The Euro Crisis (Published in LinkedIn discussion group)

1. Spanish borrowing costs get relief but banks remain under pressure. Will Euro bank reform provide direct infusion? http://ht.ly/dLeaY #sbfi  Executive suite 23 September 2012

In anticipating Eurozone banking reform, we need to learn the word "patience". We have yet to know how the latest changes will pan out eventually. But they have made some important strides.

One is ECB will purchase unlimited amount of bonds of ailing countries; But there will be string attached, that is a bank supervision body set up for surveillance work. That changes substantially the structure and power of ECB.

These are positive steps. Lowering borrowing costs will be congenial to ameliorate the current crisis. It strengthens the governance in a prostrate and slovenly Eurozone. It is unknown how the Eurozone countries will react to losing some sovereignty. However, strong governance will curb feckless countries talk the talk, but can’t walk the walk; the move will help the early recovery of Euro zone.

2. Spanish bonds sold for record 7.18%, an unsustainable level that deepens crisis. How to restore market confidence? http://ht.ly/bFM9q #sbfi (CEO,COOCFO) 25 June 2012

The spike of bond yield shows the bank recapitalization in a wrong way. It reflects the risk premium of the dangerously high government debts to GDP (Spain’s public debt to GDP has raised to 80.1% since 2007, if adding another 100 billion loans, debt level goes up to 90 to 100%). Its resolve to tackle banking woes; country in deep recession; regional government funding drying up; and high unemployment all add up and exacerbates the economic crisis that worsening the assessment.

Three Remedies are thoughts to restore market confidence:

1. recapitalization: After external audit and stress test, there should have an estimated amount for injected fund, as what I mentioned in my previous comment, it should come from EFSF or ECB direct lending, rather through government borrowing, cutting out insidious close symbiosis between government and banking systems, preventing private debt becomes public pain. I read a piece of Reuter news today, Mrs. Merkel refused to loan direct to banks, if Germany couldn’t monitor utilization of their taxpayer’s money. Spain should learn to let private bank to shoulder the burden, and giving lender to safeguard their lending money.

It has been in my mind whether US bailout their banks was a success in 2008 financial crisis. It is mixed. In one way, it averted a full-blown financial crisis. In the other way, the bailout became a moral hazard; it rescued unappreciative beasts that lobbied legislators to dodge the passage of law, such as the Dodd-Frank's "Volcker Rule". Banks taken the advantage of the bailout, lobbied in the guise of “free market economy” to move away hindrance impeding them making more money.

What was worse, bank’s executives were so keen to get rid of the portion they were hemmed in owing to the government, unencumber them to revert to the old days paying them swingeing compensation. They disposed-off assets; it was not clear whether with the shareholder value in mind or feeding self- interest. So, while the Spaniard shouted why Spanish government lavished advantage to bailout bank? I sympathized with them. It created grossly egregious social injustice when ordeals of many living below subsistence level struggled to live their lives. American system provided the incentive fast enough to return the bailout funds but also satiated the capricious banker’s appetite.

We always adopt a putative utilitarian view to prevent cataclysmic consequences. Letting banks fail is not an option and is inimical if the contagion becomes systemic, the temptation to bailout is strong when the economy is in dire straits; those are why bank’s fiscal rectitude is at all-time important, and regulation is a way to stow bank to adhere to fiscal discipline, judiciously taking calculated risk only within bank’s capacity, refrain to act recklessly resulting financial woes.

2. Tackle head-on non-performing loan. It is estimated that troubled real estate asset amounting to € 184 billion, and is centered on Bankia. In my previous comment, I mentioned “The solution to the imminent banking crisis is to strengthen bank’s governance. Letting banks unencumbered by mortgage loans start a clean slate afresh by cordoning and purchasing all non-performing assets in one portfolio, governed by an entity (similar to bad bank); so as to lift the unconscionably low market confidence (resolving problems like banks have adequately injected fund and made bad loan provisions), and that the lifeblood of the economy starts working again.” This is an important step that cannot afford dilly-dally attitude.

3. Promoting growth initiatives: Up till now, there is litany of debate with disparate views among the European leaders as to how to stimulate the economies of Euro zone to promote growth, and have no consensus view. I read some interesting articles, saying that from 2007 to 2011, Spanish government spending as a percentage of GDP has increased by 4.4%, more than double the equivalent measure in Germany, however, the spending has bungled, it does not resulting in lifting the wilting economy. Another article stresses why infrastructure spending is not effective to stimulate economy in Europe.

Promoting growth does not necessary pouring monies to build roads or bridges bither and yon to nowhere. It is all about country economic strategy. Where you want to go from here? How the strategic projects promote economic prosperity in the future and creating jobs. So, countries in Euro-zone should have their blueprints of economic plans and start working from there.  Leaders in Euro zone should coordinate their efforts of member countries to make use of existing capabilities and infrastructure to promote growth, such as pan-southern Europe tourism promotion. Some strategic projects will take time to bear fruits, but approach like this can easily see immediate effects.

3.Economist magazine points all eyes onto Angela. Can Merkel come around to lead a consensus rescue and save Euro? http://ht.ly/bwko3 #sbfi CEO/CIO/COE/COO   16 June 2012

It is a political game.

The stalemate originated from different ideologies, political interests in the stake of the game. The ideologies stem from the German adheres to the “not to bailout” principle, let the creditors fail and bear the loss, this is in congruent to the treaty, their constitution.

Second, is the possible political backlash, most Germans are of the view that to use their hard-earned money to rescue the profligate southern members is the greatest sin. Mrs. Merkel’s reticence must have taken these into consideration.

Of course media accused of German banks’ reckless lending originated the woes and Greece should not be admitted at all to the Eurozone. The German is culpable to clean-up the mess. There are some truths to this shortsightedness from hindsight. They (The German) were long of ambition short of calculated risks.

Mrs. Merkel is the proponent of “More Europe”, “More politically integrated Europe” which will strengthen her leadership, but other member countries are reluctant to surrender sovereignty. They want more money injected to their ailing economies, not a hand into their internal affairs. The German is reluctant to open the money spigot if members do not demonstrate they are committed, and where is the pit to satiate the voracious appetite? These are the fears any sane lender should have. A diverse interest group limits the way how it responds to crisis.

She disparaged the idea of Eurobond, in her view would serve as disincentive to continue reform. The larger issue probably is it jeopardizes Germany guarded credit rating; the ramification probably will be political backlash, too big a cost that she rejected vehemently. The deposit insurance I think is an easier part, the cost is negligible, and it serves as backstop for bank runs. If there were none, probably there will be no costs.

The nub of the problem is to align diverse interest, and it requires member of the countries to trade their priority of interests for better good. A recommended idea is to form a crisis management team nominated from member countries to meet more regularly to discuss urgent tasks. It resembles some kind of shadow cabinet or quintessence for future greater Political Union. A crisis management team will respond with alacrity to the vicissitudes of the crisis. The decision will be binding to all member states to get faster results (such as how to coordinate member states to achieve faster growth). It is the sine quo non for any crisis management.


4.  The euro crisis: How to save Spain (Finance club) 4 June 2012

The comment above was posted in this group before; I posted again because I thought it was still relevant to proceed apace going forward. I am writing now for the teetering on the brink and fermenting liquidity banking crisis.

The financial world is rife with great uncertainty in a funk. It goes without saying because there is no transparency as to how Spain secures the source of funding (EFSF or ECB?) and by how much to inject into the banking system that currently hang in the balance. Spain is the fourth largest economy in Eurozone that carries weight; the unknown factors escalated the financial risk, epitomized by accelerated interest rate on government bond to 6.45%.

The banking crisis is not as sophisticated as the Subprime crisis in the US, although they are same in way that there are big holes in banks’ balance sheet due to falling assets price (falling value of real estate mortgage and holding of government bonds for Spain’s banks). Difference in ways that The US was self-funding (by printing monies) and banking crisis was exacerbated by subpar slapdash lending practices and sophisticated synthetic financial instruments (such as CDOs).

The perennial problem of Spain’s banking system is characterized by insidious close symbiosis between government and banking systems. The banks are mangled to purchase government bonds if funds are available from ECU which clouts out funds channeled to business sector to pursue economic growth. It becomes an unruly vicious cycle: weak public finance is causing funds being channeled to government for firefighting own use rather than inject into the economy for more productive use to boost business growth,

The solution to the imminent banking crisis is to strengthen bank’s governance. Letting banks unencumbered by mortgage loans start a clean slate afresh by cordoning and purchasing all non-performing assets in one portfolio, governed by an entity; so as to lift the unconscionably low market confidence (resolving problems like banks have made adequate fund and bad loan provisions)that the lifeblood of the economy starts working again. This will require an audit of banks’ balance sheet to determine amount needed for injection.

The funds required for running public service are judgment call, ineluctable either from tax revenues, selling unutilized, and loss making public assets or issue of government bonds selling to ECB. The litmus test is a break out of the vicious cycle enigma to restore confidence and stop the self-perpetuating banking problems.

5."Spanish austerity continues as recession deepens and interest rates climb. How long will Berlin keep pushing? http://ht.ly/akA5S #sbfi" CEO/ CIO/COE/COO/CFO/Head/VP/ Director/President Level - Senior Leadership Group       20 April 2012 CFO network  finance plus 28 April 2012 Finance club 29 April 2012 Execu Net 4 May  http://www.linkedin.com/e/-vo80fz-h19gkdg9-5w/vaq/108763676/93469/77471489/view_disc/?hs=false&tok=0iRycuehwxvBc1

Spain's debt problems stemmed from prior to the 2008 financial crisis, Massive property bubbles prior to the financial crisis to 2009 lifted property price by 80% that made Spanish rushing for fabulous wealth created by the property market. Labor costs rose at all-time high, eradicated their competitiveness within the Eurozone. Household debt exceeded disposable income. For a long time to come, it is a prolonged deleveraging process, but if the right policy options are chosen, it can be less painful and shorten the recovery period.

To curb the present crisis, Spain needs a two pronged strategy.

One is economic reforms which include banking reforms on non-performing assets derived from previous crisis. The real estate sector follows the business cycle, ebb and flow. The glut is difficult to clear under such an adverse environment. Even the nascent recovery in the US, the housing market is still lagging behind the general economy. The quicker way is to loosen foreigner property ownership.

