FedUpUSA

Archive for July 20th, 2010

The U.S. Senate’s epic struggle just to reauthorize unemployment benefits for the long-term jobless suggests that policymakers in Washington fundamentally don’t understand the jobs hole we’re in, according to a team of trained economists.

The progressive Center for Economic and Policy Research reports that it could take an entire decade for the national unemployment rate to come down to pre-recession levels.

“Between December 2007 — the official first month of the recession — and December 2009, the U.S. economy lost more than eight million jobs,” write CEPR’s John Schmitt and Tessa Conroy. “Even if the economy creates jobs from now on at a pace equal to the fastest four years of the early 2000s expansion, we will not return to the December 2007 level of employment until March 2014.

“And, by the time we return to the number of jobs we had in December 2007, population growth will have increased the potential labor force by about 6.5 million jobs. If job growth matched the fastest four years in the most recent economic expansion, the economy would not catch up to the expanded labor force until April 2021.”

Here’s a dramatic chart from CEPR showing the total number of jobs lost since the recession began:

Click HERE to see even more horrifying charts.

Full Report

The Huffington Post

By Julia Werdingier

LONDON — Hugh Hendry has a big mouth, as Hugh Hendry will tell you.

With a sharp wit and a sharper tongue, Mr. Hendry, a plain-spoken Scot, has positioned himself as the public contrarian thinker of this city’s very private hedge fund community.

The euro? It’s finished, Mr. Hendry proclaims.

China? Headed for a fall.

President Obama? “If there was a way to short Obama, I would,” Mr. Hendry said.

Mr. Hendry runs the successful hedge fund firm Eclectica Asset Management. It is an old-school macroeconomic fund company with a big-think, globe-straddling style more akin to the Quantum Fund, of George Soros fame, than to the high-tech razzle-dazzle of Wall Street’s math-loving quant analysts.

“Hugh is an anachronism,” said Steven Drobny, a founder of Drobny Global Advisors. “He reminds one of the original hedge fund managers from the ’70s and ’80s.”

At 41, Mr. Hendry is also emerging from the normally secretive world of hedge funds to captivate fans and foes with a surprising level of candor.

Last May, on British television, he verbally sparred with Jeffrey D. Sachs, director of the Earth Institute at Columbia and perhaps the best-known economist writing on developmental issues.

Before that, he took on Joseph E. Stiglitz, the Nobel laureate, about the future of the euro. “Hello, can I tell you about the real world?” Mr. Hendry interjected at one point. Video of the encounter was a huge hit on YouTube.

His verbal pyrotechnics have won Mr. Hendry a reputation for challenging the economics establishment. He is regarded and appreciated by many as overly pessimistic about, well, just about everything.

His big worry lately has been China. Like James Chanos, a prominent hedge fund manager in the United States, Mr. Hendry says he believes China’s days of heady growth are numbered. A crisis is coming, he insists.

“He’s an original thinker, and he’s definitely not afraid of saying what he thinks, even if he’s not always right,” said Jacob H. Schmidt, founder of Schmidt Research Partners.

Mr. Hendry has made — and sometimes lost — money for his investors. Eclectica’s flagship fund, the Eclectica Fund, is up about 13 percent this year, besting by far the average 1.3 percent loss among similar funds.

But returns have been erratic — “too much sex, drugs and rock ’n’ roll” for some investors, he concedes. In 2008, the Eclectica Fund was up 50 percent one month and down 15 percent another. Mr. Hendry plans to change that.

The firm bet correctly that the financial troubles plaguing Greece would eventually ripple through to the market for German bonds, considered the European equivalent of ultra-safe United States Treasury securities. But the firm lost money betting on European sovereign debt in the first quarter of last year.

Last week, Mr. Hendry was musing about the financial world in his office behind a scruffy shopping mall in the Bayswater section of London. No Savile Row here: He was sporting a white oxford shirt, jeans and blue Converse Chuck Taylor sneakers, along with a three-day stubble and hipster horn-rim glasses.

