I think the economy is pretty darn awful, but with record profits on Wall Street and all the happy talk about a recovery from the recession (albeit a jobless recovery) it’s confusing for many people as to what our economic future really holds. Well, here’s relevant statistic that sums it up nicely, one that shows the so-called recovery is mostly a smoke and mirrors vaudeville magician’s routine by the same people who either got us into this fine mess in the first place, or enabled the ones who did. Take a peek at this excerpt from Inner Workings David Goldman’s blog at Asia Times:
This morning’s news that housing starts “unexpectedly” dropped by 11 percent month on month is consistent with my grim view of the American economy. The crystal-meth monetary policy at the Fed makes everyone feel better, until they don’t. The nonstop rise in the price of dollar hedges tells us that it can’t last forever. Large balance sheets attached to the Fed’s money pump can show profits, and the price of spread assets (as PIMCO’s Bill Gross keeps emphasizing) is stupid rich. But at the capillary level, through, the economy is dying and gangrene is setting in.
Here’s year on year growth in commercial and industrial loans from weekly reporting banks in the US:
[Attached chart shows 20% decline in commercial and industrial loans in the 12 months]
A TWENTY PERCENT decline in commercial and industrial loans? That’s not a recovery, it’s a fricking catastrophic collapse in the fundamental underpinnings of our economy. It’s Wall Street sucking Main Street and Government dry, grabbing all the cash while they can. Not surprisingly they are using that cash pump from the Federal Reserve to drive up commodities prices. What does that tell you?
It tells me things are about to get much, much worse, and no one in Washington has a clue what to do. It’s, and let’s be honest, the worst economic performance since the Great Depression. Jobs that created the foundation of our economic growth in the 20th Century have flat disappeared, as Nouriel Roubini (you know, the economist whose predictions were right all along while the Friedman disciples like Alan Greenspan fiddled as the US economy burned to the ground) makes clear.
While America’s official unemployment rate is already 10.2 per cent, the figure jumps to a whopping 17.5 per cent when discouraged workers and partially employed workers are included. And, while data from firms suggest that job losses in the past three months were about 600,000, household surveys, which include self-employed workers and small entrepreneurs, suggest a number above two million.
Moreover, the total effect on labour income – the product of jobs times hours worked times average hourly wages – has been more severe than that implied by the job losses alone, because many firms are cutting their workers’ hours, placing them on furlough or lowering their wages as a way to share the pain.
Many of the lost jobs – in construction, finance, and outsourced manufacturing and services – are gone forever, and recent studies suggest that a quarter of U.S. jobs can be fully outsourced over time to other countries. Thus, a growing proportion of the work force – often below the radar screen of official statistics – is losing hope of finding gainful employment, while the unemployment rate (especially for poor, unskilled workers) will remain high for a much longer period of time than in previous recessions. […]
[T]he credit crunch for non-investment-grade firms and smaller firms, which rely mostly on access to bank loans rather than capital markets, is still severe.
Or consider bankruptcies and defaults by households and firms. Larger firms – even those with large debt problems – can refinance their excessive liabilities in or out of court, but an unprecedented number of small businesses are going bankrupt. The same holds for households, with millions of weaker and poorer borrowers defaulting on mortgages, credit cards, auto loans, student loans and other consumer credit.
Consider also what is happening to private consumption and retail sales. Recent monthly figures suggest a rise in retail sales. But, because the official statistics capture mostly sales by larger retailers and exclude the fall by hundreds of thousands of smaller stores and businesses that have failed, consumption looks better than it really is. […]
Moreover, income and wealth inequality is rising again. Poorer households are at greater risk of unemployment, falling wages or reductions in hours worked, all leading to lower labour income, whereas on Wall Street, outrageous bonuses have returned with a vengeance. With the stock market rising and home prices still falling, the wealthy are becoming richer, while the middle class and the poor – whose main wealth is a house rather than equities – are becoming poorer and being saddled with an unsustainable debt burden.
So, while the United States may technically be close to the end of a severe recession, most of America is facing a near-depression. Little wonder, then, that few Americans believe that what walks like a duck and quacks like a duck is actually the phoenix of recovery.
The Tea Baggers and their talk of a tax revolt and railing against the mythical socialist takeover of America by the Obama administration isn’t the problem.
