FedUpUSA

Archive for June 14th, 2010

Perhaps the greatest victims of the economic nightmare that is unfolding right in front of our eyes are our children.  The overall economic numbers are really bad, but when you examine the impact that this economy is having on children things get really horrifying.  Today, 1 in 5 American children live in poverty and 1 in 4 American children are on food stamps.  Experts tell us that about 50 percent of all U.S. children will be on food stamps at some point before they reach the age of 18.  Up to half a million American children are homeless even as you read this.  And yet we continue to insist that we are the wealthiest nation in the world.  Well, if we are so wealthy, then why are so many millions of our children suffering so desperately? 

Part of the reason is because an increasing number of parents can’t find work.  According to a U.S. Labor Department report, the average duration of unemployment in the United States hit 34.4 weeks in May, which was a big increase from 33 weeks during April.  To give you some perspective how incredibly bad that is, the average duration of unemployment was only 16.5 weeks in December 2007.

The truth is that when U.S. workers lose their jobs they are finding it exceedingly difficult to find new ones.

In fact, 45.9% of those currently unemployed in America have been out of work longer than six months.  That is the highest percentage since the Labor Department began keeping track of this statistic back in 1948.

So is there much hope that things will turn around soon?

No, not really.

In fact, Federal Reserve Chairman Ben Bernanke says that unemployment is likely to remain “high for a while”.

That means a lot of children are going to continue to suffer.

According to one shocking new study, 21 percent of all children in the United States are living below the poverty line in 2010. 

That means that more than 1 in 5 American children are now living in poverty.

That is a national disgrace.

Not only that, but the same report estimates that up to 500,000 children may currently be homeless in the United States.

Perhaps we should all think about that while we are enjoying our nice dinners tonight.

But most of us don’t think that it is our job to do anything about it.  Most of us have been trained that it is the job of the government to fix people’s problems.

We have created a monolithic welfare state and record numbers of Americans are now dependent on it.

In fact, for the first time ever, more than 40 million Americans are on food stamps.

40.2 million Americans received food stamps in March, which was a whopping 21 percent increase from a year earlier.

But it is bad enough that 1 out of every 8 Americans is on food stamps.  What is far more tragic is that one out of every four U.S. children is now on food stamps.  In fact, as mentioned previously, experts tell us that half of all U.S. children will be on food stamps at some point before they turn 18.

So is anyone still not convinced that the U.S. economic system is broken?

So who is doing well these days?

The wealthy.

In 2009, the number of millionaires in the United States rose 16 percent to 7.8 million.

Wall Street bonuses for 2009 were up 17 percent when compared with 2008.

The rich are getting richer as the poor are getting poorer.  According to the United Nations, the United States has the highest level of income inequality of all of the highly industrialized nations.

The poor are left with an increasingly smaller slice of the pie to divide among themselves.  In fact, those in the bottom 40 percent now collectively own less than 1 percent of the nation’s wealth.

But the truth is that as the U.S. economy continues to fall apart, we are all going to experience some very difficult times.

In particular, when the U.S. economy finally completely implodes, it is those who are almost entirely dependent on the “system” that will suffer the most pain.  The vast majority of Americans live month to month, don’t grow any of their own food and could only last a couple of weeks on the food that they currently have in their homes.  So what will happen to those people when the system fails?

And in case you think that this kind of talk is fearmongering, perhaps you should start listening to what some of the top financial analysts around the world are saying. 

For example, Anthony Fry, the senior managing director at Evercore Partners, recently told CNBC that things are getting so bad out there that he is “considering investing in barbed wire and guns”.

Yes, things are really getting that bad.

Years ago the old timers would warn us that someday we would see Americans standing in bread lines.

Well, today food stamps are the new bread lines, and 40 million Americans a month find themselves dependent on the U.S. government for the food that they need to survive.

If that doesn’t send a chill down your spine perhaps you should check your pulse.

When a government has to feed 40 million people a month that means that the system is badly broken.

How many tens of millions of people have to be on food stamps before we can all agree that we are in a complete and total economic nightmare?

If you know of family or friends that are hurting, please consider helping them out.  The truth is that in the end we are all in this together.  The government is not going to save us.  The collapsing U.S. economy is not going to save us.  But if we all roll up our sleeves and work together perhaps we can make it through the difficult years that are coming.

