FedUpUSA

Archive for September 12th, 2011

How Wall Street and the media forgot about the middle class – 10 incredible charts highlighting the problems facing the middle class.  China labor costs, debt ratios, Euro-zone finances, and balance sheet disequilibrium.

The mainstream press and ego driven politicians have completely forgotten about the middle class in this country, pretending as if ignoring the cacophony of discontent would simply make it go away.  Both parties are simply doing the bidding of the financial upper-crust and that is why you rarely hear about household income being discussed in any television show.  Yet as we are seeing with record low consumer sentiment to accompany a broken balance sheet and empty savings accounts, the public can get a dose of reality by simply examining their own life.  Are things really better?  What Americans should now fully realize is that the bailout schemes were nothing more than a wicked robbery and transfer of wealth from the majority to a slim connected plutocracy.  Those who write and advocate for our laws, the politicians, have made sure a national thievery would go unpunished courtesy of campaign contributions.  The system is completely broken and the disappearing middle class is merely a consequence of this financial plundering.  Since the tech crash, the housing crash, or the energy debacles were completely missed by the media do not expect to have any guidance coming from the paid spokesmen of Wall Street.  When did Wall Street and the media decide the middle class was irrelevant?

The country that debt built

The collapse of the middle class can be traced back to the 1970s.  For the last 40 years this contraction has largely been hidden under the rug thanks to a large helping of deep fried debt:

The above chart is rather illuminating.  What we have done is taken all the household debt in the United States and divided it by the population.  Even accounting for this growth the trajectory is rather obvious.  The middle class has felt less of the contraction because of access to debt.  Of course this peaked in 2007 which is the first reversal in this trend since data started being gathered way back in the 1950s.  Debt is not always a bad thing but when it is not accompanied by real income growth then problems start to boil to the top.  The mainstream media is concerned with selling you goods and banks are more than happy to finance your buying even if you don’t have the money today.  Banks got bored counting small shopping trips for clothes and decided to turn the biggest asset in housing into one giant speculative casino.

Population growth

The last decade has seen an interesting shift in population growth:

The United States population grew at the slowest rate since the 1940s and this was largely due to World War II.  From 2000 to 2010 most of the growth occurred in the West and South.  Only one state in the nation, Michigan actually saw their population decline.  What is fascinating is that these regions are heavily reliant on automobile travel.  How will high energy costs impact growth moving into the future?  Just another cost that will eat away at those stagnant paychecks.

Wealth inequality

In no time in our history has wealth inequality been this pronounced.  We would have to go back to the days before the Great Crash of 1929 to find similar levels of inequality:

The bottom 80 percent of Americans control 12 percent of all U.S. wealth.  This fact should flash time and time again in the media yet this chart never hits the airwaves.  After all, the media would like to keep you going like a little hamster, where every penny you earned is spent.  If you don’t have the money some big bank will be willing to make you a loan and if you default, you will end up paying anyway with big giant bank bailouts.  This kind of inequality crushes the fabric of what was once a vibrant middle class and has given rise to a financial plutocracy.

Read the rest at My Budget 360

Is the truth gaining currency or is this the patient with lung cancer facing up to the fact that when coughing up half your lung in the morning into the sink you really are screwed?

NEW YORK (MarketWatch) — You want to fix this economic crisis? You want to put people back to work? You want to light a fire under the economy?

There’s a way to do it. Fast. And relatively simple.

But you’re not going to like it. You’re not going to like it at all.

Default. A national Chapter 11 bankruptcy.

The fastest way to fix this mess is to see tens of millions of homeowners default on their mortgages and other debts, and millions more file for bankruptcy.

Yep.

Brett continues….

It’s the debt, stupid.

We’re hocked up to the eyeballs, and then some. We’re at the bottom of a lake of debt, lashed to an anchor. American households today owe $13.3 trillion. That has quadrupled in a generation. It has doubled just in the last 11 years. We owe more than any other nation, ever. And for all the yakking about how people are “repairing their balance sheets,” they’re not. From the peak, four years ago, they’ve cut their debts by a grand total of 4%.

Yep.  Four years into when I’ve been saying that as well.  Of course The Fed Z1 tells the truth although the media has thus far refused to.

American mortgage contracts allow for default. Half of the states in this country are “non-recourse,” which broadly speaking means you can send in the keys and walk away from a bad loan. The other half are sort of “semi-recourse.” The bank can come after you for any shortfall, but only in a limited way. Broadly speaking they can’t touch retirement accounts and basic assets. You can typically keep your car, personal effects, often things like life insurance.

Most of the people who are deeply underwater don’t have that much anyway.

