Boom and Bust Cycles: Predictions on American Life — PART I — MONEY

Boom and Bust Cycles: Predictions on American Life — PART I MONEY

The best predictor of future behavior is past behavior. It’s all we have really. Of course the problem with using past behavior is that we relying on defective memories or reports from people who had their own agenda in relating “facts” that tend to enhance their own future. Thus it is with something of a grain of salt that we take what is reported and convert it in our minds as something we know. 

Accordingly, our predictions are sometimes right and sometimes wrong depending upon the quality of the information we used, our ability to process that information and of course the ever-present probability of intervention of unforeseen acts, events, or plain bad intent. 

This is why when news was news, reporters would seek corroboration from multiple reliable sources before reporting it as fact. Now they report things that are unsubstantiated, partial and misleading, or mere statements of opinion in a hash that is known within their industry as fact based entertainment. It follows that anyone forming opinions on “mainstream” reporting is more likely to arrive at miscalculations and wrong conclusions than before.

Nevertheless, there are some things we know from American HIstory and World History that appear to be true, except for those instances where “revisionists” undertake to change public opinion by denying the painfully obvious with such fervor and passion and persistence that at least some portion of the population comes to doubt their own senses. It is clear that central policies of the United States are increasing resulting in failure to affect outcomes in economics, politics, war, or world society. we can argue over why, but the facts are inescapable as are the conclusions regarding our presents status.

Boom and Bust seems to be a fact if not an inherent part of human nature. We bunch up a group of ideas and theories, right or wrong, and act as if they were not only true but absolute. After a while, with the passage of time, the idea or theory becomes obviously true because “that’s the way it works.” The concept of a theory “proving” true because of people validating it with their behavior (despite obvious flaws in the idea or theory) usually does not occur to anyone — except for old texts, rarely read, by people who started with more basic questions and arrived at reality is which is far more ambiguous and ambivalent than prevailing political and economic theory, slogans or sound bites. 

In the context of this ambivalence and ambiguity we attach our perceptions of American Boom and Bust here for your entertainment or edification. Here are some thoughts on past, present and future which we believe have a high degree of integrity and reliability, based upon our reading, measurements, and interviews with those “in the know” (i.e., people who espouse a theory or slogan that gains currency and  thus, for a while, becomes a self-fulfilling prophecy which is “true” — at least long enough for book royalties and trading of securities to fill their own pocketbook).

MONEY: BOTTOM LINE: After years of enjoying the benefits of being the currency of choice, the U.S. dollar is declining in value and status and will continue to diminish tot he point where our wealth and fortunes depend upon the decisions of foreign sovereign nations and private companies rather than the U.S. treasury or the Federal Reserve. 

 

The United States will be called on to pay is debts and a series of deep recessions and possibly depression will ensue as a result of our obligation and attempts to pay off the debts created by our borrowing and the free ride that ends when those holding U.S. currency convert to other currencies or other forms of “money.”. This will cause tension in our foreign relations and could lead to war rather than payment.  

 

Within the last 250 years of American history, 

 

• the Colony of Massachusetts declared wampum, the currency of native Americans to be the official currency of the colony. 
• Virginia used tobacco as currency, 
• there was no Federal Reserve or central bank at all, on and off, in our history, and 
• at times the Fed was only as strong or directed as its leader (like Strong who died 18 months before the 1929 crash), 
• our coin currency came from Spain (the origination of the “dollar”), 
• paper currency came alternatively from 
  • individual banks where a central exchange was used to publish their relative values, or 
  • paper currency came from the King of England, or 
  • paper currency came from the Federal government or 
  • paper currency came from states or groups of states, and 
  • even now the money supply comes from multiple sources and issuers 
  • only one of which is the Federal government through the Federal Reserve and the United States Bureau of Engraving and Printing. 
• The rest of our money supply basically comes from private systems of payments varying in media from paper, conversation, or digital representations on some accounting or reporting host located out in cyberspace. 

 

In ALL cases, the issuance of money led to boom and eventually bust of that currency, which means according to the paradigm we have adopted here, that our current money supply is in for some major changes. Wampum for example, went to zero in value because colonists figured out a way to mass produce it ( a scenario not unlike the current mortgage meltdown which derives from a Ponzi scheme using derivative securities to vastly increase the money supply and circumvent monetary policy). “Not worth a continental” was an expression of disgust with the issuance of currency from our new government during the war of independence. Greenbacks alternately received the same reception, only to come back in other forms. State Bank notes went out of favor only to come back as bank sponsored prepaid branded or co-branded plastic cards. The list is endless. The conclusion is inescapable: currencies come and go. Money changes because it is based upon confidence and trust in the issuer. 

