Wednesday, August 31, 2011

Consumer Fatigue Hits The Email Coupon

It’s a sign of deflation when people groan at word of more low prices from more merchants. It was the first sign of recession in December 2007. Consumers started to recoil at the intensity and intrusiveness of the Christmas-season sales. It was that episode that inspired me to coin the term “bargain-weary.” Now shoppers are wearying of bargains again, and this time, they aren’t waiting till December. Ben Parr writing in Mashable asks, “Are We Approaching the End of the Daily Deals Era?” noting the stunning collapse of the Groupon phenomenon, where activity has declined by half in barely two months. Groupon specializes in heavily hyped daily offers by email, and it was just a matter of time before the hype wore off. But if Groupon is not doing so well, its competitors are doing even worse, with two of the large competing operations shutting down this summer.

It can’t be a coincidence that people are getting tired of the gimmickry of one-day email bargains at the same time that consumer confidence has hit a three-year low. The fundamental problem with daily email coupons is the same as the problem that eBay faced after the novelty wore off: no matter how good the deals are, if you go out and spend a substantial sum of money every day, or even just several times a month, you end up broke. It’s only natural, at that point, to come to resent the “amazing” deals that took away all your money. That’s when hype becomes humdrum and bargain-happy gives way to bargain-weary, and people start to notice just how intrusive the email coupon services are. Of course, the more savvy consumers start to become wary well before they are financially exhausted, and that seems to be the point that the average U.S. consumer has reached.

The economic risk, of course, is that in shutting out the hype, consumers may shut out most of the commercial system, spending sharply less as a by-product of trying to avoid the annoyances of commercial culture. It does not take an enormous number of consumers spending 10 or 20 percent less to put the economy as a whole in retreat.

Tuesday, August 30, 2011

The “I Am Still Here” Message

“I am still here.” “We are all okay.” These are the messages of millions of people, some of whom today are checking in after three or four days without communications, electricity, or both. It is a relief to hear, after a disaster that has left some people dead, injured, or homeless, that our friends, relatives, and neighbors have been spared.

But the same uncertainty occurs, to a lesser degree, every day. You never know for sure when you hear from anyone that you will ever hear from them again. Sometimes you might be 99.999 percent sure that you will see someone again tomorrow, but you can never be any more certain than that. And so the message, “I am still here,” is part of every message and every update, even if it is never specifically stated except at times like this. Sometimes it is the most important part of a message. We could make life a little more gentle by focusing on that aspect of the messages we hear from people, especially those messages we might otherwise jump to disagree with.

Whatever someone is saying, they are also saying, “I am still here.” When you focus on the part of the message that says, “I am still here,” it becomes impossible to respond by saying, “I disagree.”

Monday, August 29, 2011

Crisis Fatigue and Debunking Hurricane Irene

Having had a chance to check in with the world after getting electricity and communications back, I couldn’t help noticing the small number of people who want to debunk Hurricane Irene. It’s understandable that people with crisis fatigue want to put this latest event behind them, but it is premature, at least, to declare the hurricane a non-event while half a million people are still without power (and that’s just in Pennsylvania).

I have always said that debunking is not based on science, and this is especially the case here. You have to disregard both the system of classifying hurricanes, by which Irene was considered a major hurricane, and the view from the satellite, where Irene was one of the largest features on the world’s surface, to say that nothing had happened.

You also have to disregard the human impact to disregard the hurricane. But it was a big enough event to show up in the weekend’s television ratings, and it has had enough of an impact on work and spending to show up in the national economic aggregates for this month when those are released.

Saturday, August 27, 2011

Hurricane Preparations and Survival Mentality

As I write this, it is late at night, and some of the heaviest rain from Hurricane Irene is falling outside. Unlike a summer storm front, a hurricane doesn’t have a clearly defined beginning as it approaches. It was just heavy clouds this morning, then shifting breezes, and by late morning, a few occasional raindrops.

Most of the people I saw out on errands this morning had a deadly serious attitude about them. They were on a mission, and it wasn’t going to take them a minute longer than it had to.

Some economists look at the empty store shelves after people stock up in advance of a severe weather event and say that the disruption appears to spark an increase in economic activity. I’ve seen the supermarket shopping carts loaded with two or three weeks of provisions that someone is buying before a storm, so there must be something to that. Others focus on the many canceled events and closed businesses during the worst of the weather. On a normal Saturday night in August, people would be out entertaining themselves, and instead, right now, they are home, or holed up somewhere, not spending any money at all. For perhaps a million people, the power is out and will stay out for a few days, almost completely negating their ability to spend.

But I think back to the people I saw preparing for the hurricane this morning. They were not out on frivolous errands; rather, they were doing things they felt they needed to do to increase their chances of getting through the storm. This survival mentality has to stick with people at least to a slight extent for longer than the two days of the storm, perhaps not fading away completely for a couple of weeks. You don’t progress that easily from the survival errands of storm preparation to the frivolous spending that forms the margin between a shrinking economy and one that is holding its own.

