Friday, October 30, 2015

This is what an Inflation feels like.

                                 Comments due by Nov. 6, 2015
 Pity the bolívar, Venezuela’s currency, named after its independence hero, Simón Bolívar. Even some thieves don’t want it anymore.
When robbers carjacked Pedro Venero, an engineer, he expected they would drive him to his bank to cash his check for a hefty sum in bolívars — the sort of thing that crime-weary Venezuelans have long since gotten used to. But the ruffians, armed with rifles and a hand grenade, were sure he would have a stash of dollars at home and wanted nothing to do with the bolívars in his bank account.
“They told me straight up, ‘Don’t worry about that,’ ” Mr. Venero said. “ ‘Forget about it.’
The eagerness to dump bolívars or avoid them completely shows the extent to which Venezuelans have lost faith in their economy and in the ability of the country’s government to find a way out of the mess.
A year ago, one dollar bought about 100 bolívars on the black market. These days, it often fetches more than 700 bolívars, a sign of how thoroughly domestic confidence in the economy has crashed.
The International Monetary Fund has predicted that inflation in Venezuela will hit 159 percent this year (though President Nicolás Maduro has said it will be half that), and that the economy will shrink 10 percent, the worst projected performance in the world (though there was no estimate for war-torn Syria).
That would be a disastrous drive off the cliff for a country that sits on the world’s largest estimated oil reserves and has long considered itself rich in contrast to many of its neighbors.
But the real story goes beyond numbers, revealed in the absurdities of life in a country where the government has refused for months to release basic economic data like the inflation rate or the gross domestic product.
Even as the country’s income has shrunk with the collapsing price of oil — Venezuela’s only significant export — and the black market for dollars has soared, the government has insisted on keeping the country’s principal exchange rate frozen at 6.3 bolívars to the dollar.
That astonishing disparity makes for a sticker-shock economy in which it can be hard to be sure what anything is really worth, and in which the black-market dollar increasingly dictates prices.
A movie ticket costs about 380 bolívars. Calculated at the government rate, that is $60. At the black-market rate, it is just $0.54. Want a large popcorn and soda with that? Depending on how you calculate it, that is either $1.15 or $128.
The minimum wage is 7,421 bolívars a month. That is either a decent $1,178 a month or a miserable $10.60.
Either way, it does not go far enough. According to the Center for Documentation and Social Analysis of the Venezuelan Federation of Teachers, a month’s worth of food for a family of five cost 50,625 bolívars in August, more than six times the minimum monthly wage and more than three times what it cost in the same month a year earlier.
Dinner for two at one of this city’s better restaurants can cost 30,000 bolívars. That is $42.85 at the black-market rate or $4,762 at the official exchange rate.
Inflation has gotten so bad that auto insurance companies have threatened to issue policies that expire after six months, to minimize the risk from the soaring cost of car parts.
A gallon of white paint cost almost 6,000 bolívars on a recent Tuesday. At the same store on the following Friday, it cost more than 12,000 bolívars.
With crucial legislative elections scheduled in December, the government has begun to make refrigerators, air-conditioners and household electronics available to government workers and the party faithful at rock-bottom prices. One government worker said he had bought a Chinese-made 48-inch plasma television for 11,000 bolívars, or just $15.71 at the black-market exchange rate.
Mr. Maduro blames an “economic war” waged by his enemies, foreign and domestic, for the country’s problems. But most economists say the problems are caused by the fall in oil prices and by the government’s policies, including strict controls on prices and foreign exchange for imports.
A recent filing by the Venezuelan government to the Securities and Exchange Commission in the United States indicated that imports last year were barely half of what they were in 2012. That means fewer products on store shelves, less medicine in hospitals and fewer materials for manufacturers to produce goods here — all leading to widespread shortages and higher prices.
But as the crisis has unfolded, Mr. Maduro has been hesitant to make changes that even top officials say are needed, like raising the price of gasoline, which is so heavily subsidized by the government that it is virtually free to consumers — perhaps because he is fearful of a backlash before the elections.
Meanwhile, things are getting stranger by the day.
Need a new car battery? Bring a pillow, because you will have to sleep overnight in your car outside the battery shop. On a recent night, more than 80 cars were lined up.
Want a new career? Plenty of Venezuelans have quit their jobs to sell basic goods like disposable diapers or corn flour on the black market, tripling or quadrupling their salary in the process.
