First, the rules:

• The currency can’t resemble a US dollar
• Only paper currency can be printed – no coins allowed
• Any income received in local currency must be taxed as if it were federal dollars

So who’s using these alternate currency systems?  In the United States, there are already alternative currency systems in California, Wisconsin, Oregon, Pennsylvania, Michigan and Massachusetts.

Right about now you’re probably asking, why? Isn’t the green $20 bill in your pocket good enough? The point behind local currencies is to keep the currency within the community – forcing residents to spend the currency on local businesses instead of encroaching “big-box” stores such as Walmart or Target or even online retailers such as Amazon.com. The bills can usually be “bought” for around $.95, essentially giving holders an instant 5% discount on any purchases they make. When the time comes to pay that cable bill, however, the local currency can easily be exchanged back into “real” dollars.

While the purpose behind local currency might be a bit idealistic, running your own mini economy is not as easy as it looks. Just printing the right amount of local currency is a challenge. If you print too much currency, there’s the possibility of inflation. If you print too little, there are no economic advantages.

“They usually don’t hold up too well, or too long,” says Bert Ely, a banking analyst. “It’s something that applies only in simple and closed situations. It lacks the flexibility and geographic breadth that currency has.”

So what do you think? If your community offered a local currency, would you use it? If you were a merchant would you accept it?

The Cato Institute provides analysis that I find helpful.  Below are two videos with Daniel Mitchell of the Cato Institute in the first discussing Keynesian economics and somewhat how it relates to the current situation and the second from 20/20 discussing the bailout situation. I think it’s important to get differing perspectives on these issues, so these videos are not definitive. I hope they help some of us become more enlightened and give us a desire to better understand what’s going on with our nation and world, economically speaking.

I think the first clip is good to watch, even if you don’t agree with everything he says. His explanations are sound and he makes some great points. he one weakness I found was the way he discusses Hoover’s implementation of Keynesian policies. He uses this as an example of Keynesian’s failure as a policy, but Mitchell doesn’t provide enough support to show this to be specifically causal. The years shown are the start of the depression. This example would have been more useful had Mitchell attempted to show that Hoover’s policies led to or exacerbated the impact of the depression. This is still a video that’s worth watching.

The second video is from 20/20, also featuring Mitchell, where John Stossel tries to find out where all the bailout money went. He doesn’t discuss the philosophy behind the bailout as much as governments failure to manage the bailout properly.

 

I was surprised to realize that many businesses, especially in the tech sector, learned from the mistakes of their ancestors. It has been this resilience that prompted me to put together a short list of ways small businesses can survive the current crisis – and even come out on top at the end.

1. Cash is King – Regardless of the size of your businesses, cash is going to be king over the next 18-36 months. Up to even a few weeks ago you could pretty much count on your local bank giving you a small business loan or being approved for a business-use credit card. Unfortunately, the liquidity of the market has “thickened” dramatically and has made those opportunities shrink to almost nothing. You’ll no longer be able to rely on loans and credit to get you through the month. From now on… cash should be your #1 priority.

2. Don’t Focus on Growth – This sounds like bad advice for any small business owner, but the truth is that many businesses are going to continue along the same growth pattern as before and find themselves beat to hell by the time they emerge from this crisis. This is the time when you need to hunker down and just wait out the storm. This will benefit you not only in the short term by ensuring you don’t go bankrupt, but will also put you in the perfect position to make strategic growth decisions after the crisis is over. For example, by keeping you expenses down and your cash account padded, you will be in a position to spend quickly right out of the gate – purchasing your competition or just beating them to key customers – because you have saved for what I like to call the “sunny” day.

3. Focus on Value – Since you’ll be cutting back on expenses, spend time on the things that don’t cost that much money but add value to your business. Instead of spending $10k replacing an old machine, spend $100 in phone charges to re-connect with your customers, or improve customer service. Invent new ways to add value to current products without spending a ton of money. That investment of time and energy will pay for itself 10x.

4. Collect – One of the things you can do to add value to your business and increase cash flow is by collecting on your accounts receivable. If there was ever a time to go after those delinquent customers… now is the time. If you don’t have an invoicing system in place there are tons of free and fee-based services out there – from PayPal to FreshBooks. You can even use Excel as long as you are actively trying to collect that cash.

5. Don’t Give in to Hoarding – During this time when “cash is king” you should avoid buying in bulk or otherwise stockpiling supplies or inventories. Although the parable of the ant and grasshopper might come to mind, now is not the time to be hoarding. That extra spending drives expenses up, depletes your cash reserve, and at the end of the day might be worth nothing. What good is a pallet of copy paper at a discount if you don’t have a business capable of using it. You will always be able to buy these items later even if you pass up a small discount now. That “savings” could prove disastrous to your cash flows.

6. Leverage Technology – There are tons of websites, web services, and other technologies that can help save you money. For example, trade in your $600 flight and $400 hotel for that sales trip to Chicago for an online meeting service instead. These days you can share a presentation, hold a conference call, or even converse via webcam – with nothing but a DSL modem and $50 a month for the services. You can also step up efforts to find better prices on products or services you normally use – by simply performing a simple Google search. Buying you your widgets from ABC Company for the past 5 years shouldn’t prevent you from searching for XYZ Corp who is offering the same widgets at 50% off.

http://reason.tv/video/show/590.html

 

The news of the insane profits instantly fueled the hate towards the public face of high gas prices – the oil companies.

Obama said in a statement, “Perhaps the only thing more outrageous than Exxon Mobil making record profits while Americans are paying record prices at the pump is the fact that Senator McCain has proposed giving them an additional $1.2bn tax break.”

And on Obama’s heels, four senior Democrats in Congress called a press conference critisize the largest US oil companies for spending more on stock buy-backs to enrich shareholders than on energy exploration.

Some argue that Exxons profit margin of 8.5% is significantly lower than other blue-chip stocks and that the company is actually not making that much money. But its hard to hear the words “record profits” at a time when there are “record prices.” It doesn’t take much to convince Americans that the two are related.

But the real question is, are the two related? Is a profit margin (defined as the net income divided by revenues) of 8.5% too high for a company that sells a commodity? After all, it is publicly held and must do its best to earn a healthy return for its investors. Aren’t they just doing their job.

After a little research, and a pass through their most recent press release… I’m convinced its a little bit of both. Is Exxon taking advantage of the high gas prices? Probably. Are they the root of all evil and the cause for the $4.95 gas in San Francisco? Probably not.

I spent a few minutes pulling up the most recent financial statements for a few other commodity companies to see if a 8.5% margin was fair. I was surprised to learn it was:

Exxon: 8.5%
Coal: 9.2%
Sugar: 4.6%
Aluminum: 8.3%

Of course this back-of-the-napkin approach has its flaws. An in-depth look into the financial statements of these industries is needed to get a clearer picture. However, it does shed a little light (or at least a little perspective) on the subject of high gas prices.

As much as I would like to blame big oil for the dent in my wallet, I’m not sure it’s entirely their fault.