Money And Change

Ron Paul Tells Trump: "To Really 'Make America Great Again', End The Fed!"
ZeroHedge.com      Nov 28, 2016 3:55 PM
 
Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Former Dallas Federal Reserve Bank President Richard Fisher recently gave a speech identifying the Federal Reserve’s easy money/low interest rate policies as a source of the public anger that propelled Donald Trump into the White House. Mr. Fisher is certainly correct that the Fed’s policies have “skewered” the middle class. However, the problem is not specific Fed policies, but the very system of fiat currency managed by a secretive central bank.

Federal Reserve-generated increases in money supply cause economic inequality. This is because, when the Fed acts to increase the money supply, well-to-do investors and other crony capitalists are the first recipients of the new money. These economic elites enjoy an increase in purchasing power before the Fed’s inflationary policies lead to mass price increases. This gives them a boost in their standard of living.

By the time the increased money supply trickles down to middle- and working-class Americans, the economy is already beset by inflation. So most average Americans see their standard of living decline as a result of Fed-engendered money supply increases.

Some Fed defenders claim that inflation doesn’t negatively affect anyone’s standard of living because price increases are matched by wage increases. This claim ignores the fact that the effects of the Fed’s actions depend on how individuals react to the Fed’s actions.
Historically, an increase in money supply does not just cause a general rise in prices. It also causes money to flow into specific sectors, creating a bubble that provides investors and workers in those areas a (temporary) increase in their incomes. Meanwhile, workers and investors in sectors not affected by the Fed-generated boom will still see a decline in their purchasing power and thus their standard of living.

Adoption of a “rules-based” monetary policy will not eliminate the problem of Fed-created bubbles, booms, and busts, since Congress cannot set a rule dictating how individuals react to Fed policies. The only way to eliminate the boom-and-bust cycle is to remove the Fed’s power to increase the money supply and manipulate interest rates.

Because the Fed’s actions distort the view of economic conditions among investors, businesses, and workers, the booms created by the Fed are unsustainable. Eventually reality sets in, the bubble bursts, and the economy falls into recession.

When the crash occurs the best thing for Congress and the Fed to do is allow the recession to run its course. Recessions are the economy’s way of cleaning out the Fed-created distortions. Of course, Congress and the Fed refuse to do that. Instead, they begin the whole business cycle over again with another round of money creation, increased stimulus spending, and corporate bailouts.
Some progressive economists acknowledge how the Fed causes economic inequality and harms average Americans. These progressives support perpetual low interest rates and money creation. These so-called working class champions ignore how the very act of money creation causes economic inequality. Longer periods of easy money also mean longer, and more painful, recessions.

President-elect Donald Trump has acknowledged that, while his business benefits from lower interest rates, the Fed’s policies hurt most Americans. During the campaign, Mr. Trump also promised to make audit the fed part of his first 100 days agenda. Unfortunately, since the election, President-elect Trump has not made any statements regarding monetary policy or the audit the fed legislation. Those of us who understand that changing monetary policy is the key to making America great again must redouble our efforts to convince Congress and the new president to audit, then end, the Federal Reserve.

More Than Half Of New Yorkers Are One Paycheck Away From Homelessness, Says Study

by Gaby Del Valle in Gothamist.com       Nov 26, 2016 3:00 pm

More than half of all New Yorkers don't have enough money saved to cover them in the event of a lost job, medical emergency, or other disaster, according to a new report by the Association for Neighborhood & Housing Development.

Nearly 60 percent of New Yorkers lack the emergency savings necessary to cover at least three months' worth of household expenses including food, housing, and rent, but that statistic isn't spread evenly across the five boroughs.

The Bronx has the highest rate of families without adequate emergency savings: in Mott Haven, Melrose, Hunts Point, Longwood, Highbridge, South Concourse, University Heights, Fordham, Belmont, and East Tremont, 75 percent of families have inadequate emergency savings. The Staten Island neighborhoods of Tottenville and Great Kills have the lowest rate, with just 41 percent of families lacking the funds necessary to cover three months' worth of expenses.Without these savings, families who face emergencies could be at risk of eviction, foreclosure, damaged credit, and even homelessness.

In Brooklyn, families in Brownsville (70%), Bed-Stuy (67%), Bushwick (68%), East New York (67%), and South Crown Heights/Prospect Heights (67%) are the most at-risk—in Manhattan, an average of 67 percent of families in Harlem, Washington Heights, and Inwood lack necessary savings.
In Queens, the neighborhoods with the highest percentage of these households were Elmhurst/Corona (64%), Rockaway/Broad Channel (60%), Sunnyside/Woodside (59%), and Jackson Heights (59%).

