Category Archives: housing projects

Has Chairman Powell Learned From His Terrible Mistakes?

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For years the talking heads and their guests on cable news endlessly chattered about interest rates remaining near zero in the US and negative in Europe. They talked of the “new normal”. However, some complained that interest rates had remained too low for too long and of the importance of raising interest rates and reducing the Fed balance sheet so that the Fed would have powder to fight a downturn in the economy. Upon his becoming Fed chairman, Jerome Powell quickly demonstrated that he believed in the latter approach.  We were in un-chartered territory. Never before had interest rates been so low for as long  or had QE been used to such an extent. There was talk about a neutral rate of interest. They hadn’t learned that just as every reduction in interest rates or expansion of the Fed balance sheet had spurred the economy, every raise in interest rates or reduction in the balance sheet negatively impacts the economy.  The interest rate and size of the Fed balance sheet you are at at any given time can be considered neutral because any increase in the rate of interest or sale of Fed assets slows the economy and any decrease in the rate or purchase of assets stimulates the economy.

Although the economy was growing and there was no sign of inflation when he was appointed, Chairman Powell chose not to wait patiently. He began his chairmanship by raising interest rates and reducing the Fed’s bond portfolio much too quickly. He did so at a time when the growing economy and rising corporate profits were beginning to generate additional federal tax revenues which would have reduced the federal deficit. As predictable his actions negatively impacted the economy and the stock market which went into a steep decline. His final 1/4 point raise of interest rates in December of 2018 while the stock market was collapsing was not just stupid, it was idiotic. To make matters worse he recklessly announced plans for further rate increases and balance sheet reductions in 2019. His actions were instrumental in killing the momentum that the corporate tax cuts (a once in a generation stimulus) had generated in the US economy and raised a serious likelihood of causing a downturn in the US economy. Corporations that were already spooked by President Trump’s attempt to level the playing field in trade by imposing tariffs, immediately began to reconsider and postpone capital investments.

After being strongly criticized by President Trump and many others he quickly reversed course, He announced that further rate increases would be delayed and introduced the concept of “patience”. This word selection demonstrated that he either still didn’t fully understand his prior mistakes or that he wouldn’t acknowledge them because he wanted to show he was independent and wouldn’t bow to President Trump’s wishes. What he obviously meant by “patience” was that he would delay further increases. He didn’t recognize that rates were already too high and that the December increase should have been reversed. However, cancelling intended further rate increases did stimulate the stock market and permitted economic expansion to continue. Recently when corporate earnings came under pressure and the stock market went into a tailspin again based in large part on trade and border issues and a lack of infrastructure spending, he took notice of the market decline and the possibility of a coming recession by talking about potential interest rate cuts this year. Although he slowed Fed asset asset sales he did not discontinue them to the chagrin of President Trump.

Chairman Powell appears to be learning on the job. I ask if he has learned too little, too late. At the June meeting of the Fed he recognized that the Fed can take preventive steps to extend economic growth and avoid a recession rather than waiting to reverse one. He also recognized that governmental actions relating to trade and  Congressional failures to act should be taken into consideration by the Fed. But, he should have acknowledged his prior errors and reduced interest rates. Although we can expect a rate decrease in July, I fear he still does not appreciate the desirability of low interest rates for an indeterminate period or of growing the economy at a rate in excess of 2% a year and will be more concerned with appearing to be independent. Instead of worrying about his independence, he should be coordinating with administration officials to be better able to coordinate Fed policies with fiscal policy. The Fed’s independence is assured by statute. Its actions do not need approval of the President or Congress. Its role in ending the Great Recession was important to our prosperity. However, when it makes serious mistakes it should welcome criticism from the President and others. Whether or not he can be replaced as Chairman by the President, when the Fed chairman makes repeated errors he should resign.

Since he has spent his time thinking about interest rates and the Fed balance sheet, it seems unlikely that he now recognizes or has even thought about the risk that market factors which might cause a stock market collapse present a similar risk to the US economy as existed in the 1930’s.  As I have written recently he could have worked with the SEC and taken steps to reduce stock market manipulation and volatility and the risk of a stock market collapse which might follow or lead to a serious recession or even a depression. The overheating of IPO offerings in recent weeks has been fueled by increased margin borrowing on both the long and short sides of transactions.

