What’s up with mobile payments? They’re the epitome of convenience … and yet most people haven’t taken the plunge.
It’s not as if major retail establishments haven’t begun offering mobile payment capabilities. Apple Pay is now available at three-fourths of the top 100 merchants in the United States (and at two-thirds of all U.S. retail locations overall.) The stats for Google (Android) Pay are much the same.
But just because the capability is available doesn’t mean that people will start using it. Juniper Research recently analyzed the payment behaviors of consumers in the United States and UK. It found that just 14% are using mobile payments for in-store purchases.
And even before mobile payments have had much chance to get out of the starting gate, another payment option — contactless credit cards — appears to steal their thunder.
Contactless cards act very similar to the way a mobile device would — by simply tapping a terminal at checkout.
Actually, contactless technology isn’t exactly new; MasterCard introduced cards more than a decade ago, and a number of transit authorities like the Chicago and London subway systems were early adopters.
But a critical mass has now been achieved, and market consulting firm ABI Research projects that by 2022, 2.3 billion contactless cards will be issued annually. Companies such as Amex and Capital One are already in it in a big way, and Chase started sending out contactless cards towards the end of 2018.
For consumers, the “tap-and-go” process of these cards takes only a few seconds — in other words, far faster than EMV chip cards that are the most prevalent current practice. Although a few observers disagree, it’s generally believed that contactless cards are nearly as safe to use as chip cards.
Accordingly, the vast majority of card issuers have zero-liability guarantees against fraud, figuring that the faster speed at checkout is worth it to consumers and vendors when weighed against the marginally higher security risk.
What are your preferred payment practices … and why?
It was a rather breathless piece reporting that NCR (once called National Cash Register) will be introducing a new ATM dubbed the SelfServ 80 to a number of major banks as well as several community banking organizations.
In addition to dispensing cash, the SelfServ 80 machines have large touchscreens and video conferencing capabilities that will enable banking customers to do “virtually anything” they’d normally go into the bank to transact, according to the news article.
This includes applying for loans or credit cards – or any other communications that would typically occur with a bank officer.
It sounds quite intriguing – and major step forward for ATMs, which haven’t changed that much since they were unveiled decades ago.
It’s easy to forget that ATMs were among the very first devices to “automate” activities previous carried out by humans, because they’ve seemed rather “old hat” for a while. They haven’t quite kept up with the times …
… Or maybe they have?
Reading this news piece my brother Nelson Nones, who has lived and worked outside the United States for more than 20 years, was amused. Here’s what he wrote to me:
Those new machines from NCR may seem “futuristic” in the United States, but they are nothing new in the Far East. In Thailand, for instance, you can go to just about any bank branch and you’ll see three types of machines lined up in a row:
ATMs (Automatic Teller Machines)
Unlike in the United States, these ATMs aren’t only for withdrawing cash and depositing checks. With your debit card you can also use these machines to transfer funds to other bank accounts within Thailand, and you can also pay bills, too – either on-the-spot or in advance. Other functions are also available as well. [See the image to the right.]
Most consumer-facing businesses which send out monthly statements to customers put a barcode on the bottom of the statement. The ATMs have barcode scanners and so, when paying a bill, you just scan the barcode at the ATM. All transactions take effect instantaneously.
These services are available at any ATM – not just the ones at bank branches. As an example, every single one of Thailand’s approximately 9,400 7-Eleven stores has full-service ATMs for all the country’s banks.
CDMs (Cash Deposit Machines)
These machines allow you to deposit cash straight into your bank account – with or without a debit card. The machines come with money counters; just put your bank notes in the slot (local currency only) and the machine will count them for you.
PUMs (Passbook Update Machines)
Passbook accounts might be a thing of the past in the United States, but they are still widely used in Thailand. Want to update your passbook? Just go to any PUM and insert your book. The machine will read it and then print all the transactions needed to bring it fully up to date.
Of all the places I’ve ever visited, Thailand has the most automated banking machinery I’ve ever seen.
Imagine that: United States banking and commerce trying to keep up with … Thailand!
