Sunday, March 17, 2024

Advancing Time: The Plumbing Of The Financial System We Don't See

Advancing Time: The Plumbing Of The Financial System We Don't See: There are a lot of parts or plumbing in the financial system that we don't see. It is important to note the financial system and the eco...

The Plumbing Of The Financial System We Don't See

There are a lot of parts or plumbing in the financial system that we don't see. It is important to note the financial system and the economy may intersect but are not the same thing. Ignoring this fact, as many people do, will come back to haunt us. 

This is why AdvancingTime has pounded away at the idea that where and what we buy has a major impact on the future of both communities and countries. I just finished watching "Thoughtful Money (with Adam Taggart) Good news!" The Zero Hedge team put this special Thoughtful Money's debate on the fate of the US dollar on the YouTube channel. This was a deep-dive discussion of over three hours.  

This important video did nothing to change my mind about where the world is going. In short, I liked Brent Johnson's line, "certainty is death." He claims he is not certain about anything. The footnote under the discussion title makes it clear that Investing in stocks, bonds, exchange-traded funds, mutual funds, and money market funds involves risk of loss. Loss of principal is possible. Also, some high-risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including a greater volatility and political, economic, and currency risks and differences in accounting methods. In short, it underlines Johnson's uncertainty.  

The Financial System Is Built Like This

More than one economist, big wig CEO, and Fed watcher have admitted the problems haunting the financial system have very deep roots. These people often contend governments and central banks have not fully rectified the problems causing the great financial crisis of 2008. Instead, they have merely papered over our failures by printing money and flooding the system with liquidity.

 

In truth, the financial system is a rickety cobbled-together mess of poorly fitted pieces. Overall, the financial system is not a well designed machine. Instead, it is glued together in a haphazard way to get the job done. To make matters worse, this system is greased by the greed of those who benefit from stealing a little from here and there. 

 

In the real world, things are usually not intentionally designed to be complicated but the reality is that they just are. Part of getting a clear picture of where we are headed stems from the reality this is not all about economics but politics plays a major part in our future. Recessions have always had the effect of cleansing the economy of weak noncompetitive companies to clear the way for new stronger companies. The efforts of those in charge of such things to remove recessions from the economic cycle has created a new hazard.

An excellent example of "hidden plumbing" is the Japanese carry trade. An article by Bloomberg reporter Masaki Kondo that appeared on Zerohedge on February 1st titled, "Aozora Delivers Grim Reminder Of Japan Carry-Trade Risk" details some of these issues. It details how Japanese investors as a whole have boosted their overseas investment since the BOJ expanded monetary easing in 2013. This includes Japanese banks. This puts them at risk if the cost of borrowing in yen should rise. He point out this could trigger an unwinding of Japan's massive carry trade. 

While many people have focused on the losses US banks have incurred on long-term US bonds and American Banks' exposure to commercial real estate, little attention has been paid to Japan's exposure to these items. Not only could Japanese banks take a hit on both these investments but Japan's exposure to the downturn and losses in China is another area for concern. Yes, it is possible that China's economic problems will spill over and negatively impact Japan. Still, this is an area many financial gurus claim is an opportunity for Japan to expand into and exploit, in short, they claim economic chaos in China is a plus. 

We should be aware that clogs in the system could create liquidity issues and even a change in the velocity at which money moves through the financial system could cause problems. The "slowing in the velocity of money" is rooted in where it is being placed. The speed at which money flows through the economy in some ways is tied to the speculation about the future of inflation. 

Behind the scenes, a lot of things are occurring that we don't recognize as important until they are unveiled as being so. Trade deficits, reshoring of manufacturing, changes in how taxes are accessed, man made and natural disasters, and more all flow into this mix. This translates into "nobody really knows what the future holds." The so-called, often self-proclaimed experts, included.

Another thing we should be worried about is "financial one-offs" These are one-time events that may prove unable to propel the financial system forward over the long haul. In a world void of financially nutritious content, an individual has to really go out of their way to become educated in the way to avoid ending up as financial road kill. The less you know may increase your feeling all is well but does little to ensure your financial future.

 

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

Sunday, March 3, 2024

Advancing Time: America's Immigration Crisis, Due to Biden's Faile...

Advancing Time: America's Immigration Crisis, Due to Biden's Faile...: CNBC just put out a video on the problems migrants are causing as cities struggle to deal with new immigrants being dropped on their doorste...

America's Immigration Crisis, Due to Biden's Failed Policy

CNBC just put out a video on the problems migrants are causing as cities struggle to deal with new immigrants being dropped on their doorsteps. Even many of the cities that opened their arms to welcome these people want the government to halt the inflow. Coupled with this are calls for Washington to send money to help these cities out. Today, major cities like New York, Denver, and Chicago are finding themselves under extreme financial pressure and not getting the federal funding or assistance needed to cope with the inflow. All this has many Americans saying, enough is enough. The big question is how and when will this end.

