BANKS ....PT. II Summary.

Let Me Begin This Summary by reminding that this Blog is not about Banks per se - rather it is about Economies and More To The Point - the anemic Economies within which we now find ourselves.

I have placed focus on The Banks solely because they fare well in all Economic Climates.- both good and bad and are viewed by their governments as being too important to fail.

In that regard, the most egregious action on the part of Banks in my living memory took place only a few years ago in Cyprus where its Banks arbitrarily seized 10% of their depositors' money.  Wink, wink, nudge, nudge - so you think this could only happen in a backwater like Cyprus - Dear Reader think again - the G-7 nations are now in the process of legislating these self-same confiscatory powers to our own Banks.   Add this to the Negative Interest Rate Trend and the old mattress with a hole in it is looking better and better all the time.

But again I have digressed.

So let's first summarize what a perfectly running economy would look like:

• 100% of a Nation's Workforce would actively participates in its Workforce;

• Investors would be adequately compensated for their hard-earned investments - that is to say, they would receive a return on their investments which would exceed inflation, pay all taxes due on the return and leave a sufficient amount to be used by the investor for his or her own purposes (e.g. retirement or more investing or whatever)

• Interest rates would be such that they would neither encourage nor discourage spending / investing;

• Governments would get out of the way of private enterprise and in so doing, balance their budgets (i.e. refrain from incurring debt).

You may have other good suggestions to add and that's fine.

Now contrast the Perfect with our Economies as of the beginning of this 21st. Century:

  ( * I am going to primarily refer to the United States of America not only because it is still the World's largest economy but because the other nations tend to mirror it)

• The U.S.A. has a Workforce Participation Rate(W.P.R.) of only 62% - some 75 Million Americans are missing in action.  And as discussed in my initial blog, some 100 million Americans ( 1 in 3) are on permanent Social Services (i.e.  Welfare).  Simply stated, these people have opted out. Surprisingly, with respect to the W.P.R. America is in somewhat better shape when when compared to the world's other major economies  - Japan (59%), France (56), Germany (60), and the United Kingdom (60).

• Interest rates are so low that savers not only are subsidizing borrowers but the interest rates they receive are so low that their investments are worth less as each day goes by.  And now we are entering the age of negative interest rates where depositors are obliged to pay financial institutions for the honour of  keeping their money.  Reminds me of the Ant and the Grasshopper - 'far better to be the latter'.

• Governments are racking up debt at unhealthy rates - look no further than America's current $20 Trillion Dollar Debt - which exceeds its annual GDP.  Japan is the G-7's worst offender with a Debt exceeding 250% of its GDP.   The Emperor(s) has / have no clothes.

• And these National Debts do not take into account under or un funded pension plans which will only worsen as the Boomers reach their more senior years while at the same time the workforce has fewer and fewer workers. This of course is already unfolding but it will only get worse.

• And in the face of this what have our governments done - why they have printed money with zip to back it up. We laugh at the fact that Zimbabwe has the most Billionaires in the World due to the fact it takes 250 Trillion of Its Dollars to convert into $1 US Dollar.  If we keep printing - the Zimbabweans may get the last laugh. 

So what to do?

First, stop running up deficits and debts - it will take all of our resources to manage our nations' aging population.

Don't devalue our currencies by printing money willy-nilly.

Let interest rates be determined by the markets and not by the Central Bankers.

Start chipping into the large welfare contingent that has opted out of our economies - I do not know what a reasonable number for opt outs would be but I know instinctively that the American experience of 100 million or 1 in 3 is way out of line.  If we are going to survive Baby Boom- we will need as many 'on deck' as possible.

We need to get rid of the useless unemployment rate - it tells us nothing.  Rather we need to convert to the Workforce Non-Participation Rate and track that religiously.  For example - since America's W.P.R. is 62% - its Workforce Non-Participation Rate (W.N.P.R.) is 38%.  It is this latter number that should replace the old unemployment rate and I think that a healthy W.N.P.R.  would be in the vicinity of 20%.

A final word of warning - if the West does not address these deficiencies - even investing in Banks will not prove a salvation and for those of you who think Gold and Silver is just the ticket - you cannot eat Gold nor Silver nor can you protect it from marauding gangs.

I would appreciate your comments.

As I see it...

'K.D. Galagher'

THE BANKS ... A Sage Investment

I say that because of a recent trend toward negative interest rates - that is to say - you and I have to pay the Banks for their kindness in allowing us to deposit our hard-earned savings with them.

Even before this negative interest trend, the Banks were paying measly interest on our deposits - most times not even compensating for inflation. Directly below is a chart depicting these puny rates over the last several years:

2015	1.40
2014	1.48
2013	1.75
2012	2.80
2011	2.75
2010	2.80
2009	2.21

If you think the Banks in turn invest this out at double or triple those rates - you'd be partially correct - in fact they are recouping 30% and more on your investment.

How is that possible you might ask.

Permit me to explain - say you invest $50,000 with your Bank - Banking rules permit your Bank to lend that $50,000 out Ten (10) Times and say they pay you 1.5 % annually; the Banks then lend it out at 3% annually (or more) - 10 separate times - and that, in turn, totals a very healthy return of 30%.  A 5 % loan would realize a staggering 50% return.

Not bad for a deposit paying you or me a chintzy 1.5%.

And with that rate - we are not even keeping up with Inflation - that is to say, each year when the dust settles on our Bank Investment - it is worth less than when the year started.