This survival mentality must have a larger short-term effect on the economy than the thin balance between stocking up and weather-related closings. People in survival mode are more likely to pay debts, hold on to cash, and wait and see what happens before making a decision, just the opposite of the free-wheeling, sky’s-the-limit mentality associated with an expanding economy. It is still a short-term effect that cannot by itself form a long-term trend. But tonight’s hurricane has not been consumers’ only worry this year. There have been so many disruptions, changes, and worries that perhaps collectively they could lead spenders in general to act more hesitantly and make plans with a lower degree of confidence. And perhaps that, combined with other economic obstacles, could lead to a lower level of activity.

Friday, August 26, 2011

This Week in Bank Failures

Concerns about capital and solvency continued to erode bank stocks in Europe and the United States this week. Meanwhile, a proposed settlement over fraudulent home foreclosures is in doubt as banks seem willing to defend their actions one by one in court.

With a hurricane expected to close government offices in Washington and shut down cities along the East Coast throughout the coming weekend, there were no bank closings announced tonight. It wouldn’t be easy to solve problems in the transfer of bank balances and branches with regulators in Washington not available over the weekend because of weather and related power failures. Bank closings that were pending will be able to wait a week, or two, with a holiday weekend coming a week from tonight.

After the hurricane passes, it is far from certain that the stock exchanges will be operating normally on Monday morning. At the same time, coastal flooding and widespread power outages will mean that some midsized banks will be unable to open any branches or offices on Monday, a situation many have not faced before. Regulators reiterated guidance on this topic today. Banking customers in affected coastal areas may need to have patience with banks on Monday, but if a midsized bank cannot partially open by Tuesday, it will be a sign of gaps in its continuity plan. Small banks that have branches in a limited geographical area are by nature more susceptible to the power outages and evacuations of a severe weather event, but can be expected to resume normal operations when power and roads are restored.

Thursday, August 25, 2011

Preparing for a Hurricane in 5 Easy Steps

It seems like only yesterday when I was writing about an earthquake, and now it is time to prepare for a hurricane. My own home is within the forecast cone of Hurricane Irene, which is powerful enough that it could potentially still be a hurricane this far inland, so I need to make sure I have food set aside, enough water for a few days, camera batteries charged, candles, matches, and so on.

Whatever scale you are working on, a hurricane calls for a change of plans. These are some of the basic strategies to consider:

  1. Get Out of the Way. This morning the U.S. Navy is ready to take a fleet of ships out of the Chesapeake Bay into the Atlantic Ocean, where they can avoid the worst effects of the hurricane either by seeking deeper water where the waves aren’t as high, or by sailing far enough east to miss the storm. Tomorrow, if the forecast stays the same, airlines will be keeping their airplanes out of harm’s way by canceling Saturday’s flights to cities like New York.
  2. Keep a Low Profile. Most of us have seen enough television to know the importance of throwing the poolside furniture into the pool so that it won’t become airborne. Similarly, flags and banners may have to come down, and garbage cans may be tied down or carried indoors. Along the same lines, power plants, refineries, and similar installations will prepare to shut down as a precaution around the time that hurricane-force wind gusts arrive.
  3. Cancel. The Florida Marlins have already rescheduled today’s game, playing it yesterday to avoid the risk of a washout today. It will not be a surprise if a similar adjustment is needed for Saturday’s game, also in the path of the storm, in Philadelphia. Unless the hurricane takes an unexpected turn, there will be announcements of a wide swath of stadium events canceled starting this morning. Picnics, meetings, trips, festivals — not much will stand up to a hurricane. Stores and offices may close for a day just so workers can stay home.
  4. Reduce Expectations. If you’re in the path of the electric outages, getting the laundry done on Saturday may not be an option. I know I will be printing a few documents on paper so that I can work on them without the benefit of electric power, if it comes to that. Reading a printed book by candlelight might not seem very productive, but it’s something you can do when the Internet is down.
  5. Stock Up Early. Friday could be the busiest evening of the year in local supermarkets. Tonight will be busy too as shoppers go out early to beat the rush. If you bring home a brownie mix, plan on baking early. In Pennsylvania, we may make fun of our tendency to buy a week’s worth of supplies in advance of a storm, but going hungry because you can’t get out to the store in a storm would be even more foolish.

Wednesday, August 24, 2011

The East Coast Earthquake

I may be the grandson of a California seismologist, but before yesterday, my only direct experience of an earthquake was the day when a rake fell over on my front porch. There was nothing around that could have pushed it, so it had to be an earthquake, and of course, it was. But on that occasion, I didn’t actually feel the floor move. It was a different story yesterday. For ten or twenty seconds, the building I was in rumbled as if the air conditioner on the roof had gone wonky. Then the shaking grew until it was like an airplane taking off. Everyone agreed it could only be an earthquake. I ducked under the nearest desk for a moment, then joined the more sensible people who were already heading for the exits.

At the time, I guessed the magnitude was 6, and immediately realized that I wasn’t qualified to make that guess. But for a novice, I wasn’t too far off — it was 5.9 at the epicenter two states away. It surprised me to learn how far the earthquake extended. It was also felt in Atlanta and Boston. On the other hand, many people who were in shorter buildings on harder ground barely felt anything.

