How Negative Interest Rates Are Having Strange Effects on World Economies

It’s not exactly a sign of a healthy economy when people are resorting to stashing their cash in secret vaults.

Nevertheless, this is what has been going on and even the Swiss pension funds are reportedly considering it.

What would drive them to such extremes? Simply put, it’s a negative reaction to the requirement to pay to keep their money in regular bank accounts; what’s currently known as ‘negative interest’.

Yep, it has reached the point in some parts of the world where the banks are so concerned about inflation rates, that they are now actually charging financial institutions to invest with them. The savvy among you will have noted no doubt that that’s not investing.

This isn’t just more unscrupulous behavior on the part of banks but makes sense in a topsy-turvy kind of way if you dissect the plans. The idea here is that by charging bigger institutions to park their money, banks will then again be able to afford to lend more money to households and small businesses.

In fact, in some cases, banks are even paying people to borrow!

Is it working? Well, in March lending to small businesses rose to its highest in three years in the Eurozone.
But banks shouldn’t rest on their laurels. Things could just as easily turn sour as negative interest rates run the risk of encouraging riskier investment strategies.

In other words, if organizations can no longer gain interest by investing in banks – and if individuals are now being paid to borrow money – they might start putting more funds into their own investment portfolios. If this were to go wrong, then this could have widespread and negative implications on the broader economy.

Silvia Merler is an affiliate fellow at Bruegel (a think tank in Brussels). She said of the situation:
“Very low rates may push agents in the financial markets to take on excessive risk.

“It is very important that the supervisory architecture in the Eurozone is now significantly stronger and that supervisors are a lot more focused on financial stability.”

Meanwhile, economies such as Switzerland and the EU are seeing depositors store their cash in vaults. This is less likely to be an issue in some economies such as the UK. Why? Because in the UK, the highest denomination for notes is significantly lower. This means that it actually costs more money to store the same amount of cash! Simply put: smaller notes mean you need more of them.

Hanspeter Konrad, director of ASIP, says that this is now ‘clearly’ impacting upon pension funds.
What’s perhaps most interesting of all, is the impact that negative interest rates have psychologically. It’s such an alien seeming concept, that it attracts a lot of attention. And it may affect the way that some currencies are perceived:

“Negative rates may well have had an impact on the exchange rate,” said Dirk Schumacher, an economist at Goldman Sachs. “It’s the psychology of them: that you have to pay money to hold euro liquidity.”

The hope is still that this action can help to finally inflate the economy with more readily available and affordable cash for small businesses and families. Whether or not it will turn out this way though, will remain to be seen.


Mick Jagger on the Meaning and Inspiration Behind “Moonlight Mile”

The Rolling Stones are now performing the ‘Moonlight Mile’ on their North American tour, a song that was reportedly inspired by being on the road and yearning for home.

This is the first time in a good while that the Stones have been performing the song. This is part of a 15-city North American Zip Code concert tour.

The song was written by Mick Jagger in 1970 and appeared at the end of the band’s Sticky Fingers album released in 1971. The album has just been released by Universal as a re-mastered two-CD set with extra bonus material.

This might be one reason for Moonlight Mile appearing on the tour. Another could be the nature of the concert which has then on the road for some while.

Fans have speculated on the real meaning behind the song for some time. Lyrics include ‘a head full of snow’ and ‘moonlight mile’ and one theory was that these were code for cocaine.

MJ dismisses these claims however and puts forward an alternative narrative behind the creation of the song.
Instead, he says that the song was written about loneliness and was penned during another large tour during the summer of 1970. It also spoke of his joy returning home.

The following excerpt comes from an interview, where Mick recounted his memories of the song’s inception:

“I wrote some of the early lyrics to “Moonlight Mile” in a songbook I carried around when we were on tour in the summer of 1970. I was growing road-weary and homesick then. I’m sure the idea for the song first came to me one night while we were on a train and the moon was out. I don’t recall.

“I know I didn’t want to literalize how I was feeling. That’s not really a very good thing to do when you’re writing lyrics, you know? The feeling I had at that moment was how difficult it was to be touring and how I wasn’t looking forward to going out and doing it again. It’s a very lonely thing, and my lyrics reflected that.”

