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>> Finally.
It's so good to be here.
My name is John Doggett.
I've been teaching at UT since 1989.
I'm a recovered lawyer, a serial entrepreneur, consultant.
Do a lot of different things.
And we're going to talk about something that causes a lot of Americans to get uncomfortable.
But let me just start off and say one thing.
This is the greatest time to be an American.
There's a whole bunch of stuff that's going on.
Some of it's not very pretty.
But it's creating opportunities that are significant.
So let's get started.
And I'll tell you why I started to call this thing ugly baby glasses.
There's a reason for that.
Andy Grove left Hungary about five seconds before the Soviet army came in to reconquer Hungary.
And he ended up coming to the United States and becoming the founding CEO of Intel.
And Andy Grove came up with an idea of something called a strategic inflection point.
And strategic inflection point is one of those situations where everything that you took for granted, all the rules of life,
everything that made sense for you doesn't work anymore.
Everything's changing.
And it's changing permanently.
The best way to think about it for those of you who are married, is you go to bed at night with your spouse.
And you wake up in the morning and somebody else is in bed with you.
Which apparently is not an issue for most of you.
Ah, there we go.
And for those of you who are kids or students.
You go to bed at night at your parents' home, and you wake up, you have new parents.
And you haven't done anything to them.
It's legal.
It's that significant.
That's a strategic inflection point.
Well, I'm here to tell you that we're in the midst of three massive strategic inflection points that are going to change the world as we know it.
Number one is, Europe as we know it is changing fundamentally.
And the European Union, in my opinion, will not survive.
Number two, this country, America, is sinking under a massive pile of debt.
And we're going to have to figure out what to do about it or we're going to become another Greece.
And three, there's technology on a lot of different levels that's changing the world in a fundamental way.
And one piece of technology -- I'm going to spend some time talking about it -- is a new way of generating electricity from the ocean.
A friend of mine sent me this in early 2010.
It's from Morgan Stanley.
And it looks at the pigs.
And the pigs are not things that you eat.
They're not folks from Arkansas.
The pigs are Portugal, Ireland, Italy, Greece, and Spain.
If you look at that chart, what you see is that, when Greece was on the verge of destroying the Euro and the European Union in 2009.
They owed the world about $238 billion.
Portugal $50 billion more.
Ireland almost three times as much.
And Spain and Italy 1.1 and 1.4 trillion dollars.
And, in fact, Italy at the time, at the end of 2009, owed France $511 billion.
Which is equal to about 20 percent of France's GDP.
And we're worried about Greece.
Now fast forward to 2011.
Greece is on the verge of collapsing the Euro and the Euro zone.
But if you look at this chart, every single one of the pigs is at risk.
In fact, every single one of these countries has lost their government.
There's a new government in place.
And the question is can these countries survive what's going on?
What we know is there's now a new deal to solve the problems that Spain, Italy, and Greece are facing.
And that deal is that France and Germany and the European Union will guarantee, ensure their debt in exchange from --
in exchange for having complete control over how they spend their money.
And to give you an idea of how significant things are, look at this slide.
This slide looks at the pigs.
And what it shows is that the Irish -- who had serious problems, their government failed, they had to be bailed out -- were the least challenging country in Europe.
The Greeks were right in the middle.
But look at Spain and look at Italy.
What the slide looks at are the banks in Europe that are covering sovereign debt issued by these countries.
And what is very clear is there's not enough money in Europe to bail out Spain and Italy.
And what's the problem?
Spain and Italy are on the verge of going down.
This is an unfortunate picture.
This is from Athens, Greece.
This is a human being who's in a police uniform who's on fire because the people in Athens are not happy
about the austerity provisions that their government's trying to impose.
Now, think what would happen if the deal that the French and Germans want to give to the Greeks and Italians and Spain -- Spaniards went through.
That's no longer the local parliament that's saying, "You got to cut."
It's the European Union Parliament in Brussels.
As we say in Texas, that dog don't hunt.
And so I'm predicting, not the next football game.
I'm predicting that the European Union as we know it will disappear in 2012.
And there will be a number of countries that are using the Euro today that will not use the Euro in 2012.
Temporarily, that's good news for America.
Because money will flow into America.
I'm not going to put it in the Euro.
Temporarily, that's good for America.
But we have our own issues.
And our issues are this.
If you listen to the right and the left, everybody's a scumbag.
If you look at the data, the data's very clear.
Since the end of World War II, we have run our nation on the assumption that we can borrow more than we are bringing in.
That we can borrow our way out of debt.
In fact, we've had economists who have said, as long as our borrowing only exceeds our income by three percent, it's fine.
What's the problem?
We've been spending far more than three percent.
In fact, today 40 cents of every dollar the United States government spends is borrowed, 40 cents.
Now I don't know about you.
I've never figured out how to borrow my way out of debt.
And what I know for sure is that it's not going to work for us.
Why? We've had three wars, three major wars.
World War II, World War I, and the Civil War.
Today in 2011, our deficit spending is at the same level that it was at at the peak of the Civil War.
Now let me put that in context.
About 600,000 Americans killed each other during our Civil War in the 1860's.
At that time we had about 100 million people in the United States.
Today we have over 300 million people.
So it's like 1.8 million Americans dying in war.
That's how much we are borrowing.
That's how much we're spending.
That's how much we're deficit spending.
And we don't have a war like that.
As bad as Iraq and Afghanistan are, they don't compare to the Civil War.
And we're not talking about millions of people dying, we're talking about thousands of people dying.
Next chart.
This chart was done by consultants to confuse everybody.
But it's a really valuable chart because what it looks at is every single recession in America since 1948.
Now there's some people who are saying this recession is over.
If you look at the red line at the bottom, that red line is the current recession for people who have lost their jobs.
The way this chart works is very simple.
The zero represents how many jobs did America have when the recession started.
The line going down represents how many jobs were lost, three, four, five percent.
The line going back up to zero represents when the recession is over.
This recession is the deepest, the longest, most destructive recession America's had since 1948.
And it will not end before the end of this decade, if we're lucky.
So why do I talk about ugly baby glasses?
We've all seen ugly babies.
And what do we see when we see ugly babies?
We say, oh, my.
But what do we say to their parents?
Do we say, that's the most ugly baby I've ever seen?
I hope as it grows up it looks better.
No. We say what a cute baby.
What a wonderful baby.
In the business of figuring out what to do with America, we can't delude ourselves.
And what we have to do is we have to put on our ugly baby glasses and say, holy crap.
This is not good.
Now what do we do?
We then put on our value judgment glasses that represent what we believe in and say, and this is where we want things to go.
Very important rule.
This is what we teach you in business school.
Don't get the order mixed up.
If you look at reality with these on, this is what I want to see.
Guess what happens?
You get confused.
And then you're like the politics of America today where we're wallowing in debt.
And we're saying it's not a problem.
If you put your ugly baby glasses on, you say, it is a problem.
But we can do something about it.
Because we as Americans are addicted to debt.
At the beginning of this century we had $5.7 trillion of debt.
By 2008, we had doubled it.
And today we've added another $5 trillion.
And if we continue to spend and borrow at the rate we're doing today, by 2015 we will have $23 trillion of debt.
Ugly baby glasses.
We're going to take a break now.
Do a little commercial.
And when we come back, I'm going to show you a video that will give you an idea of how significant this problem is.
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