Friday, February 27, 2009
At the opening bell, the Dow opened far below the close of the prior day, at 7,099.49. Within the first hour, it had sunk to an intraday low of 7,033.62. The rest of the morning was an uphill struggle. By noon the index climbed to 7,180, but met resistance which it was unable to overcome.
The rest of the afternoon was filled with Wall Street digesting the most recent proposal for the U.S. government to salvage ailing Citicorp, along with news of the worst annualized quarterly dip in GDP for the past 25 years: a drop of 6.2% in the fourth quarter of 2008.
During the afternoon, the market eroded. From the intraday high of 7,195.46, prices tumbled first after the 2:00 pm bell, then after the 3:00 pm bell, and finally, in the minutes before the closing 4:00 pm bell, until the market closed at 7,062.62, thus setting a new annual low.
In all, the U.S. market has already lost 18%-20% of its value since the beginning of the year.
Market Index Performance
27 February 2009
Day: -119.15, –1.66%
NASDAQ Composite Index (COMPX)
Day: –13.63; –0.98%
Day: –145.50, –1.91% (7,473.97)
Week: –4.96% (from 7,863.89)
February: –10.42% (from 8,343.79)
Year-to-Date: –20.2% (from 9,364.50)
Thursday, February 26, 2009
This is the fourth day this week the Dow sunk below 7,200, and the second day this week it closed below that point. Based on the trend established after declining from the highs over 9,000 around early January, the Dow seems poised to fall to 7,000.
Tomorrow may prove a crucial test of support above that number.
Yet today it was announced the Palestinians are now seeking a total of $2.8 billion in foreign aid for reconstruction. This assessment is up by nearly 50% from initial estimated damages of $1.9 billion.
Because certain international donors will not deal with Hamas directly, it is likely that aid may be channeled through the Fatah government instead. Thus, the aid donations are being used as a “carrot” to get the two different Palestinian regimes cooperating with each other.
The strategy seems to be succeeding. At least initially. Hamas and Fatah are working to repair rifts between each other. Mutual recriminations are, for now, mostly on hold. Fatah made a goodwill gesture by freeing 42 Hamas loyalists. In response, Hamas leader Izzat Rashaq threatened that Fatah should release more or, “it will turn into a bomb that would explode in the face of Palestinian-Palestinian talks.”
The distrust still runs deep and dangerous. Fatah accuses Hamas of killing and imprisoning dozens of its loyalists during the battles with Israel. Hamas accuses Fatah of acting as spies, feeding Israel information about Hamas positions during the war. Yet for now, even media attacks against each other have been called off.
Meetings today between Fatah and Hamas will determine whether there will be a unity government formed to deal with the crisis.
Wednesday, February 25, 2009
Author: Peter Corless
Date: 25 February 2009
Time: 7:07 PM Pacific Standard Time
Location: Cupertino, California
The current global crisis will require a very large, consistently-updated model of the global economy to determine the relative health and changing dynamics of geographic areas as well as markets, governments, businesses, and economic sectors.
The Global Understanding Institute has a long-term vision to building a Global Model: a simulation system of the Earth, including various natural and human systems, including present states, changes and rates of change, stochastic events, trends and probable equilibrium outcomes.
Different elements of natural and human systems will need to be put into such a global model, including human demographic, social, political and economic activities. Because of the present global economic crisis, this latter model is a critical priority.
The Global Understanding Institute would wish to see proposals for what data should comprise a relatively useful and accurate global model of economic activities.
Proposals should include reliable, technically accurate and confirmable public and private data sources, whether from markets, governments, NGOs, or analysts. A bias for the model should be in the free, public source of data. Private, proprietary data sources would be inappropriate for a public benefit educational institute, unless such data was provided at a no-cost basis, both license-free and royalty-free.
Methods to maintain the model would need to detail the relative rate of data updates (intraday, daily, weekly, monthly, quarterly, annually, or at some other period basis, or done on a special irregular basis), the method to compare, confirm, and/or validate the data via other sources or statistical methods.