The deleterious effects of austerity package in the Euro arena ostensibly to rescue the economies, making condition worse, it is hard if not impossible to attract investors due to the trough is still invisible, investor are caught in the devil and the deep blue sea; So are the bulwarks of restrictive labor laws,  cartel industry structure and planning restrictions. Structural reform to curtail bureaucracy and labor market rigidness will help to attract foreign investors.

Competitiveness is by no mean for wages to race to the bottom. Wages must compensate for sustainable living standards in accordance to economic capability. The wages in Real Madrid do not have to level with Dongguan’s workers in China, so long as Spain is able to achieve productivity gain; or second, it offers distinctive products and services that customers are willing to pay for higher wages and also company making a profit, such as Zara, its distinctive advantage is to fast emulate the latest fashion design and reconfigure their supply chain to facilitate speed delivery to the middle end market. Spain needs more Zara types of competitive businesses.

The second prong of strategy is to lift the economic growth.

Under high debt environment, foreign investment is a faster way to deleverage without using your own scarce resources, it helps to decrease unemployment measurably and improve tax collections. That is enough to get Spain back on track. Unfortunately, the shackles of regulations and rigid labor market may be the Achilles heel hard to allay fears in foreign investors.

With the fortitude toward adversity and unswerving determination will see no trouble in next to unassailable.

6.Why Germany Should Leave the Eurozone (Finance club) 17 April 2012

To me, Germany to leave the Eurozone is the worst choice. Eurozone needs a leader for the crisis. Germany is a natural leader. They are large in size, thrifty, efficient and have the wherewithal. The current nature of the crisis resonates measurably Germany is a perfect match of leader choice.

The crux of the problem is the approach towards handling the crisis and the stark different culture between the rich North and the poor south, apart from the imbalance in the Eurozone.

The conservative German has gone through the hyperinflation after printing money in the 1920s, which erected a very strong discipline culture themselves, which is also reflected in this crisis about the ECB roles according to constitution as the independent central bank and whether it should bailout the ailing southern countries. They are the staunch believer that disciplined control of money supply and inflation were of paramount importance to achieve a stable currency, providing safe haven for investment. Their miracle of success after World War II exemplifies in their conviction that they are cocksure the similar formula will work for the Eurozone this time round.

The problem is much more complex than it takes, the chink cultural divide between the conscientious German and the laissez-faire southern peers, they can’t see eye to eye. Grate on the nerve is the strident German’s boss around ruffle a few feather and them, the southern brother is hemmed in living a constricted life. That makes implementing reforms an uphill task. It is a painful reform process to demand their southern counterparts to cut wages, reduce government spending to get the house in order. The German needs a congruent strategy to coax the belligerent south to go along with them rather using money as big stick. The reform package devoid of growth factor is the most critical Achilles heel; undercutting the reform, resulting in baleful negative spiraling effects, exacerbating the debt level and enhancing the chances of defaults.

If Germany were to leave Eurozone, the growing chances of Eurozone dissolving cannot be ignored. That will be calamitous, bout of financial shock causing the financial market into mayhem. It does not benefit Germany either. The strong deutschmark will send the export economy into a tailspin, shaken their industry structure and Germany may have to follow the foot path of Japan. The benefit to Germany is no longer it has to subsidize the southern Europe. Which country will lead the Eurozone after Germany exit? France or Italy? Will they be the better candidate to lead the Eurozone than Germany? The most likely scenario is a dissipating Eurozone.

Judging from political climate in the Eurozone and the financial capability of Spain, it is very unlikely they will leave Eurozone in the near future. It is the political figure of Spain who evaluates their choices and determines where they go.

As to Germany's attitude towards their southern counterparts, I have mentioned in my previous comment.

7. Great article by The Economist! Germany’s model to rescue the Euro zone is quixotic, doomed to fail in the end due to devoid of growth. Their dependence on BRICs for growth is not reliable and deleterious. It belies the fact that China is also depending on Europe for growth, if that growth factor wilts, the impact will blunt its demand, and in the end all sink together.

The kernel of truth is for low debt countries and large economies in their endeavors to expand internal consumption and high debt countries attract foreign direct investments to enliven the economies.  (CEO,COO, CFO)14 April 2012

8. (Finance plus)(CFO) Spain's debt problems stemmed from 2008 financial crisis, there is no short cut in deleveraging process, but if the right policy options are chosen, it can be less painful and shorten the recovery period.

To curb the present crisis, Spain needs a two pronged strategy. One is economic reforms which include banking reforms on non-performing assets derived from previous crisis. The real estate sector follows the business cycle, ebb and flow. The glut is difficult to clear under such an adverse environment. Especially, the deleterious effects of austerity package in the Euro arena ostensibly to rescue the economies, but making condition worse, it is hard if not impossible to attract investors; so the second prong of strategy is to lift the economic growth.

Greece mires into recession for four years and still can’t see light in the tunnel, the fluff is no economic growth, paucity of new sources of income to alleviate debt burden. Compared with Greece, Spain is in better shape in terms of competitiveness. Probably structural reform to curtail bureaucracy and labor market rigidness will help to attract foreign investors.

Under high debt environment, foreign investment is a faster way to deleverage without using your own scarce resources, it helps to decrease unemployment measurably and improve tax collections. That is enough to get Spain back on track. Unfortunately, the regulations and rigid labor market may be the Achilles heel, making foreign investment not conducive.

It may not be the best solution, but certainly a cogent solution to alleviate Spain problems.

Nowhere did I mentioned in my comment about bailing out, I mentioned foreign direct investments. As to bailing out, it is about what choices you have, much less about your wish, Greece is a case in point. Your comment also confuses me between austerity and spending cut.

9. I am not writing for the prize. Chaos and uncertainties will create snafus, rattle and reverberate the market in the initial change. I don’t have panacea how to stop that happen. The crux is: Does it solve the matter than to dodge the problems? It boils down to the following questions:

What is the economic reality in the Eurozone? Do debt-ridden countries adopt their own currencies not making any economic sense? What makes the solutions more efficient in a convulsive situation? Does the prize to pay for outweigh the benefits?

Till now, no one can envision what will happen and do calculation on costs and benefits in exact sense. It is all logic and hunch to solidify the belief what is the right way. But I am all for the idea of preplanning contingent measures, so that implementers will not be caught in dire straits. Countries adopt their own currencies do not need to leave Eurozone. Euro is still the world currency and the major currency in Eurozone. The relaxation is for the sake of expediency. It is not bereft of hope in Eurozone and life will still go on if they hell-bent to choose the status quo option but sufferers struggle harder and longer against intransigent currency strangulation.  (Finance club)

10. In fact, the French president Nicolas Sarkozy two speed economies in Euro zone may be a practical solution to tackle uneven development in Northern and Southern economies. For political reason, the wealthier Northern Economies are parochial; only reluctantly extend their limited assistance. That is the reason prolong and exacerbate the current crisis, because investors see no end in sight which dampen their fragile confidence, brooking the least for bigger compensation for higher risks, that debilitates the worsening debt crisis, making crisis control  unmanageable.

To curb the present crisis, they need a two pronged strategy. One is swift and determined decision making that is workable in current environment to calm the market. Restructure loan in such a way that will be fully recovered will make lenders own volition to lend easier. If the lending is in commercial terms, private lenders would reticent and shun making loan if there is high risk of defaulting or eventually to write off their lending, they demand higher return and that does not help crisis stricken countries to recover, only making the whole episode uncontrollable.

Convert partial or whole private loans to under European Financial Stability Facility by negotiating with the banks will concentrate risk under one portfolio rather than scattering among countries. Countries' banking systems can start with a clean slate. The loan structure has to be a mix of rollover plus fresh loan in the initial period; because it is the hardest time when economic reform begins. Lengthen the time table of repayment and a hiatus to frozen repayment plan for a fixed period of time and tie future debt lending to fixed schedules of economic reform will give lenders more confidence in subsequent lending. Private loans do not have this flexibility.

Second, Economic reform is an undulating path. The aim of economic reform is to regain competitiveness. Besides fiscal discipline, finding sources of economic growth is also of paramount importance, because it gives light to lenders the needed assurance that everything is on course.

If the prostrate borrowing countries are allowed to use their currencies, such as Drachma for Greece, Lira for Italy, the recovery will be shorter; it will be baleful intransigently stick to only one currency thwarting the borrowers’ economic self-adjustments, and increasing uncertainties.(Finance club)

11. Since saviour is difficult to come by, it is the watershed that the EU may want to rethink some innovative solutions. It may not have to stick to practices in the commercial world. Because haircut effectively means transfer of money from one country to another for free. The lender would be loathing if they have to write off their hard earn money for another country’s extravagance for no commercial advantage. So, restructure the loan in such a way that will be fully recovered will make the lenders more willingly offer assistance.

Economic reform is an undulating path. The loan structure has to be a mix of rollover plus fresh loan in the initial period; because it is the hardest time when economic reform begins and during this period the risk of default is the highest. Lengthen the time table of repayment and a hiatus to frozen repayment plan for a fixed period of time and tie future debt lending to fixed schedules of economic reform will give lenders more confidence in subsequent lending.

The aim of economic reform is to regain competitiveness. Besides fiscal discipline, finding sources of economic growth, overhaul tax system, curb corruptions and tax evasions and curtail clunky social welfare system all come to the fore. The progress will give lender the needed assurance that everything is on course. If the prostrate borrowing countries are allowed to use their currencies, such as Drachma for Greece, the recovery will be shorter; it will be baleful intransigently stick to one currency thwarting the borrowers’ economic self-adjustments, and increase uncertainties.(Finance club)

12. Going forward, in no small part, government sector spending cut will most likely worsen the economic outlook due to weaker private and public sectors (the vagaries of changes, such as dimming world economy, weaker consumer confidence and higher unemployment rate will take a heavy toll on major economies). They do not mesh well with unalloyed economic growth theory. 

And if the wobbled China and Germanys’ economy continue slowing; so, where are the bright spots that play the pivotal role to lift the world economy from floundering further? It is a tall order. I am skeptic that those economists predicted the second half of this year, the so-called impregnable world economy will fare better.

My best comments on CFO roles at LinkIn

1. Are hard skills or soft skills more important to a leader’s success? Executive Suite 25 March 2012

To begin, the confusion in some comments in between hard skills and soft skills need straighten out for continuing discussion to be meaningful.

