Jamie Dimon, the chief of JP Morgan Chase has indicated that California poses a larger risk than Greece.
Mr Dimon told investors at the Wall Street bank’s annual meeting that “there could be contagion” if a state the size of California, the biggest of the United States, had problems making debt repayments.
Dimon isn’t the first to […]
Marked up Discounts
Monday began with jitters over the market’s reaction to a raise in the U.S. discount rate. In other words, the Federal Reserve increased the rate at which select banks can borrow from it.
The so called ‘discount window’, was intended to be an emergency lending facility. The lender of last resort. Instead, it’s become the lender of any resort. The increase in the discount rate means it won’t be as cheap to borrow money from the Fed.
The relevance to you shouldn’t be underestimated. Aussie banks get much of their funding from overseas, so they are affected by what happens in the global interbank market. If the increase in the discount rate is a signal that the broader interest rate is going to be raised as well, then this would affect the availability of funds and their cost.
In a debt drugged, liquidity obsessed world, a change in interest rates can go from affecting profitability to affecting solvency very quickly. And it’s not just the banks that are high on cheap credit. Take a look at a listed company’s balance sheet. Most of them use leverage to boost their returns.
Low interest rates encourage this.
The reason the western world economy has become particularly interest rate sensitive is because of the way it uses debt. Instead of funding an asset with debt and then paying it off with the increased revenue, more debt is used to pay off the previous borrowings as they come due. This is referred to as rolling over debt.
By doing this, a company (or government) is able to sustain a high level of leverage over time. The debt is never truly repaid.
But, if interest rates rise, then the cost of borrowing goes up. Traditionally, this would have decreased the amount of borrowing. In our modern economy more must be borrowed in order to pay off the old debt. That means companies have no choice but to accept a change in rates.
The financial market reaction to a potential increase in the more important Fed Funds Rate would not have been pleasant. However, this unpleasantness didn’t eventuate, indicating that financial markets expect rates to sit tight for some time to come. Based on this, Dan Denning is a step closer to declaring victory over our Money Morning editor Kris Sayce, with several beers at stake.
Neither editor is being suspicious enough in their analysis. Let’s take a trip down memory lane with a former Federal Reserve economist, Michael Belongia. What happened in the past when the discount rate was changed?
In this podcast, Mr Belongia talks about how a change in the discount rate can lead to a change in the actual interest rate without FOMC approval, or much media attention. Going behind the back of the FOMC, which is supposed to set the interest rate, is scandalous. That didn’t stop it from happening regularly, according the Belongia.
He explains that the spread between the discount rate and fed funds rate should be kept constant according to Fed policy. So, if the Fed’s Board changes the discount rate, then the Fed Chairman can march down to the Fed’s trading desk and instruct the traders to change the Fed Funds rate to maintain the spread. This conveniently avoids the often less complicit FOMC.
Belongia’s accounts are shocking to anyone who believes in the integrity of that particular institution and sickening to the sensible people who don’t.
As mentioned, governments around the world are also exposed to the problem of having to roll over debt. To Senator Joyce’s delight, the lucky country is no exception. Dan Denning points out that “… according to 2008 data, over $400.1 billion dollars of Aussie foreign debt – or 35.4% of the total – matures in 90-days or less. Nearly half the debt total – $514 billion – matures in one year or less.”
That’s a lot of debt to refinance on such a regular basis, so any change in interest rates will be felt quickly.
The press often refers to the shortening maturity of government debts. This implies governments will have to roll over debt more often. Such shortening has occurred in the U.S. and is now a major concern. Former Federal Reserve Chairman Alan Greenspan has referred to it as the “critical Achilles heel”.
The “greatest financial crisis globally ever”
On Tuesday, Bloomberg reported the confession of Kingpin Alan Greenspan. At least, we consider it a confession. Low interest rates have largely been blamed for the financial crisis by those who warned of its imminence. Greenspan set those rates artificially low. Often in a cunningly deceptive way, according to Mr Belongia. Anyway, here is how Greenspan’s conscience was finally cleared on Bloomberg:
Former Federal Reserve Chairman Alan Greenspan said the financial crisis was “by far” the worst in history and called the recovery from the global recession “extremely unbalanced.”
The world economy has undergone “by far the greatest financial crisis globally ever.”
