NEGATIVE INTEREST RATES?

     We keep hearing about "negative interest rates," but isn't that an oxymoron, a paradox, something that makes no sense?  What does that even mean?
     Let's simplify negative interest rates this week, so that we all understand what the media is talking about, but also so that we can highlight more failed attempts of administering unsustainable economic theories, square pegs in round holes.
     For over five years, European countries and their central banks (their Federal Reserves) have instituted negative interest rates to "jump start" their economies.  Instead of paying commercial banks to hold their cash reserves in the central bank, and the citizens to hold their savings with the commercial banks, the banks are charging everyone to deposit their cash.  So, if you opened up a savings account with Swiss National Bank, YOU would have to pay THEM 1% a year for the pleasure of them holding and using your money!
     Theoretically, they believe, wrongly, that this will discourage savings in order that banks will have to make more loans, and citizens will have to spend more of their hard-earned money, all to grow a failed economy founded on socialism.
    These European Union types claim this policy will have positive effects because is also lowers their currency which helps exports with lower prices.  This is similar to the New York Knicks claiming that their terrible season records every year help them get higher NBA Draft Lottery picks.  Also, the Trump Administration is now planning to impose tariffs and trade penalties for countries who artificially manipulate their exchange rates.
     Eurocrats also claim that these rates keep bond yields depressed which enable fragile euro members, such as Italy and Greece, to keep borrowing even with existing huge debt loads.  This is akin to allowing the New York Knicks to continue to operate its failed franchise and steal ticket prices from fans held hostage by the league's oligopoly.
     Finally, ECB President Mario Diaghi stated in March that negative rates are "a powerful instrument in enhancing, fostering the recovery and converging to price stability and achieving our objectives."  Where did this guy to to school?  How many times are we going to have save these guys? (A special remembrance and incredible gratitude to our fallen service members this Memorial Day).
     What has actually occurred is that 1) European corporations and wealthy individuals have struck deals with banks like UBS Group AG to hold their cash in the bank's vault, instead of circulating through the economy, 2) individuals are not spending more, but swapping their savings among banks in Munich and Bulgaria to save a few tenths of a percentage point, 3) real estate inflation and over building is promoted as Swiss Bankers Association Chief Economist Martin Hess stated, "Holding cash is simply more expensive than building an empty house."
     Five years later, the European Commission has lowered the euro zone's GDP growth rate expectation to 1.2%, nearly one-third the United States.  Unemployment rates are 9% in France, while Italy, Spain, and Greece are double digits.  The United States, after lowering taxes and regulations, is 3.9%.  If the U.S. had 12% unemployment, there would be rioting in the streets, but why is it accepted in Europe?
     It is accepted because socialism took over a long time ago, and we should not be complacent about the never-ending threat here to our American Dream.  The reasons Europe is lying to its citizens, and grasping at this nonsensical manipulation of rates are numerous:

1) Taxes are too high.  Individuals are not motivated and inspired to work hard, produce more, and keep the rewards for themselves and their families.

2) Regulations are a disaster.  No one will start a new business because they can never get through the red tape, and they can never fire an employee.

3) Redistribution is accepted as the norm.  Why work harder if the government takes your money, and it disappears into a black hole of entitlements and failed government bureaucracies?

4)  The under-25 jobless rate is 16% in the euro zone.  Since companies won't create new jobs, just take the government check and live with Mom and Dad, and drink their vino!

     Politicians and technocrats mess around with monetary policy (interest rates) because it can give short-term boosts, and they use confusing terms and theories because 99% of us taxpayers have no idea what they are talking about.  But, as JAM VIEWS continually preaches, the fundamentals are behavioral and mastered with simple math.  The Federal Reserve and other central banks are only necessary because technocrats refuse to operate under fundamentally-sound economics, as a corporate CEO has to do.  Without a central bank, the government would have to execute a balanced budget, could not have a $22 trillion mortgage, could not easily manipulate the currency to affect free trade, and could not print money for all of their misadventures they want to fund after already taxing the citizens to their maximum pain threshold.
     Negative interest rates is the latest scam to cover socialism economics (oxymoron), and keep the masses quiet.  Don't believe the fake news.  Maybe we should send Indiana Hoosiers Coach Bobby Knight over to Brussels to teach them that if the fundamentals are not sound, eventually the fraud will be exposed under pressure, normally during March Madness!  Maybe we should ask him to swing through Washington on his return trip.  Stay diligent.  Knowledge is power.  Have a great week!

