Root cause of current Economic Crisis and why it will eliminate your startup soon

#1

Post by vzn » Sat, Jan 31, 2009, 8:03 PM UTC

This article provides enough arguments in order to be seriously worried about future of Startups and Hi-Tech sector in general.

Can the crisis of overproduction as fundamental problem of capitalism be hacked in new way this time? It seems to me without such hack we will see lots of problem very soon :-(

Root cause of current Economic Crisis and why it will eliminate your startup soon
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Re: Root cause of current Economic Crisis and why it will eliminate your startup soon

#2

Post by russell » Sat, Jan 31, 2009, 9:02 PM UTC

The real title is Crisis Theory. Report for the conference in Moderna, Italy, 9 July 2008". The paper that Reaganomics and the huge increase in deficit spending has caused a collapse of domestic savings and a increase is consumer spending such the economy is 25 to 35% larger than is sustainable. The US needs to cut the deficit spending, shrink the economy by 25-30%, and presumably bring back the import spending back home. It does mention that this may not be possible because it will impact the rest of the world.

Well, it has happened and it has impacted the rest of the world. I don't think it will play out the way the paper suggested, because a real depression isn't the proper cure cure for irrational exuberance.

The paper is difficult to read because it is a literal translation from Russian, i.e. Russian economic jargon to literal English. Fore example, I took "emissions" to mean "deficit spending". There are pretty charts, but they are labeled in Russian.

Caveat lector: I read it quickly, so I could have missed the point entirely.

Re: Root cause of current Economic Crisis and why it will eliminate your startup soon

#3

Post by vzn » Sat, Jan 31, 2009, 10:10 PM UTC

russell wrote: post #2

The real title is Crisis Theory. Report for the conference in Moderna, Italy, 9 July 2008". The paper that Reaganomics and the huge increase in deficit spending has caused a collapse of domestic savings and a increase is consumer spending such the economy is 25 to 35% larger than is sustainable. The US needs to cut the deficit spending, shrink the economy by 25-30%, and presumably bring back the import spending back…

The main point of the paper is that whole Hi-Tech industry (i.e. Startups also as part of that industry) consumes more capital from the rest of the economy than gives back to the economy (especially it is true for consumer products oriented hi-tech companies). This situation was possible due to constant money issuing to the economy via finance sector. That process started in the late 70 and often called as Reaganomics. More details are in paper.

In general if issuing of money stops, the 25-35% of USA economy will disappear. Most of that 25-35% are Hi-Tech companies. So, economics of startups are in danger. VCs firms don't have hot money anymore for funding. No more easy exits such as IPO and aquisition. Customer spending are going down.

And it will become true very soon :-(