Need cash? O.K., but not too much. Some A.T.M.s limit withdrawals to the black-market equivalent of about $0.57.
Given the chronic shortages of basic goods, supermarkets and pharmacies often fill long rows of shelves with a single product. One store recently had both sides of an aisle filled with packages of salt. Another did the same thing with vinegar. A pharmacy had row after row of cotton swabs.
But among all the shortages here, one of the most notable is a shortage of paper money, especially the coffee-colored 100-bolívar notes that are the largest in general circulation (black-market value, about $0.14) and feature a portrait of Simón Bolívar.
This shortage is surprising, because the government has been printing money at a phenomenal clip to finance its operations and pay its employees. Central Bank of Venezuela data show that the bills and coins in circulation more than doubled during the 12 months ending in July, which economists say is one of several forces driving inflation.
“You want to understand why there’s a lot of money and there’s no money?” Ruth de Krivoy, a former Central Bank president, asked with a rueful laugh. She said the main problem was that the government had failed to respond to rapidly rising prices by issuing larger-denomination bills, such as a 1,000- or 10,000-bolívar note. So people need many more bills to buy the same goods they bought a year ago.
Also, as people resort to the black market to buy more goods that cannot be found in stores, transactions that could once be made with debit or credit cards are now being made with cash. That creates logistical problems, as banks must move around huge amounts of paper money and A.T.M.s empty out more quickly.
“There is a myth that by printing larger notes, they would acknowledge or validate inflation and higher prices,” Ms. de Krivoy said.
Mr. Maduro is certainly aware of the symbolic impact of issuing larger bills with more zeros — and the inevitable comparison it would strike with his predecessor and mentor, Hugo Chávez, who was president for 14 years. In 2008, Mr. Chávez issued new bills and knocked off three zeros from a currency that had long suffered from devaluation and inflation, renaming it the strong bolívar.
Today, the bolívar is anything but strong.
Different banks have different rules, but most limit individual A.T.M. withdrawals to 2,000 bolívars, or $2.86 at the black-market rate. They also set a daily maximum withdrawal that is generally two or three times that, so customers frequently make multiple withdrawals, one after the next, leading to long lines at the machines.
There are even stricter limits on withdrawals using debit cards from another bank. Some A.T.M.s limit such withdrawals to 400 bolívars, or about $0.57 on the black market, enough to buy a dozen eggs.
The other day, Jaime Bello, an airline mechanic, visited his bank, the government-run Banco del Tesoro, only to find that its three cash machines were out of money. He recalled an earlier visit when he went to withdraw 2,000 bolívars and stood listening to the whirring sound as the machine counted out the bills. To his astonishment, it spit out a great stack of 5-bolívar notes, each worth less than an American penny. He pulled out the stack of 200 bills and then waited while the machine counted out 200 more.
"It's crazy," he said. "We're living a nightmare. There's nothing to buy, and the money isn't worth anything."
The cash crunch extends to people who bypass the A.T.M.s and go to the bank teller.
On a recent Friday, Milton Valverde hefted a black New Balance gym bag stuffed with 2,000 pink 20-bolívar notes, worth a total of about $57 at the black-market rate.
Mr. Valverde, a carpenter, said his boss sent him from bank to bank, with two bodyguards, to fill up the bag by cashing checks from clients — all to make the weekly payroll.
The crisis has also meant opportunity for those willing to stand in long lines to buy cheap government-regulated goods that they can resell on the black market.
"I said to myself, 'I can make more doing this,' and I quit my job at the hair salon," said Geraldine Cassiani, who left her job as a manicurist in February to sell goods on the black market. She said she now earned four to five times what she had before.
On a recent trip to the supermarket, she used contacts in the store to skip the line outside and bought four packages of disposable diapers, even though shoppers were supposed to be limited to two each. She already had a "client" lined up to buy the diapers for almost three times what Ms. Cassiani had paid: a nurse who could not take time off from work to stand in line to buy them.
Mr. Maduro regularly goes on television to denounce black marketeers and to blame them for shortages and high prices. Ms. Cassiani acknowledged that she was sensitive to such criticism.
"Partly, I think that what I'm doing is bad," she said, adding that she did not raise prices as much as some black marketeers. A single mother, she said she had to do what she could to provide for her child.
"Necessity has a dog's face," she said.
María Eugenia Díaz contributed reporting.

