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Greed
11-02-2005, 04:57 AM
In this economy, the 'R' word means resilient
Despite major blows, the US sees 10 strong quarters of growth.
By Mark Trumbull | Staff writer of The Christian Science Monitor

Near-record energy prices. Hurricane devastation and displacement. Rising interest rates, with the Federal Reserve expected to raise its short-term rate to 4 percent Tuesday.
It all spells trouble for the US economy, right?

Possibly. Yet for years now, the world's largest economy has shown an impressive ability to absorb shocks and keep rolling ahead.

Among the latest signs are healthy boosts in consumer spending, worker incomes, and the nation's output of goods and services. That output, known as gross domestic product (GDP), expanded at a 3.8 percent annual pace in the third quarter, which includes the immediate aftermath of hurricanes Katrina and Rita, according to the government's preliminary estimate.

The number, stronger than analysts expected, suggests that the economy retains many of the strengths that helped America move through the dotcom bust, the 9/11 attacks, and corporate scandals like Enron with only a mild recession a few years ago.

The economy hasn't yet escaped cyclical swings entirely. But observers say the levers of finance and the gears of production have become better managed, more flexible, and less volatile. And for all its agility, the economy also benefits from gargantuan scale - with some $12 trillion in annual output.

"The US economy is this massive thing," not easily knocked off track, says Brian Wesbury, an economist at Claymore Securities in the Chicago area. Now in particular, he adds, "This economy has tremendous momentum."

Consider this: Last week's news marks the 10th straight quarter of 3 percent or greater growth in annual GDP. That's the longest such streak since the mid-1980s.

In the intervening years, business cycles seem to be getting smoother. The economy's slide in 2001 was so shallow that it has been almost 15 years since GDP has shrunk for consecutive quarters. And with the exception of 1991, you have to look back to 1982 to find a time when the economy was smaller at the end of the year than it was at the beginning.

Of course, an economy with smoother business cycles still endures hardship and challenges. Poverty has persisted even in an era of generally strong growth. Hurricanes this year and last have meant upheaval for millions of people.

Nor is there a guarantee of smooth sailing ahead. With the prospect of high heating bills this winter, consumer confidence as measured by the University of Michigan has plunged in the past two months to well below its 2001 valley.

A slowing housing market and higher interest rates are having an impact, too. Rising home values until now have buoyed consumers, providing a new source of wealth to tap. Meanwhile, low interest rates helped spur consumers to take a higher ratio of debt to income than in the past.

Now, as rates rise, some foresee a large brake on consumer spending.

Yet for all the challenges, economists generally don't see recession clouds on the horizon. Consumer spending rose 0.5 percent in September and incomes went up 1.7 percent, the biggest rise this year, the Commerce Department reported Monday.

"2006 looks like it's going to be a pretty good year," with about 3 percent growth, says Mark Vitner, an economist at Wachovia Corp., a bank based in Charlotte. N.C. "I think there's very little downside risk."

This year's final quarter, he warns, could see some slowing - to about 2.5 percent, he figures.

Many economists expect slower growth, but no decline, in consumer spending. Other components of GDP, such as exports, government spending, and business investment, are also moving higher.

"The biggest mistake of economists over the past 20 years" has been to be too pessimistic, Mr. Vitner says. "We've consistently underestimated growth."

What explains its vitality?

• The shift to a service economy. Some of the more volatile manufacturing industries constitute a smaller share of the economy today. The rise of service industries has given the economy greater breadth and balance.

• Better information and management. A widely held view is that policymakers at the Fed, and business leaders, now have timelier data on the economy. Corporations manage their inventories more wisely. The Fed, while still often criticized, has a stronger reputation for fighting inflation without hurting the economy's natural growth.

• Flexible markets. Fed Chairman Alan Greenspan has repeatedly cited a wave of deregulation as a crucial factor enabling the economy to cushion shocks. In labor markets, growing flexibility has meant ongoing layoffs, but it also has spurred job creation that has kept unemployment low.

• New financial tools. In a recent speech, Mr. Greenspan said that new instruments for spreading risks have helped create "a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter century ago."

• Worker productivity. The rapid growth of labor output per hour in recent years has allowed for stronger economic growth without fueling inflation.

Also, foreign governments and investors are now happy to invest in US bonds, allowing the US to become the world's great debtor. Economists say that imbalance will need to ease eventually.

Still, for all the genuine concerns out there, the "R word" that most economists are using is still resilience, not recession.

As economist Nariman Behravesh of Global Insight puts it, "We seem to be able to absorb serial shocks."

http://www.csmonitor.com/2005/1101/p01s01-usec.html

Greed
11-04-2005, 04:54 AM
Church-going boosts economic well-being: study
Tue Oct 25, 3:20 PM ET

WASHINGTON (Reuters) - Attending religious services may enrich the soul, but it also fattens the wallet, according to research released on Tuesday.

"Doubling the frequency of attendance leads to a 9.1 percent increase in household income, or a rise of 5.5 percent as a fraction of the poverty scale," Jonathan Gruber of the economics department at Massachusetts Institute of Technology wrote in his study.

"Those with more faith may be less 'stressed out' about daily problems that impede success in the labor market and the marriage market, and therefore are more successful," Gruber wrote in the study, which was released by the National Bureau of Economic Research.

Living in a community with complementary ethnic groups that share the same religion increases the frequency of going to a house of worship, he said in the paper titled "Religious Market Structure, Religious Participation, and Outcomes: Is Religion Good for You?"

Such visits correlate to higher levels of education and income, lower levels of welfare receipt and disability, higher levels of marriage and lower levels of divorce, the study said.

Gruber says he focused on non-Hispanic whites aged 25 or older because "there is very strong evidence of racial segregation in church-going, so that the density of Hispanics or non-whites in a religion in some area is not likely to be relevant for the religious participation of whites in that area."

Gruber divided the individuals into seven groups: Catholics, Jews, Liberal Protestants, Moderate Protestants, Conservative Protestants, other and none.

http://news.yahoo.com/news?tmpl=story&cid=1896&ncid=1896&e=17&u=/nm/20051025/us_nm/religion_economy_dc_1

QueEx
11-06-2005, 06:37 PM
<font size="5"><center>5 reasons the Fed will fumble in 2006</font size></center>

<font size="4"><center>Even with a new chief at the helm, the Fed is heading toward
a policy blunder that will inflict a lot of pain on investors.
Here are five big reasons why.</font size></center>

MSN Money
By Jim Jubak

The odds are now better than 60/40 that the Federal Reserve will overshoot in 2006. It now looks, to me at least, like new Fed chairman Ben Bernanke will finish the inflation battle that Alan Greenspan started by raising interest rates so high that the economy starts to stall sometime next year.

The Fed will then be forced to reverse course and start to cut short-term interest rates at the same measured pace that it used to raise them from the June 2004 low.

Here are the five reasons I believe the Federal Reserve will give investors a painful demonstration of its all-too-human fallibility in 2006.


(1) The Federal Reserve is fighting the wrong kind of inflation. The classic monetary remedy for inflation is higher interest rates -- that slows the economy, reducing demand. That, in turn, breaks the spiral of higher wages leading to higher prices leading to higher wages, etc. But the current problem isn't classic wage-price inflation. Wages are going nowhere fast; something else is driving inflation. Take a look at the numbers for the quarter completed in September. The economy, as measured by gross domestic product, grew at a 3.8% rate in the quarter. Consumer prices, measured by the Consumer Price Index, climbed at an annual rate of 4.7%, the highest rate of increase since June 1991. Where did that inflation come from? Certainly not from wage increases. According to the Bureau of Labor Statistics, employers' wage costs grew just 2.3% in the last 12 months. That's the slowest growth rate on record, beating out the 2.4% annualized growth rate in wages reported in August. Instead, current inflation is almost all a result of higher energy prices. While inflation including energy is 4.7%; inflation excluding energy is just 1.3%, the lowest quarterly annual rate in two years. (For those readers who think the CPI is so statistically corrupt to be useless -- a valid belief, in my opinion -- the Personal Consumption Expenditures Index, Alan Greenspan's preferred inflation measure, gives much the same result: a general annualized increase of 3.9% in September and a core increase without energy of 1.2%.) This wouldn't matter except . . .

(2) Higher energy prices -- like higher interest rates -- slow the economy. So, in effect, the Fed by raising interest rates is stepping on the economy's brakes at the same time higher energy prices are working to lower economic growth. You can see the effect in a drop in consumer spending in September. Adjusted for inflation, consumer spending dropped 0.4% in September, following a similar drop in August. And it's not hard to understand why: With energy prices up and wages down, consumers are digging deeper into already empty pockets to keep spending. In the September quarter, that led to a negative rate of personal savings in the U.S. (savings fell at a 1.1% annualized rate). There are certainly big problems with the way that this number counts savings, so it's just about certain that the real savings rate isn't negative. But savings rates are dropping, and we're already in historically low territory: The personal savings rate hasn't been negative since the Bureau of Economic Analysis began keeping quarterly savings numbers in 1947. At a time when consumers can keep spending levels up only by borrowing (whether on credit cards or by refinancing a home or taking out a home-equity loan), higher interest rates from the Fed are Strike 2 against the economy. And the currency markets are set to deliver Strike 3. . .

(3) Higher interest rates have produced a rally in the U.S. dollar, which makes U.S. exports less competitive in global markets and puts even more downward pressure on U.S. economic growth. I know it's perverse: The U.S. is running enormous trade deficits that leave us dependent on the savings of strangers; no one in Washington gives a second thought to spending billions we don't have; and companies in core U.S. industries such as autos and airlines are flocking into bankruptcy. But the U.S. dollar has rallied against most global currencies. This week the dollar hit a 25-month high against the Japanese yen, after gaining 14% in 2005 against the yen. The dollar is even up 12% this year against the euro, after falling by almost 50% against the European currency from 2002 to 2004. A higher dollar makes U.S. exports more expensive for foreign consumers. U.S. companies can combat that by outsourcing more production to cheaper, non-dollar international economies, and by firing U.S. workers and hiring workers in those same cheaper non-dollar economies. But those adjustments produce lower incomes in the U.S. and cut into U.S. economic growth. The Fed's policy of hiking U.S. interest rates has contributed to this drag on growth, as well, since higher U.S. rates have propped up the U.S. dollar against other currencies. So why is the Fed pushing up interest rates further when it could be so harmful to the economy?

(4) When all you've got is a hammer, all problems look like nails. Raising interest rates may be the worst available tool for fighting inflation caused by higher energy prices. But what other tools are available? The other players in Washington show no inclination to break out their economic policy tools -- and it's even questionable that they know where they are after years of budget-busting neglect. Congress and the president could fight higher energy prices by doing something to damp energy demand (an energy conservation policy that consists of more than a presidential exhortation to drive less would be a start). Or to increase energy supplies (although I'm not sure that throwing money at Archer Daniels Midland (ADM, news, msgs) and the rest of the ethanol lobby is a worthy goal in and of itself.) But not even the members of Congress believe that the recent energy bill will do anything significant to reduce demand or increase supply. So that leaves the Federal Reserve to do the job of reducing demand by whopping the economy over the head with its higher-interest-rates hammer.

(5) And, finally, circumstances have conspired against the Federal Reserve to increase the likelihood of a policy mistake. Hurricanes Katrina, Rita and Wilma have tied statisticians in knots and made it extremely difficult to figure out the underlying trends in the economy. For example, the Bureau of Economic Analysis reported a healthy 0.76 rise in inflation-adjusted personal income in September. (Personal income, which includes not just wages but rental and investment income, isn't the same as wages.) But, adjusted for the hurricanes, personal income may be higher, lower or the same as in August. For example, in the earlier month property owners in the disaster area took a big hit to rental income, which depressed August's numbers and made it easier for September to show a gain. The Economic Policy Institute calculates that absent the hurricane bounce-back effect, personal income fell 0.43% in August. And the transition from Greenspan to Bernanke encourages the central bank to continue current policy until after the March meeting of the Federal Open Market Committee. Reversing course when Greenspan is barely out the door isn't a reassuring way to begin the Bernanke years.

A slowdown, yes; a recession, no
I think the result of all this is that sometime in 2006 -- around midyear would be my guess given the lag before an economic trend starts to show up in the economic numbers -- the Fed will be facing a big growth surprise. Inflation may or may not be under control, but growth will have dipped toward the low end of the range that makes the Fed comfortable. And it's likely that there will be signs that growth could be headed lower.
Note I'm talking about a drop below the current 3.8% growth to a rate that makes the Fed, Wall Street and Washington politicians (who are facing midterm elections in November 2006) nervous. I'm not talking about a negative quarter and certainly not a recession. A drop below 3% is a certainty if the Fed's interest rate policy overshoots. And somewhere in the range of 1% to 2% growth for a quarter would be a reasonable expectation for a low.

By the time that growth low arrives, the Fed will have stopped cutting rates and is likely to begin sending signals of an ease or two if the growth picture doesn't improve.

To me, this doesn't add up to either economic or investing disaster. More volatility than we've seen even in the last few months? Certainly. Radical shifts of money between sectors as the managers of hot money search for short-term profits? Certainly. Enough worry about rates of interest and growth to cause a flight to safety in assets that range from gold to consumer staples? Certainly.

Looking out over the next six to 12 months, I think shifting portfolios to include more non-U.S. equities makes sense. In the near term, a stronger dollar will increase the sales of overseas companies. In the longer term, a decline in the dollar as the Federal Reserve stops raising interest rates will give investors in non-dollar-denominated assets a decent exchange-rate profit. I also think looking to U.S. consumer companies that represent safety from inflation and strong guarantees of growth is a solid strategy.

http://moneycentral.msn.com/content/P131828.asp

dyhawk
11-06-2005, 06:58 PM
interesting read............not sure if i agree with everything................in anycase i don't seea slow down in the economy being the major problem facing the US but bad spending habits and debt

Makeherhappy
11-07-2005, 08:34 PM
<font size="5"><center>5 reasons the Fed will fumble in 2006</font size></center>

<font size="4"><center>Even with a new chief at the helm, the Fed is heading toward
a policy blunder that will inflict a lot of pain on investors.
Here are five big reasons why.</font size></center>

MSN Money
By Jim Jubak

The odds are now better than 60/40 that the Federal Reserve will overshoot in 2006. It now looks, to me at least, like new Fed chairman Ben Bernanke will finish the inflation battle that Alan Greenspan started by raising interest rates so high that the economy starts to stall sometime next year.

The Fed will then be forced to reverse course and start to cut short-term interest rates at the same measured pace that it used to raise them from the June 2004 low.

Here are the five reasons I believe the Federal Reserve will give investors a painful demonstration of its all-too-human fallibility in 2006.


(1) The Federal Reserve is fighting the wrong kind of inflation. The classic monetary remedy for inflation is higher interest rates -- that slows the economy, reducing demand. That, in turn, breaks the spiral of higher wages leading to higher prices leading to higher wages, etc. But the current problem isn't classic wage-price inflation. Wages are going nowhere fast; something else is driving inflation. Take a look at the numbers for the quarter completed in September. The economy, as measured by gross domestic product, grew at a 3.8% rate in the quarter. Consumer prices, measured by the Consumer Price Index, climbed at an annual rate of 4.7%, the highest rate of increase since June 1991. Where did that inflation come from? Certainly not from wage increases. According to the Bureau of Labor Statistics, employers' wage costs grew just 2.3% in the last 12 months. That's the slowest growth rate on record, beating out the 2.4% annualized growth rate in wages reported in August. Instead, current inflation is almost all a result of higher energy prices. While inflation including energy is 4.7%; inflation excluding energy is just 1.3%, the lowest quarterly annual rate in two years. (For those readers who think the CPI is so statistically corrupt to be useless -- a valid belief, in my opinion -- the Personal Consumption Expenditures Index, Alan Greenspan's preferred inflation measure, gives much the same result: a general annualized increase of 3.9% in September and a core increase without energy of 1.2%.) This wouldn't matter except . . .

(2) Higher energy prices -- like higher interest rates -- slow the economy. So, in effect, the Fed by raising interest rates is stepping on the economy's brakes at the same time higher energy prices are working to lower economic growth. You can see the effect in a drop in consumer spending in September. Adjusted for inflation, consumer spending dropped 0.4% in September, following a similar drop in August. And it's not hard to understand why: With energy prices up and wages down, consumers are digging deeper into already empty pockets to keep spending. In the September quarter, that led to a negative rate of personal savings in the U.S. (savings fell at a 1.1% annualized rate). There are certainly big problems with the way that this number counts savings, so it's just about certain that the real savings rate isn't negative. But savings rates are dropping, and we're already in historically low territory: The personal savings rate hasn't been negative since the Bureau of Economic Analysis began keeping quarterly savings numbers in 1947. At a time when consumers can keep spending levels up only by borrowing (whether on credit cards or by refinancing a home or taking out a home-equity loan), higher interest rates from the Fed are Strike 2 against the economy. And the currency markets are set to deliver Strike 3. . .

(3) Higher interest rates have produced a rally in the U.S. dollar, which makes U.S. exports less competitive in global markets and puts even more downward pressure on U.S. economic growth. I know it's perverse: The U.S. is running enormous trade deficits that leave us dependent on the savings of strangers; no one in Washington gives a second thought to spending billions we don't have; and companies in core U.S. industries such as autos and airlines are flocking into bankruptcy. But the U.S. dollar has rallied against most global currencies. This week the dollar hit a 25-month high against the Japanese yen, after gaining 14% in 2005 against the yen. The dollar is even up 12% this year against the euro, after falling by almost 50% against the European currency from 2002 to 2004. A higher dollar makes U.S. exports more expensive for foreign consumers. U.S. companies can combat that by outsourcing more production to cheaper, non-dollar international economies, and by firing U.S. workers and hiring workers in those same cheaper non-dollar economies. But those adjustments produce lower incomes in the U.S. and cut into U.S. economic growth. The Fed's policy of hiking U.S. interest rates has contributed to this drag on growth, as well, since higher U.S. rates have propped up the U.S. dollar against other currencies. So why is the Fed pushing up interest rates further when it could be so harmful to the economy?

(4) When all you've got is a hammer, all problems look like nails. Raising interest rates may be the worst available tool for fighting inflation caused by higher energy prices. But what other tools are available? The other players in Washington show no inclination to break out their economic policy tools -- and it's even questionable that they know where they are after years of budget-busting neglect. Congress and the president could fight higher energy prices by doing something to damp energy demand (an energy conservation policy that consists of more than a presidential exhortation to drive less would be a start). Or to increase energy supplies (although I'm not sure that throwing money at Archer Daniels Midland (ADM, news, msgs) and the rest of the ethanol lobby is a worthy goal in and of itself.) But not even the members of Congress believe that the recent energy bill will do anything significant to reduce demand or increase supply. So that leaves the Federal Reserve to do the job of reducing demand by whopping the economy over the head with its higher-interest-rates hammer.

(5) And, finally, circumstances have conspired against the Federal Reserve to increase the likelihood of a policy mistake. Hurricanes Katrina, Rita and Wilma have tied statisticians in knots and made it extremely difficult to figure out the underlying trends in the economy. For example, the Bureau of Economic Analysis reported a healthy 0.76 rise in inflation-adjusted personal income in September. (Personal income, which includes not just wages but rental and investment income, isn't the same as wages.) But, adjusted for the hurricanes, personal income may be higher, lower or the same as in August. For example, in the earlier month property owners in the disaster area took a big hit to rental income, which depressed August's numbers and made it easier for September to show a gain. The Economic Policy Institute calculates that absent the hurricane bounce-back effect, personal income fell 0.43% in August. And the transition from Greenspan to Bernanke encourages the central bank to continue current policy until after the March meeting of the Federal Open Market Committee. Reversing course when Greenspan is barely out the door isn't a reassuring way to begin the Bernanke years.

A slowdown, yes; a recession, no
I think the result of all this is that sometime in 2006 -- around midyear would be my guess given the lag before an economic trend starts to show up in the economic numbers -- the Fed will be facing a big growth surprise. Inflation may or may not be under control, but growth will have dipped toward the low end of the range that makes the Fed comfortable. And it's likely that there will be signs that growth could be headed lower.
Note I'm talking about a drop below the current 3.8% growth to a rate that makes the Fed, Wall Street and Washington politicians (who are facing midterm elections in November 2006) nervous. I'm not talking about a negative quarter and certainly not a recession. A drop below 3% is a certainty if the Fed's interest rate policy overshoots. And somewhere in the range of 1% to 2% growth for a quarter would be a reasonable expectation for a low.

By the time that growth low arrives, the Fed will have stopped cutting rates and is likely to begin sending signals of an ease or two if the growth picture doesn't improve.

To me, this doesn't add up to either economic or investing disaster. More volatility than we've seen even in the last few months? Certainly. Radical shifts of money between sectors as the managers of hot money search for short-term profits? Certainly. Enough worry about rates of interest and growth to cause a flight to safety in assets that range from gold to consumer staples? Certainly.

