Tuesday, September 17, 2024

Advancing Time: Fed's Interest Rate Cuts May Not Bring Strong Economy

Advancing Time: Fed's Interest Rate Cuts May Not Bring Strong Economy: As the Fed begins to cut interest rates, it is important to consider the possibility that lower rates will not produce a stronger economy. W...

Fed's Interest Rate Cuts May Not Bring Strong Economy

As the Fed begins to cut interest rates, it is important to consider the possibility that lower rates will not produce a stronger economy. We only need to look at Japan to see the proof an economy is about far more than just interest rates. Feeding into this is the Fed's limited ability to directly determine rates at the long end of the curve.

Lower rates have almost been guaranteed and promised, however, we should never forget that liquidity is far more important. This is why a past article here on AdvancingTime touted the idea more focus should be placed on liquidity rather than interest rates. When you need money, whether the amount is small or large, not being able to get it can lead to a life-changing or grave outcome. Yes, it is possible rates can fall at the same time credit tightens. This can result in dire consequences.

Contagion is a word used to describe how a disease is passed from one individual to another. It is also used to explain how problems in one area of the economy tend to spill over into other sectors of the economy and markets. When it does it can occur quickly and be devastating to the financial system. This is why it would be wise to remember that if you have good credit you will always be able to get a loan a myth.

People learn in a credit crunch that liquidity is far more important than interest rates. Many years of an easy credit environment have numbed people to the reality that credit is not a guaranteed right. This is a reality that can hit us like a slap in the face. 

Part of what we will see in the coming months could be simply an adjustment in the flow of capital to those who want it most or can afford it. Much of what may develop is a lack of willingness to lend based on the possibility the risk of not being repaid increases in a difficult economy. This has the potential to create a self-feeding loop in a credit-tightening cycle. Halting such a damaging loop can come down to the Fed's questionable ability to get banks to lend during adverse conditions.

The notion you stand a snowball's chance in hell of getting a loan in an environment of credit tightening has yet to dawn on many people. The existence of so-called "loan sharks" underlines the idea that if someone is desperate to borrow money they will often put themselves in danger to do so. Loan sharks, which generally operate outside the law, offer loans at extremely high interest rates and have strict terms of collection if the loan is not repaid. 

Most people have not experienced cycles of severe credit tightening and may have difficulty imagining such a scenario. This is partially due to what may be considered "memory bias" or "recency bias." This can result in confusion as new situations arise. Memories tend to be clouded by people incorrectly believing that recent events will likely occur again. This tendency obscures the probability the future may be quite different from the past and leads people to make poor decisions based on the recent past.

Like many businesses, the banking sector has changed over the years. The banking industry is far different than it was a few decades ago. As a financial institution, banks are licensed to accept deposits and make loans. Not only do banks protect our money, they lend out this money to create profits. But they also perform a lot of other financial services. That said, banks are not shy about placing upon customers a lot of fees and other charges.

  • The three main business segments for a bank are retail banking, wholesale banking, and wealth management.
  • Retail banking or personal banking involves deposits, mortgages, loans, and credit cards.
  • Wholesale banking is related to sales and trading and mergers and acquisitions.
  • Wealth management generates revenue through retail brokerage services and asset management.

The simple and ugly truth is banks are not "good neighbors" there to serve and be concerned about the community. Banks do not make much money on small loans at low-interest rates. The cost of making these loans far outweighs the income flowing from them even before factoring in the risk of default. This is why most small businesses must turn to other sources in order to find financing and a lot of these are loans "hidden off the balance sheet" at much higher rates. When push comes to shove, the banks will be fast to throw you under the bus. Adding insult to injury, if you have put assets up with them as collateral, they may be inclined to seize them if doing so plays to their advantage.

Interest Rates Have Fallen Over The Decades
 
This swings back to the title of this piece, interest rates are still very low compared to those we experienced during the 80s and 90s. To someone in need of a loan even a few full points of interest is often not as big a deal as the availability of credit. When credit windows slam closed people get scared and shadow banking or unregulated lending soars.

Liquidity is the lifeblood of commerce. The massive growth in the financial sector versus Main Street, the GDP, and the real economy has made debt a major concern. Credit markets will be coming under a lot of pressure as a great deal of this debt coming due. Adding to the problem is that much of it is short-term debt that must be rolled over or extended. It will be interesting how this plays out in a "risk off" environment. It is just one of the factors helping to determine where investors park their wealth and in what form.

Lately, the Fed has been boxed in by the hyper-reaction of investors to anything it does. It needs to get investors to refocus on profits, margins, and risk. The combination of cheap money, and too much of it, has fueled speculation and blown the lid off markets in recent years. It seems that greed has overshadowed the degree a tightening in credit standards can impact the economy. This is partially due to either the Fed's or the government's willingness to generate stimulus that promotes the wealth effect.