His latest obsession is China. He likens the country to Starbucks: good at growing quickly but not so good at creating wealth.

“The idea is that things would happen today that are commonly thought of as impossible, most notably a significant reversal of China,” Mr. Hendry said.

Maps cover the walls of his office. On one, blue magnetic pins plot his recent trip through China.

He filmed himself there in front of huge, empty office buildings and giant new bridges in the middle of nowhere — signs, he said, of a credit bubble.

Along with his fund co-manager, Espen Baardsen, a former goalie for the Tottenham Hotspur soccer team, Mr. Hendry is devising ways to bet on a spectacular deterioration of China’s economy. He declined to divulge any details.

Mr. Hendry’s outspokenness has won him both fans and detractors.

Marc Faber, the money manager known as Doctor Doom for his bearish views, calls Mr. Hendry “a deep thinker.”

“He has strong views and expresses them, not to get publicity but because he has a great understanding of the markets,” Mr. Faber said.

Some London investors are less charitable. Two declined to comment on Mr. Hendry, saying they did not want to “get into a fight” with him.

Mr. Hendry certainly does not fit the stereotype of a discreet London moneyman.

The son of a truck driver, he was the first in his family to attend a university — Strathclyde, in Glasgow, not Oxbridge. He studied accounting and joined Baillie Gifford, a large Edinburgh money manager.

Frustrated that he could not challenge the investment strategies of his bosses, he jumped to Credit Suisse Asset Management in London. There, a chance meeting with an equally opinionated hedge fund manager, Crispin Odey, led to a job. Before long, Mr. Hendry struck out on his own.

The inspiration for his investment approach comes from an unlikely source: “The Gap in the Curtain,” a 1932 novel by John Buchan. The plot centers on five people who are chosen by a scientist to take part in an experiment that will let them glimpse one year into the future. Two see their own obituaries in one year’s time.

Mr. Hendry calls the novel “the best investment book ever written” because it taught him to envision the future without neglecting what happened leading up to it, a mistake many investors make, he said.

Mr. Hendry hopes Eclectica will grow to $1 billion — still relatively small by hedge fund standards. But neither admirers nor rivals expect him to change his plain-talking ways.

“I’ve got such a big mouth,” he said, “I have to be very careful what I say.”

The New York Times

Organizations, whether it be a club or a profession or a department, too often over time develop a sort of intellectual inertia, a bureaucratic mindset that tends to perpetuate and validate a certain view of the world amongst its members, particularly if they share other elements in background and world view.

This works to its advantage when they are right, and when the scope of the tasks which they must address are limited to largely operational concerns, without significant risk in the classic sense of the term.

But when the situation becomes different, the environment changes, this organizational mindset not only stifles innovation and adaptation, it can literally reach out and strangle it, well beyond its members, using the entrenched power of its tenure. We see this tendency clearly in organizations that have enjoyed long periods of organizational growth under the leadership of strong personalities, such as the FBI under Hoover, and the Federal Reserve under Greenspan.

We can see this same tendency on a micro level in our daily life on chatboards, in clubs, in our company departments, in civic organizations. It is a tribalistic instinct, that urges the adoption of a consensus view, often influenced and promoted by articulate and single minded individuals, which then musters and focuses the energy and vitality of the group in the execution of its mission.

When it is right, it brings success. But when it goes wrong, when it feeds on itself, becomes defensive and inwardly focused, when perpetuation of the group view overtakes all other considerations, when tribal loyalty and sameness is valued over results, it leads to a cult like behaviour, inbred thinking, that may be inimical to the best intentions of the group, and the sort of behavioural anomalies which we have seen in the tragedies of Watergate, the latter stage Hoover FBI, and even Jonestown.