Looking out over the next six to 12 months, I think shifting portfolios to include more non-U.S. equities makes sense. In the near term, a stronger dollar will increase the sales of overseas companies. In the longer term, a decline in the dollar as the Federal Reserve stops raising interest rates will give investors in non-dollar-denominated assets a decent exchange-rate profit. I also think looking to U.S. consumer companies that represent safety from inflation and strong guarantees of growth is a solid strategy.

http://moneycentral.msn.com/content/P131828.asp

Haven't seen a post that good in a minute.

All I have to say is, "make sure you are diversified in your portfolios"

Greed
11-13-2005, 03:23 PM
Inflation Views Could Change Under Bernanke
By RACHEL BECK, AP Business Writer
Fri Nov 11, 1:18 PM ET

NEW YORK - Trying to fix something that isn't broken has its risks, and that's raising concerns about a possible shift at the Federal Reserve over how it tackles inflation.

Assuming the Senate confirms Ben Bernanke to replace Chairman Alan Greenspan, the central bank could for the first time in its history adopt a specific target for the inflation rate and then make adjustments to interest rates as a way of trying to keep it in that range.

But is that really necessary? It may be tough to see the need now, given that the Fed's current tactics have kept inflation remarkably tame despite soaring energy costs.

This topic has come under great debate in economics circles since Bernanke was tapped last month to succeed Greenspan, who is expected to leave the Fed on Jan. 31 after 18-plus years during which there were two stock-market collapses and economic recessions as well as numerous other financial crises.

While Greenspan has long pursued a low-inflation policy during his tenure, he has been against setting an actual "inflation target," whereby the Fed discloses its goal and its forecast for inflation. His view is that the Fed can control inflation without setting a specific rate that it must then chase, which he believes could hamper its flexibility to act in a time of need.

That stance has proven successful time and again, including in the last year as energy prices have skyrocketed but the core inflation rate — as measured by the consumer price index excluding energy and food costs — has remained at only around 2 percent, low by most standards.

The Fed has done that by raising the rate that banks charge each other on overnight loans, known as the federal funds rate, in 12 quarter-point increments so that it now stands at 4 percent. The Fed began its current credit tightening cycle in June 2004 when the funds rate stood at a 46-year low of 1 percent.

Like Greenspan, Bernanke — a former Fed governor who now serves as President Bush's top economic adviser — favors low inflation, but he wants to be more forthcoming and open about what that actually means.

He has argued in the past that by setting an inflation target, it will lead to a more stable economic environment because businesses and consumers would be more certain about how the Fed will deal with interest rates and inflation. Bernanke has also said that in times of financial crises, the Fed could depart from its normal rules to do whatever it can to stabilize the economy.

Supporters say such change would raise the Fed's accountability and limit the discretion of future Fed leaders. In addition, they point to the successes abroad, with many countries including Australia and Sweden as well as the European Central Bank now employing some inflation targeting.

"The Fed has gained a lot of credibility under Greenspan's tenure, and all Bernanke is saying is that we can reinforce that by setting an inflation target," said Lyle Gramley, a former Fed governor in the early 1980s who now is a senior economic adviser at Stanford Washington Research Group. "This will make it explicit to the public what the Fed's expectations are."

Still, there are many questions over whether there is any need for such a change, something that will likely be addressed during his confirmation hearing before the Senate Banking Committee on Nov. 15.

One issue is whether "Bernanke would want to target a growth range on inflation, not a specific price index level, because a miss in the target could prove extremely punishing on the economy," Merrill Lynch economist Kathleen Bostjancic said in a note to clients.

For instance, she notes, if the Fed's target for core CPI is 2 percent for the year, but actual inflation comes in at 2.5 percent, then inflation would have to come in well under 2 percent in the following year to meet the target. And getting to that level could require a considerable slowdown in the economy, presumably triggered by the Fed cranking up borrowing costs.

Another point is whether an explicit inflation target would actually improve economic performance. Wells Fargo economist Eugenio Aleman says that even without an inflation targeting mechanism, the U.S. economy has had superior economic growth than many countries that implemented inflation targeting.

There is also the issue of whether setting an inflation target would subordinate the Fed's other Congressional mandate to maintain a sustainable level of employment. The worry is that the Fed will become more interested in meeting its inflation goals rather than creating job growth.

The good news is that Bernanke is known as a consensus builder. Chances are that he won't rush to push his agenda, but will work to convince those who are opposed of its merits. That, however, could be a mighty hard task.

http://news.yahoo.com/s/ap/20051111/ap_on_bi_co_ne/all_business;_ylt=At4nhvV5tPy7DnzKBJB32AHv5rEF;_yl u=X3oDMTBjMHVqMTQ4BHNlYwN5bnN1YmNhdA--

Greed
11-29-2005, 06:37 PM
Weird Economic Reactions
By Motley Fool Staff
Fri Nov 25,10:11 AM ET

Why does the stock market often tank when there's good economic news reported? Well, it's usually related to interest rates. Alan Greenspan and his buddies at the Federal Reserve set interest rates, trying to keep inflation at bay and promote a healthy economic environment. When positive economic news is released, such as lower unemployment figures, rising wages, or growing national productivity, the specter of possible inflation is raised. Economies growing too quickly can spur inflation, with too much currency in the marketplace leading to the weakening of the dollar and rising prices.

To stem inflation, the Fed notches up interest rates to decrease the amount of borrowing and slow down the economy. Rising interest rates render bonds more attractive, as they offer fixed incomes. Investors pull money back from stocks, which are hit doubly with the threat of shrinking corporate earnings and with the attractiveness of growing bond yields.

Got that? Maybe reread it once or twice. It's a bit complicated and can hurt your head until it sinks in.

http://news.yahoo.com/s/fool/20051125/bs_fool_fool/113293150203;_ylt=ApZV8HUpSsA3liJHbiuXhZnv5rEF;_yl u=X3oDMTBjMHVqMTQ4BHNlYwN5bnN1YmNhdA--

Greed
11-29-2005, 06:40 PM
Global Work Force Helps Fed on Inflation
By MARTIN CRUTSINGER, AP Economics Writer
Sun Nov 27, 9:47 PM ET

While Alan Greenspan has won praise for his successful 18-year battle to keep inflation under control, he's the first to say he's had a lot of help. Among those most responsible are tens of millions of workers in China, India and Eastern Europe.

Adding all those workers to the global economy has made the Federal Reserve's inflation-fighting job easier by increasing competition. That has helped hold down labor costs — the biggest single expense for employers — and, as a result, prices.

It has come at a cost: Many of the jobs being done overseas used to be in America.

Last week, General Motors Corp. announced plans to cut more than a quarter of its North American manufacturing jobs — 30,000 in all — and close 12 facilities by 2008. Those cuts will be added to the more than 3 million manufacturing jobs — one in six — that have been lost since mid-2000.

"U.S. manufacturing jobs have withered over the past five years and many of those jobs are never coming back," said Mark Zandi, chief economist at Moody's Economy.com, a private consulting firm.

For those U.S. workers who still have jobs, the pressure on their wages has intensified as companies use the threat of moving more production overseas — where labor is far cheaper — as a way to extract concessions from their U.S. workers.

This phenomenon has hit manufacturing the hardest. But service workers are starting to be hurt as well. The ability to transmit digitally massive amounts of information to faraway places has led companies to send overseas jobs in such high-tech areas as architecture, computer software, medical services and engineering.

"It is one thing to celebrate keeping inflation in check. It is another thing to celebrate that living standards are stagnant or falling for most American workers," said Thea Lee, policy director for the AFL-CIO.

All the goods flowing into the U.S. from overseas have produced a record trade deficit that must be financed by borrowing from abroad.

In 1987, the year Greenspan took over as Fed chairman, the U.S. had a deficit in its current account, the broadest measure of trade, of $160.7 billion. Last year, that deficit set a record of $668.1 billion and is projected to go even higher this year.

Like most economists, Greenspan is an ardent supporter of free trade and has said the current account deficit should improve gradually without destabilizing the U.S. economy.

Other economists worry that foreigners suddenly might decide to stop holding so many U.S. investments, driving down the dollar's value against other currencies, as well as U.S. stock and bond prices.

Greenspan also has a benign view about how the U.S. can deal with workers who have lost jobs and or seen their wages depressed because of foreign competition. He thinks the country can solve this problem by doing a better job of educating workers so they have the skills they need for the high-tech jobs of the future, rather than the low-skill jobs that increasingly are moving to other countries.

That solution, Greenspan believes, will help combat the growing wage inequality in the U.S. This trend has seen incomes for high-income Americans rise sharply while the wages of low-income workers have been stagnant.

According to figures from the Census Bureau, the top 20 percent of U.S. households earned 50.1 percent of all income last year while the bottom 20 percent received just 3.4 percent of total income.

Other analysts are not so sure that Greenspan's approach will work, especially given that high-tech jobs are being sent to countries with well-educated workers who earn far less than Americans.

"The idea that you can educate yourself out of this problem is not accurate any more," said Jared Bernstein, an economist at the Economic Policy Institute, a liberal think tank in Washington.

Greenspan had a different worry in recent congressional testimony. He said the Fed and other central banks will have to be diligent about fighting inflation once the beneficial effect of the huge increase in the global work force begins to wane.

Greenspan will step down as Fed chairman at the end of January, so that will be a problem for Ben Bernanke, his designated successor.

http://news.yahoo.com/s/ap/20051128/ap_on_bi_ge/jobs_inflation;_ylt=AuueMihiPoQm9Z7hlzHG1M7v5rEF;_ ylu=X3oDMTBjMHVqMTQ4BHNlYwN5bnN1YmNhdA--

Makeherhappy
11-30-2005, 12:53 AM
It's going to get worse.

When Delphi wants to pay their factory employees as low as $9 dollars an hour. That's a very bad sign. Since their average is about $26 dollars an hour, that's a hell of a decrease.

On a different note,

anyone know, or have purchased any of these:

http://libertydollar.org/

Greed
12-13-2005, 02:12 PM
Fed lifts rates, shifts language
By Tim Ahmann
25 minutes ago

WASHINGTON (Reuters) - The Federal Reserve on Tuesday lifted a key U.S. interest rate for a 13th straight time and signaled that while it is not yet done raising rates, its 1-1/2 year credit-tightening campaign is winding down.

As widely expected, the U.S. central bank's rate-setting Federal Open Market Committee voted unanimously to increase the benchmark federal funds rate by a quarter-percentage point to 4.25 percent, the highest level since April 2001.

In a statement, the Fed dropped its long-standing characterization of policy as accommodative, or stimulative -- a recognition rates have risen to a more-normal level from a 1958 low of 1 percent hit in mid-2003, during the tepid economic recovery.

But the Fed also repeated an expectation it would likely need to push rates up further to keep inflation at bay, suggesting at least one more quarter-point hike ahead.

"The committee judges that some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance," the Fed said.

Some analysts thought the Fed would begin shifting its language to provide Fed Chairman Alan Greenspan's designated successor, White House adviser Ben Bernanke, wide latitude to shape the future policy course.

Bernanke needs just a final Senate vote of approval to take the reins on February 1, the day after the last rate-setting meeting of Greenspan's 18-year tenure.

Policy-makers say there is no way to know for certain where interest rates might eventually settle, and analysts caution that the central bank might want to go beyond neutral to allay inflation concerns.

According to minutes from the Fed's last rate session on November 1, officials thought "policy-setting would need to be increasingly sensitive to incoming economic data."

The Fed began the current rate rise cycle in June 2004 when overnight borrowing costs stood at a 1958 low of 1 percent. At that time, it was clear they needed to move up.

Now, however, many economists believe rates are near a neutral level that neither spurs nor curbs economic growth. And many expect the Fed to call off its credit-tightening campaign after another increase or two.

For the most part, the economy has shown signs of vigor despite taking a late-summer beating from deadly Gulf Coast hurricanes.

Despite the storms, the U.S. economy grew at a brisk 4.3 percent annual pace in the third quarter. While the hurricanes restrained job growth in September and October, hiring picked up sharply last month.

There have been signs, however, that the roaring U.S. housing market is finally cooling, which could take away one source of support for consumer spending.

A government report released just before the rate meeting began showed that retail sales rose only 0.3 percent last month, reinforcing private-sector forecasts for a slower pace of economic growth in the final three months of the year.

"This was a disappointing number relative to expectations and certainly consistent with the idea that consumer spending is going to be a much smaller contributor to economic growth in the fourth quarter," said Chris Probyn, chief economist at State Street Global Advisors in Boston.

However, Fed officials were likely to view the relative softness of fourth-quarter growth as a reflection of a hurricane-driven spike in energy prices that has put them on high alert for signs this is fostering broader inflation.

While energy costs have receded from post-storm peaks, oil prices are still above $60 a barrel and natural gas costs are expected to stay elevated through the winter heating season.

So far, this does not appear to be a widespread problem. Although overall consumer prices have shot up 4.3 percent over the past year, core inflation -- which strips out volatile food and energy -- has risen a more-modest 2.1 percent.

"Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures," the Fed said in its post-meeting statement.

http://news.yahoo.com/s/nm/20051213/bs_nm/economy_fed_dc;_ylt=AlX.lBpIjoKeAvuWGi3JxBtZ.3QA;_ ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl

carlitos
12-13-2005, 11:47 PM
some good reads on the economy..like 1 bro said,diversify..

QueEx
01-01-2006, 12:17 PM
<font size="5"><center>American economy set for another good run</font size></center>

Sunday Times (London)
IRWIN STELZER
American Account


THE YEAR that ended yesterday was a pretty good one in America — unless you made American cars, worked for an airline, or lived in the path of Hurricane Katrina. And, sadly, unless you had a loved one killed or maimed in Iraq.
Most people got richer. Yes, share prices disappointed, but more people own houses than shares, and house prices rose by 13% on average. Corporate profits chalked up double-digit gains, continuing a three-year run of such increases.

The jobs market strengthened to a point where just about anyone serious about getting a job could find one. Economists at Goldman Sachs estimate that when the final tally for the year is in, more than 2m new jobs will have been created, and the unemployment rate, which began the year at 5.2%, will have fallen to 4.9%.

Despite a slowing in the last quarter, the economy racked up another respectable growth rate — about 3.5%, driven in part by a housing industry that built close to 2m new homes for immigrants getting on the first rung of the housing ladder, Americans who decided that they can afford bigger homes with the now-requisite media centres and baby boomers who are snapping up second homes in which to spend part of what will undoubtedly be their golden years.

Investment bankers returned to the glory days, closing almost $3,000 billion of deals and are counting their bonuses in six, seven and even eight figures. The revenues from deals for each of the big four banks passed $1 billion for the first time. And that doesn’t include revenues from trading and other activities, all of which contribute to record bonus pools, smiles on the faces of upmarket property salesmen, busy days in Porsche showrooms and, less publicised, sizeable increases in charitable giving.

Equally important, lots of bad things did not happen in 2005. The dollar did not collapse under the weight of a record trade deficit. House prices did not collapse under the weight of rising interest rates. The economy did not collapse under the weight of $70 oil and a hurricane that ravaged the nation’s oil and transport infrastructure. And President George Bush did not appoint an incompetent to succeed the fabled Alan Greenspan as chairman of the Federal Reserve Board.

So much for the past. Is it prologue? Probably. As petrol prices fall from $3 a gallon to nearer $2, consumer confidence has recovered to pre-Katrina levels. That is not the best predictor of consumer behaviour, but, with jobs plentiful, it suggests that consumer spending is unlikely to collapse.

Meanwhile, all signs point to a surge in business spending. A survey by the Institute for Supply Management and Financial Executives International shows that American companies plan to increase purchases of equipment, software, and other items by 9% in the new year. Balance sheets are in good shape, and every measure of chief- executive confidence is at or near record levels.

All this cheer exists despite the likelihood that the Fed will continue to ratchet up interest rates. The new chairman, Ben Bernanke, will not want to use his first day in the chair to bring the round of rate rises, 13 so far, to an end. That’s a good thing. Inflation, although not threatening to get out of hand, is close to the top of the Fed’s 1%-2% comfort range. An unemployment rate of 5%, or even lower, indicates a tight job market in which wage pressures are mounting, especially for skilled workers. Capacity- utilisation rates are now high enough for many boardrooms to be treated to Power Point presentations about the return of pricing power, and for supply-chain bottlenecks to be popping up. And Opec has decided that, although $70 oil might threaten a demand-reducing recession and a shift from fossil fuels, $50 is a good, safe target number, more enriching than the $28-a-barrel price the Saudis not so long ago promised to maintain as a ceiling.

So it would not be surprising if the Fed called a halt only after pushing rates to 5%, to the consternation of critics who fear Fed overshoot. They correctly point out that the housing market is slowing, with mortgage applications down and inventories of unsold homes up, and orders for durable goods other than aircraft have been disappointing. True, too, we have not seen an end of the productivity miracle that continues to allow output to expand while unit labour costs are contained. And it is also true that the relationship between short-term and long-term interest rates is now such that many observers see a recession in the offing.

Those facts are grist for the mill of Greenspan’s critics, who say that further increases in interest rates will repeat a frequent Fed error of raising rates more than is required to contain inflation, thereby pushing the economy into recession.

But the history of the past 18 years suggests that it is better to bet on Greenspan and the Fed than on his critics. Look elsewhere than the Fed boardroom if you want something to worry about in the new year. A loony left-wing Venezuelan president could shut down his oil industry; China could decide to unload some of its dollar hoard, driving the greenback down and interest rates to recession-producing levels; Congress could continue to match trivial spending cuts with generous tax cuts, forcing interest rates still higher; the president’s critics could force a premature withdrawal from Iraq, leaving neighbouring oil-producing countries at the mercy of anti-western Islamists; the opaque hedge-fund industry could precipitate a systemic banking crisis.

My advice: don’t worry about things you can’t do anything about. Have a happy New Year.

Irwin Stelzer is a business adviser and director of economic policy studies at the Hudson Institute




http://www.timesonline.co.uk/article/0,,2095-1965096,00.html

Greed
01-04-2006, 05:12 PM
another good run? havent we been told the shit has been horrible for the last 3 years. damn, how did i miss the good news.

VegasGuy
01-04-2006, 05:37 PM
another good run? havent we been told the shit has been horrible for the last 3 years. damn, how did i miss the good news.

Yeah, what you said.

-VG

Makeherhappy
01-04-2006, 06:59 PM
another good run? havent we been told the shit has been horrible for the last 3 years. damn, how did i miss the good news.

That is funny.

Well I guess it depends on where you have your money..

My 401k was up 15% last year, 32% the previous year, and a modest 6% the year before.

The world economy will outpace the US economy.

We'll see about another run.

e-ternal
01-05-2006, 11:16 AM
<font size="5"><center>5 reasons the Fed will fumble in 2006</font size></center>

Was a good read!

VegasGuy
01-05-2006, 11:23 AM
Jobless Claims Hit Five-Year Low
Thursday, January 05, 2006

WASHINGTON — The number of newly laid-off workers filing claims for unemployment benefits fell to the lowest level in more than five years last week, providing strong evidence that the labor market is shaking off the effects of a string of devastating hurricanes.

The Labor Department reported Thursday that applications for unemployment benefits dropped by 35,000 to 291,000, the smallest number since Sept. 23, 2000, when the economy was in the concluding months of the longest economic expansion in history.

The decline of 35,000 claims was much better than Wall Street had been expecting and bolstered the belief that the labor market is on the mend after a rough period in the fall when Gulf Coast hurricanes caused the loss of more than 600,000 jobs over a period of four months.

The total for weekly jobless claims was far below the peak of 435,000 set the week ending Sept. 17, a period when the number of job losses attributed to Hurricane Katrina totaled 108,000.

The government stopped tracking the impact of Katrina, Rita and Wilma last week because the weekly increase in storm-related layoffs had dwindled to slightly more than 1,000. But for the four months that the storms were tracked, the combined number of layoffs blamed on the hurricanes totaled more than 600,000.

The better-than-expected improvement in the layoff picture for last week was certain to raise hopes for a solid performance in job growth for December.

Analysts are predicting that the economy probably created 200,000 new jobs last month, with the unemployment rate probably holding steady at 5 percent. That would follow 215,000 new jobs in November after two months in which job growth had stalled because of the onslaught of massive layoffs in Gulf Coast states.

Economists are predicting that 2006 will represent another year of steady growth in jobs of around 175,000 per month. That reflects their belief that the economy will keep growing at a solid pace this year as business spending to expand and modernize production facilities offsets expected slower growth in housing sales and overall consumer spending.

The Federal Reserve has raised interest rates 13 consecutive times and is expected to boost rates again at Alan Greenspan's last meeting on Jan. 31 to make sure that inflation remains in check. But the Dow Jones industrial average shot up by 130 points on Tuesday following release of Fed minutes of the December meeting that suggested the rate hikes are drawing to a close.

-VG

nittie
01-05-2006, 12:10 PM
It's going to get worse.

