August 2009 - Global Economic Watch


Global Economic Watch


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Customer Relations in 'The Facebook Era'

08-31-2009 9:27 AM with no comments

Clara Shih--creator of the business networking tool Faceconnector, and author of The Facebook Era--is a true believer in social media's potential to transform how we do business.  She spoke earlier this month at Hewlett Packard headquarters about social media as a "transformative technology," and how businesses might use Facebook, Twitter, and other popular social media tools to connect with the right customers, partners, and potential employees.  In this excerpt, she covers the marketing potential in social media:

Watch Shih's full address here.  

Posted by Graham Griffith

Tasty Startup Story: Chez Panisse

08-31-2009 8:01 AM with no comments

Foodie fans of fine French cuisine from all over have been known to schedule trips to the Bay Area just to get a table at Berkeley's Chez Panisse.  Alice Waters, the celbrated owner of Chez Panisse, started the business back in 1971.  She has been honored with the prestigious James Beard Award, a Bon Apetit lifetime achievement award, and most recently accolades from the French Legion of Honor, for her contributions to cuisine.  Getting the food right was one challenge.  But the bigger challenge was learning how to run a business.  Waters shares her Startup Story at CNNMoney, and she says the beginning, as with most startups, was rocky:

"In no time I had 50 employees, and I didn't know how to manage any of them," Waters says. "We were open seven days a week from 7:30 a.m. to 2 a.m., serving breakfast, lunch and dinner. It was too much. We were hemorrhaging money. I had to lay off half of my staff, and we stopped serving breakfast and closed on Sundays."

She turned things around, and the business started to make a profit...after eight years.  Read How Chez Panisse Began here.  

Posted by Graham Griffith

Listening Assignment: Authors of 'The Road Ahead for the Fed' on Bloomberg Radio

08-28-2009 1:49 PM with no comments

Catching up on some missed radio programs (G-d bless the ease of online archives these days).  Last week on Bloomberg Radio, Tom Keene had a 4-day series with four economists who were among a dozen authors of the new book The Road Ahead for the Fed.  Timely book and timely conversations.  

Go to the On the Economy page and start with the August 17 program in which Allan Meltzer speaks with Keene about what he terms the "Fed's biggest mistake"--letting Lehman collapse.  Then work your way through Myron ScholesJames Hamilton, and John Taylor.  

Click here for the archives for Tom Keene's program, and happy listening.  

Posted by Graham Griffith

Arianna Huffington on the 'Linked Economy' and the Future of News Media

08-28-2009 8:51 AM with no comments

While you may have no trouble finding something to argue with on the Huffington Post, you can't argue that Arianna Huffington hasn't built a strong online brand.  With the growth of her site, she has a seat at the table with old media's big boys.  And she says the future of the news media business will be about free access and "the linked econonomy."  Here she is speaking with Jon Friedman of the Wall Street Journal, one powerful media player that is taking a very different approach and will be pushing people to pay for more of its content online:

Posted by Graham Griffith

Going Green During the Downturn

08-27-2009 12:11 PM with no comments

Andrew Winston, author of Green Recovery says going green during the recession is sound business, and may help assure that a company is poised to grow faster during economic recovery.  He writes, in the Harvard Business Review, that "greening your business, and involving everyone in the process, can keep people motivated and help your company ride out the storm."

I suggest approaching your people on three levels: First, support their efforts at home. Wal-Mart’s Personal Sustainability Project has allowed more than 500,000 workers to make and keep commitments to their planet and to their health by, for example, using less water or biking to work. Second, form “green teams” to harness environmental concern and tackle symbolic eco-waste around the office (for instance, by eliminating plastic water bottles). Third, and most important, encourage workers to move past this base of awareness to focus their energies on the core business. The ultimate goal, especially during a recession, is to improve your company’s performance and competitive position through green strategy.

