Stephen Matter, Author at С��ñֱ��app

Ariz. manufacturers urge passage of R&D bill to invest in areas of need

Stephen Matter — Mon, 13 Jun 2022 19:45:53 +0000

The Arizona manufacturing community is backing legislation to strengthen a tax credit program that has helped turn the state into one of the country’s leading hubs for advanced manufacturing in sectors as varied as semiconductors, aerospace and defense, and electric vehicles.

Senate Bill 1643, sponsored by Senate President Karren Fann, R-Prescott, would codify a program for manufacturers to access a portion of their unused research and development (R&D) tax credits to reinvest in targeted activities in Arizona.

The bill’s backers say it will help keep Arizona competitive in a global market by stimulating the creation and expansion of manufacturing in the state.

The new program would be known as the Arizona Reinvestment Fund and would be managed by the Arizona Commerce Authority for 10 years. The ACA would manage applications submitted by manufacturers who are looking to put their unused tax credits to work for Arizona.

The legislation in its current form would allow manufacturers to access $.60 in funds for every $1 in available R&D credits, with a maximum annual allowance of $10 million per manufacturer and a $50 million annual cap.

The bill would restrict, however, firms’ use of the funds to a limited set of purposes that would directly affect areas presenting specific challenges to the state.

To take advantage of the program, companies would have to make capital investments in partnership with an Arizona higher education institution for workforce development, make investments in sustainability or water stewardship, construct a new facility where R&D activities would occur or modernize such a facility, or make investments to address supply chain challenges, including using funds to draw down additional federal funding.

“This is a good deal for Arizona,” Arizona С��ñֱ��app of Commerce & Industry Vice President of Government Affairs Courtney Coolidge said. “Not only do we improve an existing business attraction program, but we encourage investment in areas where Arizona has real challenges.”

The bill would also give special preference to small manufacturers of 150 employees or less by doubling the existing annual cap on total credits. Earlier this year, the available funds for smaller manufacturers were depleted within eight minutes of the opening of the ACA’s electronic application portal. The legislation increases the cap to $10 million.

In addition to the Arizona С��ñֱ��app, supporters of the bill include the Arizona Manufacturers Council, the Arizona Technology Council, and several manufacturers.

“Competing in a global economy is increasingly fierce,” Coolidge said in committee testimony in March. “Arizona must continue to innovate to keep pace. Senate Bill 1643 stimulates the creation and expansion of manufacturing facilities in Arizona and ensures the state’s research and development tax credit continues to be a powerful business retention and recruitment tool.”

In 2018, the Legislature’s Income Tax Review Committee determined that approximately $1.2 billion was stranded in unused tax credits.

The accrued tax credit is allowed by statute to be carried forward for 15 consecutive taxable years. Advocates say the legislation would remove a liability from the state’s books while expanding investment in Arizona that will create new jobs.

The bill passed the Senate with a bipartisan vote in March, but awaits further action in the House after having cleared that chamber’s Appropriations Committee in March.

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Startup bets that residents will opt for new Tempe neighborhood without cars

Stephen Matter — Wed, 08 Jun 2022 17:16:37 +0000

Two native Arizonans are betting big that their new neighborhood concept, Culdesac, will win over new residents with their promise of lots of amenities and well-appointed homes. But there’s a catch: No cars will be allowed in the neighborhood.

Just over two miles from the Arizona State University campus in Tempe, is building the United States’ first car-free neighborhood. The neighborhood, which will be built for up to 1,000 residents, won’t allow cars and it won’t have parking spaces.

Arizona’s fast-growing economy and low regulation has made it a destination for those who wish to test new real estate concepts.

Ryan Johnson and Jeff Berens, the founders of Culdesac, are two native Arizonans who graduated from the University of Arizona.

Johnson in 2019 that Phoenix, like many 20th Century cities, is built on the assumption of a one care to one person ratio. The problem with this assumption, he argues, is that cars are exceptionally needy, requiring four parking spaces along with plenty of roadway to move cars from their point of origin to their destination.

Johnson says that more than 50% of the surface area of car-centric cities are covered in pavement. This payment attracts heat and limits the ways in which we move. For Johnson that was enough for him to seek investment in a neighborhood that would ban such a mode of travel.