 Even some of those formerly advocating the loosening of immigration standards and open borders are coming to a place where they are untenable. Sadly, with the flow of more immigrants has come a slew of problems. Part of the problem is that many of the people streaming over our borders are not workers, this inflow includes people needing expensive healthcare and criminals. Yes, with the good come the bad unless restrictions are in place. More people are not the answer to crafting a strong economy, quality is far more important than quantity.

Remember, this immigration fiasco is occurring while American citizens are forced to stand in long lines with passports in hand. Anyone who has traveled knows you can't just walk into any country without any questions asked. All this highlights the fact that immigration has been an issue for decades and not properly addressing it will not make it go away. A reasonable solution to solving our immigration problems has eluded both Republicans and Democrats time and time again and reduced those caught within the system into political pawns.

America's Immigration System Is Broken

The debate over immigration, processing new arrivals, and addressing millions of undocumented immigrants, receives plenty of press but most of our immigration problems lurk below the radar. The point is that we should be careful what we wish for. In our complicated world, there are often pros and cons for every issue. The ongoing migrant crisis is unprecedented and is hitting countries across the world. Here in America, it is impacting not only the border states but is reaching deep within the country.

Even small businesses in my state, far from the border, are required to confirm a worker is legal to work. This is a bit ridiculous for small firms with only a few workers, all from their own family and people they have known since birth, but that's the law. The comment section of the CNBC video is full of opinions on how opening the border is impacting America. Since these people are flooding to cities, that is where most problems are apparent. Several of the themes revolve around things like, "As a Chicagoan, my city is being ruined." People from New York and Denver are also echoing the same message and crying about what Texas has dealt with 100 times over.

Trump's Politically Divisive Border Wall  
Immigration is the crux of the issue and Trump's so-called wall became an emotionally divisive symbol that took our eyes off the real problem. America's immigration policy is a costly mess. Like it or not, those in charge of such things as controlling our borders are letting immigration reshape the world. This is happening far faster than most people can imagine. Let's call a spade a spade, immigration mainly benefits those entering a country and not the country's current residents. Otherwise, countries would have to pay people to come rather than build fences to keep them out.

Washington has been playing games and politics with America's immigration policy for years it has been a political football. The immigration system is badly broken and fixing it is easier said than done. A huge part of the problem stems from the fact most people can not agree on exactly what kind of immigration system we should have. To many Americans, the key issue is how open the borders should be and who should be allowed to enter. Now Washington's inaction is coming back to haunt us.  

Tens of billions of dollars are wasted each year on this costly inefficient system according to an article published by the American Action Forum way back in April of 2015. The article explored the cost of a broken immigration system on American business. The fact is that when the American Action Forum (AAF) analyzed the total costs of the immigration system, they found close to $30 billion in annual regulatory compliance costs. It hardly takes a rocket scientist to determine that reducing the number of people "illegally" entering the country would save billions of dollars and allow the system to function better even in its current poorly crafted form.

A lot more of our political attention should be focused on the broken bureaucratic apparatus that comprises our current immigration system. While we spend hundreds of billions of dollars on this and that in overall cost the wall Trump proposed now seems a rather puny amount. This is confirmed by figures that show merely doing away with making and handling the penny America would save enough to pay for a border wall. Of course, none of this is a solution to the Deferred Action For Childhood Arrivals (DACA) situation. Loading millions of people on buses and deporting them will never happen. At the same time, those wanting more open borders should realize the current situation does not work either.

Washington should step away from the "emotional" aspects of immigration such as flowery debates about the rights of people and what they "deserve" and focus on the key issues of restoring a functioning government and getting on with real immigration reform. In the overall scheme of things considering America's multi-trillion dollar budget, the 5.7 billion dollars requested for the wall is peanuts. In truth, it is easy to see how America will get a good economic return on money spent on a barrier that works 24/7 year after year. Most taxpayers, if asked, would see this as a far better investment than paying government workers to stay home, as we did during the last government shutdown.

 

Footnote; The article above contains several links due to the fact parts of this issue have been the focus of prior AdvancingTime posts. It is important to understand that immigration policies determine the future of a country and its "way of life."

 

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

Thursday, February 29, 2024

Advancing Time: The Dreadful "C" Word - Conserve!

Advancing Time: The Dreadful "C" Word - Conserve!: An article I wrote years ago remains as relevant today as when I wrote it. The subject delved into how candidates shy away from the dreade...

Sunday, February 25, 2024

Advancing Time: Austerity Appears To Be An Idea Long Dead

Advancing Time: Austerity Appears To Be An Idea Long Dead: A word nobody has mentioned for a long time is austerity. The term that would take us down the path to sustainable spending has been tossed ...

Austerity Appears To Be An Idea Long Dead

A word nobody has mentioned for a long time is austerity. The term that would take us down the path to sustainable spending has been tossed into the dustbin of history. Today the concept of government restraining spending is considered a bad idea. Those who oppose austerity often cling to the idea that a major reduction in government spending will change future expectations about taxes and future government spending. These are factors that encourage private consumption and propel forward overall economic expansion.