The growth generated from low-interest rates and easy credit has some drawbacks. This takes us to the issue of where the stimulus is coming from. Consider that stimulating the economy through monetary policy and stimulus from fiscal spending have different long-term implications for inflation. It also impacts the economy in a big way, especially when it is not geared towards increasing productivity.

This has fostered an environment where the stock market has been less efficient in discovering the true value of companies. While recessions halt inflation the issue is just how much irreparable damage it will inflict on Main Street and society as the "lag effect" hits us in the face. The stock market is not cheap, earnings will most likely fall takeing stock prices with them. In response, expect tapped-out consumers to cut back on spending, unemployment to rise, and a lot of small businesses to fail. 

A lack of liquidity can be poisonous. When you need money, whether the amount is small or large, not being able to get it can lead to a life-changing or grave outcome. It is important to point out that housing values are a far bigger issue for most Americans than stocks. Still, these markets do influence each other. Dealing with a "bubble economy" is always a problem and results in investors and people, in general, to buy high and sell low, often with devastating consequences.

 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Friday, September 13, 2024

Advancing Time: A Presidential Running Mate, Does It Matter?

Advancing Time: A Presidential Running Mate, Does It Matter?: While many people don't think it matters who a presidential candidate chooses as a running mate, it kinda does. This becomes even more ...

A Presidential Running Mate, Does It Matter?

While many people don't think it matters who a presidential candidate chooses as a running mate, it kinda does. This becomes even more important if they are up in age or in bad health. After witnessing the rapid decline of Joe Biden, the importance of who will step into the Oval Office if the need arises should be elevated. 

Over the years, most Presidential candidates have selected running mates that few Americans would be comfortable proclaiming as our President. The criteria for a running mate varies, some candidates select someone from an area they need to win, others to heal a wound in their party,  and some to fill another niche they think needs to be filled. 

The most important factor here is what it says about the leader of the ticket's values and judgment. The speculation is that Kamala Harris picked Tim Walz because she loved his governing record in Minnesota. Also, his biography and record of winning tough races resonated with her. Most of all, she just really liked him. Still, that does not mean he is a good choice.

It could be argued that of the four candidates on the Presidential / Vice-President ballot, Vance is the sharpest of the four and the most fit to serve. This doesn't mean you agree with JD Vance. It translates into the fact he probably has a more accurate picture of reality and greater knowledge of the issues facing America than the others. 

You don't have to be a policy or political wonk to understand the ramifications flowing from promoting an empty suit into the role of President.  The sudden ascension of Kamala Harris to the Democratic presidential nominee is a wakeup call to the issue that running mates matter. CNN recently put out an article comparing the Vice President to a backup quarterback and pointing out they need to be ready for the Oval Office if the situation arises. 

When it comes to Presidential candidates and their running mates, the least the voters can expect is a clear picture of the agenda they wish to pursue. Candidates need to give us policies defining where they will take the nation. Platitudes and clever sound bites fall far short of this.         

(A platitude is a statement that is seen as trite, meaningless, or prosaic, aimed at quelling social, emotional, or cognitive unease. For example, "America needs a leader who will build us up rather than tear us down.")

Prior to Vance being selected by Trump few Americans knew his name or anything about him. Whether you like him or not, it only takes a few minutes of listening to Vance to realize he is far more articulate and sharp than Trump, Harris, or Waltz. Few people have the experience to step into the role of President, but being smart and able to clearly voice and support your ideas has a great deal of merit.

Footnote: This link shows every running mate chosen since WWII ---- consider it a "memory refresher" of some rather forgettable charterers.  https://www.visualcapitalist.com/every-presidential-candidates-running-mate-since-wwii/  


(Republishing this article is permitted with reference to Bruce Wilds/AdvancingTime Blog)


Sunday, September 8, 2024

Advancing Time: A Very Ugly Election Season Has Descended Upon Us!

Advancing Time: A Very Ugly Election Season Has Descended Upon Us!: The very ugly election season has descended upon us. Undeniably, polarization is the word of the day. For many Americans, this is not a rus...

A Very Ugly Election Season Has Descended Upon Us!

https://static.foxnews.com/foxnews.com/content/uploads/2019/10/donald-trump-kamala-harris-AP.jpg

The very ugly election season has descended upon us. Undeniably, polarization is the word of the day. For many Americans, this is not a rush to pick the best President but to vote for the least worst. This has filled the internet with cheap parody songs attacking Trump or Harris depending on the entertainer's values. Examples of these parodies can be found at the bottom of this post. This post. however, is not about parodies or music. 

