…here at the end of all things

I’m glad to be with you, Samwise Gamgee, here at the end of all things.

          Frodo Baggins

For the last time in more than 2300 mornings, Middle once again came down to breakfast for a quick bite to eat before departing for school.  I commented that this was effectively the last day of school for him as his classes ended and he only had an amusement park class trip and graduation practice before donning cap and gown.  He sipped at his drink and quoted a line from Peter Jackson’s Return of the King: I’m glad to be with you, Samwise Gamgee, here at the end of all things.  Standing and working at the kitchen sink, I nodded and responded, Except that this isn’t an end, son.  It’s a beginning.  He could only concur.

And for him, it is a beginning.  He’s still a teenager with that breed’s sensibilities – or occasional lack thereof – and sense of invincibility and confidence.  In less than three months, he will join his two best friends at an urban university to study and pursue his love, acting.  And then my wife and I will be left only with Youngest in the house, still in middle school but rapidly growing and maturing; I can now look into his eyes without having to lower my face and as my wife stated in a conversation to another he really is an old soul.

But while it’s a beginning for Middle, neither is it an end for my wife and I.  It is instead a transition for us as he takes first steps of independence and adulthood.  He bears some of the stamps of adulthood already, both being able to vote and serve in the military yet he’s only now an adult-in-training.  He will leave for college and I expect that there will be the periodic phone calls and questions about procedures, processes and situations as he continues the process of maturation.  God knows that my own father received more than his fair share as I witnessed and waded through episodes of what can charitably be described as debauchery during my freshman year of college – Dear God, Dad…how do I handle this kind of thing? – and even beyond.  It also leads to a more general question, and that is how I myself wish to see this relationship as we both age.  As he joins his elder sister in moving along and upwards on the Bell Curve of maturity and capability, it’s obviously apparent that my own position on the same curve is not on an upwards trajectory.  Middle-age is a time when a person is generally moving along a plateau of physical, emotional and intellectual capabilities before the gradual effects of age take their own toll, although at differing rates for each of capabilities.  50 is the new 35?  Yeah, but only with sufficient quantities of Ibuprofen and Scotch and occasionally in combination…  Sprinkle in an awareness of the effects of advanced old age from being sandwiched and it becomes a question with a bit more emotional immediacy even if it’s unlikely that I’ll find myself in a similar situation.  Don’t even be surprised if you and your mate each sees a different answer to the relationship question.  The point is that it’s something worth considering since it’s obvious that you won’t want it to end and yet, it cannot remain the same.

I’m fortunate in that this relationship change is already taking place with Eldest, even though I’m not certain quite how it would be described; I only know that it’s different and as long as we both are satisfied with it, that’s alright.

Perhaps Tolkien’s classic trilogy is a good analogy for what’s taking place.  In the end, Frodo and Sam survived with their relationship matured.  Each better understood the other and had a renewed respect for what each had accomplished on the journey.  Raising a child is a long, long journey but with every journey, there’s a beginning and an end.  What happens when that journey together ends isn’t written in stone at the beginning but it’s something that will be slowly carved when the next step of their journey begins.  By this time, your child is in some ways an adult and is capable of viewing life and relationships with a fairly astute eye; to think that their next steps will entail the exact same relationship with you as when they were children will only assure an ugly carving, if one is carved at all.

Cashless America:  The Kids’ Perspective (Part 2)

Note: This is a follow-up to a previous article – Cashless America: The Set-Up – which recently ran on the site.  The two were originally meant to be one article focusing on the response of my two older kids, Eldest and Middle, but it made more sense to split it into two pieces, the first of which briefly laid out the gist of the arguments from proponents of moving to a digital, cashless currency.  Now I’ll get on to the kids’ perspectives.

After reading a spate of articles about the notion of abolishing physical currency, I thought that it would be interesting to see what Eldest and Middle thought of the concept.  Eldest is a rising college senior home from a semester abroad, intent on making bank for the coming year.  Middle is a high school senior who will leave for college in the Fall and is now finishing AP Economics (which, if you’ve ever read the supporting textbook, is a certifiable cure for insomnia and has absolutely no bearing on anything approaching reality for nascent adults).