Laconically, the consensus definition about hard skills is occupational to perform certain type of task or activities. Hard skills are easy to observe, specific, and trainable such as job skills like accounting, finance, programing etc. To be good at hard skills needs IQ, the left brain logical center. Hard skills can be learnt by attending educational institution or book reading. In hard skills, rules always stay the same regardless of which company, circumstance or people you work with.

Soft skills are people skills, behavioral. The outcome of which relates to a person ability to interact effectively. Soft skills are personality driven. It usually associates with EQ, the cluster of personal traits, social graces, communication, language, personal habits, friendliness, and optimism that characterize relationships with other people. In soft skills, rules changes depending on the company culture and people you work with.

Which is important to a leader’s success? My view is it is circumstantial. At times, hard skills rank primary, and soft skills are secondary. Other times, soft skills are primary and hard skills secondary. Let me illustrate by a real life example, how a highly paid CEO lacking the essential hard skill was reviled by the public, ousted from power and fell from grace.

A public transport’s CEO, who is ignorant of risk management, encountered her greatest test in her business career. One of the trains broke down without light and air in the cabin; passengers were hemmed in excruciating situation. A pregnant woman was frail and had difficulty in breathing; one passenger took the initiative to break the glass to let air flowing into the cabin from tunnel. The company did not realize how severe the situation was that reverberated and piqued the public, the public’s opprobrium heaped on her requesting the CEO to step-down. The CEO apologized and resigned.

What this relates to our discussion? The problem is there were no risk management procedures in place. The company did not have all round enterprise risk management evaluation. Such train breakdown is an operation risk bound to occur, there must be procedures detailing how employee should respond when situation exacerbates into a convulsive crisis. At what circumstances, the crisis mode must be activated; for example, if the electricity cut-off for more than ten minutes, that will trigger safety measures to evacuate passengers to emergency exit. It is a painful hard skill she did not learn, that cost her millions dollar job. If she had the risk management skill, she would have trained her staff this hard skill to respond to the crisis. This is where hard skills were primary and soft skills were secondary.

During the crisis, incessant communication with the passengers came to the fore. If hard skills were absent, soft skills ascended to primary. However, the train driver’s ineptitude lacked the EQ and communication skills that was the bereft of hope.

Skillset is a lifelong learning process, whether it is hard or soft. When I graduated many years back, I had ample hard skill competency, but my communication skill and conflict resolving skills were rudimentary, that cost me a job when I was in direct conflict with my director due to ethical issue. Someone enlightened me in the job interview. I started to read self-improvement books and observed best practices. My soft skills deficit improved markedly. I am still learning and improving as I grow older.

Some say senior leader does not need to horn their hard skills because they have exceptional soft skills, their wisdom to maneuver political landscape in an organization bestrides the company. That is half true. The vicissitude of business world demands business leader to be equally good at both. For example change management which requires business leader to galvanize the support from various factions of different interests in the course of change process. That draws on soft skills. Business leader needs to keep up to technology progress, such as leveraging social media as a marketing tool to facilitate sales growth, which is a hard skill. When times come, you are equipped with the right skills to tackle different new problems at different circumstances.

Why some SME business leaders cannot cut the mustard by achieving business breakthrough, partly because they do not brush up both skills. Their soft skills may be better than their hard skills, but never go anywhere, because their learning progress in the cycle for both skills is low and flat. Human being needs continue learning to augment better performance. And the learning process is interactive and sometimes complementary; you can sharpen your soft skills by attending seminar, reading books, learning by practicing (hard skills) rather than fumble on your own.

So, it is a non-issue as to which is more important, uplift, sharpen and muster of both for readiness is the key.


2. From Controller to CFO: Do I have what it takes? CFO network 20-2-2012
http://www.linkedin.com/e/-vo80fz-gz60cgfo-5h/vaq/95873349/51826/70373707/view_disc/?hs=false&tok=0bpm7FIs4sll81

There is no hard and fast rule as to how best to move up from controller to CFO. The quicker way probably is by dint of joining smaller companies where you can gain errands of good exposure easily; unlike in large firms where accountant has to follow a rigid hierarchical upward path and a predefined mantle.

Another contributory factor is relating to the industry you join, one characteristic example is to join a company of fast changing industry landscape. You need to muster the necessary skills to facilitate the variegated change process; you progress together with the company in the change process.

I think luck play a substantial role which determines firm you join; and where your career lead to is somewhat circumstantial.

Most bosses treasure CFO to have good analytical skills to complement their weaknesses due largely to senior management works as a team. Of course, you need to be at your top of your technical competency in your field. My reminiscence of my previous job evokes I reported a foreign currency translation loss in my accounts. My boss was an electrical engineer and was in vexation of the accounting treatment. I needed to be able to explicate the accounting standard in layman term how it had happened.

Most bosses like their CFO to have business acumen. When you speak to him in business terms, you find your relationship draws closer.

It is rather the Holy Grail to have a shortcut. Rome was not built in one day. It is a life-long learning process and you be perseverant come hell or high water in order to elevate to the singularly prominent position.


3. An Accountant or a Leader - but rarely both Proactive accountants

In Management lexicon, it is whether you are an administrator (a manager) or a leader?

The niceties are: a transformation leader is proverbial, has the prowess to establish direction through vision and hunker down, be authentic with a sense of purpose, brings about change, inspires, motivates and empowers others to achieve the mission, encourages commitment to the purpose in followers by aligning people, an apostle tenaciously builds team and fosters collaboration, phlegmatically resolves conflicts, takes up the cudgels to render feedbacks and rewards.

Accountant is by far seen as backroom guy, hardly required to lead forward for all and sundry, though the role of accountant is evolving. In my past more than twenty years in the field, it is immanent in my experience to have more administrators (managers) than leaders. In my own context, many want stable, not messy job process, and are contented with managing the process cycle proficiently. Many hate challenging job require them more than just processing accounting transactions, shy away giving feedback to subordinates, and hardly reward good deeds. They are more an administrator than a leader.

It is not ballyhoo, my leadership quality is partly inborn, and partly learning by immersing myself in Management studies. I recall my earlier years of my accounting career. In an acquired subsidiary, I took over mucking up accounting records, key persons left Accounting Department. I was between a rock and a hard place, was foisted to start everything afresh. The company was secluded; public transport was far away beyond reach. I personally visited the neighboring companies to check how they solved their transport problem, looking for opportunity to share transport for my staff. I went beyond what was called for in my job to go extra mile, which seemed beyond the ken that astonished my neighboring managers, my directors and my staff.

In another company, the key positions left due to lack of necessary technical skills to handle business changes. I moved in to exemplify my technical competence to win the trust of my staff. I reorganized and streamlined the Department. I delegated some important tasks to the middle level. They felt job satisfaction due to task significance. I inspired my staff to attend professional course. I built team spirit and praised good work. The pronounced effects boosted morale and spirit.

Everything came natural to me if you ask me whether I had under someone tutelage. I would say yes. I am aficionados of management books, articles and go the full hog to put learning into practice. The upshot is inner satisfaction.


4.Are you a partner or a number cruncher? Proactive accountants

Sad to say that I am no longer a CIMA member. As to this discussion, I offer my two cents of worth.

While the role of CFO has changed a lot, I don’t see there is a major shift towards business partner like involve in championing strategy and innovation. It all depends on size, industry and culture.

I personally agree to CFO role to exalt to a significant business partner, add value by contributing to company’s strategy and innovation.

If you check the job descriptions of many CFO openings, few companies set strategy and innovation as the major recruitment criteria. Though number crunching is delegated to subordinates, it is still part and parcel of CFO’s responsibity, a fait accompli.

Last month, I came across a posting in another group; A CFO asked member for help, for a question read “One customer is very late in paying. I have reserved for the late receivable and the overdue, built-up interest in the A/R reserve. An agreement was reached with the customer to get their account in order and to go-forward according to agreed terms. As part of that agreement, the delinquent interest will be written off. The credit goes to the receivable. Where does the debit go? Interest Expense or the Receivable Reserve?” It is not a laughing matter; it shows CFO is still buried in the number.

I bought a book fifteen years ago, titled “Reinventing the CFO” by Cooper & Lybrand, the book stresses CFO role to move from Financial management to strategic management in a business partnership. Time passes; this change is still not in every nook and cranny. Those reported changes are more forward looking large companies with different culture at length require CFO to assume and participate in value creation, that shifts the role from hemmed in by commodity like litany backroom transaction processing duty to a nifty high end value creation one, making CFO’s a kingpin in business.

I would say business partnership more happens in technology companies than in bricks and mortar main street companies, which is what I mean by size, industry and culture determine what roles a CFO plays.


5. CFO as strategic business partner CFO network

While the role of CFO has changed a lot, I don’t see there is a major shift towards strategy and innovation. It depends on size, industry and culture.

I agree be a change agent, contribute to strategy and innovation are all value-added.

But if you check the job descriptions of usual CFO openings, few companies set strategy and innovation as the major criteria. Though number crunching is delegated to subordinates, is still part and parcel of CFO’s responsibility, a fait accompli.

More forward looking companies at length require CFO to assume and participate in value creation that shifts the role from hemmed in by commodity like litany backroom transaction processing duty to a nifty high end value creation one, making CFO’s a kingpin in business.

This change is still not in every nook and cranny. I would say it happens in technology companies more often than in bricks and mortar main street companies, that is what I mean by size, industry and culture determine what roles a CFO plays.



6 Does small company requires a CFO CFO network

I wish to offer my two cents of worth from different perspective.

First, the title CFO itself is arbitrary, ostensibly means Head of Finance. There are similar Head of Finance positions, but named as Financial Controller, Finance Director, VP Finance, some even Finance Manager. I came across CFO report to Group CFO.

The raison d’être of a Head of Finance is a definite “yes”. In my consulting experience, many small business owners’ Achilles heel is run into working capital problems due to their paucity of financial knowledge. They are too ambitious to grow rapidly and fall into the trap of overtrade. The outcome is deleterious. The cogent reason to have someone with the knowledge will help them to juggle in between growth and working capital management. The risk detrimental to their business will be substantially reduced.

A Head of Finance can be versatile to offer much expertise essential for the existence of a small business, such as internal control, risk management, cost containment, and establish a credible framework for bank borrowing etc.