"All I know is what I read in the papers."  -  Will Rogers

** Thank you very much to the WSJ, Forbes, and Fortune for the above quotations and statistics.

** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

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UPDATES: LICENSING SCAMS, INEPT FED, CHARTER BATTLES, & CRONY CAPITALISM

     JAM VIEWS members know that we periodically revisit important topics 1) to ensure we all fully understand the dramatic impact of correct economics and business practices, and 2) to remind us that the fight for free markets and rugged individualism is a never-ending battle against the Looters.
     LICENSING.  Previously we learned that state, city, and county licensing requirements are merely scams to protect the entrenched business interests which are funding the politician's campaigns, and to generate revenue to support the ever-expanding government bureaucracy and entitlement programs on the backs of hardworking small business owners.  Recently, the state of Arizona has freed small business and individuals by passing a law to be the first state to recognize out-of-state occupational licenses, including more than 40 professions from cosmetologists and court reporters to psychologists and surgeons.
     Republican State Sen. Michelle Ugenti-Rita stated, "The reform opens up an appealing job option for low-skilled workers who otherwise would have had to pay between $8,000 and $15,000 for (re)-schooling to do the same work."  This leadership-by-example will have a dramatic impact across many states and release more capitalism than you may imagine.  Also, this is a huge benefit for military spouses whom uproot themselves and their professions to move with their transferred service member.  GOP State Rep. Jeff Weninger declared, "We are open for business, and we're trying to cut back on red tape here."  Congratulations to Arizona!
     STABLE DOLLAR.  Following up on our lessons explaining that the goal is not a strong dollar, nor a weak dollar, but a stable dollar, Judy Shelton, an economist and author of "Money Meltdown: Restoring Order to the Global Currency System," recently released some interesting statistics to support our case.  Judy's book explains that we should question the Federal Reserve's competency, as "no other government institution had more influence over the creation of money and credit in the lead-up to the devastating 2008 global meltdown."  Currently the Fed pays banks to keep their $1.5 trillion in excess reserves (8x what's required) in accounts earning interest instead of making loans to the public to create businesses and spur job creation.
     The Fed has always incorrectly believed that inflation results from job creation.  Judy points out that "inflation results when too much money is chasing too few goods.  It is not caused by real economic growth where wages increase to properly compensate people for their higher levels of output achieved through productivity gains."
     Also, as we keep preaching, the Bank of England's recent report concluded that today's "Fed-controlled" system has performed poorly in comparison to our periods under the gold standard (1870-1913) and the gold-exchange system (1948-1972).  Having the stable gold standard enabled "accelerating labor productivity, falling income inequality and increased workforce participation.  The Obama 2015 Economic Report of the President even suggested that if this same growth had continued once Nixon took us off the gold standard in 1973, that U.S. citizen's "incomes would have been 58% higher in 2013, and "the median household would have had an additional $30,000 in income."
