Month: May 2014


Glory days

May 31, 2014

Monetary

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THE Fed is a bit behind the curve, worries an official at HSBC. The Fed is always behind the curve on inflation, says Charles Plosser, president of the Philadelphia Fed:

[I]f borrowing begins to surge and those reserves start to pour out of the banking system, Plosser worries, “that’s going to put pressure on inflation.” The result: the Fed could be forced to raise interest rates faster and earlier than it would like and perhaps slam the breaks on the economic recovery.

This is a relatively common concern: that if the Fed isnt careful inflation may rise, forcing it to jack up interest rates and crash the economy. But why would the Fed have to crash the economy if inflation rose above target? Its possible Mr Plosser, and others who share his view, are simply arguing that the Fed is not very good at its job and will dramatically overreact, raising interest rates far higher than necessary out of sheer incompetence.

It seems more likely, however, that this camp does not think crashing the economy is an error, but rather that it is what one does to wipe out inflation. That is, the experience of the early 1980s is burned deep into their minds. When Paul Volcker wanted to rein in high inflation, he had to push interest rates into double digits, touching off a nasty recession in the process. This is the way the economy works, many seem to reckon: beating inflation means jacking up rates and choking off growth until price-growth slows.

But this is deeply mistaken. The economy today is facing very different circumstances than the economy of the early 1980s, and it is extremely troubling that key policy-makers seem not to understand this.

Whats different? There are three significant ways in which now is not like then. The first is simply the extent of inflation in the system. The price level rose 61% from 1977 to 1982 and 129% from 1972 to 1982. Over the past five years, by contrast, the price level has risen just 11%, and just 26% in the last ten. Prices were rising more each year in 1979 and 1980 than they rose over the whole of the last half decade. To think that the Fed would or should react to 3% or 4% inflation as Mr Volcker did in trying to cool annual inflation rates of 12% to 14% is absurd.

Second, Mr Volcker was working in an economy that was structurally very different. In the late 1970s more than 20% of private-sector workers were union members, compared to just over 5% today. Many more workers were on labour contracts with wage adjustments linked directly to inflation. That meant, first, that there was a high level of pass-through from inflation to wage growth and then back to inflation. It also meant that inflation was very persistent, since wage contracts were not easily or frequently renegotiated.

Third, and relatedly, it was not clear to many observers in the early 1980s that the Fedcould reduce inflation, because of those cost-push pressures, while today it is taken for granted that the Fed can and will keep inflation at very low levels. Public doubt in Mr Volckers ability to reduce inflation meant that much of the work of disinflation had to occur mechanically, through the creation of high levels of unemployment, rather than through a simple reset of expectations. Today the dynamic is completely different. Because the Feds control over inflation is so well-established, inflation will tend to revert to targetdespite tightening conditions in labour markets: thats what it means for expectations to be well-anchored.

The Fed simply does not need to strangle the economy any more to get inflation to come down. In each of the last three business cycles the Feds policy rate has topped out at progressively lower levels, and the ensuing recessions were short and mild–until the last one, at which the policy rate fell to zero, which takes me to a last point.

Worrying about high inflation is particularly crazy given the current state of the American economy. On the one hand, it smacks of a no-one-goes-there-because-its-too-crowded kind of thinking. The economy has been in a nasty slump for more than six years now, during which time growth, employment, and wages have all fallen well below trend. A bit of inflationary pressure would mean that at long last the economy would be operating near potential. We should welcome and celebrate that, not fret about it.

But on the other hand, a period of sustained inflationary pressure would be most welcomebecause it would ultimately lead to higher nominal interest rates. If the Fed overreacted to the slightest uptick in inflation it would guarantee that interest rates in this cycle peaked at a very low level–nowhere near the 5.25% peak for the fed funds rate in the last expansion, for instance. That, in turn, would ram the American economy right back up against the zero lower bound on nominal interest rates, and that would force the Fed either to accept a deeper and longer downturn than it would prefer, or to go back to unconventional policy. Mostly likely a bit of both.

America is about the enter its sixth year of recovery. Looking back at the history of American business cycles, only 15% of expansions made it to a sixth year. Right now, markets anticipate that the fed funds rate will be just 1% when the recovery enters its eighth year. Only three expansions in Americas history saw an eighth year.

To be plain: either America will have a sustained period of inflation above 2%, or America will be relying on unconventional monetary policy for the foreseeable future. Its as simple as that. It is fine for people to complain about the Fed falling behind the curve, but they should realise what theyre saying. They are insisting that the American economy establish a new normal, in which interest rates are perpetually at or near zero and unconventional monetary policy becomes the Feds main policy instrument.