The problem is that we’ve been scammed by Wall Street financial firms (the megalithic survivors) into juicing their balance sheets while getting less than zero in return for our billions of dollars of bailout expenditures by the Fed and Congress and trillions more for Federal guarantees of Wall Street’s toxic junk financial derivatives.
In short, our investment of tax dollars in an essentially opaque, unregulated, subsidized and protected financial sector is proving to be a very, very bad bet for the future of any real economic recovery for the vast majority of Americans who don’t work for Goldman Sachs and their ilk. This isn’t a rational free market by anyone’s definition. It’s a con game, one that Obama’s economic team has been more than willing to ignore in the interest of helping their friends, even if that means unacceptably high unemployment and lower investment in the real drivers of our economy — small businesses, workers and manufacturing.
And unless we see a sea change in the economic strategies being pursued by the Obama administration, any talk of a fundamental political realignment in which Democrats benefit from a generational shift in political power is as much a pipe dream as Karl Rove’s plan for a one party Republican state. Indeed, if Democrats in the Executive Branch and in Congress continue to ignore the fundamental changes in economic policy necessary to reverse our present course, the likelihood of something far sinister, a fascist or neo-fascist movement or a coup by a right wing military junta is not out of the question. Because when democratic civil governments becomes unable or unwilling to address fundamental issues of economic security they can lose their legitimacy literally overnight.
Just look at the history of the Weimar Republic, or Italy after WWI, if you want an object lesson in democratic governments that failed because their political leaders, operating within a weak, corrupted and gridlocked systems, were more concerned about their political careers and futures than addressing the critical economic issues that had spread misery and despair among millions of their constituents.
Without FDR, America might have gone down that same road to tyranny and dictatorship that bedeviled so many nations in the 20th Century, where income inequality led to ideologically rigid, dictatorial regimes on both the left and the right. The common factor in each instance was massive income inequality and the willingness of demagogues and elites to take advantage of the inability of weak central governments to correct that fundamental flaw to the development of stable economies that gave most, if not of all their citizens, a comfortable middle class life style. That was the true reason why America was so successful following WWII: the tremendous growth of our middle class, which fueled the greatest economic engine of the last century.
Well, now we have reversed the course that made us great, which insured our power and stability. We are flirting with an economic collapse which will lead to a political nightmare, unless we radically change the way business is done “Inside the Beltway.” That was the platform on which Democrats ran last year. So far they have failed to live up to the promises of fundamental change that they made to the American Public, and that failure if it continues will hurt not only their electoral future in 2010 and beyond. It will also spread misery and social unrest across America on a scale we have not witnessed in generations.
Top ‘o the mornin’ to you, Steve.
Funny you should bring this up. The other day I looked at my wealth account and discovered that my manager (rated one of the 50 best in the United States, whatever that means) had put me 35 percent in cash, from almost zero cash two months ago. His group seems some bad stuff coming down the pike, too.
Our adviser has also been very slow to move out of cash and back into stocks. When I asked him why, he hedged a little and said he just thought we should wait a little longer. He’s not a doom and gloom guy, but there are a lot of people out there who think, in many respects, the worst is yet to come. And when that view comes from those who got it pretty much right the first time, it gives me a pause. And makes me a little uneasy.
Some Democrats in Congress, at least in the House, are beginning to find their voice. Especially those who depend on labor votes in their base. Richard Trumka has outlined a pretty clear, non-jargon, five-point plan for job creation. There is movement in the House to move quickly on something like this regardless of what the White House does.
In addition, Pete de Fazio became the first Democrat to say openly that Geithner and Summers are not serving the president and the country well because they are too tied to Wall Street. And that both should be fired.
While the Senate goes on and on about healthcare reform, the House will come up with a jobs bill, the Senate Democrats will be stampeded by their leadership to shove it through (it will not be as heavy a lift as healthcare), and Obama will be forced to sign it or buck his own party. I actually think Obama will get on the bandwagon once it is moving in Congress.
And the Grand Old Party of No will be in something of a bind. Because people will understand immediately how the bill will benefit them. The GOP will not be able to lie about this as easily as about healthcare. Folks understand extension of unemployment benefits, subsidizing of COBRA, using TARP funds to make loans to small- and medium-sized businesses, investing in local infrastructure, backfilling state deficits, and getting a long-term industrial and trade policy.
