A new government report came out today detailing just how bad the current Great Depression has become. Things are indeed as bleak now as they’ve been at anytime in the 70 years since the last Depression, and the turn around is still not happening.
For the second year in a row (in 2010), Americans earned less and spent less. They spent less on food as more people go hungry at the end of the month or are simply buying cheaper food (or food like substances). Those who formally aspired to the American middle class have cut back on entertainment and eating at restaurants and they give less to charity. But the costs they can’t control like gas, heat and health care continue to go up.
Only twice since the Labor Department started doing this survey nearly 30 years ago has total consumer spending declined. In 2010 spending fell by 2 percent. The only other year when consumer spending fell was the year before that.
The good news is that the rate of income decline slowed last year to a negative 0.6%, which was better than the 1.1% drop the year before. In 2011 the early numbers actually show a modest but tentative increase in both income and spending. The cut in Fica taxes was supposed to give a big boost to consumer spending but was stifled by high gas prices, with the average $150 per month tax cut simply going into the gas tank and for higher food prices driven by energy costs and of course Wall Street banks speculating in food commodities.
What improvement that we have seen comes from gas prices coming down 50 cents/gallon from their $4 peak in May. We could probably thank Obama for this from his putting Strategic Reserve oil on the market and we aren’t paying $5 plus as the Wall Street banks were predicting. Since 40% of the pump price is a direct result of these same Wall Street banks, their predictions are usually accurate. Gas prices are falling again this week as speculators are forced to sell contracts to meet margin calls as a direct result of the whole financial system teetering on the brink of collapse.
No need to shed a tear for the big banks as prices fall, they make their real money from selling derivative contracts. These “financial weapons of mass destruction”, as Warren Buffet called them as they are really time bombs, are supposed to protect the buyer against swings in prices. These totally unregulated and non-transparent contracts are extremely complicated however, and weighted in the favor of (wait for it) the banks.
Triggers built into the contracts are not known to the market in general and other holders of similar contracts don‘t know how vast the holdings are. Complimentary contracts across a commodity group can cause a domino effect that nobody outside of the banks can see coming. The Dodd-Frank Act is supposed to rein in these contracts and Republicans have been doing everything possible to keep that from happening.
Commodities including gold were up significantly today, after four days of declines, they were up based on news of a possible deal to save the Euro zone. This rosy outlook also pushed up the equity markets. The Senate deal to avoid a government shutdown didn’t hurt the markets either.
House Republicans had slyly made a two pronged advance across the chess board to force the Senate to sacrifice 20,000 green jobs, mostly in the auto industry, or instead let disaster relief money run out. The biggest cut was to a Detroit advanced engineering program that was ironically endorsed by the US Chamber of Commence, you know, those real lefties.
The House then skipped town with the game plan being that the Senate would either have to make the job cuts further crippling the economy, or let FEMA run out of money today, and that option would also cutting jobs from recovery construction. A certain checkmate for the GOP (Greedy Old Party). However the Obama Administration was able to come up with enough money to fund FEMA disaster relief until end of the fiscal year blocking a move know as the Tea Bagger gambit once again. The Republicans not wanting to take the blame for a government shut down at the end of the year on Friday agreed to a Continuing Resolution temporarily funding the entire Government at the rate agreed to in debt agreement in August.
While Obama can slap the clock on the speed chess board and lean back satisfied that he’s kept the government running for another six weeks, the game is obviously not won. The Republicans are not shy about killing pawns on this board game called Class Warfare. A contest that’s scored in real blood while they maneuver to take out not just Obama, but all of the middle class from the 99th percentile down. www.prairie2.com