Archive for December 27th, 2010
And quite the ray of sunshine he was.
William Black, associate professor of economics and law at the University of Missouri-Kansas City, talks about the outlook for the U.S., European and Chinese economies.
Black speaks with Carol Massar on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)
Running time 10:50
As the middle class in America continues to be slowly wiped out, the number of working poor continues to increase. Today, nearly one out of every three families in the United States is considered to be “low income”. Millions of American families are finding that they can barely make it from month to month even with both parents working as hard as they possibly can. Blue collar American workers from coast to coast are having their wages decreased at a time when it seems like the cost of virtually every monthly bill is going up. Unfortunately, there is every indication that things are only going to get worse and that average American families are going to be financially squeezed even more in the months and years to come.
The Working Poor Families Project has just released their policy brief for the winter of 2010-11. What they have discovered is that the number of working poor in the United States is higher than they have ever seen it before and it continues to increase at a staggering pace. The following are some of the key findings for 2009 that were pulled right out of their report….
* There were more than 10 million low-income working families in the United States, an increase of nearly a quarter million from the previous year.
* Forty-five million people, including 22 million children, lived in low-income working families, an increase of 1.7 million people from 2008.
* Forty-three percent of working families with at least one minority parent were low income, nearly twice the proportion of white working families (22 percent).
* Income inequality continued to grow with the richest 20 percent of working families taking home 47 percent of all income and earning 10 times that of low-income working families.
* More than half of the U.S. labor force (55 percent) has “suffered a spell of unemployment, a cut in pay, a reduction in hours or have become involuntary part-time workers” since the recession began in December 2007.
Unfortunately, things are not going to be getting any better for the working poor. In the new “one world economy” that our politicians keep insisting is so good for us, millions upon millions of American workers now find that they have to compete for work with laborers on the other side of the globe that are willing to work for slave labor wages. This is causing millions of jobs to leave the United States and it is forcing wages down.
Millions of Americans now find that they are making substantially less than they used to. If that has happened to you, perhaps you can take comfort in the fact that you are not alone. Or perhaps it is not that comforting. In any event, American workers are not just competing with each other anymore. Now there is the constant threat that all the jobs could just be sent overseas.
As wages are forced down, a record number of working Americans are finding themselves forced to turn to food stamps and to other government anti-poverty programs. Millions of Americans have been forced to take part-time jobs in order to supplement their incomes. Millions of others have been forced to take part-time jobs because that is all they can find.
This is all part of a long-term trend. The numbers don’t lie. About the only people doing well are those on Wall Street and the very rich. Nearly every other segment of the population is getting poorer.
The following are 10 statistics that I have shared previously, but I think that they do a really good job of highlighting the plight that the working poor in this country are now facing….
#1 In 2009, total wages, median wages, and average wages all declined in the United States.
#2 Since the year 2000, we have lost 10% of our middle class jobs. In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs. Meanwhile, our population is getting larger.
#3 As 2007 began, only 26 million Americans were on food stamps, but now 42 million Americans are on food stamps and that number keeps rising every single month.
#4 Since 2001, over 42,000 U.S. factories have closed down for good.
#5 One out of every six Americans is now enrolled in at least one anti-poverty program run by the federal government.
#6 Half of all American workers now earn $505 or less per week.
#7 The number of Americans working part-time jobs “for economic reasons” is now the highest it has been in at least five decades.
#8 Ten years ago, the United States was ranked number one in average wealth per adult. In 2010, the United States has fallen to seventh.
#9 In 1976, the top 1 percent of earners in the United States took in 8.9 percent of all income. By 2007, that number had risen to 23.5 percent.
#10 According to one recent study, approximately 21 percent of all children in the United States are living below the poverty line in 2010.
The United States is becoming poorer as a nation even as the boys up on Wall Street are busy grabbing a bigger share for themselves.
We are rapidly becoming a nation that will have a very small privileged class of ultra-wealthy and a very large class of “workers” that is just barely trying to survive.
So is the answer even more government handouts and even more government social programs?
Of course not.
What middle class Americans need are middle class jobs.
But as I have written about previously, the United States is rapidly bleeding middle class jobs with no end in sight.