As DNAinfo notes, advocates say that rental assistance is crucial in preventing homelessness citywide, especially in neighborhoods where rents rise faster than incomes—many of which overlap with the neighborhoods where families lack adequate savings. And although an increase in rental assistance services like the one proposed by Queens Assemblyman Andrew Hevesi could cost the cost $450 million in state and federal funding, it would be more cost-effective than allowing more families to enter the chronically underfunded shelter system.

Many tenants don't know where to get emergency rental assistance, which can prevent them from falling behind on their rent. And landlords are increasingly claiming "chronic rent delinquency" after just a single late payment, which allows them to begin eviction proceedings earlier on than they would otherwise.

The ANHD report also includes a litany of other statistics that, when looked at together, paint a picture of a neighborhood's potential for economic opportunity: incarceration, unemployment, poverty rates for each neighborhood are included, as are each neighborhood's percentage of small businesses, percentage of households without internet, and percentage of rent-burdened households.

According to the report, the three neighborhoods with the biggest risk to economic opportunity are Highbridge/South Concourse, University Heights/Fordham, and Mott Haven/Melrose.

Greece Is Not India? Hellenic Banks Plan "Tax On Cash Withdrawals" To Combat Black Economy
 
ZeroHedge.com Nov 28, 2016 8:12 AM
 
Greek banks have proposed a series of measures to combat tax evasion, strengthen the electronic transactions and limit the use of cash in the economy, and as KeepTalkingGreece.com reports, one of the measures proposed is a special tax on cash withdrawals.
 Bankers reportedly stress that cash money can easily and largely be channeled in the black economy. Therefore, a tax on cash withdrawals will drastically reduce cash transactions and by extension the black economy.

The bankers suggest that also credit and debit cards as wells as new technologies enabling cash-less transactions even for small amounts  and mobile phones can be used for the purchase of a transport ticket or a newspaper at the kiosk.

The bankers proposal to the government also includes:

-Mandatory use of cards or other electronic payment networks for every transaction with professions where there is strong evidence of tax evasion or where cash is mainly used [ like bakeries, kiosks, street vendors and chestnut sellers?]. 

-Mandatory use of cards or electronic networks for transactions above a certain amount [this measure is already in effect]. 

–Reforming the tax system by introducing a revenue-expenditure system. Households or professionals will only be taxed on the amount of income that is has not been spent. In this way, households and professionals will have a strong incentive to seek receipts for any expenditure in order to increase their expenditure and reduce the tax amount they will have to pay.
 
-Obligation for all businesses and regardless of their size to pay electronically every salary and wage. (source: Kathimerini via Liberal.gr)

I cannot say who came with this revolutionary idea, some genius young academics or the Greek bankers themselves, those over 60 who have their secretaries or their kids doing their transactions for them using their own iphones and ipads.

I have no idea whether they have asked the country’s creditors to reform the tax system in a cash-less more-incentives Greek world, where households will be obliged to use revenue-expenditure books.

I absolutely do not understand how can one sleek and glossy group of bankers propose such measures and rule the economic system of a country where some 30% of population lives or is at risk of  poverty, the welfare system has collapsed and thousands of families live on the 20- or 50-euro banknote a relative or a friend secretly stick in their pockets so that they buy some food, medicine or pay a small bill.

Not to mention those over 60 with minimum knowledge of electronic devices and applications and those over 80 who cannot even use a mobile phone.

Tax cash withdraws will of course give “capital controls” a new dimension.
I suppose the whole proposal has been drafted by a group of some academic professionals stuck in a huge bubble- Prove me wrong!

Are we going now about to ban cash and become India?
 
EDITORIAL NOTE: Coming to an ATM near you in America???

India's Modi Admits Plan Shifting Nation To "Cashless Society"

ZeroHedge.com     Nov 27, 2016 12:31 PM

Well who could have seen this coming? Just as we noted, the slippery slope towards full government control in a cash-less society is where Indian PM Modi is heading following his chaos-creating demonetization efforts of the last two weeks. While massive opposition protests are planned tomorrow, Modi remains indignant, as Reuters reports, "we can gradually move from a less-cash society to a cashless society...this is the chance for you to enter the digital world."
Indian Prime Minister Narendra Modi on Sunday urged the nation's small traders and daily wage earners to embrace digital payment channels, as a cash crunch following the government's surprise ban on high-value bank notes drags on.

