Tag: economy

Seattle’s new $20 minimum wage claims 6th restaurant casualty since New Year

Seattle’s new $20 minimum wage for 2025 has caused a 6th restaurant to close since the new year.

Pike Place Market bakery The Confectional closed on Sunday after 18 years in business.

Owner Destiny Sund told KIRO News Radio, “I wanted my team to have a wonderful holiday season, so I didn’t mention to them that we would be closing until after New Year’s Day. So this has been a long week for all of us at The Confectional.”

The minimum wage for all employees in the city limits, regardless of business size, jumped to $20.76 on January 1. Last year, if a worker earned at least $2.72 per hour in medical benefits or tips, the business only had to pay its employees $17.25 per hour, but now, for those businesses that featured tips, the change to the minimum wage was a 20 percent increase. The Emerald City’s increase is $4 more than Washington State’s minimum wage requirement.

Sund added, “That allowed businesses 50 employees or under to subtract $2.00 from the minimum wage. If they could make it up in tips and or benefits. And my employees did make that up in tips.”

She continued, “And just doing the math with the additional increase and the loss of the tip credit, it would cost my business an additional $18,000. And that’s just not sustainable.”

At least five other restaurants in Seattle have closed or are closing just days after the city council’s new minimum wage law went into effect.

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Government Spending Will Cause the Next Financial Crisis

Crises are never caused by building excessive exposure to high-risk assets. Crises can only happen when investors, government bodies, and households accumulate risk in assets where most believe there is little to no risk.

The 2008 crisis did not occur due to subprime mortgages. Those were the tips of the iceberg. Moreover, Freddie Mac and Fannie Mae, state-owned entities, guaranteed a sizable portion of the subprime mortgage packages, which prompted numerous investors and banks to invest in them. Nobody can anticipate a crisis stemming from the potential decline in the Nvidia share price or the value of Bitcoin. In fact, if the 2008 crisis had been created by subprime mortgages, it would have been absorbed and offset in less than two weeks.

The only asset that can really create a crisis is the part of banks’ balance sheets that is considered “no risk” and, as such, requires no capital to finance their holdings: government bonds. When the price of sovereign bonds swiftly declines, the banks’ balance sheet rapidly shrinks. Even if central banks conduct quantitative easing, the spillover effect on other assets leads to the abrupt destruction of the money base and lending.

The collapse in the price of the allegedly safest asset, government bonds, comes when investors must sell their existing holdings and fail to purchase the new supply issued by the states. Persistent inflation consumes the real returns of previously purchased bonds, leading to the emergence of evident solvency problems.

In summary, a financial crisis serves as evidence of the state’s insolvency. When the lowest-risk asset abruptly loses value, the entire asset base of commercial banks dissolves and falls faster than the ability to issue shares or bank bonds. In fact, banks are unable to increase capital or add debt due to the declining demand for sovereign bonds, as banks are perceived as a leveraged bet on government debt.

Banks do not cause financial crises. What creates a crisis is regulation, which always considers lending to governments a “no-risk,” “no capital required” investment even when solvency ratios are poor. Because the currency and government debt are inextricably linked, the financial crisis first manifests in the currency, which loses its purchasing power and leads to elevated inflation, and then in sovereign bonds.

Keynesianism and the MMT fallacy have driven global public debt to record levels. Furthermore, the burden of unfunded liabilities is even larger than the trillions of dollars of government debt issued. The United States’ unfunded liabilities exceed 600% of GDP, according to the Financial Report of the United States Government, February 2024. In the European Union, according to Eurostat, France and Germany each accumulate unfunded liabilities that exceed 350% of GDP.

According to Claudio Borio of the Bank for International Settlements, a government debt glut may cause a bond market correction that could spill over into other assets. Reuters reports that large government budget deficits suggest that sovereign debt could rise by a third by 2028 to approach $130 trillion, according to the Institute of International Finance (IIF) financial services trade group.

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H-1B Visa Undermines American Students and Workers

Last year, I committed to spending this year exploring the education-to-workforce pipeline. Higher education has long been seen as the start of that pipeline, with graduates transitioning from classrooms to careers. My interest in this topic dates back to my time working for Governor Phil Bryant in Mississippi, where I assisted Laurie Smith in studying how the state’s community colleges and training programs prepared graduates for the workforce. The results were underwhelming—a topic for another day. For now, a more pressing issue is the role of the H-1B visa in this pipeline.