Globalism has permanently changed the game. The middle class way of life that so many millions of Americans have been enjoying for so many decades is disappearing.
Just because things were a certain way yesterday does not mean that things are going to be the same way tomorrow. The long-term economic trends that this column keeps talking about day after day after day are taking us all to a very dark economic place.
But instead of facing reality, our federal government, our state governments and our local governments just keep borrowing massive amounts of dollars to try to paper over all of our problems.
It is not going to work. Unless something is done to fix our structural economic problems, the economic decay is just going to get worse and all of this debt is eventually going to collapse our entire financial system.
If you are a member of the working poor I wish I had better news for you. Things are not going to be getting better, and unfortunately millions more Americans will probably be joining you soon.
I hope you’re ready.
This, incidentally, is one of the items in my Year End Ticker due out in a few days.
The Chinese raised rates over the holiday, and their market sold off to the tune of 2%, after being reasonably-stable in early trade. The futures this morning are down fractionally, with Europe getting hit a bit. A foot of snow isn’t bringing people into work on the East Coast, of course, which will certainly mute trade some today during a week that is usually very light in volume to begin with.
The fatal error that Bernanke has committed is about to become clear: ZIRP can only “work” in a world where the entire world is ZIRP, or close to it. If it’s not then you get capital flight. Japan found this out the hard way and became a funding currency for a “Carry Trade”, but they had a huge buffer in the form of personal savings. That’s now gone, and yet they have been unable to exit their zero interest policy, and in fact have continued to “buy” (monetize) various “financial assets” in a futile and desperate effort to “normalize” their economy.
Ultimately lawmakers and citizens may figure it out: ZIRP, and indeed all of Fed Policy for the last three years, has had nothing whatsoever to do with the general economy or the common weal of our nation, and has been focused on only one point – attempting to prevent recognition of the insolvency of virtually every large financial institution in The United States.
Incidentally, for those who think I’m nuts, it is a matter of record that the same thing happened under Volcker – and he explicitly told the big banks (especially Citi) that he’d let them lie – for a while. But he also told them that if they didn’t clean up their crap that he’d eventually run out of the ability (or willingness in Congress and elsewhere) to do that, and if he did before they cleaned up their act they’d be toast. They did, and he did, and the deception remained “hidden” for more than a decade.
Today it’s different. The banks have been given no timeline to clean up their crap. Instead Bernanke has engaged in the most-outrageous action of any central banker in the last 100 years and perhaps of all time, literally monetizing more than two trillion dollars of government debt as a means of trying to keep the grand Ponzi Scheme alive.
He will fail. He must fail for one reason above all others – the banks have refused to take down their leverage and sell off their crap. Instead they have gone back to their old compensation metrics, paid out over $100 billion in bonuses and wages in the last year, and have extorted Congress and FASB to make legal intentionally-bogus marks on assets that have no relationship to their current value (or any reasonable expectation of future value!)
Tom Coburn has raised the spectre of what he claims is a “8-9% decline in GDP” if we “don’t tackle our unsustainable fiscal situation.” Uh huh.
Tom ought to pay attention to this:
-8% GDP eh? We’ve been running that now cumulatively for three years on, faking economic “growth” via debt issuance (just like whipping out the credit card after losing one’s job) and there is no sign that the government intends to stop it.
8-10%? You’re insane Tom. There’s a nearly 30% embedded GDP distortion in the system right now! I warned of this back in 2007 but then, of course, nobody wanted to hear it. Nobody still wanted to hear it in 2008, or 2009. No, we were too concerned about making damn sure that a handful of rapacious banksters that, I’d argue, should all be in the dock facing multiple felonies got to keep not only their past “bonuses” but also (and far worse) got to keep up with their BS games!
The record in this regard in terms of the facts, and that I’ve been publishing them for the last three years, is clear. And no, Tom, we don’t have “three or four years” to deal with it – we’re already in the hole 30% in terms of where our GDP needs to contract to in order to come into balance with our actual productive output, and if we don’t cut this crap out now we’re not going to face 18% unemployment and a 10% contraction in GDP, we’re going to face an economic collapse with “official” unemployment north of 20%, U6 north of 30% and we’ll be lucky if our economic and political system do not fail outright.
