Saturday, September 18, 2010

How big is your paper stack?

The net worth of Americans, that‘s the value of assets like homes and investments, subtracting debts like mortgages and credit cards -- fell 2.7 percent last quarter, or $1.5 trillion according to Friday’s Federal Reserve and is now at $53.5 trillion. That's above the bottom of $48.8 trillion in the first quarter of 2009. But it's far below the pre-crash peak when total wealth was $65.8 trillion.

Many economists think household wealth has ticked up in the July-to-September quarter so far, because of higher stock prices. But given last quarter's setback and expectations of scant gains ahead, some economists have pushed back the time when Americans will regain all their lost wealth until the middle of this decade. Of course they are basing this entirely on the re-inflation of the housing and stock market bubbles.

Net worth fell from April to June an average of $12,941 per household and average household wealth now amounts to $455,173. That's up from $415,185 during the recession, down from a peak of $563,438 in 2007. The bigger problem is that 93% of that wealth is held by the top 20% and most Americans don’t have a pot to piss in. The really big problem is that 43% of the wealth is held by the top one percent and they call the tune all the Republicans and not insignificant number of Democrats dance to.

Although it’s been more than a year since the recession is thought to have ended, the housing and stock markets are really still just bubbles waiting to pop. This reality hasn’t escaped most Americans at least at a gut level and they aren't spending as much as they typically do after recessions.

Consumer spending grew at an annual rate of just 2 percent for the first two quarters of this year and economists think the current quarter will be about the same.  Contrast this with aftermath of the 1981-82 recession, consumer spending averaged a robust 6.5 percent pace during 1983. Of course Ronald Reagan doubled the national debt during this period and any sane person knows stimulus works. We still had an industrial base then so Reagan spending a trillion USD, well it really pumped things up. (that would be like Obama spending four trillion on stimulus when adjusted for inflation) That is how big a hole Bush and his Wall Street buddies punched in the economy.

Overall household debt dipped to $13.45 trillion as of June and that's a 3.2%  decline from a peak in early 2008. Americans are on average carrying around $43,000 in debt counting everything from mortgages and credit cards to auto loans and home equity lines of credit. This doesn’t count the 120,000 that the average household owes courtesy of the national debt run up by the Republicans. The debt to GDP ratio is still lower than at the end of the Reagan Presidency however, so it’s not impossible to deal with.

Defaults on mortgages and other loans accounted for much of the decline in debt but a lack of credit has resulted in debt being paid down as well. The decline in net worth underscores how much household wealth is really just from the stock market bubble. About a fifth of household financial assets are in stock-market holdings and these fell 12 percent in the April-June period compared with the first quarter. U.S. real estate values ticked up a scant 0.3 percent in the second quarter but are expected to decline an average of 5 percent to 10 percent by the middle of next year.

In the old days a large percentage of Americans owned businesses and farms. Today it’s just paper wealth with the real assets being held by corporations that are in turn controlled lock stock and barrel by the top 1/10 of a percent. Even that paper wealth is mostly held by the top 20%, most of whom aren‘t really as well off as they think and most Americans’ net worth is really zero.

Friday, September 17, 2010

Two scoops of ice cream and an extra fuzzy puppy

Wall Street finished up a few points today to end the week in the black and the corporate news reported this like we all get ice cream and a new puppy. The fact is that the market is about where it was ten years ago.

Gold set another record today at 1274/oz and gold bugs are saying it will hit 1600/oz in two years. If you bought your gold ten years ago today at 272/oz you’ve done quite well netting a cool 1002/oz. Today’s price is still short of the high of  674/oz from thirty years ago today, when adjusted for inflation.

If you’re lucky your house is worth as much as you paid for it ten years ago, but if you bought it five years ago, Alan Greenspan sends his apologies (though he won’t be sending you a check for the difference).

The total number of jobs in the US is about where it was ten years ago despite the creation of a million new government and military jobs to fight the forever war that has just entered its tenth year.

