FedUpUSA

Archive for April, 2011

One of the most troubling aspects of this “recovery” is how it is being achieved.  We keep hearing about the wonderful Wall Street recovery yet a large portion of this is being created by extracting productivity from workers and stifling wages.  Obviously if you scare the working and middle class and give them no job protection then many will retreat to their dark corner.  Yet the reality is, these same companies are borrowing at subsidized rates from the Federal Reserve and using the taxpayer as a safety net.  This economy is operating under a reverse Robin Hood effect where you steal from the poor and working class and redistribute the wealth to the top.  The political class does not represent the people because as things stand, money buys power and many more Americans are losing their voice since they do not have funds to purchase lobbyists.  The below chart is one of the more disturbing confirmations of our disappearing middle class.

The low wage recovery

Source:  NELP

This chart sums up our current recovery in one picture.  We lost over 3,500,000+ higher-wage jobs during the recession and so far, we have added 179,000. The mid-wage sector has lost over 3,200,000+ jobs but has added 458,000.  More troubling however, is that 2,000,000+ jobs were lost in the lower-wage fields and this is where the bulk of the current economic growth is occurring with 613,000 jobs being added in this sector:

“(Huff Po) While the recovery of the labor market and the broader U.S. economy depend critically on job growth, equally important is the quality of those jobs. During the economic downturn, 40 percent of the jobs lost came from high-wage industries — yet high-wage industries accounted for only 14 percent of the new positions created in the first year of post-downturn job growth, according to a report released in February by the National Employment Law Project.”

You don’t have to look far to see this playing out.  Take a look at two states that had some of the biggest housing bubbles in the country:

“Construction and finance, sectors which boast a median hourly wage of roughly $20, were among the hardest hit during the downturn. By contrast, about a fifth of all new jobs are being generated in the administrative/support, waste management, and remediation services industries and they offer a median hourly wage of $12.91. And many of those jobs are temporary positions.”

These jobs that pay $20 or more are now being replaced by jobs that pay $9 to $12 an hour.  So even though we are adding jobs the quality and pay of those jobs is not exactly helping grow the middle class.  This is likely only to be shocking news for the top 1 percent who has no connection to the working and middle class.  Half of all workers make $25,000 a year or less.  This isn’t a new development but a trend that has been going on for well over a decade.  Many are getting a hard taste of this new forced austerity:

“Since 2008, Goscewski has altered the way she lives in the city, cutting back on her subscriptions to cultural institutions in New York and other luxury items. Her perception of herself has also changed, she said, as her hours with the support group have put her in close contact with “a whole new group of people.”

“It’s really seeing things from the street, as opposed to from the 21st floor of a skyscraper. And I find I’m not entirely opposed to it, because I find the street–” Goscewski paused. “I think I’m shifting values over time.”

There is no longer any other bubble to make up for the lost wages here.  In fact, the last two decades benefitted from the technology and real estate bubbles.  Yet current job growth shows no high-wage job growth (aside from CEOs earning 840+ times the annual household income for bankrupting and foreclosing on Americans):

Source:  NELP

The fact of the matter is we have very little protection for working and middle class Americans.  The wealthy and financial class has access to near zero percent loans from the Federal Reserve and VIP programs that cater to this small group.  The wealth inequality is happening not because all ships are rising because of a financially positive tide, but because companies and financial institutions are squeezing out productivity and pennies from the majority of Americans to bolster their bottom lines.  Americans are being held as financial hostages:

“The reality is that a number of people are experiencing downward mobility,” said van Horn, the Rutgers labor economist. “Depending on where they started on the economic ladder, that downward mobility can be somewhere from inconvenient to actually pushing them into poverty.”

“Our economy was in trouble before the recession — we were sitting at the end of 30 years of growing inequality,” Bernhardt said. “So we were already at a point where there was a real challenge for many workers in the U.S. in terms of finding living-wage jobs and sustainable careers. The Great Recession clearly did not reverse that trend. If anything, it’s accelerated it.”

This is demonstrated by looking at productivity gains:

Source:  BLS

What you see is for the last three decades really, starting in the 1980s that productivity has been going up yet real wage compensation has been going down.  So as you hear about all those great profits from banks remember that it is happening on the backs of the working class:

“It’s depressing. It is extremely depressing. Especially when you leave interviews, and you just know you’ve got this one. And then you don’t, again,” Island said. “You definitely take a look at all the extras that you have in your life. You start finding that instead of needing 150 cable channels, you only need the package that gives the basic. You don’t drive as much. You clip coupons. You worry.”

The financial elite have lobbyists, bought out politicians, and the central bank in the Federal Reserve for crying out loud.  What does the working and middle class have?  Until they stop believing they are temporarily embarrassed millionaires people will remain comfortable and keep changing the captains of the Titanic.

My Budget360

Wynn Resorts CEO on how to get businesses hiring again, national debt:

There are two economies–the real one, which is in decline, and the “let’s pretend” one touted by the State and corporate propaganda machines.