Economics is in the grips of such a period in its development. One of the primary causes of this problem has been the rise of a few well funded think tanks, universities, and of course the Federal Reserve, that have become powerful influencers, and guardians, dogmatisers of the status quo. The petty sniping among the schools notwithstanding, the current debate of stimulus versus austerity serves to show how anemic, how self referential, how predictable the discussion has become.

The US politicians and economists are doing the same things over and over, expecting a different outcome. For the past twenty years the world has been lurching forward in a series of increasingly destructive asset bubbles, supported by the corruption of thought, and the transfer of wealth from the many to the few, as a direct result of fiscal and monetary policy fomented by relatively small number of powerful people, the monied interests. At some point this will change, and the grip of the status quo will be broken. How much energy will be released, and in what directions, only time can tell.

Janet Yellen: “…has had thirty six opportunities to vote on monetary policy at the FOMC, and she has voted ‘aye,’ yes, thirty six times. Thirty six for thirty six. Has the Fed been right thirty six consecutive times? No. A well credentialed, consensus hugging economist straight out of the Fed HR department. She is ideal from the point of view of the Fed bureaucracy. She will make not one ripple.”

Peter Diamond and Sarah Bloom Raskin: “Diamond is a formidable academic, and Raskin is a formidable regulator, but neither is a formidable thinker about the nature of money, or about the history of money, or about how the Fed might paradoxically make things worse by doing what it does, trying to make things better, which I think is the great question. These are people who I think are unlikely to propose novel solutions to our fundamental monetary dilemma which is that the US dollar is a faith based currency of no intrinsic value that is manipulated by the Fed, and the consequences of the manipulation are often quite distinct, different from what was intended. That’s the problem.”

Jesse’s Cafe Americain

For decades, most Americans have enjoyed an extremely high standard of living.  In fact, most of us have been “enjoying the high life” and “living the dream” for so long that we have assumed that it is just always going to be that way.  But now a rapidly growing percentage of Americans is getting the chance to experience some very serious economic pain.  Today, over 40 million Americans are on food stamps and over 20 million U.S. children are living in poverty.  Tens of millions of Americans are unemployed, and personal bankruptcies and foreclosures continue to set all-time records.  For many people, all of this economic turmoil was completely unexpected.  Millions of people now can’t sleep at night because they are constantly stressed about finances.  More couples than ever are being torn about by arguments over money.  Unprecedented numbers of Americans have experienced a sinking feeling in the pit of their stomachs upon the realization that they are going to lose the homes that they have been raising their families in.  Money may not buy happiness, but as tens of millions of Americans are finding out, the lack of it can bring a whole lot of pain.

Now, the truth is that there have always been a small percentage of Americans that have struggled to get by, but today we are seeing more Americans who are “down on their luck” than at any other time in recent memory.  According to one shocking new survey, 28% of all U.S. households have at least one member that is looking for a full-time job.

It seems like almost everyone has a family member or a close friend who is looking for a job.  The truth is that there are not enough jobs for everyone, and there certainly are not nearly enough good jobs. 

A recent Pew Research survey found that 55 percent of the U.S. labor force has experienced either unemployment, a pay decrease, a reduction in hours or an involuntary move to part-time work since the recession began.

55 percent?

That is incredible.

That means that over half of all American workers have been unemployed or have been forced to take a reduction in pay since the recession started.

Things are getting really tough out there.

Millions of Americans are wondering why their husbands or wives suddenly can’t find jobs.

In fact, the average duration of unemployment in the United States has risen to an all-time high.  The declining economy has created a new class of chronically unemployed Americans who would love to work but can’t seem to find anyone to hire them.

Millions of Americans have been forced to turn to part-time work.  In fact, one recent survey found that approximately 8.6 million American workers are working part time because they can’t get full-time jobs.

In this economic environment, there is significant competition for even the lowest paying jobs.

You never know – this holiday season the friendly gentleman greeting you down at the local Wal-Mart may actually have several advanced degrees but just cannot find anyone else who will hire him.

As the economic situation continues to deteriorate, record numbers of Americans are going bankrupt and are losing their homes.  In fact, banks repossessed a record number of U.S. homes during the second quarter of 2010.