Modi, speaking in his monthly address on national radio, said the government understands that millions have been affected by the ban on 500-rupee and 1000-rupees notes, but defended the action.

"I want to tell my small merchant brothers and sisters, this is the chance for you to enter the digital world," Modi said speaking in Hindi, urging them to use mobile banking applications and credit-card swipe machines.

 "It's correct that a 100 percent cashless society is not possible. But why don't we make a beginning for a less-cash society in India?," Modi said. "We can gradually move from a less-cash society to a cashless society."

 More than 90 percent of consumer purchases in India are transacted in cash, Credit Suisse estimates. While a smartphone boom and falling mobile data prices have led to a surge in digital payments in recent years, the base still remains low.
 Modi urged technology-savvy young people to spare some time teaching others how to use digital payment platforms.
 
 
But, as GoldMoney.com's Alasdair Macleod explains, the economic consequences of Mr. Modi's action are far more significant...

Two weeks ago, India’s Prime Minister Narendra Modi demonetized an estimated 86% of rupees in circulation, offering conversion into a bank account or into smaller currency notes until 31 December, after which these notes will have no redemption value. Together with forgeries in circulation, it could be over 90% of all circulating money. The terms of redemption are so inconvenient for anyone other than black-marketeers, that for all purposes $50bn equivalent of rupees have been eliminated from the economy at a stroke, pending the introduction of new currency notes. 

The sadness in all this is that Modi should have foreseen the extent of the disruption to the poor and rural communities, but has obviously forgotten the hard lessons of life learned in his youth as a lowly chai wallah. It could be that the Reserve Bank went along with it as a government puppet, consoling itself with the thought it would be a good way to write off obligations, believing a significant quantity of notes is likely never to be redeemed by black-marketeers and tax evaders. It effectively reduces the central bank’s obligations to the private sector at the expense of those the state likes least. However, the $10-20bn equivalent the state will make from it is less important than the disruptive economic effect and the likely impact on the rupee’s future purchasing power. 
The purpose of this article is to look at the economic consequences of Modi’s action. Initial estimates by western macroeconomists of the effect on GDP seems to be benigni. It could be because their contacts in India are typically the more highly-paid city bourgeoisie, who rarely spend cash except for tips, using bank and credit cards more normally for everyday purchases. These people would almost certainly welcome moves to bring illegal trading under control and extend the income tax base, playing down the negatives. However, the cash immediately removed amounts to about 2.5% of GDP, eventually to be replaced at an unspecified time in the future by the new notes bearing a portrait of the Mahatma. But while these notes are shortly to become available, it could take months to convert ATMs and ensure their widespread availability. 

If the long-term consequences will be to bring unrecorded transactions into the GDP statistic, some western macroeconomists postulate recorded GDP could end up rising faster than anyone expected before Modi’s action. This misses the point. Banning high denomination notes worth as little as $7.50 equivalent to be replaced by the new Ghandi notes has been a major disruption in most Indians’ lives, particularly for the rural population. Removing everyday money is like trying to run an engine without any oil in it. It seizes up, which is what the Indian economy is certain to do. India’s economy is therefore likely to face a short-term slump, which government economists will counter by reflating, in other words by increasing the quantity of money. It will do the economy no good, but nominal GDP, which is not the same thing, will eventually rise, to the satisfaction of the central planners. 

Behind the confusion in government economists’ minds is a false conviction that GDP records the performance of an economy. This is wrong. GDP is just a money-total at a previous point in time, and no more than that. It is not a measure of economic progress or regress. A change in GDP reflects only a change in the quantity of money in the economy, so it is perfectly possible for an economy to contract, or even collapse, while nominal GDP rises. Not only is this fatally misunderstood by today’s economists, but this outcome has become far more likely for India, and will simply end up generating more monetary inflation from the banking system. Behind the Indian authorities’ poor grasp of the economic consequences of their actions are misconceptions common with establishment economists everywhere. However, it is likely that central bankers in India and elsewhere are at least vaguely aware of the long-term danger of increasing price inflation. But the consensus in banking circles is that more money and credit may be required to stave off recession, and even systemic risk. And in the case of systemic risk, cash is a danger because it allows the public to expose a bank’s insolvency. If only cash was somehow replaced, there could perhaps be greater control over economic and systemic outcomes. All the signs of this loose thinking are there. We keep on hearing of central banks planning to do away with cash, and Modi’s action is consistent with this standpoint. His government is not only trying to eliminate black markets, but it is also brutally trying to eliminate economic dependence on physical cash. It rhymes with the direction of travel for central bank policy in the advanced economies as well as in the emerging. 