And the banks knew this. When they were lending $500,000 to a bus driver with $1,000 in his checking account, they knew that their loan was only guaranteed by the value of the home.

If they didn’t know it, they should have. Their incompetence is not our problem.

Exactly.

But what’s being missed here is that the banks basically bought the government.  And they keep buying it – both Democrat and Republican.

Thus, my screed over the weekend about how it’s over and that you’re nuts if you in any way help, assist, or play “footsie” with the people in the government any longer.  They don’t give a damn about the math and they sure don’t give a damn about you.

Everything has been about “saving the banks.”  The very same banks who intentionally loaned a guy who had $1,000 in total net worth and a $50,000 a year honest income $500,000 to “buy” a house, knowing full well he couldn’t pay.

They didn’t care because (1) they expected him to come back and refinance, thereby allowing them to asset-strip him further and (2) they fully expected that if something went wrong with (1) they could force you, the taxpayer, to pick up the check.

Unfortunately “you” via the government is the same as “you” the starry-eyed homebuyer with no money.  They both go to the same place and neither has the ability to shoulder any more debt.

We either face this truth, as I have counseled since The Ticker began or we go off the cliff exactly as is happening in Greece right here and now.

Pick one.

Global equity markets are sinking again today, as the euro zone credit crisis  deepens.

According to the rumor mill, a default by the Greek government is not merely  inevitable, it is imminent. As a result, the cowboys up in Germany and France  are circling the wagons.

“Germany may be getting ready to give up on Greece,” Bloomberg News  reports, “as the credit markets signal growing concern about the smaller  nation’s ability to repay investors. Yields on Greek two-year notes rose above  60 percent today for the first time…

“After almost two years of fighting to contain the region’s debt crisis and  providing the biggest share of three European bailouts [to Greece, Ireland and  Portugal],” Bloomberg continues, “German Chancellor Angela Merkel is  laying the groundwork for what markets say is almost a sure thing: a Greek  default.”

Of course, a Greek default has been a sure thing ever since the European  Union and IMF started shipping euros down to Athens more than a year ago.  Bailouts, rescue packages and official protestations to the contrary are all  part of the “Inevitable Default Playbook.”

Over the weekend, Greek Prime Minister, George Papandreou, vowed “to save the  country from bankruptcy.” The Prime Minister promised, “We will remain in the  euro.”

Ergo, a default is both inevitable and imminent.

“It feels like Germany is preparing itself for a debt default,” says Jacques  Cailloux, chief European economist at Royal Bank of Scotland. “Fatigue is  setting in.”

The threat of a Greek default is not exactly a new story. In fact, it is a  very old story here at The Daily Reckoning. As early as February 2010,  your editors began linking the words “Greece,” “default” and “inevitable.” Your  editors would re-position these words from time to time, just to keep the story  fresh. But the essential message never changed: This thing that cannot possibly  last will not last. Greece will default. It’s inevitable.

But since inevitable is not the same thing as imminent, the financial markets  of Europe and the US kept powering ahead for months, without worrying about the  due date of inevitable.

Obviously, investors are worrying now. Stocks are suffering worldwide, and no  stocks are suffering more than European bank stocks. The share prices of  Europe’s largest banks are down 50% to 70% over the last three months. Here in  the States, the financials are also performing dismally. Just today, the share  price of Goldman Sachs dropped back below $100 for the first time since March  2009.

Somebody is worried…and that worry is also extending to the forex markets,  where the euro has dropped to 6-month lows against the dollar and 10-year lows  against the yen.

As investors scurry away from the risk of additional losses, they are also  fleeing a delusion that has been condemning their capital to inevitable (there’s  that word again) losses. This costly delusion is that central banks and other  governmental agencies possess the power to improve economic conditions.

For several months, at least, investors have been able to see that government  finances throughout the Western World were in shoddy shape…and becoming even  shoddier as these governments catapulted billions of dollars and euros into  their sluggish economies, hoping something good would happen.

Despite this obvious distress, however, global stock markets have been  rallying for most of the last two years. Why? Because investors trusted the  power of governments to overcome the forces of recession and debt liquidation.  Investors placed their faith in the gospel of omnipotent central banking, just  as they had always done since the days of Alan Greenspan.

But that faith is wavering. Investors are becoming disenchanted with their  golden calf.

The long-running faith in the power of central banking traces its roots to  the great American folktale, Maestro Alan Greenspan. Remember that  delightful tale? Alan was the guy who could steer a massive $13 trillion economy  just by tweaking one little bitty interest-rate. He was the guy who could  produce a rally on Wall Street, simply by raising his eyebrows a certain way  during congressional testimonies, or by clearing his throat a certain way when  discussing Fed policy.