Cut the crap Tom. The forced choices are here now, not three or four years out.
We’re able to choose serious pain (as opposed to collapse) today.
In three or four years, that choice will have expired.
Retirement account fantasy and middle class erosion – 1 out of 3 Americans has zero dollars in a retirement account. From 1950 to 1989 top 1 percent earned roughly 7 to 8 percent of nationwide income. Today it is inching closer to 20 percent resembling pre-Great Depression levels.
Many Americans live precariously close to the edge of financial insolvency flirting with economic disaster daily. If you casually browse mainstream articles and watch any amount of television you would think that the US still had a vibrant and strong middle class. When we pull back the covers on the current financial situation we realize that many Americans are merely getting by and many would like to live in some 1984 Orwellian fantasy world where suddenly things are back to financial equilibrium. 43 million Americans are depending on government food assistance to get by. But many more millions are merely living paycheck to paycheck hidden in the cellar of the headlines. 1 out of 3 Americans has zero in any retirement account (not one slowly eroding dollar). Half of Americans have $2,000 or less which puts them one month away from needing government assistance. With the volatile job market and turbulent Wall Street middle class Americans are feeling the once prided stability being slowly washed away. Let us examine how retirement is now becoming more of a fantasy for many Americans.
Many Americans especially young adults realize that saving large amounts of money is a key to a sustainable retirement:
Over 84 percent of 18 to 29 year olds surveyed feel they need at least $1 million saved up in order to stop working some day. 60 percent of those 30 and older feel that they will also need $1 million saved up. Yet the actual figures are somewhat disturbing in contrast to the perceptions of many:
The median retirement account for US households is $2,000. This is why the vast majority of retirees depend on Social Security as their primary source of funds in old age even though Social Security was never designed to be a long term pension system. You’ll notice that the average retirement account is closer to $50,000 a year but this is heavily skewed by the top 1 percent that keep most of their funds in stock wealth.
The reason retirement is slipping through the fingers of many like sand is the disjointed income equality in the country that has grown in the last decade. If we look at income growth it has been heavily tilted at the top:
Source: Census, Chart: Wikipedia
There has been virtually no real income growth for most Americans. The real significant wage growth over the last 50 years has occurred at the very top 10 percent of income earners in the country with this inequality accelerating in the last bubble decade. What is more important is that 75 percent of Americans largely depend on a job as a primary source of income which seems rather obvious:
Source: Federal Reserve
If you examine the chart closely, it is only the top 10 percent that really benefit from a buoyant and thriving stock market. As we have mentioned earlier 1 out of 3 Americans has zero, nada, or zilch in their retirement account. The movement of the stock market is like watching the score of a football game where the outcome means nothing to the individual. Yet the problem is that Wall Street has taken the one item that was stable like a rock for Americans, housing and turned it into another commodity to be gambled and speculated against.
“From 1950 to 1989, nearly 40 years of data the top 1 percent earned roughly 7 to 8 percent of all the nationwide income. Today it is inching closer to 20 percent, a figure resembling the massive income inequality seen during the Great Depression.”
Even within the top 1 percent the difference in incomes is striking:
This kind of income inequality is coming at the cost of the middle class. Banks and the financial press would like you to believe that this isn’t the case but just look at how far your dollar is now going. If you are fortunate to have a retirement account it is likely you don’t have the gambling devices of options, hedges, and other items that are largely new casino devices for Wall Street. Most Americans are comfortable with income discrepancies but not at these levels and not when much of the gains are based on bets that hurt the overall economy.
The problem as many are now seeing is the financial sector is largely rent seeking by pilfering the future of many middle class Americans. The banking system extracts wealth by devaluing the US dollar, by charging interest or fees on retail banking, and ultimately suckering many Americans to dump money into a stock market that is operated like a casino. Washington Mutual, a once popular bank used to offer free checking for life. JP Morgan Chase took over Washington Mutual in a government shotgun wedding. Now, Chase is looking to extract $10 to $12 per month merely for having a checking account. Of course they’ll waive this if you have $5,000 saved in a handful of their accounts. Look above again. 1 out of 3 Americans have no savings so how will this be accomplished?