Money Fix: Prepaid credit card fees vary widely

May 31, 2014

Prepaid Credit Cards

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A new survey from Bankrate.com is clear: Prepaid credit cards are like snowflakes, no two are alike. Fees vary widely. Fail to study up and it will cost you.

The survey found that 83 percent of prepaid debit cards charge monthly fees, and one-third waive them if a certain amount is loaded onto the card. More than half have activation fees of $2.95 to $9.95. Receiving statements by mail costs $1 to $5.95, and nearly 30 percent charge for customer service calls, from 50 cents to $4.95. Plus, there can be annual fees.

Know what youre getting. Reloadable cards can be a good cash alternative for someone unable to maintain a checking account. If lost or stolen, they can quickly be replaced or canceled. They help with budgeting — you only spend what you have. Some cards offer rewards, purchase protections, and perks such as roadside assistance.

Not a panacea. However, Not all reloadable cards are FDIC-insured. Look for one that is, says Chris Giamo, TD Bank regional vice president, Metro New York, who is based in Melville. Understand there can be limits on how much can be kept on the card and how much cash can be withdrawn or loaded at a time.

Keep track of your balance. Sign up for email or text alerts so you always know your balance, says MasterCard spokeswoman Beth Kitchener of Purchase.

And remember, A prepaid card doesnt help build credit or improve your credit score, says Leslie Tayne, a Melville attorney specializing in financial issues.


New Jersey Gov. Chris Christie (left) and Vince McMahon

May 31, 2014

Business

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He jokingly said he did not go into specifics about new content due to the fact that he did not want to repeat his mistake from the last investor call about spoiling the return of Tough Enough.

A big point of discussion was how WWE is cannibalizing pay-per-views and combining any profits into the profits gained from the WWE Network.

Barrios reported that traditionally WWE would bring in about $40 million from PPV business and that it expects the network to replace that with $40-60 million.

The main points here are that WWE is continuing to increase its international presence, focus on development of the WWE Network, bring in new subscribers consistently and explore new avenues for growth.

Most of the questions asked by those listening in on the call focused on specific numbers, which is no surprise on an investors conference call, but very little was mentioned about how some segments of WWEs business have seen a decrease in the first quarter from 2013 to 2014.

WWEs report from itscorporate website on itskey performance indicators showed home entertainment sales and overall PPV buys (excluding WrestleMania) have both decreased in Q1 2014, while live-event attendance has remained the same.

The two noted increases in the report were from sales on WWEShop.com and social media followers/Internet traffic, but those numbers are not enough to offset the other decreases.


EDITORIAL: Properly fund small business development

May 31, 2014

Business

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New Jersey Small Business Development Centers help create jobs in the state. They help small businesses get started, stay afloat and grow. They provide a handy, affordable resource for entrepreneurs anxious to get out on their own and put their talents to work, but uncertain how to proceed.

Need some step-by-step advice on how to get a new business off the ground? The NJSBDC, with chapters in every county, is the place to go.

Small businesses are supposed to be the backbone of the economy. We are constantly reminded by state officials that healthy small businesses are critical to rebuilding New Jerseys economic health. We might assume, therefore, that the NJSBDC is the kind of organization the state would want to keep vibrant because it is generating results — an estimated 16,479 jobs created or retained in 2013.

But that isnt the case. The NJSBDC got just $250,000 from the state this year; the same amount is projected in the next fiscal budget. Years ago, it received $1 million annually, and a look around SBDC units in other states of similar size to New Jersey finds current funding far exceeding New Jerseys.

Those extra dollars matter even more because the feds offer matching funds of up to $3 million. So for every dollar New Jersey redirects elsewhere, the NJSBDC can lose $2, unless the organization successfully scrambles to raise enough money to fill the gaps. Try as its staff might, thats a daunting task.

So in what has become a nearly annual effort, NJSBDC staff members and some of the small-business owners that the organization has helped along the way are out beating the drums for more funding. Theyre not asking for a million dollars. They just want another $250,000 to return to the $500,000 level that it had once maintained after former Gov. Jon Corzine slashed their funding from that million-dollar high-water mark.

Of course any amount of money sounds significant when the state is facing an $800 million deficit. But the organizations advocates insist the additional $250,000 would be easily attainable by shifting money from many other budget items devoted to economic development and business that receive more funding — the Business Action Center, the Office of Economic Growth, and the New Jersey Motion Picture Commission among them.