The original studio recording for the track featured only Jagger, drummer Charlie Watts and guitarist Mick Taylor. The other instruments – guitars, piano, bass and strings – were overdubbed at a later date.

“I also came up with an Oriental-Indian riff on my acoustic guitar. At some point during the tour I played it for Mick Taylor, because I thought he would like it. At that point, I really hadn’t intended on recording the song. Sometimes you don’t want to record what you’re writing. You think, “This isn’t worth recording, this is just my doodling.””

Mick suggests that the reason for the misinterpretation of his lyrics came down to the somewhat abstract nature of his descriptions. By being purposefully ambiguous, the song allowed people to apply their own meanings.

In the full interview, Mick goes on to explain the creation and recording of the song in even more depth and explains the choice of particular instruments.

He opines that what made the song special was that everything came together so well on the day:

“The strange plinking piano, the tom-tommy mallets on the drums, the different guitars—they all came together to produce a feeling of vulnerability and loneliness, you know what I mean? I think the three of us finished recording the basic track around 6 a.m. The sun was coming up.”

If you want to hear the new live reimagining of Moonlight Mile, then be sure to catch the Stones on their latest tour. And with a little more backstory, you may find you gain a new appreciation for the tune!

Can Baseball Win Over the Hearts of Children Again?

Major League Baseball is still going strong and there’s no denying that it’s a successful sport commercially. But the question that fans have to ask themselves, is whether the future is as bright for the game.

This is a pertinent question with the news that fewer children that ever before are taking up the bat and getting involved.

There was a time that baseball was fantastically popular among the younger generation. Collecting trading cards was a popular playground pastime and watching games with Dad was always a good day out.

Today, impassioned individuals Jim Wilson – president of the City of Newburgh Little League – are forced to carry the torch for where interest is dying among youths.

Wilson recently launched a petition to keep the baseball files at Delano-Hitch Park in use after he found them covered in piles of snow. He’s seen the numbers of children participating plummet in recent years and was forced into drastic action just to prevent the league from folding.

He and the league’s board of directors have even gone as far as to call parents at their homes to try and encourage an interest in their children playing. He recalls feeling like a telemarketer and being met with a lukewarm reaction.

Reportedly, part of this decline is due to a growing interest in other sports. It seems that lacrosse, basketball and soccer are all more popular among the younger generation.  At the same time though, we’re seeing a decline in popularity for all sports among children – with many potential factors playing a role. It’s easy to point the finger at computer games but those alone can’t explain the most recent drops in numbers.

In 2009 there were 206 players in the local little league, this year it’s down to 74.

And this isn’t an isolated story either. Likewise, across the country participation numbers have been falling and many local youth leaders have spoken out about their dismay.

In 2000, there were 8.8 million participating youths in baseball across the US. In 2013 this had fallen to 5.3 million.

With too few teams to form a self-contained league, these regions are forced to merge with other nearby leagues or to completely disband. This is only likely to make the game less accessible for newcomers and to reduce interest in the sport yet further.

And it would be naïve to think this would have no impact on Major League Baseball. After all, children are our future and if they aren’t showing any interest in the sport now, they’re less likely to be interested in going to games as they get older.

This then means less money for the sport and that means less promotion, smaller stadiums, less entertainment… And this can again have repercussions on the popularity of the game in a general vicious cycle and downward spiral.
So what can enthusiastic parents and adults do?

The first thing of course is to try and show their children the excitement of baseball. Take them along to games, put it on the TV and play with a catcher’s mitt in the garden.

The rest is down to the powers that be. How can promoters and marketers get kids to rediscover their love for the game?

Perhaps they should turn their attention to one of the few sports that are gaining ground in the US: soccer.

Why are Women Opening Fewer Businesses in 2014?

New data from the Kauffman Foundation tells us that in 2014, only 36.8% of new businesses were opened by women. This figure is down from 40.7% over the last 19 years and has nearly reached the low point of 36.7% that was reached in 2007. And it’s almost the second lowest figure in two decades.

In short, what we can take from this is that fewer women seem to be launching their own startups. That much is clear but the question is why?

Of course, as with any of these things there are multiple factors at play.

