Monday, August 5, 2013

The SBA and moderate

mod-er-it or  mod-rit (adjective or noun)
mod-uh-reyt (verb)

1. kept or keeping within reasonable or proper limits; not extreme, excessive, or intense
2. of medium quantity, extent, or amount
3. mediocre or fair
4. calm or mild

From Latin moderātus  to restrain, control


Do you know the difference between moderate and modest?

I am going to be modest and admit that I did not.

I am also going to be modest and tell you that despite almost 30 years of doing SBA loans, it sometimes feels like one year repeated 30 times.  That’s because the SBA keeps changing the rules.

A draft of the latest change to the SOP (Standard Operating Procedures) for SBA loans is being released.  It will become effective October 1st.


SBA LIBOR Base Rate August 2013 = 3.19%
SBA Fixed Base Rate August 2013 = 5.47%

Debenture Rate for July     

The debenture rate is 3.15% but note rate is 3.20% and effective yield is a whopping  5.232%.


So what is the difference between moderate and modest?

The Federal Reserve announced at its last meeting on monetary policy that “Information received since the Federal Open Market Committee met in June suggests that economic activity expanded at a MODEST pace during the first half of the year.”

The announcement prior to that had stated “Information received since the Federal Open Market Committee met in May suggests that economic activity has been expanding at a MODERATE pace.”

So the economy expanded at a MODEST pace.   It had been expanding at a MODERATE pace.  

That’s one way to describe it.  According to the Department of Commerce, gross domestic product, the value of all goods and services produced, rose at a 1.7 percent annualized rate from April through June following a 1.1 percent gain in the first three months of the year. The first-quarter’s reading was revised down from a previously reported 1.8 percent advance.   

For all of 2012, GDP was revised to show a 2.8 percent increase compared with a prior estimate of 2.2 percent.

Here is what GDP has been doing and this week’s interesting little table of data:

2nd quarter 2013             1.7%
1st quarter 2013              1.1
4th quarter 2012:             0.1%
3rd quarter 2012:             2.8%
2nd quarter 2012:          1.2%
1st quarter 2012:            3.7%
4th quarter 2011:            4.9%
3rd quarter 2011:           1.4%
2nd quarter 2011:           3.2%
1st quarter 2011:             (1.3)%
4th quarter 2010:           2.8%
3rd quarter 2010:           2.8%
2nd quarter 2010:          3.9%
1st quarter 2010:            1.6%
4th quarter 2009:           3.9%
3rd quarter 2009:          1.3%
2nd quarter 2009:          (0.4)%
1st quarter 2009:            (5.4)%

The third quarter has also started out at a modest pace.   

Employers added only 162,000 jobs in July and job gains for May and June were revised down by a total 26,000.   May's gains were revised to 176,000 from 195,000 and June's to 188,000 from 195,000.

So what does this mean?

I don’t know.

Keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.   At last month’s auction, the U.S. sold $13 billion in 30-year bonds at 3.66% the highest yield in almost two years.   The June auction had drawn a yield of 3.35% while the May auction saw a yield of only 2.98%.  

Thirty-year bond yields are now around 3.70%, after touching 3.78% last week, the highest since August 2011.

The difference between two- and 30-year yields increased to 340 basis points.  The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth.  A steep curve indicates strong growth.

So what is the difference between moderate and modest?

The word moderate comes from the Latin moderātus which means to restrain or control.   The word modest comes from the Latin modestus which means restrained or decorous.      

So based upon the etymology of the words, modest means you are restrained while moderate means you have to restrain yourself. 

To put it another way, you are a slow runner (modest) rather than running slow.  Moderate implies that it is deliberate while modest is just the way it is.  So I think what the Fed is saying is that the economy is crawling along despite its efforts while a month ago it was saying it was crawling along thanks to its efforts.

Am I getting carried away?  Should I remember “moderation in all things?”  That’s from the Bible right?  WRONG.  There is absolutely NO direct quotation matching that proverb.  

The phrase, “Moderation in all things,” is common extrapolation of Aristotle’s Doctrine of the Mean as presented in his Nicomachean Ethics.  His ethic works around finding the mean, or middle ground, between excess and deficiency. An example of this would be his presentation of courage being the happy medium between the extreme of rash action and the deficiency of cowardice, in respect to a person’s possible action in the face of danger.

It should be noted that Aristotle’s ethic is often misunderstood by its summary: moderation in all things. It is frequently reasoned by those unfamiliar with context that the common phrase means that a person should approach all things (whether healthy or unhealthy) with moderation; therefore, reasoning that a moderate amount of a bad thing can be indulged is not uncommon to find. This is an inaccurate representation of the perspective summarized in the popular phrase.

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