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Archive for September, 2010
Wealth inequality rivals the months prior to the Great Depression – Americans would prefer a more evenly distributed wealth system. Over 80 percent of Americans still feel we are in a recession.
September 25th, 2010 | 
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The official announcement that the recession is over underscores the massive disconnect between Wall Street and the rest of America. Wealth inequality in America is at levels last seen right before the Great Depression ravaged our economy. Yet the inequality has grown even more intense as this crisis has gone forward. 43 million Americans are now classified as being in poverty. This trend hasn’t shifted in the last decade, recession or no recession. The system is absolutely flawed and that is why we have over 16 percent underemployment, 41 million Americans on food stamps, 4 out of 10 workers in low paying service sector jobs, the median household income falling under $50,000, record monthly foreclosure filings, and yet the recession is over according to a small group of economists. The recession may be over for Wall Street but the rest of America is still struggling.
Wealth inequality has been exacerbated by the casino like behavior of investment banks on Wall Street. A recent study shows how out of touch with the facts most Americans are when it comes to wealth inequality in their own country. One fascinating finding is that most Americans, even between those that make $50,000 and $100,000 actually envision optimal wealth distributions that are very similar:
Source: Norton, Ariely
Let us explain the study. For this part, the researchers asked over 5,000 Americans their ideal wealth distribution in the U.S. The participants were also asked what they estimated the wealth distribution of the U.S. looked like. For the most part, their estimates were significantly off. Most estimated that the top 20 percent controlled roughly 60 percent of all wealth. In reality, the top 20 percent control over 83 percent of the pie. We’ve talked about this when the top 1 percent actually controls over 40 percent of all U.S. wealth. However, when asked for their ideal distribution regardless of income or political affiliation most Americans thought the ideal wealth for the top 20 percent would be 20 to 30 percent. Ironically the ideal that most Americans have looks more like Sweden than our current system:
The respondents were also given these items below and most preferred the Swedish model. The equal distribution lost out by a small margin showing that Americans realize that there will be an inequality in the system but nothing like we currently have. The middle class is being squeezed out of the pie. The propaganda from Wall Street is that everyone can be rich but the reality shows otherwise. In fact, Wall Street tries to sell the sizzle of the steak to Americans by conjuring up political fears and other distracters to detract from the fact that Wall Street is robbing Americans blind. When the politics are put aside, most Americans want a radically different system when it comes to wealth distribution. Our economy is broken on so many levels and banks are to blame. Many Americans feel this way:
It is interesting that only 18 percent of Americans have confidence in U.S. banks. A larger majority have very little confidence in the banking system as they should when you have the broke FDIC backing $13 trillion in banking assets. With no actual reform in the banking system we can expect another crisis to come up shortly. Why? The real economy isn’t responding because what is happening is you have actual real wealth being drained out of the economy through bailouts for the rich. It doesn’t happen directly but through a connected system. The absolute richest Americans own the bulk of stocks so the fact that the bailouts have boosted stock values has helped this tiny group of Americans bounce back. That is why only a few months after the stock market crashed in early 2009 the first folks to start posting billion dollar profits were the banks. Of course this happened because of the taxpayer funded bailouts. Shift money from taxpayers, to Wall Street, to the wallets of the elite.
According to the NBER the recession is over but try telling that to Americans:
Over 80 percent of Americans still think we are in a recession. Why? Because we are if you define it as a poor economy for the bulk of inhabitants! Foreclosures remain near peak levels, 1 out of 7 are now in poverty, and good luck finding good work in this economy. The other 20 percent think things are getting better because the modern day casino known as Wall Street is up by 70 percent from the low in 2009. Yet what use is that if it doesn’t translate into jobs? GDP grows because productivity is squeezed out of each worker and CEOs can use the recession as an excuse to cut workers while boosting their own paychecks. Also, you have banks that are now making the bulk of their profits through speculating on Wall Street without even producing actual value in the real economy. How is that even good for the economy? Isn’t speculation the reason we are in this mess in the first place?
