Transcript Financial Planning in the Emerging Butterfly

Financial Planning in the
Emerging Butterfly
Economy
Realities,
Trends, and
Discontinuities
Thomas H. Greco, Jr.
Financial Planning Association Retreat
Bonita Springs, Florida
May 5, 2011
The Future Will Not Be Like the Past
RISKS IN MIRROR
MAY APPEAR
SMALLER THAN THEY ARE
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Main Topics
 Mega-crisis
 Growth imperative
 Debt money system
 Class war
 Butterfly economy
 Exchange alternatives
 A New Paradigm in Finance
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Mega-Crisis
Facing the facts

Climate Change
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End of Cheap Energy
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Resource Depletion
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Pollution
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Industrialization of the developing
economies
Financial Disruption
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Greenhouse gasses > Global
warming/cooling?
Increasing costs of production and
transportation
Fresh Water, Soil fertility, Minerals, Forests,
Marine resources, etc.
Or
Chemical,, nuclear, noise
Bankruptcies & Unemployment
Currency debasement/Inflation
Debt growth
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Mega-Crisis
More facts
 Spreading social unrest over
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Price inflation in food fuel, and basic
necessities
Growing unemployment and lack of
economic opportunity
Growing disparities of income and wealth
Repressive government and lack of
personal freedom
Or
 A growing world population
 Rapidly aging populations in
the developed world
 General Institutional Failure
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Exponential Growth is
Killing Us
"Anyone who believes exponential
growth can go on forever in a
finite world is either a madman
or an economist."
--Kenneth Boulding, Economist
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What is growing exponentially?
Human
Population
2011 world population
= 6.9 billion
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What is growing exponentially?
Atmospheric
CO2
2011 level
392 ppm
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What is growing exponentially?
Debt
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Unsustainable Growth
 The DRIVER
 The money system based on lending
at compound interest
 The ENABLER
 The ready availability of fossil fuel
energy
 The BRAKE
 Nature
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The Political Money Regime
 Centralizes power and concentrates
wealth
 Undermines popular government
 Forces artificial growth
 The debt imperative
>> growth imperative
 Erodes the social fabric
 Destroys the environment
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The Growth Imperative
How Compound Interest
Forces Artificial Growth
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The Money Machine
• “The actual process of money creation
takes place primarily in banks.
• …checkable liabilities of banks are
money.
•
These liabilities are customers’ accounts.
• They increase.. when the proceeds of loans
made by banks are credited to borrowers’
accounts.”
-- Federal Reserve Bank of Chicago
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The Creation of Bank Debt-Money
as Deposits
Banks create
money in the
form of
“deposits” or
account
balances when
a “loan” is
granted.
Bank
Account
Deposit
(liability)
Mortgage
Note
(asset)
Debt
Money
Mortgage
note
As interest accrues, the supply of money
available for repayment becomes deficient.
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As interest accrues, the supply of
money available for repayment
becomes deficient…
…Unless more debt is created.
That is why the federal budget
cannot be balanced.
Government becomes the
Borrower of Last Resort
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U.S Government
Revenues minus Spending
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The Credit
Commons
Public
sector
“loans”
Private
sector
“loans”
Banks
“loans”
Central Government
The credit commons is the virtual pool of credit that enables economic
exchange. In the current system, it can be accessed only by
“borrowing” from banks!
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F=(1+i)n
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Growth of One Dollar at Compound
Interest
6%
10%
50 years
$18.42
$117.39
100 years
$339.30
$13,780.65
200 years
$115,124.
$189,906,200.
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The Current Financial and
Economic Environment
Systemic Failure of Conventional
Money and Banking
 The political money
system is shaking itself
apart
 Bubble-and-bust cycles are
becoming ever more
extreme
 Explosive expansion of debt
and debasement of the
money
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Bubble
Bust
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United States
National
Government
Debt
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$14.3 trillion
as of May 3, 2011
(not including guarantees)
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Total Debt by Sector % of GDP
Selected Countries
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Discontinuity
"This crisis ...has brought the entire
[financial] system to the brink of a
breakdown, and it is being contained
only with the greatest difficulty. This will
have far reaching consequences. It is
not business as usual but the end of
an era."
—George Soros, The New Paradigm for Financial
Markets: The Credit Crisis of 2008 and What It
Means, p. 81.
