Friday, July 27th, 2012
Received the following from Remo Greco at Canbrea & Co this morning. Worth a read:
The Origins of Money, and Saving the Euro
It is really hard to see where the euro is going. Spanish yields are at record high levels, meaning Madrid’s debt looks less and less sustainable. Yet there is still no clear plan for the euro, new ideas seem to have run out, and there is a lack of progress on old ideas. What is going to happen?
One way to think about the euro’s future is to look at its past, and to go back to the origins of money. There are two leading schools of thought about this. The first was set out 120 years ago in a paper by Austrian economist Karl Menger. In Menger’s theory buyers and sellers agree on a common commodity to use as the medium of exchange. Something small, valuable and divisible is best. It helps if it doesn’t rot. Gold and spices are all good examples. This money is highly “saleable” so everyone accepts it, and this means that traders don’t face the costs associated with barter. There is no role for government here.
The second theory places great emphasis on the role of government, as Charles Goodhart explains in a 1998 paper. This group—the Cartalists, who Mr Goodhart refers to as the “C team”—argue that currencies become money due to the active involvement of the state. Examples include setting up a mint to produce coins, demanding taxes are paid in state money, and stamping notes with the head of state’s image. This C-theory has much stronger evidence based in anthropology and history.
Why is this relevant for the euro? Here is Mr Goodhart writing in 1998, on the eve of the euro project.
The key relationship in the C team model is the centrality of the link between political sovereignty and fiscal authority on the one hand and money creation, the mint and the central bank on the other. A key fact in the proposed Euro system is that the link is to be weakened to a degree rarely, if ever, known before. … There is to be an unprecedented divorce between the main monetary and fiscal authorities … the C team analysts worry whether the divorce may not have some unforeseen side effects.
The logical conclusion from this is not a new idea: the euro area needs greater fiscal integration. But the reason is different. It is not because Greece and Spain spoiled a perfect plan with their profligacy. It is because the euro enshrines the divorce of fiscal and monetary power. If you are a member of Mr Goodhart’s C team this never made sense in the first place.
[Source: R.D., The Economist, July 25 2012]
Tags: business, clarity, Debt, economics, Euro, Europe, finance, financial, GFC, Global Financial Crisis, goal, goals, greed, money, opportunity, plan, planning, success, thinking
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Monday, September 12th, 2011
One of the things that amazes me is that many people in business don’t really understand the “ins and outs” of a profit and loss or balance sheet. And that is before we get to issues surrounding cashflow.
I’ve had some interesting meetings with people over the past week where it has become apparent that there is a significant lack of understanding of basic financial concepts. Please be aware that I am not necessarily saying this is a bad thing – it’s more of an opportunity.
Where business people don’t appreciate the information that we provide to them, it is incumbent on us as accountants and advisors to help them to learn and provide them with a financial education. I know of one accounting firm in the UK which provides an education process for their customers (and others) where they teach the basics of reading financial reports. I believe there is a terrific opportunity for us accountants to provide this sort of service to business people – it will really assist them in making better business decisions.
A year or so ago I presented to a business group in Ballarat on the topic of business margins and mark-ups. Many of the attendees did not understand the difference in the two and certainly did not appreciate the impact of discounts. The feedback I received after this presentation was terrific.
As a consequence of this, and following from our strategic planning work, we’ve now appointed a firm to assist us in putting together some video presentations which we’ll post on youtube. These will discuss the topics that business people need to know in simple and understandable ways which will help anyone wanting to develop their understanding of basic financial reporting. In some ways it will be a community service – if we assist a number of business owners to make better business decisions then that will be a terrific outcome.
I’ll let you know when the posts are available on youtube – hopefully you will get something from them and I would appreciate any feedback you wish to give on the topics as presented.
Tags: accountant, business, cash, cashflow, discount discounts, edcuation, finance, financial, margin, mark up, money, motivation, opportunity, planning, profit, profitability, strategic, thinking
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Thursday, September 8th, 2011
Well? What DO you REALLYwant? A lot of people out here in the real world have some vague concept as to what they want, but they never get any real clarity about it. They pay lip service to goals and aspirations, but make no concrete plans to move themselves towards those goals.
In our meetings and discussions with businesses all around Australia, we find that a lot of businesses (and especially business owners) really have no idea as to what they’re wanting to do or achieve. They get caught up in the day-to-day processes of running their business, family and life. Their activities are all operational and none of them strategic and none of them actually propelling them to where they want to be.
This is a real tragedy as, with a few changes, they will be able to make a significant change to their lives by, firstly, getting clarity as to what they want. This is often seen as a difficult and confronting process – but having been through it, I can attest to the fact that it’s absolutely liberating!
To really succeed, you need to be able to describe what success looks like. Many people we talk to can’t even answer the simplest question “How much money do you want to earn?” If they can’t answer this, they’re not going to be able to design their activities, let alone their business, to deliver what they’re wanting.
The clarifying of goals and aspirations is vital as, once they are clear in your mind, you will be able to design your approaches to create what you’re wanting. In many respects it come down to whether you are at cause or at effect in your life.
Once you know what you really want, you’ll be at cause and you will start to behave and perform in ways that will deliver the results that you’re after.
The other side of this is that if you don’t do the planning etc, you will more than likely end up with what you DON’T want!
Tags: accountant, achieve, asiprations, asiration, aspirational, assistance, business, cash, cashflow, clarity, create, creativity, discount discounts, dynamic, family, finance, financial, getting, goal, goals, help, margin, mark up, money, motivation, operation, operational, opportunity, plan, planning, profit, profitability, service, strategic, success, support, thinking
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