I wrote a fairly lengthy commentary on the announcement of QE3 (quantitative easing 3, aka stimulus 3, aka QEInfinity, aka BailoutInfinity, etc.) in which I concluded that the US government was destroying the value of money and that the outcomes from doing so were pretty much all bad.
Having said that, I've stepped back from the announcement and my PR brain has had time to chew on the various messages the banking industry, the fed and both Romney and Obama have given over the past six months.
With that in mind, I'm appending this post to my previous in terms of my views on QE3 and the economy. I'll keep this post shorter than the last one.
Let's first identity REALITY. This is to say, let's first take basic facts that are true and indisputable.
Facts:
1) Large sections of the US population have faced chronic unemployment (2-4 years). These folks have almost no chance of getting back in to the workforce, which is not hiring as it is. Almost all the 'new' jobs they talk about are part-time or low wage jobs.
2) Of those working, most are doing so with the ever-present worry that their job may go poof at any time. This means even those working have been enduring extremely high stress levels which have taken a toll on their health and productivity.
3) While the cost of living has gone up, wages are stagnant. So folks 'standard of living' has declined.
4) The stock market is a joke. It's a rigged casino at this point with the Fed manipulating investor behaviour by radically manipulating rates, pushing folks out of bonds and in to (risky) equities.
5) Savers have been sacrificed at the alter of saving the banks, all 'return on money' has been re-directed away from savers and to the banks due to Fed monetary policy.
6) They've attempted to fix the debt problem with MORE debt. So now the problem is actually far larger than it was in 2008, it just hasn't 'popped' yet like it did in 2008.
7) No bankers have gone to jail. Barclay's caught manipulating LIBOR, nothing. Jon Corzine steals $1.2B of customer funds, nothing. To keep things in perspective, during the S&L crisis, thousands of people went to jail. This time, in a crisis exponentially larger than the S&L crisis, no one has gone to jail.
8) Over 50% of new grads in the US cannot find a job (that's any job, much less one in their career field).
9) The US national debt is $16T and climbing. Over 100% of GDP (Greece I think reached 130% and then went bankrupt and is now living on bailout packages from the rest of Europe).
10) Europe is a total mess with the PIIGS countries still in systematic collapse and the rest of Europe suffering recessionary economies (no salvation on the horizon).
11) Real unemployment figures (U6) in the US are around 16-22 per cent (this includes the folks who are not counted any longer in the U3 unemployment stats).
12) Baby boomers approaching retirement and who will be requiring social security and medical care, all of which is essentially unfunded (meaning the money isn't there to pay for it), will soon be freaking out over their future.
So in Summary:
1) Chronic mass unemployment
2) Massive debts which have increased not decreased since 2008 (and debts which are being carried forward by taking more debt).
3) Suspension of the rule of law as it applies to the banking sector
4) The financial insolvency of essential social services is almost upon us
And yet, the PR messages do not reflect the seriousness of the above situation. Neither Obama nor Romney have any messages that address the above issues.
The PR Tea Leaves
So I was thinking to myself, even with QE3 there is simply no way to kick the can down the road much longer. At a certain point, as society degrades, you end up with civil unrest.
Now, in 2008 they could have let the banks go bankrupt and began the process of cleaning up the mess. But they didn't. The best reason I can think of is basically that the debts the banks carried were so large, that to let them go bankrupt would mean those holding the debts (ie. pensions, bond holders, etc.) would go bust.
Ergo, they did the next best thing. They flooded the bank with money (ala QE1, QE2, QE2.5, and now QE3) in hopes that this would jump start the economy (and buy them time to work up a plan in case this didn't work). Greater liquidity meant greater lending capacity, which hopefully would result in greater borrowing (by businesses) and then greater economic activity.
Unfortunately, the plan didn't work. Instead what they got was four years of stagnation where unemployment didn't decline, where people's net worth declined, where net-net millions of Americans lost their jobs, etc.
And yet, from a PR perspective, neither Obama or Romney are even talking about any plans to solve things. The closest thing we've seen to a plan is QE3, which is not a plan but rather a continuation of 'kicking the can' down the road.
A lot of Cant's
So one has to ask, why would neither Romney nor Obama at least present some kind of plan? After all, you can't have unemployment in the 15-plus-per-cent range for another four years. You can't let the deficit rise to $20T. You can't continue to let people (ie. banks) break the law while doing nothing.
You can't continue to let the price of gas go up while people's wages go down. You can't have 50 per cent of new grads unable to find jobs.
