Your Financial News Roundup
July 12, 2023
1. Economy: The Fed wants to clamp down on big banks; meanwhile Bank of America was slapped with a hefty fine for its deceptive business practices.
2. Tech: Mark Zuckerberg’s new Threads app is giving Twitter a run for its money; while the E.U. and U.S. have created a new data-sharing agreement.
3. World: Goldman Sachs predicts India will overtake the U.S. economy by 2075; and China faces the prospects of an economic disaster in the form of persistent deflation.
Personal Finance Concept [Part 3/5]: Money Scripts – Money Status
🤑 Banks on Defense: The Federal Reserve’s vice chair for supervision, Michael Barr, is calling for an overhaul of regulations on big banks. Under the new rules, banks with more than $100B in assets must increase their capital holdings to absorb losses during times of volatility. Based on his predictions, this change equates to banks needing to hold an extra 2% of capital, or $2 per $100 of risk-weighted assets. Additionally, larger banks will be required to report the impact of unrealized losses and gains on their capital levels. (New York Times)
Our Take: The proposed overhaul emphasizes the importance of financial resilience, risk management, and transparency. The changes will hopefully strengthen the banking system and reduce systemic risks, though it will certainly face heavy pushback from banks.
🏦 Shady Business: The Consumer Financial Protection Bureau ordered Bank of America to pay $250M in fines and customer compensation for its shady business practices. According to the federal regulator, the bank illegally double-dipped on junk fees, withheld credit card rewards from consumers, and created fake credit card accounts without permission. This penalty is one of the highest in recent years against the nation’s second largest bank. (USA Today)
Our Take: While the financial penalty is substantial, it’s unlikely to deter banks from these deceptive practices, as we’ve seen previously with Wells Fargo.
🧵 Threads Breaks the Internet: Move aside ChatGPT — Mark Zuckerberg’s new Threads app achieved 100M signups in 5 days, overtaking OpenAI’s ChatGPT record of achieving 100M monthly users in ~2 months. For context, Twitter currently has ~330M monthly active users and took more than 5 years to achieve what Threads accomplished in less than a week. While Threads is still in its early stages, it’s clear the app is not going anywhere. (TechCrunch)
Our Take: Threads’ early success reflects the intense competition in the social media space and poses a major threat to Twitter. But, while achieving a record-setting number of signups in a short amount of time is impressive, the real challenge lies in keeping users engaged and active in the long run.
🇪🇺 🇺🇸 Data Be Free: The E.U. and U.S. have created a new data-sharing agreement, enabling the secure and free transfer of data across the pond. Prior attempts had failed due to the E.U.’s concerns over U.S. spy agencies accessing personal data. But this agreement pledges only necessary data would get used and establishes a court to hear concerns from E.U. users who suspect that spy agencies are using their data. However, privacy advocates in the E.U. pushed back, demanding the U.S. update its spying laws. (BBC)
Our Take: After the 2013 Snowden leaks, the E.U. was alarmed at the extent of American spying against its members — leading the E.U. to end its data-sharing agreement with the U.S. A decade later, enough trust has been restored for a reset, making it easier for E.U. and U.S. tech firms to do business.
🇮🇳 India on the Rise: A new Goldman Sachs forecast predicts India will become the world’s 2nd largest economy by 2075. Currently, India is the 5th largest economy, trailing behind Germany, Japan, China, and the U.S. The projected growth is driven by factors such as a growing population, advancements in innovation and technology, infrastructure and capital investments, and rising worker productivity. (CNBC)
Our Take: India’s potential to emerge as a global powerhouse indicates a significant shift in global economic dynamics. Realizing this potential will require investing in critical sectors, boosting labor force participation, and overcoming challenges like infrastructure gaps and access to quality education and healthcare.
⬇️ Inflation > Deflation: While the West is aggressively fighting inflation, China is confronting a potentially worse reality — deflation. Even after China reopened following 3 years of “zero-Covid” lockdowns, its economy continues to suffers from factors such as a struggling property sector, high youth unemployment, and substantial local government debt to the tune of $35T. The worst case scenario is if the Chinese Communist Party fails to boost economy growth and gets stuck in a deflationary environment combined with high debt levels. (Fortune)
Our Take: Persistent deflation in China could disrupt global trade dynamics, impact market confidence, and hinder economic growth worldwide. Meanwhile, a record-high unemployment rate of over 20% among China’s Gen Zers may lead to social unrest and serious political consequences.
Finance Concept of the Week
The Psychology of Money [Part 3/5]: Money Scripts — Money Status
In the context of money scripts, which are the subconscious beliefs and behaviors we develop around money, money status believers tie their self-worth to their net worth. They typically associate wealth with a sense of superiority or validation, where having more money signifies success. They may frequently compare themselves to their peers or societal expectations, creating a sense of inadequacy or shame and fierce competition.
Those who fall into the money status camp typically put their dollars toward outward displays of wealth, like buying the newest car or a fancy house. This behavior can put them at risk of overspending, gambling, and financial dependence. Money status seekers tend to be financially dependent on others and are likely to hide financial troubles from their partner.
Examining the Roots of Limiting Money Status
In today’s capitalistic society, we frequently get bombarded by messages from media, advertising, and popular culture that associate money with status, power, and happiness. This can lead us to seek validation and self-worth through our financial achievements, whether it’s feeling more desirable, respected, or important. This behavior can stem from underlying insecurities, a need for external approval, or a desire to fit into certain social circles.
Alongside the need for validation, money status believers may often measure their financial status against others. They may feel a strong need to outperform their peers or maintain a higher social standing, fueling feelings of dissatisfaction and a cycle of seeking higher money status.
Family upbringing and childhood experiences may also shape attitudes toward money. For example, if you grew up in a family where financial success was highly emphasized and admired, you may be more likely to develop a strong drive to become rich. On the other hand, if your family struggled financially, you may develop a deep fear of scarcity and a relentless pursuit of financial security to protect yourself from future hardships.
Overcoming Limiting Money Status
To overcome money status beliefs, you need to separate your sense of self-worth from how much money you have (or don’t have). That includes learning not to define other people by their wealth and how successful you think they are.
Rather than working towards proving yourself through accumulating wealth, set financial goals that align with your values and aspirations. Consider goals like financial security, personal growth, or philanthropy.
Instead of spending money to impress other people or seem like you are wealthy, focus on spending with intention. Before making a purchase, ask yourself if it will bring you joy. Being more mindful of how you spend your money will allow you to shift your focus toward a more fulfilling and balanced lifestyle.
As you reflect on your beliefs and make these changes, keep your partner and/or family in the loop. Being honest with those you love about your financial situation will hold you accountable to your decisions and goals. They can also be a source of support and strength for you as you learn and grow.
Tip of the Week
💸 Regularly monitor your progress towards your financial goals. That includes things like checking your savings account balance, sticking to your budget, and paying off all your bills on time. Don’t forget to celebrate milestones along the way to stay motivated.
Personal Finance Resources
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