The Unbelievable Stupidity Of Raising Interest Rates

Bull

Interest rates have been near zero since the recession of 2008.


That supposedly to stimulate the economy. 


However, aside from a stock market bubble again, not sure we have a much stimulated economy.


We have a false low on the unemployment rate, while the the true percentage of the labor force working is the lowest in almost 40 years!


Moreover, manufacturing is down almost 40% from the 1979 peak with a loss of over 7.2M jobs


Commodities are at firesale prices as demand is sluggish and there is short-term oversupply. 


And innovation is facing a global slowdown


So people are out of work, we’re not making things, demand is depressing prices, and even ideas are few and far between–not too rosy a picture, regardless of what some politicians may have you believe. 


Let’s not forget that we have an over $18 trillion federal debt, and this is projected to grow ever greater as we borrow to fund social entitlements such as social security, medicare, etc. 


In this scenario, why would the Federal Reserve ever want to raise interest rates?


Well, if they don’t raise rates, then they can’t lower them later again when the economy really stalls out and goes into deep recession. 


Hence, this is seen as a tool for their financial toolkit–and if there are no tools with which to manipulate the economy, then there is no need for a (neutered) Federal Reserve. 


But think for a second what happens when the Fed raises rates, it’s going to slow the economy even further than the chug chug chug economy that we are already dealing with. 


Maybe even more important, it will raise the amount of interest payments we must folk over on the trillions of dollars of debt we owe.  


Simply put, when we raise interest rates, we pay more interest on our already astronomically high national debt, and this pushes our national deficit up even higher as we borrow more to pay the interest on the previous debt. 


If you did this with your credit cards, you’d probably be looking at the equivalent of debtor’s prison sooner or later. 


Rather than feed the Fed’s toolbox with interest rate bumps and drops, why not keep rates low as long as they can stay low, reducing our interest payments, and curtailing our national deficit and debt. 


What about the stock bubble…that’s a lesson investors will be learning about in their own good time–it’s the stock market, stupid. 😉


(Source Photo: Andy Blumenthal)

2014 The Bad News Goes On

Bad News

What a 2014 it’s been as the world continues it’s descent into madness.  


If Ebola, the War with Hamas in Gaza, the shoot down of Malaysian Airlines Flight MH17 killing 298 including 80 children and 15 crew, the intransigence of Iran on Nuclear Weapons, employment still near a 30-year low, the National Debt hitting over $18 trillion (and growing $2.43 billion a day!) and the suicide of comedian, Robin Williams wasn’t enough…


– Criminal Records: 1 in 3 adult Americans (i.e. 80 million people) now have a criminal record…hmm, if the average family has around 2.5 people then just about 1 person per household has a criminal record. Are you starting to look around you now?


– Economy: Uber, yes, it’s a online “ride-sharing” (i.e. taxi) service, but after it’s recent IPO, Uber is worth over $41 billion dollars (more than Delta, Charles Schwab, Salesforce.com, and Kraft Foods). Someone’s getting taken for a ride. Is this even surprising considering the S&P is priced over 27 times average 10-year earnings (while the historical average is only 16), the result of pumping the economy with short term easy money policies.  


– Cyber Attacks: After a blithering cyber attack by North Korea, Sony withdraws the release of the movie, The Interview, surrendering to cyber terror, and putting us all at greater risk in the future because cyber crime does pay!


– Islamic Terrorism: While ISIS advances in Syria and Iraq, 132 school children (mostly ages 6-18) plus 9 adults massacred by the Taliban this week in Peshawar, many shot in the head and others lit on fire with gasoline and burnt to death so they are unrecognizable. This only 9 months after the April kidnapping by Boko Haram of more than 280 schoolgirls in Nigeria, which was repeated this week with the kidnapping of another 185 woman and children.


– Russian Militarism: The Great Bear is back with a vengeance as Putin continues driving Russian nationalism and buildup of advanced weapons, including WMD (e.g. nukes), aircraft, submarines, and ICBMs to counter alleged “Western Aggression.” And despite, the rubbles’ massive decline, Putin promises an economic comeback within 2 years–he’ll wait out the West and hold Crimea hostage and spoil it for everything it’s worth


So where are we going next–more hell on Earth or at some point a turnaround towards heaven again?   


(Source Photo: Andy Blumenthal)

Care To Be Curious?

Care To Be Curious?