The Economic Collapse

Private citizens have had enough of overpaid, underworked, public employees with benefits most private workers can only dream about.

Unfortunately, President Obama has not gotten the message (and likely won’t until he is kicked out of office). Time and time again, president Obama has proven that he is beholden to public unions no matter how unjustified the cost.

Now President Obama is asking for $50 billion more taxpayer dollars, your dollars, to dole out to the states, in an effort to buy votes or simply because he is economically illiterate. Most likely, it is a combination of both.

Please consider this letter from Obama to Speaker of the House Nancy Pelosi and the Senate leaders of both parties.

The president whines about losing 84,000 government jobs at the state and local level. I consider that a 5% down payment on what needs to happen.

Obama Begs for More of Your Money

The Washington Post sums up the situation nicely in Obama pleads for $50 billion in state, local aid

President Obama urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid “massive layoffs of teachers, police and firefighters” and to support the still-fragile economic recovery.

In a letter to congressional leaders, Obama defended last year’s huge economic stimulus package, saying it helped break the economy’s free fall, but argued that more spending is urgent and unavoidable. “We must take these emergency measures,” he wrote in an appeal aimed primarily at members of his own party.

“I think there is spending fatigue,” House Majority Leader Steny H. Hoyer (D-Md.) said recently. “It’s tough in both houses to get votes.”

Democrats, particularly in the House, have voted for politically costly initiatives at Obama’s insistence, most notably health-care and climate change legislation. But faced with an electorate widely viewed as angry and hostile to incumbents, many are increasingly reluctant to take politically unpopular positions.

The House last month stripped Obama’s request for $24 billion in state aid from a bill that would extend emergency benefits for jobless workers. Senate Majority Leader Harry M. Reid (D-Nev.) hopes to restore that funding but with debate in that chamber set to resume this week, he acknowledges that he has yet to assemble the votes for final passage. Obama’s request for $23 billion to avert the layoffs of as many as 300,000 public school teachers has not won support in either chamber.

Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.), called the letter full of “contradictions.”

“He’s calling on Congress to pass a [jobless] bill that will add about $80 billion to the deficit, but then calls for fiscal discipline; he says these measures need to be targeted and temporary, but then calls for extending programs passed in the stimulus more than a year ago,” Stewart said in an e-mail.

Overpaid Unions Workers Need To Share The pain

If President Obama has any sense of fiscal responsibility he would be calling on public unions to share the pain. Government works almost entirely escaped the pain most in the private sector have gone through.

We lost 8 million private sector jobs in the recession, and a few hundred thousand public sector jobs are now at stake. Instead of asking overpaid, underworked public union workers to share in the pain, Obama want to tax to death everyone else to pay for it.

Send a Message

It is time to send a message and the way to do it is to vote against any incumbent from either party who just cannot say no to this fiscal madness.

What You Can Do

Please call your legislative representative and tell them the problem is too much government spending, unions are wrecking the country, and if they vote for more taxpayer sponsored bailouts of public union workers or more state aid, then you will vote them out of office.

Tell your representatives you are against spending $50 billion more on states and that it is long overdue for government workers share the pain and that it’s time for states to fix their budget messes without more Federal handouts and taxpayer dollars.

Here is a directory sorted by state of all the Senators of the 111th Congress.

You can also look up the phone numbers in the Online Directory For The 111th Congress

Bear in mind, not a single job is really at stake. All the unions have to do to keep every jobs is lower pay scales or reduce benefits. Instead, they want everyone else to pitch in to pay for their bloated salaries and their bloated pensions.

Enough is enough.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

The war against the middle class is silent and has grown since the recession started.  We don’t hear much about this because in large part, those falling out of the middle class don’t have the funds to purchase airtime with the media who is wedded to Wall Street.  40 million Americans now receive food assistance.  How often do we hear about this?  Each month we add tens of thousands to this number yet we are somehow in a recovery?  A recovery for which group of people is the question we should be asking.  Clearly the middle class isn’t feeling this recovery.  Nearly 17 percent of our population is underemployed.  But then we add 20 percent of those who are employed who are part of the working poor.  If we look at the top 10 occupational sectors in the U.S. we start to realize that many in the middle class are giving up higher paying jobs to service the needs of a tiny elite class.