So it is really no wonder why so many Americans are feeling so negative about the economy.

According to one new survey, U.S. consumer sentiment weakened in early July to its lowest in 11 months.  In addition, one recent poll found that 76 percent of Americans believe that the U.S. economy is still in a recession.

But sometimes what gets lost in all the numbers are the individual stories of the very real pain that so many Americans are going through.  Today, I thought that I would share just a few of the stories of economic pain that my readers have been sharing with me.

A reader of my column on The American Dream blog named Kate recently graduated from college but now finds that she can’t even get a retail job….

I just graduated college in May… Moved to a new state and am now living with my boyfriend who should not and cannot continue to have to pay everything because i just plain can’t get a job.

I’m over qualified for retail survivor jobs… so I lie on my application. But then retail stores just plain don’t hire full time. So even if I could get a job as a cashier someplace… I’d only work enough hours to maybe pay for my car payment/ car insurance/ gas…. and my half of rent/electric and such is out of the question… not to mention charged to the limit credit cards from being unemployed and student loans that will hit in just a matter of months.

Any other jobs either don’t exist or they just ALL want 5 years professional experience…. which is impossible for someone who just graduated and has been working part time retail jobs since high school.

AND internships are unpaid or only for college students so thats out of the question….

But the fact of the matter is that jobs don’t care about education in the least bit if you don’t have the real professional work experience to back it up.

A reader of this column named David ended up taking a very low paying job overseas because he simply couldn’t find anything here in the United States….

I have been looking for a job since June 2009. I am a prior Army officer who knows four foreign languages and has lived around the world. I have sent out over 100 resumes over the past year. Finally, I got a job offer to teach English in Russia for $720 per month. Yes, $720 per month. Luckily my housing is paid for. So, I took my tax return and left for Russia to teach English. The American economy is broken and it will get worse. We are in the early stages of a total meltdown in America. Yes, if you are an American, you better prepare yourself for the worst is still to come.

But even those who do have jobs are facing some very difficult circumstances as one of my readers named Ana recently described….

I am a cop’s wife. My husband currently works for a Sheriff’s office who is extremely understaffed and the county wastes money like there is no tomorrow. They threaten the Sheriff with more layoffs if they don’t write more tickets on the highway. My husband has often had to patrol the entire county by himself for a full 12 hour shift. It is a bad situation for everyone.

The truth is that there are millions of stories like the ones above.  Economic pain is everywhere, and the American people are becoming increasingly frustrated.  Most Americans don’t understand why the economy is suddenly in the toilet – all most of them know is that things are broken and they desperately want someone to fix things. 

A lot of this frustration is coming out as anger towards the government.  People are waking up and are starting to realize that the American ruling class has been doing an incredibly bad job of running things.  The American people are hungry for a real change.  In fact, a new Rasmussen Reports national telephone survey found that just 23% of voters nationwide believe that the U.S. government has the consent of the governed.

But will we start to see some real changes in the years ahead?

Unfortunately, that is quite doubtful.  The reality is that the American ruling class has a stranglehold on both political parties, and they are not going to release their grip easily.

Meanwhile, our leaders continue to perpetuate the same failed policies that got us into this mess in the first place.  But unless some fundamental changes are made soon, the economic pain that Americans are experiencing is going to continue to get even worse.

The Economic Collapse

Ludwig the II of Bavaria is rarely discussed in history class but most would recognize many of his castles especially the one that is replicated in Disneyland (Neuschwanstein Castle).  Ludwig spent money he didn’t have to indulge in his eccentric desire to build opulent castles.  Even wealthy royalty can put their balance sheet into jeopardy if they indulge every whim and wish.  The banking sector for the last decade has allowed many Americans to satisfy nearly every consumer desire they had.  Boats, cars, vacations, clothing, recliners, Jacuzzis, or anything else you can imagine.  Some took this to the extreme and created a massive market that demanded bigger and more extravagant homes even though average Americans were not getting wealthier or earning more money.  How this was accomplished was by allowing massive amounts of debt to accumulate until a crisis imploded the economy.  The credit bubble bursting has forced many into a new life of austerity.  No more Sleeping Beauty castles.