Since 2017 when an article by James McCormack titled, "The Quiet Demise of Austerity" was published on Project Syndicate, the idea of austerity has become toxic. Government spending has gone over the moon. It is a reach to blame it all on governments' response to the Covid pandemic. Still, the fact is that since then America's national debt has soared from roughly 21 trillion to over 34 trillion dollars. In short, austerity seems to have been forgotten just when it is needed most.

In his article, McCormack pointed out that debates about the potential advantages of using stimulus to boost short-term economic growth, or about the threat of government debt reaching such a level as to inhibit medium-term growth, have gone silent.  It is as if the whole world has capitulated to the idea that we can spend our way out of the debt. Other arguments center on the idea that it really doesn't matter and that we will deal with the issue when we have to.

There is no doubt that economic growth tends to mask a multitude of problems. In economics, austerity refers to cutting spending often by lowering and reducing the number of benefits and public services.  Austerity policies are often used by governments to try to reduce their deficit spending. Spending cutbacks are sometimes coupled with increases in taxes in an effort to demonstrate long-term fiscal solvency to creditors. 

Austerity Is Often Seen As Heaping Misery On The Poor
It is easy to point at measures taken to reduce runaway or wasted spending and blame them for creating a reduced spending spiral but that is unfair. Please note that while it is important to control rising budgets and how much is spent, where it is spent is just as important. 
 
In the article I cited McCormack wrote; Objections to austerity were understandable after the 2008 financial crisis when growth was languishing below 2% and sizeable negative output gaps suggested that overall employment would be slow to recover. But now the merits of austerity seem to have been forgotten just when it is needed once again.

It is true that government spending financed by deficits does support economic growth when consumers and businesses are unable to do so. When the private sector is unable or unwilling to consume at a level that increases GDP and employment sufficiently, Keynesian economists claim governments should spend more, and not less. This tends to be a slippery slope that is difficult to exit. Adding to this problem is that the government sector tends to be the least productive part of the economy. Larger government often leads to more regulation which strangles productivity in the private sector. What we are witnessing today is spending more and more in order to achieve economic growth. 

Austerity has been given a bum rap, blaming it for the problems we face is akin to blaming the medicine taken after someone becomes sick for the illness. Austerity measures have been associated with public protest and claims of a significant decline in the standard of living. The argument by contemporary Keynesian economists that budget deficits are appropriate when an economy is in recession bolsters this movement. They claim it reduces unemployment and helps spur GDP growth, and that in an economy one person's spending is another person's income. If everyone tries to reduce their spending, the economy can fall into what economists call the paradox of thrift which results in a reduced spending spiral and a fall in the GDP.

Austerity measures are typically taken in extreme situations where there is a threat that a government cannot honor its debt liabilities.  Such a situation may arise if a government has borrowed in foreign currencies that they have no right to issue or if they have been legally forbidden from issuing their own currency. In these cases, banks and investors may lose trust in a government's ability and/or willingness to pay its obligations and either refuse to roll over existing debts or demand extremely high interest rates.

Often the typical goal of austerity is to reduce the annual budget deficit without sacrificing growth. Part of the goal of these policies is generally to reduce the overall debt burden, as the economy grows. Unfortunately, most efforts by central governments to prop up asset prices, bail out insolvent banks, or "stimulate" the economy and deficit spending make stable growth less likely.  

People often look for someone or something to blame for the troubles we bring upon ourselves. This is especially true when austerity is introduced as a way to bring out-of-control government spending back in check. Austerity has negative connotations because it is often painful. Still, blaming austerity for the blowback from governments living beyond its means is more than unfair. 

Common logic would dictate at all times governments operate with responsible reigns on spending. If a government spends and runs its business in an austere way the issue of when to start cutting or tightening should never surface. There is no doubt that economic growth tends to mask a multitude of problems. In economics, austerity refers to cutting spending, often by lowering and reducing the number of benefits and public services.

Simply put, such cuts are very unpopular and painful to the people and the voters as social spending programs get targeted for cuts and taxes are raised. Also, retirement ages may be raised and government pensions reduced. Even port and airport fees, train and bus fares, and a slew of other cost usually increase. Please note that while it is important to control rising budgets and how much is spent, where it is spent is just as important.

The problem we face today is the wild spending post-Covid never stopped. Every dollar wasted on political pork, fraud, and poorly considered infrastructure makes the country's fiscal situation even worse. Those opposing austerity argue that, in periods of recession and high unemployment, austerity policies are counter-productive, because reduced government spending can increase unemployment. Also, reduced government spending reduces GDP, which means the debt-to-GDP ratio examined by creditors and rating agencies does not improve. 

At some point, the present and the future intersect, it is not just about the deficits of today but the promises you make coming due. These promises and how they affect the financial landscape must be factored in. The bill for overspending does eventually come back to haunt you. That is why we would be far better off if the concept of austerity was replaced or renamed sustainable spending. I suspect that by the time cutting spending is again in vogue, we will be in real trouble.


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