Outside Economics

Unintended Consequenses of Negative Interest Rates

Posted by Wendell Brock, MBA, ChFC on Thu, Mar 31, 2016

Europe & Japan

With interest rates plunging throughout the European Union and in Japan, demand for large denominated bills has risen over the past few months, as investors and individuals are finding storing wealth in stable currencies is better than paying central banks (or receiving a negative yield) to hold those same assets.

EU.jpgThe negative yields orchestrated by the ECB in Europe and the Bank of Japan have both caused unintended consequences. Many believe that rather than seeing an increase in lending by financial institutions and spending by consumers because of lower rates, less money is actually exchanging hands resulting in less economic activity. World trade shrank 13.8% in 2015, as tracked by the Netherlands Bureau of Economic Policy Analysis World Trade Monitor.

Government bond yields in Europe and Japan dropped into negative territory in February, with the German 2-year bond at -0.53%, and the Swiss 10-year bond at 0.4%. Japan sold 10-year bonds with a negative yield for the first time ever on February 29th. The $19.5 billion worth of bonds were priced with a yield of -0.024%.

In particular demand were U.S. 100 dollar bills, which are plentiful worldwide and easily traded. See What Raising the Fed Funds Rate Really Means for info about interest rates in the United States.  Demand for Bank of Japan notes ranging from 1,000 yen to 10,000 yen denominations each increased as rates fell below zero in Japan. Swiss 100 to 1,000 franc bills also experienced an increase in demand as yields throughout Europe fell.

At odds with the rest of Europe is Britain, whose consideration of exiting the EU has led to an increase in British government bonds.


The possibility of Britain’s exit from the European Union (EU) has sent the British pound lower, making it the worst performing currency of a developed nation versus the dollar year to date. The pound fell below 1.40 versus the dollar in February, raising fears of inflation as British consumers buy plenty of imported goods, subject to higher prices as the pound is able to buy less because its devaluation. Britain has been an integral component of the 28 nation EU for four decades.

Economists and analysts are closely watching the direction of the pound as it could possibly affect surrounding European countries and pose a risk to further fragmentation of the European Union.

Moody’s rating agency expressed concern that Britain’s exit from the EU might hinder its credit rating, thus increasing the country’s cost to borrow money.

The yield on the gilt, Britain’s 10-year government bond, rose to 1.45% in late February, as bonds were sold in anticipation of higher rates should an exit of the EU occur.

Considering that Britain has been part of the EU for so long – does anyone really think they will leave? Their fight may not necessarily be economic as it is the laws that the EU passes that have implications with their British businesses and their citizens that go against the grain in Britain. I think they are finding it hard to be a state, as we are in the U.S., and have a federal government/judiciary pass laws that don’t make sense and tell you what you have to do, chipping away at their rights!

Sources: ECB, BOJ, Fed, Netherlands Bureau of Economic Policy, EuroStat, Bloomberg, Reuters, Moody’s


"Shaping your role in an organization is at the source of taking control of your career." - Make It Work, Joe Frodsham and Bill Gargiulo


Topics: European Union, currencies, Britain, Japan

Around the Economics World in One Page

Posted by Wendell Brock, MBA, ChFC on Fri, Mar 25, 2016

The old saying, "its a small world", has become a reality in the world of economics. The economies of the the many nations around the globe have really become so intertwined, its like your kid bringing home the flu from school to share with the rest of the family. When one economy has difficulty or success the rest of the world follow right along. Here is a brief update on some of the larger players around the globe. Global_Economic-1.jpg

Japan’s inflation rate is essentially zero as the country’s Ministry of Internal Affairs & Communications reported in late February. Over the past year, Japan has seen its prices barely move up by 0.1%, reflecting sluggish consumer demand and lack of confidence among Japanese. 

The International Monetary Fund (IMF) reported that the world economy is highly vulnerable due to a weakening global economy, depressed oil prices, and geopolitical conflicts. The IMF also released a report detailing its projections for growth, identifying India as the new growth engine of the emerging markets. China’s slowdown over the past two years has been a concern.