My brother providef this photo of an automated banking kiosk located in the lobby of a hospital in Bangkok, Thailand. (My sister-in-law is also in the picture, looking elegant and happy.)
What about you? If you’ve encountered similarly sophisticated financial services automation in other countries that makes the U.S. system seem hopelessly outmoded, please share your experiences as well.
When it comes to attitudes about personal finances, millennials appear to have more in common with their Depression-era grandparents or great-grandparents than with anyone else.
Headlining the TDA results is this interesting finding: More than three-quarters of the millennials surveyed would place an extra $1,000 in a savings account rather than invest it in the stock market.
Concurrent with that conservative financial worldview, two-thirds of the respondents in the TDA survey consider themselves to be “savers.” Even more have established personal budgets for themselves and their families.
Helping to explain the similarities in characteristics between millennials and the Depression-era generation, Matthew Sadowsky, director of retirement and annuities at TD Ameritrade, put it this way:
“The Silent Generation and Millennials [both] came of age during a major financial crisis, which increases the propensity to save and financial conservativism. Further adding to Millennials’ financial anxiety is the economy, student debt, and escalating peer influence from social media.”
Social media could partially explain one finding in the Ameritrade field research – the notion that the vast majority of the survey respondents don’t feel financially secure now.
Being active on social media is much more likely to cause Millennials to compare themselves to others: Nearly two-thirds of Millennials admitted that fact (64%), whereas with Baby Boomers the percentage is less than half of that (29%).
Despite Millennials’ awareness of their financial limitations, it doesn’t seem to translate into seeking out the counsel of professional financial advisors. Instead, they’re more likely to rely on parents (38%) and/or friends (28%).
As for their financial goals, most Millennials have bought into the idea that home ownership is a good thing – and something most of them aspire to achieving by the age of 30.
They also appear to have pretty realistic attitudes about retirement, too, as about half are concerned about running out of money during retirement, and hence are open to retiring at an older age in order to maintain a decent lifestyle in retirement.
Does this mean that Millennials will be better-prepared to handle the challenges of living and growing old in our society? The TD Ameritrade survey suggests so. Still, life has a way of playing tricks on people, so the question remains as to whether this generation will actually do any better than the preceding ones.
There’s no doubt that electronic banking is a win-win for both bank customers and banks themselves. Not only has convenience been improved exponentially, but electronic banking has helped financial institutions expand the scope of their services without incurring as much of the cost associated with bricks-and-mortar branch banking expansion.
And yet … with nearly a half-century of electronic banking behind us, consumer attitudes about personalized banking services persist.
We’re reminded of this in Nielsen’s latest survey of American consumers, conducted this summer. The study shows that while apps, online banking services, and the granddaddy of them all — ATMs — have made banking easier than ever before, there’s still a fundamental desire for physical branches.
The reason? The “customer experience” plays a major role in financial services, and for many consumers, that experience plays out in the trust that comes with personal interaction.
Nielsen’s June 2016 research shows that consumers prefer using a physical bank branch for a variety of reasons — paramount among them being the personal interaction with bank employees. Here’s how this and the other reasons stack up:
Personal service and interaction with bank associates: ~31% cited as a reason for preferring visiting a physical banking facility
Convenience: ~24%
Ease of use: ~14%
Concern about the security of a transaction: ~14%
The dollar amount of the transaction: ~5%
Prefer not to use a computer or mobile device to interact with the bank: ~4%
Note that an aversion to using computers or mobile devices is hardly a factor in consumers’ preferences to dealing with a physical banking location. It might have been at one time, but that factor is rapidly disappearing as a reason.
Which activities are best “aligned” with the personal experience many consumers expect to receive? Nielsen found that these are the most important ones to accommodate:
Opening checking or time savings accounts
Cashing and depositing checks
Seeking financial advice
Taking out a loan
The Nielsen study provides clues for financial institutions as to how they can align their products and services at each physical location — which might not be the same at each branch, based on the “dynamics” of the customer base being served.