Middle was first up as he was first down for breakfast and I prefaced my question with the caveat that I’d simply like a cogent response by the evening…just take a little time through the day to think about this and if I could have a response by evening, that would be great…  The question was this: what would you think if our nation moved to a simple digital currency with all transactions and accounts managed digitally?  There would no longer be any physical currency, bill or coin, for use.   To be fair, as much as it pains me, some of the proponents only want to do with large denominations above $50 or $100 bills…others however, want all currency removed.  His response was truly surprising in its immediacy: That would be terrible.  TERRIBLE if that happened.  His first reason was about safety.  Events have shown that anything – Dad, ANYTHING can be hacked – could be hacked with sufficient ingenuity and resources and it would be conceivable that everything could be simply gone in a nanosecond.  After that comment, he then covered his right eye with his right hand and making an ‘O’ with his left thumb and index finger, placed them over the left eye.  I looked at him blankly and he simply said Big Brother.  He didn’t want everything to be available for viewing, nor did he want any and all of his transactions to be traceable. That kind of power shouldn’t be available to the government nor to the corporations.

Eldest came down later before heading off to work and received the same preface about taking time and then the question, and her response was surprisingly immediate as well.  She likewise disliked the notion for the same reason about safety, noting again that anything digital can be hacked.  The kids are the products of the online digital age, with a far greater grasp of its benefits and faults that those of us who came of age in the analog era and her first thought went to how all a person’s financial eggs shouldn’t be kept in one digital basket.  As she stood there, her next response was something that I had simply never considered.  It would really make it hard for illegal immigrants here, though.  When I asked why, she responded None of them have bank accounts and their transactions are usually done in cash because they don’t want to bring attention to themselves; then they send the money home via money orders…so it would have a massive impact on immigration.  It was then that I recalled that part of her classwork during the semester abroad pertained to studies of immigration, illegal and legal, and that she’d actually had conversations with both immigrants as well as members of the US Border Patrol.  The comment about the impact upon illegal immigration was something that I’d never even considered although I expect that the ability to more effectively control illegal immigration would certainly be an argument on behalf of a fully digital currency.

I did have a short conversation about Cyprus and the use of the “bail-in” to manage the bank recapitalization, explaining it briefly to Middle; he confirmed that he understood since he already understood the concept of the bail-out as practiced here in 2008.  He commented that it sounded like a socialist thing to do whereupon I asked where the original concept originated; when I told him that it first came about from a combined effort of the FDIC and the Bank of England, his response was concise and rude.  Please understand one key point about your status as a retail depositor in a bank:  after the financial crisis of 2008, legislation was passed that effectively shifted the status of the retail depositor – you and your kids’ bank accounts – from that of a protected entity in the event of the institution’s difficulties to that of an unsecured creditor.  There is a legal hierarchy in the business world of who has greater risk in the event of bankruptcy and thus stands first in line to lose their money should liquidation be required.  In the pre-2008 world, the retail depositor was protected at the rear of the line but the passed legislation now equated the retail depositor to that of an unsecured creditor – someone who simply loaned money to the bank without asking for collateral – and moved you to the head of the line.  So even if your bank is small and well-managed, another financial firestorm will put your deposits in the crosshairs should the government move to a bail-in approach.

Oh, and by the way…when the Dodd-Frank Bill was passed in 2010 as a response to financial crisis, it made another reclassification.  The banking system – predominantly the Too Big To Fail banks– have been heavily involved in highly profitable derivatives trading; that bill shifted the status of derivative counter-parties to that of supercreditor so that they are first in line to receive monies that are redistributed in the event of a bail-in.  In other words, we are at the head of the line for liquidation and they are at the head of the other line for reimbursement.  Lovely, isn’t is?