India’s growth has been terrific, however it poses the concern is it following in the path of China with rapid growth for several years then a long lasting slow down. Currently their GDP is up 1.7 percent and their unemployment rate is 4.9 percent with a healthy 5.18 percent inflation. 

Dropping government bond yields in Europe are being seen as deflationary as the European Central Bank (ECB) strives to stimulate economic growth, but with minimal benefits thus far. Britain’s consideration to exit the European Union (EU) has brought about uncertainty in Europe until a vote in June.

In recent days the dollar has climbed higher against other international currencies as comments have emerged from the Fed about a possible rate hike in April. Even though there is some weakness in the U.S. economy a small rate hike would certainly bring more money into the U.S. as other nations are seeing, in some cases, negative rates.

This month the U.S. Unemployment Rate dropped to 4.9 percent and the inflation rate leveled at 1.0 percent, with interest rates at 0.5 percent. The concern is how much the 1.4 percent GDP would be hurt if rates were increased.

Brazil’s economy is still struggling, the jobless rate has hit a 7-Year high at 7.9 percent, with projections for higher unemployment the rest of the year. While their inflation rate has slowed to a 10.4 percent, their GDP has continued to contract for the past four quarters. 

Each of these economies impact what happens here in the United States. It is amazing how inter-connected we have become over the past 200+ years. What we do also greatly impacts the other countries of the world. Our national debt for example is a huge concern, but that will have to wait for another article. 

Gladly Keeping you up to date,

Wendell Brock

Sources: ECB, EuroStat, Market Watch, Bank of Japan, IMF



"Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy. Its inherent virtue is equal sharing of misery." - Winston Churchill

Here’s the Bounce – Is Oil At The Bottom?

Posted by Wendell Brock, MBA, ChFC on Fri, Mar 18, 2016

Each month, the Energy Information Agency (EIA) tracks the price of gasoline nationwide as well as how much households (consumers) are buying overall.

The EIA expects gasoline prices to start rising this year, while continuing to head higher into 2017 as demand picks up and supply levels drop. Gasoline prices had been falling because of lower crude oil prices, which account for about two-thirds of the price U.S. drivers pay for a gallon of gasoline.Oil-Gas-Projections.jpg

Increases in fuel economy are also contributing to lower fuel expenditures, as cars and trucks are more efficient and travel farther on a gallon of gasoline. According to the Environmental Protection Agency, the production-weighted fuel economy of cars has increased from 23.1 miles per gallon for 2005 cars to almost 28 mpg for 2014 cars, an increase of over 20%. Similarly, the fuel economy for trucks has increased 19%, from 16.9 mpg to 20.1 mpg in the same timeframe.

The Consumer Price Index (CPI), a statistical measure of inflation, has gasoline accounting for 5.1% of consumer spending as of October 2014. Reductions in gasoline prices ultimately impact the relative weight of gasoline compared to other expenditures such as shelter, clothing, food, and entertainment in price indices compiled by the Bureau of Labor Statistics (BLS) and the Bureau of Economic Analysis.

The demand for gasoline is very price inelastic over short time periods, meaning changes in price have little impact on the number of gallons used. Falling gasoline prices allow households to spend their income on other goods and services, pay down debt, and/or increase savings. However, the longer prices remain low, the more time households have to plan for driving vacations and decide on where to spend their excess money.

