What positive steps can we take? The energy that is now expended by well intentioned, freedom-seeking individuals on the destructive course of politics can be turned into powerful steps that will have a positive effect on the future. All are moral, right and just. None require aggressing. Consider the following...
The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk.
Politicians and bureaucrats are notorious for manufacturing euphemisms -- clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Some of our courageous friends in government couldn’t bring themselves to say “tax hike.”
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Facts are easy. You can check facts. What supporters of the Affordable Care Act are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.
The east coast and parts of the southern U.S. were to varying degrees paralyzed by blizzards a few weeks ago. The snow as expected rendered the roads treacherous, and in anticipation of slick streets, shoppers flocked to the grocery stores in advance.The rush into grocery stores, and its aftermath, offers worthwhile lessons in economics.First up, […]
The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self-sufficient.But our systems of state charity — aka welfare — have too frequently had the opposite effect: They have actually created dependency. It is time to rethink the way we help people.I’m going to […]
Last year was quite the year for Bitcoin. We’ve seen exponential growth in Bitcoin’s exchange rate and extensive coverage in the media. Another phenomenon we have witnessed is the proliferation of alternative cryptocurrencies, five of which we’ve provided below.What all of these cryptocurrencies have in common is that they rely on a decentralized network to […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the HealthCare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor supply issues. Given the mounting difficulties with and growing concerns about the […]
The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.The images of […]
“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”As the inequality gap grows, there is an ideological battle unfolding in the West.On the one hand, there are those who think government can fix things. It must do more, tax more, […]
On Feb. 7 the United States will once again reach its statutory debt limit, meaning it cannot legally borrow any more money. Since the obvious option of cutting spending to match the amount of revenue that the government collects is off the table for some inexplicable reason, Congress will have to pass a new, higher […]
The New York Times published an interminable article on health care recently. Plenty of facts — how scrupulous are these journalists! — but the article displayed absolutely no comprehension of the basics of cause and effect. I was left wondering about the whole point.The article details how the health care system rewards specialists to an […]
The Largest Company in History:“The United States Corporation of Government (USCOG)”I follow global social and commercial networks, looking for entrepreneurial opportunities.Innovation surges when industry and government models change. Buggy whips. Landline phones. Railroads. The Soviet Union. Apartheid South Africa. All marked social and commercial innovation, both bad and good.We are witnessing a new form of […]
We’d like to give the banks in Australia some credit. They’ve finally gone and done it. They have caught up with 1960s technology. They’ve figured out how to use PIN numbers.How to only use PIN numbers, that is. They’re considering scrapping signatures on credit cards to cut down on fraud. Apparently, having to verify your […]
We put in a good-citizen call to the SEC the other day.“There’s a massive scheme to manipulate stock prices,” we told the friendly agent.“I have to tell you that your call is being monitored so that we can better serve the public,” he replied.“Oh, don’t worry about that. The NSA is tapping our call anyway.”“Are […]
Dr. William C. Padgett is a retired optometrist who has been trying to bring an elderly care facility to Beaufort County, North Carolina, for over a decade.“Our senior citizens,” he laments, “are finding that it is difficult and in many cases impossible to find an appropriate long-term care facility locally.” Though he has received several […]
If you don’t have the angst out of your system concerning Wall Street banksters, Government Sachs, and the Affordable Care Act, settle in with Matt Taibbi’s Griftopia to make your blood boil one more time.Investors should be reminded of 2008 as they shrug their shoulders and put their money back in the stock market. The […]
What do 8 of the 10 wealthiest people in the U.S. have in common?Aside from being able to fly in private jets, the common thread is that each of them has made their fortune thanks to a start-up.Let me explain…From tech titans like Bill Gates and Larry Ellison (founders of Microsoft and Oracle, respectively), to […]
“Inequality is the defining challenge of our time,” according to President Obama. It’s certainly the topic of the day for Paul Krugman, Joe Stiglitz and a whole raft of liberal pundits.But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi […]
In December of last year, I left my career to travel the world for one year.My plan was to visit as many countries as possible on my Star Alliance Around-the-World ticket in the first nine months, then, for the remaining three months, return back to the country that most caught my eye and my curiosity.Nine […]
Economic history is primed to repeat in the nastiest of ways unless the government stops distorting the price of something we use every day.Every product, good, or service has a price, which is essential to rational decision-making. We use prices every day as vital data that guide us. Without true prices, prices not distorted by […]
A new survey from Harvard University found a large majority of young Americans do not believe the law will save them money, do not believe it will improve their health, and do not intend to sign up for insurance through the new exchanges.
Uh-oh!The new pope, Francis from the Pampas, has just warned us to beware the “tyranny” of capitalism.Each man worships his own gods. Some worship at the altar of Jesus of Nazareth. Some at the altar of the Almighty Dollar. The capitalists don’t bad-mouth Francis’ god. You’d think he would cut them the same slack.Bad-mouthing Catholicism […]
The market has selected different things as money throughout history. Some of these items have served as money in isolated places for specific periods of time — for instance, cigarettes in prisoner-of-war camps. Cigarettes continue to be a currency in prisons if allowed, but if not, according to Wikipedia, “postage stamps have become a more […]
The Federal Reserve has grown the monetary base from $827 billion to $3.1 trillion in five years. At the same time banks have stuck $2 trillion more than required in reserves at the Fed. This money lays around fallow, earning just 25 basis points from the central bank. A blossoming to its full potential would mean $20 trillion in new money, eviscerating Ben Bernanke’s deflation fears.