When Delphi wants to pay their factory employees as low as $9 dollars an hour. That's a very bad sign. Since their average is about $26 dollars an hour, that's a hell of a decrease.

On a different note,

anyone know, or have purchased any of these:

http://libertydollar.org/

Delphi has one plant I know of that pays 7.50 per hr. and the people work 12hr days 5 days a week plus weekends on top of that they are cutting health benefits and they don't match contributions to 401k's, what this economy is doing to low encome workers is criminal but it will take something like what happened in NOLA to wake people up.

muckraker10021
01-07-2006, 02:55 PM
another good run? havent we been told the shit has been horrible for the last 3 years. damn, how did i miss the good news.
<font face="arial unicode ms, microsoft sans serif, verdana" size="4" color="#333333">
Your sarcasm is absolutely correct greed. The bush junta and their sycophantic corporatist supporters have told us that the US economy is great. Fortunately you and me and the majority of Americans - over 60% - know that this economy is "GOOD" only for those who are members of what bush calls "The Ownership Society".

The typical working class American is being screwed royally by Bush Economics.
As a former managing director of a top-ten Wall Street Investment Banking Firm what the Bushies are doing is totally transparent to me. For most Americans (more than 60%) they know they are getting screwed financially - with their wages falling and their poverty rate increasing - but they are puzzled when the economic statistics come out such as, the unemployment rate & the home ownership and those statistics sound good.

Here is what's going on.

The entire US economy under Bush is being managed with one goal in mind and one goal only!! Increase corporate profits and corporate balance sheets (cash-on-hand)
Unlike Clinton or Papa Bush or even Reagan. The Bushies have nothing but disdain for the wage earning American worker. Whether you work for IBM, Federal Express, Cisco, Ford, Disney, etc. or you are a Republican or a Democrat.
THEY DON'T GIVE A SHIT ABOUT YOU!

If you are a member of "The Ownership Society".- which means
1.- You have substantial assets ( more than $250,000) in the stock and bond market EXCLUDING your 401K

2 - You own your own home or homes with positive equity.

3- The major part of your financial compensation consist of equities (stocks & stock options)

4 - You are personally incorporated as a limited liability corporation. ( a consultant)

If you are in this group of Americans then you have done very well under Bush.
As a member of "The Ownership Society" - I have done very well under Bush Economics, but I am not imbued with the virtue of selfishness arrogance that I can't see or care what Bush Economics is doing to America.

The best government can do for the economy, Bush RepubliKlans argued, is to boost the "supply side"--that is, favor wealth holders so they will have more capital to invest in new factories and production. This logic led to huge tax cuts for high-end citizens and for business and Declining Wages, Increased Poverty and EXPLODING DEBT for the "average working stiff" ( yes this is what too many of members of "The Ownership Society" call people who work a 9 -5)

Retiring Fed Chair Alan Greenspan was the perfect chairman for this era. He deliberately restrained economic growth for many years, effectively suppressing employment and wages.

READ :The One-Eyed King by WILLIAM GREIDER if you want to fully understand what Greenspan did under Bush and why he didn't do it under Clinton or Papa Bush.
http://www.thenation.com/docprint.mhtml?i=20050919&s=greider

Now let us take a look at how the "average working stiff" has done under Bush Economics
<img src="http://bigpicture.typepad.com/photos/uncategorized/bupdown_c04222005203757.gif">
<font color="#ff0000">
The remorseless decline in wages as a percentage of personal income has reached an historic low of 62% (the chart to your left). Meanwhile, consumer spending as a percentage of wages continues to spiral upward (the chart to your right). In the past three years, "average working stiff" consumers, determined to live beyond their means, leaned a lot more heavily on borrowings ($675 billion of non-mortgage debt) than paychecks ($530 billion) to cover the $1.3 trillion increase in their spending.</font>

Below are a few articles for you peeps who want to know why the "good" economic numbers you hear in the corporate media don't comport with the reality that any small amount of research will reveal.</font>

<hr noshade color="#0000ff" size="14"></hr>
<font face="arial unicode ms, microsoft sans serif, verdana" size="4" color="#333333">
• The poverty rate has risen steadily every year since Bush's election in 2000, from 11.3 percent to 12.7 percent in 2004.

• For the first time on record household income also failed to rise for a record fifth straight year.

• Median household income was at its lowest point since 1997.
<font color="#0000FF">
Rev. David Beckmann, president of Bread for the World says -
“As real estate prices and the stock market rose, not much has been done for working families trying to make ends meet. Trickle down economic polices are meaningless in the face of these numbers.”</font></font>


<img src="http://proquest.umi.com/i/pub/7818.gif">
<font face="arial black" size="5" color="#d90000">
Poverty in U.S. Grew in 2004, While Income Failed to Rise for 5th Straight Year
</font><b>
<font face="Trebuchet ms, arial Unicode ms, verdana" size="3" color="#000000">
David Leonhardt. New York Times. Aug 31, 2005.</b>

Even as the economy grew, incomes stagnated last year and the poverty rate rose, the Census Bureau reported Tuesday. It was the first time on record that household incomes failed to increase for five straight years.

The portion of Americans without health insurance remained roughly steady at 16 percent, the bureau said. A smaller percentage of people were covered by their employers, but two big government programs, Medicaid and military insurance, grew.

The census's annual report card on the nation's economic well-being showed that a four-year-old expansion had still not done much to benefit many households. Median pretax income, $44,389, was at its lowest point since 1997, after inflation.

Though the reasons are not wholly clear, economists say technology and global trade appear to be holding down pay for many workers. The rising cost of health care benefits has also eaten into pay increases.

After the report's release, Bush administration officials said that the job market had continued to improve since the end of 2004 and that they hoped incomes were now rising and poverty was falling. The poverty rate ''is the last, lonely trailing indicator of the business cycle,'' said Elizabeth Anderson, chief of staff in the economics and statistics administration of the Commerce Department.

The census numbers also do not reflect the tax cuts passed in President Bush's first term, which have lifted the take-home pay of most families.

But the biggest tax cuts went to high-income families already getting raises, Democrats said Tuesday. The report, they added, showed that the cuts had failed to stimulate the economy as the White House had promised.
<span style="background-color: #FFFF00"><b>
''The growth in the economy is not going to families,'' said Senator Jack Reed, Democrat of Rhode Island. ''It's in stark contrast to what happened during the Clinton administration.''</b></span>

The main theme of the census report seemed to be the lingering weakness in compensation and benefits, even as the ranks of the unemployed have dwindled. Fewer people are getting health insurance from their employers or from policies of family members, while raises have generally trailed inflation.

Last year, households kept income from falling by working more hours than they did in 2003, the data showed. The median pay of full-time male workers declined more than 2 percent in 2004, to $40,800; for women, the median dropped 1 percent, to $31,200. When some people switch to full-time work from part-time, they can keep household incomes from dropping even when the pay of individual workers is declining.
<span style="background-color: #FFFF00"><b>
''It looks like the gains from the recovery haven't really filtered down,'' said Phillip L. Swagel, a resident scholar at the American Enterprise Institute, a conservative research group in Washington. ''The gains have gone to owners of capital and not to workers.''</b></span>

There has always been a lag between the end of a recession and the resumption of raises, Mr. Swagel added, but the length of this lag has been confounding.

In addition, the poverty rate rose last year for working-age people, those ages 18 to 64. The portion of people age 65 and older in poverty fell, while child poverty was essentially flat.

Over all, the poverty rate increased to 12.7 percent, from 12.5 percent in 2003. Poverty levels have changed only modestly in the last three decades, rising in the 1980's and falling in the 1990's, after having dropped sharply in the 1960's. They reached a low of 11.1 percent in 1973, from more than 22 percent in 1960.

In the same three decades that poverty has remained fairly steady, median incomes have grown significantly, lifting living standards for most families. After adjusting for inflation, the income of the median household, the one making more than half of all others and less than half of the rest, earns almost one-third more now than it did in the late 1960's.

But income inequality has also risen in that time and was near all-time highs last year, the Census Bureau reported. The census numbers do not include gains from stock holdings, which would further increase inequality.

In New York, the poverty rate rose last year to 20.3 percent, from 19 percent, making it the only city of more than one million people with a significant change. The reason for the increase was not obvious.

Among populous counties, the Bronx had the fourth-highest poverty rate in the nation, trailing three counties on the Texas-Mexico border.

Many economists say the government's statistics undercount poverty in New York and other major cities because the numbers are not adjusted for cost of living. A family of two parents and two children is considered poor if it makes less than $19,157 a year, regardless of whether it lives in a city where $500,000 buys a small apartment or a mansion.

Households in New Hampshire made more last year ($57,400 at the median) than in any other state, while those in West Virginia made the least ($32,600). Fairfax County in Virginia ($88,100) and Somerset County in New Jersey ($84,900) were the counties with the highest earnings, the census said.

The decline in employer-provided health benefits came after four years of rapidly rising health costs. The percentage of people getting health insurance from an employer fell to 59.8 percent last year, from 63.6 percent in 2000. The percentage receiving it from the government rose to 27.2 percent, from 24.7 percent.

The trend is likely to continue unless the job market becomes as tight as it was in the late 1990's and companies decide they must offer health insurance to retain workers, said Paul Fronstin, director of the health research program at the Employee Benefit Research Group, a nonpartisan organization in Washington.

The numbers released Tuesday showed a slight decline in median income, but the bureau called the drop, $93, statistically insignificant.

The Midwest, which has been hurt by the weak manufacturing sector, was the only region where the median income fell and poverty rose. Elsewhere, they were unchanged.

Since 1967, incomes have failed to rise for four straight years on two other occasions: starting in the late 1970's and in the early 1990's. The Census Bureau does not report household income for years before 1967, but other data show that incomes were generally rising in the 40's, 50's and 60's.

</font>

<hr noshade color="#0000ff" size="14"></hr>


<font face="arial black" size="5" color="#d90000">
Don&rsquo;t Confuse the Jobs Hype with the Facts</font>
<font face="Trebuchet ms, arial Unicode ms, verdana" size="3" color="#000000">

<br><strong>By <a href="http://www.vdare.com/roberts/bio.htm">Paul Craig Roberts</a></strong>
<br><strong>December 2nd 2005 </strong>
<br>The November payrolls job report was announced Friday with the usual misleading hype. Spinmeisters made the most out of the 215,000 jobs. Looking beyond the glitter at the real facts, this is what we see. 21,000 of those jobs were <a href="http://www.vdare.com/roberts/050214_jobs.htm">government jobs</a> supported by <a href="http://www.vdare.com/roberts/tax.htm">taxpayers</a>. There were only 194,000 new jobs in the private sector. Of those new jobs, 37,000 are in construction and only 11,000 are in manufacturing. The bulk of the new jobs&mdash;144,000&mdash;are in domestic services.
<br>Wholesale and retail trade account for 20,000. Food services and drinking places (<a href="http://www.vdare.com/sailer/end_of_immigration.htm">waitresses</a> and <a href="http://www.google.com/url?sa=t&amp;ct=res&amp;cd=10&amp;url=http://www.vdare.com/pb/marketing_malt_liquor.htm&amp;ei=n_uQQ8GOIY_I-QH6zuHCBw&amp;sig2=w5v9U-YI72aQoZ36mntrKw">bartenders</a>) account for 38,000. <a href="http://www.vdare.com/misc/levin_illegals_in_er.htm">Health care</a> and <a href="http://www.vdare.com/rubenstein/welfare.htm">social assistance</a> account for 27,000. Professional and business services account for 29,000. Financial activities gained 13,000 jobs. Transportation and warehousing gained 8,000 jobs.
<br>Very few of these jobs result in tradable services that can be exported or help to close the growing gap in the US balance of trade.
<br>The 11,000 new factory jobs and the 15,000 of the previous month are a relief from the usual loss. However, these gains are more than offset by the job cuts recently announced by General Motors and Ford.
<br>Despite the gain in jobs, total hours worked declined as the average workweek fell to 33.7 hours. The decline in the labor force participation rate, a consequence of the shrinkage in well-paying jobs, masks a higher rate of unemployment than the reported 5 percent. The ratio of employment to population fell again in November.
<br>Average hourly earnings (up 3.2 percent over the last year) are not keeping up with the consumer price index (up 4.3 percent). Consequently, real incomes are falling.
<br>This is not the picture of a healthy economy in which growth in high productivity, high value-added jobs fuel the growth in consumer demand and provide savings to finance Washington&rsquo;s red ink. What we are looking at is an economy that is coming unglued from the loss of jobs that provide ladders of upward mobility and from massive trade and budget deficits that are resulting in unsustainable growth in indebtedness to foreigners.
<br>The consumer price index measures inflation at 4.3 percent over the past year. Many people, experiencing household budgets severely impacted by fuel prices and grocery bills, find this figure unrealistically low. PNC Financial Services has a <a href="http://www.pncchristmaspriceindex.com/pressrelease.htm">Christmas price index</a> consisting of the gifts in the song, <a href="http://www.pncchristmaspriceindex.com/pressrelease.htm">&ldquo;The 12 Days of Christmas.&rdquo;</a> The index reports that the cost of the collection of gifts has risen 6 percent since last Christmas. Some of the gifts have risen substantially in price. Gold rings are up 27.5 percent, and pear trees are up 15.4 percent. The cost of labor (<a href="http://www.local802afm.org/publication_entry.cfm?xEntry=62525592">drummers drumming</a>, maids-a-milking) has remained the same.
<br>Populations are hard pressed when the prices of goods rise relative to the price of labor, because this makes it impossible for the population to maintain its standard of living.
<br>The US economy has been kept alive by low interest rates, which fueled a real estate boom. Consumers have kept growth alive by refinancing their home mortgages and spending the equity in their houses. Their indebtedness has risen.
<br>Debt-fueled growth is qualitatively different from economic growth that results from an increase in high value-added jobs. Economists who look at the 3+ percent economic growth rate and conclude that things are fine are fooling themselves and the public. When the real estate boom ends, what will be the source of new spending power?
</font>

nittie
01-07-2006, 03:40 PM
Your sarcasm is absolutely correct greed. The bush junta and their sycophantic corporatist supporters have told us that the US economy is great. Fortunately you and me and the majority of Americans - over 60% - know that this economy is "GOOD" only for those who are members of what bush calls "The Ownership Society".

The typical working class American is being screwed royally by Bush Economics.
As a former managing director of a top-ten Wall Street Investment Banking Firm what the Bushies are doing is totally transparent to me. For most Americans (more than 60%) they know they are getting screwed financially - with their wages falling and their poverty rate increasing - but they are puzzled when the economic statistics come out such as, the unemployment rate & the home ownership and those statistics sound good.

Here is what's going on.

The entire US economy under Bush is being managed with one goal in mind and one goal only!! Increase corporate profits and corporate balance sheets (cash-on-hand)
Unlike Clinton or Papa Bush or even Reagan. The Bushies have nothing but disdain for the wage earning American worker. Whether you work for IBM, Federal Express, Cisco, Ford, Disney, etc. or you are a Republican or a Democrat.
THEY DON'T GIVE A SHIT ABOUT YOU!

If you are a member of "The Ownership Society".- which means
1.- You have substantial assets ( more than $250,000) in the stock and bond market EXCLUDING your 401K

2 - You own your own home or homes with positive equity.

3- The major part of your financial compensation consist of equities (stocks & stock options)

4 - You are personally incorporated as a limited liability corporation. ( a consultant)

If you are in this group of Americans then you have done very well under Bush.
As a member of "The Ownership Society" - I have done very well under Bush Economics, but I am not imbued with the virtue of selfishness arrogance that I can't see or care what Bush Economics is doing to America.

Ok I'll admit I'm part of this group but what I want to know is are the interest of the working class sustainable or will they go the way of the dinosaur and can anything be done to stop it? My first million I attributed to luck but the ones to come are a direct effect of hard work and believe me I mean hard, so...is keeping the middle class afloat a pipe dream or what?

Greed
01-12-2006, 04:12 PM
Record Share Of Economy Spent on Health Care
By Marc Kaufman and Rob Stein
Washington Post Staff Writers
Tuesday, January 10, 2006; A01

Rising health care costs, already threatening many basic industries, now consume 16 percent of the nation's economic output -- the highest proportion ever, the government said yesterday in its latest calculation.

The nation's health care bill continued to grow substantially faster than inflation and wages, increasing by almost 8 percent in 2004, the most recent year with near-final numbers.

Spending for physicians and hospitals shot up considerably faster than in recent years, while drug costs grew at a slower rate than over the past decade.

Even as health care costs continue to escalate, however, many Americans -- especially minorities and the poor -- still do not receive high-quality care, according to two other federal reports yesterday. The quality of health care is improving slowly and some racial disparities are narrowing, the reports found, but gaps persist and Hispanics appear to be falling even further behind.

"We can do better," Health and Human Services Secretary Mike Leavitt said at a Washington conference on racial and ethnic disparities in health care. "Disparities and inequities still exist. Outcomes vary. Treatments are not received equally."

Political, medical and economic leaders and experts have long warned that health care cost trends will gradually overwhelm the economy, and many companies now complain that employee and retiree health costs are making them less competitive. Yesterday's report added new reasons to worry.

The overall cost of health care -- everything from hospital and doctor bills to the cost of pharmaceuticals, medical equipment, insurance and nursing home and home-health care -- doubled from 1993 to 2004, said the report from the Centers for Medicare and Medicaid Services. In 2004, the nation spent almost $140 billion more for health care than the year before.

In 1997, health care accounted for 13.6 percent of the gross domestic product.

"Americans rejected the tougher restrictions of managed care in the late 1990s, and yet they want all the latest advances in medical technology," said Drew Altman, president of the nonpartisan Kaiser Family Foundation, which researches health issues. "Since government regulation of prices and services is not in the cards, the inevitable result is higher costs."

The health care increase of 7.9 percent in 2004 was almost three times the overall national inflation rate, which was 2.7 percent. The average hourly wage for workers in private companies was essentially unchanged that year, according to the U.S. Department of Labor.

After a sharp jump in health care costs earlier in the decade, the health inflation rate appears to be plateauing, officials added.

The best news involved spending on pharmaceutical drugs, which increased by less than 10 percent for the first time in more than a decade.

Cynthia Smith of the Centers for Medicare and Medicaid Services, lead author of the health spending report, attributed the slower increase in drug spending to greater use of generic drugs and mail-order pharmacies, a slowdown in the introduction of costly new medications, and the impact of higher drug co-pays. Mark Merritt, president of the Pharmaceutical Care Management Association, which represents drug benefit managers, said the trend was also a result of their "work over the past decade to change the way consumers, clinicians and purchasers think about prescription drugs."

Although the fast rise in drug spending in the past decade attracted great attention from officials and health policy experts, it remains a relatively small part of the health care bill -- about 10 percent.

Defenders of increased drug spending have often argued that those added costs would keep people healthier and reduce the amount spent on hospitals and doctors. The 2004 statistics told a different story, however, with an increase in doctor costs of 9 percent from 2003 and an increase in hospital costs of 8.6 percent. The report's authors said the jumps appeared to be associated with higher Medicare reimbursement rates for some doctors and, anecdotally, to an upswing in construction of new hospitals.

"This is an alarming situation, but it's more like a creeping infection than a broken bone, and so people get used to it," said Edward Howard, executive vice president of the Alliance for Health Reform, a nonprofit education group chaired by Sens. John D. Rockefeller IV (D-W.Va.) and Bill Frist (R-Tenn.). "Frankly, I don't see major change until people who have some sort of organized political influence start hurting a little more."

In addition to the report on costs, a different agency yesterday released two new annual reports mandated by Congress on the quality of health care and disparities in care. Officials called them the most comprehensive assessments of their kind.

For the report by the Agency for Healthcare Research and Quality, researchers compiled data from dozens of sources collected by the federal government and others to create 179 quality measures, including 46 "core" measures.

The researchers concluded that the overall quality of care in 2005 had improved at a rate of 2.8 percent from 2003. That was the same increase as the year before, and many measures showed no improvement or even decreases.

For example, there was improvement in the percentage of patients with high blood pressure whose condition was under control, but no improvement in providing speedy treatment to people having heart attacks.

In the second report, the National Healthcare Disparities Report, researchers found more measures on which the quality gap between whites and racial minorities was shrinking than widening. But the report found that major disparities remained for all groups and that the gap had widened for Hispanics.

Of disparities experienced by blacks, 58 percent were narrowing and 42 percent were widening, the researchers found. For Hispanics, 41 percent of disparities were narrowing, whereas 59 percent were becoming larger.

http://www.washingtonpost.com/wp-dyn/content/article/2006/01/09/AR2006010901932.html

Greed
02-14-2006, 08:50 AM
Chasing Full Employment
By LOUIS UCHITELLE
February 12, 2006
Economic View

FULL employment! The United States has rarely entered that paradise. There was a hint of it in the late 1990's, but for Americans under the age of 50, the experience has been so fleeting that they may not realize full employment was once a hotly pursued goal — a condition considered so important that many politicians wanted it legislated and not left to chance.