Take a look at the top 10 occupational sectors in the U.S.:

Source:  BLS

Keep in mind this group is part of the “fully employed” class.  When we think of those who are employed we tend to think that most work in sectors that offer them a decent wage.  That is not the case at all.  In fact, when we look at the median household income of $52,000 we realize that most people are working in the service sector with lower wages and only boost the stat higher because of the two income trap.  9 out of 10 of the above jobs from cashiers to janitors make median wages from $8 to $14.

“To even reach the middle class median income, someone would need to make $25 an hour.  So even looking at the higher end of the above pay scale for these jobs, you would need to have two people making the top $14 to squeak out the necessary $25 per hour to make the $52,000 median income figure.  Keep in mind the above is the top employment sectors in our economy.  In the past where we had a bulk of our population working in manufacturing making the median income wage with one job, now we have given that up for two jobs in service sector work.  I’m not sure many in the middle class wanted to make that trade off.”

Wall Street wouldn’t mind if most Americans were part of the working poor so long as they can keep their exploiting ways going.  In fact, these banks want to sink these people even further by creating this large class of middle class debt serfdom.  Enormous mortgages, student loan debt, and credit cards are the new chains to keep the working and middle class stuck in financial purgatory.  Keep in mind the money the banking industry funnels out is largely taxpayer dollars so the prison we are creating is largely with our own money.  Wall Street investment banks and the too big to fail financial sector is broke.  They would be nonexistent if it weren’t for the complete and generous handout from the U.S. Treasury and Federal Reserve.  How do they repay the people for this?  They begin by squeezing every ounce of productivity of those still working:

Now this is a fascinating chart.  Even in the worst economic crisis since the Great Depression somehow, we are able to become more productive.  Interestingly enough labor costs have fallen at the same time.  Of course the above translates to middle class workers having to put up with stagnant or falling wages while the bottom line keeps getting better.  But better for who?  The banking industry is juicing this game by gambling on Wall Street and not lending money out to the public.  This money was given to them under the pretense of keeping the loan channels alive for American workers.  So we have record foreclosures and bankruptcies while banks keep making billion dollar profits.  The raid on the middle class is like pirates taking the loot in broad daylight.

Yet the spin is out in full force.  Last month the rise in employment was largely from the government sector:

In fact, we can say that the entire rise in employment last month came because of temporary government work.  These Census jobs fall into the trend that we are seeing.  The middle class has to deal with transient work with no security and in order to have access to any semblance of a middle class lifestyle, must enter into a deal of debt serfdom with the banking elite.  We can see that we have hit an absolute structural tipping point in our society with the amount of long-term unemployed:

This is the largest percent of long-term unemployed in modern record keeping history.  What has happened is essentially the last hit against the middle class.  Without any security whatsoever, many are now unable to find work in a highly service oriented world.  The playing field is not level.  The banking sector fills the air with propaganda of the “free market” yet received trillions of dollars in handouts.  The hypocrisy is incredible and many Americans realize this.  This is why satisfaction with both Democrats and Republicans are at all time lows.  Both parties are beholden to the banking and Wall Street elite that work as a leech and are siphoning off every ounce of productivity from the American working and middle class.

The youth of our country are feeling this deeply:

The above chart would seem positive.  More students are taking summer school as opposed to working.  Yet this trend isn’t happening by choice.  It is happening by force.  There are little jobs for teens since they are competing with adults for low pay service sector jobs!  This is the idea of recovery in the new America.  A banking sector that is swimming in gold coins like Scrooge McDuck while middle class Americans find themselves competing with their own children for lower paying service sector jobs.

So what is the solution then?  How the argument is framed is completely false and the Federal Reserve is merely a protector of the banks.  They want to force austerity on the majority of Americans while banks and their predator executives still manage to keep their taxpayer subsidized yachts.  There is money but it went to the banking sector.  The game is fixed for most in the middle class.  Until we break up the too big to fail banks and have a government that truly represents the people’s best interest, there is little reason to believe that the overall trend will reverse.  The fact that 9 out of our top 10 job sectors are from the low paying service sector is not good news.

My Budget 360

The title is a reference to the culturally significant film, Dr. Strangelove, a satire on the fear of nuclear war that was so integral to the post war generation in the US.

If one reads this carefully, the BIS is really referencing a devaluation of about 22% which is hardly ‘a collapse.’ Here are some examples of post WW II currency collapses.

