Debt, Global Competition and America's Future, UT Texas Enterprise Speaker: MBA Professor John Doggett, Sept. 8, 2011

Debt, Global Competition and America’s Future John N. Doggett, JD, MBA, Senior Lecturer Global Management, Entrepreneurship & Sustainable Energy McCombs School of Business @ The University of Texas at Austin [email_address] www.jndoggett.com September 8, 2011

Strategic Inflection Points Are Scary

We Have Entered a S.I.P.

It Won’t Be Easy . . .

But We Can Beat This Thing

Because Failure Is Not An Option

This is What I Believe
We live in an amazing country.
We have overcome challenges that would have destroyed other countries.
We face serious problems and serious problems equal great opportunities.
God has blessed America with more freedom and potential than any other country in the world.
If we take the revival of America’s competitiveness as seriously as we take college football, we cannot fail.

Where We Are Today?

PIIGS GET SLAUGHTERED

On the Brink of Bankruptcy

TOO BIG TO FAIL OR BAIL!

Deficits Forever . . . ?

This Math Doesn’t Add Up

This is a Serious S.I.P.

US Deficit Is At Civil War Levels

Don’t Show This to Children

We Are Stuck in Neutral

Are We Entering A Lost Decade?

Can We Borrow Our Way Out of Debt?
On 9/30/00, our debt was $5.674 trillion.
Today, it is $14.5 trillion
23% of the World’s GDP
We will add $1.4 trillion in debt in 2011
Congress just agreed to increase the debt by $2.3 trillion by 2013.
Today, net payments = 1.4% of GDP
CBO says this could be 3.4% by 2020
From $197 billion today to $778 in 9 years
This is as much as we spend on national defense.

A Warning From The Future?
The Chinese Professor
http://www.youtube.com/watch?v=OTSQozWP-rM

Just The Facts, Jack (Billion US$)
May 2008
C hina = $506.8
Japan= $575.3
Caribbean Banking Centers = $104.5
Oil Exporters = $164.2
UK = $271.2
B razil = $151.4
Russia = $63.7
Luxembourg = $75.2
H ong Kong = $61.4
T aiwan = $38.9
June 2011
C hina = $1,165.5
Japan = $911.0
UK = $349.5
Oil Exporters = $229.6
B razil = $207.1
T aiwan = $153.4
Caribbean Banking Centers = $140.5
H ong Kong = $118.4
Russia = $109.8
Switzerland= $108.2
http://www.treas.gov/tic/mfh.txt

So, How Do We Pay Down The Debt?
Today, we borrow 40 cents of every dollar we spend. That is unsustainable.
In Washington, all they talk about is raising taxes and cutting spending.
I have a better idea.
We must grow our way out of this crisis.
We must sell “assets” owned by the federal government.

We Have Assets We Can Sell

Cell Phone Penetration
China
15 million users in 1997
875 million users by end of 2010
1.2 billion+ users by 2014
Added 9.4 million new users in May
Adding 303,226 new users per day !
India
340,000 users in 1997
827 million users by end of 2010
1 billion+ users by 2012
Added 19 million new users each month in the first four months of 2011
Adding 633,333 new users per day!

We Are Not Rome

Let’s Look at Our Competition

Be Careful What You Wish For
We told the world that our way of life was better than Communism or Socialism.
CNN and Hollywood showed the world an irresistible vision of American Life.
Then the Unthinkable happened.
On November 9, 1989, the Berlin Wall Fell
On Christmas Day, 1991, the USSR ceased to exist.
We had won the Cold War.
And most of the world wanted to live like US .

Birth of the BRICs
In 2001, as the Internet Bubble was collapsing and the stock market was imploding, Goldman Sachs predicted that four countries would dominate global economic activity in the 21 st Century.
B razil
R ussia
I ndia
C hina

The Axis of the Future

Was Goldman Sachs Crazy?
6,100% Annual Inflation (1994)
Collapse of the Ruble (1998)
Two Weeks of Foreign Reserves (1991)
The Cultural Revolution (1966-1976)

National GDP in 2010 (purchasing power parity)
Country GDP Real Growth %
United States $ 14,660,000,000,000 2.8%
China $10,090,000,000,000 10.3%
Japan $ 4,310,000,000,000 3.9%
India $ 4,060,000,000,000 10.4%
Germany $ 2,940,000,000,000 3.5%
Russia $ 2,223,000,000,000 4.0%
United Kingdom $ 2,173,000,000,000 1.3%
Brazil $ 2,172,000,000,000 7.5%
France $ 2,145,000,000,000 1.5%
Italy $ 1,774,000,000,000 1.3%
Mexico $ 1,567,000,000,000 5.5%
South Korea $ 1,459,000,000,000 6.1%
Spain $ 1,369,000,000,000 - 0.1%
Canada $ 1,330,000,000,000 3.1%
CIA World Factbook – September 5, 2011

