Friday, October 9, 2015

"You Want to Know When Janet Yellen Will Raise Interest Rates?"

"I think I'm entitled to know."

"You want to know?"

"I want the truth!"

"You can't handle the truth!"

"You see, deep down in the bowels of the Federal reserve Board,   Yellen herself doesn't know.  The members of the Federal Open Market Committee don"t know.  The 150 staff economists of the fed don't know. The presidents of the twelve regional Federal Reserve Banks don't know. Other central bankers don't know.  Professors of monetary policy don't know.  Nor do hedge fund managers, financial advisers, mutual fund managers, and others in the investment community."

"You see, they use words like inflation, full employment, emerging markets, strong dollar, financial stability, global growth, monetary rules, discretion, and others to decide.  You use them as whipping boys to bash the fed, while the fed provides the blanket of financial security under which you sleep at night and rise in the morning."

"I just wish you would wait until the fed actually announces a rise.  Or, you can go ahead and gamble your money thinking you know when Janet will pull the trigger."

"Either way, I don't give a damn what you think you're entitled to know."

"I'm going back to my third cup of coffee.  I'm from Missouri, the show me state."

Saturday, September 19, 2015

German Chancellor Angela Merkel should read The Camp of the Saints

In 1973 Jean Raspail published an apocalyptic novel entitled The Camp of the Saints.  It was a story depicting the destruction of Western civilization, which began innocently enough with the Belgian government announcing in Calcutta, India, a policy of adopting Indian babies and raising them in Belgium.

This well-intentioned policy led a "wise man" to rally the Hindu masses of India to undertake a mass migration to Europe.  They arrived first in France by the hundreds of thousands with no regard for lawful entry requirements.  They showed no desire to assimilate into French or any Western culture. Europe and ultimately all of Western civilization capitulated to the Hindu masses.

Replace the Belgian government with Angela Merkel.  Replace the Hindu masses of India with the Muslim masses of Pakistan, Afghanistan, the Middle East, and North Africa.

Of course it can't really happen in Western Europe in 2015, can it? Chancellor Merkel did everything possible to keep Greece in the Eurozone to prevent its breakup.  But her encouragement to accept hundreds of thousands of Muslim immigrants in Germany has brought a backlash throughout the European Union.  

Perhaps the defining feature of the European Union is the Schengen Agreement, which permits visa-free travel across its members' borders. Those borders are on lockdown across a growing number of EU member countries in September 2015.

The best laid plans of mice and (wo)men.......

Wednesday, September 16, 2015

President Xi Jinping of China Comes to America, Again

President Xi Jinping of China arrives in the United States on September 24, 2015, for an extended visit that includes a summit with President Barack Obama on September 25 and a speech at the United Nations on September 28.

China experts--economists, political scientists, government officials, politicians, businessmen, and countless journalists, television commentators, pundits, and bloggers--will interpret every nuance of Xi's public remarks, facial expressions, gestures, places he visits, and so on.

The White House will claim that President Obama is talking tough with President Xi on China's island building in the South China Sea, cyber-security, intellectual property rights, the exchange rate of China's currency, and other matters of importance to the United States.  What goes on  behind the scenes will be subject to endless speculation. 

Thoughtful Ideas can help you, the reader, get a handle on the outcome of President Xi's visit.

Your friendly proprietor studied Mandarin (and a smidgeon of Cantonese) in Hong Kong in 1963, along with years of Chinese history, culture, economics, politics, art, and other aspects of Chinese life. Taking creative license with Chinese grammar for euphonic effects, I wrote a short couplet that describes contemporary Chinese behavior.

My eight-character couplet (eight for good fortune):

Ni yao, ni shuo
Wo yao, wo zuo


You say what you want
I do what I want

President Xi will listen patiently to President Obama and everyone else he meets during his visit. Upon returning home, he and his colleagues will do what they want, much to the dismay of what the experts said about the agreements that were presumably reached with American officials and business leaders.

In short, pay no attention to the chattering classes that try to interpret his visit for you.

Wednesday, September 2, 2015

What Would William Jennings Bryan Say to the Federal Reserve Board?