Greenspan said that while the economy was in worse shape in the Great Depression, the recent financial crisis was potentially more harmful than that in the 1930s because “never had short-term credit literally withdrawn.”
Greenspan also said “fiscal affairs are threatening this outlook” for recovery, as Congress and the White House face difficulty raising taxes or cutting spending.”
So, not only is his reconciliation late, but his diagnosis is too.
Speaking of confessions, our other ‘favourite’ economist, former Enron adviser and Nobel Laureate Paul Krugman, has declared his ignorance publicly:
“I’m craving the chance to do some deep thinking, and I haven’t been doing a lot of that.”
While this fact is familiar to most, it does not excuse Krugman’s behaviour. Having consistently advocated the inflation of economic bubbles, to the devastation of homeowners, employees and shareholders around the world, he now advocates a level of government debt that would make Senator Joyce faint, or pop, whichever comes first.
But best of all is this part of Krugman’s article:
“I guess doing the really creative academic work does require a state of mind that’s hard to maintain throughout your whole life.”
Creativity! Economics and creativity? Economics is about understanding timeless principles. Perhaps this is where he went wrong – too much creativity. We have seen the results of Krugman’s creative solutions, indicating he doesn’t understand the economy, or wishes to indebt future generations beyond help.
RBA governor Rick Battelino explained that the resources boom has overcome an interruption known as the GFC:
… now that has passed, the underlying dynamics of the resource boom are starting to reappear…
It’s hard to put a finger on exactly how much investment is going to take place, but I don’t think it’s unreasonable to expect mining investments to rise to 6 per cent of GDP over the next few years. That would be about twice as high as it got to in the previous boom. It’s a very big boom.
It certainly is big. But so are China’s resource reserves.
In an article on oilprice.com, Dave Forest of the e-letter Pierce Points, warns of the potential price reaction should China decide to begin using those reserves, or even selling them. In fact, they may have already started, with vast steel exports going to Europe.
The effect a short term fall in commodity prices could have on Aussie resource investment and development could be pivotal to the future of the Australian economy.
China itself is of course an economic basket case, as cleverly shown in this business spectator slideshow.
Confidence indicators took a hit in the U.S. and Germany, while U.S. new home sales dropped to a record low. This is particularly striking, as central banks often tout these two factors as their primary focus. “Restoring confidence in the market” and “supporting house prices” are phrases that echo through the halls of the central banks on a continuous basis.
Meanwhile, the US unemployment figures are proving disastrous, let alone the unemployment itself. The American Bureau of Labour Statistics has its own numbers in such a mess that the pollster Gallup has decided to help out.
The Poll informed the BLS that “nearly 20 percent [of the 20,000 adults in the work force polled] were working part time in January because they couldn’t find a full-time job or had no work at all, and that they are having trouble affording basic necessities like food, shelter and health care.”
This tells a different story from the BLS estimates of below 10% unemployment.
U.S. banks continue their slide into oblivion, with 4 of the 161 bank failures since 2009 recorded last week. The outlook isn’t much better. Bloomberg reports that “hundreds of banks may face insolvency as losses mount on commercial real-estate loans, according to a Feb. 10 report by the panel appointed by Congress to oversee the U.S. bailout program.”
Meanwhile The Telegraph uses some spectacular phrases in an article titled “Failure to save East Europe will lead to worldwide meltdown”. It even breaks the language barrier with the following: “…set off round two of our financial Götterdämmerung.” Götterdämmerung roughly translates to Godly twilight, implying an age of saviourless darkness.
Next up it suggests a “Monetary Stalingrad” and Eastern Europe “blowing up right now.” A more surgical approach was taken by Latvia’s central bank governor, who declared the Latvian economy “clinically dead”, while protesters “trashed the treasury and stormed parliament.”
Needless to say, an excellent article.
Strangely enough, stock markets remain comparatively buoyant and Australia seems to be trundling along happily. Whether Mr Market has sucked in enough suckers before another crash is unclear. Daily Reckoning editors would probably be more concerned if the media was more optimistic, as this indicates complacency.
The Economic Climate
Former IMF economist Jeffrey Sachs provided some creativity of his own in a recent article:
Climate change science is a wondrous intellectual activity. Great scientific minds have learned over the course of many decades to “read” the Earth’s history, in order to understand how the climate system works. They have deployed brilliant physics, biology, and instrumentation (such as satellites reading detailed features of the Earth’s systems) in order to advance our understanding.
