Techpreneurship, with Jeff Amerine
This past week Federal Reserve Chairman, Dr. Ben Bernanke, officially announced the creation of the “Unemployment Too Dang High” party. Apparently inspired by the recent governor’s race in New York, Dr. Bernanke’s first act under the new party banner involved the commissioning and launch of the S.S. Quantitative Easing II cruise ship. For short, the ship will be called the “QE2.” The moniker was licensed from the existing QE2 cruise ship for undisclosed terms with appropriate royal approval from her Royal Highness.
The new QE2 cruise ship will serve as party headquarters for the “Unemployment Too Dang High” party, with a primary mission being “Irrational Global Liquidity.” The ship apparently costs $600 billion and has remarkable thrust but no rudder. A spokesman for the “Unemployment Too Dang High” party was unconcerned about the lack of directional control and stated, “Since these are uncharted waters and given the ship’s crew has absolutely no idea about the final destination, QE2 Cruise Ship designers viewed a rudder as being unnecessary.”
Monetary maritime authorities in Europe, Asia, and South America all expressed concerns over fears the rudderless QE2 mission of “Irrational Global Liquidity” might create asset bubble tsunamis on their shores. The crew believes those fears are overblown and appeared to be certain destination ports could survive any minor “wake” caused by the QE2.
Travel analysts report that while on board the QE2 cruise, passengers can either use US dollars or Monopoly money (purple bills are preferred) to buy goods and services as both currencies are approaching parity in a steady slide toward zero. These same travel analysts were reassured, as they view the function to be asymptotic in nature; i.e. an infinitely long glide path toward zero that never quite gets to zero. During the discussion, the relentless whirring of the ship’s printing presses could be heard coming from the below-deck areas.
Some global destination ports also expressed concerns over “global currency wars” if more Monopoly money is put into circulation. The ship’s captain ignored the ports’ concerns, ordered full speed ahead, left the bridge unmanned, and suggested the passengers all have another drink.
One surprising concern was expressed by the QE2 engineer (Apparently he is being relieved of duty due to his skepticism). Given the large sticker price of the QE2, the ship may run out of money to buy oil for the ship’s power plant, or money for other necessary commodity raw materials needed for repairs during the world tour. For some inexplicable reason, oil and commodity markets around the world seem to be reluctant to take Monopoly money or US dollars for these needed inputs, and instead are now more interested in accepting “hard currencies” such as gold bullion.
Jumping off the fictional QE2 for a moment, why should techpreneurs be concerned about the Federal Reserve’s action to monetize $600 billion of the US debt, increase the size of their balance sheet, and by extension add more liquidity into the market?
Dr. Bernanke currently operates under the premise that monetary pump priming is needed to increase lending, corporate capital expenditure, and finally consumption. The assumed end destination for the United States will be increased hiring, and greater GDP growth. Part of the underlying premise also assumes devaluing the US dollar will make US manufactured goods comparatively cheaper which will increase exports and reduce our trade deficit. On the other hand, it could be said this part of the strategy seems to ignore what devaluing the currency does to the price of needed inputs like oil, and a whole host of other commodities. Remember $150/barrel oil?
It would seem that the Federal Reserve has hired Gordon Gekko as a consultant and his advice is “inflation is good, inflation works,” because the Federal Reserve apparently has real concerns that systemic deflation is a near-term clear and present danger. Dr. Bernanke apparently believes the deflation risk and economic stagnation are of more weight than losing reserve currency status and commodity purchasing power.
Techpreneurs, as Dr. John James stated in his blog this week, need to be information sponges, I mean really voracious information omnivores. The start-up game cannot be well played from a position of ignorance.
It is true that some of the macroeconomic stuff may as well be happening in the Land of Oz because you have no control over these issues in pursuing day-to-day business building. Even so, knowing or at least seeking to know how the puzzle-pieces fit together is an essential part of the external strategic assessment every techpreneur should spiral through – daily.
How will the QE2 cruise end? Only time will tell, but historically trying to inflate economies back to prosperity has proven to be very risky (think Germany in the 1920s). Some believe a QE3 and QE4 are already under construction… If so, the rising oceans of excess liquidity might well do more global economic damage than the worst case scenario forecasted for climate change. Imagine a scenario with no change in unemployment, market uncertainty, rapidly rising commodity prices, currency wars, and increases in global trade protectionism policies. Sounds like a bad port of call to me…
I know there will be some economists groaning after reading this. Please set me straight and shoot me a note with your views.
(Jeff Amerine is an IA advisor, entrepreneurship educator, and officer with the University of Arkansas Technology Licensing Office. Each Thursday, or whenever the spirit moves him, his Techpreneurship blog will appear in INOV8. Drop him a line in comments.)