On a GDP percent basis the U.S. isn’t the worst offender but we are up there on the list.  The above list spans out to 2003 (and it only got worse until 2007) and you can already see what big amounts of household debt will do.  Take for example Iceland or Portugal that are now facing major headwinds ahead.  A country cannot go into massive amounts of debt and expect to have a sustainable economy for years moving forward.  It is a short term indulgence that masks deeper rooted problems.  The middle class in America were allowed to think they were all dukes and countesses but when the crisis hit, the banks retreated to protecting only their kings on Wall Street.  This was an economy built on a fairytale.

Part of this naïve belief was pushed by Wall Street and D.C. propaganda.  For decades the idea was that you can spend more than you earn.  This came all the way from the top so it shouldn’t be a surprise that many in the middle class took their signal from their leaders.  What happened?

Source:  Lew Rockwell

The personal savings rate went so low that it went from the double digits in the early 1980s and actually hit a negative percentage not too long ago.  At the same time, the amount of household debt went off the charts.  It is hard to remember that there was a time in our history when debt was actually something to be handled with caution.  In the last decade, the careless risk taking banks did with debt created a massive housing bubble but also created bubbles in the auto industry, student loan market, and other areas that were financed induced.  Industries where banks are heavily involved have somehow turned out to harm the working and middle class of the country.

Many financed their lifestyles through credit cards:

We have dropped from the peak of nearly $1 trillion in credit card debt down to approximately $850 billion in credit card debt.  Yet this contraction didn’t happen because people started paying down debts.  This has occurred through bank write-downs and many of the bailed out banks constricting access to credit cards to the American public.  In a way, this is what should have been done decades ago.  But what is troubling is that banks used this as an excuse and reason for receiving trillions of dollars in U.S. taxpayer money.  The bailout funds were to keep lending going so people could use the funds to live in their debt fantasy.  Well that fantasy has ended for the middle class but banks can continue on pretending and living in their fairytale world where taxpayer money and bailouts are somehow congruent with a free market.  Retail spending has contracted because people no longer have access to the amount of debt that was available only a few years ago.

If you want to see the new royalty in America, just look at the below:

Source:  Institute for Policy Studies

I’ve talked about the distribution of wealth in the U.S. in many articles but the above shows a solid plutocracy is already here.  Wealth is the key issue.  As many people are now finding out simply having a massive home with a jumbo mortgage and a leased foreign car is no sign of wealth.  In fact, that can be taken from you quickly (and it is by the number of foreclosures and repossessions we are witnessing).  But true wealth is actually owning the stock, or share of ownership in companies in the U.S.

“The above chart shows that half of all stock wealth is concentrated with the top 1 percent.  In fact, over 90 percent of Americans in the lower rungs own roughly 9 percent of all the stock wealth.  This is why the stock market is largely a game for the rich and jobs are largely a game for the rest of us.”

We are at a major crossroads for the U.S.  If action isn’t taken soon this massive inequality will dig deeper and the middle class will lose more and more people as the economy knocks people off the treadmill.  If we follow the money, our government, Democrat or Republican is largely bought out by the Wall Street cause.  Money is shifted to the least productive sector of finance at the expense of building real tangible assets that help the majority.  The real fairytale going on today is believing that our government and Wall Street are looking out for the economic good of the entire country.  Ask the 40 million people on food assistance how things are going.  Ask the over 15 million Americans with no job how the economy is progressing.  Let us ask the millions that are being foreclosed on how solid growth is.  For big banks, all is well and this is reflected by their billion dollar profits since they are stealing from taxpayers and gambling on Wall Street.  Not even a Disney fantasy is this outlandish.

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