Geologists have always told us that much of the eastern half of the United States is on the same plate, and an earthquake anywhere east of Missouri has the potential to reach north to the Great Lakes and east to the Atlantic coast. A major earthquake in this zone, something we expect about every 500 years, could affect not just half the population of the country, but about three fourths of the federal government all at once. A moderate earthquake that struck during severe winter weather could be just as damaging. There is roughly a 1 in 10 chance of one of these two scenarios happening in the next 25 years. It is not a great chance, but not insignificant either. It presents a potential continuity problem for the federal government and the country. Where I was, and in many East Coast cities, the cellular network was largely unavailable for the better part of an hour. Imagine what might happen if it had been all utilities taken out for a few days across the same region.

Engineers know about this possibility, of course, and have been telling us for years that bridges and new buildings should be earthquake-resistant in design and that more of our utilities should be underground, where they are better protected from disasters of all kinds. I am sure these considerations will be taken a little more seriously now that so many people have personally experienced an East Coast earthquake.

Tuesday, August 23, 2011

Gaddafi’s Job Change

The decline of Gaddafi’s regime in Libya offers a lesson in roles and distinctions. There is no clear bright line between Gaddafi’s former position, as a tyrannical head of state, and his current one, that of a criminal gang leader on the run from the law. No one can say exactly what day that transition took place for Gaddafi, only that it did, at some point along the way. Society is based on recognizing roles such as these and the distinctions between them, yet paradoxically, the distinctions are not entirely real. They are to a significant and sometimes troubling degree imaginary.

Monday, August 22, 2011

Collapse of Empire in Libya

It has surprised many to see how thoroughly the security forces of the former Libyan government have vanished in the face of an incoming citizen army. Just yesterday a military analyst told BBC that it would be difficult for an army to even get to Tripoli with a seasoned army defending the city. It was a reasonable view, but the same day, the popular army moved into the city meeting defending forces counted not in thousands, but dozens, along with the occasional rooftop snipers. The snipers’ presence might have been deadly, but was hardly a defending force; a single sniper can cover one street at most, and for no more than a few minutes at a time.

In military terms, the rapid fall of Tripoli speaks well for the strategy of giving the enemy time to flee. The events also serve as a reminder of the fragility of empire. Historically, it is the rare exception for an empire of any kind to be stable and reliable for a lifetime. The regime in Libya, which appeared more stable than most countries at the beginning of the year, was actually on the verge of collapse — otherwise, how was it defeated by an army of untrained fighters in pickup trucks, many of them unarmed? The same is true, or will be at some point soon, of other oppressive institutions around the world. It will not be necessary to bring the four horsemen of the Apocalypse to unseat them; they will all but unseat themselves.

Sunday, August 21, 2011

Festivals and Weather

As economically important as festivals are, they can’t easily be protected from the risks of weather. We have seen more than the usual reminders of this this summer as storm fronts toppled stage backdrops at festivals in Ottawa and Indianapolis, a severe thunderstorm brought down trees and tents at a festival in Belgium, and flooding damaged the grounds of a festival in Bethlehem, Pennsylvania.

Festivals are more susceptible than most sectors of the economy to the fingers-crossed hoping-for-the-best planning that goes with an economy in recession or otherwise over-extended. Financial support for any activity may pull back in a recession, or expectations may get out ahead of finances in the later stages of a boom. When that happens, the level of activity should be scaled back so that there is still the flexibility to recover if things go wrong, but often instead, planners take a greater level of risk to meet expectations. With festivals, it does not help that a festival has to be fully planned long before the first weather forecasts are in. And it bears repeating that after a crowd has gathered, canceling because of weather worries cannot necessarily be considered playing it safe; history has recorded countless deaths and injuries from out-of-control crowds at events that are abruptly canceled, hence the showbiz saying, “The show must go on.”

Structural engineering is surely part of the answer to the risks of festivals and weather, however. It is the tallest temporary structures, the stage backdrops and overhead lights and perhaps the speaker towers that pose the greatest risk when severe weather strikes. Festivals should, to some extent, rely more on permanent structures where height is needed. A permanent structure can be made heavy enough to stand up in hurricane-force winds, and at a price that may be less than that of setting up and tearing down the same temporary structure year after year. Where temporary structures must be used, it is easy to say after seeing the recent video, they probably should not be twenty meters tall, despite the theatrical impact the visually massive stage can provide. It is easy enough to make the stage backdrop shorter, use fewer and smaller overhead lights, reduce the wind-facing cross-section, and in general, not try to set up an arena-scale production in an open field. This reduces the weather risk, reduces production costs by more than half, and not incidentally, makes better use of the outdoor setting. Some of the best outdoor concerts I have seen used a flatbed truck as the stage. It’s not as flashy as a theatrical stage, but it’s closer to the land and allows a sense of place that isn’t possible in an indoor setting, or when you try to replicate an indoor setting outdoors.