Better information does not measurably lead to better decision. Too much information falls prey to what management lexicon so-called as analysis paralysis which exacerbates bad decision making. Many small company owners do not have time to analyze information in their day to day running of business. Decision making process does not rely on information alone and financial expertise does not build in one day.


7. Convergence of FASB to IAS

The Accounting World is predominant with the view that principle-based accounting is superior. And FASB is working towards that goal. In the real world, there is no hard and fast rule to determine which is better.

As the business world is increasingly growing in complexity, litigations mount, users wont to explicit rules to tell them what is right and wrong rather than ambiguous principle-based, that is paltry, can be construed in various possibilities. As complications develop, you need more and more rules that make interconnection intractable, to make the standards relevant, you develop a thick Accounting Bible which is more of a labyrinth, you become not see the forest for the trees. This is a real problem.

Therefore, standards setter needs to thread a fine line between the two. It is arduous but achievable. I wrote an article several years back when the issue was in a rash of hot debate. The title is “standards setting process, principled based? Rule based?” in my blog http://www.minfeng.blogspot.com/


8. Why number crunching obsolete fast?

Glorified book-keepers and old fashioned number crunchers are obsolete fast. In my country, in the arena of accounting, any non-qualified or partly-qualified accountants are eligible to handle full set of bookkeeping job. So, where can you add-value to the business if employer can find someone cheaper. You find your position is precarious.

The nuance is: what employer most keen of you is you talk to her in business terms, galvanize her business to exponential growth rather than the stupefying debit and credit or obfuscate accounting standards that creating snafus. If you can make yourself indispensable to her, the better. And when economy is in precipitous decline, you are sure the last one to let go.

My best comments regarding job search at LinkedIn

1. What can we do about discrimination against the long-term unemployed? CFO network finance plus 4 March 2012 http://www.linkedin.com/e/-vo80fz-gzixmugn-5x/vaq/98686829/39259/71753899/view_disc/?hs=false&tok=0KSELDbFLZxR81

Employment is an interactive two party process whereby you can’t ignore the expectation of both party and their underlying assumptions in the hiring decision process, some of the canonical unfounded accusations from assailants against long –term unemployed, like: You can’t take poor hiring climate as an excuse; for those over ten months unemployed are labeled “hopeless”; Your skills are not up-to-date; there is a confidence crisis in your ability unless you demonstrate otherwise etc.

It is more than a grain of truth and unimpeachable that discrimination is rampant put long-term job seekers in dire straits. I share some of my sobering experience with you.

I left my previous employment twelve years ago and till now still can't embark on a permanent job and in exasperation. The biggest hurdles and fissures to succumb are: competing with those switching jobs and age discrimination. I update my professional knowledge, so that prospective employer will not feel short change but this doesn’t serve as vantage point for me to get back to work force.

The reality works against me is: most employers shun people who are unemployed for various reasons. One is there is a big pool of candidate to choose from, they prefer to give opportunity to those are still working, second, they are not sure whether your skills are up-to-date. Third, whether you are still vigorous and active and ready to adapt to life change? in time, it becomes a paradigm to reject unemployed right away.

For executive search firm even worse, they basically work for client rather than candidate. It is downright hard if not impossible to table to their client an unemployed for the position. The exceptions are: when they seek candidate with unique industry experience, or client lays down very harsh searching requirements, hard to find candidates or taking advantage of you by denigrating you to a more junior position to show their client they got them cheap and good candidate. Of course, I declined because I deliver value and not a commodity.

I know the mindset of discrimination is rife and engrained and changes cannot be any time soon. Enactment and public education go to the full hog are the most essential remedies. Enactment may not impinge on stopping recruiters continue doing so, or tackling its root cause, but you can’t ignore it blithely, it serves as a forceful message to correct some of the inequity in job search that the job seekers suffer travails have no fault of their own.Continue on 9 March 2012
In my opinion, enactment coupled with public education will upend the problem eventually. Enactment is setting a moral high ground to distinguish right from wrong. Public education in the long haul is to disseminate the message that discrimination is a repugnant act, and will perpetuate into long-term unemployed. There will be two camps, one is employed and looking for the next job, the other is tantalizing, always being stuck in making the next move and feels exasperated, the vile effects will persist and are pernicious until people change their mindset. The upshot is to become ubiquitous as best practice.

I read a great article today from Recruiter.com which is relevant to this discussion. I wish to share with the members of the group. http://www.blogger.com/www.recruiter.com/.../unemployment-its-your-problem%20 by Maren Hogen

In the previous posts, I enunciated how enactment and public education can tackle the pickle of rigid mindset against long-term unemployed in the course of time. In this comment, I will add action plan in this regard.

To amplify incentive to be more effective, it must fulfill several requirements: First, it must be visible Second, it must have immediate benefits; third, it must serve the purpose of the recipient. Let me elaborate further, you must not defer the benefits to the future period, so that the benefit is within the vision horizon to incite motivation. Most people will not dither to participate in the incentive scheme, if they can see the immediate advantage.

In my country, our million dollar minister proposed tax incentive to induce employer to hire older workers, I think the effectiveness of the incentive will be limited despite their endeavor; besides there is no ground work on enactment and public education. The tax benefit is far-flung and is not visible, so I don’t see there will be a boom in take-up rate.

The US economy is chugging-up again, the unemployment rate fell to 8.3%, unemployment is still hither and thither, and to get the unemployment to fall further will be increasingly difficult, because there are many factors resulting high unemployment. The imminent one for long-term unemployed problem, a nifty idea in my view, instead of using tax incentive is to set up a rehiring long-term unemployed scheme.

Under this scheme, a fund is setting up to pay the unemployed salary in lieu 100% for the first three months and 50% for the subsequent three months. The logic is to set up a trial period for hiring the unemployed to prove to the employer that there is not much difference in between people in employment and the unemployed, the flimsy ideology is the culprit. You can’t foist but coax employer to canvass their support to go along this line. This is the same analogy as for any manufacturer to marketing their new product, a trial period at very low price is set for a period of time until you are addicted. I believe after six months, the unemployed new recruit is wired into the operation system. The government can recoup some costs from saving unemployment benefit handout, in US stance.

The implementation is susceptible to frauds, the first kind of fraud is to spike the employee record with dummy newly hired unemployed, the fraudster claims under the scheme for employee non-existence, to scotch this fraud, money must deposit directly to the new employee’s bank account, and this also accentuates the notion of "working for free". Another fraud is employer fires the unemployed every three months to gain advantage of free worker service at the expense of tax payer's money. The government must keep track of the employment record to blunt its vile effects.

I hope this might help.


2. Why (Most) Recruiters Are Bad People The Recruiter network 21 March 2012

The phenomenon mentioned by Ben are not uncommon to me. Recruiter is not the savior to your excruciating hitch in between a rock and a hard place, but is acting according to self-interest. I think it is too sweeping a statement and certainly a bad rap to say they are bad people. I just quote you some real life examples

1. I involved in a group discussion about the unemployed predicament. An executive recruiter involved in the discussion mentioned he would not be blinkered to reject unemployed applicants. He shortlisted the best for his client, whether she was employed or not, did not matter to him.

2. I received a personal reply yesterday from an executive search firm telling me that there were other candidates whose background fitter to the job, and this round I was not successful. I trust the mail was not a cookie-cutter template send to all unsuccessful candidates. The sincerity is unimpeachable.

3. This morning I went for an interview for a CFO position. The CEO got my résumé in front of her, but asking me whether I brought along a spare résumé. After five minutes of exchange of job requirements and what I could contribute to the company. She blurted I was too high-power, and hers was a small company and she had several other candidates to see. I was disillusioned the interview was fallen through the crack. Why she acted inscrutably or just scrabbled? She must have read my résumé before calling me for an interview. Why teased candidates to show face? A travesty and veneer of their sincerity and professionalism. I encountered several these kinds of bad interviews(Just to show face and quickly demur you to save their time)

Recruiters not all are well-trained and acting professionally. Unlike in the US, some recruiters are certified. In my country, any Tom, Dick and Harry can become a recruiter, therefore the professional standard varies. But I reiterate, any good recruiter still act according to self-interest.3.Job seekers are not proactive enough.

Yes, it is probably true that people, I am also one, like to rest on our laurels rather than taking risks to seek for new opportunities.

On deep reflection, I do have motivation to get out of current career stagnation. That was why I wanted to expand my social network. I joined LinkedIn. I reached out to new contact in earnest, to my chagrin, none responded. I soon became disillusioned. I want to take risk and am anxious for new opportunities. But opportunities do not knock my door.

I do have what the article mentioned “prevention motivation” such as obtaining security, avoiding mistakes and hang on to what we have already got mentality. But I think it is human nature to cling on to something that people feel safe and secure. I think working for others is still my best option, but I have to fight against prejudice against not in employment for sometimes, age discriminaation, and glutted labor market. If I run my own business, I do not have capital to take the risk. So, nothing is moving…..

I was curious at first; wanted to know what answer this article would be provided. Not very disappointed, the answers are quite logical. But after all these years of job search, my attitude towards not getting a job as proactive as the article suggested is: you must take life as it is, don't take things too hard that there is something beyond your control.

Even you pose questions try to address the interviewer's concerns , most interviewers rather dither, prevaricated and discreetly decline to comment on your foibles. He is not obliged to give you the necessary feedback. He doesn’t benefit from doing that, save the troubles of arguing with you that you are not fit, but deep in his mind, you are eliminated.

Sometimes, they just want to see all the candidates to make a comparison, and cannot immediately offer an answer. Some interviewers like to keep silent, if your last drawn is above their budget, they just strike you out. Interview is truly a blackbox. Even you are well-prepared (I experienced that); actual situation happens otherwise that you and the interviewer’s chemistry just doesn’t click. So don’t be exasperated if you do not succeed.


3.CFO is a high risk position

I construe what you mean "high risk position" as precarious in holding to the job. That is probably true, “unstable at the top”. CFO brooks the least top management pressure of accounting chicanery when blistering growth derails, CEO wants you to cook-up the book or you being ousted out. Or, the risk might be: you are bedeviled when the company’s performance deteriorates, you struggle to get ends meet every month and many others that are downright amorphous in your everyday job routine You need to evaluate whether you have an overarching team which will help you trudge up the hill and iron out the problems or you decide to change course .