More information about the Nielsen study can be viewed here.
How about you? How often do you take trips to the bank versus handling everything online? Would you miss having your branch easily accessible if suddenly it was located more than 10 miles away from you? Please share your perspectives with other readers.
Sure, it signifies growing economic strength and confidence … but what about the downside?
According to the latest estimates, U.S. credit card balances are expected to hit $1 trillion by the end of 2016.
It’s a milestone of sorts. After all, the last time Americans’ total credit card balances exceeded $1 trillion was in 2008, just before the onset of the “Great Recession” as the housing/financial crisis intensified.
Does this new peak herald the end of the frugal consumer spending habits which transpired in the wake of the recession?
Perhaps so … but a good deal of the explanation reflects on the financial institutions themselves, who began opening the spigot by relaxing restrictions on signing up subprime consumers.
They’ve also begun raising credit limit amounts.
All this is a change from before, when credit-tightening was the name of the game from 2009 onwards.
Part of what’s driving the new policies is the fact that credit cards represent one of the few bright spots in consumer finance at the moment.
To illustrate the point, large credit-card issuer Capital One reports a year-over-year gain of nearly 15% in the 1st quarter of 2016 compared to a year earlier. Other major issuers — Citigroup, J.P. Morgan Chase and Discover Financial Services among them — also have experienced significant gains.
By contrast, other consumer lending activities are far less lucrative, because low interest rates make margins on traditional lending very low.
I wonder if the rush to ply subprime borrowers with new general-purpose credit cards is a smart long-term proposition, however. Nearly 11 million such cards were issued in 2015. That’s ~25% higher than in 2014 and the highest number of such cards issued annually since 2007.
Couldn’t the next bout of economic turbulence put us right back into a bevy of defaults as before? And aren’t we seeing hints of this already?
Here’s a clue: defaults rates appear to be rising along with the issuing activity — including a steady uptick in each of the first four months of this year.
And let’s not forget automobile loans, either. They’re up significantly as well — along with delinquency rates.
I think history can help guide us here — and with a lot more caution than was the case back in those halcyon days of 2007. If there are problems, no one can say that we weren’t forewarned, based on recent history.
What are your thoughts? Please share them for the benefit of other readers.
Tax filing day has come and gone, and for millions of Americans, it’s another reminder of how complicated and convoluted our current tax collection system is.
For some of us, it means setting aside a couple evenings or an entire weekend to collect receipts and other relevant documentation, work through the filing documents and prepare tax information — most of which the federal government already possesses.
For many others, trepidation — or just the sheer irritation of preparing their tax returns — means paying another person or a tax preparation service to do it for them.
The amount of hours and dollars spent on tax preparation is rather astounding; according to a White House estimate published as far back as 2010, collectively it amounts to over 7.5 billion hours and ~$140 billion each year.
Thus, the current lay of the land should make considering new alternatives just the thing to do.
Along those lines, in a recent article in The Atlantic, senior economics editor Derek Thompson posited a “third way”: Why not receive a document from the government with the relevant information already filled in, and all the taxpayer needs to do is confirm the documentation?
It seems like a cross between Pollyanna and a pipe dream … until one begins to realize how neatly this approach aligns with the financial lives many people lead.
According to the Atlantic article, about half of American taxpayers earn all of their earned income from a single employer’s wages along with interest income from just one financial institution. This is information the government already collects, which would make it possible for the IRS to send nearly completed tax forms to these individuals.
Some Scandinavian and Baltic countries have been doing this for years.
In fact, a full decade ago economist Austan Goolsbee proposed this very thing for the USA. In a paper published by the Brookings Institution, Goolsbee advocated adoption of a “simple return” that would involve sending out pre-filled documents to those taxpayers who have the most straightforward taxes.
Those who qualify would include approximately 9 million single, lower income taxpayers who work for a living and don’t itemize their deductions.
An additional 17 million taxpayers have returns that are nearly as simple — including married couples who don’t itemize deductions.