In this week’s top article, Rob Jenkins connects higher education to the H-1B visa program, framing the debate over whether to support the program as a proxy for assessing the quality of U.S. education. He poses a critical question: Are colleges and universities producing enough top-tier talent to meet economic demands—and if not, why?

Jenkins argues that American higher education bears responsibility for leaving graduates behind their international peers. He cites a June 2024 Gallup poll showing that only a third of Americans have confidence in U.S. universities to prepare students for the workforce. This crisis of confidence, Jenkins contends, stems from a combination of social promotion in K-12 schools, the dilution of college curricula, and the prioritization of “diversity, equity, and inclusion” (DEI) over academic rigor—all of which, he believes, contribute to the nation’s reliance on foreign labor.

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Lessons From Germany’s Economic Contraction

Germany’s once-envied efficient economy is in freefall, and the climate change cult and European Green Deal are directly to blame. State policies subsidizing EVs and other products, shutting down coal and nuclear plants, and mandating forced conversion to untested, unimplemented “renewables” resources for energy have decimated industrial efficiency. Industries and blue-collar jobs are fleeing Germany for polluting, profitable operations in China, India, and elsewhere abroad. Will the United States follow suit?

As natural gases skyrocket during a European cold snap, and Russian gas pipelines through Ukraine are shut down for the first time since 1991, Germany has transitioned from Europe’s economic darling to its leading economic anchor. Followed closely by France and the UK, similarly weighted by economically destructive climate fantasies that are crashing to Earth like ideological meteors, the latest blow to gas supplies compounds the crisis occasioned by the mysterious sabotage of Nord Stream 1 and 2.

The results of this disastrous state-controlled economic carbon dioxide experiment continue to be as evident as explosives in a controlled demolition. Germany terminated massive EV subsidies at the end of 2023; EV sales promptly fell 69%. Despite gushing economic promises of “high-paying jobs” in the renewables industry, Germany announces more layoffs almost daily. Chinese companies, unhindered by escalating energy and regulatory costs, are leading in EV and other manufacturing technologies while spewing more chemicals into the ecosystem than German manufacturing industries.

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Why America Is in So Much Trouble

Shortly before Milton Friedman’s death in 2006, I had the privilege of interviewing him over dinner in San Francisco. The last question I asked him was: What are the three things we have to do to make America more prosperous?

His answer I have never forgotten: “First, allow universal school choice; second, expand free trade; third and most importantly, cut government spending.” That was long before Barack Obama and Joe Biden came along.

There aren’t too many problems in America that can’t be traced back to the growth of big and incompetent government.

It is notable that the two big bursts of inflation during modern times both occurred when government spending exploded. The first was the gigantic expansion of the Lyndon B. Johnson “war on poverty” welfare state in the 1970s with prices nearly doubling. Second was the post-COVID-19 spending blitz in the last year of Donald Trump’s first term, followed by the Biden $6 trillion spending spree, with the Consumer Price Index sprinting from 1.5% to 9.1%.

Coincidence? Maybe. But I doubt it.

The connection between government flab and the decline in the purchasing power of the dollar is obvious. In both cases the Washington spending blitz was funded by Federal Reserve money printing. The helicopter money caused prices to surge. (I still find it laughable that 11 Nobel Prize-winning economists wrote in the New York Times in 2021 that the Biden multitrillion-dollar spending spree wouldn’t cause inflation. Were they on hallucinogenic drugs?)

The avalanche of federal spending hasn’t stopped even though the COVID-19 pandemic ended over a year ago. We are three months into the 2025 fiscal year and on pace to spend an all-time-high $7 trillion and borrow $2 trillion. If we stay on this course, the federal budget could reach $10 trillion over the next decade.

This road to financial perdition cannot stand. It risks blowing up the Trump presidency.

Upon entering office, Trump should on day one call for a package of up to $500 billion of rescissions — money the last Congress appropriated but has not been spent yet. Canceling the green energy subsidies alone could save nearly $100 billion. Why are we still spending money on COVID-19?

We could save tens of billions of dollars by ending corporate welfare programs — such as the wheelbarrows full of tax dollars thrown at companies like Intel in the CHIPS Act. The Elon Musk Department of Government Efficiency is already identifying low-hanging fruit that needs to be cut from the tree.

Along with extending the Trump tax cut of 2017, this erasure of bloated federal spending is critical for economic revival and for reversing the income losses to the middle class under Biden.

This is especially urgent because the curse of inflation is NOT over. Since the Fed started cutting interest rates in October, commodity prices are up nearly 5%, and mortgage rates have again hit 7%, in part because the combination of cheap money and government expansion is a toxic economic brew — as history teaches us.