4. Unemployed is not given a chance

I see from different perspective. Having unemployed all these years, I found the real problems are how executive search companies and employers see those unemployed? Will the unemployed be given the second chance to get back to the work force, or making selection from those already in employment and leaving those unemployed becomes long-term and underemployed? Don't panic if certain skills don't fit, those unemployed, I think, are keen to pick up the necessary skills to keep the ball rolling, No one is born to know certain skills, they must have come through training from class room or on the job, the keys are spirit and passion towards the job. If this problem not solved, not only unemployment is rising also becomes stickily entrenched.

I think the crux of the problem is not skimpy of job opportunities in my area of expertise. It is the prejudice that matters. I don't see as Certified Accountants for twenty years, I have to switch to another field to learn new skill, meaning I forgo my competency to start everything anew with rudimentary job, do you think it is a wise move?

My point in my suggestion is to stress the ingrained attitude downright bias towards unemployed. How you prove that my expertise and knowledge have obsolete? Yet the employers and Executive search companies have never given us a chance to prove ourselves, simply bypass us. This could happen also to any employment agencies in UK, making re-employed an uphill task.

Thank you. Michael that you admitted prejudice against unemployed did exist as illustrated by your example. If you want to bring the unemployment rate down, you simply cannot ignore them. You can’t on the one hand lamenting unemployment rate going up as the discussion paper, and on the other hand do the other way.

If this phenomenon persists, in no small part, there will just be two camps become perpetual. One camp is the employed always get the next job, and the other camp is the unemployed permanently stuck. Deep inside our mind is the faulty ideology and assumptions that many people follow. Just like Mr. bhatt said “a skill / precocious talent that is not honed up with proper employment may also turn out so.” If there is no chance to give an unemployed return to work, how is she going to horn up? It boils down to this ingrained hidebound ideologue that is the root of the problem. I would recommend you to read a discussion New comment on "Why is it that many employers prefer to hire people who are employed rather than unemployed?" in another LinkedIn group which I followed and the response is overwhelming because there are too many unemployed in the US and you can hear their voice. http://www.linkedin.com/e/-vo80fz-gp0ei6q7-14/vaq/50498251/1976445/42397124/view_disc/

I am not working in the UK. I just put in my two penny worth. First and foremost, recruitment consultant is working for their client. Their client's interest comes prior to the candidate. When the candidate is most in need of them, for example, if she is an unemployed, the consultant gives her the cold shoulder. When the candidate is employed and happy with the job, the recruitment consultant tries to poach them for a new job. It can't say is a help or a hassle. Life is a bewildering chasing game.


5. New era of value added accountant

Glorified book-keepers and old fashioned number crunchers are obsolete fast. In my country, in the arena of accounting, any non-qualified or partly-qualified accountants are eligible to handle full set of bookkeeping job. So, where can you add-value to the business if employer can find someone cheaper. You find your position is precarious. The nuance is: what employer most keen of you is you talk to her in business terms, galvanize her business to exponential growth rather than the stupefying debit and credit or obfuscate accounting standards that creating snafus. If you can make yourself indispensible to her, the better. And when economy is in precipitous decline, you are sure to be the last one to let go. If you have the passion for the job, a bad job can be meaningful, enamored. If you have a wrong attitude, a good job can be bad, you simply fudge.


6. Age discrimination is ubiquitous

I had two telephone screening interviews in the last two weeks. The search consultants asked my date of birth that put my chance in rickety. In this part of the world, there are no rules prohibit recruiters to screen candidates by age making senior applicant even flakier, and it is so rampant for executive search consultants avowedly predisposed screening by age. The authority is acutely aware of age discrimination, but prefers to keep mum in the hope that by gradual persuasion, employer will change their mindset, and it is somewhat naïve. In my view, not only the need to stop by legislation ( the hard way), but to form a choir to disparage age discrimination, and sing the song of how seniority will bring benefits of manpower planning stability, a well of experience, loyalty, and maturity to the business (the soft way). Once there are more and more people endorse aging is a human nature,a fact of life and not undeserving drossed and there are genuine benefits by hiring senior people. The paradigm shifts.

I want to elaborate some more thoughts in my discussion. I am quite puzzled that some posts played down the severity of age discrimination in the selection process. Probably we are living in different part of the world. Age discrimination is not as severe as it looks in the US.

Selection is a complex process that involves many factors. Senior age to many employers is certainly a negative factor for elimination. The search consultants if not have clear instruction from their client; they will hold blinkered assumption to eliminate this group of candidates first. Of course there are exceptions; I had one interview last month, the interviewer told me the reason I was shortlisted was because younger candidates might have language problem handling the job.

I want to reinforce my view in my last post. Legislation (the hard way) sends an explicit message by the policy maker to the employer the government’s stand on the issue. It is not only as humanity to protect the vulnerable group, because employer has the upperhand; but also helps not to exacerbate social problems. Imagine if employer writes off staff after the age of 40. That means employees need to save much more before the rainy days arrive, that will push up wages, contradict to business logic and is unsustainable in the long-term.

The soft way is to exert pressure to the recruiters to face the problem squarely. Retain or employ older workers not only keep intact organization memory; A good team formation needs age diversity, so that ideas of different perspectives and maturity are brought to light. I read an interesting book last year, titled “Managing the older workers” published by Harvard Business School Press. In the author’s view, older worker brings many benefits to the employers, the following serves as apocalypse I quote verbatim from the book:

(1) Employers are complaining about not being able to get workers with the skills and competencies they needs, especially strong work ethics and good interpersonal skills. These are exactly the competencies that older workers offer

(2) Older workers are not necessary expensive than their younger colleagues, and they perform better on virtually every relevant aspect of job performance

(3) Transfer of knowledge, older workers have a lot of tacit knowledge that their younger peers have yet to acquire

(4) Solidifying culture; Experience workers know the norms and values of the organizations and are able to pass them along to the new hires.

(5) Mentoring: serve as mentors for younger employees due to they know a lot about the organization. They make excellent coaches.

(6) Serve as “Just in time” work force, saves the organization all the “on boarding” costs of a new hire, they know the culture and operating procedures of the organization. Organization can scale down during recession and then scale up quickly when circumstances change.

Older workers provide that flexibility. We need to sing the song of the benefits older workers provide, that will directly touch the chord of the employers, and slowly the paradigm will change.


7. Why recruiters can't find good candidates in LinkedIn? The recruiter.com

I can comprehend your frustration. The veracity is you know better than others why you are hell-bent to reject many jobseekers with LinkedIn. There are many LinkedIn members like me tried other avenues before, such as newspaper, job board before joining LinkedIn. So you are wading through the same profile in the hodgepodge always. It happens to you and also many others search firm recruiters. Jobseekers are in every nook and cranny, LinkedIn is only one avenue in the same job pool.

Another possibility is you don’t look from different perspective when you separate wheat from the chaff. Your blindsided perspective restrains your chance to miss some possible good candidates that you labeled them “not match”. If you give a chance to the candidate contrary to your perception is tantamount to also giving you a chance and it doesn’t spend you much time.


8.Is it true that employer likes to hire someone who is employed rather than the unemployed? The recruiter.com

It is more than a grain of truth and unimpeachable. I share some of my sobering experience with you.

I left my previous employment twelve years ago and till now still can't embark on a permanent job and in exasperation. The biggest hurdles to succumb are: competing with those switching jobs and age discrimination. I update my professional knowledge, so that prospective employer will not feel short change but this doesn’t serve as vantage point for me to get back to work force.

The reality works against me is: most employers shun people who are unemployed for various reasons. One is there is a big pool of candidate to choose from, they prefer to give opportunity to those are still working, second, they are not sure whether your skills are up-to-date. Third, whether you are still vigorous and active and ready to adapt to life change? And as time passed, it becomes a paradigm to reject unemployed right away.

For executive search firm even worse, they basically work for client rather than candidate. It is hard if not impossible to table to their client an unemployed for the position. The exceptions are: when they seek candidate with unique industry experience, or client lays down very harsh searching requirements, hard to find candidates or taking advantage of you by denigrating you to a more junior position to show to their client they got them cheap and good candidate. Of course, I declined because I deliver value and am not a commodity.

I know the mindset is rife and engrained and changes cannot be any time soon. Enactment and public education are remedies. Enactment may not impinge on stopping recruiter continue doing so, or tackling its root cause, but you can’t ignore it blithely, it serves as a forceful message to correct some of the inequity in job search that the job seekers suffer travails have no fault of their own.

Last but not least, is the comment to an article at the recruiter.com about the Japanese long-term employment, the following was my comment:
I recently read a book enumerating how Toyota grappled with bandies about their incendiary quality lapse in 2010.

The author debunked profusion of unfounded accusations that Toyota compromised their quality standards for business growth. One interesting notion in the book is Toyota did not retrench their US office employees during 2008 financial crisis. Rather, they spent money on training.

Toyota views employee as an asset rather than minnow, it takes many training hours to enrich their technical knowledge and establish deeper interrelationship among employees to keep the operation running smoothly, which propel the company through thick and thin. Toyota envisions this bedrock belief of long term commitment with the employee as their company philosophy rather than a contractual relationship waiting to be retrenched during bad times.(The recruiter)

Unencumbered by pecuniary goal is something we must up the ante to put into serious thought.

Pulling all the plugs to turn around the economy

Time flies, it has been two year after I had written the article “The world economy in future tense”. With the passage of time, the vicissitude of world economy pulled out of the recession but the incipient recovery mires in slow growth on the back of withering demand. Countries with gargantuan budget deficit and weak economies are in a quandary and lack consonant in whether to continue to stimulate economy or putting budget deficit in order. To handle these intractable problems is a tough decision choice. As the chorus of European countries has chosen the latter, which portends the possibility of the European economy be stifled in a stagnant growth or fall right back to another recession in the foreseeable future is looming large. Will the miracle of Germany export boom continue or slowly wane? We are all interested to see how it will pan out, hopefully, not so ugly.

I am loath and find it off-putting to write this article after learning from past experience. To my chagrin, I wrote them in personal capacity. I toiled arduously days and nights, gleamed from reams of source materials. Those benefited from the free stuff were not gracious enough even for a word of appreciation, the cheapest. Put vicariously, no one has incentive to go ahead the odyssey when the product is not valued. I struggled deep in my heart and my conscience told me that I could not betray those people have faith in me and also the consequences of the economic decision involved could have far reaching impact affecting everyone life.