The model should be in an emergent state and tolerate growth of its analysis. Increasingly complex mathematics may be used over time. For instance, replacing initial simple arithmetic models with algebraic formulae, trigonometry, or calculus. Both standard and special ad hoc data importation methods should be allowed for new data entry, importation of new data feeds, new methods of analysis, and generally encourage the system to watch for emerging trends and increasingly sophisticated systems of analysis as the model grows and matures.
Data tracked by the system should also enable rating systems for reliability or confidence of data. For instance, a national government or U.N. source backed by strong research and clear methodology may have a higher data reliability than a subjective consumer or business confidence survey conducted over a small statistical sampling.
Data contention should not be precluded by the model. Different government sources may conflict with other government estimates. Revisions of data may also need to be tracked, such as initial estimates and revised, final figures.
The overall model should allow for both actual state analysis and hypothetical projected models based on variations in date and data into past, alternate present, or projected future scenarios. Systems for “scenario modelling” should allow data users to relatively easily grab economic models based on nations, regions, market segments, and date ranges.
Data should be able to be modelled at international and national levels, yet subnational models, such as by state, province, county, metropolitan area, postal code, or other internal subnational districting are highly encouraged and recommended for mature, industrialized nations.
The goal is for such a model to be able to show to a typical layperson any nation or region in the world, to identify relative economic conditions of any place on the globe. A user should be able to tell relative, general, and absolute, specific elements of economic prosperity and stability, crises and concerns, employer and employee information, macroeconomic and key microeconomic data.
While any layperson should have benefit of such a model, professional economists and researchers around the would should have a common global database for shared research-quality data.
Availability of such a model should enable governments, businesses and any member of the general public to better understand and respond to local and global economic situations. Hypothetical modelling tools should allow healthy competition between proponents of different economic theories to project alternative solutions to key global and regional economic crises and conflicts.
All submissions must be made on a voluntary, non-proprietary basis. Submissions should include all appropriate elements, including theoretical and applied mathematical models, descriptions of pragmatic purposes and utility value of various data elements, as well as sections on the lifecycle of data management: population, upkeep, revision, deprecation, etc.
All contact by bona fide parties interested in responding to the RFP or other participation in the Global Model should be sent to Peter Corless, email@example.com, 650-906-3134 (mobile).
What we need:
- Request For Proposal submissions.
- Request for Information (RFI), including more detailed requirements and clarifications.
- Volunteers interested in participating in a pilot project (please send a letter of interest, along with their resume or CV). Economists, financial sector analysts, statisticians, and IT professionals with database and data modelling background are most highly desired.
- Potential fiscal sponsors for grants and funding, or a larger, more-established stakeholder willing to act as host or incubator for the project.
- Potential partners interested in pooling or donating data, researchers, or IT resources.
- Liaisons with international, governmental, or professional groups or NGO stakeholders who wish the data to conform to rigors of control or formal standards.
The index closed at 7,270.89, down 80.05, off -1.09%. In intraday trading, the index had early in the day slammed down to 7,156.68, and spent the rest of the day trying to rise. Just before 3:30 pm New York time, the Dow hit 7,404.94 for the intraday high. In the last minutes of the day, it suddenly backslid 130 points.
Each trading day during this past week, the market has been pressing at a “floor” of 7,200, searching for support. If the Dow can establish this as a firm basis of trading is uncertain. It has broken through that floor each day, closing below it on Monday. It recovered and closed above the 7,200 mark in the past two days.
For most of December, the index had a “floor” of about 8,500. It briefly peaked at over 9,000 in the first week of January. After that, the lastest phase of hemorrhaging began.
From 20 January to 9 February, the “floor” sunk to around 8,000. Since 10 February, the index dropped further, breaking the 8,000 mark. It hovered around 7,500 on 17-18 February, then bounced like a half-inflated ball down to the range of 7,100 - 7,400.
It is still too early to tell how the market will shift next. Some commodity prices, like gold, have stabilized or drifted downwards, while others are heading up again, like oil.
