FedUpUSA

Archive for May 26th, 2011

The brittle financial American middle class – 50 percent of Americans would be in financial trouble if $2,000 of expenses came up in 30 days. By 2020 the world’s richest households will control $202 trillion in wealth, 4 times current global GDP.

This economic recovery has excluded working and middle class Americans which begs the question, what really defines a financial recovery?  In past and distant recoveries the economic gains were widely distributed amongst all Americans.  Most realize that income gains will never be equal simply because in a market based economy those with certain desirable skills will be rewarded more than others.  Yet in the last decade the banking sector has co-opted the government to turn it into a welfare state for the large banks.  Desirable qualities are now replaced by predator diseased qualities of ripping off the taxpayer for bad market based bets.  That is why recent data showing that nearly 50 percent of Americans are unable to come up with $2,000 in 30 days if an emergency came up is startling.  $2,000 for most is the basic monthly expenses on food, home, and other little items.  So half our country is living one paycheck away from financial collapse.  44,000,000 Americans are living with food assistance from the government already.  Keep in mind the recovery has been going on now for close to two full years.  According to the NBER the recession was over in June of 2009.  The fact that $2,000 is enough to bankrupt half of American households tells you about the new state of our economic recovery.

Financially fragile

This is a recent survey and the implications are troubling:

“(WSJ) The survey asked a simple question, “If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?” In the U.S., 24.9% of respondents reported being certainly able, 25.1% probably able, 22.2% probably unable and 27.9% certainly unable. The $2,000 figure “reflects the order of magnitude of the cost of an unanticipated major car repair, a large copayment on a medical expense, legal expenses, or a home repair,” the authors write. On a more concrete basis, the authors cite $2,000 as the cost of an auto transmission replacement and research that reported low-income families claim to need about $1500 in savings for emergencies.”

The above data fits into the mold that average Americans are simply falling behind the elusive curve.  The average per capita income for the United States is $25,000.  People get somewhat surprised when they hear this figure because it seems low for the most wealthy nation in the world.  We invented Cribs and Lifestyles of the Rich and Famous for crying out loud.  Yet most that are surprised do not live in the bottom half and keep in mind many of these families are in the two income trap.  Meaning both spouses have to work in order to keep things moving financially:

Source:  Social Security

This brings up the question of recovery once again.  If half of Americans are teetering on financial disasters and all it would take is $2,000 in unexpected expenses, what do we really mean by a middle class lifestyle?  The last two years have not been supportive to the working people of America.  The large gains have gone directly to the top 1 percent:

Even with these kinds of gains the income is going to the wealthiest in our country because the current bailouts have rewarded those with large financial positions in stocks:

Now part of this inequality is merely the widespread pillaging of Wall Street on the American public.  The banking bailouts that occurred to an industry that turned housing, the largest net worth item for average Americans, into a commodity to be traded and exploited.  Most Americans derive their net worth from home values, not stock market gains.  So the 100 percent run-up of the stock market has done very little for the majority in the country (this can be seen by the Gallup 19 percent underemployment figure).  Do we think that those that are $2,000 away from financial ruin are loading up on stocks in their retirement accounts?  They are simply getting by.  This is why wealth inequality is now at levels last seen since the Great Depression:

The rich will get richer

An interesting report from Deloitte came out showing that over the next decade the rich in the world will simply get richer by using the current system that pillages the working classes around the globe:

Source: Zero Hedge

“(Zero Hedge) A new study by Deloitte confirms everyone’s worst fear (and every millionaire’s wettest dream): the wealth amassed by millionaire households is set to increase by more than 100% over the next 9 years. From a total of $92 trillion held by the world’s richest in 2011, by 2020 the world’s millionaire households will possess $202 trillion, or roughly 4 times current global GDP. Even though much of move up is attributed to the wealth surge in the developing world, the biggest beneficiary is, you guessed it, the United States where the millionaires (those with net wealth of at least $1 million), who currently account for $38.6 trillion of total wealth, will see their assets increased by 225% to $87.1 trillion! And while a comparable study of how much wealth the lower and middle classes are set to lose over the next decade, we are confident that it will be roughly comparable…inversely. So if anyone harbored any illusions that the current status quo was about anything but the rich getting richer, all those can be promptly swiped aside.”

The model of exploiting bubbles and financially ruining working and middle class families has worked so well that it is being applied globally by the wealthy and financially connected class.  Again the question becomes what do we mean by recovery?  Is it a recovery if the majority of American families are left in a financially destitute situation just to bailout too big to fail financial institutions to protect the wealth of the top one percent?  Keep in mind these are the individuals that have set fire to the economy and have put a match to the home equity of most Americans.  This is the system that is being protected but not for the majority.