He has recently talked of living with inflation even if exceeds the 2% guideline of the Fed. However I expect that he would probably panic and choke off the economy if it accelerated again (as it could if we spent trillions of dollars on needed infrastructure for highways, bridges, airports or security, or if we spent to limit the effects of climate change by upgrading levees and dams to control flooding or built an interstate fresh water pipeline (the most important project of this century) and began to grow our economy at 4, 5, or 6 %. I expect he would fear inflation even though the causes of inflation were absent. Robots are coming and they will make employees available for non-inflationary economic growth thereby enhancing the Amazon related deflationary effects on the economy. China builds new cities. Why can’t we upgrade ours instead of letting widespread crime turn them into slums? Of course we would have to deal with the limits of available raw materials and the socialist jerks who would argue that the rich are getting richer even if we were creating millions of high paying jobs for a large number of currently low income workers and generating tax revenues to enable us to pay for for the greatest welfare state the world has ever known.

The Fed’s role is important. Unless our economy grows at a satisfactory pace, the rising number of politicians chanting for socialism may in a short time lead to the end of the great American capitalism experiment.

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MIMI

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MIMI was three years old when her father, a Jewish immigrant, died. She was the fifth of six children, the eldest being age eleven. Her mother got assistance from her father’s painters’ union and other recent immigrants living in the fledgling Jewish community located in the poorest section of downtown Yonkers, to pay for the funeral and temporarily feed her family. Her mother, who spoke only broken English mixed with Yiddish, was suddenly thrust into the role of a single parent provider. There was no welfare available. In order to keep her family together, her mother got permission to sell fresh fish at the local Kosher butcher shop on the days prior to the Jewish sabbath. To buy the fish she had to travel two hours each way, first on an electric trolley and then a subway, from the station located on Broadway at the NYC border, to and from the Fulton Fish Market in lower Manhattan. She bought the fish for cash and carried it on her back, packed in ice, on her return trip.

As MIMI and her brothers and sisters grew, their clothing consisted mostly of hand-me-downs from relatives and friends or an occasional item purchased with money earned from part-time jobs. They learned to live with very little.

MIMI grew into a beautiful young lady. At age 14 she became a part-time personal assistant in NYC for a prominent logo designer. She lived near the Yonkers train station on what is now the Hudson Line of Metro North and commuted to Grand Central Station in NYC. Upon graduating high school, she became employed as a full-time sales girl selling women’s clothing at Genung’s, a local department store. Her beauty was recognized when she was selected as Miss Yonkers in the early 1930’s.

MIMI focused on and was acutely aware of current fashion trends. She spent her limited earnings carefully, displaying an exceptional flair for style. Her ambition was to open a women’s clothing store in downtown Yonkers, patterned after the Saks Fifth Avenue store on Fifth Avenue in NYC. Young Jewish men and an unprecedented number of women had opened retail stores in Yonkers’ downtown Getty Square area to sell all types of merchandise, including clothing, appliances, jewelry, eyeglasses, sporting goods and cameras. MIMI could only dream of opening a woman’s clothing store.

Her opportunity came unexpectedly. One afternoon she was helping a customer at Genung’s who told her that she had just bought some hosiery bargains from a store going out of business. Mimi left work to go to the store, which was located a few blocks away at one of the least desirable locations, on a very steep hill at the outskirts of Getty Square area. She inquired about purchasing the store, but was advised that they were merely liquidating the merchandise and going out of business. When she pressed them, they offered to sell her the remaining merchandise and the fixtures for $100 and to speak to the landlord about giving her a lease.

Mimi didn’t have any savings. She immediately went to her sister, Rose, who was married and had a young son, to try to borrow $100. Rose at first declined because that amount represented almost all of her family’s savings, but Mimi was relentless. She convinced her sister that this was the opportunity she had been looking for and would not fail. The next day, MIMI produced the $100 and purchased the fixtures and the remaining almost worthless inventory.

MIMI was immediately faced with a dilemma. She now had a store, but had no cash, no credit and no merchandise to sell. That didn’t stop MIMI. She conceived an imaginative plan to solve the problem. She took the train into Manhattan and walked to the area west of Fifth Avenue below 42nd Street where many Jewish manufacturers produced and sold wholesale all types of high fashion womenswear products, such as blouses, sweaters, gloves and lingerie. She knew the names of some of the manufactures and located their showrooms. Many of them were pleased to show this pretty, fashionably dressed, young woman their lines. She selected a total of a half-dozen items to buy at each showroom at an aggregate cost of less than $20  and then told them she had no cash and needed credit. She explained that she had customers for each of the items and that payment the next Monday morning would not be a problem. The size of the order was meaningless to them, but MIMI’s charm, knowledge of their merchandise and enthusiasm were persuasive. A few were willing to take what for them was an insignificant monetary risk.

