Identifying Patterns of Economic Meltdown

When our leaders forget their simple arithmetic we can all go rather bankrupt.

If you earn a $100,000 and continue to spend $370,000 consistently how long before you go bankrupt.  Is this how a lot of our cities, states and countries are being run today.

In July 2013 Detroit became the largest US municipality to go bankrupt. Last few weeks we were faced with a meltdown in Puerto Rico and Greece that worried the hell out of us. Yesterday Greece & Puerto Rico both seem like minor distractions when we are faced with the massive meltdown happening in China even as we read this. today it seems China has managed to prop up it meltdown once again.

However as governments, cities and individuals mitigate these meltdowns by lowering interest rates, printing more money, and keeping the public happy with unnecessary-uneconomic-spending does it help or harm the possibility of a recovery in the future. Or, will our next slump be harder as we left no fiscal, or economic, cushions in our attempt to cure the dilemma. How much lower than a '0%' can the federal government go to prop the economy..... 

Greece closed their banks to prevent a run two weeks ago and they are still to open. China has reportedly lost over $3 trillion since the middle of June and closed institutional sell-offs that the market sees as unfair. Some even assumed that the 3 hour NYSE shutdown may have been a Chinese hack in order to prevent massive Chinese stock sell-offs in the US – but it turned out to be a technical glitch. The Chinese stock market has fallen 30% in the last week or two. So while a lot of people are trying to get out of the market there are other brave institutions that are following the contrary investing and buying Chines stocks by the bucketful as they are 30% lower today. The general consensus is too big to fail- so just invest and it will all revert.

Leaving all the investing guess work out of these episodes one tried to see if there is a pattern in this seemingly global viral economic effect. BRIC has one man standing. Brazil is getting into a crisis. Russia is trying to demonstrate that they have none while their currency is not worth the paper it is on. China is in the throes of a possible meltdown and an almost certain burst of their economic bubble. India though uniquely isolated could be generally heading down the same path if they are not careful.

Having worked in analytics for over 15 years and on big data algorithms in the last two the key to finding quick answers is to identify patterns. So this simple thought made me look into the city of Detroit, Greece, China as a first pass and then revisit France, Portugal, Italy, US and India in the second pass. What we see is a pattern that starts to fall into place.

While on one side there is consensus that these are ‘innocent victims of overriding market forces’, but the moment we lift up the covers we start to see initial patterns that still need to be deployed and verified at a larger scale.

The first case of Detroit can be attributed to too much government interference into market forces, increasing taxes to keep government spend in order, decreasing revenues and pandering unions that leveraged the big government ideology. Lift the next layer and we find the failure of simple arithmetic. Now we find politicians on a strategic ‘keep-the-public-happy’ spending spree while not focusing on income sustenance capabilities. So when the going is good the administration signs multiple - multiyear, multibillion dollar contracts that cannot be funded as the economy falters, while the contracts still remain valid and in force.

In Latin America we can see such policies having already brought chaos to Argentina and Venezuela in the past and Brazil in more recent times.

So let’s look at some patterns

So looking inwards there are various US cities that have been under constant decline ranging from Modesto, Baltimore, Philadelphia, Cleveland, St. Louis and now Chicago where the desperation to keep afloat is unfortunately making local administrators indulge in unnecessary-uneconomic-spend in the hope that this time it will be different. From an economists point of view the roadmap is highly predictable in the long run. The common pattern in these US cities has been over-controlled, over-borrowed and over-spend economies. Someone needs to connect the dots and change this path around.

As an individual, city, state or country we have to be cautious in not spreading our valuable assets too thin in what we can term as unnecessary-uneconomic-spend

 Note: Do the simple arithmetic first. It is easy for bureaucrats and public heads to go around throwing large numbers in their meetings to win the hearts of their citizens and supporters, however it is critical to remember that in today’s socially connected world the leaders are on the hook for their statement. In most cases a lot of these so called unnecessary-uneconomic-spends could have been delayed or totally avoided for there is little benefit to build a $30 billion high-speed rail, that will possible cost $50 billion by the time it finishes to create 13,000 employments. That converts to 2.3 billion per employee. Do the arithmetic first.

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About the Author: Hari Guleria is VP HANA Business Solutions at PrideVel Inc in

Santa Clara, CA, in the heart of the Silicon Valley.  Prior to this Hari was Director for SAP HANA Solutions at HP services responsible for the Americas. Before that he was the Director for SAP HANA with HCL-Axon and before that he worked with SAP in their Value Realization Group.

Hari is the author of ‘BI Valuenomics- The story of meeting business expectation sin BI’ a book far more relevant today than it was in 2010 when it was published.

PrideVel is a global Cisco services partner and a global SAP HANA partner, sitting in an ultra-sweet intersection between Big-Data, Networking, IoT and SAP HANA. Pridevel is North Americas leading HANA TDI build and support partner. Hari leads the HANA4IoT events at SAP.

Hari routinely works with customers as their Business Solutions layer between business owners and vendor partners assuring SAP and SAP HANA Business Value Attainment or BVA.  Hari has over 35,000 hours of BI, an outlier score of 3.5 and he comes with a platinum level background of SAP BW, BWA and SAP HANA. He also consulted in SAP SD and MM. Prior to SAP he comes with over 9 years of Sr. Business Management experience with major European multinationals. Hari may be contacted at [email protected]