The wealth of the U.S. doubles every 40 years just as its economic growth does. The pace of U.S. and global economic growth will
accelerate just as Moore's Law does. The power of the computer now doubles and its cost diminishes in half every 18 months. We can expect this time/cost dynamic to accelerate. The expansion of technological progress does not necessarily improve the quality of life, however. The doubling of economic growth and wealth does not automatically mean that this wealth will be equitably distributed. If technological progress brings about the increased use of robots, for example, this will bring about a massive displacement of jobs and resulting unemployment, poverty and suffering. Fortunately, an economy which doubles every 40 years should generate enough jobs for all but will it generate enough wealth for all? From a standpoint of economics, this issue is not effectively dealt with from a top down basis. It is not a matter of trickle down economics because it originates from the bottom of an economy.
This series has demonstrated that the economic growth of countries is closely conflated with global trade success and competitiveness. In the U.S., it is the leadership of FDR that established the institutions of economic growth after the Great Depression. Despite this history of leadership, the U.S. and global economies are threatened by the same disastrous adherence to currency manipulation as attended the Great Depression. The fact that currency manipulation is performed by central bankers and is called quantitative easing does not mitigate the severity of the economic crime.
The competitiveness of an economy is not defined in the traditional sense and as measured by the Global Competitive Index of the World Economic Forum. It is measured by how effectively investment in an economy serves the quality of life in a home country and how the effective investment through international trade promotes the quality of life in other countries. When the principal exports of countries are weapons and armies, this does not sustainably serve the quality of life in either the home or target economy.
The investment in economic growth comes from savings or foreign direct investment or as in the case of China purchasing U.S. Treasury bonds, from debt creation. There is a better way forward.
In previous chapters we have explored three principal models of economic development and of geopolitical influence. These two subjects are conflated in foreign policy. The previously described models fail to provide broad-based wealth to the entrepreneur and sustainable, equally distributed wealth in any economy. The entrepreneur is key.
In Part I we examined why the fostering of bilateral or multilateral trade is critical to economic and job growth. In part II, we examine how transformative working capital will be provided to the entrepreneur who is culturally attached to global markets. In Part III, we will examine how the universal search for higher Return on Investment or ROI is impacted by investment in global trade opportunity.
Commercial banks for the most part finance the trade finance opportunities of large corporations and "middle market" firms, a definition that changes with each bank. Bankers love to use terms like "sweet spot" because of the notion of doing anything besides work. Giant multinational's have access to the commercial paper market and the capital markets in their financing of trade. The financing of projects and the sale of large capital goods involves providing direct loans to the buying country on favorable terms and conditions. At the next or lower level, capital goods are sold on the basis of medium term guaranties which require a 15% or greater down-payment, depending on foreign content. In the case of the U.S., the Ex-Im Bank and SBA and in the case of Europe, EBRD provides these guaranties.
For smaller firms that are not tied to the supply chain of a larger exporter, a multinational corporation, it is necessary to access export financing through the working capital guaranty facilities of either Ex-Im Bank or the SBA, in the U.S. or their equivalent in Europe, Asia, etc. When the entrepreneur is involved and he/she requires pre-export or pre-import financing, credit unions, small community banks and microlenders provide financing. This gives rise to several issues. The first is whether these lenders can lay off, participate out or otherwise deal with export loans without stretching their capital reserves. In the U.S., Apple Bank for savings has done over $300 million in aircraft loans. The guarantied portion of these loans were resold to PEFCO which makes a market for such Ex-Im Bank guarantied loans. Credit unions can participate out or sell the guarantied portion of loans that exceed their capital reserves and legal lending limits just as commercial banks can with syndicated loans. The NCUA, the agency that regulates credit unions in the U.S., has a memorandum of understanding with the U.S. Ex-Im Bank and SBA. This enables credit unions to be trained in and to gain the Delegated Authority or to become preferred lenders of both Ex-Im Bank and SBA. Credit unions finance the modest, the immigrant entrepreneur. This model fosters community and global economic growth and job development unlike the other models. The other risks to the investment in economic growth model, are cybersecurity as well as political and commercial risk. FBI Director James Comey said on 11-14-2013, that cyber-attacks are increasingly representing the most serious threats to homeland security and in the next decade, will likely eclipse the risk posed by traditional international terror organizations.
Political and commercial risks are dealt with at the financial institutional level with the "full faith and obligation" guaranties of sovereign governments and with export credit insurance as I have explained in previous chapters. The details are the core competency of my firm, USITS. "God is in the details, the devil in the extremities" as Goethe said.
In regard to cybersecurity, SWIFT has never been hacked. Based in La Huppe, Belgium, the Society for Worldwide Interbank Financial Telecommunications provides a communications platform as well as a KYC, a shared Know Your Customer functionality that precludes and mitigates the compliance-associated risks that attend cross-border trade and funds transfer. Remember what Walter Wriston said in 1977. "In the future," he said referring to banks, "all e will sell is information." The issue of compliance with export controls is dealt with by implementing rigorous export control and cybersecurity regimes and SWIFT's fund transfer regimen. This protects both financial institutions and their leaders from regulatory approbation and criminal prosecution for violating the many export control, FCPA, AML and anti-boycott regulations (to name just a few).
In the next chapter, chapter III, which deals with ROI, we explore how investment in the entrepreneur within a democratic system, is critical to economic growth and job creation in a world that is increasingly disrupted by rapid technological "progress."