Weather risks are part of all economic activity, but they have to be built into the planning for outdoor festivals. A festival has to have the flexibility to keep going, or to cancel and pick up again on another day, when the weather turns.

Saturday, August 20, 2011

An Early Christmas at the Borders Liquidation

It was a Christmas-like crowd at the Borders store I visited, and I am not merely referring to the nearly-full parking lot and the number of customers in the store. It was obvious that many of the customers were doing their Christmas shopping. The liquidators must realize this, too: among the hurt merchandise they brought in to fill out the store, already depleted of three fourths of its regular merchandise, you could find stuffed animals, pillows, 2012 calendars, candles, and other traditional Christmas gift items.

For Borders and its liquidators, it is a successful sale, with most of the merchandise gone before the discounts got to 50 percent.

The scale of this liquidation sale does not bode well for other retailers in the coming Christmas shopping season. We know from the experience of the last four years that shoppers who finish their Christmas shopping early really don’t buy much more when November rolls around.

There was something to be learned from the departments that liquidated quickly and those that weren’t liquidating. The wedding and martial arts sections were conspicuous in still having most of their books on the shelves. Extra discounts don’t tempt many additional buyers in these categories. By contrast, the foreign language books were long gone; price, apparently, is a barrier for most people who are interested in studying a language.

I managed to exit the store without buying anything — not even lunch, as the cafe closed a month ago — but most shoppers seemed to have collected the six items needed for the extra discount the store announcer promised at the cash register. As I said, it was like the Christmas shopping season — because much of it was Christmas shopping.

Friday, August 19, 2011

This Week in Bank Failures

Bank of America announced a layoff of 3,500 workers. If the U.S. banking system can shrink to a sustainable size, it will happen as a result of a long series of moves like this. The new layoffs are not related to the branch closings that insiders say are coming by next year.

Bank stocks plummeted this week as investors worried about the effects of a possible global recession. 

Banks failed tonight in Florida, Georgia, and Illinois. There was also a bank failure last night in Pennsylvania. The largest failure was Lydian Private Bank, which had $1.24 billion in deposits and an additional $1 billion in assets under management, and 5 locations in southeastern Florida. It was the largest bank in Palm Beach County in assets, if not in physical footprint. Its online banking approach proved to be more expensive than it planned on, and its option ARM loans and a series of accounting problems hastened its decline.

The FDIC is fortunate to have a buyer for the bank. Miami-based Sabadell United Bank is taking over the deposits and purchasing the assets.

First Southern National Bank failed tonight in Statesboro, Georgia. It had one location and $160 million in deposits. Heritage Bank of the South is assuming the deposits and purchasing the assets.

First Choice Bank failed tonight in Geneva, Illinois, with $137 million in deposits. Inland Bank & Trust is taking over the deposits and purchasing the assets.

Last night in the Pennsylvania suburbs of Philadelphia, Public Savings Bank failed in an unusual Thursday night bank failure. It had one location and $45 million in deposits. Maryland-based Capital Bank took over the deposits and purchased the assets.

Desperate Moves at HP

It has been said for years that if Apple were willing to engage in a price war, it could easily drive its major U.S. competitors in computers out of business. Apple, of course, has done nothing of the kind, focusing on design and charging a premium price for nearly all of its computer offerings, but that may have been enough. From what we’ve heard yesterday and today, HP is talking about a desperate reorganization that it may not survive.

In spinning off its computer platform business, HP will not just be unloading the low-margin part of the company. It will also be losing its identity. HP wants to be known as a systems integrator like IBM. Some in the company also want to tie its brand to its ink-jet printers. Both are risky moves, especially right now. The home ink-jet printer market could be decimated by the decline in printing, the end of the photo print era, and competition from solid-ink and laser printers (both of which are suitable for low-volume printing in a way that the ink of ink-jet printers is not). The corporate systems market is likely to be an especially tough business in the recessionary times of this year and next, and in a business where a can-do attitude is everything, beating a hasty retreat from the computer business will further mar HP’s image.

HP’s computer business can’t be expected to survive on its own any better than Motorola’s mobile phone business has. Its only plausible destiny is to be bought out by a company like Oracle or Microsoft, or to shrink until it is small enough to be bought out by another computer maker. And so, though the move might be labeled a spin-off, it is really more like a slow-motion shutdown.

HP, then, is about to split into two companies, neither of which will be viable separately. Wall Street has responded accordingly, sending the stock price down to about half of its May peak.

HP’s new moves come after word of the spectacular failure of its iPad knock-off, which even with a price cut had reportedly sold only a token quantity in its first few months. With margins getting squeezed across its computer business, it had to do something, and the latest reports suggest its situation is more urgent than it appears from the outside.

With Sun and Gateway gone and Dell also staggering, that doesn’t leave many of the major players of the U.S. computer business of the 2000s still rolling along. Perhaps the stripped-down product lines of Apple and IBM are more of an advantage than they appear.

Thursday, August 18, 2011

Petroleum Is King: Two Notes

Two news stories point to the strategic importance of petroleum.