The plan is to replace the pavement for cars with landscaping, public courtyards,and greenery.

While the neighborhood will bar its residents from private car usage, it will still have spaces for emergency vehicles and a small fleet of on-demand shared transportation.

In terms of shared transportation, Culdesac will provide a complimentary Lyft Pink pass and 15% off of all Lyft rides for residents. In addition, residents will have close access to the metro that they can ride for free.

“We’re building the first car-free neighborhood from scratch in the U.S. and we’re proud to say it will be in our hometown,” Johnson says. “Culdesac Tempe will have 1,000 people and 0 private cars.”

Culdesac also plans to promote alternative non-shared travel options. The neighborhood grounds will have room for more than 100 Bird scooters and more than 1,000 bike parking spots.

The group says it is particularly “ to showcase Tempe as a hub of innovation and urban experimentation.”

“Most cities would have tied this up for a decade, but we chose Tempe for its forward-thinking, action oriented, collaborative reputation,” Berens said in a 2019 article. “And, hey, it doesn’t hurt that the Phoenix Metro led the nation in jobs created this year.”

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Myths about mining creating vulnerabilities in U.S. supply chain, industry expert says

Stephen Matter — Tue, 07 Jun 2022 17:05:21 +0000

The United States should consider carefully which countries it chooses to rely on for its metals and minerals, a mining industry expert recently told an Arizona Manufacturers Council audience.

Adam Hawkins, who for decades has served as a consultant for mining companies, says the concept of “mineral dependency,” which refers to the role that minerals will play in the country’s ability to maintain a competitive edge as a global superpower, should influence strategic decision making, public policy affecting domestic mineral production, and the country’s move towards a sustainable supply chain.

“Where do we buy our metals from? People will tell you the stewardship of their tomato but not where the metals in their phones come from,” Hawkins said, contrasting consumers’ knowledge of the food supply chain compared to the supply chain for critical materials.

Misconceptions about mining

Hawkins says misconceptions about where our products come from and about how integral mining is to the production of many products we deem essential to our everyday lives is the impetus behind many unfounded myths related to mining. These myths are often touted by elected officials and public figures who lack an understanding of the mining industry.

Hawkins said, for example, that the notion the U.S. doesn’t need new mines and that a reliance on recycling will secure the nation’s critical materials needs is unfounded.

A recent report covering the mineral intensity of the transition to cleaner energy sources showed that demand for certain key minerals will skyrocket more than 500% by the year 2050. The demand for copper, cobalt, lithium, nickel, and other metals could not be satisfied by the “circular economy” envisioned by advocates of near total reliance on recycling.

“Biden has promised to convert the entire U.S. government fleet – about 640,000 vehicles – to EV’s (electric vehicles),” Hawkins said. “That plan alone could require a 12-fold increase in U.S. lithium production by 2030, according to Benchmark Minerals Intelligence, as well as an increase in output of domestic copper, nickel, and cobalt.”

Our current mineral dependency

The United States imports more than 50% of its metals and minerals, and generally these come from Canada, Mexico and sometimes Chile and Australia. Hawkins explained that these nations are generally aligned politically with the U.S. and have very strong regulatory environments.

“China is where the scary stuff begins” Hawkins said. “The nation is not necessarily aligned with our political and domestic security objectives. Why would we then give them our dependency on rare earth metals?”

The U.S. was 100% net import reliant on rare-earth metals in 2018, importing an estimated 11,130 metric tons of compounds and metals. Eighty percent of those imports were sourced from China.

This fact is especially daunting when faced with the that rare-earth metals are used in nearly all advanced technological devices. Smartphones, digital cameras, computer hard disks, light sources, and televisions all rely upon rare-earth metal imports.

“We are currently unprepared to weather a critical trade embargo,” Hawkins said.

Nickel, a metal used primarily to make other metals stronger and better suited for extreme temperatures and corrosive environments, is an important material for many industries including aerospace. Unfortunately, Russia remains the world’s leading supplier of nickel.

Likewise, China is the leading producer of titanium, a metal required in the production of aircraft among other things.

Building a sustainable supply chain

“Look at our own inventory of short, medium, and long-term mineral opportunities,” Hawkins said. “Right now, we have more capital to develop new mining projects than there are projects; we have to make sure that they have a soft landing and are pursuing material.”