Job growth in low paying fields

We would expect that a recovery would occur with good paying jobs dominating the new workforce.  That is not the case:

Source:  NELP

As you can see from the chart above most of the jobs being added in the recovery are from lower paying job sectors.  The middle class is seeing more and more strains being placed on their monthly budgets.  Trading good blue collar jobs in say building cars into burger flipping McDonald’s jobs.  Anyone that has followed the trends closely realizes that seeing 50 percent of Americans only $2,000 away from major financial issues is no surprise.  In fact 1 out of 3 Americans doesn’t even have a penny to their name!  This is the issue at hand and while too big to fail banks leverage the Federal Reserve for zero percent loans and a place to trash toxic waste loans, many Americans do not even share in their rising productivity:

The above is the dumping ground for the big financial elite.  Yet working and middle class Americans keep increasing their productivity with no rewards:

No wonder why profits are up and wages are down.  Less is being given to those creating the new gains under the guise that things are financially tight.  Tight for who?  The CEO of JP Morgan that makes 800+ times the median household income of Americans for foreclosing on millions and gambling in speculative investments that hurt the real economy?  If you wonder why nothing is done in Washington D.C. the vast majority of representatives support the elite class because they are part of it:

Until people start making these wider connections we will keep rearranging the deck chairs on the Titanic and by 2020 the wealthy will be even wealthier and the middle class will be a shell of what it once was in the United States.  This is the new recovery according to the large financial interest that controls our government.

My Budget360

If you listen to Ben Bernanke, Barack Obama and the mainstream media long enough, and if you didn’t know any better, you might be tempted to think that the economic crisis is long gone and that we are in the midst of a burgeoning economic recovery.  Unfortunately, the truth is that the economic crisis is far from over.  In 2010, more homes were repossessed than ever before, more Americans were on food stamps than ever before and a smaller percentage of American men had jobs than ever before.  The reality is that the United States is an economic basket case and all of these natural disasters certainly are not helping things.  The Federal Reserve has been printing gigantic piles of money and the U.S. government has been borrowing and spending cash at a dizzying pace in an all-out effort to stabilize things.  They have succeeded for the moment, but our long-term economic problems are worse then ever.  We are still in the middle of a full-blown economic crisis and things are about to get even worse.

If you know someone that is foolish enough to believe that the economic crisis is over and that our economic problems are behind us, just ask that person the following questions….

#1 During the 23 months of the “Obama recovery”, an average of about 23,000 jobs a month have been created.  It takes somewhere in the neighborhood of 150,000 jobs a month just to keep up with population growth.  So shouldn’t we hold off a bit before we declare the economic crisis to be over?

#2 During the “recession”, somewhere between 6.3 million and 7.5 million jobs were lost.  During the “Obama recovery”, approximately 535,000 jobs have been added.  When will the rest of the jobs finally come back?

#3 Of the 535,000 jobs that have been created during the “Obama recovery”, only about 35,000 of them are permanent full-time jobs. Today, “low income jobs” account for 41 percent of all jobs in the United States. If our economy is recovering, then why can’t it produce large numbers of good jobs that will enable people to provide for their families?

#4 Agricultural commodities have been absolutely soaring this decade.  The combined price of cotton, wheat, gasoline and hogs is now more than 3 times higher than it was back in 2002.  So how in the world can the Federal Reserve claim that inflation has been at minimal levels all this time?

#5 Back in 2008, banks had a total of 27 billion dollars in excess reserves at the Fed.  Today, banks have a total of approximately 1.5 trillion dollars in excess reserves at the Fed.  So what is going to happen when all of this money eventually hits the economy?….

#6 If the U.S. economy is recovering, then why are shipments by U.S. factories still substantially below 2008 levels?

#7 Why are imports of goods from overseas growing much more rapidly than shipments of goods from U.S. factories?

#8 According to Zillow, the average price of a home in the U.S. is about 8 percent lower than it was a year ago and that it continues to fall about 1 percent a month. During the first quarter of 2011, home values declined at the fastest rate since late 2008. So can we really talk about a “recovery” when the real estate crisis continues to get worse?

#9 According to a shocking new survey, 54 percent of Americans believe that a housing recovery is “unlikely” until at least 2014.  So how is the housing industry supposed to improve if so many people are convinced that it will not?

#10 The latest GDP numbers out of Japan are a complete and total disaster.  During the first quarter GDP declined by a stunning 3.7 percent.  Of course I have been saying for months that the Japanese economy is collapsing, but most mainstream economists were absolutely stunned by the latest figures.  So will the rest of the world be able to avoid slipping into a recession as well?

#11 Next week, Republicans in the House of Representatives are going to allow a vote on raising the debt ceiling.  Everyone knows that this is an opportunity for Republican lawmakers to “look tough” to their constituents (the vast majority of which do not want the debt ceiling raised).  Everyone also knows that eventually the Republicans are almost certainly going to cave on the debt ceiling after minimal concessions by the Democrats.  The truth is that neither “establishment Republicans” nor “establishment Democrats” are actually serious about significantly cutting government debt.  So why do we need all of this political theater?