The Guardian, points out otherwise:
Scientists have been forced to withdraw a study on projected sea level rise due to global warming after finding mistakes that undermined the findings.
This article was previously put forward as proof of claims made in the infamous IPCC report. The official withdrawal included the statement that “… it’s one of those things that happens. People make mistakes and mistakes happen in science.”
While we are in agreement that mistakes happen, we do not agree that government policy should be based on anything quite so mistaken. This is especially so, as government policy is more often than not an inherent mistake as well.
In keeping with brilliantly balanced and fair journalism, the Guardian published the article of Jeffrey Sachs two days before the article about the withdrawal of the study. I wonder what readers think of that.
In the name of financial stability!
Dan Denning also reported on the latest government scheme to support its funding aspirations:
Yesterday’s Financial Review even mentioned the possibility that a shrinking government bond market would be a problem for Australian banks. That’s because a new regulation proposed by the Australian Prudential Regulatory Authority (APRA) would require a certain percentage of bank assets to be made up of high credit quality bonds. And MBS.
MBSs are Mortgage Backed Securities, those things that have a habit of blowing up when house prices fall.
According to Porter Stansberry, the publisher of Stansberry and Associates Investment Research, the Greeks have pulled off a feat that would make Sun Tzu jealous. Greek military spending has been excluded from the annual budget, because it is a “state secret”. So, according to Stansberry, about 30% of the Greek governments’ spending isn’t even declared.
The Daily Reckoning Week in Review
- Hike in Fed Funds Rate Would Cause Damage to Collateral on Books of America’s Banks
- Gold Standard Doubles as the Greenspan Fed Makes Real Interest Rates Negative
- Alan Greenspan Bears Blame for Intensity of Financial Crisis
- Alan Greenspan’s “Smallish” Injections
- You Can Lead Investors to Liquidity but You Can’t Make Them Buy Stocks
Oranges were once expensive luxuries in northern climes. “In 1916,” Paul Fussell writes in Abroad, “oranges, like other exotic things that had to travel by sea, were excessively rare in England. If you could find them at all, they cost the shocking sum of 5d each.”
Today, we take for granted that we can eat apples and oranges and bananas all year round if we choose. It doesn’t matter where you live. We can eat strawberries in the dead of winter. In fact, we routinely enjoy goods that come from places very far from our own doorstep.
“Televisions from Taiwan, lettuce from Mexico, shirts from China,” William Bernstein writes in A Splendid Exchange, a book on trade. Goods from faraway are so common, “it is easy to forget how recent such miracles of commerce are.”
Such miracles of commerce have redrawn the economic map. The emerging markets have “emerged,” as you will see. For you and me a big opportunity has also emerged in something called the Great Convergence.
Our story has its roots in the late 20th century, with the gradual spread of the Industrial Revolution to the developing world. According to Power & Plenty, a good reference book on trade, the Western world (ex-Japan) represented 90% of the world’s manufacturing output as late as 1953. America’s economy alone was nearly half of the world’s industrial output.
During this time, the economic gap between, say, China and Western Europe grew very wide when viewed in historic terms. But things changed in the late 20th century. The Great Convergence began. From 1950 on, world economic growth was, according to Power & Plenty, “quite simply astonishing.” We enjoyed a rolling wave of “economic miracles” through the decades. Closed economies opened up…and trade expanded.
We can point to the success of postwar Japan…and then to the surging tiger economies of East Asia. Singapore, Hong Kong, Taiwan and South Korea grew in leaps and bounds. Finally, we saw the opening up of China, India, Russia and Brazil. The once-bottled-up energies of these countries poured out.
Today, we see the handiwork of the Great Convergence taking shape. The distinctions between “emerging markets” and “developed markets” are starting to disappear. Indeed, the terms may already be obsolete. Such is exactly the thesis of Everest Capital, which makes the case in a recent white paper called The End of Emerging Markets?
“The belief that companies in the US, Western Europe or Japan are better managed than in emerging markets is also no longer valid,” Everest asserts. “Anyone who has sat through the parade of fraud and corporate malfeasance of recent years in the US will find it hard to argue otherwise.”