Petroleum is one of the biggest products to ship across the Arctic Ocean. A story at tells of two tankers carrying petroleum from Murmansk, Russia’s main European Arctic port, to Pacific ports. The first left port in June, one of several ships to test the waters early this season. The other crossed the Arctic Ocean in only eight days at the end of July, which is said to be a record. It was aided, of course, by the record low ice in the Arctic Ocean.

In Libya, the popular army says it has captured the last of the country’s oil refineries, and the one that was supplying motor fuel to the former government in the capital of Tripoli. It’s seemingly the last indignity for the former government’s army, which crumbled during the standoff of the last three months, a decline that became obvious only last week when the popular army started to move forward. Depleted of personnel, the former government’s army now will have to operate confined to the capital and without fuel. Military tactics are often economic tactics. An army, even if it did still have people, cannot do much without fuel, so the pipeline cuts of Tuesday night figure to leave the army in Tripoli isolated and all but forgotten by the outside world.

Wednesday, August 17, 2011

The Shrinking Desk Leads to the Disappearing Cubicle

The desktop computer is not what it used to be, and it is a sign of the declining importance of the desk.

Corporate desktop computers are smaller than they used to be, inexpensive enough that they are usually placed on the floor under the desk rather than on the desk, and quick to set up compared to what you would have seen five years ago. Many workers are now issued portable computers, which are even quicker to set up.

But if the computer is getting smaller, the paper files and bookshelves are shrinking faster. Many companies no longer provide printed versions of employee manuals and telephone directories. Computer printouts are still commonplace, but are used for convenience and rarely survive more than a month.

All this is leading toward the possibility of doing away with the personal, assigned desk.

The first sign of this came 20 years ago when some companies started to assign desks, hotel-style, to workers when they arrived at the office in the morning. At first, this was limited to sales people who were in the office only an average of one day a week. It has since expanded to cover many workers who are in the office two or three days a week.

The telephone used to tie people to their desks, and that is still a consideration for people whose job it is to talk to customers on the phone. But telephones are used less and less for communication inside companies, with workers relying instead on email and other forms of written electronic communication. If phones are becoming less important, computers more portable, and papers smaller, what is there to keep workers at a desk?

Of course, when push comes to shove, you don’t need your own desk to get work done. As a consultant, I have worked more than a few days in which I didn’t have a desk assigned to me at all. If I was spending half of the day in meetings anyway, it scarcely mattered where I would sit down for a stray hour between meetings.

The corporate world could do away with personal desks entirely. That would mean the end of the cubicle, which has served as the symbol of the corporate world for ages. Well, actually, it hasn’t been ages. Cubicles did not become the dominant fixture of the corporate office until around 1984, 27 years ago. We may take them for granted, but they aren’t cheap, so if they also aren’t as necessary as they used to be, it seems fair to guess that they could start to disappear within then next 15 years, giving way to something new.

Tuesday, August 16, 2011

As Solar Subsidy Companies Fizzle, Did the Subsidies Do Any Good?

With yesterday’s bankruptcy of Evergreen Solar and a factory closing by Solon, it’s a good time to highlight one of the flaws in subsidizing an emerging technology such as solar power. The government money put into solar power was meant to increase the quantity of products and the capacity to manufacture them, and indirectly to generate more research and development. Unfortunately, at the same time, subsidies also results in higher prices for products. Much of the money from subsidies flows to companies that merely intend to exploit the artificially high prices for as long as they can, and that don’t make much of an attempt to reduce costs so that they can continue in the commodity market that eventually emerges.

While Evergreen Solar is filing for bankruptcy reorganization, bankruptcy is no place for a company working in a fast-changing technology, and its chances of emerging as a lively competitor in the solar business are slim. Solon, in its statements, frankly admits that the company is being run by the accountants at this point. It tells you something that Solon and Evergreen Solar are undertaking the exact opposite strategies in their reorganization plans. They are really just looking to try something other than what they are doing already in the hope that it will work out better.

Solar panel prices were held at artificially high levels for a decade from 2001 until early 2011, largely benefiting companies like BP and GE that made what at best may be described as transitional technology. With prices now sinking toward more natural levels, it seems likely that most of the manufacturers from five years ago will be forced to close by the end of 2012 as new factories set up since 2010 take over the market. Probably the subsidies sped up research into solar technologies more than it held back innovation, but that is not a simple question to answer. It is hard to point to specific places where subsidies helped the industry get to where it is now, and of course, we will never hear from the companies that were prevented from getting started by the competition from the subsidy-funded companies.

Monday, August 15, 2011

Solar Prices Fall Below $3

The Solarbuzz solar panel price index has been declining steadily since late 2008, and with a 6 percent decline this month it fell below $3 per peak watt for the first time. Prices have declined by more than a third from the period of stable prices that lasted from 2003 to 2008, and show signs of continuing to decline.

At current retail electric prices, the break-even period for a small solar installation has shrunk to as little as 20,000 hours of peak sun, or roughly 10–20 years, depending on location. That is a much better rate of return than money in the bank, which at current rates would take 30–50 years to pay back your account balance in interest. Of course, if the price of electricity goes up, the break-even period is shorter.