President Franklin D. Roosevelt put full employment on the table in 1944, declaring that having a job was a basic human right. During World War II, the nation actually achieved full employment. And twice since then, Congress has considered bills that would have guaranteed a job at decent pay for every adult who wanted work. That doesn't mean everyone; lots of people don't want to work. But in a society that legislated full employment, the government would be the employer of last resort if the private sector came up short of good jobs for those who wanted them.

These are radical concepts today. Fear of another depression prompted the first debate, in the mid-1940's, and a steep recession contributed to the second, in the mid-1970's. Both bills, as finally enacted, failed to achieve their original goal. And as inflation rose in the late 70's, government shifted to fighting it, often at the expense of employment.

The old-timers who tried to legislate full employment saw it not as a desirable market phenomenon — the spinoff of a robust economy — but as a civil right, on a par with the right to vote. That is still the view of a few economists, including Amartya Sen at Harvard, whose writings on famine, poverty and other injustices won him the Nobel in economics in 1998.

"I know that people get scared of inflation and Wall Street is a natural ally in this fear," Mr. Sen said. "But the real costs of unemployment are very high. Having a job confers not only income, but social recognition and self-respect, which comes with having the sense of being wanted by society."

Out of the second Congressional debate came not full employment but a fear of it. The law that Congress finally enacted, the Humphrey-Hawkins Act of 1978, set full employment as a goal — along with low inflation. Soon, however, each was viewed as the enemy of the other and full employment, defined as the right to a job, lost out.

Full employment "was the tradition that flourished after World War II," said Helen Ginsburg, a professor emeritus of economics at Brooklyn College. "Now, it is full employment until the inflation rate goes up."

For more than two decades, the guiding thesis embraced by economists and policy makers was this: If unemployment became too low, the labor shortage would give workers the bargaining leverage to push up wages. Employers would respond by raising prices to cover the labor costs, starting an inflationary spiral deemed to be more damaging than a rising unemployment rate.

That dubious proposition kept America away from full employment. Every time the unemployment rate fell below a designated tipping point — 5 or 6 percent — the Federal Reserve would raise interest rates. The higher rates slowed the economy, muffled hiring and pushed the unemployment rate back up. The spell cast by this way of thinking did not break until the late 1990's, when the economy boomed, the unemployment rate plummeted, wages rose faster than inflation across the work force and, lo and behold, inflation remained low, although the Fed still held down interest rates.

As a result, even some Wall Street stalwarts have eased up on their insistence that low unemployment and rising wages lead to higher inflation. Listen, for example, to James Glassman, senior domestic economist at J. P. Morgan Chase & Company. "This idea that wages are a signal of coming inflation is a bad habit," he said. "Business has control over labor costs more than ever in this global economy, as so many workers unfortunately are finding out."

The late-90's hiring boom, approaching full employment, has lingered fondly in public memory. And now that the unemployment rate is falling once more — it dropped two-tenths of a percentage point last month, to 4.7 percent, its lowest level in four and a half years — there is talk again of somehow bringing back, if not full employment, then at least the late 90's version of it.

The unemployment rate, excluding teenagers, fell below 4 percent in 1998, the first time it had dropped that low since 1973. It fell to 3.3 percent in late 2000, achieving briefly what many economists define as the "full employment unemployment rate" for adults. Some, however, would put it lower.

"Two percent unemployment would certainly be a condition closer to one in which everyone seeking work would be able to land a job at a good wage," said William A. Darity Jr., an economist at the University of North Carolina in Chapel Hill.

Adult unemployment often fell well below 3 percent in the early 1950's and occasionally in the late 1960's. After that, an expanding global production network shifted work overseas, reducing the number of good jobs in America. The late-90's bubble economy was a brief exception to this trend.

So does globalization mean that for full employment to exist, there must be legislation that mandates it? A great majority of economists and politicians — liberals and conservatives, Democrats and Republicans — resist this view. They count on the markets to bring back full employment, with a smattering of tax breaks, subsidies and low interest rates to help the process. But not government as the employer of last resort.

That faith in markets, on the other hand, has not yet produced full employment. A famous British economist, William Beveridge, argued in the 1930's that full employment exists when the number of job vacancies exceeds the number of people seeking them. Only then is everyone who wants a job likely to land one, at a good wage.

The number of unfilled jobs in the United States is certainly smaller than the number of people seeking work. A survey from the Bureau of Labor Statistics showed, for example, 4.1 million job openings in December. That was well short of the 7.4 million unemployed people seeking work that month, not to mention the roughly 10 million others who say they would look for work if they thought that their hunt would be successful.

Recognizing the shortfall in the demand for workers, the federal government generated public-sector jobs in the 70's under the Comprehensive Employment and Training Act, a program that the Reagan administration ended in 1983. Mr. Darity argues that something like CETA should be revived, not to supply make-work jobs, but to satisfy pressing social needs with projects like public school construction or a national teachers corps or high-speed rail lines.

"Certainly there are areas that the private sector does not find profitable," Mr. Darity said, "but the public needs and the private sector would find useful."

http://www.nytimes.com/2006/02/12/business/yourmoney/12view.html

SABB
02-16-2006, 01:13 AM
Great post! good fucking looks.1

muckraker10021
02-17-2006, 08:56 PM
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Paul Craig Roberts is one of the few wealthy Republicans who is willing to tell the truth about where is baby bush RepubliKlan economy is really headed.

As a former Ronald Reagan administration Treasury Department official and a former Wall Street Journal editorial page writer, he knows exactly what’s going on …and Most Importantly is not willing to keep quiet just because he personally won’t be affected by Bush-Enomics.

The RepubliKlan is destroying America economically.

Check out the hyperlinks in Robert’s articles.
In my view, He is 100% on point.
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<font face="arial black" size="6" color="#D90000">Jobs News Even Worse Than We Thought </font>
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<br><strong>By Paul Craig Roberts
February 11, 2006</strong>
<br> Last week the Bureau of Labor Statistics re-benchmarked the payroll jobs data back to 2000. Thanks to Charles McMillion of <a href="http://www.mbginfosvcs.com./"> MBG Information Services </a>, I have the adjusted data from January 2001 through January 2006. If you are worried about terrorists, you don't know what worry is.
<br> Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth. That's one good reason for controlling immigration. An economy that cannot keep up with population growth should not be boosting population with heavy rates of <a href="http://www.vdare.com/guzzardi/cheap_labor2.htm"> legal </a>and <a href="http://www.vdare.com/rubenstein/041118_nd.htm"> illegal immigration. </a>
<br> Over the past five years the US economy experienced a net job loss in goods producing activities. The entire job growth was in service-providing activities—primarily credit intermediation, health care and social assistance, waiters, waitresses and bartenders, and state and local government.
<br><a href="http://www.vdare.com/roberts/all_quiet.htm"> US manufacturing </a> lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.
<br> The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is <strong>"the envy of the world." </strong> Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.
<br> The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized <strong>"new economy" </strong> never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by <a href="http://www.vdare.com/roberts/congress_capitalism.htm"> Sarbanes-Oxley, </a> accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.
<br> In five years the US economy only created 70,000 jobs in architecture and engineering, many of which are clerical. Little wonder engineering enrollments are shrinking. There are no jobs for graduates. The talk about engineering shortages is absolute ignorance. There are several hundred thousand American engineers who are unemployed and have been for years. No student wants a degree that is nothing but a ticket to a soup line. Many engineers have written to me that they cannot even get <a href="http://www.vdare.com/roberts/060131_deception.htm"> Wal-Mart jobs </a> because their education makes them over-qualified.
<br> Offshore outsourcing and offshore production have left the US awash with unemployment among the highly educated. The low measured rate of unemployment does not include discouraged workers. Labor arbitrage has made the unemployment rate less and less a meaningful indicator. In the past unemployment resulted mainly from turnover in the labor force and recession. Recoveries pulled people back into jobs. Unemployment benefits were intended to help people over the down time in the cycle when workers were laid off. Today the unemployment is permanent as entire occupations and industries are wiped out by labor arbitrage as corporations replace their American employees with foreign ones. Economists who look beyond political press releases estimate the US unemployment rate to be between 7% and 8.5%. There are now hundreds of thousands of Americans who will never recover their investment in their university education.
<br> Unless the BLS is falsifying the data or businesses are reporting the opposite of the facts, the US is experiencing a job depression. Most economists refuse to acknowledge the facts, because they endorsed globalization. It was a win-win situation, they said.
<br> They were wrong.
<br> At a time when America desperately needs the voices of educated people as a counterweight to the disinformation that emanates from the Bush administration and its supporters, economists have discredited themselves. This is especially true for <strong><a href="http://www.vdare.com/roberts/050315_economy.htm"> "free market economists" </a></strong> who foolishly assumed that international labor arbitrage was an example of free trade that was benefiting Americans.
<br> Where is the benefit when employment in US export industries and import-competitive industries is shrinking? After decades of struggle to regain credibility, free market economics is on the verge of another wipeout.
<br> No sane economist can possibly maintain that a deplorable record of merely 1,054,000 net new private sector jobs over five years is an indication of a healthy economy. The total number of private sector jobs created over the five year period is 500,000 jobs <em> less </em>than <em> one </em>year's legal and illegal immigration! (In a December 2005 Center for Immigration Studies <a href="http://www.cis.org/articles/2005/back1405.html"> report </a> based on the Census Bureau's March 2005 Current Population Survey, Steven Camelot writes that there were 7.9 million new immigrants between January 2000 and March 2005.)
<br> The economics profession has failed America. It touts a meaningless number while joblessness soars. Lazy journalists at the <em>New York Times </em> simply <a href="http://www.vdare.com/roberts/060203_jobs.htm"> rewrite the Bush administration's press releases. </a>
<br> On February 10 the Commerce Department released a record US trade deficit in goods and services for 2005—$726 billion. The US deficit in Advanced Technology Products reached a new high. Offshore production for home markets and jobs outsourcing has made the US highly dependent on foreign provided goods and services, while simultaneously reducing the export capability of the US economy. It is possible that there might be no exchange rate at which the US can balance its trade.
<br> Polls indicate that the Bush administration is succeeding in whipping up fear and hysteria about Iran. The secretary of defense is promising Americans decades-long war.
<br> Is death in battle Bush's solution to the job depression?
<br> Will Asians finance a decades-long war for a bankrupt country?
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<font face="arial black" size="6" color="#D90000">Their Own Economic Reality </font>
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<br><strong>By Paul Craig Roberts
February 15th 2006</strong>
<br>Who can forget the <a href="http://search.atomz.com/search/?sp-a=000a298a-sp00000000&sp-q=neoconservatism&sp-p=all"> neocons </a>' claim that under their leadership America creates its own reality?
<br>Remember the neocons' Iraq reality—a <a href="http://www.vdare.com/roberts/050111_ken.htm"><strong>"cakewalk" </strong> war </a>? After three years of combat, thousands of casualties, and cost estimated at over $1 trillion, real reality must still compete with the White House spin machine.
<br>One might think that the Iraq experience would restore sober judgment to policymakers. Alas, neocon reality has spread everywhere. It has infected the media and the new Federal Reserve Chairman, Ben Bernanke, who just gave Congress an upbeat report on the economy. The robust economy, he declared, could soon lead to inflation and higher interest rates.
<br>Consumers deeper in debt and fresh from their first negative savings rate since the <a href="http://www.policyreview.org/AUG01/roberts.html"> Great Depression </a> show high consumer confidence. It is as if the entire country is on an acid trip or a cocaine trip or whatever it is that lets people create realities for themselves that bear no relation to real reality.
<br>How can the upbeat views be reconciled with the Bureau of Labor Statistics' payroll jobs data, the extraordinary red ink, and exploding trade deficit?
<br>Perhaps the answer is that every economic development, no matter how detrimental, is spun as if it were good news. For example, the worsening US trade deficit is spun as evidence of the fast growth of the US economy: the economy is growing so fast it can't meet its needs and must rely on imports. Declining household income is spun as an inflation fighter that keeps mortgage interest rates low. Federal budget deficits are spun as letting taxpayers keep and spend more of their own money. Massive layoffs are spun as evidence that change is so rapid that the work force must constantly upgrade skills and re-educate itself.
<br>The denial of economic reality has become an art form. Except for Lou Dobbs, no accurate economic reporting is available in the <strong>"mainstream media." </strong>
<br>Occasionally, real information escapes the spin machine. The National Association of Manufacturers, one of outsourcing's greatest boosters, has just released a report, <strong>"US Manufacturing Innovation at Risk,"[ <a href="http://www.nam.org/s_nam/bin.asp?CID=202515&DID=236300&DOC=FILE.PDF">PDF </a>] </strong> by economists Joel Popkin and Kathryn Kobe. The economists find that US industry's investment in research and development is not languishing after all. It just appears to be languishing, because it is rapidly being shifted overseas: <strong>"Funds provided for foreign- performed R&amp;D have grown by almost 73 percent between 1999 and 2003, with a 36 percent increase in the number of firms funding foreign R&amp;D." </strong>
<br>US industry is still investing in R&amp;D after all; it is just not hiring Americans to do the R&amp;D.
<br>US manufacturers still make things, only less and less in America with American labor.
<br>US manufacturers still hire engineers, only they are foreign ones, not American ones.
<br>In other words, everything is fine for US manufacturers. It is just their former American work force that is in the doldrums.
<br>As these Americans happen to be customers for US manufacturers, US brand names will gradually lose their US market. US household median income has fallen for the past five years. Consumer demand has been kept alive by consumers' spending their savings and home equity and going deeper into debt. It is not possible for debt to forever rise faster than income.
<br>When manufacturing moves abroad, engineering follows. R&amp;D follows engineering, and innovation follows R&amp;D. The entire economy drains away. This is why the <strong>"new economy" </strong> has not materialized to take the place of the lost <strong>"old economy." </strong>
<br>The latest technologies go into the newest plants, and those plants are abroad. Innovations take place in new plants as new processes are developed to optimize the efficiency of the new technologies. The skills required to operate new processes call forth investment in education and training. As US manufacturing and R&amp;D move abroad, Indian and Chinese engineering enrollments rise, and US enrollments decline.
<br>The process is a unified whole. It is not possible for a country to lose parts of the process and hold on to other parts. That is why the <strong> "new economy" </strong> was a hoax from the beginning. As Popkin and Kobe note, new technologies, new manufacturing processes, and new designs take place where things are made. The notion that the US can lose everything else but hold on to innovation is absurd.
<br>Someone needs to tell Congress before they waste yet more borrowed money. In an adjoining column to the NAM report on innovation, the February 6 <em><a href="http://www.manufacturingnews.com/"> Manufacturing &amp; Technology News </a></em>reports that <strong> "the US Senate is jumping on board the competitiveness issue." </strong> The Bush regime and the doormat Congress have come together in the belief that the US can keep its edge in science and technology if the federal government spends $9 billion a year to <strong>"fund innovative, big-payoff ideas that have the potential to transform the US economy." </strong>
<br>The utter stupidity of the <strong> "Protecting America's Competitive Edge Act" </strong> (PACE) is obvious. The tremendous labor cost advantage of doing things abroad will equally apply to any new <strong> "big-payoff ideas" </strong> as it does to the goods and services currently outsourced. Moreover, US research is open-sourced. It is available to anyone. As the Cox Commission Report made clear, there are a large number of Chinese front companies in the US for the sole purpose of collecting technology. PACE will simply be another US taxpayer subsidy to the rising Asian economies.
<br>The assertion that we hear every day that America is falling behind because it doesn't produce enough <a href="http://www.vdare.com/rubenstein/050921_nd.htm"> science, mathematics and engineering graduates </a> is a bald-faced lie. The problem is always brought back to education failures in K-12, that is, to more education subsidies. When CEOs say they can't find American engineers, they mean they cannot find Americans who will work for Chinese or Indian wages. That is what the so-called <strong>"shortage" </strong> is all about.
<br>I receive a constant stream of emails from unemployed and underemployed engineers with many years of experience and advanced degrees. Many have been out of work for years. They describe the movement of their jobs offshore or their replacement by foreigners brought in on work visas. Many no longer even know American engineers who are employed in the profession. Some are now working in sawmills, others in Home Depot, and others are attempting to eke out a living as consultants. Many describe lost homes, broken marriages, even imprisonment for inability to make child support payments.
<br>Many ask me how economists can be so blind to reality. Here is my answer: Many economists are bought and paid for by outsourcers. Most of the studies claiming to prove that Americans benefit from outsourcing are done by economic consulting firms hired by outsourcers. Or they are done by think tanks or university professors dependent on corporate donors. Or they reflect the ideology of <strong>"free market economists" </strong> who are committed to the belief that <strong>"freedom" </strong> is good and always produces good results. Since outsourcing is merely the freedom of property to act in its interest, and since this self-interest is always guided by an invisible hand to the greater welfare of everyone, outsourcing, ipso facto, is good for America. Anyone who doesn't think so is a fascist who wants to take away the rights of property.
<br>Seriously, this is what passes for analysis among <strong>"free market economists." </strong>
<br>Economists' commitment to their <strong> "reality" </strong> is destroying the ladders of upward mobility that made America the land of opportunity. It is just as destructive as the neocons' commitment to their <strong>"reality" </strong> that is driving the US deeper into war in the Middle East.
<br>Fact and analysis no longer play a role. The spun reality in which Americans live is insulated against intelligent perception.
<br>American <strong>"manufacturers" </strong> are becoming merely marketers of foreign made goods. The CEOs and shareholders have too short a time horizon to understand that once foreigners control the manufacture-design- innovation process, they will bypass American brand names. US companies will simply cease to exist.
<br>Norm Augustine, former CEO of Lockheed Martin, says that even McDonald jobs are no longer safe. Why pay an error-prone order-taker the minimum wage when McDonald can have the order transmitted via satellite to a central location and from there to the person preparing the order. McDonald's experiment with this system to date has cut its error rate by 50% and increased its throughput by 20 percent. Technology lets the orders be taken in India or China at costs below the minimum wage and without the liabilities of US employees.
<br>Americans are giving up their civil liberties because they fear terrorist attacks. All of the terrorists in the world cannot do America the damage it has already suffered from offshore outsourcing.
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Greed
02-22-2006, 07:47 AM
Interest rates close to right after last hike: Fed
By Tim Ahmann
Tue Feb 21, 3:54 PM ET

Federal Reserve officials felt a 14th straight increase in interest rates last month put borrowing costs near where they needed to be, but agreed they could not rule out more hikes, given inflation risks.

"Although the stance of policy seemed close to where it needed to be given the current outlook, some further policy firming might be needed to keep inflation pressures contained and the risks to price stability and sustainable economic growth roughly in balance," minutes from the Fed's January 31 policy-setting meeting released on Tuesday said.

The minutes said some officials believed "somewhat" higher than desired readings on core inflation and inflation expectations reinforced the idea that further rate increases might be necessary.

"However, all members agreed that the future path for the funds rate would depend increasingly on economic developments and could no longer be prejudged with the previous degree of confidence," they said.

Meeting on Alan Greenspan's final day as chairman of the central bank, Fed officials pushed the overnight federal funds rate up by a quarter-percentage point to 4.5 percent, the latest in a string of increases dating to June 2004.

As they had at their previous meeting in mid-December, policy-makers saw inflation risks stemming both from the possibility high energy costs might bleed through to other prices and from a diminishing amount of slack in the economy.

Prices for U.S. government bonds fell after the release of the minutes, but the dollar pared gains. Major U.S. stock indexes were modestly lower, partly on concerns about higher interest rates.

Financial markets are banking on another quarter-point rate increase at the Fed's next meeting on March 27-28 and a good chance of one more by mid-year.

"If the economy slows down, more hikes would not be necessary. But right now, there should be an assumption that the Fed would push rates toward 5 percent," said Charles Lieberman, chief investment officer at Advisors Capital Management in Paramus, New Jersey.

PRICE PRESSURE AHEAD?

The minutes of the January meeting said some members believed the economy was running close to its non-inflationary capacity, a view underscored by new Fed chief Ben Bernanke in congressional testimony last week.

A few days after the Fed met, the government said the U.S. unemployment rate fell to a 4-1/2 year low of 4.7 percent in January, leading financial markets to increase bets on further Fed rate increases.

The Fed minutes showed policy-makers had already been debating whether the jobless rate, which stood at 4.9 percent in December, signaled full employment, beyond which wage-related inflation pressures would ignite.

"Some participants remarked on the uncertainties regarding the extent of remaining capacity in labor markets and the outlook for labor costs," they said.

The minutes said officials would watch closely to see if more people came into the labor market, easing tight conditions, and to see whether advances in business productivity were great enough to keep rising wages from spilling over into prices.

Officials saw high profit margins as both a possible sign of the ability of businesses to pass production costs along to consumers, and as a potential anti-inflationary buffer that could absorb future cost increases.