Alas, as with any problem, there is a solution that’s “simple, elegant … and wrong.” Barriers preventing the adoption of a new, streamlined tax filing process include three big ones:
The current federal income tax system is not just complex, but also riddled with special interest protections. While in theory, a powerful argument for simplification falls on receptive ears, ultimately it fails when people begin to realize how the reform will reduce their own personal tax benefits. Too often, it’s “Tax simplification for three but not for me.”
The cost to overhaul the tax collection system isn’t chicken feed — and as we all know the IRS isn’t exactly swimming in excess funds after having raised the ire of Congress through its targeting of not-for-profit entities (not to mention the not-so-trivial cost of implementing Obamacare compliance enforcement).
Resistance is also coming from two other quarters. Tax preparation services are fundamentally opposed to simplification of the process because their very raison d’être depends on the continuation of a complex system that most people cannot or will not deal with on their own.
[On this last point, unlikely allies of the tax preparation services are political conservatives who may hate the current tax code, but who are suspicious of any remedies that might make tax collection become any “easier” for the government.]
Still … it would seem that any serious effort at rethinking the current tax filing system should be given all due consideration, as I have yet to meet anyone who is satisfied with the way things are today.
Where do you come down on the issue? Please share your observations with other readers here.
The business world is abuzz about the latest moves by China to regulate the behavior of U.S. and other foreign companies that choose to do business in that country. What’s the real skinny?
While much of the reporting and commentary has been decidedly scant on details, we can actually take a look at the official document that contains the various provisos the Chinese government is intending to impose on foreign companies.
Ostensibly, the declaration is aimed at “protecting user security.” Here are the six provisions that make up the declaration:
Information Technology Product Supplier Declaration of Commitment to Protect User Security
Our company agrees to strictly adhere to the two key principles of “not harming national security and not harming consumer rights” and hereby promises to:
#1. Respect the user’s right to know. To clearly advise users of the scope, purpose, quantity, storage location, etc. of information collected about the user; and to use clear and easy-to-understand language in the user agreement regarding policies and details of protecting user security and privacy.
#2. Respect the user’s right to control. To permit the user to determine the scope of information that is collected and products and systems that are controlled; to collect user information only after openly obtaining user permission, and to use collected user information to[sic] the authorized purposes only.
#3. Respect the user’s right to choice. To allow the user to agree, reject or withdraw agreement for collection of user information; to permit the user to choose to install or uninstall non-essential components; to not restrict user selection of other products and services.
#4. Guarantee product safety and trustworthiness. To use effective measures to ensure the security and trustworthiness of products during the design, development, production, delivery and maintenance processes; to provide timely notice and fixes upon discovery of security vulnerabilities; to not install any hidden functionalities or operations the user is unaware of [sic] within the product.
#5. Guarantee the security of user information. To employ effective measures to guarantee that any user information that is collected or processed isn’t illegally altered, leaked, or used; to not transfer, store or process any sensitive user information collected within the China market outside China’s borders without express permission of the user or approval from relevant authorities.
#6. Accept the supervision of all parts of society. To promise to accept supervision from all parts of society, to cooperate with third-party institutions for assessment and verification that products are secure and controllable and that user information is protected etc. to prove actual compliance with these commitments.
Often with China, there are “official” pronouncements … and then there’s what’s “really” going on behind the curtain.
So to find out the real skinny, I decided to ask my brother, Nelson Nones, who has lived and worked in East Asia for years. Since Nelson’s business activities take him to China and all of the other key Asian economies on a regular basis, I figured that his perspectives would be well-grounded and worth hearing. Here’s Nelson’s take:
Points 1 through 3 are fundamentally no different from the provisions of personal data protection laws already on the books in the 27 member states of the European Union, plus Australia, Hong Kong, Iceland, India, Japan, South Korea, Liechtenstein, Macau, Malaysia, New Zealand, Norway, Singapore, the Philippines, Taiwan and some U.S. states. Nor do they materially differ from privacy policy best practices — so I would not see these as particularly onerous or unreasonable.