It is still a safer financial move to pay off a mortgage early than to install solar panels, but even that could change for some building owners if solar prices fall by another 25 percent. And considering that prices just fell by 6 percent in one month, a further decline of 25 percent doesn’t seem so far-fetched.

Sunday, August 14, 2011

U.S. Births Decline Again in 2010

There were 3 percent fewer births in the United States in 2010 than the year before, continuing a trend that first began to emerge around 2005. People tend to have fewer children when they are under financial stress, and in this case, the lower birth rate appears to be a sign of an economy still in retreat.

The lower birth rate is not any cause for worry in itself, and could actually be seen as good news. Even including this latest report and discounting the effects of net immigration, the U.S. population is still growing at an unsustainable rate.

Saturday, August 13, 2011

Check Cashing: Walmart vs. Banks

It is getting easier to cash checks at Walmart. The retailer announced this week that it will cash more kinds of checks, notably including retirement checks, and will accept more forms of ID for check cashing. Walmart charges a fee of up to $6 for checks up to $5,000 (or the state limit of $2,000 in Florida), but that fee doesn’t seem like much compared the fees charged by check cashing agencies, and now by banks.

Checks are more important now that people are more cautious about using or holding credit cards, but there is another trend involved that may be more consequential, at least for the banking industry. Walmart’s check cashing will take away the need for some customers to have personal bank accounts. Banks may not sweat over losing this segment of their customer base, but like the cable companies, they can’t be happy about the trend. They urgently need to understand why so many of their customers are looking for ways to bypass their services.

Friday, August 12, 2011

This Week in Bank Failures

The stock market gyrations this month have shown all the signs of a panic liquidation of assets by a major financial institution, but no one knows which of the world’s major banks might be involved. Banks in France had to issue public denials after days of finger-pointing, as did two of the largest banks in the United States. Stock transactions are secret, and the various theories that have been floated in the financial news media about a bank in financial distress lack the kind of specificity that would make them credible.

A billion-dollar bank failed tonight in Olathe, Kansas. First National Bank of Olathe had shrunk to half its 2008 size by the time the O.C.C. closed it tonight. The failed bank had been in business since 1887, but had been expanding rapidly in 2007 and 2008, which left it in a precarious financial condition in 2009.

Enterprise Bank & Trust is taking over the deposits, paying an unusually high 1.5 percent premium to expand its footprint with six more branches in the Kansas City area. It is also purchasing the assets.

Global Stress Has Taken Its Toll on U.S. Consumer Confidence

Today’s consumer confidence report is a sign that the stressful news of recent weeks has had an impact on people in the United States. U.S. consumers’ view of the world has not been this grim since the Reagan years. A feeling of helplessness about U.S. politics may account for much of the sharp move downward from last month, according to the report, with survey respondents expressing frustration at Washington’s inability to right the economy.

Thursday, August 11, 2011

Global Stress Has Taken Its Toll

I have seen and heard more than a few stories in the past week in which people fall unaccountably ill for a few hours. I have heard of this happening among my personal friends and among people spread out around the world. I have been relatively well myself, in spite of an inhuman work schedule (or perhaps because of it), but I have suffered a couple of sleepless nights lately, a rare occurrence for me and something else that is hard to explain.

It seems to me that the extraordinary global stress of the current period is taking its toll. The stresses are hard to escape. If you are not affected by the radioactive food being found on a daily basis in Japan or the radioactive milk and mushrooms on the U.S. West Coast, then likely you know someone affected by the riots in London and across England or the military attacks on cities in Syria. If the inaction on the U.S. debt ceiling seemed like an abstraction, the stock market crash that has followed its resolution may affect you more personally. If you are not one of the people set to lose their jobs in the upcoming corporate layoffs, then perhaps you have money in a bank that is putting its future and your money in jeopardy by not laying people off fast enough. These are the kinds of uncertainties that make people say, “What’s going to happen to us?” The worry has an inevitable effect on people, particularly when one troubling report comes on top of another. It is no wonder if people eventually feel exhausted.

Trying times have happened before, of course, but I can’t think of a historical period to compare to this one, with difficulties and uncertainties affecting people on all sides of the world at once. Part of it is that everyday economic activities are more global than before, but that doesn’t begin to explain it. At any rate, we cannot use the past as much of a guide; it is up to us to figure out what to do.

Wednesday, August 10, 2011

The Motorcycle Commuters

This summer I have found that I am sharing the road with a larger number of motorcycles, particularly during rush hour. Without taking the trouble to actually count, it seems to me that about 1 in 200 vehicles I see in rush hour traffic are motorcycles, noticeably higher than in years past.

Compared to driving an SUV, the motorcycle commuters spend less on maintenance and fuel. This comparison is especially favorable for those who had a motorcycle already, perhaps sitting around mostly unused.

Motorcycles are not as practical as they might seem — the fuel efficiency, for example, is not necessarily better than that of a commuter car — but still, the motorcycle commuter trend puts a exclamation point on the movement toward smaller vehicles.