Hawkins believes the president should use his powers under the 1950 Defense Production Act to order corporations to produce and supply specific materials to bolster and support national defense.

He pointed to a bipartisan that “would make it easier for nonprofits and other outfits to help clean up abandoned hard rock mines by wiping away past liabilities for acquiring the sites.”

“We should also incentivize domestic production of rare earth and other critical minerals,” he said. “This is actually the way China has been able to dominate the rare-earth metals market.”

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Experts say combating illegal trade requires collaboration between law enforcement, private sector

Stephen Matter — Tue, 24 May 2022 19:26:37 +0000

Illegal trade, which includes counterfeiting, smuggling, organized retail theft, human trafficking, and the drug trade, affects every state, including Arizona, whose proximity to an international border makes the state an even more likely target for these criminal enterprises, experts told an audience at a recent Arizona С��ñֱ��app of Commerce & Industry event.

United to Safeguard America from Illegal Trade, USA-IT, is working to shine a light on the illegal activity and educate the business community on how crime can undermine the business environment.

USA-IT is a large coalition made up of law enforcement agencies, leading business organizations, brand enforcement experts and academics, that is leading the discussion on collaborative and innovative approaches to thwart the increase in illegal trade in Arizona.

The event featured a panel moderated by Matt Albence, the former acting director of U.S. Immigration and Customs Enforcement. Panelists were:

David Lake, CEO of the Center on Shadow Economics

Luis Ramirez, President of Ramirez International

Buna George, Executive Director of the Greater Yuma Port Authority

“When criminal activity becomes a business it becomes a competing economic interest, so when talking about illicit trade, we talk about keeping the criminal out of the economy,” said Lake, a retired law enforcement officer with more than 30 years of experience working as an undercover agent buying and selling counterfeit goods and studying what he calls the shadow economy. “But when that criminal gets into the economy, we are able to find that every time a counterfeit good is sold, the money that would have been brought to the community for a legitimate good is gone.”

The shadow economy has an unfair advantage in competing with legitimate commerce, but Lake said he’s concerned not enough law enforcement resources are being devoted to the problem.

He said more effort should be devoted toward “building law enforcement’s capacity to detect and dismantle the criminal networks profiting from illicit trade.”

Lake said that law enforcement leaders often understand how this kind of economic activity adversely affects businesses, but that the message hasn’t gotten out yet to other groups with more political power and enough influence to redirect resources and task forces to the issue.

“No agency has enough resources. The more that we can provide from the private sector to help law enforcement to do what they need to do, the better we can combat this,” he said.

Luis Ramirez, an adviser to clients involved in cross-border trade, explained how manufacturers and supply chain managers bear the burden of illegal trade, as checkpoints and security at ports of entry tighten, slowing down legitimate trade and increasing costs.

Ramirez said the increased costs of trade get passed onto consumers in the form of higher prices.

“From our perspective, we believe that our border cannot be protected by our agencies doing the best with what they’ve got; we need to give them what they need,” Ramirez said. “We are imposing on them this mission that they must make happen. Getting out there talking to members of Congress, getting additional resources, revising your staffing model, getting more technology to make the process faster and better for these kinds of port of entry projects.”

Attendees also heard from Major Damon Cecil, chief of staff for the Arizona Department of Public Safety, who spoke on how important it is for industry and community leaders to contribute to the fight against criminal networks.

Cecil, like the panelists who spoke before him, touched on why “spreading knowledge” is the first major step in dealing with the crisis before us.

“You have to know what is going on, and you have to recognize what is going on and how these decisions at the highest level impact our community,” Cecil said. “This is a crisis, and we are in it, folks, we are absolutely in it. And I think the partnership and collaboration between the private and public sector must involve a synergistic harmony between knowledge and truth in Washington, D.C., in Phoenix, and even in Mexico City.”

Cecil said organizations like USA-IT and the expert insight it assembles are essential to the kind of information sharing that will lead to the collaborative approach that he’s calling for.