The reality is that beauty is in the eye of the beholder. A big deal is being made as a slew of "Never Trumpers" endorse Harris. At the same time, even more telling is that Robert F Kennedy Jr has suspending his run for the US presidency and announced his  endorsement of Donald Trump. Of course, Harris supporters have tried to spin this as "sour milk" rather than acknowledge the strong opposition Kennedy held to the current Biden-Harris agenda. 

 For years, Kennedy repeatedly condemned Trump, referring to him as a “bully,” who appealed to “bigotry,” “hatred,” “xenophobia” and “prejudice.” Among the chief attacks Kennedy has leveled at Trump through the 2024 campaign is to accuse him of corruption for turning his administration over to corporate lobbyists and special interests and his failure to “drain the swamp.” 

It must be noted, Kennedy and Trump do share similar isolationist views on US foreign policy, government censorship, and the need to address chronic disease in America. Kennedy has, in the past, called Trump’s attempts to overturn the 2020 election appalling and a threat to democracy. He has also argued President Joe Biden has been a bigger threat. He blames Biden for censoring political speech using as an example his Instagram account being banned in 2021 over vaccine misinformation. 

On another note, one of the most open, honest, lucid, truthful, and issue-oriented political discussions I have seen in the modern age. took place in a riveting episode of Impact Theory with Tom Bilyeu. There, Nicole Shanahan, Robert F. Kennedy Jr.'s running mate in his 2024 independent presidential campaign, dissected the legacy of Trump's first term and many other topics. Nicole openly shares her vision for government accountability, emphasizing the role of technology in enhancing transparency and productivity. It is a shame how few people will see it. It makes clear the issue of there being a monopoly on the scale of information distribution is perhaps the most important monopoly of them all.

A huge problem looms in the fact neither of America's Presidential candidates is interested in cutting the national debt and slowing our descent.  Dr. Lacy Hunt, former Senior Economist to the Federal Reserve Bank of Dallas, as well as several of the world's largest global banks, is not impressed. He takes the position both Presidential candidates will only make our debt problem worse. 

Over the last few years, we have seen people working less and more people shifting towards taking some type of public support. This has been occurring at a time when productivity has not increased, Adding to America's economic woes is that consumers continue to dig themselves deeper into debt. To be honest, it is difficult to find a Politician anywhere who is advocating an economic path that deals with the problems ahead. They are instead paving the way toward stagflation or inflation.

It appears that Democrats don't get it. Rather than aligning themselves with the American worker, they have formed a coalition made up of the poor, the deep state, and the globalist elites. All these groups have one thing in common, and that is they are willing to sacrifice our future for more money and power today. This is evident in a number of policies rubber-stamped by this coalition that constantly favor big businesses such as Amazon over the far smaller companies that made America famous. 

Giving people money to stay at home and order online is devastating to the brick-and-mortar stores that line the streets of our communities. These are the companies that pay taxes and provide jobs for our friends and families. The major labor shortage and a fall in productivity will have long-lasting implications in the form of future stagflation. 

Today, many smaller businesses struggling under the expensive of ever-changing mandates being placed upon them by those in power.  Already, statistics show that 1-in-4 Americans primarily live on government support. The idea of simply giving these people more money in the hope it will boost consumption is unsustainable because the numbers don't work.

Not only is Biden mentally impaired, but he is a liar and a crook that belongs in jail for selling political favors, and so does much of his family. The idea Democratic voters should swarm to support Harris just because she is not Biden is a bit sick, but what else does she have going for her?  This election highlights the massive flaws in America's election system which was designed over two hundred years ago. A "fair update" is in order, but who would be able to design such a thing in the current political environment? 

It is difficult to say how this election will play out. Most Americans are opposed to corruption, and think weaponizing the Department of Justice to attack political opponents is wrong. Expect high drama. Expect a lot of allegations of this or that party stealing the election. Do not be surprised if America comes across as a banana republic. The only guarantee I will give is that when all is said and done, a huge part of our population will not be happy. 

 

    The first three examples go after Harris,  https://www.youtube.com/watch?v=lIN5G_2e6h4

---  https://www.youtube.com/watch?v=lIN5G_2e6h4

--- https://www.youtube.com/watch?v=lIN5G_2e6h4

   The below parodies hit on Trump ---  https://www.youtube.com/watch?v=lIN5G_2e6h4

--- https://www.youtube.com/watch?v=lIN5G_2e6h4

--- https://www.youtube.com/watch?v=lIN5G_2e6h4


 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

 


Friday, September 6, 2024