Doubtless, for this reason, central banks everywhere will be watching the Indian experiment closely. But we can easily guess what their analysis will conclude. If the experiment succeeds, it will encourage them to proceed with their own plans to digitize money and dispense with the folding sort. If it doesn’t, failure will be deemed to be due to the peculiarities of the Indian economy and the failure of the Reserve Bank to implement policy effectively, so they will proceed with their plans anyway. 

However, hopes that the elimination of cash will give central banks greater control over inflationary outcomes appear to be badly misplaced. Not only does history tell us the exact opposite is the case, and that the reality is central banks have no control over price outcomes, but subjective price theory also confirms. The pricing power of money is not and never has been in the control of central banks; it is a matter only for the users of money in their day-to-day transactions. Money’s use as money is wholly down to its public acceptance as money, as experience proves, and central banks’ abuse of this trust is ultimately dangerous, as so often demonstrated. For example, despite government diktats and heavy-handed enforcement, Zimbabwe’s currency has become at best, to put it politely, a replacement for another form of paper whose vital supply has been disrupted. The digital version has even less value, because it has no alternative use. 

India and Gold

We must return to the specific subject of India, and the likely outcome of Modi’s clumsy attempt to eliminate means of payment using cash. It is almost certainly going to backfire. Indians have little respect for government as it is, and this action will only convince them with renewed purpose to have as little to do with the government and its money as possible. When the new Gandhi notes come into circulation, they will likely be rejected as the preferred money by growing numbers of a rightly suspicious public. This means that the rupee’s purchasing power will diminish more rapidly than if Modi had not disrupted what had become a relatively stable monetary situation.
Ordinary people in their actions are well ahead of western financial analysts, having quickly anticipated this outcome for themselves. Despite longstanding government attempts to persuade them otherwise, they are rushing to convert worthless rupees into the one form of money they have trusted for millennia and over which government has no control, gold. They know that priced in rupees, gold will be more expensive in the months to come, so anything that can be cashed will be cashed for gold, not rupees. 

This is the reason why gold in India is now trading at a substantial premium to international prices. The Indian government restricts its supply because it has always seen gold, correctly, as a challenge to its own fiat money. Accordingly, the central planners condemn gold as being more appropriate to history than today’s economic environment. And having dismissed its relevance as money and as a superior store of value to the rupee, they see gold imports as unproductive hoarding. The government and central bank also appear to make the mistake of believing that if gold imports were eliminated, the balance of trade would improve accordingly. The result is various acts and regulations since the Gandhi era have only encouraged gold smuggling. The importation of gold has never halted, and responding to every twist and turn of monetary policy has increased over the long-term, and will continue to do so following Modi’s clumsy action. 

The impact of government ineptness on the gold market is likely to be considerable. After a period of relative currency stability, gold demand, at the officially recorded level, had in fact declined earlier this year. The premium on gold was less than the new sales tax, putting many jewelers out of business, because they could not compete with smuggled gold, which bore no tax and attracted a lower premium than the sales tax. More jewelers will probably be put out of business by this latest action. Smuggling will consequently rise and rise, particularly if the rupee’s purchasing power declines because of escalating public distrust of it as money. 

The central banking community, headed by the Bank for International Settlements, was concerned at Indian gold demand increasing at a time when Chinese citizens were absorbing most of the world’s free supply of newly-mined and scrap gold. It is almost certain that the appointment of Raghuram Rajan in September 2013 as Governor of the Reserve Bank of India had much to do with the urgency to bring Indian demand for gold under control, because he was and still is the BIS’s establishment man. He has generally failed in this mission, and his tenure was not renewed for reasons unknown, other than he preferred to return to the calmer pastures of academe and his Vice-Chairmanship of the Bank for International Settlements. 

This is not characteristic of a career central banker at the height of his powers and influence. Perhaps Rajan realized his attempt to manage gold demand would never work, and Modi was proving too dangerous for his own legacy at the Reserve Bank to survive unblemished. He was recently quoted as saying that the RBI’s ability to say no to the government must be protected, some months after he declined the opportunity to serve a second term. Was this a reflection of something that happened? 