As technical analysis fails in the face of raw numbers and statistics, it is possible for rhetoric, public goodwill and trust, as well as firm and necessary action, to turn the tide of events. Therefore, today’s analysis will leave the new U.S. President with the last word:
If we come together and lift this nation from the depths of this crisis; if we put our people back to work and restart the engine of our prosperity; if we confront without fear the challenges of our time and summon that enduring spirit of an America that does not quit, then someday years from now our children can tell their children that this was the time when we performed, in the words that are carved into this very chamber, “something worthy to be remembered.”— President Barack Obama
Tuesday, February 24, 2009
Market bottoms will be tested in the next weeks. If the Dow can hold at this level, then it may avoid settling down below 7,000. But if the gains of this day are eroded by futher bad news, then additional erosion or a precipitous drop can follow.
Today the question was raised whether the Dow Jones Industrial Average index should be overhauled. Periodically the Dow’s select list of stocks are modified. Old titans of industry are replaced by tested up-and-comers to the blue chip category. Certainly General Motors (GM) and Citigroup (C) are highly challenged stocks.
This sort of reshuffling at the top indicates major market changes in basic valuation. Analysts looking for more cross-market performance levels prefer to look at the broader Standard & Poor’s (S&P) 500 or the Dow Jones Wilshire 5000. The former gives more of a “market leadership” view, while the latter is the near equivalent of the entire valuation of the entire U.S. stock market, comprising all the valuations of the companies within the New York Stock Exchange, NASDAQ and the American Stock Exchange.
A Somewhat Poorer Standard & Poor’s 500
The S&P 500 (SNP: ^GSPC) closed at 743.33 on 23 Febuary, and bounced back up 29.81 (+4.01%) to 773.14 on 24 Febuary. It is down 48.39% from its 52-week high of 1,440.24.
On 9 October 2007, the S&P 500 closed at an all-time high of 1,565.15. Since then, the value of the index has slid 52.51%.
The Wilshire 5000 (^DWC) currently stands at 7,833.85. It had a one day bump up +308.23 (+4.1%) from its near-yearly low yesterday.
The Wilshire 5000 index is down 45.69% from the 52-week high of 14,423.75, which it hit on 16 May 2008. It is down 50.44% from the index’s all-time high of 15,806.69 which it hit on 9 Oct 2007 (the same day the S&P500 had its all-time peak).
50% in 500 Days
In the past 504 days, since 9 October 2007, the U.S. stock market has lost more than 50% of its value. It was the historical capital market equivalent of “gone in 60 seconds.” Or, at least, half-gone.
At first, the trend was not greatly noticeable. After hitting its all-time high on 9 October 2007, the value of the market eroded slightly over most of the subsequent year. Over 11 subsequent months, specifically the following 329 calendar days, the market flitted downward slowly.
By 2 September 2008, the S&P 500 was holding up at 1,277.58. While that was already down 18.37%, this was not specifically alarming. The Wilshire 5000 likewise had drifted down to 13,064.50, off 17.35% from its high. These losses were gradual over the year. The oncoming crisis was already being predicted, and increasingly made a focus of speculation and analysis.
It was only after this point that the market begin its precipitous slide. The steepest drop came in the first weeks of October. The worst was 20 November 2008, when the S&P 500 hit 752.44, and the Wilshire 5000 bottomed out at 7,471.44.
The present lows this week are a second testing of the lows hit on 20 November 2008. If the market continues to settle out here, any “third test” of the low may break through a technical resistance point, and the entire market can plummet to another lower basis. How far would it plunge? 500? 1,000? 1,500? This is why it is called speculation. Different models, based on different assumptions, can produce different results.
All the economy needs is another stochastic shock, more disappointing news, or the shift of another international indicator, and it can precariously tumble once more. Yet given the strong positive bounce between the 23rd to the 24th of February, it seems possible that the present resistence level of the market seems strong. We may have reached a bottom for now.
Let’s see what a week’s more data shows.