The key difference is that these points are not enshrined in law in Mainland China, so compliance is voluntary at the moment (as it was in Singapore until 2013) – presumably binding on only those companies that sign this declaration.
News reports also indicate that China has asked only American technology companies to sign its Declaration of Commitment, implying that domestic Chinese companies aren’t necessarily held to the same standards — although if this is truly the case, it might actually put Chinese companies at a competitive disadvantage by enhancing the appeal of American technology products to discerning Chinese users.
Point 4 doesn’t generally fall within the scope of existing personal data protection laws, but in my view its provisions fall well within the QA and warranty commitments that any legitimate technology company should be prepared to make in today’s competitive environment.
Comparing Point 5 with legislation currently in force within the European Union, Australia, Hong Kong, Iceland, India, Japan, South Korea, Liechtenstein, Macau, Malaysia, New Zealand, Norway, Singapore, the Philippines, Taiwan and some U.S. states, this point lacks some really key definitions, including:
Who exactly is a “data subject” who is entitled to personal (i.e. user) data protection?
Who exactly is the “data controller” who owns the user information that is being collected or processed?
Who might be the “data processor” who stores and/or processes user information on behalf of the “data controller”?
The legislation and regulations I’ve reviewed in this realm provide very explicit (and varied) definitions of these entities. Unlike China’s Declaration of Commitment, for instance, the E.U. Data Protection Directive allows “data controllers” or “data processors” to transfer user data outside the E.U., as long as the country where the data is transferred protects the rights of “data subjects” as much as the E.U.
It also defines which “data controllers” and “data processors” must comply with E.U. law, based on whether or not they store or process personal information with the E.U., or operate within the E.U. (regardless of where the data is actually stored or processed).
The requirement to keep sensitive user information within China’s borders, in the absence of permission from users or “relevant authorities” to transfer, store or process it elsewhere, could also be seen as an attempt by the Chinese government to enlist the help of American technology companies in circumventing the U.S. government’s ongoing Internet data-gathering programs.
If this attempt succeeds, it might further enhance the appeal of American technology products to discerning Chinese users.
Point 6 is garnering the most headlines in the West because of the implied threat that cooperating with “third-party institutions for assessment and verification … to prove actual compliance with these commitments” could mean being forced to reveal source code or encryption algorithms.
However, in classic Chinese style, none of that is actually spelled out.
A little history about this: Over the past decade, the Chinese government has put forward various proposals for controlling IT – and then abruptly withdrawing them in the face of domestic as well as global criticism. Here are two:
As for implications, China’s Declaration of Commitment shouldn’t have significant impact on companies that aren’t in the consumer IT market. At best, its first five points could potentially improve the competitiveness of American IT products in the Chinese market.
However, I would advise any tech companies that may be wondering what to do, to sit on their hands for a while. Law in China is always a “work in progress,” so the safest bet is to wait for that “progress” for as long as possible.
So there you have it – the view from someone who is smack in the middle of the business economy in East Asia. If you have your own perspectives to share on the topic, I’m sure other readers would be interested to hear them as well.
According to poll of consumers conducted for Google, more people are concerned about their identity being stolen or their accounts being hacked than someone breaking into their home.
Clearly, people are highly sensitized to the issue of identity theft and various forms of online mischief. The question is, how good are we in protecting ourselves against these threats?
Further Google analysis has determined that the biggest threats come from so-called “manual hijacking,” in which nefarious attackers spend significant time exploiting a single victim, with the near-inevitable result of financial losses.
The incidence of manual hijacking is rare — about nine incidences per million users per day. But the damage can be severe.
The most common way attackers gain illicit access to online accounts is through phishing — sending deceptive e-messages designed to trick recipients into divulging their user names, passwords, and related personal information.
Unfortunately, phishing attacks are working more effectively than people would care to admit.
The most effective attacks — the ones that “look and feel” legitimate — are successful in getting people to act about 45% of the time — typically going to a fake but all-too-genuine-looking web page impersonating a “real” vendor, where the unsuspecting “phishee” is asked to provide personal information.