There are three million fewer factory jobs than ten years ago, of course that doesn‘t really tell the whole story. Every lost job takes a number of other jobs with it and helps drive down the wages of those that remain. The tax base of every town and city has been driven down if they lose the jobs and their coffers looted when they pay some capitalist pirate to stay for a few more years. The off-shoring of jobs also allows corporations to dodge US taxes going from a third of Federal revenue in the fifties to around 5% today.

There was another small bit of good news to end  the week with the SEC voting in new rules to require banks and corporations to stop cooking the books like Lehman Brothers did by using so-called re-purchase agreements to hide billions of debt that they had no assets to cover. This scheme was a “legal” accounting maneuver where they would pretend to sell debt at a handsome profit right at the end of each quarter when in fact they were obligated to re-purchase the same debt at a loss the next week.

There is a small chance that President Obama may actually fix the economy by cracking down on the organized theft in the financial services “industry”. The theory would be that if they can’t just steal the money they might actually start rebuilding the US economy in order to make a legitimate profit. If that works, I’ll have two scoops of ice cream and an extra fuzzy puppy.

Thursday, September 16, 2010

A multi-family housing unit down by the river

Initial jobless claims didn’t go up last week but are still well above a number that would point toward the recovery of the eight million lost jobs or really 12 million jobs if you provide for the 100,000 young adults that reach working age each month. The consistently high claims numbers also reflect an deliberate churn in the corporate workforce designed to drive down wages as more and more workers are fired and replaced with temps, part time workers or are themselves “converted” to some type of contract labor that don’t count as employees but rather are just a disposable commodity.

This steady conversion of Americans to neo-feudal serfs is demonstrated in the burgeoning poverty rate with 1 in 7 now below the official poverty line. This was a 10% jump over the previous year and this change was in fact not as bad as expected by economists. Extended unemployment kept the increase in the number of Americans newly falling into poverty to about half of what it would have been. The Census numbers aren’t really current however as hundreds of thousands of people each month are running out of benefits. The total number of Americans in poverty is the largest since they started to count the poor fifty years ago.

Another disturbing trend the Census Bureau identified is that many families were doubling up to count as a single household. Moving three generations in together or even in with friends keeps them all above the poverty level, but this is hardly the American Dream. These multi-family households have increased by 12% over the previous year alone, some of these so called “units” are living in single tents in homeless encampments.

The poverty line is artificially set at about $22,000 for a family of four but this number is really an inadequate marker. In fact a family really needs three times that in most urban areas to live anything like the American Dream. Fully 2/3 of Americans are below that American Dream level and most are falling steadily behind. Continuously increasing tuition and health care costs; impoverished parents and children with children to care for, all these things drag down middle-class families. It is becoming increasingly unlikely that anything more than a small percentage will ever rise to the American Dream level.

Americans like to think this is the land of opportunity but it really has become the most stratified in the developed world caused by the death of the unions, the end of small business and a lack of any meaningful social safety net. When combined with the economic realities that allow no opportunity for those outside the corporate elite and corporate serfdom enforced by the threat that you will become one of the millions of hopeless unemployed, the fact is that upward mobility is officially dead. Even a college education becomes nothing but a mill stone of debt consigning most graduates to wage slavery. Colleges have gone from cautioning freshman about putting weight to instructing them on how to apply for food stamps with applications up 120% just this year.

We are well into a new gilded age without the equivalent to industrial revolution of the 19th century as we are becoming de-industrialized. During the last gilded age American financier Jay Gould said after hiring strikebreakers, "I can hire one-half of the working class to kill the other half”. Today this is reflected by the tea bagger movement that is portrayed as populist but is entirely funded the current likes of Jay Goulds to further the interests of billionaires.

Jay Gould, I liked his cough drops though.

To end on a bit of good news: there was another little spark of hope from the Obama Administration with the President bypassing the Senate and appointing Elizabeth Warren to form the new Bureau of Consumer Financial Protection. In name she is an assistant to the President and senior advisor to the Sec. of the Treasury Dept.

                                           Elizabeth Warren, describing Republicans perhaps?