     JAM VIEWS members know we must have a stable currency based on gold (or something else), and that the technocrats the Government keeps trying to tell us are brilliant, are not.
     CHARTER SCHOOLS.  This week we are reminded that bureaucracies and entrenched interests hate the upstarts which greatly outperform their mediocrity, especially in our children's schools.  Ben Chavis, a Lumbee Indian raised by sharecroppers in rural North Carolina and successful businessman-turned-educator, became principal of American Indian Public Charter School (AIPCS) in 2000.  This Oakland, California public school was then the poster-child for failed schools: truancy, drugs, violence, failing test scores, and all the rest.
     By 2004, after Chavis installed discipline, standards, and performance metrics, the middle school students achieved higher math and reading test scores than students at any other public school in Oakland.  After Chavis then opened a high school, this charter in 2008 ranked fourth in the entire state for performance.  To top it off, he also started a second charter middle school which ranked 5th out of 1,300 California schools, and in 2006 was named one of the top 250 schools in the country.
     So how did they reward him?  In 2011 Mr. Chavis announced plans to expand further, so the Oakland School Board began an investigation and found "financial improprieties."  Next, to great national media fanfare, the federal prosecutors indicted Mr. Chavis on mail fraud, money laundering, and conflicts of interest (see "Indicting a ham sandwich").  Thank God, last week the U.S. Attorneys Office in San Francisco dropped all of these charges for insufficient evidence, and Mr. Chavis agreed to a technical violation in order to move forward.  But, he had to leave AIPCS in 2013 to fight for his life for 5 years.  With class and grace this week, he stated, "I'm not the victim.  The kids are the victims."
     Remember to support school choice, support merit-based rewards, and to embrace others who succeed.  No schadenfreude!
     Finally, a quick note on CAPITALISM.  Ms. Chamlee-Wright, President of the Institute for Humane Studies at George Mason University, issued an article clarifying that our ultimate goal is not only to defeat all aspects of socialism, but also Crony Capitalism, the entrenched large-corporation, political-lobbyist, licensing-barriers-to-entry types of impure capitalism.  She also promotes questioning everyone and everything.  She stated, "I believe that competitive and open markets (plus lots of social and political freedom) are the answer.  Perhaps you think otherwise, but we should have that conversation rather than unthinkingly accept what's put in front of us."  She must be a JAM VIEWS reader!
     A reminder this week to do everything possible to support business startups and entrepreneurial mentality.  Stop at every lemonade stand, and always buy those water-logged golf balls from the kid peddling his inventory next to the pond on the 7th hole.  The Universe is watching.

