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Time For Usury Limits On Credit Card Interest Rates



U.S. Inflation rate, up; GDP growth, down. European growth slows. China’s currency down 4.2%. The Russian invasion of Ukraine disrupts major supply chains, as if they hadn’t weathered rocky and largely long-standing self-induced wounds. Higher commodity prices.

The combination has many worried. For example, yesterday’s Financial Times US edition top headline: “Dismal data fuel stagflation fears.” (Sorry, no free link.) Other publications have been addressing stagflation, although that’s normally thought to be a combination of slow economic growth and high unemployment. The latter is anywhere but high, however, when it comes to economics, who knows? With the growth of jobs outpacing people available, millions still working part-time because they can’t get full-time work, and labor force participation still below pre-pandemic times, maybe there’s an equivalent effect.

The Fed has an interesting choice next week. Does it drop the likely 0.5% interest rate increase next week over worries that the economy will tank? Or does it keep current levels amid concerns that inflation might continue upwards?

A fine consideration for those who are relatively comfortable and able to manage the waves of economic uncertainty. But there are bigger interest rate problems already in high gear. Consider the current state of ordinary credit card debt, as shown in the graph below.


Consumer credit use can balloon as the country tries to climb out of a recession—notice the 2010 surge after the 2007-to-2009 global financial crisis and collapse, after usage falls because people default, lose credit, or try to pay it down for safety.

Credit use had mostly increased since then, fell during the pandemic—with rescue money helping people partly dig out of a hole—and then started to increase in the first quarter of 2021 when things seemed to be getting better.

Now factor in high card interest rates. As recently noted, the average new card average percentage rate (APR) sat at 16.36%, the highest since April 2020. Rates also go far higher.

The country would seem addicted to credit card debt. There are a few reasons. One is that they provide unsecured access to credit. People don’t need to pledge assets against access. This is considered riskier than something like an auto loan or mortgage, where there is property to recover in case of a default. But how risky?

The delinquency rate—not default but delinquency—on credit card loans from all commercial banks, from 1991 to October 2021, deep into the Great Recession in 2009, was 6.61%. Toward the end of 2021 it was 1.62%.

Charge-off rates? They hit 11% in the second quarter of 2010, again clearly a result of massive unemployment and people losing their homes. Charge-offs were at 4% at the opening of the pandemic and at the end of 2021 were 1.6%

All this seems much safer than the “We’re taking a great risk” talk out of financial services.

The other big reason for the use of credit cards is that the issuing companies, businesses selling things, and others all push the “convenience” of cards. The product seller more easily closes business. Financial services companies make boodles on interest. Points, cash back percentages, interest-free periods, special deals, al these are techniques to emotionally manipulate people and get them to use their cards because so many will carry a balance. Credit card companies don’t want consumers to pay off their debt regularly because they don’t make as much money.

This becomes modern day indentured servitude. People get sold into levels of debt they can’t comprehend until they are deeply in. The real money is made on those who have lower incomes and are easier to trap and then pump for years, a ready source of green blood issuers can brag about to investors.

As much as the industry wants to portray all this as a service to consumers who aren’t in say the top quartile of economic standing, it’s not ultimately a help if it leaves people permanently scrambling. Consumers are the force behind the economy, as they drive about 70% of GDP. Would it be less without credit card spending? Probably, but the tradeoff would be greater stability, predictability, and public morality.

The government could do something about this by recognizing an effective usurious interest rate and putting a stop to turning people into the fiscal equivalent of the mountains of bodies in cells providing energy for soulless machines in the movie The Matrix.

Will elected officials do this? It would be surprising if any of them would even talk about it. Financial services are so sacrosanct that even when their dishonorable and predatory actions sent the global economy spiraling into a pit, they were still bailed out, especially if they were “too big to fail.”

The country needs to shift its priorities more to the hundreds of millions of ordinary citizens and their needs to establish a better balance. Businesses exist to serve society. Unfortunately, the relationship is the polar opposite.