She might not technically have as much authority as if she were the Senate confirmed Director, but thanks to precedents set into common law by the Bush Crime Family, Ms Warren could run her own death squad if the President so authorizes. The big advantage this new agency has is that it comes with no imbedded Republicans and since Ms Warren works directly for the President, she has no other boss in the bureaucracy and can staff the agency as she sees fit. Republicans and their Wall Street masters are livid and that is good news indeed.

Wednesday, September 15, 2010

The next new normal

China allowed its currency to appreciate for 5th straight day allowing nearly a one percent strengthening ahead of the Congressional hearings on currency manipulation that started today. The Ways and Means Committee is in a mood to do something about the Yuan and most observers see China’s recent currency re-valuing as just a show for the Committee as well as for the benefit of the up coming G-20 meeting. Japan has taken the unusual step of pushing down the value of the Yen overnight against the Chinese Yuan and everybody is waiting to see what happens.

Under US law, President Obama is required to put tariffs on Chinese goods because of its blatant currency manipulation, something no US President has ever been willing to do. Basically Obama has to choose between allowing the Dragon to continue to eat the villagers or anger the Wall Street barons who profit billions from the Dragon‘s rampage. The villagers get to vote in November and annoying the Dragon will make things drastically worse in the short term and because the barons (that includes the media barons) will make the villagers think that they getting eaten is all Obama’s fault (and not Wall Street’s) means not much is likely to be done.

Meanwhile there is a sort of panic going on among older public sector workers who are rushing to retire from government service before their benefits are cut. At least half of the states are having problems with their pension funds and eight of them have no hope of meeting their obligations. In New Jersey there is an actual line of hopeful pensioners out the door and down the block, hoping in vain to avoid a cat food diet in old age.

Republicans portray this shortfall as the fault of the workers who they claim are lazy, overpaid and greedy. The facts are that college educated public sector workers make far less than their private sector equivalents but have counted on getting the pension they contributed to and in many cases they must depend on it instead of Social Security.

The big problem for state pension plans is their investments tanked along with your 401(k). How many people remember George Bush promising a 20,000 point DOW when he wanted to put Social Security into the stock market? States were planning for pensions based these totally absurd predictions and many states dominated by Republicans simply promised pensions in lieu of wages with no intention of ever making good on them.

Blue and pink collar public employees do make more on average than private sector workers but only because they have been able to maintain cost of living adjustments thanks to public employee unions. At the same time private sector pay that used to be better than government wages has fallen drastically since Reagan declared war on the middle class thirty years ago. Increasingly a government job in many places is not enough to live on but is only better than the worse choice in the private sector.

The reason government is short of money is simple, tax avoidance. The rich have slashed their own taxes and corporations simply don’t pay theirs. By reincorporating offshore most are able through “free trade”, make that “tax free trade” to keep their profits entirely offshore and away from the tax collector. Fully half of imports into the US are purchased by a company from itself overseas so that they can make sure no profit occurs in the US.

Republicans whine about the high US tax rate but the reality is that 2/3 of corporations pay no taxes in the US and some in fact “make” money from the tax system. The effective tax rate paid by US business is by far the lowest in the developed world, a fraction of what European companies pay and even less than they pay in China. That’s right, the only tax burden many US companies have are the taxes they pay in China.

China is building 230 mph trains while our interstate bridges are falling down. China graduates twice as many engineers and scientists each year as we do while our teachers, structural engineers and scientists are jockeying to get out of government while they can still get a pension. That rush to get their pensions is probably a mistake with states likely to slash retirement benefits anyway and use the increased demand as an excuse. Cat food retirement is the new normal; un-inspected cat food, that‘s the next new normal.

 PS I think we should embrace the Republican phrase "new normal" and use it in the most derisive tone. The perfect Progressive campaign would be a new Sarah Peller (Where's the beef?)  An elderly lady could be put in a variety of situations such as with a can of cat food on a plate and her saying "This is the new normal?" Her son in front of a locked factory gate with lunch pail in hand, "This is the new normal?"; Grandson with $100,000 college bill; foreclosure sign on the lawn, etc.