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Dollar Demise
Accident, Disease, or Murder?
 Ever increasing U.S. budget deficits
 Dollar inflation by the Fed and the banking
system*
 Dollar divestment by China and others
 Loss of reserve currency status
 Bilateral and multilateral settlement
agreements
 BRICS establishing mutual credit lines in own currencies
 China-Russia , South American countries, etc…
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Class War by the Superclass
“There’s class warfare, all right, but it’s my class,
the rich class, that’s making war, and we’re
winning.”
—Warren Buffet , NYT, 2006
“Whether you like it or not, there is no way to
deny the enormous, disproportionate,
concentration of power and wealth in the hands
of a relatively small number of people in the
world today. ”
—Richard Holbrooke, Former U.S. Ambassador to the
U.N.
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The “New World Order”
”The powers of financial capitalism had a farreaching plan, nothing less than to create a world
system of financial control in private hands able to
dominate the political system of each country and
the economy of the world as a whole... Their
secret is that they have annexed from
governments, monarchies, and republics the
power to create the world's money…”
- Prof. Carroll Quigley, Georgetown historian, mentor
of former President Clinton, and author of Tragedy &
Hope: A History of the World in Our Time, 1966
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Systematic Destruction of the
Middle-Class
 Reduced incomes
 Loss of jobs—unemployment and
underemployment.
 Low return on savings.
 Increasing cost of living
 Price inflation caused by dollar inflation.
 Increasing cost of bank financing & services
 Higher and more regressive taxes.
 Destruction of savings
 Dollar inflation (debasement) destroys purchasing
power.
 Political attack on social programs
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Inflation, Deflation or
Stagflation?
Purchasing power
To keep this game going, the monetary
authorities have no choice but to
inflate the supply of dollars.
Currency Inflation >> Price Inflation
In the wake of monetary inflation, price
inflation must inevitably follow.
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The Real Cost of Living
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Disturbing Realities
The Disappearing Middle-class
 The bottom 50% of income earners in the U.S.
own less than 1% of the nation’s wealth.
 66 percent of the income growth between 2001
and 2007 went to the top 1% of all Americans.
 The ratio of executive's pay to worker's pay
~30 to 1 in 1950; now ~ 300 to 500 to one.
 Squeeze on labor. A garment worker in China
earns 86 cents/hour, in Cambodia 22 cents/hour.
 Over 1.4 million Americans filed for personal
bankruptcy in 2009, 32% more than in 2008.
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Rising
Income
Inequality
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Income Maldistribution
Income by Quintile
2002
Top
49.7%
Second
23.3%
Third
14.8%
Fourth
8.8%
Lowest
3.5%
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Wealth Distribution more unbalanced
than Income Distribution (2004)
Wealth
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Income
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Tax Shift
Highest marginal income tax rates
1913-1915
1918
1922-23
1925-1931
1932-1949
1950-1963
1965-1980
1982-1986
1988-1992
1993-2002
2003-2011
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7%
77%
56%
25%
63-94%
91%
70%
50%
~31%
~40%
35%
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Corporate tax as a share of GDP, 1946-2009
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Unreliable Bank Credit
 The productive sector, especially
SMEs, are starved for credit, while
 Money is lavished on government, the
financial sector, and the M-I complex.
 The political money system favors the
demands of
 BIG banks,
 BIG corporations and
 BIG government.
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Where is Civilization Headed?
 Disintegration and collapse?
 Greed, selfishness, separation
 Societal Metamorphosis?
Emergence of the Butterfly
Society
 Generosity, compassion, solidarity
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The Beginning of
The Butterfly Economy
METAMORPHOSIS
From
• Superfluous accumulation
• Violent conflict, and
• Wasteful consumption
To
Sustainable conviviality
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The Old World Order
Based on belief in
 Separateness
 Scarcity
 Violent conflict and competition
 Command and control
 Elite rule
 Immutable and “sinful” human nature
Favors large scale hierarchical organization and
centralized control to impose order and mitigate
risks
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The New, “Convivial” World Order
Based on belief in:
 Human Unity & The Oneness of all life
 “Abundant sufficiency”
 Sharing, Cooperation, and Non-violence
 Collective intelligence and community selfgovernment
 Potential for human improvement
 Personal freedom
Favors diverse, decentralized, small-scale
systems and communities that enable freedom
and self-expression.
