A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]
Fifty years after the 1929 crash, a group of money managers and investment thinkers put together a collection of essays looking back at that experience. The result was a distillation of some pretty fine investment wisdom. Timely, I think, to review now.One of the contributors was Arthur Zeikel, then with Merrill Lynch. The title of […]
In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
When you type a website address into a browser, you might have noticed that the letters “http” appear at the front. “HTTP” stands for Hypertext Transfer Protocol. In typing a Web address, you are actually sending an HTTP command to transmit that website to you. Hypertext Transfer Protocol is the means by which information is […]
Some people are saying it is just what the doctor ordered. Others are saying that the cure is worse than the disease.The Affordable Care Act? Reengagement in Iraq? Tea Party bullying in the GOP?Not this time. Just as protracted in the corridors of Congress and the White House is the debate over the proposed reform […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
Picture the scene. It’s 2020. You’re at the checkout in a convenience store with a carton of milk. But you’ve got no cash and you’ve left your cards at home. No problem. You scan your right index finger; the green light flashes. Purchase approved and you leave. Easy.Is this a realistic vision of the future, […]
People jacked up about income inequality can find a new hobby. The 1% are victims of a doomsday machine, and the countdown is ticking. Machine, thy name is “family.”This came to mind as I was reading a preview of Columbia Professor Andrew Ang’s forthcoming, must-read book on Asset Management. Ang is that oxymoron, an exciting […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]
“As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding […]
The Keynesian disaster recovery plan has been to lower rates, force people to take more risk in search of yield, and entice others to borrow and spend and, magically, more jobs will be created. If people won’t buy stocks, central banks will.Back in 2011, Ben Bernanke, when asked if QE2 was driving up stock prices, […]
According to the Bureau of Labor Statistics, consumer prices are rising at a 2.1% annual rate. This suggests to us that the current stock market boom will die with a bang, rather than a whimper.Fed economists say they don’t think inflation rates are rising. They think the most recent reading is a fluke. But why […]
Entrepreneurs are high-tailing it out of the United States, and it’s the politicians’ faultThe U.S. government is driving some of its most productive citizens abroad. The only beneficiaries are countries such as Singapore and Switzerland, which offer sanctuary to Americans fleeing avaricious Uncle Sam.Three years ago Eduardo Saverin, one of Facebook’s founders, joined 1,780 other […]
Politicians love raising the minimum wage because they don’t have to ask voters to pay more in taxes. They just dump the costs onto shop owners. But they don’t act like politicians and go into debt to pretend like they have all the money in the world. They face real world situations. And sometimes that means replacing workers with more affordable options...
As the world gets more digital, people forget about the benefits of transacting in cash. And government officials know that.
The experts will tell you the recession is over, but they’re only torturing the data to hide the truth. The economy never recovered from the downturn it experienced. But the downturn happened in 2000, not 2008. The country’s been in the middle of a 14 year recession and hardly anyone knows the truth.
Every time Bitcoin crashes, it winds up at a price greater than it’s previous high. Yet the experts still call it a currency fad that will fade away. But a little over a year since it really took up, the digital currency is still going strong, and is once again seeing its price rise. But is there another reason why people are buying Bitcoins.
All paper currency has a shelf life. It could be 5 years or 500 years, but at some point, the value of any paper currency eventually reaches zero. That's why, for centuries, people have turned to one shiny metal to safeguard their personal store of wealth. And, as Jim Rickards explains, you still have that option. Read on...
Harold Hamm isn’t your typical entrepreneur. His life’s story shows you success in America doesn’t always depend on a fat checkbook
It’s a destructive cycle that comes around everytime your politicians ask you to take to the polls. The government’s meddling creates unexpected problems that eventually overshadow the planners’ original intentions. But that only leads the way for even more interventions.
Politicians love inflation. It’s a way to pay for the government’s debts without upsetting the public by raising taxes, or their special interests by cutting government. So they’ll flood the economy with easy money and eat away at your savings. But that’s only part of the story...
You can count the number of people who went to jail over the 2008 financial crisis on one hand. Which is strange considering the U.S. loves to put people away in jail. But as one author discovered in his most recent book, having the right connections and a big enough bank account, can protect you from even the worst crimes.
Obama recently claimed this was the “Decade of the Brain”. But it not the first time the government made that promise. The last time they did it, they wasted millions of your tax dollars. Now they’re back for round two. But this time, their failure could mean more than squandered money. It could mean making Alzheimer’s even worse for those who suffer from it.