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Bill to streamline regulations, reform GRRC, clears Senate

Stephen Matter — Wed, 18 May 2022 17:24:20 +0000

The Arizona state Senate last week, by a vote of 17-10, passed House Bill 2599, which eliminates the unilateral authority of regulatory agencies over businesses, streamlines the appeals process for agency-issued permits and allows businesses to recover the legal fees associated with appeals through the Office of Administrative Hearings (OAH).

The bill also includes reforms to the Governor’s Regulatory Review Council (GRRC), and it codifies the governor’s rulemaking moratorium that has been in place since 2015.

Marc Osborn, testifying on behalf of the Arizona С��ñֱ��app of Commerce & Industry during a Senate Commerce Committee hearing in March, explained that the bill was the result of a “partnership between the Arizona С��ñֱ��app, multiple business organizations, and the Governor’s office to take a holistic review of the Administrative Procedure Act, and make updates and reforms.”

“We touched on some of the key areas for this, OAH reform to make that process more streamlined and fair, making GRRC easier for people to access, and then allowing and adopting a number of the governor’s executive orders related to the rulemaking moratorium that has been around since the Brewer administration,” Osborne said .

The legislation gives the right to the licensee to accept the OAH decisions as final agency action.

As the law currently stands, agencies involved in disputes being heard by the OAH may reject or modify the final OAH decisions. This leaves the door open for agencies to make biased “after-the-fact” alterations during the appeals process following the OAH judge’s decision.

The legislation mandates that third parties wishing to appeal the issuing of business permits through OAH must provide OAH with complete information relating to the basis for appeal, and must provide evidence of personal interest in the permit decision.

The bill also extends to successful appealing parties at OAH the same attorney fee reimbursement privileges that businesses enjoy for successful appeals in adverse agency actions.

The lack of fair attorney fee reimbursement at OAH currently disuades potential appellants from seeking redress.

HB 2599 also modernizes and simplifies the procedures that are used for filing a petition through the Governor’s Regulatory Review Council that challenges an unauthorized agency policy or practice.

The bill changes the number of GRRC members required to authorize a hearing for a petition filed by a business against an agency from four to three.

Secondly, it equalizes the page limit for petitions/responses filed by businesses and agencies respectively.

The bill also prohibits the discounting of testimony by businesses that did not provide a public comment professing their disapproval of said agency rule.

Finally, it makes clear that agencies cannot use unpublished regulatory actions to circumvent GRRC rulings that void an agency policy or practice.

As noted earlier, the bill would also codify the governor’s rulemaking moratorium, which encourages state agencies to conduct periodic reviews of administrative rules to ensure public policy is achieving its intended outcome. It requires that state agencies acquire written approval from the Office of the Governor before conducting rulemaking.

The bill includes a “3:1” rule that requires a state agency to recommend for consideration at least three rules to be amended or eliminated before it can enact one new rule.

The legislation also eases regulatory burdens for military spouses, a priority of the Ducey administration. Agencies will be required to publicly display licensing information for military spouses, active duty service members and veterans.

Because the bill was amended in the Senate, it now heads to the House for a final vote.

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TYR Tactical signs contract with Danish military, bringing jobs to Arizona

Stephen Matter — Mon, 16 May 2022 18:28:09 +0000

Peoria, Ariz. defense manufacturer TYR Tactical last month signed a $200 million, 17-year contract to provide bulletproof vests to the Danish armed forces.

TYR Tactical is the largest manufacturer in Peoria, and employs more than 300 people across two large manufacturing facilities.

“The contract continues and expands a partnership that will sustain high quality body armor for Danish soldiers,” said Rick Buss, director of government relations for TYR Tactical.

Company CEO Jason Beck was at the contract signing.

“Today we stand here to sign another framework agreement, but this time for 17 years,” Beck said. “This marks the end of an era and the beginning of a new one. We have been able to provide the highest quality armor to people all over the globe, all while manufacturing our plates at an unprecedented rate.”

It has been reported that some of TYR Tactical’s vests are being supplied to Ukraine through NATO partners.

TYR Tactical’s facility houses two state-of-the-art hydraulic presses that are capable of producing more than just body armor. They also have a 20- ton crane and what are essentially two large ovens used for heating body armor materials.

“Our nearest competitor uses a press that is capable of producing two body armor plates at a time, using around 7000 PSI (pounds per square inch) to press their materials,” Buss said. “Our press is capable of pressing 24 body armor plates at a time under a pressure of 22,000 PSI.”