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Seattle Set Minimum Wage Over $20 and You’ll Totally Believe What Happened Next

Seattle closed the door on the subminimum wage for people who work for small businesses, earn tips, or enjoy medical benefits under a punishing new minimum wage law. This forced one popular spot to close up shop the same day the new ordinance went into effect.

“Previously, if an employee earned at least $2.72 per hour in medical benefits or tips,” Fox 13 Seattle reported, “a business could pay its workers $17.25 per hour.” As of New Year’s Day, all the exceptions and exemptions are gone. Seattle’s new no-excuses minimum wage is now a payroll-busting $20.76 an hour.

Bebop Waffle Shop threw a big party on Dec. 31 and permanently locked its doors on Jan. 1. My shocked face was last seen sipping a brandy by the fire and reading a dog-eared copy of Milton Friedman’s “Why Government Is the Problem.” That’s my amusingly wordy way of saying that I totally believe it happened.

The local diner’s finances were already suffering due to inflation and lower downtown foot traffic. It was against this economic backdrop that the city chose to impose a 20% pay hike on restaurant workers because politicians put moral preening and virtue signaling ahead of any other considerations.

Then there’s the part I didn’t believe at first but, on reflection, seemed almost inevitable. “I hate to close a safe space for queer people at this time,” Bebop Waffle Shop owner Corina Luckenbach explained on Instagram, “but the money just isn’t there after the minimum wage increase (which I fully support).”

Emphasis added because some folks are just too far gone ever to take the red pill. Still, you want to grab Corina by the hoodie and explain things to her in words she’ll understand, tell her, “Minimum wage laws are bad for queer people and other living things, mmkay?”

Anthony Anton, head of the Washington Hospitality Association, estimated that Seattle will see 5%-8% of its restaurants go out of business — in 2025 alone.

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Fiat Money And Dark Forces At Work

The Bible recounts how the Holy Spirit led Jesus into the wilderness to be tempted by the devil. The devil appeared and first wanted Jesus to turn stones into bread. (In fact, Mises criticized Keynesianism, saying, “the stones do not turn into bread”). Jesus refused. Then, the devil challenged Jesus to throw himself from the pinnacle of the temple in the holy city, asserting that the angels would catch him. Again, Jesus refused. But the devil did not give up. In Matthew 4:8–11, it says:

Again, the devil took Him to a very high mountain and showed Him all the kingdoms of the world and their splendor. 9And he said to Him, “I will give you all these things if you will fall down and worship me.” 10Then Jesus told him, “Go away, Satan! For it is written: Worship the LORD your God, and serve only Him.” 11Then the devil left him, and angels came and began to serve him.”

The last temptation is particularly significant. The devil promises Jesus “all the kingdoms of the world and their splendor,” meaning all power and wealth there is. Jesus resisted this temptation as well. However, humans, in their imperfection, often and all too easily fail in resisting similar temptations. For instance, the rulers and the ruled in the Western world have long succumbed to a particularly devilish temptation: replacing commodity (or precious metal) money with state-issued, unbacked money, known as fiat money. In a sense, they have been seduced by the tempting prospect of securing “all the kingdoms of the world and their splendor,” that is, the power to increase the quantity of money arbitrarily and in unlimited amounts at any time. The temptation to centrally control the economy was irresistible.

The transition from gold to fiat money happened quite some time ago. Many people probably no longer remember August 15, 1971, when the end of the gold-backed monetary system was announced. On that day, the US administration under President Richard Nixon (1913-1994) declared that the US dollar would no longer be redeemable in gold. And, with the end of the dollar’s gold backing, a global fiat money system was effectively created, a system in which all major currencies are literally produced “out of thin air.” But why did the shift away from commodity, or gold-backed, currencies occur?

The US took this step to avoid impending insolvency. The amount of US dollars it had issued over the years far exceeded the amount of gold the US Treasury had in its vaults, and which was redeemable at 35 US dollar per ounce (31.10… grams) of physical gold. By the late 1960s, more and more countries with US dollar reserves began converting their greenbacks into physical gold at the Federal Reserve Bank in New York. It became evident to the Nixon administration that sooner or later the US would no longer be able to fully redeem the dollar for gold. To avoid insolvency, the Americans simply suspended the gold convertibility of the US dollar “temporarily.”

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US Credit Card Defaults Soar To Crisis Highs As Inflation Storm Crushes Working-Poor

The party is long over for the bottom third of US consumers, as maxed-out credit cards and depleted personal savings have pushed credit card loan defaults to their highest level since the 2008 financial crisis.