Incredibly, Google finds that nearly 15% of the people who go to those sites actually end up divulging their personal information.
Then it’s off to the races for the bad guys. Google’s findings show that approximately 20% of the compromised accounts are accessed within 30 minutes of the login information being nabbed.
And the breach isn’t for a just a few seconds, as some people erroneously believe. In actuality, the average amount of time spent trolling around inside an unsuspecting owner’s account is more than 20 minutes. You can bet that those 20 minutes aren’t being spent wandering around “just looking”!
The kinds of things happening inside of those 20 minutes include changing passwords to lock true owners out of the site, searching for pertinent information such as credit card data, SSNs, bank relationships data including account numbers and balances — and even social media account data.
Not only is this information used to fleece the target individual in question, but also to launch new attacks against other people who are discovered within the compromised individual’s own sphere of contacts.
These subsequent phishing attacks are often successful because they appear to be completely legitimate — communications coming from friends or relatives.
Not just successful, but really successful: Google estimates that people targeted from the contact lists of hijacked accounts are more than three times more likely to be successfully hacked themselves.
Keeping a healthy vigilance is what’s required to stymie these “manual hijacking” efforts. My own approach is to delete anything that comes from a purported “known” source if I’m not expecting the e-mail beforehand, without opening it. I figure if it’s important enough, the sender will get in touch with me a second time or in some other fashion.
If I’m particularly suspicious, I might also visit the sender’s website directly (through the web address I already have on file) to see if there’s any corroborating evidence that there is a legitimate attempt to get in touch with me.
The way I figure it, the minor inconvenience and/or delay in conducting business in this fashion is far less problematic than the potentially disastrous consequences associated with identity theft or account hijacking.
Unfortunately, there’s no indication at all that these kinds of “manual hijacking” activities will start declining anytime soon. It’s a very lucrative business for the perpetrators, because even a very small percentage of accounts compromised in this manner represents significant dollars when you consider how many millions of phishing messages are being sent out by these hijackers on the front end.
What are your strategies for counteracting phishing attempts? Please share your thoughts with other readers.
It’s only natural for Americans to be somewhat spooked about what’s happening in the financial markets, what with thousand-point drops on the stock exchanges and all.
It’s even more disconcerting to realize that the forces in play are ones that have little to do with the American economy and a lot more to do with Europe and China. (China in particular, where bubbles seem to be bursting all over the place with the fallout being felt everywhere else.)
In times like this, I seek out the thoughts and perspectives of my brother, Nelson Nones, an IT specialist and business owner who has lived and worked outside the United States for nearly 20 years — much of that time spend in the Far East.
To me, Nelson’s thoughts on world economic matters are always worth hearing because he has the benefit of weighing issues from a global perspective instead of simply a more parochial one (like mine).
Nelson Nones
Yesterday, I had the opportunity to ask Nelson a few questions about what’s happening in the Chinese economy, how it is affecting the U.S. economy, and what he sees coming down the road. Here are his perspectives:
PLN: What is your view of the Chinese economy — and what does the future portend?
NMN: I’m a real pessimist when it comes to the current state of the Chinese economy. I also think the Chinese will turn on themselves politically as their economic house of cards is collapsing — so look for a sharp upturn in political and social turmoil as well.
Just as the bubble burst in the U.S. and Europe in 2007-08, it’s bursting now in China — and the rest of East Asia (South Korea, Japan, Thailand and Singapore) are going to get caught in the fallout because of the extent to which their economies are reliant on trade with China.
PLN: What do you look at, specifically, for clues as to future economic movements?
NMN: The barometer to watch is the price of oil. It plummeted in 2007, presaging the “great recession” in the West.
Oil prices began to drop again in 2014. The U.S. oil benchmark fell below $40 per barrel on August 24, 2015, a level not seen since 2009. I believe the underlying root cause is a sharp contraction of East Asian demand due to the economic bubbles bursting over here, coupled with persistently high supply as Middle Eastern oil exporters compete against American producers to protect market share.
