What Is a Bank?

I was in my local branch bank today to expedite a computer glitch, and the banker suggested that I cancel one of my accounts and open a different type that would pay 1% interest instead of 0.5% interest. My response was that at this time banks are Piggy Banks, places for holding your money securely, and places to store cash as a liquid asset, but that they are no longer sources of significant earnings. In this economy, it is important to have cash in the bank as protection against the declining stock market. Cash in the bank means you don't have to sell securities and turn a paper loss into an actual loss. However, most bankers still talk about their interest rates with a straight face, as though they mean something. Banks are quick to cut the interest rates they pay on deposits when the Fed lowers their rates for borrowing funds, but they completely resist lowering the rates they charge for outstanding balances on credit cards. Why is this so? What is there about the people on Wall Street who single-handedly ruined the world's economy, that makes them think they deserve huge bonuses for having done so? Maybe we need a new financial system wherein loans are issued by companies that have actually earned the money in their coffers. Then they would really be loaning their own money and would be more careful with it. The banks deal in someone else's money but treat it as their own.

Self-Fulfilling Prophecies

President Obama is starting out well with an approach that is both pragmatic and positive in outlook. We do not yet know how successful he will be as he tackles the many problems facing the United States, but the important thing is that he is giving the strong impression that he knows how to get from here to positive results. Probably the most immediate problem facing the U.S. and the world as a whole is resurrecting the economy. There are many ambitious programs planned, but perhaps the most important thing is to generate a positive outlook in the marketplace. If we think things will get better, they will. We tend to act out our expectations. If we feel things are falling apart, we delay large expenditures and curtail spending on avoidable things such as dining out and home improvements. If we can convince ourselves that we are on the way back, people invest in the stock market because they expect to make a profit, they buy cars, and they consider moves to better jobs and homes. One counterproductive trend is that corporations take advantage of down times in the economy by cutting their payrolls and costs so that they will be more efficient when the economy improves. We are also seeing the greedy investment swindlers trying to disappear with their profits before they have to face the justice system. The stock market and our attitudes are leading indicators of the health of the economy. When they both turn positive, we will be on the way back. So, have a positive outlook. This is one time in history when we have nowhere to go but up.

Manufacturing Is Still the Key to the Economy

For many years American corporations have been chasing short-term profits by having more and more products manufactured outside of the country where unit costs are substantially lower. Taken out of context, this is a logical thing to do in order to be competitive in worldwide markets. This approach does, however, give the U.S. major problems that may not be immediately obvious to the individual corporation. First, when we start having our products made internationally, we give away our technological techniques and capabilities. Not only do we teach others how to make our products, but we later tend to let them work out the hands-on local production techniques for subsequent orders rather than controlling them ourselves. The second problem with having products made elsewhere is that we remove large numbers of jobs from our available employment pool. The product may be more cheaply made elsewhere, but if our companies aren't paying our manufacturing workers, then our taxpayers end up paying them through unemployment compensation, retraining costs, and inefficiencies when well-trained workers in one sector are forced to take jobs for which they are improperly matched in another sector. The third problem is that each manufacturing job creates several other support and service jobs. There was a time when people claimed that the economy could thrive on service jobs alone. This works out in a boom period, but in a bust period we discover that many of the service jobs are not really necessary, and the amount of unemployment is enhanced when people stop making consumption expenditures. One of the better ways to turn the economy around is to return more products to high-quality domestic production and to convince our consumers that they have a large economic stake in keeping American manufacturers healthy by buying their products. Further, increases in domestic manufacturing and technology are increases in national security in time of war. Self-sufficiency enhances control of your destiny.