Tuesday, September 14, 2010

13,000 struggling families need your help

Two Republicans broke party ranks and voted in the Senate to allow movement on a bill that might help the little guy for a change. The procedural vote cleared the way for the creation of a 30 billion fund to help small banks in lending to credit starved small businesses. Sen. George LeMieux of Florida and Sen. George Voinovich of Ohio, voted with 57 Democrats and two independents to advance the bill.

Sen. Voinovich of Ohio is retiring and has decided to do the right thing for once. He’s been quoted as saying, “I hate banks. If I could strangle [the big] banks, I would.”

Sen. LeMieux is not running for the seat that he was appointed to by Gov. Charlie Crist who is running for the same Senate seat as an independent. Apparently LeMieux is sticking his thumb in the eye of the Republicans and will join his old boss Crist in taking a more populist stand.

The NYSE was up early on modestly improved retail sales numbers but fell in late trading to finish up only slightly. The Tokyo market fell as the Yen continues to rise against the USD hurting Japan’s exports. Gold set a new record high and US Treasuries were also up as investors look for some place safe to park their money.

The Senate Republicans have said they won’t allow the tax cuts for the rich expire at all costs. You can hardly blame them with all the suffering the rich go through to keep body and soul together. The latest numbers for the very put upon 1/10th of one percent at the top show that they only take home 11% of all household income in the United States. That’s 13,000 struggling families out of 115 million households that must make do with just 11% of all the income leaving the 99.9% to hog 79% for themselves.

Wealth distribution is even more skewed toward the masses with only 43% of financial wealth being held by the top 1% and 50% of wealth held by the next 19% and the bottom 80% is hogging 7% of the wealth. These are 2007 numbers and don’t reflect the boom the middle class has been enjoying over the last three years.

Don’t worry rich people, even with the defection of John the Boner of Orange who says he really isn‘t in bed with all those lobbyists and won’t fight for your tax cut, the Senate Republicans have pledged to hold the line against the greedy masses.

Monday, September 13, 2010

wǒ è le

The stock market was up Monday and the popular belief is that because China is showing strong economic expansion that this is good for the transnational corporations listed on the DOW (you see the American market is just not that important anymore). The problem with their thinking is that China is moving to eat their lunch.

China has for some time been just strip mining the planet. In a few places they have also been investing locally. They have long been involved in Pakistan where Chinese engineers are ubiquitous. Did you really think Pakistan built their own nukes? In recent years they have been building major infrastructure projects in Africa and lately factories too, beside the usual buying of mines, oil fields and vast swaths of farmland.

Now they are moving out into the rest of the world with huge investments in places like Brazil where they have not only passed by the US as their largest trading partner but will soon be their largest investor. China not only mines iron ore in Brazil but is building a huge steel mill that will produce among other things, rails for the high speed trains that will bring Brazil into the 21st century leaving the US behind. Brazil is now finishing road links across Peru to Pacific ports that will allow export of grain direct from the Amazon and cut the heart out of the remaining US trade with China.

Beijing has also been taking significant steps to expand the international use of the Chinese Renminbi, including allowing overseas holdings of the currency to be invested in the Chinese bond market. Some economists believe it could become the base currency for Asian trade over the course of the next ten years. Personally I think it will take far less time.

China came to the aid of all it’s third world trading partners with cash during the ‘08 banking crisis, mostly it used some of its vast reserves of USD but with some of its large partners they provided Yuans, next time you might see China drop the dollar completely. The right will snicker that China won’t do that they n-n-need us and under their breath, don’t they?

China is steadily reducing its holdings in US debt and it’s not clear how much USD in cash they hold anymore. They do hold up to 2.5 trillion in cash but they don’t say how much of that is in USD. Basically, at some point the USD will become worthless and China has no illusions about that and they are acting accordingly. As the rest of the world is rushing to buy US Treasuries with the rumors of the Euro tanking, China is happy to sell.

Don’t worry about your dollars, they will still be accepted at your local Walmart, the shelves will be empty however. If there still is a NYSE the board will probably be priced in Yuan.

Your Standard Chinese phrase for the day: wǒ è le (I am hungry) [for audio go to  ]