17 Banks since January 1, 2009 does not make a situation where you can claim banks are failing left and right. The fact is yes, there are more banks closing. But the closure of banks is more often a reflection of an FDIC insured bank not meting minimum standards. And in some cases as was the one the closed in Georgia a few weeks back, it was a case of the FDIC declaring that the bank "might" get into trouble due to a preponderance of CRA loans on its books.
It is certainly a faster clip than 2004 or 2007 4 and 3 respectively. But it isn't even remotely close to the failure rates of banks during the start of the Depression. It isn't the same as when FDR took office on March 4, 1933 and immediately declared a Bank Holiday to prevent dozens of banks failing every day. Nor is it even as bad as the Savings & Loan collapse.
The fact is the vast majority of FDIC insured state and local banks are fine and are in no need of even potential bailouts. The N.A. banks are shaky in so far as they are more exposed to the average national trend in real estate and commercial activity due to the very fact they are N.A. banks. As far as cash flows go there isn't much of an issue except when you get to the N.A. banks and the now non-existent investment charter banks. In fact, the shaky nature of the N.A. banks is almost directly a result of them snapping up the investment banks at bargain basement prices.
The issue is that the N.A. banks bought up their main rivals for commercial level banking at a really cheap price. But they didn't suspect the degree to which the mortgage backed securities were no longer fungible so the paper sheet balance was much worse than they suspected it would be.
Monday, March 16, 2009
Banking Crisis?
Sunday, March 15, 2009
Printing Money
The Bank of England is deciding to simply "print" money in an effort to create positive cash flows across the United Kingdom's economy. This is usually not a good thing for governments with debts of substantial proportions. Examples of recent failures of this policy are cases like Argentina or for that matter any of the former Soviet governments shortly before their collapses where they literally turned on the printing presses in order to keep their collapsing systems running. Is China soon to feel a sting?
China CAN print as much Yuan as it wants. For that matter they still make their coins out of aluminum and their bank notes are still cheap ink on a paper that might as well be rice paper. The reason why they can do that is because their currency is still about as convertible as the Soviet Ruble was. The "independent" banks and commercial markets do not control the money supply inside China, the government does. If they say a Yuan is worth 1:1 with the US Dollar then it does.
They can do this because their central banking system enjoys the side benefits of having a closed communist consumer market dependent upon what the government declares the prices of goods and services to be & the fact that they can make such a determination because they convert the profits from selling consumer goods abroad into government securities of the nations they trade with. Meaning, while their economy may have a worthless currency, it remains wholly stable because the Chinese government holds the national government debts of most of its trading partners in a majority status.
As long as China can get the government securities of other nations, it can afford the policy of simply printing its own currency as it wishes. The Premiere of China bitterly noted however the fatal flaw in this system. Now that we are not buying as much consumer goods from China, they are unable to buy as much government debt in the form of Treasury Bills. Further, the T-Bills that they could buy are potentially now becoming upside down investments if held to maturity. That means that suddenly China as a government cannot simply print money to fuel its growth without also risking a deflation in purchasing power of their domestic currency.
As long as they had a physical good to sell and a means to convert the payments for those goods into securities that would return more interest than the effect of continually printing money for their domestic markets, they were fine. Now they are stuck holding a paper mountain of debt that could crush them because we are considering "printing" money as Western Governments seek to force their own domestic credit markets into life again.
The important point is that we won't be backing our printing by the debt paper of a greater economy. We are just going to print the stuff. If China stops buying our government debt, then what they currently hold will become meaningless as far as it being able to allow them to simply print their own domestic funds. If they do keep buying, and we do print money ala Bank of England, they run a substantial risk that their past purchases will turn to upside down investments and their current and future purchases will not allow them to simply print money to enable a monetizing of their own domestic goods and services.
Either way, China's government leaders are bad because whatever they do means a downturn in their projections and also means the fueling of China's growth with cheap domestic currency is at an end.
Monday, March 9, 2009
Military bases and where Local Federal Grants Come Into Play
The unintended negative consequences of military bases as far as economics goes is pretty well documented. In most- but not all- places that have gone through the BRAC process and have then been decommissioned the local economies tend to perform better overall after only a couple of years. For example in my city we have a base closing in about 18 months after having been emplaced for nearly 75 years. The projections as to what the economy will do as a result of not having the military base anymore is that we should see a doubling of economic activity in the immediate area around the base. Further the base will now pay property and sales taxes- something which it hasn't paid for in many years.