You simply can't have the above trends continue for another four years and not expect massive social disruption. Such disruption may be peaceful, such as the number of people on food stamps climbing from 47 million today to 100 million in four years. But any peaceful reaction, such as generations moving in together or people downsizing their lifestyle, will only contract the economy even further.
Point is, I think we've already crossed the Rubicon (the point of no return).
However, there is one thing that would make sense from a PR perspective.
Nationalize the Banks
This has always been the solution of last resort. Essentially the government would take over the banks.
This is the one solution that could potentially fix this unfixable situation.
From a PR perspective, this remedy makes sense. It would explain why neither Obama nor Romney have any public plan. Obama's original plan of kicking the can down the road clearly has not worked.
The only option at this point is something drastic like nationalizing the banks. This would allow the government to do three major things:
1) Take all the profits associated with banking activity and use them to pay down the national debt and fund social security and medicare/Obamacare.
2) Direct capital to specific areas of the economy through interest rates. So for instance, if the gov wants to revive manufacturing, they can give out ultra-low interest rates to businesses in that sector.
The value of this is that they can distribute capital to areas of the economy that banks would not generally loan to because of the risk of borrower default.
3) Provide debt relief to mortgage holders and student borrowers. They wouldn't dismiss the debt, but they could put people on a 50-year, low interest payment plan for instance. Now, the bank as a private institution would never do this, but the bank as a division of the government could. So your 30k student debt gets monetized as a 50-dollar-a-month debt payment (50/mth x 50 years = 30,000). No bank that wanted to make a profit would ever do this, but the government could do it no problem.
What's important to understand about nationalizing the banks is that banking becomes a 'not for profit' sector of the economy. The banks mandate would no longer be to generate profit so much as to support economic activity in society. Or rather, the profit they did generate would not go to shareholders and executive management, but rather would be fed back in to society.
Makes Sense
If nationalizing the banks is in the cards, then things from a PR perspective start to make sense. They can't announce this because it would cause a run on the banks (people being unclear what nationalization would mean for their savings account would rush in and take out all their money).
Additionally, such a major initiative, while quick to start, would be a multi-decade commitment. You can't simply nationalize the banks and then two years later flip them all back to being public institutions. And there are thousands of banks in the US, so even the process of nationalizing the banks would take a year or more just to start.
With that in mind, starting this process before the elections would not have been feasible. If Obama started the process and then Romney won, Romney would be stuck carrying out Obama's nationalization plans for the rest of his presidency.
As such, the logical thing to do, would be to wait until after the election and then have whoever is president own that process from day one.
The simple reality is that the only way to pay down the national debt, to pay for things like social security and medicare, and to get millions of Americans back to work is to take the profits associated with the banking sector and use them to do the above. It's the only solution.
All efforts to 'kick the can' down the road will merely lead to a continual degradation in standards of living and ultimately hyper-inflation and civil unrest.
If I'm correct in my analysis, it explains everything we are seeing from a PR perspective. They have to keep the appearance up that what they are currently doing is 'sort of' working and just will require more time (despite the fact that the 'on the ground' reality clearly shows that it is not working).
It also explains why the presidential race is about silly things like gaffes the candidates make as opposed to the real issue, the economy. They can't talk about the economy, because they know that their current plans are a bust and they can't talk about what they have to do next without sending the markets in to a tizzy.
The Implications
The implications of nationalizing the banks are far-reaching. We are talking about the end of capitalism as we know it. Michael Moore stated in 2009 that we were witnessing the end of capitalism as we knew it, and he may turn out to be right. When you nationalize the banks, the government becomes all-powerful with control of the army and control over capital, they have the power to control all aspects of our lives.
Which may explain why the US gov has been stock piling ammunition over the past year. They may be concerned that the US population (who is armed to the teeth) will not respond well to big government getting even bigger.
On the flip side though, with increased power also comes increased ability to resolve problems.
Let's face it, the vast majority of problems in the world are financial. Some could argue that all problems, with the exception of terminal illnesses, require finance to be resolved. Someone with a mental illness for instance... treatment costs money, ergo while their problem is mental, the solution is heavily tied to finance.
Right now, the government attempts to help various areas of society using tax-payer dollars and allocating portions of it to certain issues. But the amounts are always a tiny fraction of the money required to truly solve the problem. Hence, private sector foundations will often spring up to try and raise money (usually this occurs when someone who is really rich is affected by something and then decides to use their wealth, and the wealth of others, to try and address that issue).
But if the government essentially had all the profits the banking sector generates to play with, their options suddenly become expansive.