It depends on the timeframe, specifically the rate and extent with which the devaluation occurs. Also, it matters about what the devaluation has been against. Is it a relationship primarily to a reference point like the US dollar, largely affecting a narrow band of imports, or is it a true and general devaluation marked by soaring prices and monetary inflation domestically.

As I recall, China devalued the yuan by about 33% in the 1990′s, and then pegged to the dollar, while ‘persuading’ first Bill Clinton (remember the Chinese campaign contributions scandal) and then George W. (whose family has a long history of supporting tyrannies for personal economic preferences) to allow them to maintain favored nation status, with the dispensation of 44% import tariffs, even while maintaining an artificially devalued currency, under full currency controls, and that fixed in a peg to the dollar.

“I am moving, therefore, to de-link human rights from the annual extension of Most Favored Nation trading status for China.” –President Bill Clinton, announcing MFN status for China, White House, 5-26-94.

1994, Jan. 1 – China unifies its dual exchange rates by bringing the official and swap centre rates into line, officially devaluing the yuan by 33 percent overnight to 8.7 to the dollar as part of reforms to embrace a “socialist market economy”.

As you may recall, in 1994 Bill Clinton also pushed through the NAFTA agreement which, in his words, would ‘level the playing field’ for American, Canadian, and Mexican workers. Only a few really understood the inherent danger in leveling the field without a thorough integration. The current Greek dilemma is a good example of a halfway done scheme in which monetary policy does not match up well with fiscal policy and national temperament.

When one uses globalization of trade to ‘knock down barriers,’ among the barriers that are placed at risk are things like the Constitutional safeguards which a free people enjoy in their own domestic method of organization, such as healthcare, the right to organize, freedom from indentured servitude, child labor, individual rights, and so forth.

These are the very barriers against the tyranny and despotism of the few on which the country was founded in a dramatically historical rebellion of the common people against the injustice of autocrats and empires. This was the rationale for the great Wars. Well, the one world government types play the long game, and if at first you do not succeed…

So yes, in this case China was able to export their structural employment problems largely to the US, which gutted its manufacturing sector primarily for the benefit of the Banks, who were able to cash in on the ‘strong dollar’ and the decline of government protection for its citizens from criminal control fraud.

Personally I think that high tariffs on Chinese goods would work much better for the US than a general currency devaluation per se given its position as a net importer, The downside would be that in the short term there would be less of a market for the export driven debts incurred by supporting the development of a non-democratic country engaged in blatant currency manipulation and mercantilism.

But do not fear, enough palms have been crossed so that one would never expect a simple solution to occur. Political and financial fraud dwells in the realms of artificial complexity. And the competitive but managed devaluations of currencies will serve to transfer more wealth from the many to the few quite well, a sort of hidden tax on the mob, while the wealthy continue to benefit.

But then again, the BIS may just be priming us for a crisis to come, which is consistent with the steady but quiet migration into gold by the wealthy, despite the propaganda they might put out for the masses to hear. As Pliny the Elder observed, “Ruinis inminentibus musculi praemigrant:” When collapse is imminent, the little rodents flee.

As an aside, here is a fairly good example of a man’s thinking. Notice how Keynes changed his views of globalization from the euphoria of the British empire expressed the famous passage in “The Economic Consequences of the Peace” in 1920 which sounds like an Ode to the British Empire:

“What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.”

After a period of years we can see his shift in thinking, albeit reluctantly and with many caveats, towards practical National Self-sufficiency in 1933.

“I was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt, but almost as a part of the moral law. I regarded ordinary departures from it as being at the same time an imbecility and an outrage. I thought England’s unshakable free trade convictions, maintained for nearly a hundred years, to be both the explanation before man and the justification before Heaven of her economic supremacy. As lately as 1923 I was writing that free trade was based on fundamental “truths” which, stated with their due qualifications, no one can dispute who is capable of understanding the meaning of the words…It is a long business to shuffle out of the mental habits of the prewar nineteenth-century world. It is astonishing what a bundle of obsolete habiliments one’s mind drags round even after the centre of consciousness has been shifted. But to-day at last, one-third of the way through the twentieth century, we are most of us escaping from the nineteenth; and by the time we reach its mid point, it may be that our habits of mind and what we care about will be as different from nineteenth-century methods and values as each other century’s has been from its predecessor’s…For these strong reasons, therefore, I am inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation among countries than existed in 1914 may tend to serve the cause of peace, rather than otherwise. At any rate, the age of economic internationalism was not particularly successful in avoiding war; and if its friends retort, that the imperfection of its success never gave it a fair chance, it is reasonable to point out that a greater success is scarcely probable in the coming years…I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel–these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national. Yet, at the same time, those who seek to disembarrass a country of its entanglements should be very slow and wary. It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction.”