Financial Times cited new data from BankRegData revealing that credit card companies wrote off $46 billion in “seriously delinquent loan” balances in the first nine months of the year—an alarming 50% increase from the same period last year and the highest level in 14 years.

US credit debt recently surpassed $1 trillion and continues to expand rapidly. Making matters worse, annual percentage rates (APRs) on credit card debt have hit record highs, compounding the financial misery for cash-strapped consumers in the era of failed ‘Bidenomics’. 

Despite the interest rate cut, the average APR on credit card debt reached a new record at the end of the third quarter. 

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Every Bureaucrat Destroys 138 Jobs

An Auburn University study says every single regulator destroys fully 138 private sector jobs every year you keep him on the job.

With nearly 300,000 federal regulators, the shock is that we still have any jobs at all.

The Two Scariest Words in the English Language

A lot of the excitement around the Department of Government Efficiency — DOGE — focuses on the dollars saved. But more important is all the things the federal government destroys with those dollars.

Specifically, the millions of jobs destroyed by the two scariest words in the English language: federal regulators.

A few weeks ago I mentioned how DOGE under Elon and Vivek is taking aim at the regulatory mothership that strangles the American economy and fuels the totalitarian administrative state — you may remember it from Covid.

A mother ship that is oddly enough unconstitutional according to a pair of recent Supreme Court decisions — Loper Bright Enterprises v Raimondo and West Virginia v EPA.

I asserted this could unleash the economy like nothing we’ve seen in the past century.

And the reason is because it’s hard to overstate just how destructive regulations are. 

Every Regulator Destroys 138 Jobs

One 2017 study by the Phoenix Center and Auburn University found that every single full-time regulator destroys 158 jobs. 

GDP-adjusted to today, that translates to $16.5 million of economic output. For a hundred-thousand dollar bureaucrat.

This lost output is made of jobs and businesses that were never started. Or were stunted by strangling regulations — which are generally bought by big corporations specifically to strangle small competitors.

Along with mom and pops chased into bankruptcy as collateral damage to new regulations — say, a diner forced to spend $30,000 on a low-energy exhaust fan.

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Communism Fumbles Again: Cuba Importing Resource It Was Once Famed For Producing

It’s undeniably one of economist Milton Friedman’s most famous sayings about the failures of central planning: “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”

This was, of course, a stroke of hyperbole. Not even a billion Keynesian ditch-diggers could empty the Sahara.

However, we have seen the closest thing to Friedman’s vision coming true: In Cuba, an island practically made of sugarcane, the communist government now needs to import sugar.

It’s bad enough that, according to CiberCuba — an expatriate-run outlet which is critical of the government — a pound of sugar now costs 600 pesos on the island, or about $25 USD.

“Despite efforts to revive the sugar industry, the sector continues to face serious challenges, including failures in the last harvest,” CiberCuba reported earlier this month.

“During the session of the National Assembly of People’s Power, Cuban Prime Minister Manuel Marrero Cruz recalled when Raúl Castro remarked that ‘it would be an embarrassment to have to import sugar.’ He then stated, ‘and well, we are experiencing that embarrassment because we are importing sugar.’”

Cruz “emphasized that the crisis in the sector is such that the country has also stopped exporting sugar, which was a key component of the economy,” according to CiberCuba.

And it’s not just dissident outlets like CiberCuba that are reporting on the failures of Cuba’s sugar industry, either. Earlier this year, the BBC’s Cuba correspondent, Will Grant, filed a piece about the failures of the system.

Shocker of shockers, you know what’s to blame? Communism!

“Cutting cane is all Miguel Guzmán has ever known. He comes from a family of farm hands and started the tough, thankless work as a teenager,” the May piece began. “For hundreds of years, sugar was the mainstay of the Cuban economy. It was not just the island’s main export but also the cornerstone of another national industry, rum.”

“Today, though, he readily admits he has never seen the sugar industry as broken and depressed as it is now – not even when the Soviet Union’s lucrative sugar quotas dried up after the Cold War,” Grant noted. “Spiraling inflation, shortages of basic goods and the decades-long US economic embargo have made for a dire economic outlook across the board in Cuba. But things are particularly bleak in the sugar trade.”

“There’s not enough trucks and the fuel shortages mean sometimes several days pass before we can work,” Guzmán said under a “tiny patch of shade” while he waited for Soviet-era trucks to arrive.

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