Why don’t we hear about the giant inequality gap in America? Because the mainstream media doesn’t actually report what matters to most Americans. Just look at the divergence again:
When we set aside politics, most Americans want an economy that allows for a robust middle class. We expect that people will have differing views in our country but right now much of the political noise is being stoked by Wall Street to keep you from focusing on the above chart. Which candidate is even bringing up the above as a key issue to their campaign? The small elite in our country realize they have a sweet thing going and the fact is, most Americans want to make wealth equality a priority when it comes to wealth. At the very least, banks and Wall Street don’t want Americans wising up to the fact that 83 percent of the nation’s wealth is in the hands of the top 20 percent.
When labels are removed Americans prefer a wealth distribution that looks like Sweden. If we look carefully at the charts above, you can see how the middle class is being slowly erased.
Posted in Banks, corporate power, Corruption, Debt, Economic Crisis, Economy, Financial System, Government, income, Money, Wall Street | 
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Netflix CEO: Americans Are Self-Absorbed
THR: Are you concerned that American Netflix subscribers will look north and ask for the same discount Canadians get at $7.99?
Hastings: How much has it been your experience that Americans follow what happens in the world? It’s something we’ll monitor, but Americans are somewhat self-absorbed.
Oh we are eh?
Incidentally, he allegedly “apologized.”
Well let me make a recommendation to all those self-absorbed Americans: Go visit a Redbox and drop your Netfucks subscription.
Why?
Let’s just do the math.
Let’s say you have their $9/month subscription. You can rent 9 movies a month for that from Redbox for one night. How many movies can you realistically watch with the one-DVD-at-a-time deal from Netflix on that plan? Four, right? One per weekend, since it takes two days (at least) to turn it around – assuming you need to go to work.
So let’s say you have the 2-DVDs out at a time – that’s $14/month. Will you watch 14 movies in a month? There are eight weekend days – if you want one movie per weekend day, you’re still spending about half as much.
Want the 4-DVD plan so you can have two for Friday and two for Saturday night? Ok, cool – that’s $24/month. But there are, again, 8 weekend days, and two movies each would be $16 at Redbox.
Oh, and you get it now – not in a couple of days, and not “on queue.” Pick a movie right now, watch it five minutes later. Unlike Netflix.
Are you a TV show hound? Ok, ok, I get it. Got cable or DISH, right? Got a DVR? Use it. No? Consider getting one.
I know, people will put up with this crap in America, instead of doing what they should do – leave. This is twice in two days these guys got caught with their feet in their mouth – first by getting caught hiring shills to pretend to be excited Canadian “customers”, and now with this.
So here’s the question Americans: ARE YOU REALLY SELF-ABSORBED, AS YOU HAVE BEEN ACCUSED OF, OR WILL YOU TELL NETFLIX AND THEIR CEO TO STICK IT WHERE THE SUN DOESN’T SHINE?
I guess we’ll find out.
Janet Tavakoli on the "Myth of the Immoral Debtor"; An email from a Charlie Munger student; "Business as Usual"
Emails continue to fly in regarding Amazing Arrogance.
I would like to share a few of them including a second email from Janet Tavakoli regarding bankers’ sense of entitlement and “the myth of the immoral debtor”, a term Tavakoli attributes to Elizabeth Warren.
From Janet Tavakoli:
Hello Mish,
Bankers have an enormous, unjustified, sense of entitlement. These people work for failed institutions, yet they feel they are entitled to bonuses that far exceed those of bankers and investment bankers of one or two decades ago.
Note that Berkshire Hathaway owns a big chunk of Wells Fargo, which bought Wachovia, which in turn bought Golden West, the very seat of a lot of fraudulent lending.
Of course, we bailed out Wells Fargo and relaxed accounting rules, so no one knows the true size of the hole in that balance sheet. Charles Munger’s remarks are all the more bizarre in this context.
Here in Illinois, people were lied to and deceived with phony docs. Among many other frauds, people would show up at a closing for a fixed rate loan and be presented with docs for an option ARM. All sorts of variations occurred.
Lisa Madigan, the Illinois Attorney General was first to file the suit against Countrywide, and beat California by minutes. Countrywide settled for $8+ billion on the combined suits, but that was way too low. Madigan publicly stated: “Borrowers didn’t break the law; Countrywide broke the law.”