In this video from Harvard Business Publishing, Winston discusses approaches various businesses are demonstrating energy-efficient practices that are innovative and smart business: 

Posted by Graham Griffith

Chinn and Frieden: A Flood of Foreign Capital and a Sinking Economy

08-27-2009 8:20 AM with no comments

Menzie Chinn and Jeffrey Frieden tackle the Sixty-four-thousand million billion dollar question in the LaFollette Policy ReportWhat caused the crisis?  De-regulation and the "1990s era amendments to the 1977 U.S. Community Reinvestment Act?  Greed?  "Overly loose monetary policy"?  East Asian oil-rich nations building up a "savings glut"?  Some, or maybe even all, of these factors might have exacerbated the crisis.  But Chinn and Frieden say the cause is fairly straightforward for those who have looked at some past international economic crises, like those of East Asia in 1997-98, Germany in the 1930s, and the US in the 1890s.  This is an example of a "capital flow cycle," and it all comes down to the US debt problem, they write.  

By 2004, the federal budget deficit was more than $400 billion, the largest in history. As shown in Figure 1 (below), this deficit rivaled those of the Reagan deficits of the early and middle 1980s. The government ran these deficits with ease, for it could borrow just about as much as it wanted internationally. This ready access to capital funds was the new reality of globally integrated financial markets. 

The result was a continual rise in America’s foreign debt, expressed as a share of GDP. This is most clearly seen in the size of the country’s current account deficit, the amount the country needs to borrow from the rest of the world to pay for the excess of its imports over its exports. In other words, a current account deficit means that the country is not covering its current expenses out of current earnings, so that it must borrow the difference from abroad. Between 2001 and 2007, the American current account deficit averaged between $500 billion and $1 trillion every year, resulting in a current account deficit equal to an unprecedented 6 percent of GDP in 2006, as Figure 2 shows. For a while, this borrowing failed to manifest itself in a corresponding degree of indebtedness to the rest of the world—largely because the dollar’s value fell over this period (and most of America’s assets abroad are denominated in foreign currency). However, that string of good luck ended in 2008, when America’s net indebtedness to the rest of the world deteriorated substantially (about $1.3 trillion). This episode demonstrates that, in fact, there is no such thing as a free lunch, no matter how much things appear to change.

Read Reflections on the Causes and Consequences of the Debt Crisis of 2008 here.

Posted by Graham Griffith

Human Centered Design and a $25 Incubator

08-26-2009 10:39 AM with no comments

I'm a big fan of designer/innovator/educator George Kembel.  He's a co-founder and executive director of Stanford's  The is a multi-disciplinary design institute centered on teaching design thinking.  Design thinking, to put it simply, is a human centered design approach.  Kembel spoke at the Chataqua Institute earlier this month, and he shared an example of a product that students developed--a $25 incubator.  Those students have since launched a company, Embrace, through which they plan "to help the 20 million vulnerable babies born every year around the world, who can not access traditional incubators that cost up to $20,000."  Here's Kembel in an excerpt from the speech.

Kembel's full speech is titled Awakening Creativity, and in it he talks about how to tap into creativity and innovation.  You can watch it by clicking here.   

Posted by Graham Griffith

Moving Images in Magazine Ads

08-26-2009 9:16 AM with no comments

AdAge highlights a major moment in print advertising.  The September issue of Entertainment Weekly will feature video ads.  That's right, video in a periodical:

Is this really a game-changer, in the age of iPhones and other PDAs that meld video and text?  If you think it is, please click on comments and tell us why.  

Posted by Graham Griffith

Case-Shiller Continues Upward Trend

08-26-2009 8:38 AM with no comments

The latest Case-Shiller Index shows the month-over-month trend in housing prices improving.  From Standard and Poor's release:

The chart above depicts the annual returns of the U.S. National, the 10-City Composite and the 20-City Composite Home Price Indices. The S&P/Case-Shiller U.S. National Home Price Index – which covers all nine U.S. census divisions – recorded a 14.9% decline in the 2nd quarter of 2009 versus the 2nd quarter of 2008. While still a substantial negative annual rate of return, this is an improvement over the record decline of 19.1% reported in the 1st quarter of the year. The 10-City and 20-City Composites recorded annual declines of 15.1% and 15.4%, respectively. These are also improvements from their recent respective record losses of -19.4% and -19.1%.