With the garments in hand she immediately became one of the first personal shoppers in the US. While she was selecting each on the items, MIMI had envisioned who she would sell them to. MIMI went home and enthusiastically contacted her friends and their mothers to get them to buy the items she had personally selected for them. As promised, on Monday morning she was back at the showrooms to make payment and to get credit to purchase a larger number of additional items on the same terms. Within a few weeks MIMI’s merchandise was the gossip of the Jewish community. She knew almost every customer by name and was able to convince them how great they looked in garments purchased from MIMI’s,

In a short period of time she got credit until the end of the month and was able to purchase inventory for display at her store. Her business prospered and she soon relocated it to a much larger store on Broadway near the center of Getty Square. She was joined in business by her husband, Nat, and within a few years they rented a larger prominent location at 3 North Broadway, just off Getty’s Square’s most important corner. It was stocked with  sweaters, blouses and lingerie. Christmas was a special and busy time at MIMI’s and your gift was wrapped in an expensive red and gold box with a ribbon patterned after the Saks Fifth Avenue Christmas wrapping.

The store at 3 North Broadway occupied almost half of the ground floor of a rundown and low occupancy hotel, a four story structure built over 100 years before to house travelers by stagecoach on their first stop of the multi-day trip from NYC to Albany along Broadway, route US9. Soon thereafter, MIMI and Nat approached the hotel owner and negotiated a 25 year lease for the entire premises. They thereafter hired a prominent local architect and borrowed heavily to renovate the structure into a modern department store to be known as MIMI’s. The store, completed in 1948, opened with the Lieutenant Governor speaking before a crowd of thousands. MIMI’s was an immediate success and sparked a major revival of Getty Square. The name MIMI appeared in large neon letters on the front of the building. MIMI was in the store to greet customers almost every day, six days a week. MIMI, known only by her first name, after a few years became one of the best known people in Yonkers.

MIMI’s had large windows along both Broadway and Main Street that MIMI changed frequently to always display a large number of stylish but affordable items. There was a reason for MIMI’s merchandise being affordable. MIMI had used her ingenuity to became one of America’s first discounters. She knew from her personal dealings with the NYC manufacturers that during the 50’s they shipped their large orders across the country before Thanksgiving and were left with large quantities of unsold high quality merchandise that could no longer be sold and delivered to customers for pre-Christmas availability. Because MIMI’s was located about 20 minutes by car from the garment center, Nat could drive MIMI into NYC to buy and take immediate delivery of large quantities of merchandise that the manufacturers were stuck with. MIMI, who knew every item offered by the manufacturer by style number and color, would buy thousands of dollars of the latest high-style merchandise for cash at cost or below. She immediately displayed the items in MIMI’s windows for sale at prices often at or below wholesale. MIMI’s newspaper ads in the Yonkers Herald Statesman became a weekly highlight for shoppers who sought the special MIMI’s bargains. MIMI’s expanded its sales, before the availability of credit cards, by offering MIMI charge accounts, an in-house credit system administered by hand by MIMI’s brother. MIMI employed her sister Rose and other family members in the business. She provided for her mother, who lived with her, and her younger sister’s family and gave merchandise and support to many local charities.

MIMI’s construction was completed in 1948. It was an immediate success. The Cross County shopping center, one of the earliest in the US, opened in the early 50’s and introduced limited competition to Getty Square. However, because MIMI’s customers came by car and public transportation mainly from southwest Yonkers and other areas stretching from Riverdale to the south and Hastings and Dobbs Ferry to the north, MIMI’s was protected by geography from competition to the east.

MIMI’s prospered for years until the late 1960’s when a drastic change took place in the Getty Square area. Large population shifts occurred in Yonkers resulting in large part from school busing and the construction of a very large, low-income housing project that attracted large numbers of poor people from near-by cities. Well-intentioned attempts by liberals to improve the lives of low-income people had the reverse effect. The income level of Getty Square customers declined precipitously. Crime became a serious issue and as a result traffic in Getty Square after dark was greatly diminished. The quality of merchandise being offered by merchants declined and weaker businesses closed their doors. MIMI’s, which had for more than 25 years remained open until 10:00 six days a week between Thanksgiving and Christmas decided that it was too dangerous to remain open at night. It closed daily in the late afternoon well before sundown to let its sales girls get home safely. Within a few years a business that had been highly profitable selling quality merchandise at discounted prices, could no longer cover its costs.

MIMI was in her 60’s, in excellent health and was current with all the trends and developments in the women’s clothing business. She loved her work. She still got excited every time she saw one of her customers in a sweater or blouse or wearing lingerie MIMI’s had sold her. She didn’t want to make the final decision that a business that is unprofitable should be closed. Her husband and son, the author of this article, convinced her it was time to retire and enjoy the fruits of her success. MIMI’s dream ended as it had begun with a going out of business sale followed by the sale of the converted hotel they had acquired years before. Social issues beyond her control had destroyed the neighborhood in which her business was located.