I.O.U.S.A

Peter Peterson, co-founder of the Blackstone Group, plans to spend $1BILLION to alert Americans to the very real danger of the increasing debt burden according to an article in the NY Times National section on July 14, 2008. Part of his strategy is the documentary film “I.O.U.S.A”. He “wants people to focus on what he considers real news: the nation is going broke. (…) The film aims to startle voters and politicians alike, and summon them to the task of closing the long-term imbalance between what the government will take in and what it has promised to pay out.”

The Website of his foundation (www.pgpf.org) foundation maintains that “every American is now burdened, most of them unknowingly, with $175,000 with federal liabilities and unfunded government promises.”

Education, hard work & economic freedom

David Brooks in the NY Times Op-Ed piece on July 29th, says that the US became the leading econmic power of the 20th century because of the “ferocious belief that people have the power to transform their own lives (which) gave Americans an unparalleled commitment to education, hard work and economic freedom.”

He cites the gigantic global lead taken in US education levels which boosted productivity and growth. That “happy era ended around 1970 when America’s educational progress slowed to a crawl. (…) Since then, progress has been modest. America’s lead over its economic rivals has been entirely forfeited with many nations surging ahead in school attainment.”

Quoting Claudia Goldin and Lawrence Katz in their book, “The Race Between Education and Technology” he notes that the slowing and subsequent stagnation of educational attainment increases the gap between rich and poor. “The relatively few skilled workers command higher prices, while the many unskilled ones have little bargaining power.”

He concludes that “this slow-moving problem, more than any other, will shape the destiny of the nation. (…) It’s not globalization or immigration or computers per se that widen inequality. It’s the skills gap. Boosting educational attainment at the bottom ois more promisng than trying to reorganize the global economy.”

Asset Pricing at Heart of Credit Crunch

“Most of the market volatility is the uncertainty of how to price assets. As a result, institutions are unwilling to loan money, even for a short period of time because they don’t know how to measure the quality of the assets being used as collateral. Consequently, credit markets that normally provide liquidity to run a business dried up”

This quote from a respected financial planner in my circle brings to the forefront one of the biggest problems we’re currently facing: how do lenders value assets on which loans are based? Whether your client’s home equity line of credit or your company’s, the valuation of each relies on established guidelines which are difficult to predict in this current economic climate.