Financial Planning in the Emerging Butterfly Economy Realities

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 5/5/2011 Thomas H. Greco, Jr. 2

Main Topics o Mega-crisis o Growth imperative o Debt money system o Class war o Butterfly economy o Exchange alternatives o A New Paradigm in Finance 5/5/2011 Thomas H. Greco, Jr. 3

Mega-Crisis Facing the facts o Climate Change o End of Cheap Energy o Resource Depletion o Pollution o Industrialization of the developing economies Financial Disruption o n n n n 5/5/2011 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 Thomas H. Greco, Jr. 4

Mega-Crisis More facts o Spreading social unrest over n n 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 o A growing world population o Rapidly aging populations in the developed world o General Institutional Failure 5/5/2011 Thomas H. Greco, Jr. 5

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 5/5/2011 Thomas H. Greco, Jr. 6

What is growing exponentially? Human Population 2011 world population = 6. 9 billion 5/5/2011 Thomas H. Greco, Jr. 7

What is growing exponentially? Atmospheric CO 2 2011 level 392 ppm 5/5/2011 Thomas H. Greco, Jr. 8

What is growing exponentially? Debt 5/5/2011 Thomas H. Greco, Jr. 9

Unsustainable Growth o The DRIVER n The money system based on lending at compound interest o The ENABLER n The ready availability of fossil fuel energy o The BRAKE n Nature 5/5/2011 Thomas H. Greco, Jr. 10

The Political Money Regime o Centralizes power and concentrates wealth o Undermines popular government o Forces artificial growth n The debt imperative >> growth imperative o Erodes the social fabric o Destroys the environment 5/5/2011 Thomas H. Greco, Jr. 11

The Growth Imperative How Compound Interest Forces Artificial Growth 5/5/2011 Thomas H. Greco, Jr. 12

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 5/5/2011 Thomas H. Greco, Jr. 13

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. 5/5/2011 Thomas H. Greco, Jr. 14

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 5/5/2011 Thomas H. Greco, Jr. 15

U. S Government Revenues minus Spending 5/5/2011 Thomas H. Greco, Jr. 16

The Credit Commons Public sector “loans” Private sector “loans” Banks Central Government “loans” The credit commons is the virtual pool of credit that enables economic exchange. In the current system, it can be accessed only by 17 “borrowing” from banks!

F=(1+i)n 5/5/2011 Thomas H. Greco, Jr. 18

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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. 5/5/2011 Thomas H. Greco, Jr. 20

The Current Financial and Economic Environment Systemic Failure of Conventional Money and Banking o The political money system is shaking itself apart o Bubble-and-bust cycles are becoming ever more extreme o Explosive expansion of debt and debasement of the money 5/5/2011 Thomas H. Greco, Jr. Bubble Bust 21

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United States National Government Debt 5/5/2011 $14. 3 trillion as of May 3, 2011 (not including guarantees) 24

Total Debt by Sector % of GDP Selected Countries 5/5/2011 Thomas H. Greco, Jr. 25

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. 5/5/2011 Thomas H. Greco, Jr. 26

Dollar Demise Accident, Disease, or Murder? o Ever increasing U. S. budget deficits o Dollar inflation by the Fed and the banking system* o Dollar divestment by China and others o Loss of reserve currency status o Bilateral and multilateral settlement agreements n BRICS establishing mutual credit lines in own currencies n China-Russia , South American countries, etc… 5/5/2011 Thomas H. Greco, Jr. 27

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. 5/5/2011 Thomas H. Greco, Jr. 28

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 5/5/2011 29 Thomas H. Greco, Jr.

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Systematic Destruction of the Middle-Class o Reduced incomes n Loss of jobs—unemployment and underemployment. n Low return on savings. o Increasing cost of living n Price inflation caused by dollar inflation. n Increasing cost of bank financing & services n Higher and more regressive taxes. o Destruction of savings n Dollar inflation (debasement) destroys purchasing power. o Political attack on social programs 5/5/2011 Thomas H. Greco, Jr. 31

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. 5/5/2011 Thomas H. Greco, Jr. 32

The Real Cost of Living 5/5/2011 Thomas H. Greco, Jr. 33

Disturbing Realities The Disappearing Middle-class o The bottom 50% of income earners in the U. S. own less than 1% of the nation’s wealth. o 66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans. o The ratio of executive's pay to worker's pay ~30 to 1 in 1950; now ~ 300 to 500 to one. o Squeeze on labor. A garment worker in China earns 86 cents/hour, in Cambodia 22 cents/hour. o Over 1. 4 million Americans filed for personal bankruptcy in 2009, 32% more than in 2008. 5/5/2011 Thomas H. Greco, Jr. 34

Rising Income Inequality 5/5/2011 Thomas H. Greco, Jr. 35

Income Maldistribution Income by Quintile 2002 Top 49. 7% Second 23. 3% Third 14. 8% Fourth 8. 8% Lowest 3. 5% 5/5/2011 Thomas H. Greco, Jr. 36

Wealth Distribution more unbalanced than Income Distribution (2004) Wealth 5/5/2011 Income Thomas H. Greco, Jr. 37

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 5/5/2011 7% 77% 56% 25% 63 -94% 91% 70% 50% ~31% ~40% 35% Thomas H. Greco, Jr. 38