Children love to play “let’s pretend.” Let’s pretend the economy is “recovering.” Why does this “recovery” remind me of an addict who’s conning his caseworker? (Yes, I’m really in recovery–those aren’t tracks, they’re insect bites….)

Let’s play pretend that jobs are really really coming back, so please ignore this chart, or turn it upside down:

Also ignore that Big U.S. Firms Are Shifting Hiring Abroad.

Let’s pretend that households, corporations and government are reducing their debt. To do that, we have to ignore that the debt-junkie (i.e. the U.S.A.) hasn’t kicked the monkey off its back, it just keeps feeding it more debt. David Stockman dismantled all that propaganda about corporations sitting on trillions in cash–they’re sitting on even bigger piles of debt: Federal Reserve’s path of destruction. He also takes out the claim that “consumers are deleveraging.” Consumer debt has barely budged.

Never mind, let’s pretend we’re deleveraging. So please ignore this chart:

Excuse me but that cute little debt monkey on your back is actually an 800-pound gorilla.

Let’s pretend that wages are rising. Except they aren’t–household income is getting creamed. Real wages are back to the pre-dot-com bubble days of 1996–only the debt load on households and the nation have skyrocketed since then.

Courtesy of the always insightful Oil Empire and Peak Oil, here is a chart of the ratio of wages to gasoline:

Put another way: this is your wage priced in gasoline. Notice how wages tanked when oil hit $140/barrel in the summer of 2008, and how the brief plunge in oil around Q1 2009 caused a spike in the ratio. Now that the Fed is destroying the U.S. dollar, then oil is back over $100 and well on its way to $120 and higher.

Let’s pretend your purchasing power isn’t in a free-fall. Have you eaten an iPad recently? Yum, crunchy!

Let’s pretend unemployment is falling. The only way to make losing 7 million jobs look good is to ignore this chart of the ratio of civilian employment to population. The ratio is back to the 1970 level, back before Mom, Sis and Aunty all went to work. This means there are fewer people working to support the population. Fewer workers means higher taxes on those still standing, and higher debt loads on them, too, as they have to service household debt, student loans, underwater mortgages and a Federal debt that’s exploded higher by $1 trillion a year just since the “end of the recession.”

Let’s pretend corporate profits are the most important metric of our financial well-being.

Who benefits from the surge of corporate profits to record levels around $1.6 trillion, or 11% of GDP? The 21 million employees of global Corporate America certainly do, but then they represent about 16% of non-farm employment, roughly in line with government employment (22 million).

Too bad Global Corporate America is hiring where the growth is faster and the wages lower, i.e. overseas (Big U.S. Firms Are Shifting Hiring Abroad).

Let’s pretend those great profits trickle down to the greater good. Only they don’t. Corporate taxes (around $330 billion annually) cover less than 10% of Federal expenditures (Federal Budget 2009) and despite those record profits–surprise, Corporate Tax Receipts Plunge 31% in Q1.

The tax avoidance Panzer divisions of Global Corporate America are simply unstoppable forces of Nature, it seems. Corporate welfare queens never had it so good.

But let’s pretend those profits increase the wealth of a broad spectrum of citizens. Oops, the top 5% of households collect 72% of the corporate profits.

In Who Rules America?, Sociologist G. William Domhoff draws an important distinction between the net worth held by households in “marketable assets” such as homes and vehicles and “financial wealth.” Homes and other tangible assets are, in Domhoff’s words, “not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale.”

Financial wealth such as stocks, bonds and other securities are liquid and therefore easily converted to cash; these assets are what Domhoff describes as “non-home wealth” on his website Wealth, Income, and Power.

As of 2007, the bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7% and the top 20% held fully 93%.

Never mind that, let’s pretend the corporate profits trickle down via the “wealth effect” to pension funds that benefit workers everywhere. Too bad that according to the Fed flow of funds data, this rousing, raging Bull Market in stocks fueled by stupendous corporate profits has only brought total pension fund assets back to their 2007 level: $13.3 trillion in 2007 and $13.1 trillion in 2011.

Adjusted for inflation (as measured by the Bureau of Labor Statistics), the pension assets would have to be over $14.3 trillion just to stay even with their value in 2007. So pension funds have actually declined by over $1 trillion in real dollars in the Great Bull Wealth Effect.

So the wage earner’s pension assets have actually fallen. We got your wealth effect right here, buddy, right next to the “recovery.” And the check’s in the mail, we promise.

How much longer are we willing to play “let’s pretend”? Eventually we’ll have to return to the grown-up world and deal with reality.

Of Two Minds

So much for “higher commodity prices won’t do anything.”

In the week ending April 16, the advance figure for seasonally adjusted initial claims was 403,000, a decrease of 13,000 from the previous week’s revised figure of 416,000. The 4-week moving average was 399,000, an increase of 2,250 from the previous week’s revised average of 396,750.

Still have that “4″ handle don’t we? This ought to put a cap on the claims of “job growth”; claims numbers in the low 300,000s are consistent with that, not numbers near or above 400,000.