The list of corporate thieves is much longer in the US and Europe than in the emerging markets. Management teams in the West no longer dominate when it comes to standards of best practices. Everest speaks with the authority of a practitioner on this point. “We meet a large number of managements in emerging market countries, and it is impressive to see how quickly they have adopted best practices in terms of disclosure, governance and creating shareholder value.”
Everest also makes the case that governments in the West are just as bumbling as those of emerging markets. More and more, it is the Western governments that steal too much. Another distinction blurred.
Emerging markets now make up about half of the global economy. Take a look at the nearby chart, “Let’s Call It Even.” (Gross domestic product is a flawed statistic, but it serves as a rough guess of economic size. PPP means “purchasing power parity,” which aims to take out the distorting effect of different currencies.)
Not surprisingly, therefore, emerging markets now make up 10 of the 20 largest economies in the world. India is now bigger than Germany. Russia is bigger than the UK. Mexico is bigger than Canada. Turkey is bigger than Australia.
In a stock market sense, these places have also grown up. It used to be that emerging markets were not very liquid or very big. It was not that long ago that the IBM shares changing hands in a single day in New York were worth more than all the shares that traded hands in Shanghai or Bombay.
Today’s emerging markets are large and liquid. As Everest Capital points out: “In the third quarter of this year, Chinese markets traded more shares than the NYSE; Hong Kong and Korea traded more than Germany; India traded more than France; and Taiwan traded more than Italy, Australia or Canada.”
Emerging market companies are also growing faster. In particular, there are wide gaps in the growth rates of sales and profits. The second key distinction worth noting is that of balance sheet strength. Emerging market companies have less debt and cover their debts more comfortably.
All is to say, investors need exposure to emerging markets, or at the very least, they should not shun them for reasons that are no longer valid. One of my favorite ways to get exposure to emerging markets is through the back door, so to speak. Invest in companies, wherever they are, that have what these economies need or want, but don’t have – or can’t make. This is another reason to invest in the commodities we’ve honed in on – especially oil, potash, gold and the agricultural commodities.
for The Daily Reckoning Australia
- Emerging Markets in the New World Disorder
- The Century of the Emerging Markets
- Vietnam: The Next Bubble in the Emerging Markets
- Still Opportunity in Emerging Markets – Especially India
- Globalisation Halt
The depression is alive and well, thank you.
The Dow rose 91 points yesterday. Gold fell $6.
Officially, the crisis is over. Everyone says so. Central bankers and Treasury officials have been congratulating themselves. It’s been a year now since the end of the world didn’t happen. These fellows take credit for it.
Bernanke said yesterday that he’ll keep the monetary spigots wide open for a while longer…but that’s just because the recovery is fragile. He also talks of an ‘exit’ from stimulus programs, now that the economy is getting back on its feet.
Claptrap! Balderdash! Flimflam!
The mainstream economics profession is guilty of dereliction of duty. They should be telling people that this ‘recovery’ is a scam. They should be warning investors that the markets could fall apart any day. They should be buying gold and selling US Treasuries…and explaining to the politicians that you can’t buy your way out of a depression with phony dollars squandered on wasteful projects!
Instead, the dopes are patting each other on the back…praising themselves for saving the planet from destruction.
But what really has gone on? And what’s going on now?
Glad you asked.
First, there is a real economic phenomenon going on – the depression. It’s alive and well…and doing just fine. Households are de-leveraging. Businesses are building up cash. People are losing their jobs. Savings rates are edging up.
Almost everything is happening as it should.
Depressions are times of falling prices. Markets are always discovering what things are worth. In a depression, they find that assets – stocks and real estate primarily – are not worth nearly as much as people thought.
That’s why we have our ‘crash alert’ flag still flying. Prices are vulnerable to sharp, unannounced drops until they finally get down to real depression levels. Since that hasn’t quite happened yet…we figure it’s still to come.
On the employment front, this depression has put more than 6 million people out of work. And every month, more people join the unemployment ranks. So far, so good. The US economy didn’t need so many marble countertop installers and so many mortgage refinancers. (If only something could be done to get rid of lobbyists!)
But the worst thing about a depression is that it holds jobless people prisoner for so long. Many of them will become lifers…they’ll never work again.
In that regard, this depression is similar to Japan’s 20-year depression, 1990-2010. After the bubble burst, the Japanese…who were aging faster than any race ever had…figured they needed to get serious about saving money. So, they cut back on spending…and saved. Domestic spending collapsed. Fortunately, the rest of the world – especially Americans – were still spending their fool heads off. And Japan is an export-led economy. Even so, with its own consumers dragging their feet, the Japanese economy didn’t go very far or very fast.