The US Chamber of Commerce, National Association of Manufacturers, Business Roundtable, and other large corporation lobbyists are going to go nuts. But that will help clarify who the Republicans are working for.
I’ll have to read that plan, hope it doesn’t include a lot of protectionism.
Free Trade only benefits the elite because that’s how the government wants it. It DOES make everyone richer, but you need to regulate and structure it so that the benefits are spread out and only government can do that.
It really takes more than just a single government to make sure that free trade doesn’t become a race to the bottom.
I don’t see traditional protectionism in labor’s plan, but I do see the proposal requiring common labor and environmental standards that raise the quality of both. They are smart enough to know that the goods and services they produce must be sold to someone.
More likely industrial policy mechanisms such as European countries use. Or Japan.
The Adminstration made a major mistake in the stimulus and then in not tying the stimulus to fundamental banking reform. This should have been done on day one and the outlines of what needed to happen or a return to Glass-Stegall would have been possible. I always wanted Obama to choose someone like Eliot Spitzer as the Treasury Secretary; but he went with Geithner who was hailed on Wall Street. And then the first day, the Street turned on Geithner and Obama. Frankly, Summers isn’t even up to the task of what is needed and I think Bernanke sees but is tied again to Wall Street and the banking sector.
We are living with the results of regulatory capture that began under Clinton IMO.
I have hopes that others see clearly what must be done and a jobs bill will be step one; but I am so worried watching the President talk of deficits.
Deficits aren’t the problem; the takings by the Street from America is the issue.
“You have to calculate that a bunch of sweating fanatics whose idea of fun is to read Ayn Rand and then go out on a suicide mission can’t be dealing from the same deck as the rest of us.”
I have a question about housing starts, I can’t imagine how they would be good, what with all the houses now vacant and unable to be sold or rented….why would new housing be up at this time. Who will buy all these new dwellings in the first place.
Perhaps that industry needs to change, we can’t continue forever building, building, building, while buildings that are already there, lie vacant and unattended.
Housing starts is not a good national sta. It’s really better seen as a regional one. The greatest inventory of homes is in California and Florida. Other states may have different situations, especially if we are seeing a wave of internal migration.
Steve, I’m afraid you’re right about the economy getting worse, and Middle America continue getting squeezed.
Yesterday Republicans shamelessly thwarted efforts by Democrat Senator Chris Dodd to help Middle America by freezing credit card interest rates on existing balances. At a time when people in this country are literally going hungry and without work, Republicans had the chutzpah to throw Middle America under the bus and instead line the pockets of credit card companies. Oy gevalt . . .
I understand the great plight suffered by credit card companies. The gravy train with biscuit wheels that they’ve been riding for years will soon be coming to an end. However, if they are looking for sympathy from Middle America, they can find it in the dictionary, somewhere between “s##t” and “syphilis.”
As you may recall, especially if you’re an insomniac and have needed something on the nightstand to help you sleep, the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act enacted in May, prevents arbitrary interest rate, fee and finance charge increases on a consumer’s existing balance.
In response, credit card companies have been hiking credit card interest rates to 30% in a last ditch effort to take advantage of consumers before all of the CARD Act’s provisions take effect.
To stem the hiking of fees on Middle America, Dodd’s bill would have sped up some of the provisions in the CARD Act, which don’t take effect until February or August of 2010. But yesterday Senator Thad Cochran (R., Miss.) objected to the measure, and it only takes one senator to block a unanimous consent request in the Senate.
This missive has nothing to do with the fact that consumers have a responsibility to spend within their means and to pay what they owe, and everything to do with the fact that the credit card industry has a responsibility to deal with consumers honestly. There is nothing honest about what credit card companies are doing to consumers with these rate increases and fees, which are simply usury and legalized extortion.
Middle America is already frustrated with the political Left and Right for not providing relief on pocketbook issues, and this gets the peasants one step closer to grabbing their pitchforks. If you’re keeping score, let the record reflect that in keeping with its tradition of whoring for big business, Republicans have once again chosen big business over Middle America.
What a shock, eh?