And that is at the heart of the cashless proposal.  The thrust is to move as much money as possible back into the banking system so that in the event of another Lehman style event, there is sufficient capital available to reconstitute the financial system and make good the losses via bail-in before having to go to the government via the bail-out.  It is about expanding the number of unsecured creditors and controlling their funds by eliminating their ability to move their money out of the system to protect themselves.  The fact that the institutions are never fully protected from digital intrusion and theft is serious; both of the kids are right in that there’s always a way to hack the system.  But the issue here is purely and simply control, control of assets and control of the redistribution of those assets should worse come to worse.  And as to the immigration aspect that Eldest raised:  it isn’t a key aspect to the proposal but I expect that if this cashless currency proposal gains legs, it will certainly be trotted out as a beneficial side-effect to help control the illegal immigration problem.

The kids aren’t stupid, they can see what could happen.  But it requires a conscious effort on your part as a parent to periodically pull them out of the Matrix and explain things to them.  Do it on car rides, do it at the dinner table, do it in the moments when you might be just sitting together.  Create small bits of knowledge as informational pebbles to add to their pile and do so purposefully through the years.  There will come a time when they’re older that they can begin to take the pile and build structures of their own that might surprise you.  That also means that you have to pay attention as well. 

Cashless America:  The Set-Up (Part 1)

PracticalDad Note: There’s been considerable and increasing talk within the past month about the notion of banning all physical currency.  There are plenty of more-experienced than mine with information out there, but this article started as commentary from my two older kids when I explained the digital currency notion to them.  The article ultimately became too lengthy and I decided to split it into two parts, the first – this part – being the set-up on the cashless America concept.  I’ll follow shortly with the take-away from Eldest and Middle in another article with some responses that surprised me.

There have been a spate of articles and interviews within the past several months about the concept of doing away completely with physical currency in the American economy and moving to a purely digital currency.  Articles and papers have come forward from several influential sources and in late March, Janet Yellen – the chair of the Federal Reserve – made a comment that questioned whether physical currency such as coins and bills was actually a worthwhile store of value.  It’s obviously an idea that’s being passed around the Ivory Towers and Hallowed Halls of Power, so certain folks are going to take a run at making this the wave of the future.  But radical ideas such as these take time and so I thought that I’d get the input of Eldest and Middle since it’s their rising generation that will be affected the most. 

For the record, Eldest is a rising college senior who has by now not only traveled abroad, but studied abroad as well and is now home to replenish the bank accounts before returning for the final year of college.  Middle is her younger sibling, a high school senior who has likewise traveled abroad and is in the midst of AP Economics, much to his chagrin.  He initially thought that it would be fun given some of the conversations about money and real world that we’ve had over the years but now believes – as I do after perusing his text and notes – that it really is not much more than mental masturbation.  So the other morning, I asked them to take some time through the course of their day to consider the following question:  what would be your thoughts on eliminating all physical currency and moving to a purely digital currency, with transactions managed solely by the use of debit cards? 

Let’s take a moment first to look at what’s being proposed.  The initial concept was posited by Harvard economist Kenneth Rogoff in a 2014 paper, Costs and benefits to phasing out currency.  According to Rogoff, there are two principal reasons for the gradual and final abolition of physical currency. 