Friday, October 23, 2015

Negative Interest Rates?

                                          Comments due by Oct. 30, 2015 

When the Federal Open Market Committee decided in September to leave its main policy rate where it’s been for seven years—close to zero—it included an extraordinary detail. According to the “dot plot,” the display of unattributed individual policy recommendations, one committee member believed that the rate should be below zero through 2016. That is, rates should go to a place the U.S. has never had them before.
In theory, it shouldn’t be possible for a central bank to keep short-term interest rates below zero. Banks would have to pay the Federal Reserve to hold reserves. Consumers would have to pay banks to hold deposits. Banks and people can hold physical cash, which charges no interest. This is why economists see zero as the lowest possible rate. It’s just theory, though; real-world experience shows the actual lower bound is somewhere below zero.

Denmark’s key bank rate dipped below zero in 2012 and is at minus 0.75 percent. Economists recently surveyed by Bloomberg see negative rates in that country continuing at least into 2017. Switzerland has kept the rate at minus 0.75 percent since early this year, and Sweden’s is minus 0.35 percent. These countries have a different monetary goal from that of the Fed. Denmark and Switzerland have been working to remove incentives for foreigners to deposit money in their banks. Massive foreign inflows would drive their currencies to appreciate so much they would become seriously misaligned with the euro, the currency of their main trading partners. Sweden has been attempting to create inflation.
The strategy has had some success. Denmark has been able to hold on to its peg to the euro. Switzerland dropped its euro peg, and after an initial runup, the Swiss franc has traded within a predictable band. Sweden’s inflation has seesawed.
In all three countries, banks were reluctant to pass negative rates on to their domestic customers. In Denmark deposit rates have fallen, and some banks have raised fees for their services, but “real rates for real people were actually never negative,” says Jesper Rangvid, a professor of finance at the Copenhagen Business School. The same is true for Sweden, according to a paper by the Riksbank, the central bank. In Switzerland, one bank, the Alternative Bank Schweiz, will impose an interest charge on retail deposits starting in January.
There’s no evidence of a flight to cash in any of the three countries. According to central bank data, Danish households have added 28 billion kroner ($4.3 billion) to bank deposits since rates shrank to their record low on Feb. 5. That’s because a sack of bills has to be stashed somewhere safe, and protection costs money. According to Rangvid, rates would have to drop as low as minus 10 percent before people start “building their own vaults.” In its paper, Sweden’s Riksbank pointed out the same possibility but declined to say how far below zero rates would have to go to trigger depositors’ exit from the banks in the largely cash-free country.
In the U.S., Narayana Kocherlakota, the dovish president of the Minneapolis Fed, has expressed support for negative rates as an option. (He’s likely the anonymous negative rate dot-plot guy.) So has John Williams of the San Francisco Fed. William Dudley of the New York Fed, a moderate, said during an Oct. 15 event that the FOMC had considered negative rates during the depths of the financial crisis. Experience in Europe, he said, showed that the unintended consequences of negative rates were “less than what people had feared.”
Since they dropped rates below zero, there has been no clear, consistent economic trend among the three countries. In Denmark asset prices have risen as Danes sought higher returns. Spurred by speculation, the local stock market has recorded more than twice the gains of the Stoxx Europe 600. Danske Bank, Denmark’s biggest lender, says Copenhagen is becoming Scandinavia’s riskiest property market, because of a surge in prices. Danish businesses have increased their investments only 6 percent; private consumption has risen 5 percent. According to Torsten Slok, Deutsche Bank’s chief international economist in New York and a Dane, negative rates “raise risks in the short term and do little more to help the economy than what can be achieved with bond purchases.”
In Switzerland there’s little sign of overheated property or stocks, or new consumption. Recently, Thomas Jordan, head of the Swiss National Bank, saw potential side effects but called negative rates an “important and unavoidable monetary instrument to weaken the attractiveness of the [Swiss] franc.”
All three countries have dipped below zero without massive withdrawals. That’s a valuable lesson for economists. But in Sweden, it’s too early to tell whether negative rates have created inflation. And in Denmark and Switzerland, this tool has succeeded only in its precise and limited purpose: to manage exchange rates with the euro. That finding will be of limited value to the Fed.
—With Peter Levring, Nick Rigillo, and Catherine Bosley

Friday, October 16, 2015

Is paid family leave inevitable?