Teacher, Police And Firefighter Pensions Are Being Secretly Looted By Wall Street



America’s severely underfunded public pensions are allocating ever-greater assets to the highest cost, highest risk, most secretive investments ever devised by Wall Street, such private equity, hedge funds, real estate, and commodities—all in a desperate search for higher net returns that, not surprisingly (given the outlandish fees and risks), fail to materialize. Transparency—public scrutiny and accountability—has been abandoned, as pensions agree to Wall Street secrecy schemes that eviscerate public records laws.

Our nation’s state and federal securities laws are premised upon full disclosure of all material risks and fees to investors: “Read the prospectus before you invest,” is the oft-cited warning by securities regulators. Nevertheless, teachers, police, firefighters and other government workers today are not allowed to see how their retirement savings are managed or, more likely, mismanaged by Wall Street.

For nearly a decade, the United States Securities and Exchange Commision has warned investors that malfeasance and bogus fees are commonplace in so-called “alternative” investments and, more recently, Chairman Gary Gensler has called for greater transparency to increase competition and lower fees.

Gensler has asked the agency’s staff to consider recommendations on ways to bring greater transparency to fee arrangements in private markets. “More competition and transparency could potentially bring greater efficiencies to this important part of the capital markets,” he said. “This could help lower the cost of capital for businesses raising money. This could raise the returns for the pensions and endowments behind the limited partner investors. This ultimately could help workers preparing for retirement and families paying for their college educations.”

Gensler has stated he would like to see a reduction in the fees these investments charge and has also commented on industry abuses such as ”side letters” which permit private funds to secretly give preferences to certain investors—preferences which harm public pensions.


But that’s not good enough to protect public pension stakeholders.

No one—including the pensions themselves—seems to care that the government workers whose retirement security is at risk are being kept in the dark.

The SEC needs to do more—actually alert public pensioners as to those abuses the Commission knows full well are rampant, at a minumum. Advise them, Chairman Gensler, to demand to see and read prospectuses and other offering documents related to their hard-earned savings.

Does the SEC think it’s kosher for Wall Street to conspire with public pension officials to withhold this information from investors—any investors?

Since my 2013 forensic investigation of the Rhode Island state pension exposing gross mismanagement by then General Treasurer Gina Raimondo which I accurately predicted would cost workers dearly; my 2014 North Carolina state pension investigation exposing that $30 billion in assets had been moved into secretive, offshore accounts and, most recently, my investigation of the State Teachers Retirement System of Ohio, I have provided my expert findings to the SEC staff for their review. Each and every public pension forensic investigation I have undertaken has extensively discussed Wall Street secrecy schemes that enable looting. In my book, How To Steal A Lot Money—Legally, I quote disclosures from SEC filings that detail industry abuses.

Join me, Chairman Gensler, in giving government workers a clue, a glimpse, a peek, at the alternative investment abusive industry practices that are carefully guarded by Wall Street and being hidden from them.

Teachers, police and firefighters deserve a fighting chance to protect their retirement savings.

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It Is Time To Buy Bonds



US 10-year note prices are likely to rise through August. The monthly histogram below shows that July and August have been the two strongest months for the note price.

Monthly Return- US 10-Year Notes

Blue: Average Percentage Change

Red: Probability of a rise on that day

Green: Expected Return (Product of the first 2)

These numbers are static in the sense that they change little over the years. This is only one cycle, the one-year cycle, whereas there are many cycles operative at any one time. In order to get a reading on such other rhythms, a scan is run to identify other profitable price cycles. The graph below reveals the most valuable cycles that are operative at any one time.

10-Year Note Monthly Cycle


These cycles reinforce the seasonal tendency for notes to rise. Prices have risen in 60% to 65% of the time in these summer months. With the dynamic cycle also in ascent, the probabilities rise to about 65% to over 70%. There are similar and supportive developments in the Japanese and German fixed income markets.

The cycle projection must be confirmed by market activity. The daily graph reveals that price broke through a downtrend line.

10-Year Notes Broke Through Resistance

Here is a helpful sentiment indicator that supports the bullish view. The cover page of this week’s Barron’s points to much higher rates. Applying contrary opinion, this suggests lower rates and higher note and bond prices. The first objective is 123.0.