But one cannot understate the massive change to society this entails. It means if you want to start up a new business it's no longer what a 'banker' thinks that will determine whether you get the loan, but rather what the government thinks.
The obvious problem with this model is the scenario where a 'bad' person becomes president and uses the power of the government to enslave people or start a world war. With the wrong person at the helm of such a powerful government Democracy could easily be threatened if not removed.
But the simple fact of the matter is that this is the only option society is going to have in the coming years. The economy has not recovered. The UK is already in a double dip recession. The middle class is shrinking rapidly. Too many people are 'getting by' only due to increasing amounts of debt.
If the banks are not nationalized, and QE3+Infinity is the only plan the government has up its sleeve, then social unrest is certain as food and gas prices rise while wages remain stagnant and unemployment remains high. No society facing these variables has avoided civil unrest. Every time you get these factors the outcome is always civil unrest as people rebel against living in poverty.
It's not what they say, it's what they don't say
I've come to the above conclusions based on a PR view of the world. The messaging the banks, the government, Bernanke, Obama and Romney are using are totally disconnected from the reality of the world everyone is living in (and disconnected from simple statistics of what is happening to the world).
It simply makes little to no sense to skirt the elephant in the room, it's always been one of the worst communications strategies you can use.
Unless of course you can't talk about what your views are on that elephant. In that case, you have to divert and obfuscate people's attentions away from the one thing they should be focused on.
Companies do this a lot as well. They will get asked a simple and straight forward question and then give an incoherent response. It all makes little to no sense until a month later suddenly it's announced that they are being acquired. Then you go back and listen to their interview and suddenly their obfuscation makes total sense (they couldn't be straight forward without revealing a conflict of interest in terms of what they are saying publicly versus what is going on behind the scenes).
So QE3 to me makes a lot more sense if the government is not using it as a means of fixing the problem, but rather, as a means of kicking the can of concern and worry down the road a couple months until the election is over.
So here is my prediction based on the PR tea leaves - statements by Bernanke, Obama, Romney, the big banks, etc., - I predict that in 2013, most likely the first half of 2013, we will see the nationalization of US banks.
It will mark the closing of the first chapter in US history and the dawn of a new chapter, one in which capitalism as we know it will be radically redefined.
What will this mean for PR? It's hard to say. PR is an advent of capitalism. It's function is to help companies communicate with their stakeholders. If capitalism changes radically, then PR also will change radically.
Having said that, I would suspect that in the short term it will lead to an explosion in PR needs as radical change always requires an massive increase in communication between stakeholders.
Over the long run though? Most likely it would lead to a decline in PR requirements. I'm not saying nationalizing the banks will turn the US in to China, but China is a good example of how you don't need a lot of PR in a government-run economy.
Having said that, I've stepped back from the announcement and my PR brain has had time to chew on the various messages the banking industry, the fed and both Romney and Obama have given over the past six months.
With that in mind, I'm appending this post to my previous in terms of my views on QE3 and the economy. I'll keep this post shorter than the last one.
Let's first identity REALITY. This is to say, let's first take basic facts that are true and indisputable.
Facts:
2) Of those working, most are doing so with the ever-present worry that their job may go poof at any time. This means even those working have been enduring extremely high stress levels which have taken a toll on their health and productivity.
3) While the cost of living has gone up, wages are stagnant. So folks 'standard of living' has declined.
4) The stock market is a joke. It's a rigged casino at this point with the Fed manipulating investor behaviour by radically manipulating rates, pushing folks out of bonds and in to (risky) equities.
5) Savers have been sacrificed at the alter of saving the banks, all 'return on money' has been re-directed away from savers and to the banks due to Fed monetary policy.
6) They've attempted to fix the debt problem with MORE debt. So now the problem is actually far larger than it was in 2008, it just hasn't 'popped' yet like it did in 2008.
8) Over 50% of new grads in the US cannot find a job (that's any job, much less one in their career field).
9) The US national debt is $16T and climbing. Over 100% of GDP (Greece I think reached 130% and then went bankrupt and is now living on bailout packages from the rest of Europe).
10) Europe is a total mess with the PIIGS countries still in systematic collapse and the rest of Europe suffering recessionary economies (no salvation on the horizon).
11) Real unemployment figures (U6) in the US are around 16-22 per cent (this includes the folks who are not counted any longer in the U3 unemployment stats).
12) Baby boomers approaching retirement and who will be requiring social security and medical care, all of which is essentially unfunded (meaning the money isn't there to pay for it), will soon be freaking out over their future.