“For the second month in a row, we’re seeing some positive signs,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The U.S. National Composite rose in the 2nd quarter compared to the 1st quarter of 2009. This is the first time we have seen a positive quarter-over-quarter print in three years. Both the 10-City and 20-City Composites posted monthly increases, as did most of the cities.

So does this mean housing prices have bottomed out?  Calculated Risk doesn't think so:

In some areas prices have probably already hit bottom - like some non-bubble areas, and some bubble areas with significant foreclosure activity.

But I think many areas, especially the mid-to-high priced bubble areas, there will be further price declines. I'm 
not as certain as I was in 2005, but I think these price declines will drag down the Case-Shiller indexes - and I don't think the price bottom is in.

I do not have a crystal ball, but ...

It seems there are many more foreclosures coming. Some of this depends on the success of the modification programs, but the 
Q2 MBA delinquency report shows a growing number of homeowners in the problem pipeline. 

Read the full Calculated Risk post here.  

Posted by Graham Griffith

First Reactions to Bernanke Reappointment

08-25-2009 10:36 AM with no comments

President Obama announced this morning that he is going to nominate Ben Bernanke for reappointment as Chair of the Federal Reserve.  And we already have many reactions in the Econoblogosphere.

Greg Mankiw gives congrats to the President, and condolences to Bernanke.

Brad DeLong agrees with Greg Mankiw (not an isolated incident, but rare nonetheless).  And while DeLong is "surprised" Bernanke is being reappointed, he thinks the Fed Chair "is one of the best in the world for this job."

David Kotok of The Big Picture writes that "markets will like the removal of uncertainty," but Bernanke has to recognize that the Fed can't go it alone and "needs to find a path for coordinated action when the time to remove the stimulus is at hand."

And Phil Izzo compiles quotes from supportive economists at the Wall Street Journal's Real Time Economics blog.  Read their comments here.  

Posted by Graham Griffith

Delinquency Rate and Foreclosure Talk

08-25-2009 8:11 AM with no comments

The delinquency rate on home loans for single family and multifamily houses (not including houses with more than four units) is at an all-time high, according to the Mortgage Bankers Association.  The MBA's National Delinquency Survey now shows a delinquency rate for the second quarter of 2009 of 8.86%.  The delinquency rate does not include homes that have been foreclosed or are somewhere in the foreclosure process.  Including those homes would push the rate up to 13.16%--"the highest ever recorded in the MBA delinquency survey" (which dates back to 1972).

This data might give some weight to what David Karsbøl--chief economist of the online investment bank Saxo Bank--said on CNBC this morning.  Skip past all the market watching talk to  2:45, where Karsbøl says that any stock market rally "doesn't make any sense," because a "tsunami of foreclosures is coming,":

Karsbøl backs his points with largely anecdotal evidence, suggesting that Americans are so angry about the bailouts and neighbors sitting in homes and not paying their mortgages that more and more people will do so.  It is hard not to expect many more foreclosures are coming, given the high rate of people who are behind on their payments.  But do people really make major financial decisions (like whether to skip out on a loan) based upon a neighbor's behavior?  

Meanwhile, CitiGroup is adding to 1400 more employees to help modify delinquent loans as part of the Obama Administration's efforts to stem the tide of foreclosures. 