And there are other examples in my state as bases have been closed or realigned. Warrner Robbins AFB for example was realigned and the city went into conniptions when it happened. Yet the reduction of base activity has ironically- though not unexpectedly lead to the first economic improvement for the city since the base popped up during World War II.
The perception is that military bases have scads of civilian contractors running about and getting paid to do things for the military so that the military can use its manpower for actual mission and training. The reality however is that unless it is a base like Dobbins AFB in Marietta, Georgia where the facility is actually a shared site with Lockheed-Martin's aircraft assembly plant, there isn't much local employment derived from on base activity. The reality is that while there is some service industry benefits to a local economy- for example the strings of fast food places and bars that abut many military bases, there is little transfer of wealth from the actual cost of the financing of the base to the outlaying economy that the base occupies.
As far as military base distributions you can just look at a military installations map if you want to to see my point. For example in all of New England you have two military installations, Brunswick in Maine and New London Connecticut. In New York you have a single Army base. Then you have Otis AFb in Massachusetts and McGuire in New Jersey. As Senator John Kerry pointed out, Congress and the BRAC process have set up a situation where most military installations now reside in the South and in the West. He found it to be political in that about the only places we now have military bases are those in "red states" or places where the congressional district in an otherwise blue state happens to be red.
To be clear, the BRAC process has largely removed politics from the decision on whether a military base should be maintained or established as well as when they should be shut down. It is also interesting to see that one of the standards by which the determination is made is "community commitment" to the base under review. Often one of the grounds for decommissioning of a base is the determination that the political leaders of a district support a base being maintained or not.
When Moody AFB, Robbins AFB, and Athens Naval Logistics & Supply School facilities were placed under the last round of BRAC, Moody and Robbins were determined to have political leadership support as well as community support. Athen's political leaders did not want their base and the left wing political advocate and activist groups in Athens also did not support the base. In keeping with Senator Kerry's thoughts on the red vs blue placement, Moody and Robbins AFBS happen to be in staunchly red districts. Athens happens to be a blue district in a sea of red.
As far as the South being a beneficiary of having more of the 110 Federal Prisons you are correct 56 of them happen to be in the South with 54 spread across the rest of the country. However the number of Federal Prisoners in total is somewhere north of 200,000 people. That isn't much of an offset, and is even less of an offset when you consider federal prisoners are still considered to be residents of their last state while not incarcerated. Meaning Federal Prisoners don't cant when it comes to determining Congressional representatives allocation by Census.
Before BRAC, Congress members did fight tooth and nails for bases in their districts because given Cold War realities, many voters thought having a military presence in their district was good insurance. I always thought it was kinda a stupid conclusion for people to come to given that ICBM's look at military bases as targets to hit. But there was some justification especially during the Reagan years that military bases were one of the few reliably funded Federal expenditures that could prop up local economies during the late 1970's and early 1980's.
With the fall of the Iron Curtain however, the need for baeses made little sense, and when people started crunching the numbers, often they realized that in an environment of reduced military spending by the Federal Government, the bases were in fact a net drag on local economies. No one in Congress wanted to have to say closing down the local White Elephant was a good idea, so they set up BRAC to let non- politicians make the determination for them. That is why you have seen less Congressional leverage being placed on maintaining bases because now a member of Congress essentially has little say on the process.
As to the differences in Federal outlays in terms of cities
http://www.census.gov/govs/www/estimate06.html
By way of example local Georgia political entities received $1,069,146,000 in direct government funding.
Delaware $64,537,000
Illinois $3,097,223,000
Maine $119,495,000
The breakdowns are interesting and you can indirectly see the funds used by the Federal Government to run Federal facilities at the local level in each state. Note however that this does not mean that that money is part of the local budgets that actually get used by local administrations. Instead for example the existence of a Federal Building will be accounted for in "general public buildings" but often the costs associated with those buildings are what the Federal Government spends to run the building. It does not indicate that the Federal Government gives the money to the local level to run the building on behalf of the Federal Government.
When you start to break out these funds from the total federal expenditure at the local level, you can determine what Federal Funds go directly towards the actual local government level. After you do this you will see that on a generalized basis cities, counties, and municipalities at the local level in the South get less direct money aid than is generally seen in the rest of the country.
Hope that helps.
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