Elephants Emerging from the Mist
Total World Population = 6,928,198,253
BRIC Population = 2,868,060,586 ( 41.4% )
Total World Land Area = 174,814,000 sq. km. (- oceans)
BRIC Land Area = 38,471,715 ( 22%)
Total World Gross Domestic Product = $63.17 Trillion (Official Exchange Rate)
Total World Gross Domestic Product = $74.54 Trillion (Purchasing Power Parity) (p.p.p.)
BRIC Gross Domestic Product (p.p.p.) = $ 18.55 Trillion (24.88%)
Source: CIA World Factbook – September 5, 2011

Could China Pass the US?
Goldman Sachs said that China could become the largest economy in the world by 2035 by growing by 5% a year.
What does our world look like when China’s economy is 9x larger it is today?
What opportunities does this represent for your firm?

Could India Close The Gap?
Goldman Sachs said that India could challenge the US for #2 by 2040 by growing by 6% a year.
What does our world look like when the Indian economy is 12x larger than it is today?
What opportunities does this represent for your firm?

The BRIC Middle Class Is Exploding
Goldman Sachs predicts the BRIC Middle Class could grow from 250 million to 1 billion in this decade
McKinsey says the Chinese middle class will grow from 80 million in 2007 to 700 million by 2020.
Goldman says that the BRIC Middle Class could grow from 250 million in 2005 to 3.5 billion by 2050*
Jim O'Neill, Managing Director & Head of Global Economic Research, Goldman Sachs, 5/06 McKinsey & Company, Inc.

How Far China Has Come
In 2006 the G7 (the US, Japan, Germany, France, Britain, Italy & Canada) held $1,253,900,000,000 in FOREX
By the end of 2007 China’s FOREX reserves had passed $1,500,000,000,000
China spent $65 billion for the Olympics. 5x the cost of the Athens Olympics.
China then invested $200 billion to create the China Investment Corporation
CIC will get an additional $200 billion to invest this year
Today, China has over $3,400,000,000,000 in FOREX reserves.
America’s debt, on the other hand, will increase by $1,400,000,000,000+ in 2011.

Chinese Banks and The World

The IMF Says . . .
China could pass the United States as the largest economy in the world by 2016.

The Conference Board Says . . .
China Could pass The United States BY 2012!
Source: The Conference Board Report issued on November 10, 2010 using Purchasing Power Parity (PPP)

WHILE WE WERE SLEEPING, THEY WERE RUNNING
Remember, WE Won the Cold War

A Swarm of Inflection Points Dr. P. Konana, McCombs Business School, University of Texas at Austin 1964-70 1989-94 2000-2005

What is Your Image of Brazil? (c) - Andre Havt from www. woophy.com

This is a Brazilian Super Tanker

An Orange Juice Super Tanker

Competing With Innovation

Inside Air Canada’s Embraer 190

Add A Large Dash of Oil . . .

What is Your Image of India? www.woophy.com

Bangalore, India

Infosys

This Is the New India

Indigo Airlines

Tata Motors People’s Car

Tata Motors’ Newest Ride

California Dreaming? WSJ - June 25, 2007, Page A1

Welcome to the New China copyright - John N. Doggett, 2008

Growth at Warp Speed

China has 6 of the 15 Tallest Buildings

Building Skyscrapers Like Crazy
China is building 24 of the 50 skyscrapers to be completed worldwide in the next six years.
This will double the number of Chinese skyscrapers.
McKinsey say that China could build enough new skyscrapers to equal one new Chicago every year until 2030.
More than 1,500 new buildings over 30 stories

The People’s Republic of Communist China?

Shenzhen in 1979 www.lenbracken.com/images/china31

30,000 people lived here in 1983 Source: http://en.wikipedia.org/wiki/Image:57440.jpg

The Chinese Market Is Taking Off
Boeing says China Will Need 5000 New Planes by 2030 at a cost of more than $600 billion.
Last year, the estimate was 4,330 planes for total spend of $480 billion.
Boeing delivered its 800 th plane to China in July, 2010

China Is Boeing’s #1 Export Market

Say Hello to the C919

China Will Enter This Market in 2016
Commercial Aircraft Corp. of China (Comac) will roll out the C919 in 2016.
The C919 should be at least 15%-18% more fuel efficient, with a faster cruising speed (Mach 0.785) and longer range than the 737 or the A320.
It will also be wider than the 737 and A320.
For pilots, the C919 will have basically the same fly-by-wire flight control system as Boeing’s upcoming 787, courtesy of Honeywell.

