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European Central Bank Debates Options, but Stands Pat

June 6, 2013 by Leave a Comment

The lack of any action illustrated the gulf between those at the central bank who expect a recovery, even if weak, by the euro zone economy — which has been shrinking for a year and a half — and economists and central bankers elsewhere who fear that the euro zone is sinking ever deeper into stagnation.

Mario Draghi, the president of the E.C.B., said at a news conference Thursday that the bank’s Governing Council, meeting earlier in the day, had an “ample discussion” about measures to stimulate the economy. Those, he said, included even taking the unprecedented step of imposing a de facto penalty on commercial banks that hoard cash rather than lend it.

But amid uncertainty about what recent economic indicators are saying about future growth, “we see no reason to act at this point,” Mr. Draghi said at a news conference.

“The Governing Council agreed there was not any directional change that would justify taking action at this time,” he said, even as the E.C.B.’s own economists changed their economic forecast to a gloomier reading for the rest of the year.

The downward revision projected that the euro zone’s economy would shrink by 0.6 percent this year, worse than the 0.5 percent decline previously forecast. But the central bank expects growth in the euro zone of 1.1 percent next year, slightly higher than previous forecasts.

The E.C.B. left its main interest rate at 0.5 percent, a record low. Most analysts did not expect the bank to cut the rate only a month after reducing it from 0.75 percent.

In recent months, Mr. Draghi has floated some unconventional ways of steering credit to countries like Italy and Spain, where even healthy companies have trouble getting bank loans. For example, he has raised the possibility that the E.C.B. would work with the publicly owned European Investment Bank to make it easier for banks to package and sell bundles of small-business loans.

The E.C.B. had even said it was considering obliging banks to pay to store their money at the central bank, rather than earn interest on it — resulting in a so-called negative deposit rate. The goal would be to force banks to put their money to work by lending it. Mr. Draghi indicated that the central bank’s Governing Council had considered that move Thursday but decided not to proceed with it.

Economists who have been pressing the central bank to take more aggressive action to stimulate the economy were disappointed.

“The E.C.B. had increased expectations that it would be able to present a new quick fix for the real economy” by increasing lending to small and midsize businesses, Carsten Brzeski, an economist at ING Bank, said in a note to clients. “Today’s press conference shows that the ECB has returned into its garage, carefully studying what is left there.”

During his news conference, Mr. Draghi cited “downside risks surrounding the economic outlook for the euro area.” Those, he said, include the possibility of weaker-than-expected domestic and global demand and slow or insufficient policy changes in euro zone countries.

After Mr. Draghi’s comments, the value of the euro strengthened against the American dollar, settling at $1.3253. European stock markets closed down about 1 percent.

Mr. Draghi made it clear that he did not belong to those who believed the euro zone was heading down the same path as Japan, which has struggled for two decades to achieve sustained growth. Mr. Draghi told reporters that he saw no danger of deflation — a broad decline in prices that can throttle business investment and has afflicted Japan.

Price declines in some countries were the result of lower prices for oil and food, he said, not the “explosive dynamics downward” that would meet his definition of deflation.

“We don’t see anything like that in any country,” Mr. Draghi said.

Some recent economic indicators have kept alive the hope that the euro zone is close to hitting bottom. Surveys have shown that businesses and consumers are a little less pessimistic than they were. And inflation has accelerated slightly, although it is still below the E.C.B. target of about 2 percent.

Many economists point out that signs of a recovery are very weak and have urged the E.C.B. to be bolder. Unemployment remains a persistent problem, with joblessness in the euro zone at a record high of 12.2 percent. France reported on Thursday a 10.8 percent unemployment rate for the first quarter, also a record high.

Marie Diron, an economist who advises the consulting firm Ernst Young, expressed disappointment that the central bank had not done more to ensure that record-low interest rates were reaching businesses and consumers in troubled euro countries, where market rates remained punishingly high. She wrote in an e-mail, “The E.C.B. needs to intervene to ensure that its very accommodative monetary policy reaches the real economy.”