Every budget generates an endless stream of supporters for one cause or another who fervently believe that their funding requests deserve special attention, that their financial needs are largely inconsequential in the context of a $30-plus billion budget. That may well be true of each item alone. Add them all up, however, and the costs have a real impact.

But in picking through all of the requests, shouldnt an organization that directly contributes to saving and adding jobs to the states economy warrant a second look? We think so — and we believe the NJSBDC should get its extra $250,000. Many would-be small-business employees in the state will be thankful.


Deputies: 3 used stolen credit cards at Target

May 31, 2014

Prepaid Credit Cards

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Robert Lambert, 29, Carl Williams, 40, and Cedric Walker, 32, face a total of eight felony charges for criminal use or attempted use of personal identification, according to the Sarasota County Sheriffs Office.

The three were arrested Wednesday after Targets asset protection officers notified deputies that the suspects were at the store at 5350 Fruitville Road. Deputies responded, but the trio left the area.

Authorities responded to another Target at 101 N. Cattlemen Road.

There, Williams allegedly purchased five prepaid credit cards for $546.52. Walker was present during the transaction, according to the sheriffs office.

The suspects were also charged for crimes on April 7 when Lambert purchased a gift card for $450.87. Several other transactions were declined. Williams was present during those purchases and attempted transactions, deputies report.

The purchases were made with cards from two victims who said they were lost or stolen while shopping in Manatee County.

Additional victims and transactions are being investigated.


Asian stocks muted by China-Vietnam tensions, Europe gains on monetary …

May 30, 2014

Monetary

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Asian stocks muted by China-Vietnam tensions, Europe gains on monetary stimulus hopes

Asia stocks muted by China tensions, Europe gains

By ELAINE KURTENBACH | Associated Press | May 27, 2014 4:30 AM CDT

in

Money,

Politics


Experts Advise Emefiele On Monetary Policy

May 30, 2014

Monetary

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As the governor-designate of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele, comes to office in a few days, some analysts in the country have said his greatest challenge would be to bring a balance between the monetary policy and the real economy.

Financial analysts and economists in the academia who spoke variously with LEADERSHIP stated that the CBN needs to ensure that its monetary policy is in tandem with the real sector to promote employment and growth in the Nigerian economy.

Emefiele, who was nominated by the president on February 20 this year following the suspension of the erstwhile governor, Mallam Sanusi Lamido Sanusi, was confirmed on March 26, 2014, by the National Assembly.

His tenure is commencing in an era of single-digit inflation, high lending rates, increasing fiscal spending ahead of the 2015 elections and a pressured foreign exchange market.

According to Professor Akpan Ekpo, the director-general of the West African Institute for Financial and Economic Management, the incoming CBN governor needs to focus on relaxing monetary policies to bring down lending rates.

He noted that the current interest rate in the country does not support the development of the real sector. With average lending rates in the country standing around 26 per cent, the cost of credit is expensive, particularly for operators in the manufacturing sector.

The Monetary Policy Committee of the CBN has consistently held benchmark interest rate at a record high of 12 per cent for over two years and further tightened monetary policy with the gradual increase of the Cash Reserve Requirement (CRR) on public sector deposit. At the last MPC meeting chaired by the acting CBN governor, Dr Sarah Alade, the committee had maintained the status quo.

Similar to the view of Prof. Akpan, economist and financial analyst Ayo Teriba advised that the incoming CBN governor should be more considerate of the real economy in monetary policy decisions. According to him, Sanusi had, in his determination to bring down inflation rate in the country, denied the real sector access to affordable credit.

Noting that inflation had dropped to single digit, Teriba said there is need to relax monetary policy to increase lending to the real economy.

“Monetary policy became active in September 2010; before then inflation was around 15 per cent and unemployment was also around 15 per cent. Following the tightening of the monetary policy under the Sanusi era, inflation has dropped to single digit but unemployment has doubled. Who wants increased unemployment?” he queried.

Teriba stressed that the MPC has to be objective and its choices have to be informed by economic conditions, adding that the MPC during the tenure of the erstwhile CBN governor, Sanusi, just continued to tighten monetary policy without matching monetary policies with conditions in the real sector or considering the effects the policies would have on the real sector.

On the declining external reserves of the country, Prof Akpan noted that the incoming CBN governor would also have the challenge of managing the declining reserves with the pressure at the forex market. Stressing the need to shore up the reserves, Akpan said the CBN needs to find other means of managing the value of the naira without depreciating the level of the reserves. Teriba on his own part noted that as long as the country still has the means in terms of the reserves, it should continue to defend the value of the naira.

He stated that as an import dependent nation, devaluing the value of the naira or leaving it to market forces would send the prices of goods and services in the country to the sky, causing a sharp rise in inflation.