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Will There Be War Over Taiwan – The Next Spy Thriller



I usually go through a rhythm of reading one or two serious books, followed by a few works of fiction and with summer on the way I wanted to highlight a few of both. In that regard I have just finished Laurence Durrell’s ‘White Eagles in Serbia’, an old-fashioned espionage thriller where the hero Colonel Methuen is dropped behind enemy lines in post war Serbia (he speaks excellent Serbo-Croat) and becomes embroiled in a violent plot to overthrow Tito.

The book is a warm-up to reading Durrell’s ‘The Alexandria Quartet’, a work that nearly won him the Nobel Prize. Durrell was part of an interesting Anglo-Irish family, who largely considered themselves Indian – his brother Gerald, the naturalist and writer, touches on this in ‘My Family and Other Animals’.


Though I am not an expert on these matters, I found ‘White Eagles’ a more realistic account of espionage than much of what we see in the media today (Mick Herron’s ‘Slow Horses’ is good), and overall it is a tale of derring-do that is more in keeping with the work of the founding fathers of the genre – Eric Ambler, John Buchan, Erskine Childers and Ted Allebury for example.

It also made opportune reading given what seems to be an epidemic of espionage – with reports of the Chinese hacking group APT40 using graduates to infiltrate Western corporates and notably the admission by the head of Switzerland’s intelligence that Russian espionage is rife in that country (notably in Geneva – for which readers should consult Somerset Maugham’s ‘Ashenden’ as background material).

These and other trends – such as the outbreak of a heavy cyber battle last week (against Lithuania and Norway for instance) and the increasingly public ‘clandestine’ war between Israel and Iran (they have just sacked their spy chief) point to a world that is ever more contested and complex.


Secret World

One of the new trends in the space is cyber espionage – both in the sense of stealing state and industrial/corporate secrets, influencing actors (such as the manipulation of the 2016 US Presidential election) and outright acts of hostility such as the hacking of public databases and utilities (i.e. healthcare systems). Here, if readers are looking for some serious literature I can recommend two excellent books – Nicole Perlroth’s ‘This is how they tell me the world ends’ and ‘Secret World’ by Christopher Andrew.

I am personally more intrigued by the difference between a spy and a strategist. A spy’s work could well be described as the pursuit of information about someone who is acting with a specific intent, as well as a sense of their reaction function. There are plenty of examples – from Christine Joncourt (‘La Putain de la Republique’) to Richard Sorge (see Owen Matthews’ ‘An Impeccable Spy’).

In contrast a strategist may try to plot trends and the opportunities, spillovers and damage they may cause. The US National Intelligence department is good in this regard, becoming the first major intelligence agency to publish detailed warnings on the side effects of climate damage.

Spies and strategists might work together, but history is full of examples (LC Moyzisch’s ‘Operation Cicero’) where intelligence fails to make it through the strategic process or is simply ignored for political reasons (might the early warnings on the invasion of Ukraine be an example).

Asia next?

In the spirit of the Durrells and Flemings of the world, what issues might be of interest in terms of digging into unknown knowns and unknown unknowns. Here are a few ideas, most of which are Asia focused (we might see an uptick in Asia focused thrillers).

On the diplomatic front, an interesting recent development was the visit of Indonesian president Joko Widodo to Ukraine, and then Moscow. It was a rare visit to Ukraine by an Asian leader and potentially marks the emergence or at least aspiration of Indonesia (population 273 million) as an emerging world diplomatic player. What has intrigued me so far is that there has been little coordination by the populous emerging (largely Muslim) nations (Nigeria, Indonesia, Pakistan) in the face of high energy and food prices, and that potentially Widodo could play a unifying role here.

Then, still in Asia, but on a more deadly footing, if the Western commentariat is to be believed, China is preparing an assault on Taiwan, and looking to learn from Russia’s military errors in this regard. Other countries are reacting, and I suspect that there will be much intrigue around Taiwan’s ability to acquire sufficiently powerful ballistic missiles that could strike the coastal cities of China, and relatedly how long might it take Japan to produce nuclear missiles (my sources say they could very ambitiously do it in five months!).

So, whilst the espionage literature of the 20th century has tended to be focused on Geneva, Berlin and London in the 21st century we may find ourselves reading about ‘behind the lines’ exploits in Jakarta and Tanegashima.

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