Sources: EIA, Commerce Dept., BLS, EPA



"If you can't make them see the light, make them feel the heat." - Ronald Reagan


Topics: Economy, Oil, Households, Consumers

Wait if You Can - Savings Coming

Posted by Wendell Brock, MBA, ChFC on Thu, Mar 10, 2016

Two weeks ago I went and purchased a bunch of stamps and commented to the lady serving me at the counter, that postage prices just went up in January and I missed buying some stamps at the lower price… She explained that the price increase was just for packages, not stamps and that the price of stamps was staying the same!  Well hold on, now we have this announcement from the Post Office:

For the first time in 97 years, the U.S. Postal Service is lowering the price on first class postage. Effective April 10th, a first class stamp will cost 47 cents, down from 49 cents. The last postal price drop was in 1919 when a first class stamp dropped from 3 cents to 2 cents. (Image at right is the World War I Victory Stamp printed in 1919.)Victory_and_flags_1919_U.S._stamp.1.jpg

The price reduction is part of a prearranged agreement with Congress when the USPS was allowed to increase the price of stamps by three cents in 2014 in order to stem a dramatic loss in revenue. The price hike was set to last for only two years, allowing the USPS to raise over $4.6 billion in revenue. Stamp prices may still increase as inflation picks up, since postage is pegged to inflation.

Optimistically for the USPS, the advent of internet sales has spurred a growth in package shipments over the past few years. Standard mail, such as first class letters and postcards, represent 76% of postal revenue.

Other postage dropping in price on April 10th includes postcards, from 35 cents to 34 cents, and international stamps from $1.20 to $1.15.

By the above numbers the average American uses nearly 350 stamps per year or a savings of only $7. For the typical consumer that uses a few stamps here and there its not a big deal, but for the small to large businesses that relies on the mail service and uses thousands of stamps a month this will add up. The savings can be quite large for these businesses.

Unfortunately for those who so far have purchased countless types of Forever stamps with an array of pricing, colors and themes, new purchases at the new “Forever” price will have to be made while putting aside all others priced above until the (not-so) Forever stamp is again at least 49 cents.

This will most likely be a temporary price reduction as the Post Office is always in need of funds, I would expect by the end of the year they are back in front of Congress looking for a price increase. (Now the Post Office won’t have the $4.6 billion they raised from the last price increase.) If you can wait to buy your next order of stamps do so, saving a little money and stock up!

Sources: USPS



"The quality of a person's life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor."  -- Vince Lombardi


Topics: Savings, Postage

Act Now to Maximize Your Social Security Benefits - Changes Made

Posted by Wendell Brock, MBA, ChFC on Fri, Mar 04, 2016

Deciding when to start taking Social Security benefits can have a tremendous impact on the amount of lifetime benefits you may receive.  Furthermore, the Bipartisan Budget Act of 2015 recently signed into law may impact your Social Security income and increase your retirement health care expenses. 

Fortunately, the software we use has been adjusted to reflect the changes made with the law and can help you assess its impact on your projected retirement budget.

Aside from providing no 2016 Cost Of Living Adjustments (COLAs), Social Security will also significantly limit the benefits from one claiming option (File and Suspend) and eliminate another (File Restricted).   



















Under the new legislation, those who file and then suspend benefits will no longer be able to allow a spouse or dependent(s) to collect a percentage of their Social Security benefits.  But, qualifying Americans can still employ this strategy until April 30, 2016.

The File Restricted option, which allows an individual to earn income based on the spouse’s record – then later file for benefits with accrued income credits, will be eliminated for anyone who has not reached 62 by the end of 2015.

There are also changes coming to Medicare, including new annual premium surcharges and a 14.4% increase to Medicare premiums for individuals who earn over $85,000 per year (and couples who earn over $170,000). 

These are complex issues.  Let me help simplify them.

As your financial professional, I am looking forward to working with you as you take control of your income, focus on managing your health care expenses, and strive to improve your financial stability in retirement.

Schedule your no cost or obligation analysis today and when we meet, you will receive a comprehensive Social Security report detailing a claiming strategy designed specifically for you.

I shared this with a client recently and she was amazed at the clarity it provided her in making the important decision on when to take her Social Security benefits and how much more she would receive - for her it was a great blessing. Your time will be well spent in learning about these changes and receiving the FREE Analysis Package.



"If you have enemies? Good. That means you have stood up for something, sometime in your life."  - Winston Churchill

Topics: Social Security, Social Security Benefits


Wendell W. Brock, MBA, ChFC

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