#12 Why are so many of our once great manufacturing cities being transformed into hellholes?  In the city of Detroit today, there are over 33,000 abandoned houses, 70 schools are being permanently closed down, the mayor wants to bulldoze one-fourth of the city and you can literally buy a house for one dollar in the worst areas.

#13 According to one new survey, about half of all Baby Boomers fear that when they retire they are going to end up living in poverty.  So who is going to take care of them all when the money runs out?

#14 According to the U.S. Bureau of Labor Statistics, an average of about 5 million Americans were being hired every single month during 2006.  Today, an average of about 3.5 million Americans are being hired every single month.  So why are our politicians talking about “economic recovery” instead of “the collapse of the economy” when hiring remains about 50 percent below normal?

#15 Since August, 2 million more Americans have left the labor force.  But the entire period from August to today was supposed to have been a time of economic growth and recovery.  So why are so many Americans giving up on looking for a job?

#16 According to Gallup, 41 percent of Americans believed that the economy was “getting better” at this time last year.  Today, that number is at just 27 percent.  Are Americans losing faith in the U.S. economy?

#17 According to the U.S. Census, the number of children living in poverty has gone up by about 2 million in just the past 2 years, and one out of every four American children is currently on food stamps.  During this same time period, Barack Obama and Ben Bernanke have told us over and over that the U.S. economy has been getting better. So what is the truth?

#18 America has become absolutely addicted to government money. 59 percent of all Americans now receive money from the federal government in one form or another. U.S. households are now receiving more income from the U.S. government than they are paying to the government in taxes. Americans hate having their taxes raised and they hate having their government benefits cut.  So is there any hope that this will ever be turned around before disaster strikes?

#19 The combined debt of the major GSEs (Fannie Mae, Freddie Mac and Sallie Mae) has increased from 3.2 trillion in 2008 to 6.4 trillion in 2011.  How in the world is the U.S. government going to be able to afford to guarantee all of that debt on top of everything else?

#20 If the U.S. national debt (more than 14 trillion dollars) was reduced to a stack of 5 dollar bills, it would reach three quarters of the way to the moon.  The U.S. government borrows about 168 million dollars every single hour.  If Bill Gates gave every penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.  So how in the world can our politicians tell us that everything is going to be okay?

The Economic Collapse

This should come as no surprise to those who have even remotely been paying attention.  I mean, unless you’ve been living under a rock for the past 3 years, it’d be hard to miss the massive fraud perpetrated by Goldman Sachs on a regular basis.  Who could forget such classics as, Goldman pressing for high ratings on its mortgage-backed securities (CDOs), then selling them off to clients (‘they’re triple-A, you know), while unbeknownst to the sucke….errr….client, took short positions against those very same CDOs.   Then, there’s everyone’s favorite, Hank Paulson denying (to Congress, no less) that he had any knowledge this was happening at Goldman Sachs…..when he was CEO of the firm at the time.  

Despite all this illicit behavior, the Vampire Squid still lives…..and it apparently continues its murderous rampage on clients’ portfolios.  According to The Street:

Goldman helped to catalyze the recent commodity sell-off as its researchers expected little upside when the economy hit a soft patch. Crude oil tumbled beneath $100 on that report. Then, two days ago, with few fundamental changes in the demand outlook, Goldman reversed its stance, advising clients to buy.

This flip-flopping from Wall Street’s most closely followed researcher is being perceived by some as client-fleecing since the bank is able to trade in proprietary accounts before it releases research and the markets react, as they often do to Goldman’s calls.

Heh…but it gets better…..

News broke yesterday, or rather, a blogger pulled data yesterday to show that Goldman dumped 1,260,802 shares of Apple(AAPL_) during the first quarter, even as its research division rated the stock “buy” and maintained its lofty $470 target. Little due diligence is done in the journalism community on the interplay between asset-management and research units.

To check up on the bank’s activities, we tracked its 58 Conviction Buy List stocks, which are the equities that the bank claims that it is most optimistic about to clients, to see if it sold any during the quarter. The results are intriguing. Of the 58 so-called Conviction Buy stocks that Goldman recommended to clients during the first quarter, it sold 31, or more than half, according to its 13-F filing. [We did not include Goldman mutual funds in these calculations].

Of the 31 Conviction Buys that Goldman sold, it sold more than 1 million shares of 12 of those stocks, begging the question: How does Goldman define “conviction”? To most investors, it means putting your money where your mouth is.

On the following page is a look at 12 Conviction Buys that Goldman sold in bulk.

Find out if you’ve been fleeced by going to The Street.

I guess one would have to ask the obvious at this point:  Exactly who still uses these guys for investing?  I mean, really?  How is it they have any clients left at this point?  If you’re thinking, ‘Oh, but I’m different, they only do that to the other guy,’ you really should have your head examined.