Starbucks is sharply raising its total compensation for its employees in the Seattle area. Total compensation from wages and stock options is going up some 5% to 15%. Carefully buried in the very last paragraph of The Seattle Times piece is this little nugget:
Last July, Starbucks raised its prices 3.5 times as much in Seattle as in the rest of the country. It raised the price of its typical coffeeshop purchase across the U.S. by 1%, but in Seattle by 3.5%.
Hmm….
The PRC is demonstrating the relationship between integrity and a centrally managed economy.
When China let Dongbei Special Steel Group default on a bond payment this spring, it was supposed to mark a new determination to allow long-coddled state industries to suffer the consequences of their bad decisions.
Three months later, the result has been…nothing. The ailing steel mill has missed five more payments on its $6 billion in debt, but has yet to formally file for the equivalent of bankruptcy protection, close unproductive units, or start a restructuring of its operations.
Nothing has happened here because the PRC has chosen to let short-term concerns about employment and what the government’s ruling Communist Party of China defines as “growth” to take precedence over concerns about integrity, contractual commitments, and actually paying creditors what’s owed them. Which destroys anything that might flow from the short-term into long-term growth and prosperity. This is all so that Xi Jinping and his CPC cronies can look good for the near term.
These business decisions not to pay, coupled with the government’s decisions not to allow market consequences and to not apply government sanctions for such unilateral contract abrogations, give a clear indication of the level of integrity extant in this particular centrally managed economy.
The reputation that results from such systemic lack of integrity, too, can only make it harder for any funding source to lend any more money, and it can only drive up the cost of such loans and borrowings as may still occur. Such costs must rise in order to account for the high likelihood of continued consequence-free reneging defaulting on debt agreements. After all, “default” in this kind of environment is a misnomer. Refusal to pay is less a default than it is a playing of the lender for a sucker.
That’s the meme of Federal Reserve Board Governor Daniel Turillo, the Fed’s reputed point man for regulation. Turillo is claiming that
the lessons of the 2008 financial crisis won’t be complete without better regulation of short-term funding both inside and outside the banking system.
Naturally, the regulatory point man is going to see everything as a regulatory need.
OK, since more regulations are the solution, here’s a suggestion.
How about some regulations prohibiting the Federal government and the Federal Reserve Bank from using credit and lending as social engineering tools?
Leave them alone. That’s the People’s Republic of China’s reaction to the US/Republic of Korea agreement to station an anti-missile defense system in the RoK, a setup explicitly designed for defense and deployed in response to northern Korea’s missile and nuclear warhead buildup.
PRC’s Foreign Ministry spokesman Lu Kang:
We demand the US and South Korea change their attitude. By agreeing with the US side to deploy this system, South Korea has gotten itself involved in a situation that damages the current balance on the peninsula.
Yeah—the balance the PRC and their client were trying to develop, from which the better to intimidate the RoK and other regional nations. Because defensive systems are threats, but PRC/northern Korea offensive systems cannot be.
Lu also refused to rule out economic retaliatory measures against the impertinent RoK. Roughly 25% of the RoK’s exports go to the PRC. This comes, also, with the PRC’s history of economic retaliation, as it did against Japan when the Japanese successfully disputed the PRC’s attempt to seize Japan’s Senkaku Island group.
This time on private enterprise and a private economy company that’s nominally outside the scope of the government economy.
US tax officials sued Facebook Inc to force the company to hand over documents related a transfer of assets to Ireland in 2010, part of a yearslong investigation into whether some of those assets were undervalued “by billions of dollars.”
Because, of course, John Koskinen and his IRS minions know better how to value a private enterprise than does the private enterprise.
Alternatively, Koskinen has reason to believe the company has falsified its valuations, which raises the question: what’s your probable cause, Mr Koskinen?