 

Our prediction is that 

 

• private proprietary “money” which has already supplanted government efforts to control the money supply will continue to expand exponentially through issuance of private paper including derivative securities like collateralized debt obligations (which despite the current situation are not likely to go away anytime soon), 
• together with adoption and acceptance of some foreign currency in lieu of the U.S. dollar by private individuals and companies will lead to an “obvious” conversion (i.e.,  recognition long after the fact) to our money supply, and a deep erosion of the ability of both the Federal Reserve or the U.S. Treasury to have any significant impact on monetary supply. 
• Thus monetary policy of the United States will increasingly become irrelevant and be regarded as such. It is already happened. This is past and is not a prediction. 
  • Merchants in Manhattan and other places are asking for Euros instead of dollars. 
  • Electronic payment systems go through the Federal Reserve not in its position of authority but rather as a logistical clearing operation between member banks. 
  • “Prepaid” debit and ATM cards, some with “overdraft” (i.e., loan privileges) including payroll, loyalty, wire transfer emulation and other electronic accounts that the Federal Reserve never sees, except indirectly through total balances at member banks, are rapidly taking the place of paper currency or even traditional electronic payments. 

 

In succeeding installments we will cover the rise and fall of mass transportation, healthcare, war, oil, pharmaceutical companies, education, technology and innovation. In brief we believe the relevant historical cycles point to a severe continued downdraft for current dominant players in oil, healthcare, prisons, pharmaceutical companies (because of innovation in stem cell applications and innovation in protocols that currently result in each aging consumer to ingest hundreds if not thousands of expensive pills per year), insurance, and financial services, while an updraft of great significance is in the works for new companies, transportation, energy, education, medical protocols and procedures and personnel. The big new industry might be the protection of your identity and personal information from everyone including the agencies, companies and people who now pretend to do it for you. 

ATM Consumer Fraud

VISA Fraud Costing New Stockholders and Consumers Billions of Dollars

The media and lazy stock analysts have failed to read what was right in front of them. Visa faces some challenging times and in-fighting between the stockholders, the junior financial institutions members and stockholders on the one hand, and the handful of controlling mega-banks on the other hand. The prospects of government anti-trust units and private actions against VISA and other networks has never been higher. It’s not the first time and it won’t the the last.

ATM Fraud and Anti-Competitive Practices

When will the media and analysts report that Visa et al are foregoing $180 million per year in profit for the sole purpose of keeping a death grip on potential competition from small financial institutions, exposing the gaping hole in the “service” offering of a few large financial institutions that control Visa policies? 

This is costing Visa shareholders at least a couple of billion dollars, and restricting the prospects of the company in the global economy. 

It is also costing the American consumers who use ATMs a whopping $5 billion per year in EXCESS fees. And it is costing the American Economy something on the order of $75 billion in revenues to small business owners, in addition to the billions in profits that small financial institutions should be making, and the resulting impact of restricting the ability of small institutions to invest money locally (for lack of deposits they could otherwise attract).

Visa and MasterCard, and NYCE, and STAR and Pulse, are all networks that are essentially controlled directly or indirectly by just a few large financial institutions for the benefit of themselves and contrary to the interests of their junior member financial institutions, the customers of smaller financial institutions, small merchants, artificially inflating costs to the operators of the terminals, the customers/cardholders that use the terminals and depressing their own revenues at the expense of what are now public shareholders.

These institutions have been using the networks to force small financial institutions to use their services (community banks and credit unions), while using their “rule-making authority” (largely regarded as quasi governmental, even though it isn’t), to make sure the smaller banks and credit unions can’t compete on a level playing field in providing ATM convenience. 

The ATM “Scrip” terminal, which performs all ATM functions and allows the merchant to fund the withdrawal from his cash drawer, is a very inexpensive, simple and small-footprint way of extending the reach of small banks and credit unions into stores and other locations that are more convenient to customers, at lower cost to the bank and the customer, and which would enhance sales at smaller merchants. 