Article source: http://www.nytimes.com/2013/06/07/business/global/ecb-keeps-interest-rates-unchanged-in-hopes-for-recovery.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Port Chester, N.Y., Is Transformed by Immigration

May 5, 2013 by Leave a Comment

PORT CHESTER, N.Y. — Nearly 20 years after he arrived penniless in this country from Mexico, Moises owns two restaurants, with a third on the way. He has five employees, an American wife and a stepdaughter. His food even has a following on Yelp.com.

What Moises does not have is American citizenship, or even a green card permitting him to reside legally in the United States. So he inhabits an economic netherworld, shuttling among his establishments on the bus and train because he cannot get a driver’s license and making do without bank loans or credit cards even as he files for zoning permits and incorporation papers.

While the estimated 11 million immigrants here illegally are often portrayed as dishwashers, farmhands, gardeners and other low-paid service workers, increasingly they are also business owners and employers. That is one reason economists say opening the door to entrepreneurs like Moises — whose last name is being withheld because of the risk of deportation — could give the American economy a shot in the arm.

The most prominent feature of the proposed immigration bill introduced by a bipartisan group of senators last month would provide residents of the United States who overstayed their visas or arrived illegally before Dec. 31, 2011, a long and winding path to citizenship, one that would probably take more than a decade to complete. But less noticed is that the legislation would offer such residents much more immediate provisional status, enabling them to work and travel legally.

That status would make it easier for immigrants here illegally to open businesses, buy big-ticket items like homes and cars and negotiate raises. All of these help explain why immigration reform is one of the few things economists on the left and right generally agree on these days.

While there is considerable debate about whether increased immigration depresses wages on the low end of the pay scale, most experts say allowing more new immigrants and offering a more secure legal footing for workers who are currently in the country illegally would bring the nation broad economic gains.

“We need more legal immigration,” said Diana Furchtgott-Roth, an economist at the conservative Manhattan Institute. “Additional human capital results in more growth.”

Lawrence F. Katz, a liberal professor of economics at Harvard who is among those who say that immigration can push down pay for workers directly competing with new immigrants, nevertheless supports the argument that a freer flow of people from other nations would foster more growth. “No doubt some individuals are harmed,” he said, “but the benefits outweigh the costs.”

Some conservative skeptics, though, see a steep price in a broad amnesty, largely because of increased spending on social services and entitlements.

The pluses and minuses of more immigration are evident in this working-class village of 29,000 about 30 miles north of Midtown Manhattan that shares a border with affluent Greenwich, Conn.

A wave of Hispanic immigrants, both legal and illegal, has transformed downtown Port Chester, which fell on hard times in the 1980s and ’90s after factories and mills closed and an older generation of Italian immigrants moved away or died off.

Today, 59 percent of the village’s population is of Hispanic origin, said Christopher Gomez, Port Chester’s director of planning and development. From 1990 to 2010, Port Chester’s population jumped by 17 percent, twice as fast as Westchester County as a whole.

The immigrant influx, he said, has become the “lifeblood” of the town. “I don’t know where we’d be without it.”

Mexican and Peruvian restaurants dot the downtown streets, while immigrant-owned stores and markets offer goods from Ecuador and services like money transfers to Guatemala and other Central American countries.

The predominance of Spanish-speaking customers has forced older businesses to adapt. Chris Rubeo, the owner of Feinsod Hardware on North Main Street, hired several Spanish-speaking workers to help him compete with a nearby Home Depot and lure Hispanic contractors and builders.

Article source: http://www.nytimes.com/2013/05/06/business/port-chester-ny-is-transformed-by-immigration.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Thinking Entrepreneur: Why I Swore Off Debt (for a While)

December 8, 2011 by Leave a Comment

Thinking Entrepreneur

An owner’s dispatches from the front lines.