In conclusion, the surprise money-grab by the Indian authorities intensifies the public’s perception of a corrupt, overly-bureaucratic, and ineffective government. The public’s suspicion that government paper money is ultimately worthless will have, in its collective mind at least, gained immeasurable credence. An accelerating decline in the purchasing power of the rupee is the most likely economic consequence of Mr Modi, ultimately destabilizing for both the country and his government
As we concluded previously, on a final philosophical point. Our entire monetary system depends on trust. A banknote is a piece of paper that says the RBI will give the bearer another similar piece of paper, or make an entry in an electronic ledger for that amount. The system works because everybody believes that those pieces of paper will be accepted by everybody else and therefore, money serves as an useful medium of exchange. This move has shaken that trust. Expecting a nation used to 90% cash transactions to ever trust government-sponsored digitization is beyond farce and financial repression, it is monetary larceny.
One final question, will the police be enlisted to beat the population into a cash-less society also?

Outdated 401(k) Rules Are Shortchanging Americans
Age requirements and vesting delays may be costing you hundreds of thousands of dollars.
Suzanne Woolley   WealthWatch   Bloomberg.com
November 22, 2016 — 9:59 AM EST
                                                                             
 
Many company 401(k) retirement savings plans could use a swift kick into the 21st century, according to a new report from the U.S. Government Accountability Office.
A number of longtime 401(k) plan designs fail to reflect a new, more mobile workforce, hurting employees’ ability to save, according to the report (PDF). Among the arguably outmoded practices: a requirement at some plans that workers be 21 before becoming eligible to join a 401(k), that employees finish one year of service before being eligible to join a plan and then wait an additional year to be eligible for company matching funds, and that employees wait up to six years before laying claim to all those contributions. 

Some of those practices save companies administrative hassles when workers leave after only a short time, and others help reduce turnover, employers and retirement experts told the GAO. But as the report notes, Bureau of Labor Statistics data show the median tenure for private sector workers in 2014 sits at 4.1 years, and federal data found that for workers aged 18 to 48, the average number of jobs held was more than 111.  

“Being ineligible to save in a new employer’s plan for 1 year on 11 occasions, especially occurring more frequently early in a worker’s career, may result in $411,439 less retirement savings ($111,454 in 2016 dollars),” according to the GAO’s projections.

Readers could take issue with some of those projections. The GAO assumed that someone works continuously from age 18 to 66 and that the stock market’s nominal long-term return will be 9.1 percent. It arrived at that by adding the Social Security Trustee’s projected annual trust fund real interest rate of 2.9 percent to an inflation projection of 2.7 percent, topping it off with an “estimated long-term premium of 3.5 percentage points.”2 The GAO stresses that its report focused on a limited number of 401(k) plans—80 in total—ranging from ones with fewer than 100 participants to some with more than 5,000.

But many of the observations taken from the 80 funds were echoed in industry data from sources that included Vanguard Group and the Profit Sharing Council of America. 
Here are a few other hypothetical price tags calculated by the GAO: 

• The potential cost3 to an 18-year-old worker of having to wait until age 21 to join a 401(k) plan, since he or she is deprived of a 3 percent employee match from age 18 to 20, could be $134,456 less in savings by the time the worker turns 67, or $36,422 in 2016 dollars.
• One practice the GAO also examined was the rule that workers be employed on the last day of the year to get an employer’s matching contribution. A hypothetical person making around $71,000, who at age 30 left a job before the last day of the year with a 401(k) that matched 3 percent of employee contributions, could give up an estimated $29,297 by the age of 67, or $8,150 in 2016 dollars.
• Vesting policies, where you might own 20 percent of your company’s match after two years—and gradually vest over five years—can have a big effect on projected retirement savings. An even greater impact comes when companies use the “cliff” style of vesting, by which employees must wait a full three years to be vested. If they leave before then, they don’t get any of the company match. Say an employee left a job with such a plan at age 20 after having worked there for only two years and then left a second job with cliff vesting after only two years at age 40. If the plans require three years of service to vest in any matching contributions, the amount forfeited by an employee could add up to $81,743 by retirement, or $22,142 in 2016 dollars, the GAO projects.4 

 

The rules on vesting for employer matching contributions are now 15 years old, the GAO said, and “a re-evaluation of these caps would help to assess whether they unduly reduce the retirement savings of today’s mobile workers.” Seventy of the 80 plans in the GAO report hadn’t changed their vesting policy in the past five years. Vanguard data showed that more than 55 percent of its plans have vesting policies for matching contributions, with the most common being a five-year requirement.

Vesting policies may appeal to employers for reasons that aren’t immediately obvious. If an employee leaves before they are fully vested in an employer match, that forfeited amount of money can, and often does, go to either lessen the amount the company needs to contribute to the company match or to lessen employer expenses for the plan.