on a beer budget?

by Kenneth Rudich

At the same time the United States has been grappling with a major recession, it has also racked up a staggering amount of debt.  The Obama administration budget plan released on Feb. 1 projected an unprecedented deficit of $1.56 trillion for this year.  On top of that, the outlook for getting relief from having to repay it…never mind. 
   
According to an article in the Huffington Post written by AP Business Writer Bernard Condon, this may be dampening the appeal of U.S. Treasury Bills.  

Foreign holdings of U.S. Treasury Bills saw a record plunge of $53 billion in December.  It surpassed the last record drop in April 2009, at $44.5 billion.  If these trends continue, the U.S. may have to pay a higher interest rate on its Treasury Bills, which could have the dual consequence of making the national debt soar even higher while stock prices tumble.  If you don’t know what that means, just assume it will drive the wedge ever so deeper.  
 
China stood at the front of the reduction line and shed its holdings of U.S. Treasury Securities by $34.2 billion in December.  Carnegie Mellon University economics professor Alan Meltzer regards this as a sign that China may be worried the U.S. has “an unsustainable debt level and no real plan for dealing with it.”        

Japan, on the other hand, doesn’t appear to share China’s trepidation.  It actually increased its holdings by $11.5 billion, making it America’s biggest creditor once again.  Japan now holds $768.8 billion in treasurys as compared to China’s paltry $755.4 billion.  Neither of these stunning figures strike me as oozing with fear about recouping a handsome gain on their investments.         
 
And yet, for all of 2009, foreign holdings in U.S. Treasury Bills still decreased by $500 million.
 
Just by virtue of how whopping these numbers really are, it does beg the question: what is the U.S. left holding after all this…a maxed out credit card in one hand and a mortgaged future in the other?
 
Economists as a whole seem divided about the severity of this circumstance.  Some don’t believe too much should be read into it.  They argue that the drop was in short-term treasury debt, which tends to be volatile from month to month.  They claim the trend could easily be reversed in the coming months.  

They also pointed out that longer-term U.S. treasury debt purchases climbed by $70 billion in December (is this a good thing?  isn’t the general outcome of selling more debt…well, more indebtedness?).             

Other economists see these trends as an early indication of growing unease over the depth and weight of the current U.S. debt.           

Me?  I’m thinking the U.S. might want to consider revamping its marketing strategy, up to and including, finding something else to sell other than debt.  Maybe something with a return on investment for a change.  Just a thought.         

What do you think?   How would you characterize the U.S. prospects for staying marketable in the years ahead?

global competition

 by Kenneth Rudich

It was 1982 when I initially realized the U.S. economy was on the brink of taking a sharp turn, one that would forever change its trajectory.  

The evidence was seemingly everywhere.  Already the nation was littered with shuttered factories as unskilled manufacturing jobs were moving abroad to take advantage of cheaper labor.  Legions of other companies were struggling too, and they either were in the midst of a massive restructuring to become lean, or they were being dismantled and sold off in pieces.  Unemployment steadily crept upward during all this, and the mood of the country in general was something akin to bereavement.  

Across the Pacific, meanwhile, the Asian economy was taking root and starting to simmer.  As people gazed in that direction they were transfixed by what they saw.  For the first time in recent memory the U.S. was about to take a backseat, economically speaking, to Japan.  It truly was uncharted territory.  

I was working on an MBA at the time, and I remember being told the U.S. was transitioning from a manufacturing-based economy to a services-based economy, from producing tangible goods to intangible products.  This was heartening news because it insinuated the currently bad situation was only temporary, that the economy would rebound after a bit of correction, return to an even keel, and then go galloping on as if nothing had ever happened.  

But the reassurance of that explanation didn’t last.  A few days later, after listening to another economist describe the same circumstance as moving from an economy built on bedrock to one being built on quicksand, I began to recognize it wasn’t as simple as merely shifting from tangible to intangible products.  That was only part of it, and a relatively small part at that.  Something bigger yet was at hand.  And though I didn’t fully understand exactly what, I do remember my intuition telling me he had just said something extremely insightful.  From there, it always stuck with me.     

Thirty more years of watching the economy twist and turn has since given me the perspective of hindsight.  I now get what that economist was trying to say back then and, none too surprisingly, it remains as relevant today as ever – in fact, even more so.  

You see, it wasn’t about whether the economy was manufacturing-based, or services-based, or anything else-based for that matter.  Nor was it about the fate of the U.S. economy alone.  Rather, it was about the new reality of having to deal with unprecedented competition and the impact it would have on the lifecycles of products or services. 

In the next post, “The Complexity of Delivering Value,” I delve more deeply into how this change has added a great deal of complexity to the task of consistently delivering value across time.