As things are, one piece of caveat, I am disconcerted that the risk of double dip remains, in view of faltering domestic demand, wonky financial systems, austerity measures to cut budget deficit in major economies. Some orthodox economists hold the view that if the world will to slip into another recession, so be it; refrain from intervention; let the economy heals itself, that is their theory. I am not an erudite economist or was trained to be one; however, I penchant pragmatic and holistic analysis and observe consequentiality. I call myself a realist. Of course, I browsed through many economic articles to understand the writers’ train of thought. I am not against natural cycle, but I see the orthodox view surreal. It is propitious for government to play a flexible and constructive role helping to find egress in a morass, facilitating recovery when the economy is weak and staying sideline when the economy recuperated. Applying same analogy though in different organism, if you are afflicted with cancerous tumor, which would you choose, consult a doctor or apply natural heal?

If you believe in my line of thought, I continue to explicate the merits and demerits of various prescriptions to cure economic woes. In my previous article “The world economy in future tense” I adopted an open mind approach to tackle the crisis. I proposed many options for government spending emphasizing strategic in nature; with hindsight, they were quite prescient and clairvoyant. Is it a gospel truth or just panjandrum? I envisioned investing in green tech, such as renewable energy to counter climate change, and today frequent extreme weather, floods, draughts etc continue, showing no sign of attenuating, were those mishaps climate change related? Should we muster our efforts to counter the threats? I mooted increase agricultural productivity to take up the gauntlet of high food price, in the current year, floods everywhere precipitate food price hike. Ballooning healthcare costs show no sign of abating. R & D expenditure helps the economy out of stagnant growth. Are they strategic if they are overarching and have significant impact of our life?

Those options were without the remedy of unemployment in my mind. What I concerned then was moral hazard issue, if the spending was forward looking; it was less likely inflicting moral hazards. However, in America, high unemployment became an immediate sore; politicians measured how those options would cure the unemployment woe. I was stumped by this warp because those options and employment issue were not highly correlated; for example, green tech is still a nascent industry and in small size. I am perplexed how it can resolve the unemployment problem? Many of the skills of the unemployed are not immediately transferable. There are no quick panaceas to unemployment issue and it needs forbearance getting through the maze of the problem assiduously. This is misconception one.

Another misconception is: The magic of government spending in infrastructure will wipe off all the household debts. The reality is debt ridden households can’t elude the problem to repair their own balance sheet. Spending on infrastructure does not have the capability to turn everything around, if you bank on it as a remedy. In the following, I make apposite comment on each option according to its merits and demerits. For infrastructure spending, I am not Maynard Keynes’s disciple; the merits are:
First and foremost, it is quick to maintain the momentum to prevent sharp economic activities declining which was evidenced by the recent crisis.
Second, it is broad base. My observation tells me that the impact of public spending on other industries cannot be as large and broad base as infrastructure spending.
Third, when monetary policy is at its limit. That is exactly what is happening now; Even the Fed keeps reducing interest rate to its lowest, bank lending does not improve quickly. The impact of monetary policy becomes limited.

The demerits are: First, it only provides momentum to jumpstart economy, it is not an ultimate cure, and you still need to painstakingly work out the details to mend the economy. Second, without planning and administration, it becomes a political tussle and easily building bridge to nowhere. Third, country leader needs to dovetail public spending and economy mending, so that the momentum becomes sustainable. The rub is: The longer it takes to mend the economy; you may need few bouts of spending thick and fast for economy to gain traction, which will use up surpluses. So, it is precisely the reason why prudent budget to build up reserve during normal time is imperative. Many major debt ridden economies are now in different extent of having fewer leeways to maneuver their economies. In the US, the gruff and churlish hardliners and orthodox economists riposted, leaped in the fray, embolden and launched a rash of vitriolic attack on the economic policy, created a chasm of effectiveness of infrastructure spending. Even the Democrat congressmen dared not to mention pump prime for fear of nettling the electorates in the upcoming congressional election. The gripe of the electorate is palpable. If the economic magic wand will not work out that means more tax to pay in the future to balance the deficit.

To my thinking, infrastructure spending becomes enigma when the issue is entangled with politics. Judge the tool as it is and not on the spur. Don’t put infrastructure spending in complete abeyance, if it is felicitous and you indubitably need one to keep the momentum. Certainly you will not fritter away if it is in the hand of sagacious spender. Now that you are to adopt infrastructure spending again, it is crucial to: first, conclude the first round's experience to learn the shortcomings and prevent to make the same mistakes again. Second, since the budget deficit is high, money becomes scarce resources; you need to prioritize the projects, ensure every spending carry punch and is visible to silent critics. As to how much to stretch your deficit, there is no fix threshold, it all depends on how large the hole is to mend the economy, current deficit level and how dynamic and flexible the economy is. On the first point, most egregious we can fathom of point to the 2008 subprime mortgage woes, which interlace with the households are still not deleveraging etc, are held culpable. Of course, all these are faits accomplis and will take time to iron out. The housing sector falters, at any rate, there are other sectors remain healthy and strong, these are evidenced by listed companies’ recent corporate results, the majority are in the black and consumer confidence is holding up well. You need to mobilize all the positive and countervailing factors to make strong companies stronger to attenuate the impact of the brittle laggards. Tapping external and internal demand to fill the orders, companies envision better prospect, impregnated with optimism and start hiring, capital expenditure goes up and confidence returns. I always have confidence in US economy, because it is so vibrant and adaptable to fast changing external environment, and is always ahead of European economy. Without saying, the American will ride out the storm.

Tax is government major source of revenue. I find it interesting, especially in the US, it is tainted with polarized political inclination. On how to resuscitate the falling economy, it is said the liberal Democrats are Keynesian, they espouse government spending and the Republicans staunchly support tax cut and hope it is permanent in nature; permanent tax cut is based on Milton Freidman’s permanent- income theory and Franco Modigliani’s life-cycle theory, both theories advocate temporary increases in income due to tax cut temporary will not lead to significant increase in consumption. However, if tax cut is made long term, consumption will have significantly increase. You can learn their ideas from Republican inclined "Wall Street Journal "why they opposed President Obama impose higher tax on the rich, and how tax cut will increase revenue, save job and increase employment. This is so-called supply side economics. It prevails in the academic world in US and also in the UK; the supply side economists crank out arguments that lowering tax will improve a nation competitive advantage, attract foreign investment. Higher tax deters people continue working and prefer leisure and depending on welfare and unemployment benefits. Cutting tax on employment will boost employment in service sector and increase take home pay. Higher tax on companies will have deleterious effects on jobs, production costs, and shareholder’s income, therefore is counterproductive.

How the supply-side economists’ magic formula works to turn around the economy? The modus operandi is to cut income tax, especially in lower brackets, grant tax rebates to workers who don’t pay income taxes, reduce employee portion of payroll taxes, extend unemployment benefits, improve economic growth and boost employment. This is how the theory explicates: The grist of tax cut will have higher take-home-pay →increase household consumption→ when demand goes up→ company will increase hires → economy will continue to grow., Second, boost business investment by faster tax write off and tax credit for investment; Third, create job by giving tax credit to company for hiring workers and cut payroll taxes paid by business for employees’ Social Security and Medicare. The biggest chink is: substantially reduce tax collection; for example, cutting tax, faster write off means smaller chargeable income, give tax credit to create job, cut payroll tax all reduce tax collection.; but the supply-side economist thought tax collection can easily be improved as economy take a turn for the better, tax revenue will go up.

My view on tax is neutral, to increase or cut tax basically is situation warranted. It is impregnable that if you have budget deficit, I can’t think of other alternative than to increase tax rate to improve tax collection, or to postpone tax hike and more tolerant of budget deficit awaiting the economy fully recovered. I am leery the whole idea of tax cut and I think it is specious, obfuscate reality and stretch to a great length of credulity indeed. So to say for tax cut on individual: Which you believe is the reality that the consumer is impinged on hearing the tax cut news, the department stores are packed with more consumers who are willing to spend more because they are wealthier another $100 dollars than yesterday or you think most of them are impervious? I see no conclusive empirical evidence to support tax cut improve consumption, it is just practically difficult to measure a change in consumer behavior.

Dickering on higher bracket individual income tax payers is flabby, even there is a few percentage tax rate increases, the impact on total tax revenue collection is insignificant, because the number who pay higher tax is relatively small. No one likes to pay more tax, we are all self-centered, politician has to ineluctably redistribute the increase based on fairness, but there is no absolute fairness and only relative fairness. And tax should not be only one way up or down, it should fall when the budget returns to surplus and after account for future expansion and contingency.

The theory of supply-side economists’ tax cut on company tax is even fallible and untenable. I live in a country cut company tax rigorously and it becomes one of the tax competitive countries in the world. In my twenty years' professional career, during the budget days, none of the CEOs asked me to work out how much tax savings for the tax cut pronounced. There are two possible reasons. One, The CEOs were layman in taxation. Two, they were disenchanted, the amount was pretty paltry not worth attention. Especially when the economy is frailed or slips into recession, most companies are either incurring losses or making few crumb of profit. If company incurs tax losses, there is no tax liability; what benefit can derive from tax cut? Even a company makes a small tax adjusted profit, For example, an amount of $30,000, a 1 or 2 % tax cut work out only few hundred bucks. How this few hundred bucks make the wonder to improve economic growth; boost investment (adding new plant and equipment) and employment (adding new hire)? Probably the savings is going to be part of the CEO big bonuses. I impugn and better to leave this hoary old joke and cliché to class room teaching.

Politicians are also quick to lower business tax, and it is a cinch and just make up the shortfall by increasing other taxes, such as value added tax to improve competitiveness. They pontificate uncompetitive tax rate will result in business moving overseas, creating unemployment problems due to more plant closures. The fact is cut tax does not prevent businesses moving overseas. In reality, business leader does not assess their investment based on tax rate alone. There are a host of factors under consideration including the purpose of investment (such as company just wants to have easy access to R & D in advanced country.). Even your country has higher tax rate, but you ace on other factors, such as infrastructure, education, better business opportunities, better market potential etc., you can still be the choice of investment.