Fed officials felt the economy would bounce back smartly in the current quarter after a sluggish end to last year. But they expected the expansion to maintain a more sustainable pace over the next couple of years.

While core inflation, which strips out volatile food and energy prices, was seen moving up in the near term, it was expected it to remain contained over the long haul.

http://news.yahoo.com/s/nm/20060221/bs_nm/economy_fed_dc_3;_ylt=Avucwv8SKJnWloUlHzlWS5HqxQcB ;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl

Greed
02-24-2006, 05:34 PM
Why consumer pocketbooks had a rough start this millennium:
Median family income rose just 1.6 percent between 2001 and 2004, a Federal Reserve survey released Thursday shows.

By Mark Trumbull | Staff writer of The Christian Science Monitor

As Americans entered a new millennium, gains in their pocketbook slowed dramatically.

Median incomes rose just 1.6 percent after inflation during the 2001-04 period, according to data released Thursday by the Federal Reserve Board. The median family net worth, a measure of wealth that represents the sum of all assets minus liabilities, rose a similarly small 1.5 percent in that period.

Gains are better than losses, but the survey confirms and amplifies a trend of wage stagnation that is continuing to dampen American paychecks into 2006.

"It is a long-term trend," says Mark Weisbrot, an economist at the Center for Economic and Policy Research in Washington, which studies the well-being of American workers and families. "Over the past 30 years, the median wage has grown about 9 or 10 percent."

The Federal Reserve survey of consumer finances comes out every three years, and represents a more detailed portrait of family finances than the monthly economic reports that come from the Department of Labor or other government agencies.

The period studied in its new survey encompassed a rocky time for the stock market, a slow-growing job market, and a rise in both home prices and family debts.

Inflation-adjusted incomes have grown so slowly, Mr. Weisbrot says, despite solid growth in productivity. A worker today is able to produce about 80 percent more, per hour of work, than his or her counterpart 30 years ago.

"Globalization is part of the process by which the bargaining power of most employees in the United States has been drastically reduced so that they don't capture most of the gains from the economy," he says.

Thanks in large measure to a rough stock market, the 2001-04 period was not necessarily a lucrative one for the richest Americans either.

The median measure of income captures the "typical" family - with half of households above and half beneath that number. It reached $43,200 in 2004, up from $42,500 in 2001.

Yet average incomes fell, in part due to a plunge in the earnings of the top 10 percent of families ranked on a scale of net worth. Essentially, they weren't able to earn as much on their assets as in 2001. It's not that managerial salaries have fallen. But the recent period hasn't been quite the booming opportunity for capital gains and stock options that the late 1990s was.

Thus, the average American family income fell from $72,400 in 2001 to $70,700 in 2004. The average income of families in the top 10 percent of net worth fell from $273,100 to $256,000 during that period.

The net worth, meanwhile, rose somewhat for families of all levels of wealth, although not as strongly as in the late 1990s.

The median, or midpoint, for net worth rose by 1.5 percent to $93,100 from 2001 to 2004. That growth was far below the 10.3 percent gain in median net worth from 1998 to 2001, a period when the stock market reached record highs before starting to decline in early 2000.

The Fed survey found that the share of Americans' financial assets invested in stocks dipped to 17.6 percent in 2004, down from 21.7 percent in 2001.

The percentage of Americans who owned stocks, either directly or through a mutual fund, fell by 3.3 percentage points to 48.6 percent in 2004, down from 51.9 percent in 2001.

Stock ownership rates were highest in 2004 among families with higher incomes and heads of households aged 55 to 64. Overall median stock holdings fell to $24,300 in 2004, down from $36,700 in 2001. With baby boomers turning 60 this year and nearing retirement, the survey found that the percentage of families with some type of tax-deferred retirement account, such as a 401(k), fell by 2.5 percentage points to 49.7 percent of all families.

However, those who had retirement accounts saw their holdings increase. The median for holdings in retirement accounts rose by 13.9 percent to $35,200.

The Fed survey found that debts as a percent of total assets rose to 15 percent in 2004, up from 12.1 percent in 2001. Mortgages to finance home purchases were by far the biggest share of total debt at 75.2 percent in 2004, unchanged from the 2001 level.

"Three key shifts in the 2001-04 period underlie the changes in net worth," said the Fed researchers involved in the study. "First, the strong appreciation of house values and a rise in the rate of homeownership produced a substantial gain in the value of holdings of residential real estate."

Second, the rate of ownership of stocks in direct and indirect forms (such as through mutual funds) declined, as did the typical amount held.

Third, the amount of debt relative to assets surged, notably debt secured by real estate. The upshot: "Families devoted more of their income to servicing debts, despite a general decline in interest rates," the researchers said.

The fraction of families with debt payments 60 days or more overdue rose substantially, mainly among people in the bottom 80 percent of the income ladder.

The Fed survey of consumer finances is conducted between May and December of every third year, and involves interviews with several thousand US families.

http://www.csmonitor.com/2006/0224/p10s01-usec.html

Greed
03-04-2006, 10:01 AM
Economists at Odds Over Savings Rates
By ELLEN SIMON, AP Business Writer
1 hour, 30 minutes ago

Now that America's savings rate has been negative for an entire year, a first since the Great Depression, the question is whether we're a spendthrift nation on its way to the poor house or whether we're looking at the wrong numbers when we calculate savings.

The personal savings rate is, essentially, the amount of after-tax income left once household bills are paid. Maybe it's $75 for a household, maybe it's $7,500, but as a percentage of income, it's declining. The personal savings rate used to be 10 percent of disposable income from 1974 to 1984, according to the Bureau of Labor Statistics. It fell to 4.8 percent by 1994, and was negative for all of 2005. As of January, the personal savings rate was minus 0.7 percent.

With retirement looming soon for the baby boom generation, the concern is that a dearth of savings now could cause a cutoff in spending later.

Some economists say that's far-fetched. They argue the personal savings figures are artificially low, since the numbers don't include increases in assets such as equities and homes. Yale University economics professor William D. Nordhaus made that argument in 2002 congressional testimony, saying that once assets were included, the savings rate for the 1990s would have been a robust 25 percent.

European countries count capital gains and home appreciation when they calculate personal savings, said William Hummer, chief economist at Wayne Hummer Investments.

"Our savings rate is understated," he said. "I think it's wrong."

Another argument is that the wealthiest 20 percent of American families account for roughly 40 percent of consumer spending, spending roughly 4.5 times as much as the lowest 20 percent, something Citigroup's chief U.S. equities strategist Tobias M. Levkovich pointed out in a recent report. The implication: This group isn't going to run out of money anytime soon. If a healthy economy depends on the wealthiest Americans continued spending on $200 haircuts and $500 seven-ply cashmere sweaters, we can all rest easy.

His corollary argument is that some of those with the lowest earnings are retirees, who are spending money they've already socked way, so the fact that they spend $18,000 a year but earn only $9,000 should worry no one.

The other side argues that American consumers simply spend way too much.

"The decline in the U.S. personal savings rate and the dearth of internal saving raise concerns for the future," The San Francisco Federal Reserve said in a November note titled "Spendthrift Nation."

To prepare for retirement, "aging workers should be building their nest eggs and paying down debt," the note said. "Instead, many of today's workers are saving almost nothing and taking on large amounts of adjustable-rate debt with payments programmed to rise with the level of interest rates. Failure to boost saving in the years ahead may lead to some painful adjustments in the future. ...."

The note blames "ongoing credit industry innovations (the growth of subprime lending, home equity loans, exotic mortgages, etc.)" for expanding consumer access to borrowed money and reducing consumers' perceived need for precautionary savings.

It also blames individuals' eagerness to jump into "long-lived bull markets in stocks and housing," which came at the same time nominal interest rates were falling.

"Reminiscent of the widespread margin purchases by unsophisticated investors during the stock market mania of the late 1990s, today's housing market is characterized by an influx of new buyers, record transaction volume, and a growing number of property acquisitions financed almost entirely with borrowed money," the note said.

Bernard Baumohl, executive director of The Economic Outlook Group, said Americans are increasingly dependent on borrowed money. In 1980, about 78 percent of spending was financed from wages and salaries, he said. By 1990, the figure had dropped to 71 percent and it's been falling ever since. In January, it slipped to 64 percent.

"With borrowing costs on the rise and the wealth effect from real estate assets diminishing, something has to give," he said.

The federal government's stance is that we should — and will — change our ways.

The Bureau of Labor Statistics, in a report covering the employment and economic outlook for 2004 to 2014, predicted such a change.

"Over the projection period ... the personal savings rate is projected to improve gradually, from 1.8 percent in 2004 to 3.4 percent in 2014," according to the publication.

How? The Bureau projects that income will grow at a slower 2.9 percent annual rate between 2004 and 2014, but personal consumption will drop.

While economists wrangle over savings, the White House clearly thinks it's an issue. Vice President Dick Cheney, speaking at a conference on how to encourage people to boost savings and be better prepared for retirement, urged Americans Thursday to do a better job saving.

"The American dream begins with saving money and that should begin on the very first day of work," Cheney said.

http://news.yahoo.com/s/ap/20060304/ap_on_bi_ge/wall___main;_ylt=AlkV1af8GZ9k2Gb9RQXoKApI2ocA;_ylu =X3oDMTA5aHJvMDdwBHNlYwN5bmNhdA--

hoodedgoon
03-04-2006, 02:42 PM
the rich get richer, the poor get poorer. disposable income's will decrease while employment will increase slightly. basically you got more people working, making less money with rising energy prices, increase interest rates to pay for social security and the war and slowing productivity.

http://www.msnbc.msn.com/id/11668496/

Greed
03-04-2006, 08:41 PM
so despite all the articles posted in this thread you dont think bad spending habits are the real problems regarding disposable income?

or are you another believer in the "only single mother with 8 kids are in debt because they have to use their credit card to buy bread and water" train of thought?

Makeherhappy
03-05-2006, 06:07 AM
so despite all the articles posted in this thread you dont think bad spending habits are the real problems regarding disposable income?

or are you another believer in the "only single mother with 8 kids are in debt because they have to use their credit card to buy bread and water" train of thought?

Old habits are hard to break.

State of Black America: RED ALERT

Greed
03-05-2006, 10:57 AM
i agree about old habits but it seems like some people think its government's job to save people from their own bad habits.

hoodedgoon
03-05-2006, 10:04 PM
so despite all the articles posted in this thread you dont think bad spending habits are the real problems regarding disposable income?

or are you another believer in the "only single mother with 8 kids are in debt because they have to use their credit card to buy bread and water" train of thought?

You love to twist people's words and insinuate stuff they never said or even infered in their post eh. I guess the bottom 40% just have bad spending habits and the top 1% have good spending habits. Yea that's it.

http://www.faculty.fairfield.edu/faculty/hodgson/Courses/so11/stratification/income&wealth.htm

Greed
03-05-2006, 10:40 PM
yes, it is that simple.

you ever see an apartment building parking lot with dodge magnums, ugly ass chysler 300m's, and durangos? spending 30k on a car while you're renting? two money losing propositions.

you ever heard of people refinancing their houses, taking the equity out, and just spending it instead of reinvesting it in a more lucrative security?

i'm sure you have.

people make bad choices, not just the bottom 40% but people in general, but the bottom 40% can least afford to make those bad choices.

its like having a child when you cant afford it.

is that a decision people choose to make that will keep them in poverty longer.

at some point you have to stop making excuses and pretending that its official government policy to keep people poor.

at some point people have to start staying in on friday and saturdays, start IRAs and keep their damn legs closed.

avoiding poverty is not some harry potter magical secret.

it doesnt help when people like you promote that everybody is trying their best and still cant succeed.

we have class mobility in this country, stop pretending we dont.

Greed
03-05-2006, 11:14 PM
for the year 2003 reported in oct 2005

top 1% - 16.77% of income
top 5% - 31.18% of income
top 10% - 42.36% of income
top 25% - 64.86% of income
top 50% - 86.01% of income

considered top 1% if you break $295,495
considered top 5% if you break $130,080
considered top 10% if you break $94,891
considered top 25% if you break $57,343
considered top 50% if you break $29,019

couldnt find wealth, and you can click on the link if you want to know what each percentile pays cumulatively in taxes.

http://www.irs.gov/pub/irs-soi/03in05tr.xls

muckraker10021
03-10-2006, 08:43 PM
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The Rich Get (Much) Richer</font>

<font face="arial" size="4" color="#0000ff"><b>The top 1% take a fatter slice now than at any time since the 1920s</b></font>
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By Steven Rattner. AUGUST 8, 2005 </b>

Hooray for The New York Times and The Wall Street Journal for returning the problems of class in America to the front page. Shame on the rest of us, passive witnesses to the emergence of a second Gilded Age, another Roaring Twenties, in which the fruits of economic success have gone not to the broad populace but to a slim sliver at the top. For this handful, life is a sweet mélange of megafortunes, grand houses, and massive yachts. Meanwhile, the bottom 80% endures economic stagnation, including real wages that haven't risen in 14 months, according to the Bureau of Labor Statistics.

Much of the recent commentary has focused on class mobility, the opportunity for individuals to move up the ladder. But trumpeting mobility as a reason for ignoring growing income inequality is a chimera. <span style="background-color: #FFFF99"><b>Even if mobility is high -- a questionable assertion -- it is hardly a consolation for those who remain at the bottom, gazing across a growing distance at the more successful.</b></span>

We can debate a lot of economic data but not income inequality. Every serious study shows that the U.S. income gap has become a chasm. Over the past 30 years, the share of income going to the highest-earning Americans has risen steadily to levels not seen since shortly before the Great Depression.
<span style="background-color: #FFFF99">
<b>JUST HOW DRAMATIC A SHIFT over the past three decades? Economists Thomas Piketty and Emmanuel Saez calculated (using data from the Internal Revenue Service, hardly a hotbed of partisanship) that the share of income going to the top 1% of households nearly doubled, to 14.7% in 2002, up from a low of 7.7% in the early 1970s. By comparison, the income share for the top 1% peaked at 19.6% in 1928 before beginning its long slide. What is particularly alarming is that at every step up the ladder, the disparity has progressively widened. Over the past 30 years, the share of income garnered by the top 10% of Americans has grown by about a third; the share of the top 0.01% -- the 13,000 or so households with an average income of $10.8 million in 2002 -- has multiplied nearly four times.</b></span>

What's to blame for this sorry situation? Certainly globalization has taken its toll. Cheaper labor in emerging markets means relentless wage pressure on U.S. workers. Meanwhile, the fruits of American success in fast-growing services and technology remain available only to the slice of our workforce with the necessary skills. Other factors, such as an increasingly regressive tax code, have also played a role.

Growing inequality helps explain why so many Americans feel so vulnerable even as the overall economy continues to expand. Moods understandably darken when many have to take second jobs and go into debt to improve their living standards. These pressures are exacerbated by another evident trend: greater income insecurity, a result of the decreasing percentage of Americans who have certainty of pension and health-care benefits to cushion them against a loss of wages.

The renewed attention to the glacial progress of all but a few has drawn fire from an eclectic mix of those who say it isn't true, those who say it is true but it doesn't matter, and those who say we don't know enough to know whether it's true, so let's not worry about it. But a common thread among these naysayers is the fear that fretting about income disparities could lead to the redistributionist and suffocating slow-growth policies of Old Europe.

We can follow their advice and do nothing and hope that America's rising tide eventually will lift all boats proportionately -- something that has not occurred in 30 years. Or we can believe in growth capitalism while also worrying that most Americans are being left behind. As Brad DeLong, an economist at University of California at Berkeley recently wrote, historical data suggest that growth and less income inequality are not mutually exclusive objectives.

Sadly, there is no magic bullet. We need to provide more education and training to fix our problem of too many low-skilled workers. We don't need to become tax-code Robin Hoods, but we can be vigilant about tax plans -- like virtually all of President George W. Bush's -- that widen the gulf between haves and have-nots. Finally, we can provide more protection for those at risk, such as better wage insurance to cushion the effects of globalization.

If we don't pursue policies to fix inequality, social pressures may force unwise, even extremist moves, like protectionism. Income inequality is now wider in America than anywhere else in the industrialized world and on a par with that of a Third World country. Is this the American Dream?

<font color="#0000ff"><b>
Steven Rattner is managing principal of private investment firm Quadrangle Group which manages billions and is the former deputy chairman of Lazard.
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Graduates Versus Oligarchs</font>
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by Paul Krugman. New York Times. Feb 27, 2006. pg. A.19</b>

Ben Bernanke's maiden Congressional testimony as chairman of the Federal Reserve was, everyone agrees, superb. He didn't put a foot wrong on monetary or fiscal policy.

But Mr. Bernanke did stumble at one point. Responding to a question from Representative Barney Frank about <b>income inequality,</b> he declared that ''the most important factor'' in rising inequality ''is the rising skill premium, the increased return to education.''
<b><span style="background-color: #FFFF99">
That's a fundamental misreading of what's happening to American society. What we're seeing isn't the rise of a fairly broad class of knowledge workers. Instead, we're seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite.</b></span>

I think of Mr. Bernanke's position, which one hears all the time, as the 80-20 fallacy. It's the notion that the winners in our increasingly unequal society are a fairly large group -- that the 20 percent or so of American workers who have the skills to take advantage of new technology and globalization are pulling away from the 80 percent who don't have these skills.

The truth is quite different. Highly educated workers have done better than those with less education, but a college degree has hardly been a ticket to big income gains. <span style="background-color: #FFFF99"><b>The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year.</b></span>
<span style="background-color: #FFFF99"><b>
So who are the winners from rising inequality? It's not the top 20 percent, or even the top 10 percent. <font size="4">The big gains have gone to a much smaller, much richer group than that.</b></font></span>

A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, ''Where Did the Productivity Growth Go?,'' gives the details. Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains.

But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint.
<span style="background-color: #FFFF99"><b>
Just to give you a sense of who we're talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn't give a number for the 99.99th percentile, but it's probably well over $6 million a year.</b></span>

Why would someone as smart and well informed as Mr. Bernanke get the nature of growing inequality wrong? Because the fallacy he fell into tends to dominate polite discussion about income trends, not because it's true, but because it's comforting. The notion that it's all about returns to education suggests that nobody is to blame for rising inequality, that it's just a case of supply and demand at work. And it also suggests that the way to mitigate inequality is to improve our educational system -- and better education is a value to which just about every politician in America pays at least lip service.

The idea that we have a rising oligarchy is much more disturbing. It suggests that the growth of inequality may have as much to do with power relations as it does with market forces. Unfortunately, that's the real story.

Should we be worried about the increasingly oligarchic nature of American society? Yes, and not just because a rising economic tide has failed to lift most boats. Both history and modern experience tell us that highly unequal societies also tend to be highly corrupt. There's an arrow of causation that runs from diverging income trends to Jack Abramoff and the K Street project.

And I'm with Alan Greenspan, who -- surprisingly, given his libertarian roots -- has repeatedly warned that growing inequality poses a threat to ''democratic society.''

It may take some time before we muster the political will to counter that threat. But the first step toward doing something about inequality is to abandon the 80-20 fallacy.<span style="background-color: #FFFF99"><b> It's time to face up to the fact that rising inequality is driven by the giant income gains of a tiny elite, not the modest gains of college graduates.</b></span>

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Greed
03-16-2006, 11:40 AM
ECONOBLOG
Minding the Gap: Who's getting ahead, who's falling behind, and why?
March 8, 2006

They are questions that grip us in fits and starts. Author Douglas Coupland worried in his 1991 novel "Generation X" about "Brazilification," or the widening gulf between rich and poor and the disappearance of the middle class, but much of that anxiety faded by the late 1990s as workers benefited from a long-running expansion. Then the tech bubble burst, and by 2004 Democrat John Edwards was able to campaign for president on the argument that there are "two Americas" -- one for the ultrarich, and one for everyone else.

To what extent should we be worried about the distribution of economic gains? The Wall Street Journal Online asked economists Heather Boushey of the Center for Economic and Policy Research and Russell Roberts of George Mason University to debate to what degree inequality exists, and just how much it matters for the economy and society.


ABOUT THE PARTICIPANTS

Heather Boushey is an economist at the Center for Economic and Policy Research3 in Washington, D.C. Her work focuses on the U.S. labor market, social policy, and work and family issues. She is a co-author of "The State of Working America 2002-3" and "Hardships in America: The Real Story of Working Families." She is a research affiliate with the National Poverty Center at the Gerald R. Ford School of Public Policy and on the editorial review board of WorkingUSA and the Journal of Poverty. She received her doctorate in economics from the New School for Social Research and her bachelor's from Hampshire College.

Russell Roberts is professor of economics at George Mason University and the J. Fish and Lillian F. Smith Distinguished Scholar at the university's Mercatus Center. He is the features editor at the Library of Economics and Liberty4 and a research fellow at Stanford University's Hoover Institution. Roberts blogs regularly with colleague Don Boudreaux at Cafe Hayek5. His latest book is a novel, "The Invisible Heart: An Economic Romance" (see Invisibleheart.com6), and he is working on a new book that will look at how the economic cooperation emerges and persists without centralized coordination. He received a doctorate in economics from the University of Chicago.