The first goes to providing additional firepower to central banks in their effort to spur inflation to rates of about 2%.  A core tenet of present monetary theory is that a moderated inflation – no more than about 2% – is a good thing as gradually rising prices enable producers to continue to hire and pass along rising wages to workers, who then spend that money and help perpetuate what is, in theory, a virtuous cycle.  Note: This is the theory and ignores such real world effects as free-trade globalization, currency pegs/manipulation, and all of the things that actually occur in the real world.  As the global economy has tried to recover in the years since the Financial Crisis and the collapse of Lehman – when a monstrous amount of capital was utterly destroyed – the numerous central banks have created a tsunami of liquidity in order to offset deflationary pressures and hopefully create a moderated inflation that meets the core tenet.  Deflation is feared because in the experience of the Great Depression, producers lost control of all pricing power and were largely driven out of business, feeding the unemployment as more and more jobs were eliminated.  But we’ve since gone through an extended number of years of Zero Interest Rate Policy, aka ZIRP and the ability of the central banks to use interest rates as an effective tool against this deflationary environment is reaching what is referred to the effective lower bound.  In terms that any kid taking AP Economics would learn is that there is no longer any marginal value to changes in rates, although certain European nations and the EU are pursuing Negative Interest Rate Policy as the banks are now charged by the central banks for keeping deposits.  The concept behind this stunning bizarro policy – which thoroughly upends literally millenia of conventional wisdom touting the value of saving – is that spending must be spurred and money must not be kept as savings, but instead forced out into the economy in order to be spent and spur economic activity. 

Understand a central concept here:  a dollar bill is not just called currency, but also referred to in econo-speak as a “Zero-Interest Negotiable Bond”.  It is a piece of paper that pays the bearer absolutely no interest whatsoever but can be easily traded from one user to another in the course of daily economic life.  The upshot is that as interest rates approach zero, there is no longer any real impetus to keep money in the bank but instead, to just go ahead and keep it under the mattress or even use it in lieu of credit cards which actually have high rates when contrasted with the rates available for various savings products.  But as rates not only approach zero but actually go below zero into negative interest territory – in reality, where the banks are presently charged for keeping money on deposit and have simply not yet passed that cost onto the retail depositor – then the average person will conceivably ignore the banking system and save money by simply removing their money from the banks completely.  The upshot is that a larger percentage of total money is then outside of the banking system and beyond control of the central banks, even further lessening the tools that they have to affect the economy.

The second aspect of the Rogoff proposal is that an outsize proportion of illegal and/or unreportable-tax transactions are handled via physical currency.  Pay cash for a used vehicle for instance, but report a smaller amount than actually paid via cash in order to mitigate state sales tax when title is transferred; because there’s no actual check to serve as documentation, cash can conceivably hide money from the tax coffers.  So eliminating all physical currency transactions means that all transactions thus occur within a monitorable system, eliminating the prospect of illegality and tax fraud.  The sop to this aspect is the same sop to critics of electronic domestic surveillance – this would only affect criminals and cheats and honest, law-abiding citizens would have no worry since they’re doing nothing wrong.&nbsp: Given the weaponization of such agencies as the IRS, I’m not certain that I’m the least bit comfortable with that surmise.

There’s another aspect of this that bothers me, and that pertains to the financial solution to the Cyprus banking crisis of several years ago.  As a recap, the Cypriot banking system – a favorite offshore banking location for wealthy Russian oligarchs – ran into problems and was on the verge of collapse.  But instead of a government sponsored bailout as in the US, circa 2008, the Cypriot government pushed through a “bail-in” in which bank depositors were forced to give up a portion of their deposits to help keep the banks afloat.  In their ideal world, the hit would’ve been on the large Russian depositors with smaller depositors saved but in our present system, in which the uber-wealthy have access to cash and information, the Russians had largely removed their funds by the time that knife fell and while the smallest depositors were exempted, the original targets had all moved onwards to safer grazing territory.  This might sound faintly interesting but for the realization that the “bail-in” concept was originally floated by the FDIC, the US governmental agency tasked with insuring bank deposits.  The notion was that there had to be a better way than just spending more government money and that better way was found with the depositors.  So bear with me here: if you’re worried about the bank on a very short term basis, as happens during a good, old-fashioned bank run, your option is to pull out the money as cash and keep it safe under the mattress.  But if there’s a cashless society, then the only place to move your money is to another institution since there would be currency.  You are, in effect, effectively trapped within a system that could decide it was better off to use the depositors money in the form of a “bail-in” of teetering banks.  And if you think that the pain would be spread amongst everyone, remember that the uber-wealthy depositors in Cyprus had most of their money removed by the time that the ball dropped on the bail-in. 