What’s worse is that extended benefits are now starting to run out “en-masse” across multiple states. The reason for much of this is technical in how eligibility is computed – many have a “x% rate over the 12 or 24 month ago rate”, and now that joblessness has become endemic over an extended period, those extended benefits no longer apply.

The first-week of “hopefulness” is reflected in the “big table” (which is a couple of weeks behind the headline number); don’t expect the “nice” number reported here to be sustainable. It’s not, given the last two week’s reports.

What’s driving this? Commodity prices. At the margin ramps in commodities, especially gasoline, causes a huge problem for consumers and ultimately knocks many in the lower economic strata off the horse. When you’re making $10/hour and it costs you an hour of work to get to and from your job, as is the case for many with less-efficient, older vehicles (all they can afford) living at some distance from their job, there’s a breaking point where you simply can’t afford to go to work any more.

I know what the greenies will say: Move closer to work. That’s a nice sentiment, but you might want to think about how you execute on that when you’re living in a house that’s underwater $30,000 and thus you can’t sell it to make that move.

The vise tightens ever-further on the lowest two quintiles in our economy the longer our idiotic monetary and fiscal policy continues in what has thus far and will ultimately prove to be a futile attempt to cover up the raw insolvency of Wall Street mavens.

The Market-Ticker

The guilty are powerful and free, the innocent burdened and oppressed: that is injustice.

There is a fundamental injustice that is poisoning the soul of the nation, and if it is not openly addressed then the nation will face the explosive consequences of institutionalized injustice.

Simply put, it is this: those responsible for the nation’s financial crisis and its catastrophic after-effects are not paying for the consequences of their actions–it is the innocent, those who were not responsible, who are paying the price.

You can call it whatever you want: the Anarchy of the Super-Rich (as per Paul Farrell), the Financial Power Elite, the financial Oligarchy, Plutocracy or Corporatocracy, or the unprecedented concentration of financial wealth and political power in a financialized post-industrial economy. Whatever you call it, we all know this class of financiers and its minions got away with high financial crimes.

Do the crime, do the time–unless it’s “white-collar” financial crime on a vast scale. Then you might pay a wrist-slap fine (a few million dollars from your treasure of embezzled hundreds of millions) and then you’re free to go on your merry way.

The after-effects are not just the losses which can be totalled on a calculator: the really catastrophic losses are to the foundations of democracy and the economy. Democracy has been subverted–oh please, spare us the happy-story propaganda about “reform” and “the system worked”–and the economy has been incentivized to favor poisonously addictive financialization and the shadow institutions of corruption, fraud, embezzlement, favoritism, collusion and misrepresentation of risk. This might be summarized as the protection of vested interests, engineered and overseen by the partnership of the ever more intrusive Central State and the nation’s Financial Power Elite.

The Central State, designed to protect the citizenry from an oppressive monarchy or Elite, now protects this Elite from the citizenry. That is how thoroughly the injustice has been institutionalized.

There is a second part to this fundamental injustice: look who will pay for the bailouts, guarantees and the interest on the borrowed trillions. Not the banks and bankers, to be sure. Who will pay? Those who the Central State can easily tap: taxpayers who earn most of their income from wages, and those politically weak players dependent on government payments.

Now that the bills of the bailout are coming due, the State isn’t going after GE for more taxes. Heavens no–if you try that, the Panzer Division of GE’s tax avoidance army would overrun you. No, the politically easy thing to do is raise taxes on wage earners and trim entitlements, because all the government needs to do is send down the orders and it is done: the taxes are withheld and the bennies trimmed.

To go after the Power Elite is just too difficult. They have the tax attorneys, the lobbyists, the campaign fundraisers, and all the rest.

The U.S. is just a third world kleptocracy on an Imperial scale. I explored the parallels with the Roman Empire in Survival+: the Elites increasingly avoided military service and taxation, the bedrock of Roman power, while the taxes on the middle class rose to such heights that this productive class was basically driven into serfdom. The bottom layer of State dependents was placated and made complicit with bread and circuses–yes, Rome had a vast “welfare state” and much of Rome’s population received free bread to keep them quiet and pliant.

That is of course a road to ruin: let the Elite plunder at will, protected by the Imperial Central State, tax the productive class to fund the armed forces and free bread, and then buy off the lower class with bread and circuses.

The only successful model of reconciliation and justice we have is the “truth commissions” in other post-oppression autocratic kleptocracies. In countries that were deeply divided and poisoned by institutionalized injustice and exploitation, the healing process requires a public, transparent “truth commission” in which the guilty are brought forth to confess their sins against the innocent and face the consequences of their actions.

If a society cannot rouse itself to cleanse the fundamental injustice at the heart of its institutions, then it is effectively choosing self-destruction.

So far, the U.S. is pursuing the Roman Imperial model with an institutional zeal unmatched since Rome’s fall.

Embedded institutional injustice has a price, a price which rises with every passing day of propaganda and prevarication. Some day the bill will come due and a terrible price paid in full. For those in power, the only concern is that it not be today or tomorrow.

Of Two Minds