So far these extra reserves do nothing but keep followers of the Austrian School of Economics and fellow inflationphobes up at night. It’s not a matter of if there will be a repeat of Gideon Gono’s Zimbabwe, but rather when it will happen. After all, the Fed is all powerful. Or is it?
Ben Bernanke can lead bankers to liquidity, but he can’t make them lend. Bankers haven’t taken the plunge because other regulators are engaging in what Robert Prechter, renown financial author and stock market analyst, calls “The Hidden War on Credit.”
In the latest Elliott Wave Theorist, Prechter’s financial publication, he points out the Fed is demanding that JPMorgan and Goldman Sachs increase capital levels. Regulators around the world are telling banks the same thing, reduce leverage. This is anything but inflationary.
Freddie Mac and Fannie Mae have been going after big banks for mortgage loan documentation irregularities. In separate actions Bank of America is being sued for racketeering, LIBOR manipulation, violation of the Telephone Consumer Protection Act, violation of federal antitrust laws, failure to modify loans and who knows what else.
As one might expect, all of this litigating does not inspire lending.
Prechter mentions laws in Nevada that make it difficult for creditors to prove they have standing to foreclose. In Las Vegas alone, upwards of 100,000 houses are vacant and/or occupied by people who haven’t made a payment in three or four years. These non-performing assets are stuck on bank and shadow bank balance sheets keeping these lenders from aggressively making new credit.
The Elliott Wave guru lives in the Atlanta area, ground zero for bank failures. When banks fail, bankers are sued by the FDIC. “Various bankers are being charged with fraud and fined tremendous amounts of money and sent to jail because they made ‘unsafe and unsound’ loans,” Prechter writes. “Bankers are scared stiff to make new loans, because government agents are on their backs.”
In fact, American Banker reports civil litigation against bank officers and directors of failed banks is just beginning. “An April report by Cornerstone estimated that the FDIC is on pace to file about 40 lawsuits in 2013, the most in any year since the crisis began.”
At the height of the boom, bankers were beloved, now the inteligencia wants them jailed. “This is not a way to expand credit; it is yet another way to contract it,” writes Prechter.
Flying under the radar is a new bank leverage proposal issued by the FDIC in July. In a post entitled “The $600 Billion Bank Deleveraging No One Is Talking About,” Zero Hedge explains the new proposal will radically reduce the leverage used in the repo lending market. “As Barclays notes, changes to the risk-weightings of low-risk assets in the repo markets means US banks will need to deleverage by raising $30 billion of fresh capital or reducing their (mostly low-risk) assets by $598 billion.”
Bank stock analyst and investor Richard Lashley spoke at the Agora Financial Investment Symposium in Vancouver, making the case for bank shares. Lashley pointed out the banking industry provides less than 30% of total U.S. credit issued, less than half the percentage the industry provided in the 1970’s.
The industry has shrunk to only about 7,000 institutions from 18,000 in 1985. The numbers won’t be growing as the FDIC is not issuing new bank charters. Proposed capital and regulatory requirements are forcing small to mid-sized banks to sell. Larger banks can’t grow organically so they are ready to buy. Lashley believes the industry will shrink further to 3,000 banks.
While Lashley insists the industry is in much better shape than people think, a full five years after the financial crisis there are still 612 banks on the FDIC’s “problem bank” list.
None of this is bullish for increased lending. Lashley points out that the Fed’s quantitative easing policy has been good for banks so much as it has helped real estate values and thus reduced credit losses. It has created massive amounts of cheap deposits, and provided a steep yield curve. However, the money has gone into cash and securities, not loans.
So all this Fed money creation hasn’t spurred lending that would increase the money supply. Prechter explains why this happened citing four myths of central banking.
The first myth is “The Fed will drop money from helicopters.” The central bank has not bought every asset in sight with money created from nowhere. “What the Fed has always done, and is still doing, is buying U.S. Treasury bonds, which are among the safest assets in the world,” writes Prechter. The mortgages purchased by Bernanke and Company are government backed and of recent vintage and so are better quality than mortgages originated at the top of the boom.
Secondly, Prechter states, “Central banks will just print money.” If Cyprus is any indication, bank depositors will take a haircut in a crisis instead of the central bank printing over it.
Third, “Central banks stand ready to be lenders of last resort.” Not necessarily. Prechter cites an article from The Telegraph. “Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe’s single currency by propping up failed banks, a senior Eurozone official has announced.”
And finally, the fourth myth, “Inflation is determined by the expansion of base money.” Prechter argues that inflation is an expansion of money and credit. Meanwhile, Sweden, Norway and France are demanding that people use credit cards instead of cash. Authorities desperately want cash to stay in banks to prop up the debt (asset) side of their balance sheets. “That doesn’t happen in hyperinflationary times; it happens when bankers are worried about deflation,” Prechter writes. When consumers pull cash out banks it is deflationary. When deposits leave, loans must be liquidated.
In his 1934 book, Laissez Faire Club selection, Theories of the Trade Cycle, Alec Macfie pointed out central banks can create money but not money velocity. Since the financial crash, velocity has plunged.
Believing inflation is right around the corner is the popular opinion. But, not necessarily the correct one. Prechter did a Google search on March 13, 2013 “Inflation will rise in 2013.” There were 50,200 results. “Inflation will fall in 2013” on the same date generated 7 results.
I did the same test on August 6th. “Rise” generated 33,400 results, “Fall” generated 8 results.
Resource investing guru Rick Rule likes to say, an investor must either be a contrarian or a victim. Falling inflation is clearly the contrary opinion.