Breakups are never pretty. It was September 2008, and the economy, the stock market, real estate, and my business were all crashing (as did many businesses). Like an engineer figuring out how much oxygen is left in a mine tunnel after a collapse, I turned quickly to cash analysis.

Fortunately, it wasn’t too bad. Accounts payable were under control, there was plenty of inventory to live off, and there seemed to be enough cash to weather the storm — at least for a while. Then, after reading and watching the news for a few days, a little paranoia set in. It mixed with a little battle fatigue, actually 33 years of battle fatigue, and it produced a new mind-set.

This was about the fifth time I had been through the recession drill since I started the business in my parents’ basement. But this one was worse, and it brought a revelation that resulted in a new edict. I told myself that I was done with debt. I was breaking it off. I would go it alone in the future — no more bank loans, no more equipment leases, and certainly no more credit card balances.

Fortunately, I was already pretty close to debt free. My bank line was almost paid off, and I hadn’t carried a balance on a credit card for many years. This was really about setting some new rules for the future. I was very relieved that I hadn’t been carrying a lot of debt when the crisis struck, and I wanted to make sure that would be true the next time. I have come to expect a financial meltdown every eight or 10 years. Call it business cycles, call it adjustments, call it reality — a reality I had been slow to accept.

It is now three years later. I have made progress in realigning my business with all of the changes in the marketplace. Put much more attention and money into the Internet. Bought a bigger, more efficient and cheaper warehouse/factory building. Sought out and found many new vendors that offer products that are more interesting, better designed and better priced. Have been more strategic in avoiding commodity products and going after markets where we have stronger “core competencies.”

And it is working. Sales are up, expenses are down, profits are up, and I am hiring some new people. After three long years of playing defense, we are finally playing offense again. It has been possible to start playing offense in a slowly rebounding economy in part because of tax laws (section 179) that are meant to stimulate business, but this does raise a question: How smart is my now three-year-old edict against borrowing money?

If I borrowed some money, I could buy equipment that would lower my labor costs. I could overhaul my computer system, which would give me better information and operate more efficiently. There are improvements that could be made to my Web sites that should generate sales. And I still haven’t pulled the trigger on about 500 LED spotlights for my showrooms that will save about $18,000 a year in electricity costs. It’s all about return on investment. There would be a good R.O.I. on all of the items I mentioned even if I had to borrow money at normal interest rates. At today’s rates, the R.O.I. is even better.

The R.O.I. for borrowing money can be more effective and efficient than improving your R.O.W., a metric you probably have never heard of. It stands for return on work. You haven’t heard of it because I just made it up. But it’s what allowed me to get through the last three years and to reach the point where I can consider playing offense again. We have done it all with the idea of not borrowing any more money from the bank, except for a mortgage, and the hard work has allowed me to increase my bottom line and to hire more people. It felt right for a long time. But things have changed. Sometimes, an approach that seems conservative can turn out to be surprisingly risky.

So I have decided to rescind my edict, start dating debt again and make some new investments. This should improve my bottom line, which would get me past where I was when the recession started — assuming nothing happens, like Europe blowing up, to throw our economy back into crisis. That would, of course, significantly increase my R.O.S.N., or return of sleepless nights (yes, I made that up, too.) But I think can handle it. To be clear, I feel comfortable doing this for two important reasons: I am nowhere close to being highly leveraged, and I’m confident the money will have a very good R.O.I.

This may not make sense to those of you who are still swearing off debt (and for many people that remains a good policy, especially if they have nothing smart to do with the money). But saying debt is bad because of the recent meltdown is like saying fire is bad because of the Chicago fire. Used properly, fire is good — and so is debt. It can help build capacity, increase efficiency, increase quality and expand a business much faster.