* * *

Heather Boushey writes: The persistent growth in income inequality in the U.S. is a significant problem, one that policy makers would be wise to focus on. Over the past 30 years, we have seen inequality rise along all three dimensions -- wages, incomes and wealth -- and it shows no signs of slowing. As a result, income and wealth is becoming increasingly concentrated in the hands of a relatively small, elite group. Recent research by Ian Dew-Becker and Robert Gordon of Northwestern University2 has found that income in the top one percent (the 99th percentile) grew by 87% between 1972 and 2001, but grew by 497% in the top one hundredth of a percent (the 99.99th percentile).

Wage inequality has grown because productivity gains aren't being distributed to workers on the shop floor or even technical and professional workers. Productivity gains are being garnered almost exclusively by management and distributions to stock owners. In the decades just after World War II, productivity gains were shared more evenly, so that workers benefited when the company's performance improved. Not anymore.

While many believe that increasing inequality is bad based on values of fairness and equity, we can also make a purely economic argument for why growing inequality is, on net, negative.

Rising inequality threatens economic growth, especially since it has meant declining or stagnant income growth for lower- and middle-income families. Consumption comprises the overwhelming share of economic demand. If the vast middle doesn't see income gains, they can't purchase the goods and services that keep our economy moving. Right now, American families are continuing to consume by going deeper into debt. The debt service relative to households' disposable income reached 13.8% in the third quarter of 2005, the highest level on record. This cannot continue indefinitely, and when interest rates rise it will be harder for income-strapped families to borrow for their consumption.

Even Alan Greenspan agrees7 that growing inequality poses significant problems for the U.S. economy. In February 2005, Mr. Greenspan said, "In a democratic society, a stark bifurcation of wealth and income trends among large segments of the population can fuel resentment and political polarization. These social developments can lead to political clashes and misguided economic policies that work to the detriment of the economy and society as a whole."

A democracy can't survive in the face of such rising inequality. People who feel left out of the economic system and whose elected officials ignore their needs will find outlets for their anger. This could be radical political parties (think of recent events Venezuela, Brazil, or Argentina), or mass protest movements. Either way, this won't be good for economic growth.

* * *


Russell Roberts writes: Is inequality a serious social problem? Everyone seems to think so. Heather, you conjure up the same frightening image that is constantly referenced in media accounts of government data -- an elite slice at the top getting all the gains while the rest of us get crumbs. The middle class is being hollowed out; we're becoming a nation of haves and have-nots.

But the data you cite (and the data cited relentlessly by those who would use inequality as an engine for social change) mask what is really going on.

First, consider the level of inequality that we can actually perceive in our daily lives, as opposed to the level of inequality that we might know from reading government statistics. I've had dinner with a few billionaires at various charity events. As Hemingway pointed out long ago, the rich are different from us, they have more money. But as my colleague Don Boudreaux has pointed out to me more recently, it's striking how difficult it is to perceive the differences between us and the super-rich in the absence of reading their tax returns.

The super-rich guy at that charity dinner may have flown on a private jet, but I can afford to fly by jet, too, albeit in a coach seat. The super-rich guy may have been chauffeured to the dinner in a luxury car, but my Honda Accord is pretty quiet and comfortable. The rich guy wears a custom-made suit that may have cost over $1000. But my Lands' End suit is 100% wool and looks pretty good. I'd have to finger the fabric of his jacket to feel inferior. Yes, his watch is more expensive. But mine probably keeps better time. Unless I stop by his house for a visit, I'm unlikely to feel the pinch of my lower income status. Compare that to 50 or 100 years ago, when the qualitative aspects of the lives of the wealthy were much more noticeable to the average person.

Without the government data that is so widely reported, how would I ever know that I'm falling behind or that the super rich or even the mere rich are racing ahead? What I really care about is whether I'm moving forward.

And this is where the government data are particularly misleading. They usually compare two snapshots at different times, and so they mask the progress the average person makes over time in well-being.

The average poor person has a washing machine, a dryer and central air conditioning. Almost two-thirds of the poor own or have access to a car8. The poor's access to what once were luxuries has improved dramatically over the last 15 years despite pessimistic claims to the contrary. On many dimensions, even access to health care, the average poor person lives better than the wealthy of the past.

Immigrants risk death for the chance to be poor here and live among people much wealthier than they are. They still think of America as the land of opportunity. I think they're right.

* * *


Heather writes: Russell, you argue that we should look at anecdotes to measure inequality, relying on our own experiences rather than on government data. However, this is simply not feasible. We live in a nation that will soon have 300,000,000 people and data reveals trends about the millions that we do not personally know. Data is especially critical since we live in communities that are increasingly economically segregated. The example you gives actually highlights the need for representative sampling, since the median family with an income of less than $50,000 per year is not regularly flying to charity dinners and hob-nobbing with billionaires. Having said that, if there is little difference in the quality of life between the super rich and the rest of us, why should we not tax them to create greater income equality?

Basing policy decisions on anecdote, without reference to government data, is especially dangerous. Most policy makers are not from the lower end of the economic spectrum, but from the high end, and their staff earn relatively high salaries, compared to the median earner. If we rely on their experiences, then we might think that everyone in the U.S. has a college degree and many of those have law degrees, when in fact, only about a third of Americans have a college degree. Relying on anecdote limits our understanding of those not like us.

Your second point is that what you really care about is whether people are moving ahead. Here, data tell us that Americans are less likely to move up the ladder today than they were a generation ago. The economy we once had, where a poor boy could grow up to be the CEO or the president, is fast fading. Sons from the bottom three-quarters of the socioeconomic scale were less likely to move up in the 1990s9 than in the 1960s. By 1998, only 10% of sons of fathers in the bottom quarter (defined by income, education and occupation) had moved into the top quarter, whereas by comparison, by 1973, 23% of lower-class sons had moved up to the top. Thus, there is a smaller chance that a low-income family will move up the income ladder over time.

It is true that more poor people in the U.S. now have access to consumer goods. It is also true that the inflation-adjusted cost of consumer goods has dropped dramatically, especially when we quality-adjust them. Today, one can go to Wal-Mart and pay only $35 for a DVD player, and most families have one. However, the costs of getting a college education and health care have risen faster than inflation, putting them out of reach of many families. Less than half (46%) of low-wage workers had employer-provided health insurance from any employer, their own or a family members', compared with 82% of high-wage workers.

* * *


Russell writes: My example of the billionaire wasn't to refute the existence of inequality. It was to address your claim that we stand on the verge of a social crisis. In America, the differences between the average family and the upper crust are less palpable and less important than they are in South America or Africa or the Middle East, where the elites often do oppress the rest of society.

Are the differences that remain in America a social crisis? To answer that question, you need some idea of what causes inequality.

Starting in the early 1970s, the divorce rate exploded in America, creating an enormous increase in households headed by women and an increase in the percentage of women in the workplace. Though the gap has decreased over time, women earn less than men. So more women working means more measured inequality. Should we have made divorce more difficult or made it harder for women to work? Both would have reduced measured inequality.

Since the 1980s, immigration has increased greatly. Immigrants, when they first arrive, earn less than the Americans already here, bringing down measured average wages and increasing measured inequality. Should we ban immigration to reduce inequality measured within the borders of the U.S.?

Immigration to America is thriving because people come here poor but do not stay poor. Those people who come want a better life and they find it here. They are less concerned than you are about how much better others are doing.

I want people to get ahead. You seem concerned about people getting ahead of others. But by definition, not everyone can move ahead of everyone else into higher percentiles. That's like everyone being above average.

In recent decades, the lives of both the rich and the poor have improved. But if the rich get richer, fewer poor people can move into the upper quintiles. Do you want to keep people from getting rich in order to reduce measured inequality?

Statistics that cite how few people move from the bottom quintile into the top quintile mask the improvements in the lives of the poor I mentioned in my first post. Yes, as you point out, college is more expensive, but college enrollment is at an all-time high, reaching 38% among the college-age population in 2004. Yes, health care is more expensive, but life expectancy is at an all-time high as well. Poor people are less likely to be insured than rich people, but my guess is that poor people receive dramatically better health care today than they did 30 years ago.

The real social problems in America are barriers to getting ahead that need not be there. The biggest handicap the poor face in America is a government-run school system that does an atrocious job educating their children.

Finishing high school and better yet, finishing college are still remarkably good investments. If we want to help the poor in America, we would do well to get the government out of providing education where it has done such an abysmal job. Improving education in America by allowing more competition would go a long way toward improving the lives of the poor.

* * *


Heather writes: Your arguments aren't based on fact and analysis of the economy, but rather on anecdote and presupposition. The causes of inequality are now well documented and are not simply about demographic changes, as you hypothesize without pointing to any research.

Let's look at what we know about the U.S. economy, based on available research and analysis.

If wage and income inequality were counterbalanced by the potential for economic mobility, then greater inequality would not require that some stay at the bottom (or at the top). This would be especially true if inequality was the result of immigration as new immigrants enter at the bottom and then move up. However, this is not the case. Federal Reserve Bank of Boston economists Katherine Bradbury and Jane Katz found10 that in the 1970s, 50.7% of families who began the decade in the bottom quintile and 49.1% of families who began the decade in the second-lowest quintile moved into a higher quintile over the decade. However, in the 1990s, only 46.8% of families who began the decade in the bottom quintile and 37.9% of families who began the decade in the second-lowest quintile moved into a higher quintile. In the U.S., economic class in our society has become increasingly calcified.

Russell, your examples point to demographic reasons why inequality has risen in the U.S. Yet, here again, while they might make interesting fodder for cocktail conversation, these arguments aren't grounded in empirical reality. The demographic story is more complex than the one that you paint. On the one hand, more single mothers leads to greater inequality across families, yet working wives have been critical to economic mobility. Families where wives had high and rising employment rates, work hours, and pay were more likely to move up the income ladder or maintain their position11, rather than fall down the ladder.

Higher immigration, which might lead to temporary increases in measured inequality at a point in time for reasons you outline, shouldn't, however, lead to lower mobility because, as you point out, we hypothesize that immigrants "come here poor but do not stay poor." Unfortunately, rising inequality has coincided with declining mobility.

To take it a step further, the basic presupposition of all demographic arguments is that inequality has been increasing across groups, rather than within groups. Yet, this is not true: Within demographic categories, inequality has increased. When we look across particular demographic groups, inequality has increased. Even within the category of white, college-educated men, inequality has increased.

The problem is that the social institutions that had mediated economic inequality in the immediate post-World War II period have been torn down, to the advantage of the very wealthy at the expense of the rest of us. These institutions not only generated widespread economic gains but also facilitated economic growth superior to what we've experienced since inequality began to rise in the early 1970s.

I'll agree that finishing college is the best route to greater earnings; yet, college prices have far outpaced inflation and students today graduate with debt loads unheard in their parents' day. Privatizing the public school system would undoubtedly only lead to greater inequality in access to education, not less. If the same kind of educational opportunities were provided to every student, then one could imagine economic inequality increasing, but economic mobility also increasing -- the rich getting richer, but one's chances of becoming rich improving because the skills and advantages necessary to get rich were evenly distributed, not skewed toward children in high-income families.

* * *


Russell writes: Heather, you write: "If wage and income inequality were counterbalanced by the potential for economic mobility, then greater inequality would not require that some stay at the bottom (or at the top)." You then quote the Bradbury and Katz study.

But the Bradbury and Katz study is about relative income mobility among quintiles. So there always have to be 20% of the families in the bottom quintile. True, it doesn't have to be the same families, but that was my point about the rich getting richer. If the rich get richer, it's harder to pass them and have them fall into the lower quintiles. But it doesn't mean that the poor aren't doing better.

To say it more simply -- if everyone's income doubles, there will be no relative mobility. Everyone will be stuck in the same quintiles. But everyone will be twice as well off as before.

There has been very little work on the question of absolute mobility. When you follow the same families, rather than looking at averages marred by changes in the composition of the work force over time, do families, especially poor families, do better or worse over time?

The one careful example I know is by Peter Gottschalk of Boston College and Sheldon Danziger of the University of Michigan12. They look at families' incomes between 1969 and 1990. First, they look at relative mobility like everyone else. They find that 46% of the families in the bottom quintile in 1969 move into a higher quintile by 1990. They find that 52% of the families in the second lowest quintile move into a higher quintile. But only 1% of the families at the bottom make it into the top over those 20 years. Only 8% of the people in the second quintile make it to the top.

Is that a high or a low level of relative mobility? Is the glass half full or half empty? The picture is clouded by the fact that if a lot of people are doing well, it gets harder to move ahead in relative terms.

So what about absolute mobility? By 1990, it takes more income to reach the higher quintiles than it did in 1969 -- not simply because of inflation, but because people are doing better. So Gottschalk and Danziger look at absolute mobility as well -- would some families have moved ahead if the income cutoffs in 1990 had been the same as in 1969, corrected for inflation? Essentially, they are asking whether families are doing better in absolute terms.

By 1990, 69% of the families in the poorest quintile achieved a standard of living that would have put them in a higher quintile if the income cutoffs had not increased. By 1990, 75% of the families in the second quintile would have moved up if the cutoffs had not changed.

In other words, more than two-thirds of the poorest families in 1969 would have moved into a higher quintile 20 years later if everyone else had not gotten richer, too. More than 11% of the poorest families in 1969 had by 1990, reached a standard of living equal to the highest quintile in the earlier period. Over 42% of the families in the second-lowest quintile did the same.

A rising tide doesn't lift all boats. But it sure lifts a lot of them. The results would be even more dramatic with more recent data from the 1990s.

Heather, you write: "the social institutions that had mediated economic inequality in the immediate post-World War II period have been torn down, to the advantage of the very wealthy at the expense of the rest of us."

Which institutions do you have in mind? What are the sinister strategies the wealthiest Americans have used to hold the rest of us back?

Spending on education dwarfs spending of past decades. Yet the outcomes are still disappointing. You think that privatizing education would increase inequality. I think parents could spend that money more wisely than bureaucrats. The result would be less inequality and more education.

* * *


Heather writes: This is the question we've been debating: Does relative income matter?

As I see it, the fundamental question you're posing, Russell, is that if everyone becomes absolutely richer, how can anyone be worse off? This is a compelling question.

First, to put this in perspective, while it is true that even as inequality has risen, workers have seen increases in their living standards, the gains have been small and far below the gains made during the decades after World War II up until the early 1970s. During that period, the median family saw income gains of about 2.5% per year; since then, it's averaged less than 1% per year. On top of this, we must take into account that the cost of basics, most importantly health care and education, have far outpaced inflation, putting the squeeze on family budgets, even if these families are making a bit more by pure income measures than a few years ago.

As inequality has grown, the social institutions that provided insulation from risk have withered. There has been a decline in social insurance: The majority of low-wage workers face the risk and uncertainty of not having employer-provided health insurance, unemployment insurance covers fewer of the unemployed than it did a generation ago and fewer workers have pensions. Deregulation and the decline in union coverage have made it easier for firms to keep wages low. Trade agreements that favor capital mobility over labor mobility have increased American workers' vulnerability to global competition, and the threat of offshoring is often enough to quell requests for raises.

Is the glass half empty or half full? For many it appears to be half empty. Median family income is lower today than it was in 1999 (in inflation-adjusted terms) and millions of American families have coped with limited income growth through taking on debt. The numbers are staggering. Debt levels are now at 121% of disposable income13 and the ratio of debt service to disposable income14 is 13.8%. Both of these indicators are at record highs. This indicates that families are having trouble financing the lifestyle they want on their income alone.

Further, there appear to be links between mortality and higher inequality15, as well as connections between a community's level of social capital and social cohesion16 and the degree of economic inequality. If inequality makes people ill or creates barriers to social cohesion, how can the glass be half full?

Increased debt and mortality and less social cohesion are all indicators that growing inequality is, on net, bad for our society and our economy. Even if people are taking on more debt simply to "keep up with the Joneses," as interest rates rise and more families go into bankruptcy (which are already at high and record levels), this will be a drain on the overall economy, which is bad for all of us.

Social cohesion is a value critical to an effective democracy. If a few in the U.S can increasingly purchase their rights (as we've seen in far too many campaign and influence-peddling scandals in recent years), while the vast majority are left without access to the political system, then we need to ask what this will mean for our democracy.

There is an analytic distinction between relative and absolute economic mobility, but since the gains to low- and middle-income families have been so limited over the past few decades, in reality, there may be very little difference between the two.

* * *


Russell writes: Heather, we disagree fundamentally on the significance of inequality, a phenomenon that arises from the individual decisions of millions of people. The level of inequality is an emergent phenomenon17 rather than something controlled by politicians or a wealthy elite.

In America, the level of inequality is the result of differences in skills, differences in family structure over time, differences in immigration patterns, educational choices of young people, entrepreneurial opportunities and a thousand other factors caused by each of us going about our lives as workers, managers, family members and consumers. Attempts to alter the level of inequality as if it were the temperature in the house that can be adjusted by a thermostat are unlikely to result in the intended result of a more just society.

But we also disagree about how to interpret the data on incomes and wages.

In your latest post, you mention the mediocre growth in median family income over the last 30 years. You say that low- and middle-income families have made only limited economic progress. You worry that a disproportionate portion of the gains from economic growth accrue to a rich elite and that somehow the rich have somehow rigged the rules to keep all the goodies for themselves leaving the rest of us with the crumbs.

I'm skeptical of the quality of the data that leads to this pessimistic outlook. Measures of real income growth systematically understate that growth because of a failure to correctly measure inflation due to changes in product quality over time18.

But even ignoring this problem, the data you use are the wrong data. The fact that median family income has grown very little over the last 30 years does not imply, as you claim, that families are having a tougher times making ends meet. It does not imply that families have made little economic progress over the last 30 years. (And for a different interpretation of the bankruptcy data you cite, see Todd Zywicki's work19.)

The simplest reason the data are misleading is that a snapshot of median family income in 1975 and a snapshot of median family income in 2005 have very different people in each picture.

Since 1975, there have been dramatic changes in family size, family structure and immigration. So you can't compare the means or medians between the two pictures to draw conclusions about upward mobility in the American economy.

If the median age in the U.S. declined between 1975 and 2005, you wouldn't conclude that America had somehow figured out a way to reverse the aging process and that Americans were getting younger rather than older every year. The average age can fall even though the average person from 1975 has continued to get older. Similarly, median family income can fall between 1975 and 2005 even though the median family from 1975 has experienced income growth over the same period.

As I pointed out in my previous post, when you actually follow the same families over time, there is impressive growth in economic well-being over time for even the poorest Americans. So yes, the rich are getting richer. But so is everyone else.

I am much more optimistic than you are about the economic future. Since 1975, the period that is allegedly a time of growing inequality and stagnant incomes, over 20 million immigrants have come to the U.S. Some of them risked death to come here. Many of them arrived with imperfect English at best. All of them found themselves part of a culture different from the one they were born into. Yet they came anyway.

Many of them -- perhaps most of them -- came here to be part of the lower classes whose future worries you so much and whose relative status you decry. Yet they came anyway.

Their arrival tells us something that the income data cannot tell us. They expect their lives and the lives of their children to improve. They are less worried about income inequality than either of us.

* * *

URL for this article:
http://online.wsj.com/article/SB114182443308492484.html

Hyperlinks in this Article:
(1) http://discussions.wsj.com/n/mb/message.asp?webtag=wsjvoices&nav=messages&msg=3831
(2) http://www.brookings.edu/es/commentary/journals/bpea_macro/forum/200509bpea_gordon.pdf
(3) http://www.cepr.net/
(4) http://www.econlib.org
(5) http://cafehayek.typepad.com/hayek/
(6) http://invisibleheart.com
(7) http://www.federalreserve.gov/boarddocs/hh/2005/february/testimony.htm
(8) http://www.heritage.org/Research/Welfare/bg1713.cfm
(9) http://www.iuk.edu/~koocm/jan03/wysong.html
(10) http://www.bos.frb.org/economic/nerr/rr2002/q4/issues.pdf
(11) http://www.bos.frb.org/economic/ppdp/2004/ppdp0403.pdf
(12) http://www.psc.isr.umich.edu/pubs/abs.html?ID=1132
(13) http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=1297099
(14) http://www.federalreserve.gov/releases/housedebt/
(15) http://www.thenewpress.com/books/index.php?option=com_catalog&task=author&author_id=P18380
(16) http://www.bowlingalone.com/index.php3
(17) http://www.econlib.org/library/Columns/y2005/Robertsmarkets.html
(18) http://papers.nber.org/papers/w10606
(19) http://mason.gmu.edu/~tzywick2/Bankruptcy%20Crisis%20Final.pdf
(20) http://discussions.wsj.com/n/mb/message.asp?webtag=wsjvoices&nav=messages&msg=3831

Greed
03-21-2006, 07:49 AM
Bernanke plays down fears of US slowdown
Tue Mar 21, 2:28 AM ET

New Federal Reserve chief Ben Bernanke said the US economy is not on course for a sharp decline despite a strange pattern of behaviour on the bond market that foxed his illustrious predecessor.