Alan was the guy who always had the right answer, even when there wasn’t one.  He always knew exactly what to do, even when nothing should’ve been done. He was  more than a Maestro; he was a wizard. No one doubted his power to improve the US  economy. And he was also omniscient. He always knew what the proper level of  interest rates should be, even when Mr. Market vehemently disagreed.

Whether by luck or genius, Greenspan played a hot hand for many years. His “masterful” monetary policy received credit for placing two chickens in every  pot and an “affordable mortgage” in every household balance sheet.

As a result, investors not only placed their faith in Greenspan’s “power” to  produce economic growth (and stock market rallies), they also came to believe  that governments and central banks, in general, possessed the power to nurture  economic growth and/or dampen the effects of recession.

But as it turned out, Greenspan did not have all the answers. In fact, he did  not have any answers at all. He had gimmicks and quick-fix levers to pull — the  one constant ingredient being EZ credit. Greenspan responded to every  mini-crisis of his tenure by slashing short-term interest rates.

These quick fixes did not actually fix anything, but they did enable the US  economy to lurch from bubble to bubble until the financial system had become so  fatally levered that a large-scale credit crisis became inevitable.

The nation marveled at the Maestro’s golden touch, and revered his  reputation…until about 2007, when the Greenspan legacy came under review for  possible downgrade…outlook “negative.”

As the housing bubble burst, and the balance sheets of America’s largest  financial institutions began melting faster than the Wicked Witch of the West,  many American investors started to have second thoughts about the  wizard-formally-known-as-Alan-Greenspan. They began to realize that Greenspan  was merely human, and that central bankers do not possess superhuman powers.

And yet, vestiges of the “benign government intervention” delusion remain.  Some investors still trust the European Union to “fix” the Greek debt problem,  and clearly, some Americans still trust President Obama to “create jobs.”

Here at The Daily Reckoning, we do not.

We distrust central bankers to fix economies and we distrust politicians to  create jobs. But that does not mean we lack a belief system. On the contrary, we  possess a strong and enduring faith in politicians to borrow money and in  central bankers to print it. That’s what they do; that’s what they have always  done.

Trusting the power of central bankers and politicians may be a decent,  short-term trade; but distrusting that power is a great, long-term  investment.

Eric Fry
for The Daily Reckoning

So this morning we wake up and the French stock market is in freefall, the DAX looks like someone beat it with a baseball bat, and our DOW futures are down nearly 200 points — all before 6:00 AM.

I’d simply hoist up the old sign (the “Told Ya So” one) and walk off, but there’s a point in here that is extremely important to understand for our government — from Congresspeople to the President.

Many have said that we must “spend now but be more austere later” to both stimulate the economy and yet in the future get the debt under control.  This rolls off the tongue of politicians with a smile and a wink, whether it be Republicans or Democrats.  At the same time they promise that no person over 50 will see any change to Social Security or Medicare.

It’s a lie folks.  It’s not a mistake, it’s a knowing and intentional lie told by politicians worldwide.

Greece tells us exactly what is going to happen.  What mathematically must happen.  And what nobody is willing to (yet) admit to and accept.

When, not if, fiscal consolidation (the end of deficit spending to the tune of $1.5 trillion a year) occurs GDP will decrease by more than the amount of the deficit cut.  This is, again, as I’ve explained for four years nothing more than simple mathematics — GDP is defined as “C + I + G + (x – i).”

If you stop deficit spending “G” decreases.  If you raises taxes then either “C” or “I” decreases.  As the direct decrease occurs there are fewer people employed to provide the former C, I or G and as a consequence the GDP decrease is more than “dollar for dollar.

THIS OUTCOME CANNOT BE AVOIDED.  IT IS AS FUNDAMENTAL AS 2 + 2 = 4!

Greece “sold” to its people that they could “resolve” their problems fiscally without GDP (the economy) collapsing.  They lied; the program was implemented and GDP collapsed.

Wall Street and both our and other governments pushed the meme that this problem was “manageable” without GDP collapsing — resetting to a lower level that actually represented private final demand.  They all lied.

The banks all claim they’re “ok” due to credit protection and other schemes yet none of them are marking gross exposure to the market and no regulator is demanding that all alleged “hedges” be proved as dollar-for-dollar money good through one dollar of capital.

They have all lied.

And now the market is calling “BS!” on all of it, and the truth is being exposed in Greece.

Greece is not a “big” problem.  Our utter refusal to honor the basic first and second grade arithmetic – the rules of simple addition and subtraction — is why we’re in this mess and why the European banking index is down 12% in two days time.