Of course, some borrowers committed fraud, overreached, or got in over their heads, and there are certainly cases of irresponsibility. However, the reality of the mortgage lending market is that it was rife with fraud by mortgage lenders–from even before the first huge Ameriquest fraud.
I was on CNBC a few months ago and Kudlow, Santelli, and others shouted me down when I brought up predatory lending. Columbia Journalism Review and others took CNBC to task. Widespread predatory lending is well documented. This isn’t a matter of opinion, it’s a matter of fact.
You’d think Munger had been living under a rock. Yet, he hasn’t been, and I believe he knows better. Buffett knows better, too. Unfortunately, instead of using their positions to tell the truth, they are using their positions to propagate what Elizabeth Warren calls “the myth of the immoral debtor.”
I’m no bleeding heart; I’m all about the cash flows.
Investment banks knew the cash flows from these loans wouldn’t be there, but they went ahead anyway. Thus, they are responsible for widespread securities fraud. To keep it going, they created more complex securitizations and got more people involved to cover up the mounting losses that were coming down the pike. This was all known and knowable in advance.
I didn’t “forsee” anything. I have no psychic ability. I’m not prescient. I am, however, an analyst, and I know my stuff. So did they. It was fraud.
So, just what sort of “civilization” is Munger trying to preserve?
Warren Buffett has made statements that he doesn’t see the purpose of going after people. That’s ridiculous.
I am in complete agreement with William K. Black that thorough investigations are long overdue. The crimes aren’t in doubt, but one has to go through the arduous task of collecting evidence even though delays have made the trail cold. That was deliberate.
Best,
Janet
University Student Chime In
Here is Email from a University of Michigan student who heard the speech in person.
Alex writes …
Hey Mish
I am a University of Michigan student and I was present for Charlie Munger’s talk on campus. You probably wouldn’t have been able to sit through the whole thing without screaming obscenities. There was question asked about gold and Charlie said he would never own it. There was also a question about derivatives and Charlie insulted that person as well. Correct me if I’m wrong, but didn’t Berkshire purchase a large quantity of silver below $5? Didn’t Berkshire get involved in the derivatives market?
Thanks
Alex
Charlie Munger Student Chimes In
Here is an Email from a Charlie Munger student and long time shareholder of Berkshire Hathaway.
Hello Mish,
As a regular reader of your column, long time shareholder of Berkshire Hathaway, and Charlie Munger student, I was saddened to read Munger’s remarks. While I am never surprised by his hubris – attend a Wesco shareholder meeting and you will see how the man holds court – I am shocked that he would suggest that those who did not receive bailout money to suck it up.
While I knew that Buffett was a hypocrite, I never expected it from Munger who states that he lived on principles. I sold all my Berkshire shares today.
Keep up the great work, you are one of the few sound voices left out there.
“S”
Bring Out The Criminal Indictments
Pray tell, where is the action on this list?
April 29, 2010: Barofsky Threatens Criminal Charges in AIG Coverup, Goldman Sachs Abacus Deal, TARP Insider Trading; New York Fed Implicated
April 16, 2010: Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed
March 2, 2010: Geithner’s Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says “Don’t Trust Your Government”
January 31, 2010: 77 Fraud, Money Laundering, Insider Trading, and Tax Evasion Investigations Underway Regarding TARP
January 28, 2010: Secret Deals Involving No One; AIG Coverup Conspiracy Unravels
January 26, 2010: Questions Geithner Cannot Escape
January 07, 2010: Time To Indict Geithner For Securities Fraud
October 20, 2009: Bernanke Guilty of Coercion and Market Manipulation
July 17, 2009: Paulson Admits Coercion; Where are the Indictments?
June 26, 2009: Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America “Turd in the Punchbowl”
April 24, 2009: Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis
Don’t hold your breath waiting for any of those crooks to be prosecuted.
They are all considered saviors by the president, by Wall Street executives, by the largest banks, by the likes of Warren Buffett and Charles Munger, and all the other ingrates bailed out by the Fed and Congress.