In a speech to the Economic Club of New York, Bernanke shed little light on the direction of US interest rates as he prepares to chair his first meeting of the Fed next week.

But his speech, devoted to the bond market's so-called yield curve, did not suggest any major shift in policy by the US central bank.

"Although macroeconomic forecasting is fraught with hazards, I would not interpret the currently very flat yield curve as indicating a significant economic slowdown to come, for several reasons," he said in his prepared text.

Although the Fed under Bernanke's predecessor Alan Greenspan has raised US rates 14 times in a row, yields on longer-dated bonds have barely risen or have indeed fallen.

Greenspan famously described the odd trading pattern as a "conundrum", noting that ordinarily, long-term bond yields should rise in step with the shorter-run rates that are set by the Fed.

Bernanke advanced several theories to explain the conundrum, including fears by investors that US economic growth could be in peril, thus requiring the Fed to intervene by pushing borrowing costs lower.

He noted concerns expressed by some observers, including Boston Fed president Cathy Minehan earlier Monday, that the US property market could turn down after a decade-long boom or that high energy prices could curb growth.

"If these drags on the growth of spending do materialize, then a lower real interest rate will be needed to sustain aggregate demand and keep the economy near full employment," he said.

But the Fed chief played down those fears. Before past recessions, he noted, both short- and long-term interest rates have been relatively high, unlike now.

Also, Bernanke said, by suggesting a lower risk of inflation in future, the flat yield curve could in fact signal confidence in the US economy's prospects.

And returns on bonds are only one indicator of economic activity.

"Other indicators that have had empirical success in the past, including corporate risk spreads, would seem to be consistent with continuing solid economic growth," the Fed chairman said.

"In that regard, the fact that actual and implied volatilities of most financial prices remain subdued suggests that market participants do not harbour significant reservations about the economic outlook."

Among the other theories posited by Bernanke to explain the flat yield curve were heavy purchases of US government bonds by foreign governments, especially in Asia, that are awash in cash from booming export growth.

Another was that pension funds in the West are building up their holdings of longer-dated securities as they prepare for heavier payouts to ageing populations.

But no theory alone could explain the conundrum, Bernanke said, and so policymakers had to stay vigilant.

"Given this reality, policymakers are well advised to follow two principles familiar to navigators throughout the ages: First, determine your position frequently. Second, use as many guides or landmarks as are available," he said.

"By not tying policy to a small set of forecast indicators, we may sacrifice some degree of simplicity, but we are less likely to be misled when a favoured variable behaves in an unusual manner."

http://news.yahoo.com/s/afp/20060321/bs_afp/useconomybankratebernanke_060321072838;_ylt=AhysNp yHXLCz4jBbfhNxUQiFOrgF;_ylu=X3oDMTA5aHJvMDdwBHNlYw N5bmNhdA--

Greed
03-23-2006, 05:46 PM
Bernanke says "saving glut" still valid hypothesis
By Tim Ahmann
1 hour, 26 minutes ago

Federal Reserve Chairman Ben Bernanke said in a letter released on Thursday nothing had emerged to undercut his year-old hypothesis that a "global saving glut" was a factor behind the large U.S. trade gap.

"Nothing has occurred since March 2005 to diminish support for the 'global saving glut' hypothesis, and the factors contributing to this 'glut' generally remain in place," Bernanke wrote in a letter to Republican Rep. Mark Kennedy (news, bio, voting record) of Minnesota.

The March 17 letter, released by Kennedy's office, was in response to a written question submitted in conjunction with a February 15 hearing on monetary policy held by the House of Representatives' Financial Services Committee.

Bernanke said while the U.S. trade deficit widened last year, "the surplus of the developing economies is generally estimated to have widened as well."

"Much of the widening of the U.S. deficit and of the developing country surplus is attributable to higher oil prices," he wrote. "Additionally, U.S. economic growth again exceeded that of a trade-weighted average of industrial economies in 2005, thus continuing to support the relative attractiveness of investments in the United States."

Bernanke, who took office as Fed chairman on February 1, had argued in a speech he delivered in March 2005 that an excess of saving relative to investment opportunities in the developing world had, in effect, washed ashore in the United States.

This "global saving glut," he said in that speech, "helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today."

He pointed to a number of factors that may have fueled a "saving glut," including a decision by developing Asian countries to build up foreign exchange reserves in the wake of the 1997-98 financial crisis and surging oil revenues in oil-exporting countries amid rising prices.

Most economists have tended to look at the burgeoning shortfall in the U.S. current account, the broadest measure of the nation's trade, as being driven by policies in the United States. The current account gap, which shows the United States consuming more than it produces, hit a record $804.9 billion last year, or 6.4 percent of U.S. gross domestic product.

In a speech on Monday, Bernanke said the "saving glut" hypothesis was just one of a number of possible explanations for the unusually low long-term interest rates.

In that speech, he assigned no greater weight to his hypothesis than to other potential explanations and concluded "the bottom line for (Fed) policy appears ambiguous."

His letter to Kennedy suggests, however, he may give his thesis somewhat greater weight than the other explanations, such as the possibility that the term premium investors demand to cover the risk of losses on long-term holdings had shrunk.

Bernanke said on Monday that if the "saving glut" hypothesis were correct then "global equilibrium interest rates -- and, consequently, the neutral policy rate -- will be lower than they otherwise would be" as long as the factors behind the excess saving persisted.

The Fed has been raising benchmark overnight rates for 21 months hoping to get rates to a "neutral" setting, while keeping inflation risks in check. Fed officials are expected to bump overnight rates up for a 15th straight time to 4.75 percent when they conclude a two-day meeting on Tuesday.

http://news.yahoo.com/s/nm/20060323/bs_nm/economy_fed_bernanke_dc_3;_ylt=AooPXijXwApEbTnQ.jE azY_qxQcB;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl

muckraker10021
03-29-2006, 07:44 PM
<img src="http://online.wsj.com/img/wsj_header_408_62.gif">

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Wages Fail to Keep Pace With Productivity
Increases, Aggravating Income Inequality</font>
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<b?
by Greg Ip
Wall Street Journal.
Mar 27, 2006.
pg. A.2</b>

SINCE THE END OF 2000, gross domestic product per person in the U.S. has expanded 8.4%, adjusted for inflation, but the average weekly wage has edged down 0.3%.

That contrast goes a long way in explaining why many Americans tell pollsters they don't believe the Bush administration when it trumpets the economy's strength. What is behind the divergence? And what will change it?

Some factors aren't in dispute. Since the end of the recession of 2001, a lot of the growth in GDP per person -- that is, productivity -- has gone to profits, not wages. This reflects workers' lack of bargaining power in the face of high unemployment and companies' use of cost-cutting technology. Since 2000, labor's share of GDP, or the total value of goods and services produced in the nation, has fallen to 57% from 58% while profits' share has risen to almost 9% from 6%. (The remainder goes to interest, rent and other items.)

The Bush administration's defenders, and many private economists, say wages are bound to catch up. "Everything we know about economics and historical experience is that when productivity goes up, real wages go up, too," says Phillip Swagel, a scholar at the conservative American Enterprise Institute who worked in the Bush White House. It took a couple of years for wages to catch up with accelerating productivity in the late 1990s, he says. "This time, it's taking three, maybe four or five."

Another factor holding down wages is that employer-paid health benefits, pensions and payroll taxes have risen almost 16% since 2000, making employers less generous with wages.

In addition, it appears that the highest-salaried workers -- executives, managers and professionals -- are widening their lead on the typical worker.

The role of inequality is contentious. Treasury Secretary John Snow, point man in the administration's campaign to persuade Americans they are doing better, says, "Since the early 1980s on, we've seen a rise in inequality but we've also seen parallel to that a continuous rise in living standards." How the average family is doing in absolute terms is more important than how it is doing relative to others, he says. "What I've been trying to focus on here is . . . how do we raise the living standards of Americans?" he says.

Nonetheless, he argues that inequality has narrowed since Mr. Bush took office. His staff calculates that the richest 20% of U.S. taxpayers saw their average after-tax income, defined broadly to include capital gains, fall 9.4% from 2000 to 2003, the latest year for which data are available. The middle 20% had a drop of 0.2%; the bottom 20% had a rise of 1.6%.

For the same years, the Congressional Budget Office finds a decline in the income for those at the bottom, but it, too, said the rich were harder hit so inequality narrowed. An important reason is that capital gains, which go mainly to upper-income families, rose sharply with the stock market in the late 1990s and then plunged as the market did.

Comparable data for 2004 and 2005 aren't yet available. Jared Bernstein, a senior economist at the Economic Policy Institute, a liberal Washington think tank, says inequality probably rose again as the stock market recovered and the best-paid workers widened their lead on those in the middle. (Most inequality statistics don't track the same person over time, but instead compare snapshots of the population at different times. Not all people in the top or bottom in one year will still be there a few years later.)

The Bush tax cuts appear to have widened the income gap, according to many analyses. They increased take-home pay of almost all working Americans, but boosted it most for those at the top. Mr. Swagel, acknowledging that cuts in taxes on capital gains and dividends benefit the affluent in the short run, argues that they will benefit all workers in the long run as they spur investment and higher productivity.

<img src="http://online.wsj.com/public/resources/images/NA-AI264_OUTLOO_20060326174014.gif">

Still, the gap between the wages of the highest- and lowest-paid workers has continued to widen. Based on Labor Department data, Mr. Bernstein estimates the weekly wage of the worker at the 10th percentile -- the one earning less than 90% of all workers -- fell 2.7% from 2000 to 2005, adjusted for inflation. The wage of the worker at the 90th percentile rose 5.3%.

Many economists predict that with the U.S. unemployment rate below 5% now, workers will regain their leverage. Indeed, wages have picked up recently.

Still, wage inequality may continue to rise. Lawrence Katz, an economist at Harvard University who worked in the Clinton administration, says the wage gap has been growing for the past 25 years, particularly between the top and the middle. He believes the biggest factor is technology, which has complemented the skills of the well-educated while rendering redundant routine skills of many in the middle.

"The factors that seem to be driving it are continuing: the broad span of the computer revolution," he says. "For people in the middle the big question is: Will our education system give them interpersonal skills that are very valuable? You can make a lot of money today if you can interact with people who are the winners."

Mr. Snow, a Ph.D. economist, says income equality ultimately reflects "equality of educational opportunities," and if the U.S. can "reduce the variability of educational opportunities," it will also reduce the income gap.

History suggests that with unemployment low and growth steady, the typical family will see its income rise noticeably. As that happens, Americans' spirits will rise, as well.
</font>

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Makkonnen
03-29-2006, 08:45 PM
good post muckraker -

add 11 million newly legal workers to the mix and what will it do to the economy? im thinking soup lines

Greed
03-29-2006, 09:45 PM
i gotta admit, excellent article muckraker.

it actually gave both sides of the argument and didnt pass judgment.

Greed
03-29-2006, 09:56 PM
i gotta admit, excellent article muckraker.

it actually gave both sides of the argument and didnt pass judgment.

are you ok?

muckraker10021
03-30-2006, 07:58 PM
<font face="times new roman" color="#000000" size="4">
There are not “two sides” to the income inequality question.

The “two sides” canard is simply a “false choice” presented to an uninformed intellectually lazy American public.

Within the scholarly, reality-based, community, whether they are liberal or conservative, republican or democrat, a Labor Union economist or a Chamber of Commerce economist; all parties concede that the cut & dry, irrefutable data shows only one thing.

It shows simply that the top 1% of income earners ($432,000 and up using 2004 tax data) are getting dramatically richer.

It shows simply that the top 1 tenth of 1% of income earners ($6,000,000 and up using 2004 tax data) are getting obscenely richer.

The “debate” as some classify it is about whether or not this trend is good for America.

This is an old debate. It is as old as the Wagner Act which congress passed in 1935.

Prior to the passage of the Wagner Act, nobody - left, right, communist, whatever denied the reality that 5% of Americans controlled 90% of the wealth.. The country was in the midst of “The Great Depression”. The Republicans denounced and tried to block the Wagner Act, which created the 40 hour work week, allowed unions to flourish, ended child labor, led to a minimum wage being enacted etc. The Republicans called the Wagner Act. COMMUNISIM.

The “debate” today is about the fact that under baby bush, the tax law & tax cutting is so skewed toward the rich and the ultra-rich that the middle-class and working poor are falling into a financial abyss.

Furthermore the “debate” is about the fact that no effort or demand was required from the rich and the ultra-rich in order to receive such munificent financial benefits.

Some papers were shuffled onto bush’s desk by Congressional RepubliKlan leadership, bush signed the papers, and presto, Billions of dollars flowed into the bank accounts of rich individuals and corporation.

The disparagingly named “average joe” got back $500. if he was lucky.

This is classic “trickle down economics” however nothing is trickling down.

That’s what the “debate” is about. There is NO “two sides” debate.

Below is an article from conservative former Merrill Lynch Chief Economist, A. Gary Shilling which talked about this obvious income inequality in 2004.

There is much of scholarly work available regarding growing income inequality in America.
You can get all the based-on-fact data regarding growing income inequality directly from the Federal Reserve itself.

Don’t confuse fact from spin. Spin is a deliberate attempt TO LIE. Right wing think tanks like the Hoover Institute and the many others want to de-emphasize bush’s egregious financial hand-out the corporations and the rich. That’s their job. They are and advocacy organization for corporations and rich RepubliKlans.

Even the Wall Street Article that I posted above, attempts to sugar-coat the growing income inequality problem.

Familiarize you self with the work of the author Ann Rynd if you want to understand why the RepubliKlan and many of the corporate elite don’t care if the middle-class in this country disappears.

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<font face="arial" size="2" color="#0000FF"><b>A. Gary Shilling</b></font>

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<font face="arial black" size="6" color="#d90000">Carriage Trade </font>
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John Edwards is right: The U.S. is splitting into a rich nation and a poor one. You can make money from this trend. Think yachtmakers.</b></font>

<b>
by A. Gary Shilling

November 1st 2004 - Forbes Magazine</b>


John Edwards says the U.S. is becoming two nations, one rich, one poor. Regardless of where you stand politically, you have to concede that the evidence supporting these income trends is strong. What the Democratic senator probably wouldn't like to hear is that this polarizing of income presents an opportunity for investors. You should exit companies that sell to the masses and buy into businesses catering to the upper stratum.

While it is not quite true that the poor are getting poorer, there is no doubt that the poor are getting squeezed--by $2-a-gallon gasoline and by medical bills. That means they have less money to spend at Wal-Mart and Target. The average real (that is, inflation-adjusted) wage is falling, unusual for this stage of the business cycle.

A different trend is going on at the other end of the income scale. Executive pay continues to leap. Even chief executives dismissed in disgrace receive huge severance packages.

The polarization of income is a long-term trend, and government can do little to reverse it. Income polarization did not suddenly spring up under George W. Bush, and it would not disappear with John Kerry in the White House. Since the late 1960s the share of pretax income (not including capital gains) of the top 20% in household income rose from 43% to 50% of the total, while the shares of the other four quintiles fell.

In part, this is because the job mix is moving away from many middle-income occupations. Manufacturing pays 25% more on average than all nonfarm jobs, but its share of employment has fallen from 28% in 1966 to 11% now. Productivity growth and the shift of manufacturing jobs, first to Mexico and now to Asia, means that the production of goods (a category that includes not just manufacturing but also construction) occupies just 17% of payroll employees today. Goods production accounts for 33% of today's economic output, considerably down from several decades ago.


In contrast, the expanding service industries pay less. Workers in leisure and hospitality make only 43% of the economy's average wages. But with rapid growth in leisure-hospitality, their numbers have leaped from 6.4% of nonfarm employees in 1966 to 9.4% today.

The economic squeeze extends even to parts of the upper-middle-income bracket, for three reasons. Certain professional jobs that pay well here, such as computer programming and X-ray reading, are moving to India along with low-paid call center work. Personal computers are not only manufactured in Asia today, but they're designed there as well by Asian engineers.

Second, well-paying U.S. tech industries like semiconductors and computers may be morphing from growth to cyclical status. So much hardware and software is in use that replacement demand often dominates over new applications. Third, rising medical costs hurt. Employers, faced with skyrocketing insurance bills, are forcing employees to pay more.
<span style="background-color: #FFFF9F"><b>
The middle- and lower-tier folks have maintained growth in spending by borrowing more and saving less. Combined consumer and mortgage debt outstanding jumped from 65% of annual aftertax income in the early 1980s to 111% this year. That hocking up went hand in hand with a collapse in the savings rate from 12% to 2% of aftertax personal income. Rising delinquencies and bankruptcies suggest that consumers may not be able to keep borrowing much longer.</b></span>

Sure, a virtue of the U.S. economy remains that it is dynamic. People aren't locked into serving hamburgers their entire lives. Many dot-com zillionaires of the late 1990s were eating hot dogs and beans a year later. But by and large those on the highest rung have the skills to compete in today's global economy. They're the entrepreneurs who are making fortunes.
<span style="background-color: #FFFF9F"><b>
How should you respond to the two-Americas trend? Shun stocks in the producers of discretionary items for the middle-and lower-income classes. Deflation, if it arrives as I forecast, will aggravate the problem by leading to a self-feeding downward spiral of consumption.</b></span>

Avoid shares in automakers, which depend on rebates and zero-percent financing to move the metal. Appliance makers will also suffer if the housing bubble breaks, as I expect it will. Credit card issuers will be hurt as borrowers swear off.

The well-heeled, though, will patronize the providers of luxury cars, yachts, high-end resorts and travel and other upscale goods and services. Invest in those companies' stocks.

I look for interesting investment opportunities in smaller private companies that cater to the carriage trade. Tidy fortunes will be made by entrepreneurs running yacht basins, outfits that clean and maintain the vacation homes of the wealthy and even house-sitting, au pair and pet-care services.

<b><font color="#0000FF">
A. Gary Shilling is president of A. Gary Shilling & Co., economic consultants and investment advisers. He is the former chief economist at Merrill Lynch
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Income Inequality Has
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http://www.ombwatch.org

Though the Bush administration continues to laud the strength of the economy and the success of its economic and tax policies, a large percentage of Americans are continuing to struggle to make ends meet as income growth has become increasingly concentrated at the top of the income scale.<span style="background-color: #FFFF9F"><b> Income inequality, in fact, is at an all-time high, illustrating that current tax, budget, and wage and employment policies are all not working in favor of average American families.
</b></span>
The country experienced relatively broad-based wage growth during the latter part of the 1990's, but this growth ended with the 2001 economic downturn. Growth in real wages for low- and moderate-income families began to slow, and by 2003 wages began to decline and have not picked up in real terms. The economic recovery after the recession, <a href="http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict20040206" target="_blank">one of the weakest recoveries on record</a>, has not been diverse enough to generate the kind of income gains among low- and middle-income families seen over the last decade.

This real wage stagnation comes despite economic expansion over the last two years, relatively strong Gross Domestic Product (GDP) growth of late, and record highs for corporate profits in many sectors. These gains have not been reflected in job and wage growth across the board for averages workers. Real hourly wages fell for most low- and middle-wage workers by 1 - 2 percent last year and have not increased since 2000 after adjusting for inflation. In addition, the Federal Reserve recently reported in its <a href="http://www.federalreserve.gov/pubs/bulletin/2006/financesurvey.pdf " target="_blank">Survey of Consumer Finances</a> that average income for American families declined 2.3 percent between 2001 and 2004 after adjusting for inflation.

Compounding this trend has been Congress's utter inability to pass even one minimum wage increase in the last nine years. The federal minimum wage still sits at $5.15 per hour and has lost over 17 percent of its purchasing power since 1997. In 2005, minimum wage workers earned only 32 percent of the average hourly wage and in fact, the wage would have to <a href="http://www.epi.org/content.cfm/webfeatures_snapshots_20060217" target="_blank">rise to $8.20</a> just to reach <i>half of the current average hourly wage</i>. If Congress fails raise the minimum wage this year, it will mark the longest stretch the wage has remained unchanged since it was instituted in 1938 and the greatest inequality between minimum wage and average wage earners since the end of World War II.