Kids and the Public Use of Cellphones

Tonight was an interesting evening since my better half and I had dinner at the restaurant at which both Eldest and Middle work.  The fact that they literally work side by side as head hostess and host is fascinating enough as she will be training him, but when they were out of sight doing their jobs, I took the opportunity to watch the other diners; I am a natural observer spawned by spending childhood vacation evenings seated on boardwalk benches because my folks wouldn’t pay for ride tickets.  But what grabbed my attention was visual proof of the cellphone spread discussed in multiple newspaper and magazine articles.

Across the way from our outside table was a large group of almost a dozen people, mixed between girls in their mid-teens and middle-aged men.  I’m 99.999% certain that they were father/daughter combinations but knowing that there’s a large swingers group that meets for a monthly social hour at this restaurant – and boy howdy, ain’t that an educational conversation with the kids – I’ll hold the .001% in reserve.  What was notable however was the prevalence of smartphones and cellphones in active use amongst the group and not just among the girls.  The girls would share their smartphones back and forth, taking selfies and ostensibly trolling the web as they waited.  But I was surprised to see multiple adults also pull their devices to answer and/or make calls, or likewise swipe their screens.  It’s not uncommon for large groups seated in restaurants to break into smaller conversational nodes because the ambient noise makes it difficult for one end of the table to hear the other, but this scene was played out amongst other tables which had far fewer diners.  It was honestly depressing to see people turn away from one another to answer texts or swipe screens to follow whatever on the available wi-fi network.

So how does affect the family and kids?  There have certainly been moments in our household when any one of us – and even Youngest now has a basic phone – has reached into a pocket to glance at something incoming; it happened to me yesterday in a meeting.  But that’s a function of the press of other responsibilities and commitments and even teens with jobs and activities have them.  But pulling out the phone to glance and then replacing it isn’t the same thing as the wholesale process of ignoring your table companions, a tacit insult if ever there was one.  We’ve been clear since kids’ cell phones were first introduced into the house that they had no place at the family dinner table and we’ve tried to hold the line on that, even if one of them still will periodically pull it out to respond quickly to something that’s incoming.  It’s an ongoing and chronic occurrence but at least it’s not a wholesale conversation and when a comment is made about it, there’s no rancorous response.  I know of families who require that all cell phones be removed before dinner in order to maintain balance and assure that there’s an opportunity to engage in even a short period of uninterrupted conversation, free of distraction.  The flip side to this is that you have to be willing to purposefully put away your own device so that you’re abiding by the rule as well.  There have been moments in my parenting experience when I’ve responded to but you don’t follow that rule with the I’m your father, I don’t always have to response but it seems to me that this is one of those rules that should be universally respected.  The sole exceptions in the household are my Better Half, who is a physician and subject to any number of situations requiring immediate attention and the common awareness of everyone that there’s an illness in a member of the extended family, particularly the elderly relatives.  If those aren’t operative however, then the usual reminder is to put the devices away.

There’s value in upholding the rules about cellphones here.  There’s tremendous value in knowing how to hold and maintain a conversation with another person as well as like value in being able to follow a thought process without distraction.  The challenges facing our country are numerous, deep and varied and if the kids aren’t capable of thinking with clarity, depth and focus, then the situations will grow insoluble, at least in a manner that’s satisfactory to a democracy with a functioning constitution.

PracticalDad Price Index – May 2015:  Food Price Declines Resume

The May 2015 pricing for the PracticalDad Price Index was finished the other day and after a month in which the decline ceased, May showed a major resumption of the Index’s drop.  The basket’s Total Index for May 2015 stood at 107.56, a decrease from April’s Total Index of 108.21 (November 2010 = 100).  But the 37 foodstuff item Food-Only Sub-Index dropped precipitously from April’s 110.20 to May’s 107.74 (November 2010 = 100); were it not for an outlying 43% increase in the average price of a box of non-food kitchen trash bags, the Total Index would also have dropped more precipitously from April’s level.