PLN: How will these developments affect the U.S. economy?
NMN: The oil bust will continue in the U.S., dragging the economy down. But energy prices will be lower, buoying other parts of the American economy. For instance, the domestic airline sector will benefit and consequential demand for Boeing jets will grow.
U.S. imports — specifically, imports from China and the rest of East Asia — will become cheaper as China and other countries allow their currencies to fall in order to protect their exports.
This is probably a “net-neutral” for the US economy in that American exports will be hurt due to the relatively stronger U.S. Dollar, but American consumers will benefit from lower prices. So, the direct economic impact is likely to be mixed.
PLN: So, why worry?
NMN: The real risk, in my opinion, is a global liquidity crisis. Over the past quarter-century, China and other East Asian countries have accrued enormous wealth. But they didn’t hoard their newfound wealth; they invested it both domestically and overseas.
China has invested ginormous amounts of cash in domestic infrastructure and housing. That money is already spent, and a sizeable part of the investment has already gone to waste in the form of corruption, new housing that nobody wants, underutilized transport infrastructure and non-performing loans made to inefficient state-owned enterprises.
All of this will eventually need to be written off (that’s why their bubble is bursting).
But China has also invested lots of money in overseas financial instruments. Think of the Chinese as the folks who financed the Federal Reserve’s Quantitative Easing program as well as Federal debt in the U.S. But as the Chinese run out of cash at home, they will increasingly need to liquidate their overseas investments just to pay their bills.
This poses a very real threat to the fiscal stability of U.S. and European governments, and to the supply of capital in U.S. and European financial markets.
The Federal Reserve is likely to be caught in a double-bind. On the one hand, if the Fed raises interest rates in response to the reduced supply of capital (as it is widely assumed they will, later this year), they risk choking off the tepid U.S. recovery currently underway.
This would also cause the U.S. Dollar to strengthen further, thereby exacerbating the negative impact of the Chinese bust by making U.S. exports less competitive in global markets.
On the other hand, if the Fed leaves interest rates where they are (basically zero), then they won’t be able to attract enough capital to roll over the public debt that the Chinese are trying to liquidate. In other words, the Fed risks a “run on the bank.”
The Fed can deal with this by printing more money (more or less what the Chinese did in 2007-8), but this would inevitably introduce inflationary pressures in the U.S. It would also lengthen the time it takes for the Chinese to right their ship, because it will put downward pressure on the U.S. Dollar, thereby constraining whatever the East Asians can do to boost exports.
My guess is that the Federal Reserve will “blink” and keep interest rates at zero (and also print more money to pay off the Chinese) in hopes that (somewhat) cheaper imports will offset (some of) the inflationary impact of printing more money.
This is equivalent to kicking the can down the road.
PLN: Do you see any impact on the 2016 Presidential race in the United States?
NMN: As a result of kicking the can down the road, I foresee little impact on the 2016 U.S. Presidential race — but watch out in 2020 when the hangover is well underway.
Alternatively if the Fed raises interest rates, I suspect the Democratic Party candidate will be more vulnerable because the short-term economic pain will be much higher in the U.S. The incumbent party will get most of the blame. Fair or not, that’s just the way bread-and-butter issues play out in American politics.
PLN: What about unrest in China — might that have political repercussions in America?
NMN: The way I see it, political or social turmoil in China will have zero impact on the U.S. Presidential race. Americans of nearly every political stripe or ideology dislike or distrust Chinese governance, yet unlike the “China lobby” of the Cold War era, they have no appetite to intervene in what they rightly perceive to be internal Chinese affairs.
Or they’re clueless about events in East Asia. Or they just don’t care.
So there you have it — a view from the Far East. If you have other perspectives, please share them with our readers here.
______________
Update (8/28/15): A few days after this post was uploaded, I received this follow-up from Nelson:
Just as I had predicted, check out this link. Federal debt is getting more expensive to finance, because the drop in demand for U.S. Treasury bonds (caused by the Chinese liquidation apparently underway) is driving yields up. According to the article, “The liquidation of such a large position, if it continues, could wreak havoc on the Treasuries market.”