The Japanese put their vast savings, directly or indirectly, into Japanese government bonds…helping the government fund its massive stimulus programs. Of course, the stimulus programs were a waste of money. The economy never really recovered…and now the government is expected to have gross debt equal to 200% of GDP next year, according to the IMF.
For reference, the US is expected to reach 100% of GDP next year. Britain is hard on America’s heels with debt at 94% of GDP.
And now Americans are entering retirement savings mode too. The biggest age cohort – the boomers – need to do some fast saving in order to finance their retirements. They’re cutting back…not just temporarily…but permanently. They will never, ever again spend money like this did during the big bubble years 2003-2007. That’s what makes for a durable depression…
Another thing that makes for a depression is a lack of lending. Bank credit is still falling. Households cut back because they need to get out of debt…and save money for retirement. Businesses cut back too. New projects typically don’t do well in a depression. Small businesses struggle…and fail. Big businesses get bailouts and subsidies. Depressions are times to neither a borrower nor a lender be.
Debt is only increasing at the government level. But that’s another story for another day…
for The Daily Reckoning Australia
- Japanese Government Displays Generosity as Prices Fall in Japan
- Japan and its Economy Did Not Have Secret to Everlasting Success
- How Will the United States Finance the Biggest Deficit of All Time?
- The Solution to a Depression is a Depression
- Consumer Spending Rises
By Karl Denninger, The Market Ticker
I seem to remember once upon a time when Charlie Gasbag-a-rino would come on CNBS virtually on a daily basis, with the DOW down 200, and announce that Ambac, MBIA or both were “about to be bailed out” – attributed to “sources.”
Only one problem with this, you see – it never happened.
Then there were the claims that Warren Buffett was going to buy, well, the world. That never happened either, but it was always good for a pump here and there in the markets – only when they were in danger of really tanking, of course.
And now we’re seeing it again, this time with Greece.
Over the weekend we have seen multiple competing reports of some sort of “deal”, starting right near the close of the US market on Friday. It was undoubtedly responsible for the near-meteoric rise of the futures into the lock-up – nobody would want to hold short into the weekend with such a thing happening, right?
“there is absolutely no question of it”.
“We have a (European) treaty under which there is no possibility of paying to bail out states in difficulty,” Merkel told ARD public television.
But let’s look at the facts here.
Is this really about bailouts?
Or is this just more criminal manipulation of markets, with certain privileged players placing bets in the marketplace, then starting rumors?
After all, the blatantly-obvious front-running of the famous August 2007 Discount Rate cut wasn’t investigated – or prosecuted, even though a three-year old could look at the chart for the day before and see that obviously someone (or a group of someones) knew in advance that Bernanke was about to do that – and they traded on it.
Then there were the AMBAC/MBIA rumors, the incessant Buffett rumors, the shorting ban (which was also traded on in front of the announcement by an afternoon) and more.
Not one of these has led to a formal investigation, yet all trades are trivially traceable. If the government gave a good damn about prosecuting this sort of information leak and front-running, all of which is illegal by the way, the records do exist. All they have to do is look.
This sort of corrosive and pervasive scam destroys confidence in our capital markets. I am convinced that a huge part of the reason that we had the collapse we did in 2008 and early 2009 – the reason it was so violent and essentially impossible to control – was that confidence in the markets had been destroyed by months of outrageously unlawful conduct in this regard.
When the “triggering thing” happened – Lehman – it just all came apart at once, since nobody trusted anything any more.
What makes anyone believe this is over?
The scam machine is still running. The rumor-mongers are still plying their wares, getting in front of the alleged news (even though it is repeatedly faked) and stealing investors money – time and time again.
We have learned nothing. Our law enforcement agencies and politicians have not only learned nothing, they have put in place the very same instabilities that led to the collapse last time.
It will happen again, and probably sooner than anyone expects.
Our SEC is a joke and the international regulators are even worse. We have no desire among those people to investigate the outrageous actions of these scam-meisters and lock them up. We should, but we don’t.
Your memory should be good enough to remember what happened the last time. It should also be good enough to remember why it happened the last time.
We’ve changed nothing.