You shall not crucify mankind on a cross of a one-quarter point (25 basis points) rise in interest rates.

Sunday, August 23, 2015

Who Is Underwriting the Drug Lords?

Buying and selling illicit drugs is a cash business.  The medium of payment consists largely of US$100 currency notes.  The Federal Reserve Bank estimates that 50-70% of US currency is held abroad, either as a store of value against local depreciating local currencies, or as a medium of exchange.

Over the past twenty years, the value of $100 currency notes in circulation has more than quadrupled.

Value of Currency in Circulation in Billions of Dollars, 1984 and 2014
Denomination 1994 2014 Increased Value Percent
1994-2014 of Increase
$1 6.10 11.00 4.90 0.5%
$2 1.00 2.20 1.20 0.1%
$5 7.30 13.10 5.80 0.6%
$10 13.80 18.90 5.10 0.6%
$20 80.50 162.20 81.70 8.9%
$50 43.90 76.90 33.00 3.6%
$100 229.10 1014.50 785.40 85.7%
Total 381.70 1298.10 916.40 100.1%

The Bureau of Printing and Engraving is working overtime to print $100 Federal Reserve Notes. Why would an agency of the federal government respond to this enormous increase in demand when it knows that a substantial portion underwrites the drug business?

U.S. currency notes are liabilities of the Federal Reserve Bank, which are matched by interest-earning assets.  After paying the costs of running the Fed, the surplus is turned over to the U.S. Treasury. During 2010-14, the surplus amounted to $431.4 billion, thus relieving the government of raising that amount in new taxes or borrowing.

One way to reduce the drug trade is to stop printing $100 notes and perhaps cap the supply of $50 notes in circulation.  It will be a lot harder for the drug lords to conduct business if they have to deal in giant stocks of $20 notes.

Freezing the supply of $100 and $50 currency notes will not pose any hardship to American producers and consumers since ATMs supply $20 notes and an ever-increasing share of payments are made electronically.

Of course, an easier way to curtail the drug trade is to legalize drugs, as is the case with marijuana in several of the states.  However, it is much easier to stop supplying more $100 and $50 notes than get Congress to legalize drugs.

Friday, August 21, 2015

Wy Greece Got Its Bailout

First, Europeans must never be deprived of their sacred right to a summer vacation.  The negotiations that begin early in 2015 were concluded in principle just in time for German Chancellor Angela Merkel and her fellow Eurozone leaders to take their annual summer vacation.

Second, Merkel did not want to be blamed for any dissolution of the eurozone, which would tarnish her place in history.

Forget every other explanation that economists have put forth, and will continue to offer, why Greece had to remain in the eurozone for its own good and that of Europe.

This third Greek bailout of $95 billion will see Greece through this year and next, insuring that Europe's leaders can look forward to their 2016 summer vacation with equanimity.

Don't laugh!  Remember, World War I broke out on July 28 and World War II on September 1, leaving time for summer vacations in both periods.

Friday, July 17, 2015

Coloring Books for Adults

Your friendly proprietor was walking from a parking garage at Stanford to his office on the other side of campus when he passed a group of six-year olds wearing orange t-shirts with the words "Media Academy" printed on them.  I have been reading numerous stories of two-year olds using ipads, kindles, and other digital devices.

Imagine coming across an Associated Press story on July 15, 2015, "Trendy But Calm:  Adult Coloring Books Selling Like Crazy."  Indeed, at one point during that week adult coloring books occupied 8 of the top 20 slots on Amazon's best-seller list.

Are adults regressing to their childhoods?  One book title hints at their fast-rising popularity:  "Adult Coloring Book:  Stress Relieving Patterns."  Adults are joining coloring clubs, entering coloring contests, and posting on social media about the therapeutic benefits of coloring (presumably within the lines?).

There it is.  Fearless six-year olds taking over the digital world as their parents sit at home coloring books to relieve stress.  I suspect the subject of next year's camp for seven-year olds will be how to monetize their media apps and/or platforms, which will likely be taught by financially successful eight-year olds.