With such an advantage in terms of production rate and quality, the body armor is said to have surprised some physicists who were hired to observe the performance of the plates.

“They were somewhat confused at how well the plate ballistics performed,” Buss said. “The armor was able to disperse energy very well, which is something you want when you are on the battlefield.”

On-site engineers believe that the high pressure, which only TYR’s presses are capable of, allow for greater plate performance.

The cutting-edge equipment also allows TYR Tactical to provide protective armor for things other than the vital organs of the human body.

The large presses allow for new capabilities that competitors don’t have, namely the ability to produce larger pieces of armor for vehicles on the ground and in the air. TYR Tactical plans to further explore how the company can provide special armor to a variety of “rolling assets.”

TYR Tactical also works with a program to help employ refugees who have special skills such as sewing and fabric design.

Nine different languages are spoken within the TYR facilities in Peoria and the facility has an onsite English as a Second Language (ESL) classroom to help integrate many of their employees into American society.

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New report shows Phoenix as a leading metro area for industrial development

Stephen Matter — Wed, 11 May 2022 19:16:08 +0000

A new report from , a commercial listing platform, finds that Phoenix ranks second nationally for industrial development growth in 2022.

The firm recently sorted industrial property figures from its vast collection of property data to produce state-by-state projected industrial property growth rates.

The report only includes industrial properties larger than 25,000 square feet and includes commercial real estate, office space, retail, multifamily spaces and mixed-use properties.

The report focuses on the pipeline of industrial development and is primarily concerned with those properties listed as “under construction.” The report accounts for new properties within the same campus as other properties by taking into account square footage numbers reflected by newly added space.

According to provisional estimates gathered in the report, around 592.5 million square feet of industrial use space is currently under construction in the United States, and the report projects that 2022 will likely be “the strongest year yet for industrial development.”

According to the report, Phoenix has 36.3 million square feet of industrial space currently under construction.

The report finds that low vacancies and major investments are contributing to the metro area’s role as a regional distribution and manufacturing center.

It is likely that Arizona will see continued growth in industrial development as the state continues to pass legislation that allows cities like Phoenix to be more competitive from a property tax standpoint.

Governor Doug Ducey last month signed into law S.B 1093, legislation sponsored by state Sen. J.D. Mesnard, R-Chandler, to lower the state’s commercial property tax assessment ratio, which tax experts say is necessary to ensure the state’s continued economic competitiveness. Upon full implementation by 2027, the assessment ratio will be 15%.

In the early 2000’s, Gov. Janet Napolitano assembled the Citizens Finance Review Commission to determine how Arizona could diversify its economy and to identify what hindered the state’s ability to attract jobs.

The commission found that uncompetitive commercial property taxes were one of the biggest hurdles to economic growth in Arizona.

The gradual lowering of the commercial property tax assessment ratio over the years has allowed Arizona to be more competitive with other Western states.

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Report finds that Arizona needs to increase postsecondary educational attainment to keep pace economically

Stephen Matter — Thu, 28 Apr 2022 17:12:50 +0000

A new report finds that Arizona would reap economic benefits of nearly $5 billion in additional state and local tax revenues over 10 years simply by reaching the U.S. average for educational attainment.

Released last week by the business community at a Southern Arizona Leadership Council Future of Workforce Event, the finds that future economic growth depends on improving investment in workforce development and postsecondary education today.

Between 2020-2030, it is estimated Arizona will have an estimated 68,000 annual job openings that require at least a bachelor’s degree. Under current conditions, there will be an annual shortage of 26,300 bachelor’s degrees, leaving Arizona unprepared for a competitive workforce.

“This vital analysis is a compelling and clear-eyed call to action for additional state investment in postsecondary education and workforce development at a time when evidence suggests Arizona is falling behind,” ABOR Chair Lyndel Manson said. “If current trends continue, fewer than 17% of today’s 9th graders will have earned a university degree by 2029. During this same time period, the report estimates Arizona will annually issue 26,300 fewer bachelor’s degrees than our economy needs.”

Economist Jim Rounds, president of Rounds Consulting Group, which produced the report, acknowledges that the state has made significant economic progress over the past decade and is home to one of the country’s strongest economies.