Tuesday, August 9, 2011

Stability Karma

If you make things more stable, efficient, and reliable in one area, the cost might include lower stability and reliability in another place or at a later time. We may be seeing this effect in much of this week’s turmoil in the world. The artificial stability in energy prices and securities markets gives way to astonishing gyrations when the traders and guarantors who kept things stable worry that they may run out of funds. The civil suppression that keeps a city stable, if taken too far, may give way to riots.

It is like driving an old car. You can keep patching it up, until one day, you can’t. Then the change you resisted is forced upon you. If you consider the extent to which the world has been resisting change and trying to impose the illusion of stability, it is easy to predict more drastic changes on the way.

Monday, August 8, 2011

Volatility World

People are talking about volatility on Wall Street today. The stock markets fell more than 5 percent and had the highest volatility in more than a year. Volatility in the stock markets comes from people changing their minds more than usual, not because they are suddenly fickle, but because of the turmoil in the surrounding news and information that leads to frequent changes in direction.

Volatility in the stock market is never limited to the stock market, or to the financial system in general. It is not just that the United States got downgraded, there is a mysterious liquidity problem among the banks in Europe, and the price of gold has hit an all-time high. Everywhere you look around, it is a volatile world right now, with new radioactive foods being discovered on a daily basis in Japan, riots in London, the thickest ice in the Arctic flowing out into the Atlantic, and the army in Syria attacking one city after another — and that’s not even mentioning the turmoil that’s getting the most attention in the news. With so much uncertainty in the world, the relative stability we were seeing in the stock market prior to the last two weeks was a curiosity and something of an mirage.

Saturday, August 6, 2011

Trans-Arctic Shipping

Commercial shipping is starting to take the trans-Arctic route seriously after five summers in a row of passable shipping channels. This summer Arctic cargo shipping will be twice what it was last year, according to some estimates. That is still small compared to the Panama Canal traffic, but as shipping companies gain more experience crossing the Arctic, it seems safe to say they will come to rely on the cost savings of the shorter trip between western Europe and east Asia, made possible by melting ice furing the second half of summer.

Friday, August 5, 2011

This Week in Bank Failures

Banks may have avoided the loss of liquidity that would have accompanied a U.S. government default, but they now have to face the consequences of an austerity budget plan which will mean less income for consumers and businesses to pay to the banks. That is the scenario, of course, that prompted the greater number of bank failures in the last three years, and most banks are in a considerably weaker financial condition than they were in 2005 when the current financial woes struck the banking system. One way or another, the coming weakness in the U.S. economy will have its effect on the banks.

Tonight, the United States was downgraded by Standard & Poors, from AAA to AA-Plus. Downgrades from other ratings agencies are likely to follow. The downgrades will reduce the extent to which banks can own bonds issued by the U.S. government, but only slightly. For example, a bank can no longer responsibly put 100 percent of its short-term investments into Treasury bonds, but few well-managed banks do that anyway. Officially, according to federal banking regulators, there is no change in the status of U.S. government and government-backed securities. However, if the United States is downgraded again next year, that would significantly reduce banks’ holdings of Treasury bonds and force them to look farther afield for liquid assets to hold. A further downgrade is almost certain if the House of Representatives struggles to write a budget, or if tax loopholes that were renewed last December are renewed again.

HSBC may exit the U.S. market substantially intact. In its latest deal, announced Sunday, it is selling 195 branches to First Niagara, including $15 billion in deposits and $3 billion in loans. HSBC in May announced plans to maintain a foothold in the United States for foreign and international customers, while selling the bulk of its U.S. operations, including its $30 billion U.S. credit card unit.

For its part, First Niagara admitted to a touch of unease about the timing of the transaction, the day before a “train wreck” was expected to hit the finances of the U.S. government. But it’s a good deal, the bank believes, and it fits its geographical plans, aside from about 40 of the 195 branches, which it expects to sell. Since 2009, First Niagara has been buying underperforming banks, most notably Harleysville National Bank, and looking for ways to cut costs. First Niagara plans to issue $700 million in stock and $400 million in bonds to cover the full cost of this acquisition and conversion.

Was the U.S. stock market drop on Thursday precipitated by a liquidity crisis in European banking? U.S. stocks fell 5 percent yesterday, with most of the world’s stock exchanges following along today, and some observers believe this decline was related to an emergency liquidation connected to troubled banks in Europe, though there are few specifics to support this theory.

Illinois banking regulators closed a small bank tonight. The bank had two locations operating under the name Bank of Shorewood and one more under the name Bank of Elwood. The failed bank had $104 million in deposits. Heartland Bank and Trust Company is taking over the deposits and purchasing the assets.

A second, larger bank failure took place on the West Coast. Washington state banking regulators closed Bank of Whitman, which had $516 million in deposits at 20 branches across the state. Columbia State Bank is taking over the deposits and purchasing half of the assets. However, it will be operating only 8 of the branches. The other 12 locations will not reopen tomorrow, and there will be long lines at the ATMs at those locations, which will continue to operate only until Sunday.