One aspect is that it may not just be that there are fewer women starting businesses but also that there are more men – throwing off the percentage. This would make sense in light of the recent construction rebound, which is a somewhat male dominated industry.

In other words, with more men starting up construction businesses, it may simply be the case that there are comparatively fewer women.

But despite this being the case, it’s still likely that female led businesses have declined and that this has contributed to the data. Analysts suggest that ‘economic factors’ may be at play and specifically, these are likely to include such things as the economy that has been struggling for some time. This makes it more difficult for everyone to open new businesses.

This has been a factor for the last several years though and in fact the economy is somewhat improved in the last year. Lending is also up… so perhaps that doesn’t offer the answer.

In general, it is often harder for women trying to start a business according to fashion designer and entrepreneur Lela Rose. Talking to Fox News, her explanation is that with many lenders still being predominantly male-run, some gender stereotyping still play a role. This may make it harder for women to get loans or investment capital for instance.

Historically and culturally, women have long been viewed as primary care givers rather than bread winners. When finances are stretched for a household, the expectation is still very often on the woman to take care of the children and relieve the cost of hiring a nanny.

It’s worth noting that for these reasons, men have consistently higher employment rates than women above the age of 22. That is to say that the proportion of men in work is higher than the proportion of women – so it would make sense that there might be a similar representation for start-ups.

But perhaps more simply it just comes down to a lack of encouragement. Perhaps there are a lack of role models for women looking to start their own businesses. Perhaps they aren’t pushed enough at school to develop an interest in business versus male students.

Whatever the case, it seems that we need to start investment more time, money and effort into teaching young women about business start-ups and highlighting this as a viable option on their curriculum.

After all, in the age of the internet there has never been a better time to start your own company!

The Federal Reserve and Their Near Zero Interest Rate Policy

The stock exchange seems to be making new all time highs daily. Instead of congratulating yourself for what a trading guru you are, it may be time to think about the Federal Reserve’s extreme rate policy

The financial catastrophe of 2008 relieved the global banking system of around one trillion U.S. dollars. Therefore, in an effort to recapitalize itself, the world wide banking system has to make around 1 trillion US dollars.

Regrettably, recapitalization doesn’t come cheap. The Fed is utilzing artificially low rates near zero to bridge the gap. Recent predictions say we’ve made up $300 to $400 billiion, but that still makes us over $500 billion short.

The remaining $500 billion will be much more challenging for the banks to recapitalize because of the new rules and regulations. While the Volker rule and Dodd/Frank were put together with the best of intentions, as so many laws and rules and regulations are, the real effect of these new rules and regulations will be on the bank’s bottom lines.

At their core, the Volker rule and Dodd/Frank obstruct the breadth of bank’s business opportunities. In barring their business possibilities, these regulations limit their ability to completely recapitalize the banking system. Consequently the Federal Reserve will be required to preserve its near zero interest rate policy past current predictions in order to drive the system to recapitalization.

Now lets discuss the existing U.S. government debt issue. The current U.S. deficit is now over 16.5 Trillion and growing every second. Despite the fiscal cliff being avoided and the sequester, the U.S. government continues to operate in the red for Fiscal year 2013 by an projected $800 billion. The CBO has comparable predicted deficit estimates for fiscal years 2014-16. These deficits will take our national debt to at least the 20 Trillion dollar level. TWENTY TRILLION DOLLARS!

Someday in the near future, the United States government will minimally need to balance the annual budget deficits in order to stop the total debt expansion, as well as make a true concerted effort to bring down the total national deficit in an effort to balance itself. This suggests the US will need to take $500 to $800 billion of government spending from the U.S. economy. This spending hole is going to lead to numerous quarters of negative growth. This is without doubt not great for the U.S. stock markets or the global stock markets for that matter.

Our only saving grace is that maybe the U.S. economy will grow its way out of this dangerous debt obsession. Regrettably, this is largely a pipe dream. The Federal Reserve will undoubtedly be forced to keep interest rates at cheaper levels to help keep the U.S. economy from struggling with the reality of recession.

While the stock market is trading close to all time highs, the Federal Reserve must persist its near zero interest rate policy to recapitalize the World Banking system and to support the financial system as spending cuts and tax hikes eliminate money from the economy to help stem the threat of another recession.