"We must make the building of a free society once more an intellectual adventure, a deed of courage."  -  F.A. Hayek, Economist.

** Thank you very much to the WSJ, Forbes, and Fortune for the above quotations and statistics.

** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

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LET US LEAD LIVES OF SIGNIFICANCE

     At JAM Views we periodically review the WSJ Obituaries to learn about people who believed in opportunity, took risks, and decided to take the path less traveled.  These tributes are excellent lessons, case studies, which hopefully shake us from our weekly routines and help us remember why we started these journeys in the first place.
     Barbara Gardner Proctor, an African-American woman born to an unwed mother in North Carolina, once stated, "I have never had the luxury, or the hindrance, of having anyone take care of me."  When applying to the Small Business Administration for a loan to start an advertising firm in 1970, she was asked what her collateral was.  She replied, "Me!," and that turned out be solid backing as she grew her Chicago firm to great success representing Kraft Foods and Sears.  Barbara moved onto the next adventure recently at age 86 after an amazing life.
    After a promising start to a Wall Street career, Jason Spindler was at his Tower 7 office during 9/11.  Instead of fleeing the devastation, he joined the first responders to help the injured.  This experience promoted him to join the U.S. Peace Corps, bringing finance and investment opportunities to the developing world.  He became Founder and CEO of i-Dev International with offices in San Francisco, Lima and Nairobi.  His firm funded Twiga Foods connecting fruit and vegetable growers across Kenya to markets, as well as coffee ventures in Madagascar, and an East African fast-food chain.  Tragically, just shy of his 41st birthday he was killed by Islamist extremists who stormed a hotel complex in Nairobi where he was on a late lunch.  What an amazing journey he experienced here, and I am sure the universe simply needed him for another great expedition.
     Caroline Rose Hunt was the daughter of H.L. Hunt who used his poker winnings to acquire oil fields in Texas.  Fortunately, she did not invest her slice of the inheritance with her two brothers, Nelson and William Hunt, who famously went bankrupt attempting to corner the silver market.  "Moozie," as she like her grandchildren to call her, instead built a chain of luxury hotels to include the Bel-Air in Los Angeles and the Carlyle in New York, and spurred development in blighted areas around Dallas.  She wrote a novel and two cookbooks, created Lady Primrose bath oils, soaps and lotions, and led weekly Bible study sessions at her Presbyterian church.  She recently passed at age 95, leaving 19 grandchildren and 23 great-grandchildren with an incredible example and role model for their own journeys.
     Robert Smith was a bored Boston attorney when a client asked him to collect a debt in Turkey.  He flew there and had to create a convoluted transaction, but he was then hooked on buying foreign abandoned debt and then selling it at much higher prices.  Decked out in his toupee and $99 seersucker suit, Mr. Smith traveled the world in search of adventure and profits.  He stayed in hotels with "dead cats floating in the pool," and wanted "to prove to his wife that he wasn't a loser."  In this murky world, he bought Guatemalan bonds from one arm of a British bank and sold them, at a hefty markup, to another unit of the same bank.  He profited on Nigerian Government promissory notes, and he recounted his adventures in his 2009 memoir, "Riches Among the Ruins."  He recently passed at age 78, and his wife said a few days after his funeral, "He wanted something different, and he certainly got it."
     Susan Ellis, with degrees in English and folklore, landed a job at the Philadelphia Family Court managing volunteers helping youths in trouble.  She had "absolutely no qualifications," but discovered neither did most everyone else.  So, she started Energize Inc. in 1977 to teach nonprofits and other organizations how to use volunteers more effectively.  She changed their mindsets from "little old ladies in flowery hats" to computer coders and legal aides.  She preached, "The best volunteering is when the giver and the recipient see each other as equivalent and equal - when they both benefit, and it's a form of exchange."  She wrote and co-wrote 14 books and gave speeches in 26 countries.  Diagnosed with cancer, Susan kept friends updated by email on her "Medical Magical Mystery Tour," with her last update stating, "One day at a time.  Smile as often as possible.  Love to you all!!! XOXO Susan."  She moved on at age 70, likely now organizing all of her new angel volunteers, and left her estate to the new Susan J. Ellis Foundation to continue her amazing work.
     WOW!  This week let's not complain about our boss, whine that our back hurts, or lose patience with our children's stumbles.  Life is an adventure, and the clock is ticking.  We live in the greatest country, and during the most prosperous time ever, in the history of this strange blue rock.  No excuses!  Let's make it happen this week.  Good luck!

""Life should not be a journey to the grave with the intention of arriving safely in the pretty and well preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming, 'Wow!  What a ride!'"  --  Hunter S. Thompson

* Thank you to the WSJ for sharing these amazing stories.