Wake up America.  The very same dynamic that occurred in Greece must occur in every nation that is currently deficit spending like crazy (that’s most of them) and we must accept the GDP adjustment that has to occur in order to re-balance our economies and realign output with actual final consumer demand.

You cannot devalue your way to prosperity irrespective of the path of the devaluation. More tax cuts and more deficit spending will not solve the problem — here or anywhere else.

For 30 years we have lied to ourselves and to the world.  Now the market is calling these bluffs exactly as occurred in 2007 and 2008 and if we do not cut this crap out — right now — the “Greece fire” is going to spread worldwide and take down every capital market and government in a coordinated fashion until the “bare bank tits” – all of them – are exposed and reality is recognized.

There is no option remaining other than facing and admitting the truth; those who refuse to come to grips with reality are not worth your time folks, whether in the political sphere or anywhere else.  We’ve had four years of lies and four years of misdirection.

If the politicians and media refuse to accept the truth then the only intelligent choice remaining is to erect the middle finger in their direction and act as necessary to protect yourself and your family.

By every one of countless measures the US is in a death spiral.  Its political system, government and economy are hopelessly broken.  No wonder that the vast majority of Americans express severe dissatisfaction with Congress, both major parties, and increasingly with President Obama.  And only the wealthy elites have any reason to be positive about corporate powers, Wall Street and the whole banking and finance sector.  They not only own the nation, they run it.

Only the truly delusional still speak about the US being the leading and best nation.  About a third of the population is suffering from one or more of these epidemics: unemployment, underemployment, hunger, homelessness, home foreclosure, no useful health insurance, income so stagnated that keeping up with rising living costs is next to impossible, and slippage from the middle class into the working poor class.  What is to save the nation?

Once you acknowledge the profound and insidious corruption plaguing the political system which is nothing more than a dysfunctional two-party plutocracy or oligarchy serving the rich and corporate interests, then you must also see that elections will not deliver salvation.  Nor can you depend on the media to rise above corporate ownership to help fix the nation.

It matters little whether you vote for and support Republicans or Democrats.  All those politicians are corrupt and unable to exercise bold, creative solutions for the good of the nation, not those special interests that get them elected, on the left and right.

Once mighty nations and superpowers have fallen before.  History speaks truth, unlike just about
everything spoken by today’s politicians.

There are two paths that have the power to bring about the major, radical reforms needed.  Everything else you hear is pure garbage designed to maintain the status quo.

First, there is what brought about the birth of the US and so many other democracies: violent revolution.  Not rebellion against some foreign power, but rather against domestic tyrannical forces.  There is a limit to what many millions of Americans will endure, especially as they see the rich Upper Class enjoy every conceivable type of luxury.  True, it is hard to understand how even now we have not seen millions of angry, suffering Americans protesting violently in the streets of all major cities, as we see happen in so many European countries.  Americans seem to have been drugged into a distracted, delusional state of mind, still buying the scam that they can depend on elections.  Eventually, however, as government is financially unable to provide various kinds of assistance because of the broken economy, those most struggling to survive will inevitably resort to violence.  History speaks truth.

Second, is the peaceful route to dramatic, necessary reforms that the Founders had the wisdom to put into the US Constitution: an Article V convention of state delegates with the constitutional power to propose constitutional amendments.  At this time there are more diverse groups seriously examining and, increasingly, demanding the first Article V convention.  Why?  Because it has become crystal clear to more and more people that only through constitutional amendments that Congress will never propose is it possible to rid the political system of the corruption and dysfunction permeating it.  Get private money out of politics.  Remove the fiction of corporate personhood.  Compel Congress to balance the budget.  Worthy ideas are everywhere.

At other times attempts to get the first Article V convention met stiff opposition from the right and left.  But times have changed.  It is clearer than ever that the political and government system is so broken and corrupt that the basic rules must be amended, just as the Founders believed would become necessary.

A major upcoming conference at Harvard, using the tag line “Democracy in America is Stalled,” will surely help focus both support and opposition to using the convention route.

There are now many websites providing solid information and analysis about the convention option, particularly one by the national, nonpartisan Friends of the Article V convention that does not advocate for specific amendments.

Every time you hear some argument against using the convention option ask yourself whether the risk of sticking with the current system outweighs any conceivable risk of a convention that can only propose amendments, which still must be ratified by three-quarters of the states.  If you are not in the top levels of the economy, but rather are in the majority suffering and losing ground, then the answer rings as clear as the liberty bell.

By Joel S. Hirschhorn – Delusional Democracy