I wonder if he lived today Keyens would agree that globalization leads inevitably towards restraints among nations, and a bias towards one world government. I think he would, and he would not be favorable towards it. Make no mistake, some view this favorably as the final solution to managing the unruly masses, and preventing the wastefulness of war and sub-optimization of individual choice by those who they consider and portray as unfit to rule themselves. The shift in Keynes thought is unmistakable, and I admire the self-knowledge he portrays in analyzing, examining, and understanding his own prejudices. It takes a great mind to rise above oneself and their own age.

Quite frankly I do not expect the Fed and Treasury to ever let go willingly of the reins of the economy, or reign if you will, through its aggressive financial engineering in partnership with the Banks. A return to normal will not be achieved without a significant amount of effort, conflict and most likely, pain. It appears to be unavoidable. The customary price of freedom will be paid, as always.

Bloomberg
Currency Collapse May Stimulate Economic Expansion, BIS Says
By Matthew Brown

June 14 (Bloomberg) — Currency collapses tend to spur a resumption of economic growth rather than fueling a decline in gross domestic product, according to the Bank for International Settlements.

Currency collapses are associated with permanent output losses of about 6 percent of GDP, on average, though the drop tends to appear beforehand, the Basel, Switzerland-based BIS said in its quarterly review yesterday.

“This suggests that it may not be the currency collapse that reduces output, but rather the factors that led to the depreciation,” Camilo E. Tovar wrote in the study. “To gain a full understanding of the implications of currency collapses on economic activity it is important to carefully examine the full circle of events surrounding the episode.” (How about the utter destruction of savings and the impoverishment of millions? That has a dampening effect as I recall from the stories that my grandparents told. – Jesse)

The positive effects of a weaker currency on GDP, including making local products cheaper than imported goods, may outweigh the negative ones, such as rising inflation. Currency collapses occur when the annual exchange rate drops by about 22 percent, according to the BIS, which identified 79 such episodes, “more commonly in Africa than in Asia or Latin America,” since 1960, Tovar said.

“They also occurred under all types of currency regimes, except possible floating-exchange-rate regimes, where there are simply too few observations to obtain meaningful estimates,” the BIS said.

Economic Contraction

The euro tumbled about 20 percent against the dollar between Nov. 25, 2009, and last week as investor concern over record budget deficits in countries including Greece spurred speculation the 16-nation currency union may split. The European Union in May crafted a 750 billion-euro ($908 billion) rescue package to stem the crisis.

Greece’s economy will contract 3.9 percent this year and 1.2 percent in 2011, after shrinking 2 percent in 2009, according to the median of eight economist estimates compiled by Bloomberg. The euro-region will expand by 1.1 percent this year and 1.5 percent in 2011, after falling 4.1 percent last year, median forecasts show.

Hans-Werner Sinn, president of Germany’s Ifo economic institute, said on June 3 that it would be best for Greece to leave the euro instead of implementing an austerity program to reduce its deficit. Greek Prime Minister George Papandreou pledged budget cuts worth almost 14 percent of GDP to bring the deficit within the EU limit of 3 percent by the end of 2014.

“The real solution for Greece would be to leave the euro followed by a depreciation” of the new currency, Sinn said in an interview at a conference in Interlaken, Switzerland.

Growth May ‘Dominate’

European Central Bank Executive Board member Lorenzo Bini Smaghi said on May 28 that there are “no alternatives” for Greece beyond following the austerity program.

“Before drawing policy conclusions we should emphasise that these results are subject to a number of caveats,” the BIS said in the report. “Most importantly, the analysis does not address the reasons why currency collapses occur in the first place. Our analysis also has little to say about the mechanisms involved after the currency collapse takes place. While we cannot disentangle the various factors, our results do suggest that expansionary mechanisms tend to dominate.”

Jesse’s Cafe Americain