Are you insane enough to believe that the outcome – having done the same thing – will in fact be different?
In a measure of ungodly stupidity Congress extended the first-time homebuyers’ tax credit to existing homeowners. Somehow, it didn’t occur to them that if someone sells their home to buy a new one it does not provide a net boost to the housing market. (One more home is purchased, one more home is put up for sale.) Somehow this simple logical point escaped the reporters who cover the issue as well, as they are still waiting for the credit to provide a lift to the housing market.
So there was this big snowstorm that hit the East Coast a couple of weeks ago. (Not the one this weekend, that dumped about 2′ of snow on Upstate New York and a little more than a foot here in suburban New Jersey; the one that wiped out D.C. and gave the Party of No an excuse to do nothing.)
Snow in February. What a surprise! Clearly, not something that happens every year.
But This One is Different. Maybe because it gave the U.S. press an excuse to pay no attention to Haiti. Maybe because closing down D.C. meant that all the pundits got to whine and reveal their suffering.
And, just maybe, because it has become the all-purpose excuse for the February Employment Report. Or any other hint that the world is not perfect, and those “green shoots” haven’t been eaten by starving deer who were then shot by Big Bank Hunters.
The Usual Suspects are already out in force.* And the hedging (not in the risk management sense) has begun:
“We will have to wait until March to see if February is an aberration or a fundamental sign that the recovery in sales will be more subdued than hoped,” [Jessica Caldwell, Edmunds’ director of industry analysis said].
So anything that can be marginally interpreted as positive will be The Crest of a Wave, while anything that makes those legendary shoots look as if they were artificial flowers will get the rousing “Wait Until March!” cry.
But, gosh, the job gains for February might be understated by 5-8% of that total. So let’s not do anything hasty.
Bankers Bonuses and Bank Reforms: why they are needed, what they might include, and are you angry yet?
by Linda Beale
A big title for a tiny little sketch of a post, I know. Not much time today folks, but if you can read only one blog posting, read the one at Naked Capitalism at the link provided at the end of this paragraph. Yves comments on the Independent’s article on bankers’ bonuses and the Wall Street firms’ incredible egos and greed. See US Banks Reject Effort by UK Bank Execs to Reign In Pay, Naked Capitalism, 022
- break up the investment banks;
- regulate their leverage and their bonuses,
- ban their flash trading
- heavily regulate their involvement in speculative gambling with derivatives (i.e., betting on positions that they don’t own). And given that their resurging profits are due to two things–(1) resuming the same casino gambling that caused the 2008 crisis and Great Recession and cost millions their jobs and (2) feeding off the public trough for TARP direct funding (the AIG bailout, etc going directly into Goldman and JPMorgan Chase’s pockets) and implicit guarantees resulting in very cheap cost-of-funds permitting Goldman et al to make profits with federal loans–we need to add a new tax for the big banks as a charge for the government guarantee that they are getting rich off of (again). The tax should be a substantial enough bite that it will force the banks to both significantly reduce their leverage and significantly reduce their bonus payment system. It can be either in the form of an excise tax based on their leverage (since their borrowed funding is what costs the government in terms of bailout potential) or in the form of an income tax surcharge that is progressively structured so that the highest rate applies to banks with the greatest amount of leverage. It could even be a tax structured as a tax on each derivative position like credit default swaps entered into that isn’t backed by a long position (so not a true hedge but a speculative bet). I don’t knw for sure which form is best (comments welcome) but I sure as heck think some version or another should be passed, and soon, else we are in for a repeat that is more disastrous than the GOP-gifted Great Recession we are already experiencing. _________________________________
crossposted with ataxingmatter
Starbucks Gun Policy: Refusal To Ban Firearms Pleases Open Carry Advocates, Troubles Gun Control Advocates
Dale Welch recently walked into a Starbucks in Virginia, handgun strapped to his waist, and ordered a banana Frappuccino with a cinnamon bun. He says the firearm drew a double-take from at least one customer, but not a peep from the baristas.
Welch’s foray into the coffeehouse was part of an effort by some gun owners to exercise and advertise their rights in states that allow people to openly carry firearms.
Even in some “open carry” states, businesses are allowed to ban guns in their stores. And some have, creating political confrontations with gun owners. But Starbucks, the largest chain targeted, has refused to take the bait, saying in a statement this month that it follows state and local laws and has its own safety measures in its stores.