The failed bank started to record losses in 2007, and lost $25 million in the first half of this year. It also lost two of its top executives, who resigned quietly in January. It had been in business for 34 years.

Thursday, August 4, 2011

Smaller Homes, More Careful Design

“A home doesn’t need to be big, just smart.” That’s the headline on the cover of the new 2012 Ikea catalog. The cover picture shows a room that, with careful design, is doing the work of two. The catalog as a whole shows that Ikea is following the trend toward smaller houses with more designs that solve problems in smaller spaces.

It is the opposite of the trend in home furnishings of 55 years ago, when furniture was oversized, overstuffed, and designed to look bigger than it was so that your big new house wouldn’t look so empty. Now the objective in design is to fit things in smaller spaces without making the smaller house or apartment look crowded.

If you can spend the time to figure it out, furnishing a house to maximize the use of the space costs a lot less than you would spend to trade up to a house that is 25 percent larger. Elaborately designed, space-efficient furniture isn’t an extravagance when you compare it to the alternative, and it’s a trend that I’m sure will continue for years to come.

Wednesday, August 3, 2011

Record Low Arctic Sea Ice for July

The NSIDC reports a record low July Arctic sea ice extent. Ice extent has declined more slowly during the last two weeks, but age, thickness, and concentration continue to decline well below historic norms. One researcher’s map of sea ice age from two weeks ago shows only isolated patches of multiyear ice, but the good news is that this ice seems to be protecting some of the newer ice from melting.

Sea ice extent is declining more slowly in part because so much ice is flowing away from the central Arctic into the Atlantic and the western Canadian islands. This pattern of outflow boosts the extent numbers but does nothing to reduce the rate of ice melting. Any ice that flows south in August will melt within a few weeks. To make the situation worse, it is some of the oldest ice that is flowing south in the Canadian islands and west of Greenland, and it is the most concentrated ice that is flowing out in unusually large volume along the east coast of Greenland.

The Siberian coast shipping route is already passable — a tanker ship tested the route in the first half of July with little difficulty — and it is likely to remain so for the next seven weeks. The Northwest Passage is probably passable too, although cargo ships there can proceed with more confidence if they wait until more of the ice melts.

It is too early in the season to say that ice in some areas of the Arctic Ocean might avoid melting. The satellite pictures continue to show ice moving large distances from one day to the next, at rates faster than the flow of a river. With thin, free-flowing ice, there is plenty of time for any particular block of ice to move into a position to melt, or for the thicker ice to move north and out of danger if the winds blow in that direction.

Tuesday, August 2, 2011

Debt = Live Electric Wire

At the end of the day, a significant fraction of members of both houses of Congress voted to keep the federal government in bankruptcy, to push it into insolvency, so that it couldn’t pay its bills. After all the problems in recent years with mortgages and credit cards, the recent debt ceiling story is just another example of the destabilizing effect of debt. The U.S. government’s debt derives mainly from the war in Iraq, and the debt used to finance that war was not as harmless as it seemed at the time. Without that debt, the extremists in the House of Representatives wouldn’t have had the leverage to hold the country hostage, or to work out a compromise that pushes the country into an economic decline.

After so many bad experiences with debt, it is no wonder many people are starting to think of it as the equivalent of a live electric wire. It’s something you may need, but also something that must be handled with extreme care.

One of the challenges is that many of us are in so much debt that we are seem destined to die in debt. “Never got out of debt” may be the new equivalent of “never went to college” from a century ago. For many people, the answer to “never went to college” was that their children could go to college. We will need a better answer than that for the millions of people who are perpetually in debt.

Monday, August 1, 2011

Getting Out of Bankruptcy

It has already been widely commented that there were no winners in the debt ceiling standoff — certainly not any political party, or either house of Congress, or the White House, or the American people, or the political process. You might think Wall Street would be the winner, but the extra money they have made from manipulating the markets will vanish several times over in the coming economic downturn — a slowdown that could mostly have been avoided if House Republicans had not latched onto the debt ceiling as the one weapon they had to hold the country hostage.

The important thing about the debt ceiling package currently being considered in Congress is that the United States will be able to emerge from bankruptcy. Yes, the budget cuts included in the package will cause an economic contraction. Actually, from today’s manufacturing survey the uncertainty surrounding the debt ceiling standoff may have done so as early as the end of June. But an economic contraction can be remedied in a period of a few years, and can be used in some small ways to help move the country forward. The consequences of the U.S. government going into insolvency in the next day or two would have been much worse, and could have taken a generation to overcome.

One of the things we have learned from the last week of political theater is that the current House of Representatives can’t write a budget plan to save its life. That’s a problem, of course, because the Constitution requires the House to write the budget. It is hard to imagine how the new budget, due in just eight weeks, will come together, with most of the time available to prepare it already wasted on the debt ceiling fiasco, but for next year, it would make sense for the White House and Senate leaders to get together and design the budget that the House might write if it were able to write. By not forcing the House to work through a complicated series of amendments, that approach would increase the chances of actually getting a budget passed.