The New Motto - 'keep your money in investments as long as it lasts'.

But it is even worse than that - YOU are obliged to Pay Taxes on the earned interest  so in the case at hand, 1.5% interest on $50K generates $150 and you will be expected to declare that sum in your annual income tax return.

Talk about adding insult to injury.

So what to do?

Invest in Banks of course - since as you can see from the above, they are making money hand over fist - on the backs of our investments and not only that - they pay out dividends of between 4 and 5%.

So not only do Banks make money - big money - they also pay out good dividends - dividends which themselves exceed the rate of inflation.

But this Blog is not really about the value of Banks nor the healthy dividends they pay - nor even about investing in Banks to stay ahead of the curve.

Rather, it is about the slow motion trend in world economies to drain the value out of our nest eggs.

To prove this, let's go back to the 2007 / 08 Melt Down of Mortgage Backed Securities which nearly caused the collapse of the World Wide Banking System - a Melt Down caused by reckless and greedy US Mortgage Lending and Worthless Security Selling activities sanctioned by both the US Government and by America's Financial Institutions themselves.

Neither has even bothered to apologize to the world for their massive fraud..

In the face of this meltdown - the US Fed's reaction was to print money - $$$ Billions of it - better known as "Monetary Easing".

And better known by you and me - as Making Money out of Worthless Paper.

And with this devaluation comes the diminished value of your Nest Egg - especially for Seniors' - Notice that Septuagenarians and Octogenarians are still in the work force because the return of their investments is spit. .

So why are the Fed and the Central Banks doing this?

Surprisingly, to help non-investors - primarily the young - get mortgages - buy cars - furniture - trips and so on in the belief that this will stimulate their moribund economies.  It won't.

These borrowers are not stupid - why would they not borrow when the money they pay back next year on their loans - is in fact worth less than when they initially took the loan out?

They do though fail to think what will happen if interest rates rise as little as 1 or 2 %.  And heaven help them if it goes 5% or more.  The House of Cards will come tumbling down.

But they need not worry too much since the Powers That Be seem quite adept at keeping rates artificially low.

But it is not just the young and starting out who benefit from low or negative interest rates - the numbers on social welfare are also growing:

• 50 Million are on Food Stamps  ( 1 in 6)  45%+ since Obama became Prez
• 100 Million on Welfare  (1 in 3)  This represents a growth of 19% since Obama became President and accounts annually for some 1 Trillion Dollars (USD $)
• the labour participation rate is approx. 62% the lowest it has been in 36 years (the official unemployment rate is 5.9 % but when one factors in those who have quit looking for work - the rate is double digits)
• 45% pay no income taxes
• 50% of Americans have incomes of less than $30,000 per year

And to top it all off, the US Debt now stands at some $20 Trillion Dollars - a figure that is greater than the country's annual Gross Domestic Product.

In other words, to fund this Social Service Morass the US Government is borrowing against its future while desperately pulling all the levers it can to keep rates low. 

I leave it to you  mathematicians out there to figure out what would happen to the interest payments on this massive US Debt if rates were to increase even marginally. 

And does anyone still think the best days are still ahead for the United States of America?

Tomorrow I will sum up.

As I see it...

'K.D. Galagher'

Barack Obama… Once More Into The Breach*…in Brussels, Belgium

 

With this morning’s attacks in Brussels, Obama was quick off the mark in condemning these cowardly acts:

“We will do whatever is necessary to support our friends in Belgium," he said.

“We stand in solidarity with them in condemning these outrageous attacks against innocent people… And more,

“This is yet another reminder that the world must unite, we must be together.”

All this was said by Obama on the third day of his visit to Cuba which began with the Cuban Castro Brotherhood Dictatorship clearing Havana streets of debris – that is to say, the mothers, wives and girl friends of political prisoners who have lingered for years in Cuban jails.

But I digress.

Back to the issue at hand…today’s carnage in Belgium.

Let’s tune back to the President’s press conference which is just ending and to our correspondent on the scene .. Les Nessman-

Les – over to you, anything that particularly surprised you by today’s comments by Obama?

Yes Galagher there was one thing – when the President promised to stand in solidarity with our friends in Belgium a member of the audience yelled out – just like you did for the innocents in Iraq, Iran and Syria, Mr. President?’

And why did that surprise you Les?

Well Galagher, you just don’t hear that sort of criticism here in Cuba… at least against their President.

Well that may be true Les – but overall, what does Obama’s comments tell us about the perpetrators of today’s events?

In fact Galagher, we now know quite a bit – we know for instance that these were “outrageous attacks” and not only that – they occurred against “innocent people”.

Could you be more specific Les?  For instance, from His Statement, who do you think might have been responsible for these evil deeds?

Well that’s the problem Galagher – the President did not say – in fact, he never does say in such circumstances, so we are left to speculate.

My money is on a rogue group of madmen, gone off their meds.

But Galagher that does not mean it could not have been a disgruntled element of the local Red Cross or even an outcast troop of disaffected Boy Scouts. 

The list is just too long to name all of the possible subjects.

Good Job Les – Keep up the Good Work.

As I see it…

‘K.D. Galagher’

*KING HENRY V:
Once more unto the breach, dear friends, once more;
Or close the wall up with our English dead.
In peace there's nothing so becomes a man
As modest stillness and humility:
But when the blast of war blows in our ears,
Then imitate the action of the tiger;