So in Summary:
1) Chronic mass unemployment
2) Massive debts which have increased not decreased since 2008 (and debts which are being carried forward by taking more debt).
3) Suspension of the rule of law as it applies to the banking sector
4) The financial insolvency of essential social services is almost upon us
And yet, the PR messages do not reflect the seriousness of the above situation. Neither Obama nor Romney have any messages that address the above issues.
The PR Tea Leaves
Now, in 2008 they could have let the banks go bankrupt and began the process of cleaning up the mess. But they didn't. The best reason I can think of is basically that the debts the banks carried were so large, that to let them go bankrupt would mean those holding the debts (ie. pensions, bond holders, etc.) would go bust.
Ergo, they did the next best thing. They flooded the bank with money (ala QE1, QE2, QE2.5, and now QE3) in hopes that this would jump start the economy (and buy them time to work up a plan in case this didn't work). Greater liquidity meant greater lending capacity, which hopefully would result in greater borrowing (by businesses) and then greater economic activity.
Unfortunately, the plan didn't work. Instead what they got was four years of stagnation where unemployment didn't decline, where people's net worth declined, where net-net millions of Americans lost their jobs, etc.
And yet, from a PR perspective, neither Obama or Romney are even talking about any plans to solve things. The closest thing we've seen to a plan is QE3, which is not a plan but rather a continuation of 'kicking the can' down the road.
A lot of Cant's
So one has to ask, why would neither Romney nor Obama at least present some kind of plan? After all, you can't have unemployment in the 15-plus-per-cent range for another four years. You can't let the deficit rise to $20T. You can't continue to let people (ie. banks) break the law while doing nothing.
You can't continue to let the price of gas go up while people's wages go down. You can't have 50 per cent of new grads unable to find jobs.
You simply can't have the above trends continue for another four years and not expect massive social disruption. Such disruption may be peaceful, such as the number of people on food stamps climbing from 47 million today to 100 million in four years. But any peaceful reaction, such as generations moving in together or people downsizing their lifestyle, will only contract the economy even further.
Point is, I think we've already crossed the Rubicon (the point of no return).
However, there is one thing that would make sense from a PR perspective.
Nationalize the Banks
This has always been the solution of last resort. Essentially the government would take over the banks.
This is the one solution that could potentially fix this unfixable situation.
From a PR perspective, this remedy makes sense. It would explain why neither Obama nor Romney have any public plan. Obama's original plan of kicking the can down the road clearly has not worked.
The only option at this point is something drastic like nationalizing the banks. This would allow the government to do three major things:
1) Take all the profits associated with banking activity and use them to pay down the national debt and fund social security and medicare/Obamacare.
2) Direct capital to specific areas of the economy through interest rates. So for instance, if the gov wants to revive manufacturing, they can give out ultra-low interest rates to businesses in that sector.
The value of this is that they can distribute capital to areas of the economy that banks would not generally loan to because of the risk of borrower default.
3) Provide debt relief to mortgage holders and student borrowers. They wouldn't dismiss the debt, but they could put people on a 50-year, low interest payment plan for instance. Now, the bank as a private institution would never do this, but the bank as a division of the government could. So your 30k student debt gets monetized as a 50-dollar-a-month debt payment (50/mth x 50 years = 30,000). No bank that wanted to make a profit would ever do this, but the government could do it no problem.
What's important to understand about nationalizing the banks is that banking becomes a 'not for profit' sector of the economy. The banks mandate would no longer be to generate profit so much as to support economic activity in society. Or rather, the profit they did generate would not go to shareholders and executive management, but rather would be fed back in to society.
Makes Sense
If nationalizing the banks is in the cards, then things from a PR perspective start to make sense. They can't announce this because it would cause a run on the banks (people being unclear what nationalization would mean for their savings account would rush in and take out all their money).
Additionally, such a major initiative, while quick to start, would be a multi-decade commitment. You can't simply nationalize the banks and then two years later flip them all back to being public institutions. And there are thousands of banks in the US, so even the process of nationalizing the banks would take a year or more just to start.
With that in mind, starting this process before the elections would not have been feasible. If Obama started the process and then Romney won, Romney would be stuck carrying out Obama's nationalization plans for the rest of his presidency.
As such, the logical thing to do, would be to wait until after the election and then have whoever is president own that process from day one.
The simple reality is that the only way to pay down the national debt, to pay for things like social security and medicare, and to get millions of Americans back to work is to take the profits associated with the banking sector and use them to do the above. It's the only solution.