For a better perspective on what’s happening with the marketbasket – particularly the foodstuffs such as meat, dairy and produce – consider this about the Food-Only Sub-Index.  It took four years and a month for the Food-Only Sub-Index of 37 items to rise to it’s highest point in December, 2014.  At that time, it stood at it’s apex level of 115.13 (November 2010 = 100), so that the same basket of 37 separate food items had risen by 15.13% from the baseline in November 2010.  Within a period of five consecutive months, that sub-index’s rise has fully collapsed by almost one half – 48.9% to be precise – to point at which the most recent sub-index reading in May, 2015 stood at only 7.74% higher than the baseline composite level in November 2010.  So five months of declines in the sub-index have positively wiped away about three years of price increases in both the Total Index and the Food-Only Sub-Index.

What’s happening?  There are 47 commonly used grocery store items within the overall marketbasket, of which 37 items are actually foodstuffs – meat, breads, dairy, produce, staples, etc – and it’s among the foodstuffs that the prices are declining.  From April to May of 2015, 14 of the 37 foodstuff items – more than one-third – had declines in prices with the average price decline being 4.97% and the median price decline at 2.55%.  There were only five items in the entire basket with price increases; the average price rise of the five items was 10.24% but the median price rise was only 2.6% due to an outlying price increase of 43% for one particular item at one of the three surveyed stores.  If this outlier was removed, the average price increase would have been only 2.05%. 

What has been notable is the activity within two of the three surveyed – and completely unrelated – grocery stores.  One is an independent single supermarket but affiliated with a national supplier that provides the store-brand items for independent supermarkets.  That market has, within the past three months, shifted to a new supplier that provides the store-brand items under a different label than before and there have been price drops in multiple surveyed foodstuff items with this supplier’s introduction.  The other supermarket is owned by an international chain with stores throughout the Northeastern and Mid-Atlantic regions of the United States and this whole store is now in the process of introducing a more aggressive “Every Day Low Prices” policy with price declines in multiple foodstuff items. 

    The long and short of this is that as incomes continue to erode and increasing numbers of Americans receive governmental food assistance, the grocers are engaging in much more aggressive price competition to survive in a business with very thin profit margins.  Each of these two has access to considerable negotiating leverage with wholesale producers and are using it in order to keep sales moving.  They’ve tried to differentiate between themselves with coffee kiosks and upgraded facilities, but the ongoing economic decline is rendering these moot and it’s now coming down to bare-knuckle pricing to survive.  The third store is a regional chain with less negotiating power since it simply doesn’t have the cumulative customer base and it’s this store that first went to price competition over a year ago; it’s this store that’s now unable to keep pace with its two competitors in the survey pricing.

Prices of individual items will rise and fall for a multitude of reasons.  Supply and demand, as with meat and dairy.  Commodity increases and decreases due to hot money flows, such as with sugar and coffee.  Seasonality, such as with eggs.  This was why I began to monitor food prices as part of a comprehensive marketbasket in November of 2010; it was to try to look at the notion of inflation/deflation as a whole and in this whole, the recent actions of the grocers are strongly indicative of a broadly deflationary move.  The principal reason that the Federal Reserve and government are terrified of deflation, as last experienced in the Great Depression, was that companies were ultimately unable to control their pricing with the collapse in spending.  They consequently went bankrupt as their sales disappeared and what we’re now seeing in a localized section of the country is a replay of that scenario as grocers descend to bare-knuckles pricing tactics to maintain sales in an increasingly harsh business environment. 

So here are the monthly results for the PracticalDad Price Index.


PracticalDad Price Index – May 2015
Month Total Index Food-Only Index Spread
12/14 111.18 115.13 3.95
1/15 111.32 114.00 2.68
2/15 109.42 112.08 2.66
3/15 107.89 109.50 1.61
4/15 108.21 110.20 1.99
5/15 107.56 107.74 .18