The above chart will only continue to show expansion. Where will all this money come from? We have a smaller workforce with the young that are already having a tough time saving any money in this economy. Many of the good paying jobs of today require a college education and college has largely entered its own student loan bubble. Many of the future middle class are merely trying to service their own massive debt even before they begin their careers. To save that $1 million will become a daunting task moving forward. Also, if the Federal Reserve has its way $1 million 30 or 40 years from now may not be much.
With 17 percent of Americans unemployed or underemployed many are simply looking for that next paycheck let alone planning for a retirement where they can sip margaritas in some picturesque beach location. Wall Street has pilfered the pockets of the middle class through bailouts for their reckless gambling and incredible excess. Many Americans now understand this yet the current political class is merely interested in protecting the established plutocracy by pillaging the American village. Most Americans are becoming exhausted by both political parties and their pandering to Wall Street that provides a revolving door of money, jobs, and connections.
The younger generation is seeing their ability to grow their net worth diminishing:
This figure has only dropped even further in the last few years. Retirement was once thought of as a place where one would reach a comfortable existence after many years of hard work. Not an extravagant lifestyle but one in where a home was paid off and enough money came in for food and daily necessities. But now with Wall Street turning housing into a giant commodity and stripping bear the employment base of the country; many are wondering if retirement is even an option especially when the stock market is at the same level as it was one decade ago.
Ultimately what needs to happen is to get money out of politics and to split up commercial and investment banking. The answer is obvious but the plutocracy is relentless in keeping this game going as long as possible. As this continues, retirement will continue to look more and more as a fantasy to millions of Americans.
From Randall Wray @ Bengiza
It is time to push the reset button. All foreclosures should be stopped immediately. The REMIC trustees should be audited to see if they have properly followed the requirements of the PSAs and laws applying to REMICs. If they do not have the notes, the securities should be put back to the banks. If the banks cannot absorb the losses, they must be closed and resolved. The FDIC in turn will end up with the mortgage backed securities and underlying mortgages. Working with Freddie and Fannie, all of these should be modified, into new fixed rate mortgages—with a “clawback” to reset principle to current market value of the homes, and with new notes. Investors are going to take losses so there will be fall-out that government will have to address. There will be hundreds of billions of dollars of losses. Congress must find a way to mitigate effects on the economy as well as on investors in MBSs and other assets related to real estate. This is a big problem, but it is not insurmountable.
It is time to take this edifice and throw it in the trashcan, after forcing its members to fix all the titles they have damaged – at their expense – and record true and correct assignment information.
Oh wait – that’s a problem isn’t it….. what if the assignments never actually happened, and the REMICs hold an empty box? Why that could get messy….. Hmmmm….
I recently spoke with an attorney who is aggressively pursing these issues when his clients are faced with foreclosure, with some (and likely growing) success. He related to me that he spoke with the FCIC and was asked “Well, what is your solution? Are you asking that we nationalize all the (large) banks?”
If that’s not an admission that FCIC knows the large banks were and are complicit in this and if forced to admit the truth in their financial statements would be rendered insolvent I don’t know what is.
Note that the FCIC studiously avoided talking about this “wee problem” in their reports thus far, and now they’re “done.” Uh huh. That’s yet more willful blindness folks.
What did I say at the time?
Now we’re faced with having structuralized a $1.5 trillion annual budget deficit into the indefinite future while those who were “helped” by HAMP and similar programs are facing re-default a few months to a couple of years down the road. DTIs over 60% virtually guarantee that outcome. At the same time the holders of these notes were sold a bill of goods and eventually some of them will wise up to the fact that the so-called “bankruptcy remote trusts” that allegedly hold the paper (and thus immunize the banks that created them) are legally defective. Those holders, when (not if) they suffer actual principal and coupon loss, can be reasonably expected to pursue their remedies at law with the aim of voiding the trust and opening the assets of the creating financial institution to attack.
If this line of inquiry is pursued it is entirely possible that these trusts would in fact be voided, and the resulting exposure landing on the major financial institution balance sheets would render them insolvent.
You heard it here first.