Optimistic that the pressure on the naira at the forex market would soon subside, Teriba said the pressure which is being triggered by the tapering of the United States Federal Reserves is expected to wane before the end of the year.

The head of Economics department at the Obafemi Awolowo University, Ile-Ife, Professor Abayomi Adebayo, holds a contrary view: he advises the incoming governor to allow market forces to determine the value of the naira. To him, the current situation where the CBN dips into the external reserves to defend the value of the naira is mainly to the benefit of operators in the market.

Prof Adebayo also advised that the new governor should restore the integrity of the CBN as the apex bank, noting that the CBN had dipped its hands into issues that it ought not to as a central bank, making it lose its integrity even in-house.

He advised that Emefiele should leave politics to the politicians and focus on monetary issues, adding that the position of a central bank governor is meant for a conservative person who will focus on his core objective of managing the monetary policy of the country.

Also, an operator in the banking system maintained that, having gone through a lot of policy somersaults in the last five years, the banking sector needs some stability. The banker stressed that Emefiele should give some sense of stability to the system as “we have seen a lot of policy somersault from the former governor; so maybe he should let things stabilize a bit before he starts introducing a lot of changes”.

The banker who commended Sanusi for instilling discipline in the banking system urged the incoming CBN governor to continue on the trail of corporate governance and responsible banking. “Sanusi introduced sound risk management balance into the system. He brought some sense of discipline into the system, unlike before his time when we used to have a lot of cowboy banking practices. My advice to him (Emefiele) is that he should reinforce that. We have seen what happened between 2007 and 2008 because of the lax risk management that we had then, but he has come in to instill some discipline in that aspect. My advice to the governor is that he should stick to that.

Towards the end of his tenure, former CBN governor Sanusi had tackled the government over issues pertaining to corruption.ades


We Need A Boring Monetary Policy

May 30, 2014

Monetary

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“Look guys. If you’re ever out on a first date, and you want to be sure that you don’t get a second date, talk about monetary policy.” -Steve Forbes

Yes, monetary policy is boring. However, market panics, financial crises, recessions, unemployment, and poverty can also get boring after a while. Unfortunately, it now seems clear that new Federal Reserve Chairman Janet Yellen is determined to continue Ben Bernanke’s rules-free, improvisational, monetary chaos.

During Bill Clinton’s eight years in office, real GDP (RGDP) grew at an average annual rate of 3.89%. If growth had continued at this rate under George W. Bush and Barack Obama, 2013 GDP would have been larger by $5.2 trillion (31%), and the nation would have recorded its 13th straight year of full employment. Even if the federal government had somehow managed to spend the same $3.4 trillion in 2013, it would have run a $0.6 trillion budget surplus, rather than a $0.6 trillion deficit.

Bush 43 cut taxes, and Obama did not manage to raise them until 2013. What made the difference in RGDP growth was monetary policy. The rules-based system of the 1990s (the Fed was secretly targeting commodity prices) gave way to a “Hey, let’s just wing it” approach.

The Thomson Reuters/Jefferies CRB Index currently encompasses 19 commodities*. The Fed’s monetary policy errors are visible in the movements of this index. Let’s take a look.


Blotter: Campbell

May 30, 2014

Prepaid Credit Cards

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Drunk in public–On May 17 at 8:24 pm on the 1500 block of S. Winchester Boulevard. A 20-year-old man who had been drinking at Boogie on the Bayou was found passed out next to a business. He was found to be drunk in public and was booked into county jail.

Drunk driving–On May 17 at 10:14 pm at Orchard City Drive and Railway Avenue. A 24-year-old woman who had been drinking at Boogie on the Bayou was seen driving the wrong way on Railway Avenue. She was found to be driving under the influence and was booked into county jail.

Drunk in public–On May 17 at 11:57 pm at tE. Campbell and N. Central avenues. A 29-year-old man was intoxicated and fell into a booth, breaking a mirror. He was found to be drunk in public and was booked into county jail.

Assault with a deadly weapon–On May 17 at 11:59 pm on the 300 block of E. Campbell Avenue. A man had a large laceration on his arm that was bleeding profusely. He said that he was stabbed by an unknown man.

Under the influence of a controlled substance–On May 16 at 1:51 am at Hamilton and S. Bascom avenues. A 27-year-old woman was stopped for a California vehicle code violation and found to be under the influence of a central nervous system stimulant.

Check fraud–On May 16 at 10:20 am on the 1700 block of S. Bascom Avenue. An unknown woman purchased items with a counterfeit $100 bill.