Here’s three topics for the curious of mind today:

Are we technologically safer? As we attempt to beef up IT security, we continue to be technologically insecure. Just this last week, BBC reported how a fridge was part of 100,000 devices used to send out 750,000 pieces of spam. Yes, a fridge, and there was also a television involved–sounds like the beginning of a bad joke, right? But this is our reality these days…Proofpoint, a cloud computing and security company said “Many of these devices are poorly protected at best, and consumers have virtually no way to detect or fix infections when they do occur.”

Is our economy healing or hurting? As unemployment fell from 7% to 6.7% last week–an impressive reduction–the overall labor force participation rate didn’t rise, but rather sank to 62.8%–its lowest level in 35 years! And while, the Wall Street Journal explains that U.S. employment is simply not keeping up with population growth, the S&P 500 hit a new record high just last Wednesday. Meanwhile, the Fed continues to pour money into the economy, although at a slowing rate (expected to go down next week to only $65B a month), speculation is building whether we have another real bubble brewing, and this one of our own making, perhaps.

Is this the lead up to peace or war with Iran? As we continue to seek a long-term deal with Iran on their dangerous nuclear weapons foray, we read from Bret Stephens that Iranian President Rouhani said during his presidential campaign, “Saying ‘Death to America” is easy…We need to express ‘Death to America’ with action.” If we are getting a good deal that can truly lead to WMD disarmament of Iran, why did Rouhani tweet, “In #Geneva agreement world powers surrendered to Iranian nation’s will.” Curious, whether this is for political consumption in Iran or whether he sees the deal as just a stalling tactic leading to a breakout capability in nuclear weapons as well as a way to get some goodies in terms of sanctions relief for his country in the meantime.

What does little kitty cat say about these? 😉

(Source Photo: Andy Blumenthal)

Back To The Computer Stone Age

Back To The Computer Stone Age

According to Charles Kenny in Bloomberg BusinessWeek (20 June 2013), the Internet is quite a big disappointment–because it “failed to generate much in the way of economic growth.”

While on one hand, the author seems to see the impact that the Internet has had–“it sparks uprisings, makes shopping easier, help people find their soul mates, and enables government to collect troves of useful data on potential terrorists;” on the other hand, he pooh-poohs all this and says it hasn’t generated prosperity.

And in a sense, don’t the facts seem to support Kenny: GDP is still in the 2-3% range, labor productivity growth is even lower, and unemployment is still elevated at over 7%?

The problem is that the author is making false correlations between our economic conditions and the rise of the Internet, which already Jack Welch pronounced in 2000 as “the single most important event in the U.S. economy since the industrial revolution.”

Kenny seems to think that not only aren’t there that many economic benefits to the Internet, but whatever there is we basically squander by becoming Facebook and Youtube junkies.

It’s a shame that Bloomberg BusinessWeek decided to publish such a ridiculous article as its “Opening Remarks,” blaming the failure of the Internet for economic challenges that have been brewing for decades–with high-levels of debt, low levels of savings, hefty entitlement programs based on empty national trust funds, the global outsourcing of our manufacturing base, elevated political polarization in Washington, and various economic jolts based on runaway technology, real estate, and commodity bubbles.

It’s concerning that the author, someone with a masters in International Economics, wouldn’t address, let alone mention, any of these other critical factors affecting our national economy–just the Internet!

Kenny adds insult to injury in his diatribe, when he says that the Internet’s “biggest impact” is the delivery of “a form of entertainment more addictive than watching reruns of Friends.”

Maybe that’s the biggest impact for him, but I think most of us could no longer live seriously without the Internet–whether in how we keep in touch, share, collaborate, inform, innovate, compute, buy and sell, and even entertain (yes, were entitled to some downtime as well).

Maybe some would like to forget all the benefits of technology and send us back to the Stone Age before computing, but I have a feeling that not only would our economy be a lot worse than it is now, but so would we. 🙂

(Source Photo: Andy Blumenthal)

Balancing The National Books

Balancing The National Books

Bret Stephens had an interesting opinion piece in the Wall Street Journal (28 May 2013) called “The Retreat Doctrine.”

He argues that America’s retreat militarily from Iraq and Afghanistan may not mean revitalization for us by refocusing on domestic issues, but rather decline by prematurely ending a war with enemies that may not have ended their hatred and hostilities to us.

Interestingly enough, it is not just on the battlefield that we are retrenching, but on many other fronts as well, for example: economically, we are cutting federal budgets; monetarily, we are anticipating cutting the $85 billion per month bond buying by the Federal Reserve; social entitlements like Social Security and Medicare are on the butcher block, defense cuts are imperiling military programs, and employment cuts have resulted in a labor force participation the lowest in 30 years.