It’s use at about 25,000 “off the radar” locations in the United States and hundreds of thousands of locations around the world also increases the volume of transactions, revenues and profit at the network level, so why wouldn’t the networks promote it? Instead they changed their policy in 1997 and have ever since been aggressively publishing bulletins containing “rules” prohibiting ATM Scrip Terminals and threatening banks with $10,000 fines per day. 

The networks enforce this policy through intimidation, and have aggressively adopted policies inhibiting fair competition between their controlling large financial institution, on the one hand —  and all the rest of the depository institutions in the country who would compete with them for deposits and loans customers if they could offer convenient low-cost or no-cost ATM access. 

This puts VISA and other network squarely in the cross hairs of DOJ and private actions for anti-competitive practices (hardly the first time they were accused of that).  

By adopting policies that are plainly contrary to its own business model in order to benefit a few large institutions VISA has decreased its revenues and profits and now threatens to decrease its prospect for maintaining or expanding market share, because the rest of the world is going toward ATM Scrip Terminals. 

Beginning in April 1997, these policies were adopted, after previously allowing, even welcoming the ATM Scrip terminal into the world of ATM convenience. The networks began systematically putting hundreds of companies and processors out of business who allow the scrip terminal to operate. 

By the way, CU24, a credit union network, NYCE and other networks expressly permit “scrip” terminals but do not promote them.  Others don’t exclude it but actively make it difficult for anyone to operate ATM Scrip terminals. The average U.S. surcharge for ATM Scrip is now under $1.00. The average ATM surcharge for the big machines is around $3.00 now. Hence the larger financial institutions, whose death grip on the system prevents smaller institutions from competing with them, are picking up $3 per transactions for those few customers of community banks and credit unions while offering free ATM service to their own customers. The small banks and credit unions can do the same thing but are prevented from doing so by the “rules” of the networks. 

These networks, including Visa with all of its other potholes, have passed rules against it. It is simply a contrived barrier to entry into the ATM convenience model, and all the resulting benefits of getting new customers, depositors and loans prospects.  

It is a barrier to small banks and credit unions who could put out 20  ATM Scrip terminals at a total cost of $20,000 into 20 locations closer to the work and homes of its customers. The networks, particularly VISA, require the small financial institution to invest their $20,000 into One machine which of course presents no competition at all to BOA, Chase etc. 

20 machines strategically placed by each small financial institution would present an intolerable competitive problem for the large banks, so they have squelched it. The cost of that policy now extends, as a result of the VISA IPO, from the financial services marketplace, to investors in Visa equities, who will be deprived of seeing their company’s revenues and profits artificially restricted by a policy that has nothing to do with the business of their company and everything to do with the business of third parties whose interests are antithetical to the interests of Visa’s business model.

Instead of carrying and operating costs of perhaps $200 per year for 20 ATM scrip terminals, small financial institutions face the daunting prospect of paying around $12,000 per month! This is a figure that would all but obliterate those smaller institutions that are profitable and would create solvency problems in credit unions.  

Thus they are required to restrict their ATM presence to one or two terminals when they could be placing dozens if not hundreds out in the competitive geographic area, producing millions of transactions, and substantial revenues to Visa et al. 

How many transactions? The answer is that back in 1997, there were nearly 13 million ATM Scrip transactions per month in the U.S. alone. Now the figure is under 1 million, and that is “sub rosa”. Allowing for the continuation of what had been meteoric growth of the ATM Scrip business, the number of transactions could today could easily exceed 200 million per month. Allowing 8 cents as the revenue of the network for each of these transactions means that Visa et al are foregoing total revenues of at least $16 million per month, most of which is profit. 

Thus somewhere around $180 million in net profit before taxes is being diverted from the networks (mostly VISA) to the benefit of third parties whose business directly benefits from these policies.

Requiring the use of big bulky, machines with vaults, cash dispensers, and other bells and whistles increases the operating cost, cash management, and insurance costs to hundreds of dollars per month, from what would be about $10 per year for the smaller “scrip” terminal. 

How will these networks explain to their member banks and now their shareholders why they are restricting electronic access to depository accounts (which is, after all, their business) and thus eliminating large revenue opportunities and profit on the bottom line? 

And if they do not change their “rules,” then the prospect of other networks or direct agreements between processor, banks and merchants becomes more likely, particularly in view of the fact that the “scrip” terminal is the dominant player in all emerging markets around the world. 

Will stockholders be pleased to learn that Visa profits and market share are shrinking because of the interests of a few large customers in the U.S. domestic banking business?