Monthly Archives: February 2016

No Bunnies & Elephants with Negative Interest Rates

BunnyThe idea of negative interest rates has been given renewed attention with the Bank of Japan being the latest central bank to actually implement negative rates on some deposits. Recently, Bloomberg Business published a cute cartoon featuring Janet Yellen and bunnies to explain the theory of how negative interest rates are supposed to work. Unfortunately, this theory is fatally flawed and a more apt cartoon illustration would be Dr. Seuss’s The Cat in the Hat Comes Back.

The Theory
We covered negative interest rates a year ago when European bonds started trading at yields below 0%; so for a crash course or refresher on what negative interest rates are and how they work, check out our previous article first.

Bloomberg’s cartoon starts with the fact central bankers want negative interest rates to incentivize spending and borrowing and to deter people from hoarding money. People are not dumb, and if they are charged money on their savings in a bank, they will take it out and stick it under a mattress rather than pay for it to sit in a bank.

Central banks, the theory goes, should instead focus on the big players: the banks. Since they have so much money and need to keep some of it in electronic form with the Federal Reserve, they won’t be able to ‘stick it under a mattress’. If central banks charge them on the margin (in other words, a portion of deposits, but not necessarily all of their deposits), then it should incentivize the big banks to hand out more loans.

More loans will spur businesses to invest, grow and hire more people. In addition, negative rates will drive down the value of the dollar, making exports cheaper, which will also fuel growth. Sounds like cute bunnies and sunshine right? Not quite.

The Reality: The Cat in the Hat Comes Back
The foundational flaw to this entire approach is the Keynesian idea of jump-starting the economy by trying to increase aggregate demand: borrowing and spending is the ultimate goal for central bankers. But sustainable spending can only come after savings, production and wealth creation.


French, Spanish and Love are all Languages – but so is Computing

work-731198_960_720The Florida Senate has proposed a plan to offer programming languages to high school students to fulfill foreign language requirements. The plan has sparked conversation and has led to debates among passionate supporters and detractors. Those in favor of the plan cite the increasing importance of technical literacy in an ever-more-digital world, while those opposed question the viability of implementing such a plan, regardless of any potential benefits. The bill is in the process of making its way through the state legislature.

One huge potential problem is the cost of adding such classes to schools in a system that is already plagued by so many financial issues. Jeremy Ring, Florida Senator and former Yahoo executive, has been quick to point out that the idea is to offer computer programming as an optional choice for fulfilling language credits and not as a replacement for foreign languages or as a standalone requirement. Even so, some have questioned whether this would still lead to further inequalities across school districts that have varying affluence and access to computers.

Apple Speaks—Will People Listen?

Tim_Cook_WWDC_2012There’s a good chance that in the last couple of days, you may have woken up to one of your friends posting about Apple’s customer letter which was published a few days ago. The letter outlines Apple’s stance against the government’s request for allowing a back door to iPhones and the company’s commitment to using encryption and protecting their users’ privacy. It’s been quickly making its way around social media. The cynical side of me wants to say that this has been going on for months, and people should already know about it. I mean, I even wrote an article about Apple’s statements in court, as well as one about encryption scares in the wake of terrorist attacks. But the average Joe doesn’t follow court cases or read articles on technical subjects. Most people just aren’t interested in that stuff. That’s why Apple’s letter is such a big deal.

Though Apple has spoken in court about this, and numerous articles have been written about Apple and about privacy and encryption in general in recent months, this customer letter is the first time, to my knowledge, that Apple has made its own public statement about the issue. Anyone who owns an Apple product is going to be much more likely to read a letter addressed to them from the company itself. So far, that seems to be what is happening. I’ve seen more people talking about this letter than the court trial Apple was involved in or any articles about that. But is this enough?

I’ve been trying to gauge the public’s reaction to the post. For the most part, it has seemed to be overwhelmingly positive. But I have seen a few instances of those who would take the government’s side over Apple’s.

Return of the Skyscraper Curse?

Jeddah TowerInvestors are always looking for indications of an oncoming economic recession, whether it be electricity consumption, Super Bowl wins or even ladies hemlines. However, one indicator that seems to make some intuitive sense is the Skyscraper Index, also known as the Skyscraper Curse.