We Won the Cold War
With the C919, China aims to satisfy some of its domestic demand and boost exports, initially in Asia.
Comac expects to sell 2,509 C919s over 20 years.
Without the C919, Boeing and Airbus expected to sell 3,450 narrow body planes to China during the same time period.
That’s a decrease of 73%. Ouch.

Progress Comes at a Steep Price Source: New York Times, 8/25/2007

This “Air” Doesn’t Stay in China The Guardian - June 20, 2007 Peter Parks/AFP

The Chinese People Hate Dirty Air

The Chinese People Hate Dirty Water

The Clock is Ticking

We Are #2!

US Secretary of Energy Chu
“ The leaders of China are all saying, ‘This is a very big deal for us. If we continue business as usual, continue to grow our carbon emissions, it would be devastating for the world, devastating for China.’ But they also say, ‘This is our great economic opportunity.’ And for that reason, they’re investing over $100 billion a year in the clean energy economy.”

Becoming a Renewable Energy Giant
China is building six massive wind farms across the country.
Each has the generating capacity of 16 large coal-fired plants
Each of the six projects “totally dwarfs anything else, anywhere else in the world,”
Steve Sawyer, the secretary general of the Global Wind Energy Council, an industry group in Brussels.

Growing @ the Speed of Wind
China’s Installed Wind Capacity
2008 = 5 th largest in the world
2009 = 3 rd largest in the world
2010 = 2 nd largest in the world
2011 = largest in the world
Since May 2010 Gansu Province has been installing 40-MW of wind power every day!
This is equivalent to one new 300-MW coal plant a week in just one of seven regions that are developing at least 10,000 MW of wind power.

China Drawing High-Tech Research
Mark Pinto, Chief Technology Officer of Applied Materials moved to Beijing in January
Applied Materials is building its newest and largest research labs in China
Applied held its annual shareholder’s meeting in Xi’an, China in 2010.
Applied’s global headquarters are in Santa Clara, California

Applied’s New Xi’an R&D Plant

Will This Be China’s Century?

From China with Love
Thermal Power Research Institute is China’s world-leading laboratory on cleaner coal, has just licensed its latest design to Future Fuels in the US.
Future Fuels will pay about $100 million to import from China a 130-foot-high maze of equipment that turns coal into a gas before burning it. This method reduces toxic pollution and makes it easier to capture and sequester gases like carbon dioxide under ground.
Future Fuels will ship the equipment to Pennsylvania and have Chinese engineers teach American workers how to assemble and operate it .

2007 Shanghai Millionaires Ball

A Coal Baron Son’s Wedding

Job Fair for 150k College Graduates

How Long Will They Wait?

How Long Will She Wait?

How Long Will They Wait?

THIS IS THE GREATEST TIME TO BE AN AMERICAN!

Impact of MIT Alumni Entrepreneurs
MIT Alumni founded 25,800 currently active companies in 2009.
The firms employed 3,300,000 people.
These firms generated annual world revenues of $2,000,000,000,000.
If currently active firms founded by MIT graduates were a country in 2009 they would have been the 11 th largest economy in the world.
Economic Impact of MIT Alumni Entrepreneurs - Entrepreneurial Impact: The Role of MIT, Roberts and Eesley, MIT & Kauffman Foundation for Entrepreneurship, February, 2009

“ Recruit” The Right Immigrants
Immigrants started 25% of U.S. public companies that were venture-backed.
The market capitalization of publicly traded immigrant-founded venture-backed companies in the U. S. exceeds $500 billion.
40% of U.S. publicly traded venture-backed high-technology manufacturing companies were started by immigrants.
50%+ of the employment generated by U.S. public venture-backed high-tech manufacturers has come from immigrant-founded companies.

A Great Time To Be a Farmer!
The world’s appetite for farm products will soar.
The world will have more than enough cash to buy what we grow
Farm support payments will no longer be necessary
Quotas, tariffs and other market protections will no longer be necessary
We will be able to sell everything that we can grow and process.

WE “OWN” CREATIVITY!

WE CAN APPLEIZE AMERICA
The iPhone, which did not exist before 2007, now generates 2/3 of Apple’s revenue.
Apple made more profit on the iPhone than all of its competitors combined!
The iPad generates $1 billion more revenue than the Mac.
The iPad is less than 2 years old.
Apple = 20% of All Sales Growth of Publically Traded Retailers in 2011.
1 st Quarter 2011 sales went up 80% Y.O.Y.