According to Wall Street Journal's report, many of the listed companies are making profit, it is unwise to give away tax revenue by cutting tax or give tax relief to profitable companies when you have a large budget deficit. Tax relief should be given to ailing companies to facilitate healing, a good example is payroll tax, if companies incurred adjusted tax loss, and have no tax liability but may have to pay payroll tax. Full refund will allow healing and alleviate burden. Business makes Capital expenditure decision on business outlook. Giving tax relief to plant and equipment to boost economy is tantamount to putting the cart before the horse.

The main driver of increasing tax revenue is the power of the economy, which relies on two factors, One is the expansion of the economic capacity, Second is the stage of business cycle. There are many avenues to collect taxes which are broad base but in a small way, such as increase tax on business of socially deleterious effects: Tobacco Companies, gaming companies, and environmental polluting companies etc. Value added tax is equally broad base, but as the economy is still fragile and unemployment remains high, it is not appropriate to impose higher tax at this juncture.

High unemployment becomes Achilles heel in America. It is possibly resulting from structural change and business cycle. Structural change is tricky and chronic. Business cycle is just a matter of time. I think jobless recovery in the long run will become a trend. If you reminisce about 2001 recovery, the lingering high unemployment impact continued to 2002 and 2003. The possible reason is employers were quick to shed staff to pare down fixed costs when economy turned bad, and the economy recovered based on GDP number which was tantalizing, but the real economy took a lull and was still teetering, recuperation was gradual and not broad base, resulting the contrasting phenomenon. This time round even worse, when economists projected a prolong recovery due to high household debts, the gloomy housing market, high unemployment, and adverse external environment. No employers would like to recruit new hires when the economic outlook is uncertain. The American economy was said to be dynamic, jobs are easily shed, but you can make up by new opportunities elsewhere. And now this invidious dynamism becomes political shackles, electorates lambasted the political leader for the wrong economic policy to turnaround the economy, resulting the economy becomes stagnant, so does the unemployment rate.

I can empathize the angst and frustration of the unemployed because I am in the same predicament. And possibly none of the unemployed American has gone through the career nightmare as long as I do. If you stay unemployed for more than six months, even the economy recovered, you will have to compete with those still in the market but job hopping. Your chances of getting back to the workforce slim by the days. Nobody is willing to give you a chance to turn around your career no matter how hard you are trying. Recruiters are looking for successful candidates. You find yourself abjectly sink to the base of the job pool.

Fume, trepidation and frustration aside, there is no miracle of immediate turnaround of job market at sight. May be the situation even more pandemonium if the Democrats are scuppered in the November Congressional election; because The majority Republican in Congress and the lame duck Democrat Administration are implacably lock horns. Party interest and ideology prevail over national interest. Bipartisan ideology is so apart to find confluence that congress becomes a vociferous battle field. Both side fingers pointing the other is playing politics. In the end, who lose the most? For employment issue, what I can say in earnest is there is no quick fix in a lukewarm economy; no party has the magic wand to extenuate moribund condition. You need someone who can decide on the right direction, hell-bent and painstakingly work the details, pulling all the plugs to get out of this economic woe.

I am suggesting a pragmatic approach which is not a panacea, may be workable for consideration. My approach is action oriented. First, you need to have a fixed establishment specifically tackle unemployment issue. The organization hires human resource experts to study long term trends, strategic goals to tackle structural issues, redeployment of manpower and job counseling services. This is a nation strategic asset, because you build your capability to redeploy manpower resources faster, you can counter any shocks while others still mire in the unemployment woes. The sine qua non for a successful establishment cannibalizes around flexible, fluid and pliant mobilization of resources to tackle issues on industries changes, manpower requirements, skill changes, redeployment, and training. Once you have a clear picture of what will be happening in various industries, you will have a good grip of future direction. Second, tackle head-on the unemployment issue, possibly from Nonfarm Payrolls,
You need clear picture of which industry shed employees the most, by how many and which category are most affected, whether the typical employer shed the most staff rehire? By how many? By comparing pre and post crisis nonfarm payrolls, you get the changes where the employees were shed the most, and keep drill down to the core to know the nature of layoff, what changes are needed. You need to speak to the industry business leaders who shed the most staff about their business prospects and the possibility of rehiring and what the government can do specifically to the industry to rev up their rehiring decision. Apply 80/20 rule, Service sector commands about 80% of employment. Suppose you know Banking and housing sectors shed most staff (under Finance, insurance and real estate). It helps you to focus and dig deeper to the source of malady when contact with job seekers which I will elaborate in the following paragraph. It also helps you to plan and decide whether to retrain and redeploy the jobseekers or let them stay in the waiting list. You need information about the chronic issues that plagues the job seekers, possibly from unemployment rate conducted by the Commerce Department of Bureau’s household survey. The purpose is not accuracy, but to study the underlying causes that impede jobseekers gainfully obtaining a job and facilitate thrash out solutions to the problems .Which solutions work best under what conditions. As you gathered the thread, you then share your winning formula with other job seekers. The dialogue with job seekers can be multi-channels: Interviewing chronic job seekers to learn firsthand the grievance they encounter in seeking the job. You can also open hotline to listen what job seekers want and what they think you can do best. This can be done at national or federal levelThere are channels providing feedback from the ground up expeditiously to facilitate quick policy change.

A powerful database at national level that captures all the jobs at one site, opening also includes overseas jobs (for those who are willing to relocate). That is the marvelous thing I came across; you save time and efforts to browse all web sites and it is low costs. For those computer illiterates, setting up physical job posts enable face to face contact and subsequent follow up.

Entrepreneuring is an old trick to reduce unemployment and encourage start-up businesses. Start-up businesses with promising prospects are given funding after adequate due diligence. The reverberation of entrepreneuring has been overwhelming which encourages niche market, new inventions and product proliferation. In no small part, it helps to alleviate unemployment as new businesses spring up.

As to the structural change due to offshoring and outsourcing, it is a real conundrum puzzled me for many years. I know the impact of globalization is inexorable. Solutions are not palatable. Albeit companies know well what the risks involved, such as rife with supply chain management risks, quality issues, intellectual property thefts etc, they continue to put their bet in overseas. The reasons possibly are: One, it changes dramatically the gross profit margin and two it expands the scope of business. And some companies even move their upstream R & D offshore. Wages are major cost component in manufacturing goods, the wage differential is so stark that it reduces your cost of sales tremendously and improves GP margin. Offshoring can also evade stringent regulation at home whether good or bad. The solution to offshoring is said to retrain workers and move up the value chain. I find it easy said than done. Moving up value chain means increasing complexity in skills. The overarching question is whether those fledgling redundant are trainable? Some unskilled workers simply do not have the foundation to upgrade to match the necessary job requirements. And there is also a problem whether the upstream have adequate openings cater for them to move up. Small wonder they can only be redeployed to service sector or continue to stay unemployed. It seems unfair due to different in living standard in two countries and the job is gone forever. This is a harsh part of life to accept the comparative advantage theory. Manufacturing moving overseas have littered with lots of social problems.

Some politicians cried out recently to move manufacturing back home. The question is not where you produce your goods but the price the ultimate consumers are willing to pay and the number of consumers that is large enough for the manufacturers to make reasonable profit. In the capitalist world, reasonable is not enough, "maximization" is the key, and Wall Street will not condone mediocre performance and is mesmerized by bonanza. At any rate, the choice is only one route, offshoring. If you can find satisfying consumers and reasonable profit seeking manufacturers, you solve the equation. What we reckon on is a satisfying customer does not mind to pay a little more for may be better quality product knowing a portion of the money will go to her countryman’s payroll. A reasonable profit seeking manufacturer is happy to get on with each day rather than anxiously beating targets to maximize shareholder value. Whether that reasonable profit seeking ideology suits your taste and philosophy of life is pivotal to making the solution viable.

Another aspect of structural change is to improve productivity. There are two type of productivity, the hard and the soft that yield more output with fewer input. The hard type is investing in physical technology to improve quality and reduce input. In other words, fewer workers are needed to produce the same output with consistent quality. Soft type is implementing management technique, such as reengineering, Activity based, throughput accounting etc, to name a few. The core concept of these management techniques is to align your business process to deliver product or service to the satisfaction of your customer; eliminate non-value added or bottleneck, you use fewer resources to produce the same amount of output. Both types are equally painful, as certain processes are eliminated and workers are made redundant. If the workers cannot be redeployed, they will be laid off. Though those fads were quiet down in the recent past, there are still companies making them as part of their operation routines. There are many books discuss the vile effects, such as low morale, stress, lower wages, low allegiance, and gone forever the sense of Esprit de Corps. The sordid affair of restructuring, according to newspaper reported was companies took advantage of weak economy to layoff workers; rapacious senior management on the other hand paid themselves big bonuses. Senior management like to pander Wall Street, cutting staff improves bottom line and resulting higher share price. So, there are genuine restructuring for survival and improve competition and also ugly restructuring making layoff to benefit oneself. Sometimes, it is difficult to draw demarcation.

How to pull all the plugs to rescue the sinking ship? The world is intertwined. The crux is to pull all internal and external positive factors to strengthen the economic muscle. In my previous article, I proposed increase government spending at many fronts. When all countries in the world adopted government spending concurrently, it became a very powerful jolt to the world economy. A compelling action applied to convulsive crisis. Some people disparaged as Keynesian, but in my mind it must be cogent if you use the right tool to do the right thing at the right time. At the time, monetary policy was well-nigh reaching its limit, interest rate was low, the market was awashed with monies, but the credit market refused to budge. A quagmire something must fill the void to avoid rapid deterioration. What I could think of most effective tool was government spending.

Two years passed, let take stock of how countries are faring. China’s stimulus howling success was much hailed and envied by the West; there are several reasons for it. Unlike many western countries, they were not severely inflicted by sub-prime woes. Their central government command and control management style was suitable for crisis management. Political fiats got down to the bottom fast rather than mired in interminable congressional bickering. The amount was scrounged a large 400 billion Yuan spending spree, mainly spent on infrastructure, many of the project had already decided prior to the crisis, the implementation was swift; and the outcome was prominent; a small part went to promoting internal consumption. In second quarter of 2009, their economy rebounded strongly and returned to exorable growth. The inimical command and control economy in our eye became their advantage. China is a developing country. They have been spending on infrastructure all these years. It came natural to be preponderant. Booming property market and government fixed asset investment became the pillars of successful turnaround. And their export sector also recovered fast, thank to the stock replenishment from the West. They got the lucky stars all come together. Their recent report card also looks good apart from high inflation due to high food price and commodity price. Of course this is lagging indicator. It is not clear when the vagaries of demand from the West weaken due to austerity package in Europe and weakening US economy, and internal consumption growth is not fast enough to catch up, how they will cope with this vicissitudes of world economy? They need plan B.