Grand theft–On May 15 on the 1000 block of Smith Avenue. An unknown person contacted a man by telephone and told him that he owed money to the IRS and needed to pay off his debt by way of prepaid credit cards. The victim transferred funds to the suspect and later realized that he had been scammed.

Assault with a deadly weapon–On May 15 at 2:02 am at Orchard City Drive and S. First Street. A 23-year-old woman, a 21-year-old man and a man age 25 and 30 got into an argument with two victims. The woman jumped on one of the victims vehicles, causing damage. The three suspects punched the victims several times, knocking them unconscious, and fled on foot. Campbell police located and arrested the woman and the 21-year-old that night. The other man as arrested on May 16. All three were booked into county jail.

Petty theft–On May 14 at 1:11 pm on the 600 block of E. Hamilton Avenue. A 20-year-old man concealed merchandise and left the store without paying. He was found to be in possession of marijuana. He was cited.


RELEASE: CAP Issues Recommendations to Enhance Consumer Protections …

May 30, 2014

Prepaid Credit Cards

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Press Room raquo;
May 2014

RELEASE: CAP Issues Recommendations to Enhance Consumer Protections Under Credit Card Reform

May 22, 2014

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Contact: Katie Peters
Phone: 202.741.6285
Email: kpeters@americanprogress.org

Read the report.

Washington, DC — In 2009, President Barack Obama signed into law the Credit Card Accountability, Responsibility, and Disclosure Act, or Credit CARD Act, creating a clearer, fairer, and more competitive marketplace for consumers while reining in many of the credit card industry’s most abusive practices. Today, five years after the act was signed into law, a new Center for American Progress report highlights the accomplishments of the Credit CARD Act and provides additional provisions that would better protect consumers.

Among other provisions, the Credit CARD Act laid out significant consumer protections that stopped arbitrary interest rate increases, gave consumers new transparency to better manage their accounts, removed credit cards from college campuses, and provided consistency to store gift cards. Altogether, the reforms implemented under the Credit CARD Act have saved consumers an estimated $12.6 billion in fees annually since the law’s passage.

“The Credit CARD Act put an end to many of the worst credit card industry practices,” said Joe Valenti, Director of Asset Building at the Center for American Progress. “Today, consumers have clearer choices, and they don’t have to worry about credit card companies changing the rules of the game after they have made a purchase.”

However, despite these advances, regulatory gaps remain. Provisions in the act did not anticipate the significant growth in prepaid cards over the past five years. Furthermore, college campuses have seen high-cost debit cards that erode the value of students’ money take the place of credit cards as a predatory financial instrument. Additionally, the act’s transparency provisions are often out of reach for consumers who use online and mobile tools, and consumers are not always able to view credit scores for free. Finally, for some consumers, their credit records can prevent them from getting a job.

In order to address these issues, the Center for American Progress issued the following recommendations for regulator and policymakers to help protect millions of consumers:

  • Mandate greater prepaid transparency and regulation. Prepaid credit cards–which have grown significantly in recent years–are not subject to the same extensive consumer protections as credit cards and gift cards under the Credit CARD Act. To close this regulatory gap, prepaid cards should have standardized disclosures and comparable consumer protections to bank accounts.
  • Crack down on college debit cards. Removing excessive credit card marketing from college campuses has helped reduce college students’ financial vulnerability, but college debit cards are a new concern. Both the Department of Education and colleges and universities should play a role in ensuring that students do not fall victim to high-cost cards just to access their student aid dollars.
  • Offer printed statement tools online. As part of its growing focus on product disclosures, the Consumer Financial Protection Bureau should examine the relationship between paper, online, and mobile disclosure forms, ensuring that financial tools exist across these platforms.
  • Provide free access to credit scores. Credit score reporting should be mandatory for credit cards to provide all consumers with additional information to examine credit offers and make informed decisions.
  • Limit the credit employment connection. Ten states currently limit the use of credit checks for employment purposes except for certain categories of jobs where credit reports are directly relevant. Congress and the remaining state legislatures should follow suit.

Read the report: Protecting Consumers Five Years After Credit Card Reform by Joe Valenti

Related Materials:

  • Financial Access in a Brave New Baking World by Joe Valenti and Deirdre Heiss
  • The End of Cash: The Rise of Prepaid Cards, Their Potential, and Their Pitfalls by Joe Valenti
  • Its Time to Regulate Prepaid Cards as Bank Accounts by Gadi Dechter and Joe Valenti

For more information or to speak with an expert on this topic, contact Katie Peters at kpeters@americanprogress.org or 202.741.6285.

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