* For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

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DOLLAR STRATEGY:  NOT WEAK, NOT STRONG, BUT STABLE

     Periodically we pick up the newspaper, or a Fortune Magazine, and we read confusing articles proclaiming the need for a weak U.S. dollar, or a strong U.S. dollar, many times interchanging the exact same arguments for either case.  Now, as JAM Views members we know to first pause and remember (1) the pontificator is more than likely incorrect, and (2) their views are driven by their own self-interests (not to mention confirmation bias and recency bias).
     I have to admit that even while running an investment firm for two decades, when it came to exchange rates I would have to regularly pull the finance books off the back shelf and refresh my memory on what helps what and why.  So, I thought this week we could endeavor to present a simple lesson on the strength of the dollar, so that we can more easily debunk Uncle Harry's rant about Trump's trade policies over Schlesinger's Easter Brunch.
     First, know that we are not dealing with absolutes.  The dollar is strong or weak only in relevance to the rest of the world currencies (similar to how stocks are overvalued or undervalued mostly in comparison to current interest rates).  Currently, the U.S. dollar is about 5% "stronger" against the world than its average since 1971 (when we abandoned the gold standard), so pretty "normal."
     The main arguments for a strong dollar promote selling our U.S. Government bonds to the world at higher prices, adding more capital without the Federal Reserve having to buy our bonds, and giving the U.S. strong purchasing power and influence around the world.  "He who owns the gold makes the rules."
     The primary arguments for a weak dollar are for promoting U.S. exports.  If the dollar is weaker compared to the Japanese Yen, the Japanese will find the Harley Davidson's to be much less expensive, and U.S. manufacturing jobs will thrive, at least in the short-term.
     It seems simple enough, but the real world never works the way the elites claim it does (seems to be a recurring JAM Views theme).  For example, the Swiss and the Dutch are at the top of the list for best-performing currencies (strongest) since 1900, but the major parts of their economies are exports.  Also, history is replete with countries devaluing their currency (making it weaker) to boost their export economies, and hurt imports, only to see them quickly ravaged by inflation, devaluing more, and destroying everything.
     The answer for the U.S. dollar now, and always has been, is stability.  The Federal Reserve and U.S. politicians can only do damage to the free markets, and they try their damnedest every day to make it worse.  As we have taught in JAM Views, "money goes where it is treated best."  Artificial inputs only screw up systems which are constantly searching for equilibrium, balance, homeostasis.  The British economist, John Maynard Keynes, has been screwing up economies with artificial steering since 1913 when Britain replaced gold with foreign-exchange reserves.
     Our friend, Steve Forbes, explains it best.  Last year he wrote, "Economists and policymakers regard as holy writ the fantasy that the economy can be steered, as if it were a car...The Federal Reserve, or any central bank, can no more control an economy than long-ago Soviet central planners could...with 7 billion people around the world and countless millions of entities of all kinds engaging in more than 100 billion transactions each day...the only sensible question to ponder is how much damage will our central bank do?"
     The answer is stability.  Remember how CEO's complained during the previous Administration that they couldn't make long-term investments because they didn't know if tax rates and regulatory costs were going to keep going higher?  Note how the stock market always falls when there is "uncertainty."  Listen to Coach "K" say, "I don't care if the refs are calling it loose or tight.  I just need them to be consistent!"
     If the U.S. dollar was allowed to find its own proper value, without misinformed politicians and technocrats attempting to justify their own existence (and government paychecks with your tax dollars), then the system would find the correct interest rates, correct inflation rates (maybe it's 2% as the Fed claims or more likely it's closer to zero), and correct exchange rates.  U.S. companies and workers would maximize efficiency and productivity with the requirement to be as competitive as possible, and the U.S. would efficiently import the correct goods from the correct countries which maximize our own self-interests, just as with Adam Smith's butcher and baker.
     Since the Egyptians and the Romans, monetary stability has been maintained over long periods by a gold standard.  Forbes, again, said it best in one of his never-ending campaigns to return to the gold standard.  "Markets work best with fixed weights and measures.  Everyone knows how chaotic life would be if the number of minutes in an hour or ounces in a pound fluctuated.  The same is true for money, which is supposed to measure value.  Until we blew it all up in the early 1970's, the U.S. had a fixed value for the dollar since Alexander Hamilton established it with a gold standard in 1791.  It's no coincidence that the U.S.' average pace of economic growth since then has fallen sharply."
     During brunch slip Uncle Harry one more mimosa, light on the OJ, and let him know that all the fake news is gobbledygook (economics term), and as he goes for another trip to the buffet, stress "less is more."  Let's continue to do whatever we can to keep governments out of free markets and to allow the citizens of all currencies to thrive.  Now that we understand the basics, pay attention to the mistakes countries make every day in attempting to manipulate their currency.  "First do no harm."

"The rating agencies guys wore blue suits from JC Penny, with ties that matched too well, and shirts that were starched just a bit too stiffly.  They appeared to know enough to justify their jobs, and nothing more."  Michael Lewis, The Big Short

* Thank you to the WSJ, Forbes, and Fortune for the above statistics and quotations.

* For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

* SUBSCRIBE TO JAM VIEWS

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