“So we have, indeed, had a disappointingly slow recovery, and our consistent expectations for a pickup in growth have been dashed over a number of years… And the labor market is behaving in some perplexing ways and showing patterns that are novel.”–Federal Reserve Chairperson Janet Yellen in a speech to the Economic Club of New […]
When Michael Lewis’ new book Flash Boys came out, the author caused a stir while making the media rounds to promote it. “The stock market is rigged,” he told 60 Minutes flatly. His comments set off a firestorm of debate as to whether sharp techies and their fast computers are screwing small investors.As titillating as […]
Why Is U.S. Health Care So Much More Expensive?After years of research and many conversations with health policy experts, I see three key culprits of expensive health care in the U.S.In no particular order, they are the third-party payer system (i.e., employer-provided health care), malpractice suits, and administrative support costs/paperwork.The unintended consequence of institutionalized employer-provided […]
Most everyone is really down on financial companies these days. What kind of scam are they running, anyway? It seems as if everywhere we turn, there are fees, fees, fees. Because most everyone has some kind of credit or debit card, the popular mind is particularly focused on them, expecting to find signs of exploitation and graft.
Let’s look a bit closer.
A friend of mine is in a Virginia diner and receives an odd offer with the check. There is a note: If you pay with cash, you get a 5% discount. And why? Credit card fees. The place would rather not pay them. My friend forks over the cash and saves himself 60 cents. Keep in mind this was an established business, not some street vendor.
Of course, we’ve all experienced something similar a thousand times when working with individual proprietors. The person who mows your lawn, paints the kid’s room, fixes your plumbing or gives you a taxi ride would much rather have cash. And why? Let’s just say that cash is more liquid than plastic. Everyone knows that.
But for established businesses to routinely discount the use of cash over debit/credit is not entirely usual. But it is increasing. Neither government nor credit card companies are going to tolerate the spread of this practice, which is considered price discrimination. There will be new rules, new interventions, new restrictions, all in an attempt to stop it.
What will restaurants and other businesses do? What many have already done — refuse credit for charges of less than $5 or $10. This should be the age of micropayments, especially with digital commerce. Instead, we are going the opposite way.
This plastic card price pressure is only now boiling over, and this is a direct response to government regulation. The relevant regulations were passed last year, with hardly any debate and very little public awareness. The credit card companies objected and warned, but given today’s anti-business climate on Capitol Hill, their protests were dismissed as special interest pleading.
The relevant legislation is the Dodd-Frank Act, which went into effect late last year. The Durbin Amendment capped the fees that card companies can charge for debits at 21 cents per transaction. This was supposed to reflect the “actual cost” of processing. And this would supposedly stop the practice of charging more than twice that amount on average.
Seems like a good idea, right? Save the consumer a bit of money, right? Curb the plastic-based scams. Surely, these companies make high enough profits.
It’s not so easy. A complicated formula typically determines the fees that the companies charge for processing. And before we go any further to describe them, let us be clear that these fees are agreed upon by both parties to the contract: merchants and card services. No one has forced anyone into the deal.
The formula in the past used a graduated scale so that the higher the transaction price, the higher the fee. Some transactions would have a far higher than average fee. Similarly, smaller transactions would charge lower fees. Most of the small transactions for movie rentals, coffee at the convenience store and the muffin at the airport charge the merchants only a few cents per transaction.
This isn’t about charity or a desire on the part of card processors to help the little guy. It is a matter of making the deal. If you want the mom and pop shop and the small Internet merchant to make a go of it, you have to move beyond cash. The companies were using the large merchants to “subsidize” the small merchants. The high fees covered the losses from the low fees.
The system worked. Then Congress intervened with a price control — just like central planners in socialist states — that flattened fees.
An immediate effect was that renting from Redbox went up 20 cents last year. People blamed the movie distributor. Actually, it was the politicians, but who knew?
There’s more legislation in play here. The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 put serious restrictions on the ability of card companies to raise interest rates on existing balances. This was supposed to protect consumers from the evil and rapacious people who were lending them money at a fee.
Guess what? This backfired, too. Instead of raising card fees for legacy balances, companies were being forced to impose very high fees at the outset. This not only took from the companies a major marketing strategy; it also ended up costing consumers far more than they used to pay for carrying balances month to month. It is the relatively poorer class of card users who end up being hurt by this.
Whom do the consumers blame? Visa, MasterCard and all the rest, of course. They are charging 15% at a time when banks are paying negative rates on deposits. The whole thing is absolutely perverse. People look at this system and correctly figure that some people must be collecting loot like bandits.
I’ve covered only two of the most-recent and egregious pieces of legislation. There are thousands, tens of thousands more. All of these regulations together distort the market in more ways that we can possibly know. But again, who catches the blame? It’s not Congress, Treasury, the Fed or the White House. It is private enterprise.
Now consider the greatest and most egregious of all regulators that affect interest rates and financial markets: the Federal Reserve. It is attempting to falsify reality in ways that contradict every principle of the market economy. And what are the results? It’s a crazy, mixed-up world. Whatever the distortions, they are huge and potentially very scary.
We’ll soon know the full implications. Whether people understand the underlying cause (government, and not markets) may determine the future of the free economy itself.