Markets around the world are reeling at the pressures brought about by the global economic crisis. It cuts across all sectors: financial, credit, manufacturing, exports, energy, transportation, tech. There are few safe haven economies, few stocks, few sectors. According to reports from the Davos conference, the global crisis in the past five tumultuous quarters has already destroyed 40% of the world’s wealth.
Latvia Collapses, Eastern Europe Teeters
In addition, governments are continuing to collapse due to the strain of recession. First there was Iceland. Now the east of Europe braces itself. Latvia is in the throws of a 12% retraction of its economy. Under intense domestic pressure, including violent protests in January, Latvia’s Prime Minister and government resigned on Monday (22 Feb 2009). The IMF plan to rescue its economy is at risk of faltering. Swedish banks, who hold much of Latvia’s debt obligations, are worried over default.
All of Eastern Europe is teetering on the brink. The Ukraine, a far larger nation than Latvia, is likewise facing a 12% contraction of its economy. An outstanding debt obligation of $1.7 trillion from Eastern European nations towards the rest of Europe represents a hanging sword over the Euro zone economies.
If even 10% of the debt of Eastern Europe defaults, as many fear including Ambrose Evans-Pritchard writing in the 15 February Daily Telegraph, it can cause a panic in the Western European economies and lead to a global economic collapse.
The Human Toll: 400,000 More Children Projected to Die in 2009
To put the global crisis in perspective, the World Bank now estimates that an an additional 400,000 children around the world will die in 2009 due to their families falling into extreme poverty. That is an increase in the overall global death rate of 6 per 100,000.
It is the equivalent of taking the entire urban population of a city the size of Miami, Florida, or Oakland, California, and starving it to death.
Though times are tight, consider providing to an international relief organization this year. You may save a life, or a whole family.
Monday, February 23, 2009
Today was another bottom-bursting day for the U.S. stock market. The Dow Jones Industrial Average (DJIA:DJI) plunged 250.89 points, or 4.31%, to settle at 7,114.78. The last time the index closed this low was in 1997, over a decade ago.
The broader Standard & Poor’s 500 (SP500) was also down 26.72, or 3.47%, closing at 743.33. Both indexes are off by about 50% from their highs back in October 2007, and are back to levels of April-May 1997.
The NASDAQ index was also down 53.51, or 3.71%, closing at 1,387.72.
Dow Down and Chernin On the Way Out
Speaking of a falling of the value of the Dow, News Corp (NASDAQ:NWSA), the company that bought the venerable Dow Jones corporation for $5 billion in 2007, dropped $0.26, or 4.3%, to close at $5.78.
News Corp announced the planned departure of Peter F. Chernin, its #2 executive under Rupert Murdoch, when his contract comes due in June. Mr. Chernin, a Democrat, was known to have significant contentions with members of the Murdoch family, and with other executives in the Fox News division. This latest plunge brings News Corp down to about a quarter (25.53%) of the value its 52-week high of $22.64.
Stimulus in Time?
In an indirect reply to Republican Governor Jindal of Louisiana, Barack Obama spoke at the National Governors’ Association dinner about whether the stimulus was partisan pork (Jindal’s contention) or bipartisan recognition of necessity (Obama’s position).
U.S. popular sentiment is overwhelmingly on the President’s side at this time. And that time is limited. A Washington Post-ABC poll projects about two-thirds (64%) of Americans support the $787 billion stimulus bill.
You know, when I hear people say, “Well, there’s a lot of waste in this program,” well -- from my perspective at least, keeping teachers in the classroom is not wasteful; from my perspective, tax cuts to 95% of working families is not wasteful; from my perspective, providing all of you additional resources to rebuild roads and bridges and levees and dams that will enhance the quality of life of your state but also make it more economically competitive -- that’s not wasteful.