Posted by Graham Griffith

Pop-up Stores for the Independent Business

08-24-2009 10:07 AM with no comments

Pop-up shops are not new--Trendwatching tagged pop-up retail a new trend back in 2004--they may fit the current economy particularly well.  Big companies like Target and Delta have gotten into the game, according to Forbes.  But small businesses, and designers especially, can use the pop-up shop to quickly hit the market with their merchandise without tackling the long term challenges of retail.  MSNBC's Your Business made a visit to one storefront recently, where a designer took over a space on a Monday.  By Thursday she was up and running, selling her latest creations.  Take a look:

Visit for Breaking News, World News, and News about the Economy

Posted by Graham Griffith

V, U, or W? Roubini on Recovery

08-24-2009 8:16 AM with no comments

Nouriel Roubini is once again painting a darker view of the coming year than many of his contemporaries.  While he is on board with the thinking that the recession is bottoming out this year, he sounds a warning over the possibility of a "double-dip recession."  In a must-read piece in the Financial Times, he outlines reasons that recovery will be at best a U-shaped recovery--though he hints at a W-shape.  Here are the first three of his seven reasons:

Employment is still falling sharply in the US and elsewhere – in advanced economies, unemployment will be above 10 per cent by 2010. This is bad news for demand and bank losses, but also for workers’ skills, a key factor behind long-term labour productivity growth.

Second, this is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest.

Third, in countries running current account deficits, consumers need to cut spending and save much more, yet debt-burdened consumers face a wealth shock from falling home prices and stock markets and shrinking incomes and employment.

Read The Risk of a Double Dip Recession is Rising here.

Posted by Graham Griffith

Joel Stein visits "Less Vegas"

08-21-2009 8:42 AM with no comments

It is hard to find a city that went so spectacularly from boom to bust than Las Vegas.  Just look at how the Case-Shiller Index has dropped for Vegas over the last two years:

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Joel Stein went to Las Vegas to see how it has changed since the crisis hit, and to take advantage of expected deals.  His article about the trip is the cover story in this week's Time, and Stein says he felt "guiltless about taking advantage" of Vegas while it is down:

This has been the first major recession Vegas has experienced since it became a real city. After two decades as one of the fastest-growing metropolises in the U.S., Las Vegas has seen its population growth flatten. It's got the highest foreclosure rate of any major metro area, and the unemployment rate jumped from 3.8% to 12.3% in just three years. Even if you have a job, it's not a good time to have your wage be dependent on lavish tips. The No. 1 convention city has also had a wave of cancellations from the AIG effect — companies don't want the bad publicity of being seen in Sin City. Just as Las Vegas was the epicenter of the extravagant consumption of the past 20 years, now it's the deepest crater of the recession over the last year. And while I do want to get my money back, I'm a little worried about seeing the dream sucked out of our most American city, the one with the optimism and possibility of New York City in 1900. The one I've, embarrassingly, come to love.

You can read  Less Vegas: The Casino Town Bets on a Comeback  here.  Also, take a listen to Stein's interview with Marketplace's Tess Vigeland.


Posted by Graham Griffith

Cleveland Fed Proposal for Regulating 'Systemically Important Financial Institutions'

08-20-2009 10:47 AM with no comments

A group of researchers at the Cleveland Fed have a new idea for how to deal with the so-called "too big to fail" institutions.  In language more suited to a Fed researcher, James Thomson--Vice President and Financial Economist at the Cleveland Fed--calls them "Systemically Important Financial Institutions," and he writes in a paper that the first step is better defining these institutions:

The purpose of creating a practical definition of systemic importance is to enable supervisors to discipline systemically important financial institutions. Understanding the nature and causes of systemic importance is the foundation for creating regulations, supervisory policies, and infrastructure that will rein in the associated systemic risk; in some cases, doing so sufficiently mitigates an institution’s potential systemic impact so that it would no longer be considered systemically important. Because any two firms could be deemed systemically important for unrelated reasons, a one-size-fits-all designation such as “too big to fail” is inadequate. Consequently, the approach taken here is to propose a means of classifying systemically important financial institutions (SIFIs).

And the economists at the Cleveland Fed tout a three-tiered approach to regulating SIFIs.  You can more about the approach here, and watch this helpful Drawing Board video:

(Hat tip to Caitlyn Kenney at Planet Money)

Posted by Graham Griffith

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