                                                           Comment due by Oct. 23, 2015

Presidential candidates are talking about paid family leave — both for and against it — because they know this issue is top of mind for voters throughout the country. For American voters, family comes first. Whether it's for a newborn, an ailing parent, or a spouse nursing an injury, being there and providing for family isn't negotiable.
The question is whether we as a nation are going to let every family fend for themselves, or adopt a national solution that makes sure that putting family first doesn't mean losing your paycheck or your job. Voters are demanding policies that reflect this priority. 
"It's about time we had paid family leave for American families and join the rest of the world," said Secretary of State Hillary Clinton in her opening remarks at the first Democratic debate.
Vermont Senator Bernie Sanders echoed: "We should not be the only major country that does not provide medical and — and parental leave — family and parental leave to all of our families."
Former Maryland Gov. Martin O'Malley built on the idea: "We would be a stronger nation economically if we had paid family leave."
The three Democratic front-runners are not the only ones speaking to this issue. Florida Sen. Marco Rubio, who's running in the Republican primary, has come out with his own paid family-leave proposal (albeit a severely flawed one), and former Hewlett-Packard CEO Carly Fiorinadevoted an entire blog post to defending her position against paid family leave.
Recent polling by "Make it Work," a campaign I co-founded to advance women and working families' economic issues, found that 75 percent of voters say they support a package of work-family policies that includes paid family leave, paid sick days, equal pay, affordable child care and a higher minimum wage. Fifty-six percent of voters said they are more likely to vote for a candidate who supports this plan.
And it's not just women. Fifty-five percent of men say they are more likely to vote for candidates who support this plan. The number of men who use the job protections of the current Family and Medical Leave Act to care for family members has been slowly but steadily increasing, and more and more men are calling for employers to adopt paid parental leave policies.
Paid family leave and other family-friendly policies are good for children, good for families, good for public health and, as Gov. O'Malley noted, good for the economy. In the states that have adopted paid leave – California, New Jersey and Rhode Island – both employers and employees report benefiting from the law. And in recent months, we've heard from companies like NetflixMicrosoftAdobeLinkedIn,FacebookGoogle and others about their recently adopted generous paid leave policies for moms and dads. These policies aren't always perfect, but the idea that companies should be providing these supports for families – from 12 weeks to 52 weeks of fully paid leave – comes from the understanding that these policies are not only the right thing to do, but also good for business and retaining great employees.
We can't rely on companies to do it alone, or too many people will be left behind – especially low-income families who need paid leave the most. That's why presidential candidates are taking the matter into their hands. In the Democratic debate, Sec. Clinton pointed to Sen. Kirsten Gillibrand (D-NY) as a champion of this issue. The Family Act, the bill championed by Gillibrand and Rep. Rosa DeLauro (D-Conn.), would guarantee paid leave to care for new children and those with serious illnesses. With the right candidate, paid family and medical leave could finally become a reality in 2017. 
Commentary by Vivien Labaton, co-founder and co-director of MakeIt Work

Friday, October 09, 2015

What's the real unemployment rate?

                                                     Comments due by Oct. 16, 2015

The Labor Department said Friday that the unemployment rate stayed at 5.1 percent in September — but does that tell the real story?
Most economists look beyond the "main" unemployment rate to other figures that can give a more textured view of the employment situation. On jobs day, the Bureau of Labor Statistics puts out a slew of figures, each of which provide their own view of the economy.
One of those figures is the U-6 rate. Many economists look to the U-6 rather than the main unemployment rate (also know as the U-3). The BLS defines U-6 as "total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force," plus all marginally attached workers.
Recession10 years of the U-6 rateU-6 rate2006200820102012201457.51012.51517.520August 2009 U-6 rate: 16.7%Bureau of Labor Statistics
In other words, the unemployed, the underemployed and the discouraged — a rate that remains stubbornly above prerecession levels.
The U-6 rate dipped in September to 10 percent, the one bright spot of the jobs report. The overall trend in the U-6 has been more volatile than the main unemployment rate and it's down 170 basis points over the past year, versus an 80-basis-point drop in the U-3.
The 'main' unemployment rate vs. the U-6Unemployment rateU-6 rateJan '13Jul '13Jan '14Jul '14Jan '15Jul '152.557.51012.515February 2014 Unemployment rate: 6.7% U-6 rate: 12.6%Bureau of Labor Statistics
The jobs report this month has particular importance because of the Fed's dependence on data for its decision on raising rates. The Fed declined to raise rates in September as many had predicted, but had hinted that a rate hike in 2015 was still likely.
The nation added 142,000 jobs in September, just 2 percent higher than in September 2014.
Year-over-year change in employmentNonfarm payroll employment. Recessions in grey.20002002200420062008201020122014-8m-5m-3m0m3m5mBureau of Labor Statistics
One ongoing cause for concern in the jobs report has been the area of wages. Average hourly wages increased 2.2 percent on a year-over-year basis in September; weekly wages inched up 2.4 percent.
RecessionWaiting on wagesYear-over-year change in weekly and hourly wages,three-month moving average.20082010201220140%1%2%3%4%5%December 2009 Change in average weekly wages: 0.88% Change in average hourly wages: 2.07%Bureau of Labor Statistics
When the unemployment rate declines, average wages typically rise as employers have to compete for a smaller pool of job candidates.