And so, if we agree on 90% of this stuff, and we’re spending all our time on television arguing about 1, 2, 3 percent of the spending in this thing, and somehow it’s being characterized in broad brush as wasteful spending, that starts sounding more like politics. And that’s what right now we don’t have time to do. ...— President Barack Obama
Yet there is a sharp rise in concern about the Federal deficit. Overall, 59% of surveyed Americans in a Washington Post-ABC News poll described themselves as “very concerned” with the budget deficit, up 10 percentage points over when President Bush was in office. Under President Bush the U.S. debt grew from approximately $5 trillion to $10 trillion, the projected debt is presently at $10.85 trilion (as per the Brillig.com U.S. National Debt Clock). It is likely to rise to more than $12 trillion in 2009 through bailouts, the stimulus package, and a revenue shortfall due to the recession.
One looming question remains: whether the medicine of the stimulus package can be administered to the patient quick enough to prevent more castastrophic organ failure in the meanwhile. One dire scenario paints a default of the U.S. public debt by summer 2009. China has started to lose its appetite for U.S. dollars, and will have to afford its own $600 billion internal stimulus bill in 2009.
He also needs to, and has pledged to bring down the ballooning Federal deficit so that longer term massive budgetary hemmoraghing can be staunched. It is already at $1.3 trillion and may rise as high as $1.5 - $2 trillion in 2009. Plans released today by the Obama administration set goals of having the deficit to $533 billion by 2013.
In order to pull off this massive restructuring of the U.S. economy, indeed, the global economy, many things have to go right. It will take a combination of best faith efforts, cooperation, innovation, good governance, and the right amount of sheer luck for all the factors to fall into place.
The U.S. must balance its involvement carefully. It must avoid fomenting anti-U.S. sentiment and touching off more unrest in the region. It must avoid antagonizing the Hamas-led local government, which will be made even more complex because the U.S. will not allow the donated funds to be handled by the Hamas government. It may stand accused of working as a collaborator with Israel for the political-economic control of the area.
Other Arab nations are also donating funds. Saudi Arabia is putting in $1 billion. Qatar is donating $250 million, and added another $30 million to U.N. projects in Gaza.
This puts the total pledged contributions to rebuild Gaza from three donors alone at over the recent estimations of damages: $1 billion (Saudi Arabia) + $900 m (U.S.) + $250 m (Qatar) = $2.15 billion pledges vs. $1.9 billion damages.
However, such pledges still need to be approved by the U.S. Congress, which is faced with a gigantic U.S. deficit and a local economic crisis of its own to deal with.
Financial aid may or may not be welcomed. It may or may not be siezed or diverted from its intended use. Many variables remain between the proverbial road paved with good intentions and the creation of actual paved roads.
Lastly, it must be recognized that any amount of economic contribution cannot ever directly heal the psychic traumas suffered by the population, fully heal the crippled and wounded, or raise the dead. There will be animosities, distrusts, and underminings of efforts for years to come. Such pains and hard hearts will be require time for any deep trust and for a lasting truce to build.
Saturday, February 21, 2009
At the end of another particularly brutal financial week, the Dow Jones Industrial Average closed at 7,365.67.
Last year on 20 Feb 2008, it was at 12,427.26. It peaked during 2007 at just over 14,000.
The U.S. stock market is looking to halve itself from its high water mark in less than two years. Is the worst of it over? Maybe not yet.
The market runs on hope. If there is none to go around, it will keep on dropping.— Douglas MacIntyre, 247wallst.com
We are about to enter the land of “how low can you go?”
Next Stop: 6,000?
The drop to 6,000, if it happens, was not unpredicted. Mike Whitney made the prediction back on 24 July 2008, in the blog Dandelion Salad, when the market was still at 11,349. He was not alone. Ian Welsh also picked out 6,000 for a market bottom back in October 2008 in the blog FireDogLake, based on a bear market valuation of 7 times Price to Earnings (PE) ratio. However, what if the earnings of our major corporations dwindles even faster than the market re-evaluation? CNBC featured Ron Ianieri on 19 November 2008 talking about a “triple bottom” and how the Dow was about to go through such a market bottom at the time, and said that the market would head downwards to 6,500. He also raised the spectre of the U.S. dollar falling from a AAA credit rating. Also on 21 November 2008, Bespoke Investment Group surveyed their readers and produced a consensus that said that the Dow at 6,000 was the most likely target for a market low during 2009. While its sampling of 675 readers is an unscientific survey, it indicates a popular consensus: the Dow is going to get hammered in 2009.