Read the rest at: http://globaleconomicanalysis.blogspot.com
Posted in Banks, Berkshire Hathaway, Charlie Munger, Corruption, Debt, Economic Crisis, Economy, Financial System, Government, Money |
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Forget a Recession, The Empire is Crumbling
I look around me and I see an Empire in Decline.
The US economy is clearly in a depression… not a recession, not a recovery, but a DEPRESSION. More than 40 million Americans (12%) are on Food stamps. Nearly one in five of us are unemployed of underemployed. Folks go to Wal-Mart at 11PM waiting for their government checks to clear at midnight so they can buy baby formula, milk and other necessities.
Three out of every five Americans are overweight. One in five are obese. Indeed, there are only two areas (one state, Colorado, and Washington DC) where obesity rates are under 20%.
Nearly three in four of us don’t get enough sleep. Almost one third of us report having trouble falling asleep EVERY night. And almost half of us report that day-time sleepiness interferes with normal activities including work.
Half of marriages end in divorce. One out of ten married couples report sleeping alone. The average American watches 28 hours of TV a week (enough to qualify for a part-time job). Two thirds of us eat dinner while watching TV, preferring the fake, sensationalized lives of others to engaging with our own families.
The TV and media are filled with foul, ungodly images of sex, violence, and hate. The most watched shows of the last decade all feature ordinary folks becoming superstars in lottery-esque competitions (American Idol, Survivor, Who Wants to be a Millionaire, etc) OR crime sagas detailing the most sordid and disgusting elements of society (CSI, Law and Order, etc) OR amoral social dramas in which notions of personal responsibility, fidelity, and common decency are unknown (Desperate Housewives, the Bachelorette, etc).
Today, brain dead, vapid human beings who have contributed nothing to society are idolized and followed as though they invented the wheel. We’ve actually got two industries devoted to presenting the illusion and reality of celebrity: Hollywood shows the photo-shopped, CGI-enhanced, scripted version, while the paparazzi and weekly glossies reveal the drug-addicted, affair-crazed, family breaking, soul-less emptiness.
Sex or violence are plastered on virtually every flat surface available. Even the check-out lines at the grocery store feature endless images of barely clothed women along with headlines sensationalizing gruesome behavior, right out in the open for children to see. And if the kid can actually read the headlines… God only knows what ideas this stuff is putting into their heads.
Financially, we’re all pretty much bust or going bust (except those on Wall Street).
New home sales in July were a RECORD low. Not record as in for the year, but the lowest since 1963. The talking heads are high fiving because sales improved in August, but failed to note that they were still DOWN 19% from August 2009 levels.
Americans two primary assets for retirement (stocks and their homes) have both been absolute disasters. Home prices are down 30%, stocks haven’t produced gains in over a decade. Every moron on TV talks about the Dow 10,000 like it’s a miracle. But when you adjust the Dow for inflation, (using the BLS’ ridiculous CPI measure) the Dow is SUB-500 in terms of purchasing power.
Our money system is controlled by an elite banking oligarchy fronted by academics who have never run a business, invented anything, or had any interaction with commerce aside from vying for tenure. Our currency is now worth less than 1/20th of what it was a century ago. And we are ALL in debt up to our eyeballs on a personal, corporate, local, state, and federal level.
Heck, even USA TODAY (not exactly the cutting edge in financial research) notes that in order to pay off our current liabilities, every US family would have to pay $31,000 a year… for 75 YEARS!!!
And we’re talking about an economic recovery?
According to David Rosenberg of Gluskin Sheff:
- Wages & salaries are still down 3.7% from the prior peak;
- Corporate profits are still down 20% from the peak;
- Real GDP is still down 1.3% from the peak;
- Industrial production is still down 7.2% from the peak;
- Employment is still down 5.5% from the peak;
- Retail sales are still down 4.5% from the peak;
- Manufacturing orders are still down 22.1% from the peak;
- Manufacturing shipments are still down 12.5% from the peak;
- Exports are still down 9.2% from the peak;
- Housing starts are still down 63.5% from the peak;
- New home sales are still down 68.9% from the peak;
- Existing home sales are still down 41.2% from the peak;
- Non-residential construction is still down 35.7% from the peak.