Uncharacteristically, Germany is also chalking some blistering growth, like all other exporting economy; Germany was leading the Europe in recovery. They are rich, have sound fundamentals, which do not quite consonant with their depreciating euro and export based economy. According to The Economist, they were making big bucks in newly emerging countries. Their cars Audis and Mercedes were selling well in Brazil, China and India to the newly affluents, luxury goods from other European countries are chalking big sales. It is said the spillover effects also trigger other part of EU countries growing. The latest report shows 1.7% growth, double the amount of expectation. In other words, their booming is export driven; can this trend of growth be sustainable is determined by whether they continue to have the fluke that their major importers hold up well, or else the risk of domino effect is lurking, the counter force of implementing austerity package restrains economic activities and the sheen of booming will fade. One interesting implication for their success is, how export driven economic growth spill over help to stimulate internal consumption? How significant and broad base is that?

What happen to America? Why the momentum wanes fast and the outcome less triumphal and exhilarating? I leave the soul searching part to the Americans and focus on the main theme of this article: how to pull all the plugs. I do not have all data necessary to analyze and may err. I can only show some crude ways how I will perform the analysis and what actions can be taken to pull all the plugs. America is not an export driven economy. Some economists advocate short-term stimulus: spending money to boost consumer spending, business investment, or job growth. It resonates me well, because the largest piece of economic output is Personal Consumption Expenditures. My focus is we need to have a clear picture of the strength of households spending. How severe it was dampened? Information from media pointed to us: households are not deleveraging. (My own view is don’t deleveraging too fast, the ideal speed is to follow the speed of the economy) To assess, we need more details than this (I am doubtful; whether nonfarm payrolls can give all the following information, probably it needs mix and match with other indexes or to survey from scratch):
1. The total number of working population in debt /Total working population. (in debt here means live beyond one’s means, and therefore incapacitate their spending power)
2. Total number of middle-class working population in debt/ total middle-class working population
3. Average absolute debt level/ average earned income (this is to judge how soon to turnover debt)
4. Total number of middle-class unemployed/ total unemployed population ( How much middle class unemployed will affect Personal Consumption Expenditures)
5. Changes in income level for each working class in pre and post crisis comparison.( How crisis impact on each category of working class income that affecting consumption)
6. The comparison of Personal Consumption Expenditures by Bureau of Economic Analysis pre and post crisis about durable, nondurable, and services (consumer spending about half on services), keep drill down for details shows housing, household operation, medical care, and transportation. Housing costs represent mortgage, rent payments and household operation represents payments for utilities. (This gives picture of where the spending slump is. It helps to decide the nature of the slump and the remedy. How crisis has affected the details of household spending)

Arm with these data, we are confident that we are heading to the right track. It gives clear picture of how strong the strength of household spending is. We then drill down to demographic level, which group is severely affected, which group is least affected? Geographic level, which state is affected the most? The more you drill down, you see more pictures. The purpose of doing this is three folds: One, you need to know exactly how much the household Balance Sheet is weakened that will derail the economy from growing (Part of the Personal Consumption Expenditures are missing, and to be replaced by other economic output (Gross fixed investment, sales to government or export) depending on which one is making more sense to put the house in order. Second, you want to know with present indebtedness, how soon it takes to unwind? Thirdly, you want to know where you can render assistance. You need the distribution of each category to work out the details and your action plan of your assistance. Which approach to turnaround the ailing state is most feasible, at national level or federal states? Remember, the Federal states and Washington is symbiotic relationship. The role is somewhat of a parenting facilitating role that share resources, pulling the strengths to reorganize and restructure, assist in implementing programs such as promoting investments to revive the state economy. I think it certainly will help. If you don’t render your assistance to the ground, things will change very slowly.

Working on this part is crucial on the way back to revive the economy; it directly tackles consumption, unemployment, and restores confidence and it is the epitome of the whole economy health. With the aid of this information, you continue monitoring the progress, spotting bottleneck and eventually bring the economy back on track.

The next step I will do is to mend the hole? I will not quickly jump to conclusion that housing and banking sector are the biggest holes. I assume I know nothing about what happen to the economy and start from scratch. I will dissect the economic data that made up the GDP number, it is a matter of reduction of how the numbers are compiled, keep drilling down to give me a complete picture of the economy and comparing each component ( Consumption, Investment,Governmant, Export, Import) Pre-crisis and Post crisis to identify holes. I want to find out the following:
1. Which components have made significant changes pre and post crisis?
2. Which components have faded, stagnant or rising?
3. Which components have the potentials of pulling for growth?
4. Playing what-if scenarios: If you single out the growth of one or two sectors, For example, housing and Banking sector because of zero or low growth. Where can you pull the plug by finding growth in other sectors to patch the void?
5. Projecting a worst case scenario that US economy deteriorating fast, Europe economy is close to recession and China economy is struggling to keep afloat, which component will have better chance to arrest the situation not becoming worse.

I will form a team with diverse background, so that I can see problems from different point of views. The comparison of pre and post GDP figures will show which components are bloated in the pre-crisis need downward adjustments. The main purpose is to identify holes. The components (Goods, Service, and Construction) that the economic activities are declining, stagnant and missing are defacto holes. Residential fixed investment is only a small portion of economic output. What our concern is to revitalize total strength of the economy using external or internal countervailing forces and mitigate the adverse impacts. Until you have good knowledge of the true picture of the economy, you are not ready to mend the holes. You can also compile a budget that is realistic to measure your progress.

Some thought that so long we propped up the housing market, it would stop declining, and the housing market would turn the corner. What I can say is there is no easy way out to clear the housing sluts. Anyone claims to have quick fix is devious, an intention to delude and obfuscate the electorates. You can only set free by knowing how you were entangled. You may want to review regulations that impede buying transactions. The housing sluts will eventually ameliorate when the economy is back on track.

Supposing exporting is part of the action plan to jolt the economy, more dialogues with the business leaders and the government playing facilitating role are essential. Business sense is important here. Business leaders know where to target market better than politicians. Dialogue is to listen how to play the facilitating role better. In fact, in America there are plethoras of lobbyists advancing interests for the powerful business segments. But there are differences between dialogue and lobbying. Dialogue is active participation in communication, is in control of the outcome.

A case in point for export is export to China; current account deficit has plagued bilateral relationship for years. The US insists China to appreciate her currency, claims that the Chinese deliberately manipulated the Yuan value so low to boost her export. I have no qualms that the Yuan is undervalued, because their economic fundamentals are strong relative to the US, as to how much undervalued is everybody guess.

The Economist used “The Economist big Mac index” in the recent comparison, showed around 48% undervalued. Big Mac is a crude valuation. It uses purchasing power parity theory or the law of one price as the basis for comparison. The theory in layman term means if the rate of inflation in country A is greater than country B, the rate of exchange of the country A will fall against the currency of country B. The currency value can also be derived from “Irving Fisher’s interest rate parity theory”. In simplicity, it means interest rate differential in two countries is equal to difference between the forward and spot rate of the exchange. All these are text book stuff you can learn in Corporate Finance. In real life, for sure the currency traders don’t use this simplified expectancy theory to trade their currency. Some use sophisticated computer currency modeling techniques to calculate currency value. Most in the currency market watch for Central Bank behavior (interest movement), a nation’s trade balance (To correct imbalance, deficit country has to depreciate their currency), commodity prices (move in tandem with the dollar) and domestic equity market strength (reflect the fundamental of the economy), Supply and demand of spot and forward market. Currency value is the fuzziest thing in any valuation.

As far as I came across what others valued Yuan, undervaluation can be as low as below 10% to as high as over 50%, why the difference is so wide? The reason is possibly no one tool can give the necessary precision as the input variables are largely uncertain. The brawl can be stopped by encouraging the Chinese to convert from managed float to free float. The problem with free float is currency may subject to wild swing due to speculation, like the Japanese Yen, recently shot up to the roof to around 82 Yen to a dollar due to carry trade. A wild gyrating currency is bad for business planning even though there are tools for hedging and it encourages companies move overseas leaving the country with chronic unemployment. China is now using Hong Kong as stepping stone to migrate to convertible capital account. I think they will use managed float for a while before converting to free float. As now many countries are mesmerized by the prospect of selling more goods to China. They wish the Chinese Yuan to appreciate help their export. China’s recalcitrant stance incensed the West. But the Chinese thinks other wise. I read a book recently written by The Economist’s ex-correspondent in China, he interviewed an ordinary person in Shanghai about the currency row with America. The Chinese did not think their currency is undervalued, the hostile attitude towards China is the problem, labeled the US as big bully, hegemonist. I read an article written by a Shanghai professor, according to his own valuation model, the Chinese Yuan is not undervalued; it goads the Chinese if they think their currency is not undervalued why the West keep pushing them to the corner? There engenders the big bully theory.

Currency issue is so abstruse that not every ordinary people can comprehend. This stodgy and insipid verbose is to highlight one point about different perception of two parties. The Chinese have mix emotion towards the America and can be easily provoked to be nationalistic. Why should I buy Ford or Chrysler? To the new rich, they will turn to give chance to the German by buying Mercedes or Audi, Japanese Toyota, Honda or Korean Hyundai. It boomerangs due to lack of political adroitness. “If you can’t help me, at least don’t be my stumbling block.” American Businessmen howl. It is not ingratiating the Chinese consumers and feel stigmatized, but don’t let business tainted with political righteousness. There are many American businesses have been in China for more than twenty years. They know the right way to do business in China. A dialogue with them will help the politician make a better trade off in political decision.

The human frailty in crisis is a smack of selfishness, each one is eager to get out of one’s excruciating economic woes and elbow the way out; by that is a no body win game. Instead of contriving to make the matter worse, emphasizing rapprochement and adroit negotiation skills are paramount. The key is to trade interests. Trading interest can better achieve each party objective, everyone gain, because interests change behavior.

I hope this piece will help.