I’ll Take Global Financial Crisis for 5,000…
Yet would that be the bottom? Other predictions have the Dow down to 5,000, such as that by equity strategist Peter Boockvar, as reported by Bloomberg back on 23 October 2008. Michael E. Lewitt of Hegemony Capital also raised the spectre of Dow at 5,000 on 13 November 2008. Yet such predictions seemed to be made only by the fringe. Also, the advice of Mr. Lewitt of Hegemony Capital was that the “greatest opportunity is in the segment of the leveraged bank loan market limited to large capitalization borrowers with the capability of amortizing their senior debt over the next few years.” Leveraged bank loans? As the greatest opportunity for today’s investors? Thus, some predictions can be written off as self-serving or producing spurious conclusions based on the evidence and logical sequence of the prior arguments.
Sheepish New World
Of all the bears, Bill Gross probably did the best at outlining why the Dow is headed south. Back in December, he outlined four fundamental reasons the economy cannot go back the way it was. But paramount to it was this observation:
We will not go back to what we have known and gotten used to... We are now morphing towards a world where the government fist is being substituted for the invisible hand, where regulation trumps Wild West capitalism, and where corporate profits are no longer a function of leverage, cheap financing and the rather mindless ability to make a deal with other people’s money. Welcome to a new universe stock market investors! In this rather “sheepish” as opposed to “brave” new world, here are some considerations that may affect Q ratios, P/E’s, and ultimately stock prices for years to come...Bill and other bears have been wrong in the past. He had predicted the Dow to drop from 8,500 down to 5,000 six years ago, and instead, it peaked at over 14,000. The problem with prognostication is that by studying the market, we affect the market. By getting people to observe what is going on, sentiments change: consumer confidence or fear arises, corporate risk taking or conservativism sets in, and the government may decide to involve itself or wash its hands of entire industries.— Bill Gross, PIMCO
The global market is complex. It cannot be summed up simply by the Dow Jones Industrial Average as if that was the pulse of the planet. Yet it is a key indicator of the health of the global economy.
“For, just as a lake is, at times, stirred to its very depths by a storm, so also the market is sometimes thrown into violent confusion by crises, which are sudden and general disturbances of equilibrium.”— L. Walras, Elements of Pure Economics 1874: p.381
What is occurring is a stochastic shock to the economy. All equilibrium theories are upset. Instead, it is the time of rapid changes. If a stable prosperous economic equilibrium is bedrock, we are currently on the liquified loam of an economic 8.0 earthquake.
How are people reacting? Much depends on the information made available to them. There is a need to not panic people needlessly. Yet there are also fortunes being made, or lost, depending on whether consumers are informed of the present status of their investments. Each day, we are hearing about companies which we used to shop at just last year, or last week, which are now shuttering or scaling back dramatically. The Madoff scandal and banking failures show that the lack of information to the individual consumer can cost them their entire investment principal and savings.
In such times, there are theories to predict how people will behave. You can read about equilibrium with state-contingent markets, and many other economic social theories. Yet as the variables become more and more unstable, it will be increasingly hard—not impossible, but difficult—to predict behavior of individuals and groups with reasonable certainties. Polls that might have stood for the opinions of well-defined groups for years might rapidly shift within a single year. The most predictable thing to predict at this point is uncertainty.
This is History Calling. No, It is Not 1929 or 1931.
2009 will be unlike any other year in history. No other crisis ever before faced by humankind had 6.7 billion people to bear the cost, or shoulder the weight. No other crisis ever before in the history of the world had such technological capability, or such energy, educational, health and food requirements.
Expect that something unexpected will emerge from this global situation. Terrible outcomes. Yet also truly wonderful possibilities. For all of the dour possibilities of the Dow heading to 6,000 or as low as 5,000, some new, more sustainable, fundamentally sound basis of the global economy may emerge.