Corporate tax as a share of GDP, 19462009 5/5/2011 Thomas H. Greco, Jr. 39

Unreliable Bank Credit o The productive sector, especially SMEs, are starved for credit, while o Money is lavished on government, the financial sector, and the M-I complex. o The political money system favors the demands of v BIG banks, v BIG corporations and v BIG government. 5/5/2011 Thomas H. Greco, Jr. 40

Where is Civilization Headed? o Disintegration and collapse? n Greed, selfishness, separation o Societal Metamorphosis? Emergence of the Butterfly Society n Generosity, compassion, solidarity 5/5/2011 Thomas H. Greco, Jr. 41

The Beginning of The Butterfly Economy METAMORPHOSIS From • Superfluous accumulation • Violent conflict, and • Wasteful consumption To Sustainable conviviality 5/5/2011 Thomas H. Greco, Jr. 42

The Old World Order Based on belief in o Separateness o Scarcity o Violent conflict and competition o Command control o Elite rule o Immutable and “sinful” human nature Favors large scale hierarchical organization and centralized control to impose order and mitigate risks 5/5/2011 Thomas H. Greco, Jr. 43

The New, “Convivial” World Order Based on belief in: o Human Unity & The Oneness of all life o “Abundant sufficiency” o Sharing, Cooperation, and Non-violence o Collective intelligence and community selfgovernment o Potential for human improvement o Personal freedom Favors diverse, decentralized, small-scale systems and communities that enable freedom and self-expression. 5/5/2011 Thomas H. Greco, Jr. 44

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 o Labor productivity o Growing disparities of wealth and power o o The Consumer Society 5/5/2011 Thomas H. Greco, Jr. 45

The New “Butterfly” Economics Promotes o Steady-state economic output o Qualitative measures of value and well-being o Restoration of the commons o Resource productivity, sharing and regeneration o More equitable distribution of wealth and power The Convivial Society 5/5/2011 Thomas H. Greco, Jr. 46

Transitions o Sustainable Development vs. Growth n Steady-state economy o Livelihood vs. Jobs o More equitable distribution vs. increasing disparities of income and wealth o Quality of Life vs. Quantity of Consumption 5/5/2011 Thomas H. Greco, Jr. 47

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 5/5/2011 § Long-term § Reallocation of existing money from savers to entrepreneurs Thomas H. Greco, Jr. 48

The Devolution of Power Three main arenas o Reclaiming the Credit Commons o Shift of Savings and Investment o 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 5/5/2011 Thomas H. Greco, Jr. 49

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 5/5/2011 Thomas H. Greco, Jr. 50

Cashless Trading: Decades of Success o The WIR business circle cooperative (Wirtschaftsring) o Proliferation of commercial (“Barter”) Trade Exchanges 5/5/2011 Thomas H. Greco, Jr. 51

From Wall Street to Main Street People are choosing to: o Spend locally o Save locally o Invest locally Dollar resources applied to projects that: o Enhance local community resilience, self-reliance and quality of life. o Provide greater local security in food, energy, housing and other necessities of life. o Protect resources from loss caused by inflation of the dollar. 5/5/2011 Thomas H. Greco, Jr. 52

The Future of Finance o o o o Shift in personal investment objectives n Capital preservation is foremost n 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 n Direct investment n Crowd funding and crowd sourcing The rise of Islamic finance Shift from debt to equity The end of interest 5/5/2011 Thomas H. Greco, Jr. 53

Basic Financing Alternatives Debt Short-term vs. Long-term Secured vs. Unsecured Interest-bearing vs. Non-interestbearing 5/5/2011 Equity Shared Revenue Temporary equity vs. Permanent equity Specified proportions for a specified time period Thomas H. Greco, Jr. 54

Saving the bacon? Use it or lose it. o Lend it n Community loan funds n Peer-to-peer micro-lending o Invest it n n Productive real estate Investment clubs Cooperatives LLCs o Give it away n Crowd sourcing 5/5/2011 Thomas H. Greco, Jr. 55

Prescriptions for Community Economies 1. Reduce competition with other economies n Withdraw from the race to the bottom 2. Invest in local infrastructure and enterprises 3. Reduce dependence upon imports and export markets n Import substitution n Produce more for local consumption 4. Enhance opportunities for local exchange 5. Increase the local value-added 6. Monetize the local value-added 5/5/2011 Thomas H. Greco, Jr. 56

Projects and Organizations Transition USA (254 groups) Move Your Money Slow Money Alliance Green America Business Alliance for Local Living Economies (BALLE) o The American Independent Business Alliance (AMIBA) o Common Good Bank o e 3 Bank o o o 5/5/2011 Thomas H. Greco, Jr. 57

Find your place in the Butterfly Society 5/5/2011 Thomas H. Greco, Jr. 58

Resources Websites: http: //Beyond. Money. net http: //Reinventing. Money. com http: //transitionus. ning. com/ http: //www. slowmoneyalliance. org/ http: //www. kickstarter. com/ Books: o The End of Money and the Future of Civilization o Money: Understanding and Creating Alternatives to Legal Tender – Thomas Greco o Going Local & The Small-mart Revolution – Michael Schuman o Slow Money – Woody Tasch 5/5/2011 Thomas H. Greco, Jr. 59