But, he says, more needs to be done to ensure the state reaches its full potential.

“Arizona’s future economic prospects brighten with increased educational attainment,” he said. “Increased educational attainment also helps the state’s leaders and economic developers further elevate the state’s economic profile to businesses outside the state looking to invest here.”

With additional targeted investment in workforce development, including postsecondary education, Arizona will reap a sizable economic return on its investment, leading to greater economic competitiveness and growth for the state.

“Despite Arizona’s recent strong economic growth, this report makes clear that our state has yet to reach its full potential,” Arizona С��ñֱ��app of Commerce & Industry President and CEO Danny Seiden said. “We all benefit when more Arizonans are contributing to the economy. Increased educational attainment means greater opportunity and a more vibrant future for Arizonans and our state overall.”

The report finds that the creation of higher-wage jobs leads to more economic stability. During the most recent recession, the number of jobs in Arizona that required less than a high school diploma declined by 21.8%. This compares to an 11.4% decline in jobs that require at least a high school diploma. Conversely, jobs that require at least a bachelor’s were stable.

The report also finds that the fiscal impact of not improving is significant. The increase in productivity related to enhanced GSP and employment counts would generate $4 billion in new tax revenues for the state and local governments each year, far exceeding investment costs related to policy implementation.

“This report on ‘Advancing Arizona’s Economy’ is essential reading for every state and local policymaker, business official and education leader, and should serve as a wake-up call for Arizona to act before it’s too late,” Manson said.

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Bill to Rein in Frivolous Asbestos Lawsuits Heads to Governor’s Desk

Stephen Matter — Tue, 19 Apr 2022 19:13:55 +0000

A bill aimed at addressing asbestos litigation abuse and the practice of over-naming defendants in asbestos-related lawsuits is on its way to the governor’s desk.

The state House on Monday voted 35-23 to advance SB 1157, legislation to curb a trial lawyer strategy of naming several parties in personal injury lawsuits related to asbestos exposure, even if those potential defendants’ connection to an injury was negligible.

“This is a commonsense bill,” said its sponsor Sen. Vince Leach, R-SaddleBrooke, during a hearing in the Senate Judiciary Committee earlier this session. “We have a problem in this particular area where over-naming in a lawsuit creates more liability.”

Mark Behrens, who testified in the committee on behalf of the United States С��ñֱ��app of Commerce, said asbestos litigation over the last several decades has devolved into an endless search for a solvent bystander.

Behrens said the bill “simply requires the plaintiff to disclose upfront, the who, what, why, and where of their injury.”

The legislation would accelerate the disclosure of information and make sure that innocent companies are not named erroneously or frivolously, which currently leads to a dismissal rate of more than 90% during the discovery period of the lawsuit. Of the companies dismissed from the suits, nearly all of them were not found to have any connection to the damages or injuries claimed by the plaintiff.

The erroneously identified companies, however, must cover without reimbursement the cost of defense counsel during the early stages of litigation before they are dismissed.

In one example cited by Behrens, Marine One, a steel company named in more than 182,000 different personal injury asbestos suits, was sued in cases they never should have been named in. While their product was never found to have harmed people, they were forced to file for bankruptcy due to the cost of defense attorneys.

Sen. Leach noted that Arizona’s legal environment is important to its overall economic development prospects.

“I am proud to sponsor legislation that will promote a more attractive legal environment for current and prospective businesses,” Leach said. “Senseless lawsuits only serve to hurt job creators, who pay the price by spending more time and money on defending themselves than on running their business. SB 1157 will ensure Arizona continues to do what it does better than almost anyone: attract jobs.”

The Arizona С��ñֱ��app of Commerce & Industry, the state’s leading advocate for reforms to the civil justice system, lauded the bill’s passage.

“Sen. Leach and the members of both chambers and both parties who supported SB 1157 have our sincere thanks,” С��ñֱ��app spokesperson Annie Vogt said. “This measure will go a long way toward improving Arizona’s tort and legal system, and we’re grateful to the lawmakers who voted for its passage.”

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ASU professor examines inflation, role of Federal Reserve

Stephen Matter — Mon, 11 Apr 2022 18:40:12 +0000

Sky-high inflation was the topic of ASU Professor Jonathan Barth’s recent talk at the Political History and Leadership program’s Engaging Citizenship Luncheon.

