8 trillion federal government debt, heavily financed by foreign capital.
  • Ever-expanding consumer debt with no equal rise in consumer income.
  • The lowest savings rates in America’s history.
  • A national housing market that has climbed 80% in the last several years while income rose only 2%.
  • An economy that is now heavily dependent on historically low interest rates and low inflation rates that require massive foreign capital to maintain.

 Clearly, those predictions were made for 2008.  However, has anything changed since then as it relates to these elements?  Consequently, those organizations that watch bubbling trends, analyze them, and act accordingly have the greatest opportunities for sustainable success. 

Discuss a potential bubble in your industry and how an organization or individual can leverage this problem into an opportunity? 

© 2012 by Daryl D. Green


[1] Beyond Austerity: A Path to Economic Growth and Renewal in Europe by the McKinsey Global Institute

[2] America’s Bubble Economy by John Wiedemer, Robert Wiedemer, and Cindy Spitzer

Following the Path of Globalization

Why should I care what happens across the globe?  I have a mortgage to pay, a family to feed, and a job I hate. Who cares about globalization?  We should all be concerned about globalization.  It impacts us…and we do not even recognize it. 

Global disruptions plague most financial institutions.   For example, Europe offered a bailout package of up to (euro) 100 billion ($125 billion U.S.) to help secure the country’s banks. 

Spain became the fourth and largest European country to request financial help. Seventeen countries from the eurozone sent a statement explaining that this funding would go directly to a Spanish fund set up to recapitalize its banks.  

Nevertheless, the economic crisis in Europe worries financial experts in America because trading and commerce interlock countries together.   Therefore, America will not be able to escape any global financial crisis. 

As I teach international business, I often hear students state that they do not have any international experience. Yet, they do not understand that social media platforms like Facebook and Youtube make them global. 

In fact, Facebook continues to dominate the virtual landscape with 500-million-users. It is transforming how the world communicates.  If Facebook was a country, it would be the world’s third largest country. Therefore, Facebook represents a serious way individual citizens can be a part of this global community. 

More importantly, individuals need to understand that globalization is reshaping society and how we live as people.  Charles Hill, author of International Business, suggests that most people cannot avoid the impacts of globalization:  “As the world shifts toward a truly integrated global economy, more firms, large and small, are becoming international businesses.” 

 

Thomas Friedman, author of The World is Flat, further outlined the interconnectivity of economies with his concept of flattening. Friedman states that Globalization 1.0 and 2.0 were driven primarily by European and American influences. However, Globalization 3.0 was being driven by more inclusive and diverse forces. 

Friedman explains, “…the dynamic force in Globalization 3.0 – the force that gives it its unique character – is the newfound power for individuals to collaborate and compete globally.” 

Therefore, individuals do not need to wait on their countries or businesses to ‘go global.’ Individuals can build their own personal brands globally with social media platforms like Facebook.

How can academic institutions in America best serve students in understanding the ramifications of globalization?  Feel free to use your personal experiences as examples.

 © 2012 by Daryl D. Green