WE CAN REINVENT MANUFACTURING
The Chevrolet Sonic is Transforming the face of American Manufacturing
The plant is 50% smaller
Wielding Robots are clustered together instead o being spaced along the line
The first coat of rust proofing is 1/100 as thick
Many employees make $14 an hour instead of $28 an hour . . . With the UAW’s blessings.
All of this so the Sonic can be manufactured in Detroit instead of Mexico.

Made in Detroit

IMPORTED FROM DETROIT
http :// www.youtube.com/watch?v=SKL254Y_jtc&feature=player_detailpage

Additional Slides If we only had time

Oil Fuels America’s Deficit

Small Hydro Projects
Putting many small hydro dams on rivers to generate 5 to 10 MW of power.

Shale Gas = 50% Supply in 2020

Shale Gas Everywhere You Look

Algae to Oil

French Tidal Power Plant Online in 1967 http://en.wikipedia.org/wiki/Image:Rance_tidal_power_plant.JPG

300 in NYC’s East River by 2013

Real Projects; Real Power
1,320 MW Incheon Tidal Power Station built around islands west of Incheon. Construction will start in 2017.

Ocean Wave Power

Capturing Waves

Sea Dog Pump = 22% Conversion

Cheap, Available Fresh Water
What happens to global stability if every country with access to the sea can get all the fresh water it needs?
What happens to global agriculture and hunger if every country with access to the sea can get all the fresh water it needs?
What happens to global economic growth if every country with access to the sea can get all the fresh water it needs?

Ocean Powered Fresh Water

Ocean Currents

Ocean Thermal Power Potential

Ocean Thermal Power

Apple Made 2X Profit of the “Others”

Shale Gas Is Revolutionary
Shale Gas increased America’s gas reserves by 40% in this decade.
Shale Gas reserves outside of North America could increase the world’s gas reserves by 50% to 160%.
That is equal to 211 to 690 years’ worth of gas consumption in the United States at current levels.

Small Reactors to the Rescue?

Baby Nuke Self Contained Design
Tennessee Valley Authority, First Energy Corp. and Oglethorpe Power Corp., on 2/17/10 signed an agreement with McDermott International Inc.'s Babcock & Wilcox subsidiary, committing to get the new reactor approved for commercial use in the U.S.
Made in plants in Indiana, Ohio or Virginia.
125 to 150 MW
1/10 the cost of big nukes = $750 million
Built with all of the fuel needed to run it for 60 years.
All waste stored in plant for 60 years.
WSJ - 2/18/2010

240 MW on a Truck (c) - General Atomics - WSJ - 2/22/2010

Pocket Nuclear Reactor
240 MW reactor that will be built in factors and shipped to sites on trucks or trains.
Helium cooled reactor would use operate at temperatures as high as 850 degrees Centigrade.
This makes it an attractive “combined cycle” energy source for desalinization of water and other industrial uses.
Fuel source is spent nuclear fuel from large conventional nuclear plants.
“ spent fuel” contains more than 90% of its original energy
Enough nuclear waste to build 3,000 of these reactors
12 year development timeline
WSJ - 2/22/2010

Power From the Ocean
The European Energy Association estimates that, globally, the oceans could yield more than 100.000 terawatt hours a year if the technology to harness that power can be perfected.
That is more than five times the electricity the world uses in a year.

Real Products; Not Just Dreams

Tidal Power Growth
45 Wave and Tidal prototypes will be tested in 2011 and 2012. Only 9 were tested in 2009.

GOD HAS BLESSED AMERICA

Narrow Body Jets Rule
There are over 4,500 737s currently in service, with 2,016 orders yet to be filled.
The Airbus A320 has almost 3,400 in service
The 737 series is the best selling jet airliner in history.
According to FlightGlobal, there are on average 1,250 737s airborne at any given time, with one departing or landing somewhere every five seconds.

Narrow Body Jets Rule
Global demand for narrow bodies (737 and A320s) over the coming two decades will be 21,160, according to Boeing estimates.
That’s $1.7 trillion worth of aircraft that, at present, Boeing and Airbus would expect to snag more than 90% of the orders.
Embraer of Brazil is #3

Debt, Global Competition and America's Future, UT Texas Enterprise Speaker: MBA Professor John Doggett, Sept. 8, 2011

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Debt, Global Competition and America’s Future, UT Texas Enterprise Speaker: MBA Professor John Doggett, Sept. 8, 2011 Presentation Transcript