Wednesday, February 4, 2009
This global crisis is unprecedented. Because we are mutually interdependent as national and regional economies we cannot just solve our issues at home, or foist them off on others abroad.
There are a few events coming up to deal with economic events, both on a local, national, and global basis:
- Puppy Love (Economic Recovery Meeting), Mountain View, CA, Saturday, 7 February, 12:00 - 6:00 pm, 551 Chiquita Avenue, Mountain View, CA
- Economic Recovery Potluck (Economic Recovery Meeting), Palo Alto, CA, Sunday, February 8 from 1:00 PM - 3:00 PM, 400 Miramonte Avenue, Palo Alto, CA 94306
- Financing the United Nations: More Effective Funding for Global Priorities, 11 February 2009, 9:30 AM - 2:30 PM, Global Policy Forum, New York City
- Forum on the Solidarity Economy 2009: Building Another World, 19-22 March 2009, University of Massachusetts, Amherst
- LUX ’09 International Forum - Globalisation of Solidarity, 22-25 April 2009, Schifflange, Luxembourg
- World Economic Forum, various annual and special events
If you have more thoughts on the state of the economy in your area or around the world please share your thoughts. We can also use a “Economic Crisis” volunteer group to work more on collective information gathering, analysis and policy work. Please contact us if you would like to share your experience, knowledge, and ideas, and to become involved.
One may wonder, if the organization has operated for nearly half-a-year as an unincorporated entity, why would the Global Understanding Institute need to incorporate at all? In a way, it does not. In existentialist terms, one never really needs to do anything. The world can continue on without another non-profit public benefit corporation. We’ve survived millennia as a species without one so far, after all.
Yet if we wish to accomplish many things, such as entering into contracts, raising funds, maintaining centralized accounts, becoming a credentialed educational facility, and to hold property or carry on activities which may survive the lives of any of the individual members, incorporation is one well-known and logical model to achieve these ends.
However, not everything that happens for the principle of global understanding will be, can be, or needs to be directly part of the corporation’s business. We want people to work for global understanding beyond what we, as an incredible minority of the world population, can accomplish. We want people to adopt and incorporate central principles of pluralistic, peaceful, egalitarian societies into their own lives and communities, regardless of whether that happens independently of our efforts or because of our direct aid.
Therefore, there shall always be one or more unincorporated voluntary associations of people working for global understanding. It would be utterly selfish if not patently absurd to think that we could control or want to control that emergent and deeply-held desire in any human heart.
We would still wish to engendera and help espouse such social organization given common principles, systems, and methods. For the worldwide unassociated voluntary association, we shall use the term Global Understanding Movement.
The term “Global Understanding Movement” is part and parcel of the Global Understanding Institute. The term will be embedded in various intellectual properties of the Global Understanding Institute: copyrights and trademarks. Yet part of “selling” the idea in in giving it away, and this “movement” is the portion that anyone can use, free of charge, hopefully to the support and not subversion of our principles. It will be far larger than the Global Understanding Institute itself. The GUI will simply be the first operational corporation of that movement. Hopefully it will remain central and relevant to the movement as it evolves over this century.
If you are inspired by our work to create a Global Understanding Movement in your own community, or wish to dedicate part or all of your operations for the cause of Global Understanding, please contact us so we might frame various forms of mutual interdependence, support, affiliation and cooperation.
Why a 501(c)(3)?
Once the decision to become a corporation was established, the decision of what sort of corporation to become is not insignificant. While talking to many advisors and friends, the first question was: Why a non-profit? Why not just make a for-profit corporation and make oodles of money with the idea of global understanding?
To me, as the central principal in the organization, it just seemed entirely counter to the fundamental sense of what we were trying to create.
For a “global understanding” organization to effectively remain global in nature, it seemed more the sense of the organization to ensure that the vast majority, if not potentially everyone in the world, could participate without it expressly benefiting a select few. We may have beneficiaries and paid staff in due time, and every organization needs to be funded for it to survive and operate, yet the organization itself should not be run for the specific private enrichment of a few individuals in the world. It seemed better to remain more modest and focus on a sustainable breakeven economic model.