All efforts to 'kick the can' down the road will merely lead to a continual degradation in standards of living and ultimately hyper-inflation and civil unrest.
If I'm correct in my analysis, it explains everything we are seeing from a PR perspective. They have to keep the appearance up that what they are currently doing is 'sort of' working and just will require more time (despite the fact that the 'on the ground' reality clearly shows that it is not working).
It also explains why the presidential race is about silly things like gaffes the candidates make as opposed to the real issue, the economy. They can't talk about the economy, because they know that their current plans are a bust and they can't talk about what they have to do next without sending the markets in to a tizzy.
The Implications
The implications of nationalizing the banks are far-reaching. We are talking about the end of capitalism as we know it. Michael Moore stated in 2009 that we were witnessing the end of capitalism as we knew it, and he may turn out to be right. When you nationalize the banks, the government becomes all-powerful with control of the army and control over capital, they have the power to control all aspects of our lives.
Which may explain why the US gov has been stock piling ammunition over the past year. They may be concerned that the US population (who is armed to the teeth) will not respond well to big government getting even bigger.
On the flip side though, with increased power also comes increased ability to resolve problems.
Let's face it, the vast majority of problems in the world are financial. Some could argue that all problems, with the exception of terminal illnesses, require finance to be resolved. Someone with a mental illness for instance... treatment costs money, ergo while their problem is mental, the solution is heavily tied to finance.
Right now, the government attempts to help various areas of society using tax-payer dollars and allocating portions of it to certain issues. But the amounts are always a tiny fraction of the money required to truly solve the problem. Hence, private sector foundations will often spring up to try and raise money (usually this occurs when someone who is really rich is affected by something and then decides to use their wealth, and the wealth of others, to try and address that issue).
But if the government essentially had all the profits the banking sector generates to play with, their options suddenly become expansive.
But one cannot understate the massive change to society this entails. It means if you want to start up a new business it's no longer what a 'banker' thinks that will determine whether you get the loan, but rather what the government thinks.
The obvious problem with this model is the scenario where a 'bad' person becomes president and uses the power of the government to enslave people or start a world war. With the wrong person at the helm of such a powerful government Democracy could easily be threatened if not removed.
But the simple fact of the matter is that this is the only option society is going to have in the coming years. The economy has not recovered. The UK is already in a double dip recession. The middle class is shrinking rapidly. Too many people are 'getting by' only due to increasing amounts of debt.
If the banks are not nationalized, and QE3+Infinity is the only plan the government has up its sleeve, then social unrest is certain as food and gas prices rise while wages remain stagnant and unemployment remains high. No society facing these variables has avoided civil unrest. Every time you get these factors the outcome is always civil unrest as people rebel against living in poverty.
It's not what they say, it's what they don't say
I've come to the above conclusions based on a PR view of the world. The messaging the banks, the government, Bernanke, Obama and Romney are using are totally disconnected from the reality of the world everyone is living in (and disconnected from simple statistics of what is happening to the world).
Unless of course you can't talk about what your views are on that elephant. In that case, you have to divert and obfuscate people's attentions away from the one thing they should be focused on.
Companies do this a lot as well. They will get asked a simple and straight forward question and then give an incoherent response. It all makes little to no sense until a month later suddenly it's announced that they are being acquired. Then you go back and listen to their interview and suddenly their obfuscation makes total sense (they couldn't be straight forward without revealing a conflict of interest in terms of what they are saying publicly versus what is going on behind the scenes).
So QE3 to me makes a lot more sense if the government is not using it as a means of fixing the problem, but rather, as a means of kicking the can of concern and worry down the road a couple months until the election is over.
So here is my prediction based on the PR tea leaves - statements by Bernanke, Obama, Romney, the big banks, etc., - I predict that in 2013, most likely the first half of 2013, we will see the nationalization of US banks.
It will mark the closing of the first chapter in US history and the dawn of a new chapter, one in which capitalism as we know it will be radically redefined.
What will this mean for PR? It's hard to say. PR is an advent of capitalism. It's function is to help companies communicate with their stakeholders. If capitalism changes radically, then PR also will change radically.
Having said that, I would suspect that in the short term it will lead to an explosion in PR needs as radical change always requires an massive increase in communication between stakeholders.
Over the long run though? Most likely it would lead to a decline in PR requirements. I'm not saying nationalizing the banks will turn the US in to China, but China is a good example of how you don't need a lot of PR in a government-run economy.
Comments
Post a Comment