The American Psychological Association reports that 73% of Americans cite money as a source of significant stress. Personal bankruptcies have fallen 8% month over month from July to August. However, August 2010 bankruptcies are up 6% from August 2009… so much for the recovery.
And yet, despite all of this, assumedly intelligent people write op-ed articles and appear on TV claiming that things are swell in the US, that we’re actually OK and that the recession is over. Some of these people even have advanced degrees or have won international prizes for economics.
Let’s be honest. Forget recessions, forget even Depressions, the US is an empire in decline.
You can literally see it crumbling right in front of you. Just start looking at how people live, eat, and act on a day to day basis. Look at how our Government runs itself, how it manages our affairs, how it spends our tax Dollars. Look at how our justice system works, who it protects and who it punishes.
It’s all out there, right in the open for you to see. You don’t need an expert degree or some kind of advanced education. It’s OBVIOUS to anyone who bothers looking around.
The fact we don’t admit it doesn’t mean it’s not true.
Best Regards,
Graham Summers
PS. If you’re worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.
I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).
Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Federal Reserve, Financial System, Fraud, Government, Money |
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Are Resentment, Frustration And Anger The Defining Feature Of The New American?
Resentment, frustration and anger are now ubiquitous features of U.S. culture. This is the consequence of several factors, none of them positive.
“Horn broken, watch for finger.” This bumper sticker perfectly captures the zeitgeist of the nation: the horn is broken, and everyone is giving everyone else the finger.
Why are simmering resentment, frustration and anger now ubiquitous features of U.S. culture? I would posit the following factors:
1. A culture of entitlement: the U.S. is now a culture of takers obsessed with getting their “fair share” of the swag/borrowed money. “We were promised!” (public employees); “I earned it!” (Social Security recipient, though only the first 3-4 years of benefits are drawn from his/her contributions, and everything after that is welfare drawn from the hides of current workers); “healthcare/income security/housing is a right!” (everybody’s got rights, but nobody seems to have any duties or obligations); “it’s for the children/elderly!” (that is, my expense account, million-dollar pension, etc. are nominally protected by the banner of “education” and/or “healthcare”), and so on.
Those with access to “private welfare” such as CEOs are a privileged class; most of us have to elbow our way to the crowded public trough. The truly select feed at the Wall Street trough, which combines private welfare skimmed from shareholders and investors, and Central State welfare issued in unlimited billions via bailouts, Fed purchases of toxic debt, backstops, loan guarantees, etc.
But like the story about the attractive young lady who blushingly agrees to share her favors for $10,000, but balks when the suitor downgrades his offer to a paltry $100 (with the punchline being, “We’ve already established what you’re willing to sell, now we’re just haggling over the price”), the recipient has sacrificed autonomy in accepting the entitlement, regardless of the source or size. This is how complicity to a host of embezzlements, corruptions and exploitations is purchased.
2. A culture of victimhood: Victimhood is rewarded, shouldering ones’ own load and thrift are punished. Like rats in a maze, Americans respond to incentives and disincentives: as a result, everyone is shouting out their claim to victimhood. The cacophony is reminiscent of a classroom of spoiled children all claiming excuses for their odious behavior and poor performance.
3. Unrealistic expectations: nobody wants to do demanding physical labor, so skilled-craft jobs go begging and companies have to train workers. Favored careers include sports heroes, Web entrepreneurs (as long as the work isn’t too arduous and the cashout comes quickly), entertainers, film makers, etc.–all highly desirable and all scarce in the real world.
Offers which don’t meet Americans’ lofty expectations of their market value are rejected with a sniff (and good old American optimism: “something better will come along soon”).
Numerous financial websites offer up fare such as “how many millions do you need to retire comfortably,” as if saving hundreds of thousands of dollars is even an option for the vast majority of wage-earners.
4. Hype, hypocrisy and propaganda dominate the nation’s politics and mainstream media: soaring rhetoric about growth, recovery, the American can-do spirit, the benefits of bailing out the Financial Power Elite, etc. have raised expectations that have repeatedly been dashed by reality.