While many cuts are beneficial in terms of beginning to get our arms around the over $16 trillion deficit we’ve accumulated and in forestalling another rating downgrade by the big three credit rating firms, it is as Stephens implies, perhaps not a sign of health and renewal, but of national illness and a retrenchment of a global power.

I remember in Yeshiva learning (Exodus 34:7) about the sins of the fathers being visited on the children and grandchildren–3 and 4 generations–and I always wondered how could a just G-d hold future generations responsible, accountable for what the prior generations did?

But perhaps, the answer is evident here, where we cannot blame G-d for our own actions, where we live big, beyond our means, and cause future generations to pay the piper.

When the stock market is rallying–up almost 17% year to date and about 27% over the last year, while our GDP growth is only about 2.4% annually, something is very off-Kilter.

You can argue that retreat is renewal or you can see retrenchment as leading to decline, but either way we will be paying the national bill coming due and all our children will be on the hook for cleaning up after the party is over. 😉

That’s Not Window Dressing

That's Not Window Dressing

I remember as a child, the nursery rhyme that went something like–“How much is that doggie in the window? The one with the waggly tail.”

Now, it’s not dogs or even mannequins in storefront windows, but people–looking for work.

The job market and people’s self-esteem has gotten so miserably low that they are resorting to displaying their jobs skills or just sitting and looking pretty in storefront windows in an attempt to get attention and get offered a job–or as my mother-in-law says in this humorous way, spelling out each letter, a J-O-B.

In the picture at the top of this post, you can see one guy in the storefront window of the art studio bending wire–presumably for that long artistic piece behind him.

However, it’s not even just starving artists anymore taking this up as a marketing opportunity, as the Wall Street Journal (8 May 2013) reports–regular jobless folks in professions from lawyers, to tax experts, and even former CEOs are having to bare themselves in public displays to try and land a job offer.

Those who have been unemployed for months and years are becoming desperate for work as one unemployed political scientist states, “I’m willing to try anything.”

Despite it being so degrading that he “feels like a monkey…in a cage as people walk by and just stare at me.”

Assuredly, it is a sad commentary on society when people looking for jobs and to earn a basic income are treated literally like animals in cages to be examined, made fun of, or even marveled at in a strange sort of way.

Historically, in red light districts, scantily clad women have been exhibited behind glass enclosures to lure customers and money, but as most people would say “That’s the sex industry!”–however, what starts off as okay for the such social vices ends up by extension as the new normal for our educated, white collar workers.

Never-the-less, some employers are taking notice–they see these window displays of professionals, not as loafers or weirdoes, but as go-getters and even sometimes highly creative based on the sophistication of their window displays–with them in it.

In the picture, the guy in the window with his feet up, glasses off, and soda bottle on the floor behind him is making a marketing statement about himself, but I’m not sure I would hire someone based solely on the callouses, corns, and bunions on their feet. 😉

(Source Photo: Andy Blumenthal)

Have It When You Need it

Candy_machine

At an event that I attended recently, I heard a young woman explain her philosophy on life.

She said, her grandmother taught her: “Better to have it and not need it, than need it and not have it.”

Thinking about it at the time, it seemed pretty wise–because you never want to be without something you really need. 

And good planning and survival skills say to always be prepared–you never know what happens. 

But then with the fiscal cliff and all the talk about social entitlements, I started to think about this some more. 

In a sense, as a society, we have come to think of social entitlements as something that we better have in case we need it–Unemployment Insurance, Medicare, Social Security, Medicaid and more. 

You never know when it’s your turn to get laid off, sick, old, or needy. 

And isn’t that what’s it for–it’s a safety net–these are like personal insurance and you never want to need the coverage and not have it. 

But as we should know by now, having it–doesn’t come for free. 

So the question is how much social entitlements or insurance do you need–and part of the answer is how much can you afford. 

So is it really better to have it and not need it, than need it and not have it–if you can’t afford what you’re buying?  

In this case, our grandparents and parents having it and not really needing all of it–may mean that we and our children will not be able to have it when we do need it. 

To have social entitlements, we need to be able to pay into the system for it or borrow to finance it. 

Unfortunately, as a nation we have been doing more borrowing, because we have spent beyond our national means–we have even raided our very own social entitlement programs that we hold so dear, to pay for other things–maybe that’s why they call it a trust fund, because you really do have to trust, almost blindly, that there will be something there, when it’s your time to need it. 

It’s great to have it, but if we are gluttons and don’t responsibly plan for genuine needs–then as a nation, we really will be left needing and not having it when the time comes.

In short, spend all your money to soon, and tragically, there won’t be any candy later. 😉

(Source Photo: Andy Blumenthal)