This theory states that the emergence of record-breaking skyscrapers presages economic recessions. If true, should we be worried that China recently capped the world’s second largest tower, while the world’s next record-breaker is currently rising near the Red Sea?

What Exactly is the Skyscraper Curse?
The Skyscraper Index began with research by property analyst Andrew Lawrence in 1999. He noticed that over the past 100 years in the U.S., record-breaking skyscraper construction correlated to economic recessions, panics and crises. He began his analysis with the Singer Building and Metropolitan Life building, completed in 1908 and 1909 respectively, which were concurrent with the panic of 1907.

How exactly do record-breaking skyscrapers coincide or even predict economic crises? Economist Mark Thornton extended this analysis in 2005, demonstrating that the link between the two is artificially low interest rates. Interest rates are suppressed or kept low due to monetary policies as well as fiscal policies designed to increase credit in an economy. This increase in credit is ‘artificial’ because it is not due to people saving more and consuming less in the present; rather it is effected through money-printing or legislation that distort credit markets.

Bank Cash Withdrawals Raise Suspicion


Imagine walking into a bank to withdraw funds to buy a used car from a private party, or withdrawing emergency cash for a friend who becomes unemployed and has no bank account. Suspicious? Do you know that if that amount is $5,000, your trusted bank teller is under a legal requirement to file a report to the Feds on what is deemed ‘suspected criminal activity’?

In what many see as an acceleration of statist control of U.S. citizens, the Justice Department has called on bank employees to report customers whose financial transactions appear to be suspicious or unusual. Known as a Suspicious Activity Report (SAR), this federal requirement has surprised many bank patrons who have discovered that their benign intentions have run afoul of The Feds.

Because banks are required to complete a SAR for questionable transactions (typically $5,000 or more for banks; $2,000 or more for money services businesses), unsuspecting customers are subjected to scrutiny for perfectly legal actions, such as merely withdrawing cash. Banks often file SARs even for smaller amounts due to regulatory fear, in what could be deemed a ‘defensive filing’ approach.

Tragically, this action against an innocent customer could result in a larger enforcement action such as a thorough investigation or even the seizure of their cash. And it could land one on a terrorist watchlist that could result in travel and other restrictions.

Beyond these requirements for brick-and-mortar entities, new legislation aimed at greater cybersecurity transparency between the Feds and financial institutions has taken root with the Cybersecurity Information Sharing Act. Now, these financial institutions are required to be extra vigilant in terms of monitoring and including online information in their suspicious activity reporting. 

#BeResponsible: Networking Challenge

Waiter Serving Food To Customers At Table In CafeThere are SO many ways to network in your city or town. Websites are all over the place helping individuals, companies, and groups find like-minded friends and colleagues to expand their network and overall spice for life!

I’ve made a list of a few options when looking for a meet-up of like-minded folks in your area.

Try out:

  • This is the number one place to find all the topics/interests you can dream of! Have a passion for small, white, fluffy dogs? There’s a meet-up for that! Love underground techno music, yep other people do too, and want to meet you! Want to talk to other entrepreneurs to learn about the struggles of starting a small business? They are probably your neighbors! Sign up. You won’t regret it.
  • Either you Reddit or you don’t, but I promise, once you start you can’t stop. Most towns have their own ‘sub-Reddit’. A place where you can bitch about parking violations, how people drive, and the dogs who poop in your yard. It’s also a place to find like-minded people and start a conversation!
  • This gives you a chance to browse the latest posted events in your area and get tickets! You can also use this site if you want to start your own networking event! (pro tip: offer free food to get your first round of new comers!)
  • This goes without saying. Type whatever interest, hobby, or profession that interests you in the top search bar along with your city/town and surely you’ll come up with some active groups in your area. If you don’t, maybe it’s time to build an online community to find more like-minded people!

Perhaps you use another tool? Please share your expertise in the comments section and we’ll add it to the list!

Now onto the challenge:

From now until the last day of February (29 days this year! #leapyear), try and attend ONE meetup. Check one out, expand your network. While you’re there, take a picture and post it to your Instagram. Seriously…so much reward for rewarding yourself. #BeResponsible means to grow in success in 2016. Use this challenge to take a step in the right direction.

Questions about how to find the right meet up? Ideas or tips for other networkers? Let us know: Best of luck and don’t forget to submit your photo to the challenge!