All these relentlessly glad tidings and admonishments flow from the rentier-cartel Power Elites of the State/Plutocracy partnership, which owns the MSM (mainstream media) and most of the nation’s productive wealth.
Thus we get billionaire Charlie Munger (one of a pair of outstanding hypocrites at his firm) suggesting that “the little people” need to “suck it in and cope,” leaving him and Warren to the task of reaping billions more from ongoing taxpayer bail-outs of firms they bought into with State collusion.
The announcement that the Great Recession is over is simply the latest in an unending line of increasingly meaningless pronouncements transparently designed to persuade the public that everything’s really, really getting much, much better, and their sour mood in the face of this outpouring of “good news” is irrational and, well, downright annoying. Get with the program, people! Everything’s going great! (at least for billionaires who were offered Goldman Sachs shares at the bottom.)
5. It’s somebody else’s fault: you can fill in the perps, but leave the American public/consumer/voter as hapless, helpless victims of nefarious forces.
6. The frustration of addicted debt-serfs: We hate the nation’s political class and the “up yours” service provided by Corporate America, but we are seemingly powerless to rid ourselves of these Overlords and leeches. Voters rail against dysfunctional insiders, yet they re-elect the craven parasite in their own district. They complain about cable TV providers but don’t cancel their service lest their addiction to the smack/coke cocktail of TV be curtailed.
7. The 30-year erosion of the middle class: this chart says it all:
Image: oftwominds.com
The middle class filled the growing gap between stagnant earnings and steep increases in living costs, healthcare (a.k.a. sickcare), education, and housing with a second income (Mom, aunty, sister and Grandma all entered the workforce en masse) during the 1970s, and then they filled the still-widening gap in the 80s, 90s and 2000s with ever-expanding debt.
The dot-com bubble provided the illusion that permanently rising equities would painlessly fill the gap (pension plans were happy to join in the mass delusion). When that fantasy imploded, it was quickly replaced with the exact same fantasy, only this time based on housing.
Now that the “housing never goes down” fantasy has imploded, the dwindling remains of the once-great middle class are slouching dejectedly through the ruins of the political center (which cannot hold because there is no center, only a State/Plutocracy Elite and a rabble of State dependents defending their fiefdoms), filled with bitter resentments at this undeserved plight–for isn’t this the Greatest Empire the World Has Ever Known?–beset by anxieties about the rough beasts (let us call them austerity, restraint, humility, responsibility, patience, sacrifice and thrift) whose hour has come round at last.
And just to end on a lighter note:
Special bonus quotes drawn from our extensive list at the bottom of the main blog page:
“But we are told that we need not fear; because those in power, being our representatives, will not abuse the powers we put in their hands. I am not well versed in history, but I will submit to your recollection, whether liberty has been destroyed most often by the licentiousness of the people, or by the tyranny of rulers.
I imagine, sir, you will find the balance on the side of tyranny. Happy will you be if you miss the fate of those nations, who, omitting to resist their oppressors, or negligently suffering their liberty to be wrested from them, have groaned under intolerable despotism!
Most of the human race are now in this deplorable condition; and those nations who have gone in search of grandeur, power, and splendor, have also fallen a sacrifice, and been the victims of their own folly. While they acquired those visionary blessings, they lost their freedom.” (Patrick Henry)
“We must believe in luck. For how else can we explain the success of those we don’t like?” (Jean Cocteau)
“Do you know what amazes me more than anything else? The impotence of force to organize anything.” (Napoleon Bonaparte)
“The man who has a garden and a library has everything.” (Cicero, via Lee Bentley)
“During times of universal deceit, telling the truth becomes a revolutionary act.” (George Orwell)
“Everyone thinks of changing the world, but no one thinks of changing himself.” (Leo Tolstoy)
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Financial System, Government, Jobs, middle class, Money, wealth, welfare |
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Why The Fed's Policies WILL Collapse The Economy
“And you need not go further than one of our stores on midnight at the end of the month. And it’s real interesting to watch, about 11 p.m., customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs,and continue to shop and mill about the store until midnight, when electronic — government electronic benefits cards get activated and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher.