There are other forms of non-profit organizations, classified as 501(c)(4), for civic leagues and social welfare organizations, which are allowed to perform political campaign efforts and lobbying. Others allow for fraternal organizations,
There are also professional and trade groups, common business or mutual benefit organizations, like a Chamber of Commerce, that share wealth and benefits amongst the members of the corporation. This structure also seemed to be lacking the general concept of being centrally focused on the public benefit. Mutal benefit groups, whether trade or professional organizations, are generally not run for the benefit of those beyond their own membership. Such a path, while good for many forms of local or topical organizations, did not fit the general sense of the movement.
Many public benefit organizations are relgious movements, like the Catholic Worker movement. Yet this might limit the organization to a specific religious worldview, which may preclude it operating well or at all in communities where that religious worldview is unrecognized or not held in the majority. Plus, there are many believers of various faiths, atheists, agnostics, and nondenominational spiritual people in the world for whom organizing a movement for global understanding as a “religion” would seem illogical, unnatural, untoward, or even heretical. Thus, remaining non-denominational seemed to be more appropriate.
There are some corporations that act like a non-profit, but refuse to file as a 501(c)(3) to avoid the onus of Government restrictions on their activities. They pay their taxes, and funds given to them are not tax-deductible, but they do the “good work” anyway.
In the end, the trade-offs of restrictions of activities for a 501(c)(3) seemed to be acceptable, while the benefits of tax deductibility of contributions for supporters, plus the tax-exempt status of the organization was seen as the best possible system to support a new and growing organization founded for charitable and educational purposes. It is the most-expected of the corporate structures and thus, would be the easiest to get momentum behind.
This decision in a way presents a great challenge. Because in 2009, many of the charitable and educational activities of the world will be impacted greatly or will significantly impact public policy and politics. Movements for global understanding may, in due time, topple governments or cause others to rise up or solidify their standing. The Global Understanding Institute will not necessary shy away from the salient political discourse or religious debate of our times. However, we must remain clear that the organization must remain open to differences of opinion, and not fall beholden to any single political or religious agenda.
If, in the future, some subset of the members of the Global Understanding movement wish to create a separate 501(c)(4) to perform political lobbying or to work on political campaigns, or others wish to create an organization that promotes understanding of commerce, or religious beliefs, or create a “global understanding” political party, or other particular subsets of activities that would be better incorporated under other sections of the U.S. code, that would not be procluded from consideration. Yet it would have to be a separate organization than the Global Understanding Institute, which would remain, as a corporate entity, nonpartisan and nondenominational.
The legal review and accounting of such activities would also need to be very firmly established, so that the Global Understanding Institute does not fall befoul of any intentional or unintentional violation of State or Federal law. While we seek a global understanding, we must not delude ourselves to ignore the presence of local law and jurisdiction over our actions.
What is Required?
In order to form a 501(c)(3), the organization must accomplish the following:
- Draft and approve Articles of Incorporation & Bylaws
- Attract and appoint an initial Board of Directors
- Attract and approve initial Officers
- File for incorporation with the State of California and the U.S. Internal Revenue Service
- Create an Operations Plan and Budget for 2009, and a 5-Year Business Plan for 2009-2014
State of Affairs
As of 2 February, 2009, the Articles of Incorporation and Bylaws have been drafted. We now need to have them reviewed and approved. I have sent around to a few people for review, and will likely send them around to more people. Once I have a first draft privately reviewed, to make sure there are no glaring errors or omissions, I will then post them for public commentary and discussion.
I am also privately soliciting certain individuals to be members of the initial Board of Directors. Yet I am more than interested to hear from you if you, or someone you know, may make for an excellent member of the Board. The Board has not yet been solidified, either in specific number or list of individuals. This is the precise time in history to step forward, and help alter the fate of an organization, and, hopefully, influence the state of the world.
In due time, I will present more regarding the state of the incorporation. For now, more work awaits.