Mish's Global Economic Trend Analysis |
- Fed Policies and Obama Programs Exacerbate Credit Crunch to Small Businesses
- France Considers Ban on Free Shipping by Amazon, a "Destroyer of Bookshops"; Prepare for Economic Collapse in France
- Oregon Governor Demands Tax Hikes and Emergency Powers or Will Call on National Guard to Police Troubled Counties
| Fed Policies and Obama Programs Exacerbate Credit Crunch to Small Businesses Posted: 04 Jun 2013 05:34 PM PDT The Fed believes that holding interest rates low fosters business growth, hiring, and bank lending? So why isn't that happening? I have discussed many reasons, but today I have another one from Steve H. Hanke, Professor of Applied Economics at The Johns Hopkins University who discusses The Federal Reserve vs. Small Business. Hanke notes that one of the consequences of low interest rates is that "banks with excess reserves are reluctant to part with them for virtually no yield in the interbank market." And why should they? Why take risk for nothing? Interbank Lending  Banks Unwilling to Retain Loans Hanke Writes .... Without the security provided by a reliable interbank lending market, banks have been unwilling to scale up or even retain their forward loan commitments. This was verified in a recent article in Central Banking Journal by Stanford Economist Prof. Ronald McKinnon – appropriately titled "Fed 'stimulus' chokes indirect finance to SMEs." The result, as Prof. McKinnon puts it, has been "constipation in domestic financial intermediation" – in other words, a credit crunch.Impossible to Prove I believe Hanke's theory is accurate. It is also impossible to prove. Nor can I prove my thesis that by holding interest rates low, the Fed encourages not hiring, but rather corporate investment in software and hardware solutions that enable companies to get rid of workers. Yet, why hire someone at increasing minimum wages, and increasing costs of medical care, when you can borrow money for next to nothing and invest in solutions that require fewer workers? People have replied that increasing productivity is the natural state of affairs. And Indeed it is. And the Fed can exacerbate that trend, just as Hanke claims "Fed's policies are actually exacerbating the credit crunch" to SMEs (small and medium sized enterprises). What About Obamacare? Obamacare is a huge part of the jobless recovery problem as well. I have talked about this on numerous occasions. Here is a partial list:
Jed Graham at Investor's Business Daily writes ObamaCare's $96 an hour cost spike may end 30-hour workweek Here is the crucial chart by Jed Graham.  Note the incremental cost of hiring someone who works more than 30 hours a week. It's nice to see someone quantify exactly what I said would happen nearly 8 months ago. And it did, and the chart explains why. Companies across the board reduced hours of workers from 32 to 25 and had to make up for the difference by hiring hundreds of thousands more part-time workers. This explains the massive surge in jobs, and why full-time hiring is stagnant at best. One cannot blame the Fed for this. But one can blame Obama. One can also blame the Fed for holding rates so low that companies can borrow money for next to nothing and invest in hardware and software to eliminate employees. The Fed and the administration wonder why their policies do not work. I just explained why, so did Hanke, and so did Graham. Nonetheless, the Fed and Obama are both committed to the same policies that cannot and will never work. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Posted: 04 Jun 2013 09:24 AM PDT The amount of economic illiteracy in France is simply staggering. Please consider French minister hits at Amazon 'dumping'. France's culture minister has attacked Amazon, the online retailer, for deliberately undercutting traditional rivals to create a "quasi-monopoly", in the latest assault by the socialist government on internet companies.What's the Goal? If the goal is to get people to read books, logic would dictate the cheaper the price the better. Kindle, Nook, and other eBook readers come to mind. What good would banning free shipping do? Amazon could easily up shipping charges and lower the price of the book and get the same result. Of course, France would then want to dictate the price of books as well, all in the name of "preserving culture." It's easy to spot the problem. France does not need and cannot afford a culture minister whose obvious goal is to stop the spread of technology and preserve culture as she sees fit. But France is France. So when does this fool announce a tax on Kindle or campaign to bring back the horse and buggy? Prepare for Economic Collapse in France Government spending is already 56% of GDP. Hollande has threatened to take over steel, auto makers, and other industries to preserve jobs. Every month, France becomes less and less competitive. It is no wonder French unemployment soared. And unemployment will continue to rise. Economic idiocy in France has even led to an open feud between French President Francois Hollande and German Chancellor Angela Merkel. For details, please see Simmering Feud Between France and Germany Erupts Into Verbal Warfare; France Tells Brussels to Shove It Prepare for an economic collapse in France, because it is on the way. And Germany cannot possibly carry the European economy on its own. That is yet another reason IMF Growth Estimate for Germany is Still Too Optimistic. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Posted: 04 Jun 2013 12:58 AM PDT Looking for amazing arrogance coupled with economic stupidity at the state government level? You can find it in Oregon where Governor Kitzhaber Demands Tax Hikes and Emergency Powers and Warns he Might Turn to National Guard, if the legislature does not see things his way. Gov. John Kitzhaber warned Monday that he could be forced to mobilize the National Guard to police financially troubled timber counties if legislators and local officials can't agree on a rescue plan to provide basic law enforcement.Rather than raising taxes how about cutting expenses, instituting right-to-work laws, ending prevailing wage laws, outsourcing police contracts to sheriff's associations, and most importantly letting counties govern themselves. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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