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The Old “Caterpillar” Economics
Promoted
Continuous growth of economic output
Quantitative measures of value and well-being
Privatization and capital accumulation
Resource consumption and competition for
control
 Labor productivity
 Growing disparities of wealth and power
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The Consumer Society
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The New “Butterfly” Economics
Promotes
 Steady-state economic output
 Qualitative measures of value and well-being
 Restoration of the commons
 Resource productivity, sharing and
regeneration
 More equitable distribution of wealth and
power
The Convivial Society
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Transitions
 Sustainable Development vs. Growth
 Steady-state economy
 Livelihood vs. Jobs
 More equitable distribution vs.
increasing disparities of income and
wealth
 Quality of Life vs. Quantity of
Consumption
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Credit makes the world go
‘round
Two Distinct Kinds of Credit
Exchange Credit
Finance Credit
 Purpose: to facilitate  Purpose: to fund
capital development
exchange
 Short-term
 Basis for newly
created money
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 Long-term
 Reallocation of
existing money from
savers to
entrepreneurs
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The Devolution of Power
Three main arenas
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Reclaiming the Credit Commons
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Shift of Savings and Investment
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From Employment to Enterprise
Cashless Exchange Associations & Private/Local
Currencies
Available resources applied to community
resilience and sustainability
Self-employment, Diversification of skills, DIY,
Make for use
Cooperation * Sharing * Reorganization
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Emergent Exchange Alternatives
Trade Exchanges and
Private alternative currencies
are proliferating and well positioned to
provide SMEs and local economies with
 Reliable inexpensive credit and
 Supplemental exchange media,
 Based on the exchange of real value
By monetizing the local value-added
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Cashless Trading:
Decades of Success
 The WIR business
circle cooperative
(Wirtschaftsring)
 Proliferation of
commercial
(“Barter”) Trade
Exchanges
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From Wall Street to
Main Street
People are choosing to:
 Spend locally
 Save locally
 Invest locally
Dollar resources applied to projects that:
 Enhance local community resilience, selfreliance and quality of life.
 Provide greater local security in food,
energy, housing and other necessities of life.
 Protect resources from loss caused by
inflation of the dollar.
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The Future of Finance
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Shift in personal investment objectives
 Capital preservation is foremost
 Values driven. -Focus on the common good
SRI (Socially Responsible Investing) becomes proactive
Localization and focus on community resilience
Shift from mega-banks to credit unions and mutual institutions
Disintermediation
 Direct investment
 Crowd funding and crowd sourcing
The rise of Islamic finance
Shift from debt to equity
The end of interest
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Basic Financing Alternatives
Debt
Short-term vs.
Long-term
Secured vs.
Unsecured
Interest-bearing
vs. Non-interestbearing
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Equity
Shared
Revenue
Temporary
equity vs.
Permanent
equity
Specified
proportions
for a
specified
time period
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Saving the bacon?
Use it or lose it.
 Lend it
 Community loan funds
 Peer-to-peer micro-lending
 Invest it
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Productive real estate
Investment clubs
Cooperatives
LLCs
 Give it away
 Crowd sourcing
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Prescriptions for Community
Economies
1. Reduce competition with other economies
 Withdraw from the race to the bottom
2. Invest in local infrastructure and enterprises
3. Reduce dependence upon imports and export
markets
 Import substitution
 Produce more for local consumption
4. Enhance opportunities for local exchange
5. Increase the local value-added
6. Monetize the local value-added
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Projects and Organizations
Transition USA (254 groups)
Move Your Money
Slow Money Alliance
Green America
Business Alliance for Local
Living Economies (BALLE)
 The American Independent
Business Alliance (AMIBA)
 Common Good Bank
 e3 Bank
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Find your place in the
Butterfly Society
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Resources
Websites:
http://BeyondMoney.net
http://ReinventingMoney.com
http://transitionus.ning.com/
http://www.slowmoneyalliance.org/
http://www.kickstarter.com/
Books:
 The End of Money and the Future of Civilization
 Money: Understanding and Creating Alternatives to
Legal Tender – Thomas Greco
 Going Local & The Small-mart Revolution – Michael
Schuman
 Slow Money – Woody Tasch
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