“Starbucks is a special target because it’s from the hippie West Coast, and a lot of dedicated consumers who pay $4 for coffee have expectations that Starbucks would ban guns. And here they aren’t,” said John Bruce, a political science professor at the University of Mississippi who is an expert in gun policy.
Welch, a 71-year-old retired property manager who lives in Richmond, Va., doesn’t see any reason why he shouldn’t bear arms while he gets caffeinated.
“I don’t know of anybody who would provide me with defense other than myself, so I routinely as a way of life carry a weapon – and that extends to my coffee shops,” he said.
The fight for retailers heated up in early January when gun enthusiasts in northern California began walking into Starbucks and other businesses to test state laws that allow gun owners to carry weapons openly in public places. As it spread to other states, gun control groups quickly complained about the parade of firearms in local stores.
Some were spontaneous, with just one or two gun owners walking into a store. Others were organized parades of dozens of gun owners walking into restaurants with their firearms proudly at their sides.
In one case, about 100 activists bearing arms had planned to go to a California Pizza Kitchen in Walnut Creek, Calif., but after it became clear they weren’t welcome they went to another restaurant. That chain and Peet’s Coffee & Tea are among the businesses that have banned customers with guns.
Just as shops can deny service to barefoot customers, restaurants and stores in some states can declare their premises gun-free zones.
The advocacy group OpenCarry.org, a leading group encouraging the demonstrations, applauded Starbucks in a statement for “deciding not to discriminate against lawful gun carriers.”
“Starbucks is seen as a responsible corporation and they’re seen as a very progressive corporation, and this policy is very much in keeping with that,” said John Pierce, co-founder of OpenCarry.org. “If you’re going to support individual rights, you have to support them all. I applaud them, and I’ve gone out of my way personally to let every manager of every Starbucks I pass know that.”
The Brady Campaign to Prevent Gun Violence has responded by circulating a petition that soon attracted 26,000 signatures demanding that Starbucks “offer espresso shots, not gunshots” and declare its coffeehouses “gun-free zones.”
Gun control advocates hope the coffeehouse firearms displays end up aggravating more people than they inspire.
“If you want to dress up and go out and make a little political theater by frightening children in the local Starbucks, if that’s what you want to spend your energy on, go right ahead,” said Peter Hamm, a spokesman for the Brady campaign. “But going out and wearing a gun on your belt to show the world you’re allowed to is a little juvenile.”
The coffeehouse debate has been particularly poignant for gun-control advocates in Washington state, where four uniformed police officers were shot and killed while working on their laptops at a suburban coffeehouse. The shooter later died in a gun battle with police.
Ralph Fascitelli of Washington Ceasefire, an advocacy group that seeks to reduce gun violence, said allowing guns in coffeehouses robs residents of “societal sanctuaries.”
“People go to Starbucks for an escape, just so they can get peace,” Fascitelli said. “But people walk in with open-carry guns and it destroys the tranquility.”
Gun control advocates have been on the defensive. Their opponents have trumpeted fears that gun rights would erode under a Democrat-led White House and Congress, but President Barack Obama and his top allies have largely been silent on issues such as reviving an assault weapons ban or strengthening background checks at gun shows.
Gun rights groups are looking to build on a 2008 U.S. Supreme Court ruling that struck down Washington, D.C.’s handgun ban, and cheered legislation that took effect Monday allowing licensed gun owners to bring firearms into national parks. Obama signed that legislation as part of a broader bill.
Legislators in Montana and Tennessee, meanwhile, have passed measures seeking to exempt guns made and kept in-state from national gun control laws. And state lawmakers elsewhere are considering legislation that would give residents more leeway to carry concealed weapons without permits.
Observers say the gun rights movement is using the Starbucks campaign to add momentum and energize its supporters.
“They’re trying to change the culture with this broader notion of gun rights,” said Clyde Wilcox, a Georgetown University government professor who has written a book on the politics of gun control. “I think they are pressing the notion that they’ve got a rout going, so why not just get what they can while they’re ahead?”
On the Net:
Richard Daughty writes: The proverbial boogeyman, the phrase “end of the world as we know it,” is not particularly significant to me because it is, literally, always true, because any progress at all, anywhere, means that tomorrow will never be like today, and so “the end of the world as we know it” can be extended to mean “and it will be better and better!”