Now look here: http://www.bloombergview.com/quicktake/federal-reserve-quantitative-easing-tape. It’s an easily understandable explanation of how the Federal Reserve’s quantitative easing (QE) program worked. Essentially the Fed, like China, stepped in to buy Treasuries also. The Fed also bought mortgage-backed securities.
The Fed’s purchases of Treasuries and mortgage-backed securities now make up ~85% of the Fed’s assets. The Fed hasn’t indicated what it will do when these assets mature, but if it doesn’t roll over this debt (or a portion thereof) then we can expect Treasury yields to rise yet again. Even if the Fed decides to keep interest rates where they are, at near-zero, rising Treasury yields could bring on a liquidity crunch within the private sector as capital is increasingly drawn away from private investments (loans, corporate bonds and equities) to government-issued bonds paying higher yields with little risk.
Facing the Chinese liquidation, this is why I suspect the Fed will opt to roll over its holdings of Treasuries and mortgage-backed securities, and keep interest rates at near-zero, at least through the 2016 Presidential election cycle. The Bloomberg article cited above describes QE as an alternative to printing more money, but in the end it’s really the same thing.
The scandal involving the security risk to U.S. State Department e-mails is just the latest in a long list of news items that are bringing the potential dangers of cyber-hacking into focus.
In the realm of marketing and public relations, recent breaches of PR Newswire and Business Wire data gave hackers access to pre-release earnings and financial reports that have been used to enrich nefarious insider traders around the world to the tune of $100 million or more in ill-gotten gains.
These and other events are occurring so regularly, it seems that people have become numb to them. Every time one of these news items breaks, Instead of sparking outrage, it’s a yawner.
But Jane LeClair, COO of the National Cybersecurity Institute at Excelsior College, is pleading for an organized effort to thwart the continuing efforts — one of which could end up being the dreaded “Cyber Pearl Harbor” that she and other experts have warned us about for years.
“We certainly can’t go on this way — waiting for the next biggest shoe to drop when hundreds of millions — perhaps billions — will be looted from institutions … It’s time we stopped making individual efforts to build cyber defenses and started making a collective effort to defeat … the bad actors that have kept us at their mercy,” LeClair contends.
I think that’s easier said than done.
Just considering what happened with the newswire services is enough to raise a whole bevy of questions:
Financial reports awaiting public release were stored on the newswires’ servers … but what precautions were taken to protect the data?
How well was the data encrypted?
What was the firewall protection? Software protection?
What sort of intruder detection software was installed?
Who at the newswire services had access to the data?
Were the principles of “least privilege access” utilized?
How robust were the password provisions?
In the case of the newswire services, the bottom-line explanation appears to be that human error caused the breaches to happen. The attackers used social engineering techniques to “bluff” their way into the systems.
Mining innocuous data from social media sites enabled the attackers to leverage their way into the system … and then use brute force software to figure out passwords.
Once armed with the passwords, it was then easy to navigate the servers, investigating e-mails and collecting the relevant data. The resulting insider trading transactions, made before the financial news hit the streets, vacuumed up millions of dollars for the perpetrators.
Now the newswire services are stuck with the unenviable task of attempting to “reverse engineer” what was done — to figure out exactly how the systems were infiltrated, what data was taken, and whether malicious computer code was embedded to facilitate future breaches.
Of course, those actions seem a bit like closing the barn door after the cows have left.
I, for one, don’t have solutions to the hacking problem. We can only have faith in the experts inside and outside the government for determining those answers and acting on them.
But considering what’s transpired in the past few months and years, that isn’t a particularly reassuring thought.
Would anyone else care to weigh in on this topic and on effective approaches to face it head-on?
What’s up with mobile payments? They’re the epitome of convenience … and yet most people haven’t taken the plunge.
Actually, contactless technology isn’t exactly new; MasterCard introduced cards more than a decade ago, and a number of transit authorities like the Chicago and London subway systems were early adopters.
Nones Notes 