Using it properly means not letting yourself get over-leveraged, even if the bank will allow you to borrow more. We already saw that movie. There is a big difference between borrowing money to invest in a business and borrowing money to gamble on a business — knowing the difference between the two is where the magic is. The government has helped give debt a bad name, but the words debt and crisis do not have to go together like soup and sandwich.

Debt has been my friend. It has helped me expand my business and provide livelihoods for more than 100 families. We are dating again. We just had a lovers’ quarrel.

Jay Goltz owns five small businesses in Chicago.

Article source: http://feeds.nytimes.com/click.phdo?i=98335ce66557d227a1da73935a0aab51

Filed Under: Small Business Tagged With: , ,

Bucks: An Online Pawn Shop That Seeks to Go Upscale

July 1, 2011 by Leave a Comment

Pawn shops have traditionally been associated with rundown neighborhoods and shady dealings — think of that violent scene in the movie “Pulp Fiction.”

An online pawn shop, Pawngo, aims to change that perception. But can the site bring a fresh, perky attitude to the inherently depressing tradition of selling one’s valuables out of desperation? “We’re reinventing the customer experience of getting a pawn loan,” said Todd Hills, the site’s co-founder and chief executive.

Mr. Hills, who spent years in the brick-and-mortar pawn business, said online pawning appeals to more affluent clients — or at least, clients who were once affluent but may have hit a rough patch in a tough economy — who may never have set foot in an actual pawn shop. Credit is tight for traditional bank loans, but upscale customers have expensive watches and jewelry they can use as collateral for a quick cash infusion on Pawngo.

The company operated for about a year in a different iteration but restarted early this year as Pawngo, with a redesigned Web site and financial backing from the investment group Lightbank, which is run by the co-founders of the deal site Groupon.

Here’s how it works.

You enter a description of your item, ideally with a digital photo, as well as your contact information on the Web site, and Pawngo sends you a preliminary loan offer. If you accept it, you provide other information — like a copy of your driver’s license and your date of birth — to verify your identity. Then, you print out a FedEx label and ship the item to Pawngo (it pays for shipping and insurance), where it is assessed to prepare a formal offer, typically, a percentage of the assigned value. If you like the offer, Pawngo stores the item and wires the cash to your bank account. The site will also offer to buy the item outright, if you prefer.

If you pay back the loan on time, your item is returned to you. If you don’t, Pawngo keeps it and resells it. (Right now that may happen on eBay, but a companion sales site for reclaimed items is in the works, Mr. Hills said).

The company makes loans for as little as $250 or as much as $100,000, but the average so far is $2,000, Mr. Hills said. (A running total on the Web site says the company has done more than $1.5 million in transactions to date, on items like Nikon cameras, Rolex watches and Louis Vuitton bags.) Terms are for three to six months (most pawn shops allow just 30 days), at a maximum of 6 percent interest. That can add up. Recently, a real estate agent pawned expensive jewelry in exchange for $2,500 to repair her car, Mr. Hills said. Her interest amounts to $150 a month, or $450 — a fifth of the loan amount — if she keeps the loan for three months.

The benefit, Mr. Hill said, is that she was able to get the money quickly, fix her car and keep working. A local jewelry store might have sold it on consignment for her, but that wouldn’t have produced the money quickly enough for her car repairs. Assuming she pays back the money, she’ll not only be able to earn commissions driving clients around to see houses but also to have her items returned to her. “We solved a huge problem in this person’s life,” he said.

Other customers include a woman who pawned her engagement ring to finance the start-up of a nonprofit group to promote children’s Internet safety, the company says.

There’s no getting around that for most people, pawning is a last resort. But at least, Mr. Hill said, it’s one that won’t put you into debt or hurt your credit rating. There’s no credit check involved in pawning — just handing over your family heirlooms.

Would you ever considering pawning an item online?

Article source: http://feeds.nytimes.com/click.phdo?i=3ad33d746a5ef9525e913467343347f4

Filed Under: Your Money Tagged With: , ,