“And if you really think about it, the only reason somebody gets out in the middle of the night and buys baby formula is that they need it, and they’ve been waiting for it. Otherwise, we are open 24 hours — come at 5 a.m., come at 7 a.m., come at 10 a.m. But if you are there at midnight, you are there for a reason.”
This is why it can’t work folks.
In a credit-driven monetary system, you can only get “inflation” (in the truest sense, where it flows through to wages and prices, thereby debasing – that is, helping – people pay down indebtedness) if there is credit expansion.
But when the limit of credit expansion is reached (which is known – when “QE” by whatever name is initiated, you’ve reached that point, as you are then artificially trying to create credit expansion that you are unable to stimulate otherwise) further machinations of this sort do nothing other than bankrupt the population.
That is, there is no flow-through to wages. Price for essentials go up (energy, food, diapers, etc) but earnings capacity in real after-tax dollars decreases instead of increasing as occurs in a true inflationary environment.
You’ve all seen this. The 2qt Ice Cream tub is now 1.5qts. Price inflation. But your paycheck hasn’t gone up 25% to compensate.
The upper middle class and above is “unhurt” by this. Oh sure, they feel the pinch too, but in the broader sense it doesn’t do much damage to them, in that they still have surplus. So long as you have surplus, you’re “ok” in the general sense (you might not like it, but you at least can put gas in the car and food in your kid’s mouth!)
The working person, and especially the lower-middle class and below, are decimated by these sorts of policies.
Because capital formation is destroyed by ZIRP, these people have no job opportunities. Without capital formation there are no new businesses formed to create jobs. Without that employment there is no income to spend. The price-cram inflation that manufacturers try to hide with quantity games and similar doesn’t matter, as your baby still poops the same number of diapers, so if you get six less in a package, you need to buy more packages. The price-per is what matters, not the price on the wrapper, and your income goes down.
We can’t stabilize the labor market until we shut off the ZIRP tap. We cannot export our wage deflation to China, because it winds up reflecting here and destroys the capability for Americans to earn a decent wage. At the same time despite claims of “zero inflation” food, energy and other essentials continue to skyrocket in price.
If you doubt this problem is real go to a WalMart in any major city on the last day of the month around 11:00 in the evening. Hang around for an hour. Notice who’s in there and who goes for the checkstand when the clock ticks over.
These folks know better than anyone, due to their superior IT technology and ability to track sales down to the UPC, along with time of the sale and who’s buying, exactly what’s going on. When they tell you people are so broke they can’t afford a package of diapers until the “magic card” with “government cheese” turns back on at 12:01, you better listen. They’re not BSing you.
I’ve written on this for three years, and have pointed out that debasing the dollar will not help – it will in fact destroy the middle class and below instead. We got a short reprieve from the dollar debasement occasioned by the equity collapse in 2008 and early 09, but now we’re in the phase where instead of engendering support for the stock market a dollar decline will crash valuations instead.
Competitive devaluation cannot work, as we do not control the world. When we do it the rest of the world will respond by doing the same thing. All we do is tighten the vise – actual help for the population is not in the offing from these policies. “Begger Thy Neighbor” – exactly what we are attempting to do now - was a big part of why The Depression lasted 10 years, and it is also a big part of why it ended in a World War.
Nothing has changed folks. I said in 2007 that the only way out of this was to pull liquidity and force the bankrupt to take their medicine, whether we wanted to do it or not. It doesn’t matter if the rich and powerful banksters “think” this is a bad idea, mathematically it is not possible to inflate out of this, nor to stabilize the economy with ZIRP and QE. All we’ve done is enable the federal government to temporarily paper over the insolvency of half the population (and all of the major banks) by borrowing and spending 12% of GDP, building in even more damage that now has to be corrected and ensuring that even more pain must be suffered.
Posted in Collapse, Debt, Economic Crisis, Economy, Federal Reserve, Financial System, Government, Money, zero interest rates, ZIRP |
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proudly supports:
Bill Still For President
for Congress
Michigan 11th District
By Bill Still
There is only one answer for the world economic situation; monetary reform.
1. No More National Debt
2. No More Fractional Lending
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