Barth’s presentation addressed the dramatic year-over-year Consumer Price Index increase of 6.8% and explored the differences between the Federal Reserve’s response to the 2008 recession and the central bank’s response to the COVID-19 pandemic.

While many blame supply-chain shortcomings and pent up demand from the pandemic as causes of inflation in the U.S, Barth is more concerned with what he believes is the Federal Reserve’s extreme monetary response to the pandemic.

Barth is particularly focused on “”, or QE, a kind of monetary policy where a nation’s central bank purchases long dated government bonds from the nation’s largest banks to increase the liquidity in its financial system.

When the central bank pursues this kind of monetary policy, which is not uncommon, new money is added to the market, interest rates are lowered, and the central bank’s balance sheet is expanded.

Barth says that Federal Reserve Chairman Jerome Powell has embraced quantitative easing.

From 2020 to 2022, Powell has overseen the central bank’s increase in the nation’s money supply (M2) by 42%. Federal Reserve assets are up $4.7 trillion and excess reserves of depository institutions are up $2.2 trillion. From March of 2020 to December of 2021, the Fed’s balance sheet increased from $4.2 trillion to $8.6 trillion.

“The latest quantitative easing has led to a jump in the supply of money,” Barth said. “Banks did increase reserves, but the money supply in the U.S. economy has increased by 42% in the past two years.”

All this means that the Federal Reserve has purchased trillions in assets to add new money to the economy. But Barth says Powell has done so with newly printed money dollars “created out of thin air.”

Barth posed this question to his audience: “Why didn’t we see this kind of inflation when quantitative easing was used during 2008-2014 when the U.S. experienced the housing crisis?”

The 2008 housing crisis began with the collapse of subprime mortgages, which essentially burst what was known as the housing market bubble. Imprudent lending led to a significant number of loans in default. The confluence of these factors led many financial institutions to require a government bailout. Homebuilders, the stock market, as well as the U.S. and world economies experienced the greatest recession of the 21st century.

From 2008 to 2014, Federal Reserve Chairman Ben Bernanke saw a 37% increase in money supply (M2), a $3.2 trillion increase in Federal Reserve assets, and an increase of $2.5 trillion in the Fed’s excess reserves of depository institutions.

Barth noted that over these six years, the Fed’s balance sheet increased from $900 billion to $4.1 trillion.

The two periods of QE were different, according to Barth.

“Powell’s Federal Reserve has managed a 37% increase in money supply in roughly one-third the time that it took Bernanke’s Fed to experience a 42% growth in money supply,” Barth said.

But Barth says that Bernanke never saw the kind of significant inflation that Powell is seeing today.

provided by the Board of Governors of the Federal Reserve System, shows the difference in uptrend during the two time periods.

Money Supply (2002-2021)

Besides the difference in duration for the two periods, the QE in 2008-2014 served a different function.

While most of Powell’s QE has entered the market and has been multiplied by our credit system, the 2008 crisis saw banks and financial institutions hold onto money to shore up their own balance sheets.

“Unlike the QE under Bernanke, a significant amount of Powell’s quantitative easing has entered the real economy,” Barth said. “Reserve balances are up since the beginning of the pandemic, but only by $2.5 trillion. The Fed’s balance sheet, meanwhile, grew by more than $4.5 trillion.”

What can the Fed do?

Barth referenced Larry Summers, an American economist who served as treasury secretary, who said, “There have been few if any instances in which a market can fix inflation without a recession.”

The U.S. economy, according to Barth, is a resilient one, however.

“The U.S. is responsible for 25% of the world’s GDP. China is a distant second and we have a very strong economy,” he said.

It is not yet apparent how hard of a landing the U.S. will experience from quantitative tightening, a monetary policy that involves balance sheet normalization and a reduction by central banks in the reinvestment of proceeds from maturning government bonds.

Barth recommends a financial strategy that “would involve the selling of treasury bonds that have not matured yet, the treasury yield would go up and the U.S. government would have a harder time spending money.”

Barth is skeptical whether the administration will pursue such a policy.

“The U.S. can right the ship, unfortunately it doesn’t seem like many people are interested in doing it.”

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