The connection between the drastically low minimum wage and growing economic inequality seems to have escaped notice only in the nation's capitol. Eighteen states have now enacted higher state minimum wages, and many others are currently considering increases of their own. According to the <a href="http://www.ballot.org" target="_blank">Ballot Initiative Strategy Center</a>, as many as 30 states could consider legislative proposals this November to increase the minimum wage or tie it directly to inflation. </p>
<p>Other Bush administration policies have contributed to these negative income trends, particularly the regressive redistribution of federal revenues through the President's tax cuts. The <a href="http://www.bangornews.com/news/templates/?a=129541" target="_blank">Bangor Daily News</a> summed up the problem succinctly:<br><br>
<ul><font color="#0000ff">"Suppose that the administration's tax cuts, which began in 2001, remain in effect until 2015. Over these 15 years, more than half of the tax cuts - 53 percent - will go to people with incomes in the top 10 percent, according to studies commissioned by The New York Times. And 15 percent of the cuts will go to the top one-tenth of 1 percent of taxpayers. By 2015 the tax cuts, if retained, will provide average yearly tax savings of $23 to taxpayers in the bottom 20 percent. The wealthy will fare better. The top one-tenth of 1 percent of all taxpayers will save an average of $196,000 a year, or a total of $2.9 million over the 15 years. By 2015, the top 1 percent of taxpayers will pay a lower share of total taxes than they did in 2001." </ul></font>
<span style="background-color: #FFFF9F"><b>
Far from distributing money back to average American families, the Bush tax cuts overall have profited the super rich, leaving the vast majority of Americans with comparatively little or nothing to show for it. This has only made the distribution of income and wealth across America more skewed.
</b></span>
Showing further evidence of an exacerbated income gap, the Center on Budget and Policy Priorities and the Economic Policy Institute recently released <a href="http://www.cbpp.org/1-18-00sfp.pdf" target="_blank">Pulling Apart: A State-by-State Analysis of Income Trends</a>, a study highlighting the growing gap between rich and poor. The study finds that this gap -- mainly between the highest-income families and low- and middle-income families -- grew significantly between the early 1980s and the early 2000s. During this period of time, the incomes of the bottom fifth of families grew more slowly than the incomes of the top fifth of families in 38 states; the incomes of the rich grew by an average of 62 percent, while the incomes of the poor grew by an average of 21 percent. Additionally, in 39 states the incomes of the middle fifth of families grew more slowly than the incomes of the top fifth of families.

The five states with the largest income gap between the top and bottom fifths of families, according to the study, are New York, Texas, Tennessee, Arizona, and Florida. The five states with the largest income gaps between the top and middle fifths of families are Texas, Kentucky, Florida, Arizona, and Tennessee. Generally, income gaps are larger in the Southeast and Southwest and smaller in the Midwest, Great Plains, and Mountain West.
<span style="background-color: #FFFF9F"><b>
These trends indicate a fundamental inconsistency and unfairness within our economic system that threatens the well-being of future generations. Jared Bernstein, a senior economist at the Economic Policy Institute, makes this point, explaining, "When income growth is concentrated at the top of the income scale, the people at the bottom have a much harder time lifting themselves out of poverty and giving their children a decent start in life. A fundamental principle of our economic system is that the benefits of economic growth will flow to those responsible for their creation. When how fast your income grows depends on your position in the income scale, this principle is violated. In that sense, today's unprecedented gap between the growth of the typical family's income and productivity is our most pressing economic problem."</b></span>

Growing income inequality in America did not happen by accident and it cannot fix itself. It will take proactive changes from policy makers at the state and national level to help reduce the gap and truly level the economic playing field to create a more robust environment for opportunity for all. Raising the minimum wage, as well as adjusting it annually for inflation, would be one small but necessary first steps toward reducing the enormous income disparity in America today.

Despite the White House's selective use of economic data and sweeping generalizations about the overall strength of the economy, mining the data actually paints a much drearier picture, one in which most Americans are not making progress but actually losing ground, while the wealthy prosper more and more. This trend will only worsen unless more just and sensible fiscal and economic policies are adopted.<p>


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Makkonnen
03-30-2006, 09:39 PM
muckraker you are one of the finest posters to ever grace this board

Greed
03-31-2006, 04:27 PM
yea, you're ok.

you must have just made a mistake earlier.

Greed
04-01-2006, 04:30 PM
Jobless rate not masking hidden unemployed: Fed
By Tim Ahmann
Fri Mar 31, 2:45 PM ET

Some economists think that as the U.S. labor market tightens and wages rise, working-age Americans sitting on the sidelines will decide it is worth their while to start looking for work again.

In the view of these analysts, the official jobless rate -- which stood at a historically low 4.8 percent in February -- misses hidden unemployment suggesting that labor-market conditions are not as tight as it appears.

A new study by the Federal Reserve, however, offers little hope that Americans not currently in the labor force will suddenly start looking for work. This study argues that the low unemployment rate is an accurate indicator of labor-market conditions.

The study by researchers at the Fed's Board of Governors found the participation rate, the percentage of working-age Americans who either have a job or are looking for one, to be in line with its long-run, and now declining, trend.

They said that suggests the participation rate "is not artificially masking the extent of unemployment."

"The unemployment rate is providing a reasonably accurate picture of the state of the labor market," they added.

Some Fed policy-makers have said the current jobless rate suggests the U.S. economy is already near "full employment." In this view, if the unemployment rate were to move down much further, wage-related inflation risks would rise.

Indeed, when the central bank's policy-setting panel increased their target for overnight interest rates by a quarter-percentage point to 4.75 percent on Tuesday, it renewed a warning that "possible increases in resource utilization" could boost inflation.

After peaking at 67.3 percent in early 2000, the labor force participation rate declined to a low of 65.8 percent early last year. It has since risen only marginally to 66.1 percent, below where it stood for most of the 1990s.

If the participation rate were higher, the unemployment rate would be higher as well. For example, if it still stood at its 2000 peak, 2.84 million more Americans would be in the labor market and the jobless rate would stand at 6.5 percent.

The Fed study by staff economists Stephanie Aaronson, Bruce Fallick, Andrew Figura, Jonathan Pingle and William Wascher concluded that a combination of cyclical and structural factors lay behind the decline in the participation rate since 2000.

The authors said the "hot economy" of the late-1990s appears to have pulled people into the labor market, pushing the participation rate up. Many workers subsequently dropped out amid the 2001 recession and ensuing jobless recovery.

"However, important structural and demographic developments appear to have been at work as well," they wrote, pointing in part to the aging of the U.S. population and a leveling out of participation rates for young women.

"Most of the decline in the participation rate during and immediately following the 2001 recession was a response to business cycle developments," the said. "However, the continued decline in participation in subsequent years and the absence of a significant rebound in 2005 appears to reflect other more structural factors."

The researchers also said the participation rate was likely to move down further over time, meaning the pace of economic growth consistent with low inflation was likely to move lower as well, absent a pickup in the productivity of U.S. workers.

(The paper, to be published in the forthcoming volume of the Brookings Papers on Economic Activity, can be found online at: http://www.brookings.edu/es/commentary/journals/bpea_macro/20060 3bpea_aaronson.pdf)

http://news.yahoo.com/s/nm/20060331/bs_nm/economy_fed_unemployment_dc_1;_ylt=Ano2OAmSjKTSqSY x6H6FDTjqxQcB;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCU l

Greed
04-05-2006, 06:03 AM
Transcripts: Economy Concerned Greenspan
By MARTIN CRUTSINGER, AP Economics Writer
Tue Apr 4, 6:02 PM ET

In 2000, when Wall Street's bubble burst and the economy hit a brick wall, Federal Reserve Chairman Alan Greenspan and other Fed officials revealed in their closed-door meetings plenty of concern about just where things might be headed.

Transcripts of those discussions, released Tuesday, found the officials groping to determine what the sharp declines in the stock market might do to the broader economy.

Various major market indexes began 2000 by hitting record highs, with the Dow Jones industrial average peaking at 11,722.98 on Jan. 14, 2000. But then the market began a sharp dive as the Internet stock bubble burst. At the lows two years later, more than $7 trillion in paper wealth had been wiped out.

Not all the Fed's discussions were completely serious. Greenspan, during a December meeting, told his Fed colleagues, "I have gotten calls from a number of senior high-tech executives who are telling me that the market is dissolving rapidly before their eyes."

But Greenspan prompted a laugh by adding, "I suspect that a not inconceivable possibility is that what is dissolving in front of their eyes is their own personal net worth."

Even with the market beginning to falter in early 2000, the Fed stuck to its campaign to push interest rates higher to slow economic growth as a way to keep inflation under control.

The Fed, which had begun pushing rates higher in June 1999, continued that campaign with three more rate increases in 2000, including a final half-point boost that left the federal funds rate at a nine-year high of 6.5 percent.

That final rate hike at the May 16, 2000, Fed meeting has been controversial, with some economists arguing that the central bank overdid the tightening just as the economy was about to slow sharply.

While some Fed policy-makers argued at the time for a quarter-point move rather than the more aggressive half-point increase, Greenspan pushed for the bolder action, the transcripts indicate.

"I believe the risks in moving 50 basis points today are not very large because I think the underlying momentum of the economy remains very strong," he said.

However, while the economy was growing rapidly in the spring quarter, it slowed abruptly in the summer of 2000.

The central bank made no further changes in rates after May and by December policymakers were debating whether the economy had slowed so sharply that rate cuts were warranted.

But at a December gathering of the Federal Open Market Committee, the group that meets eight times a year to set interest rates, officials were split on whether they should cut rates immediately or wait for further data.

William Poole, the president of the St. Louis Federal Reserve Bank, likened the Fed's efforts in managing the economy to a recent experience in a Boeing Co. flight simulator simulating the landing of an F-18 on the deck of an aircraft carrier.

"That means finding oneself wobbling first one way and then the other way. And I think we have some of the same concerns about monetary policy. We don't want to overreact," he said.

Greenspan prompted laughter by asking, "Did you land or didn't you land?"

He persuaded the FOMC members to delay a rate cut at the December meeting but alerted them to be near their telephones, saying he might schedule an emergency inter-meeting conference call in early January if the economy continued to weaken.

The Fed ended up cutting rates by a half point on Jan. 3, 2001, after a telephone conference call, returning the funds rate to 6 percent, where it had been before the half-point increase the previous May.

The Jan. 3 rate cut was the first of an extended series of rate cuts as the central bank worked to counteract a series of economic blows including the collapse of stock prices, the beginning of a recession in March 2001 and the impact of the September 2001 terrorist attacks.

The transcripts released Tuesday covered the FOMC's eight regular meetings in 2000. The Fed, under an agreement with Congress, releases transcripts of its meetings with a five-year lag.
___
On the Net:
Federal Reserve: http://www.federalreserve.gov

http://news.yahoo.com/s/ap/20060404/ap_on_bi_ge/fed_transcripts_2;_ylt=ArkrfYcAhKHEkModXYkKt_3qxQc B;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl

Greed
04-06-2006, 12:41 PM
Fed officials see sustainable growth ahead
By Andrea Hopkins
Tue Apr 4, 10:28 PM ET

U.S. economic growth looks set to slow to a non-inflationary pace, Federal Reserve officials said on Tuesday, suggesting the Fed's long campaign of interest rate increases is nearly over.

"We've been aiming toward converging to a balanced growth path that we can continue on a sustained basis, as we saw from 1994 to 2000. And I think we're pretty close to it," Richmond Federal Reserve Bank President Jeffrey Lacker said.

Lacker's optimism on a "balanced" economy dovetailed with comments from Kansas City Fed chief Thomas Hoenig, who repeated his belief benchmark overnight rates were close to where they need to be -- as long as the economy follows the script.

"We have ... systematically moved the fed funds rate or the policy rate from a very accommodative level, about 1 percent, to what we think of as a more neutral level," he said in remarks that closely mirrored a speech he delivered on Friday.

"This is definitely, I think, within the range of neutrality, perhaps even at the upper end of neutrality," he said, referring to a level that would neither boost nor weigh on growth. "But whether it is the right rate or not depends on how the economy plays out."

Dallas Fed chief Richard Fisher also delivered a dovish message, saying a tight U.S. labor market does not pose the same inflationary risk as in the past.

"We need to ... rejig the equations that inform our understanding of the maximum sustainable levels of U.S. production and growth," Fisher said in a speech on how globalization has changed U.S. inflation dynamics.

With the U.S. unemployment rate at a historically low 4.8 percent, some Fed officials -- including Hoenig and Lacker -- have said the nation is probably close to "full employment," which could mean further declines in the jobless rate would boost inflation pressures.

The Fed raised short-term interest rates last week to 4.75 percent for the 15th straight time since mid-2004 in a bid to head off inflation. But it said more rate hikes may be needed, warning that price pressures could build if the labor market tightened further.

Lacker, a voting member of the Fed's policy-setting committee this year, and Hoenig, who is not, both said the U.S. economy looked set for growth of about 3.5 percent this year, despite some cooling in the housing market.

"Plausible rates of moderation in housing activity will not pose a problem for overall activity this year or next," Lacker said, an assessment echoed by his colleague from Dallas.

Lacker also said the inflation picture was looking better than many had expected six months ago, with longer-term inflation expectations still moderate despite the run-up in energy prices over the last couple of years.

INFLATION CONTAINED

"We are not seeing any sign of rising inflation in the most recent data," he said.

Lacker noted that the core price index for personal consumption expenditures, the Fed's preferred inflation measure, was up just 1.8 percent over the last 12 months -- not far from the 1.5 percent increase he and some other Fed policy-makers think a good long-run target.

The Richmond Fed president said nearly a million jobs have been created in the last four months, a pace he said is more than double that needed to keep pace with population growth -- but he said job growth alone would not cause inflation unless the Fed's interest-rate path was too low.

In his speech, Fisher, who does not vote on interest rates this year, argued globalization had weakened the link that had existed in the past between tight U.S. labor markets and inflation.

He said once-reliable forecasting tools such as the Phillips curve, an equation that predicts inflation based on the tightness of the U.S. job market, had lost their usefulness.

"For some countries, including -- and to my mind especially -- the United States, the proxies for global slack have become more important predictors of changes in inflation than measures of domestic slack," Fisher said.

http://news.yahoo.com/s/nm/20060405/bs_nm/economy_fed_fisher_dc;_ylt=AiSlqg5Etrp3B5lmUXLhpiz v5rEF;_ylu=X3oDMTBjMHVqMTQ4BHNlYwN5bnN1YmNhdA--

Greed
04-24-2006, 08:51 AM
say goodbye to american productivity.

Judge: Web-Surfing Worker Can't Be Fired
29 minutes ago

NEW YORK - Saying surfing the web is equivalent to reading a newspaper or talking on the phone, an administrative law judge has suggested that only a reprimand is appropriate as punishment for a city worker accused of failing to heed warnings to stay off the Internet.

Administrative Law Judge John Spooner reached his decision in the case of Toquir Choudhri, a 14-year veteran of the Department of Education who had been accused of ignoring supervisors who told him to stop browsing the Internet at work.

The ruling came after Mayor Michael Bloomberg fired a worker in the city's legislative office in Albany earlier this year after he saw the man playing a game of solitaire on his computer.

In his decision, Spooner wrote: "It should be observed that the Internet has become the modern equivalent of a telephone or a daily newspaper, providing a combination of communication and information that most employees use as frequently in their personal lives as for their work."

He added: "For this reason, city agencies permit workers to use a telephone for personal calls, so long as this does not interfere with their overall work performance. Many agencies apply the same standard to the use of the Internet for personal purposes."

Spooner dispensed the lightest possible punishment on Choudhri, a reprimand, after a search of Choudhri's computer files revealed he had visited several news and travel sites.

Martin Druyan, Choudhri's lawyer, called the ruling "very reasonable."

http://news.yahoo.com/s/ap/20060424/ap_on_hi_te/internet_surfing;_ylt=ApAE3sQR4X_rKb._3MBw9bxI2ocA ;_ylu=X3oDMTA5aHJvMDdwBHNlYwN5bmNhdA--

Greed
04-27-2006, 01:24 PM
America's rags-to-riches dream an illusion: study
By Alister Bull
Wed Apr 26, 5:14 PM ET

America may still think of itself as the land of opportunity, but the chances of living a rags-to-riches life are a lot lower than elsewhere in the world, according to a new study published on Wednesday.

The likelihood that a child born into a poor family will make it into the top five percent is just one percent, according to "Understanding Mobility in America," a study by economist Tom Hertz from American University.

By contrast, a child born rich had a 22 percent chance of being rich as an adult, he said.

"In other words, the chances of getting rich are about 20 times higher if you are born rich than if you are born in a low-income family," he told an audience at the Center for American Progress, a liberal think-tank sponsoring the work.

He also found the United States had one of the lowest levels of inter-generational mobility in the wealthy world, on a par with Britain but way behind most of Europe.

"Consider a rich and poor family in the United States and a similar pair of families in Denmark, and ask how much of the difference in the parents' incomes would be transmitted, on average, to their grandchildren," Hertz said.

"In the United States this would be 22 percent; in Denmark it would be two percent," he said.

The research was based on a panel of over 4,000 children, whose parents' income were observed in 1968, and whose income as adults was reviewed again in 1995, 1996, 1997 and 1999.

The survey did not include immigrants, who were not captured in the original data pool. Millions of immigrants work in the U.S, many illegally, earnings much higher salaries than they could get back home.

Several other experts invited to review his work endorsed the general findings, although they were reticent about accompanying policy recommendations.

"This debunks the myth of America as the land of opportunity, but it doesn't tell us what to do to fix it," said Bhashkar Mazumder, a senior economist at the Federal Reserve Bank of Cleveland who has researched this field.

Recent studies have highlighted growing income inequality in the United States, but Americans remain highly optimistic about the odds for economic improvement in their own lifetime.

A survey for the New York Times last year found that 80 percent of those polled believed that it was possible to start out poor, work hard and become rich, compared with less than 60 percent back in 1983.

This contradiction, implying that while people think they are going to make it, the reality is very different, has been seized by critics of President Bush to pound the White House over tax cuts they say favor the rich.

Hertz examined channels transmitting income across generations and identified education as the single largest factor, explaining 30 percent of the income-correlation, in an argument to boost public access to universities.

Breaking the survey down by race spotlighted this as the next most powerful force to explain why the poor stay poor.

On average, 47 percent of poor families remain poor. But within this, 32 percent of whites stay poor while the figure for blacks is 63 percent.

It works the other way as well, with only 3 percent of blacks making it from the bottom quarter of the income ladder to the top quarter, versus 14 percent of whites.

"Part of the reason mobility is so low in America is that race still makes a difference in economic life," he said.

http://news.yahoo.com/news?tmpl=story&cid=2628&ncid=2628&e=13&u=/nm/20060426/us_nm/economy_mobility_dc

Greed
05-03-2006, 10:08 AM
Commentary: The End Of Upward Mobility? Not On Your Life
Bleak stories aside, both rich and poor advanced over the past decade
By Michael J. Mandel
JUNE 20, 2005

It's really quite odd. By most accounts, the economy is in pretty good shape, with an unemployment rate of 5.1%, growth at 3.5%, and productivity running at a 2.9% annual pace. What's more, the economic performance of the past 10 years -- call it the New Economy decade, boom and bust combined -- is arguably the best since the 1960s, with the stock market doubling and real incomes rising for rich and poor alike.

Yet against this backdrop, two of the nation's leading newspapers -- The New York Times and The Wall Street Journal -- are running extensive multipart series that paint a much darker picture. The U.S., rather than being a land of opportunity, these stories argue, is increasingly a class-bound place of immobility and stratification, where it's becoming ever harder for the people at the bottom to move up. "The odds that a child born in poverty will climb to wealth -- or a rich child will fall into the middle class -- remain stuck," proclaimed one Wall Street Journal article. the Times went further: "Mobility, which once buoyed the working lives of Americans as it rose in the decades after World War II, has lately flattened out or possibly even declined."

The stories -- so far 10 in the Times and 4 in the Journal -- are rich with anecdotes and references to topflight economic research. Yet the economics involved in sorting out questions of mobility are far more complex than such evidence would suggest. First, both newspapers focus on what economists call "relative" mobility -- whether you are moving up or down relative to everyone else in the U.S. But such a definition of mobility seems parochial and almost quaint in an increasingly globalized economy where we are acutely aware of the Chinese and the Indians catching up with us. Our frame of reference is expanding beyond our immediate neighbors to encompass the entire world.

In such a global economy, rather than agonizing over relative comparisons, it may be better to concentrate on the simpler and intuitively satisfying concept of "absolute" mobility -- whether you are doing better than your parents did, or whether the living standards of a whole group of people are rising over time. From this perspective, there are signs that this past decade has had more upward mobility compared with the previous two decades. One example: The inflation-adjusted income of the lowest 20% of households basically did not rise from 1973 to 1993, according to the U.S. Census Bureau. But from 1993 to 2003, the last year available, the same segment's income was up by 7.6%.

Entry Level Gains
There's yet another big problem: We actually know very little about whether relative mobility increased or decreased during the New Economy decade because complete data don't exist yet. With a few exceptions, most studies stop with the mid- or late 1990s. For example, one influential study that was cited in the Times, by economists David I. Levine of the University of California at Berkeley and Bhashkar Mazumder of the Federal Reserve Bank of Chicago, only uses data up to 1995.

That means their study and others miss or underestimate the structural shifts that occurred in the economy over the past decade as productivity growth accelerated and technological change and globalization became bigger disruptive influences on American lives. Downplayed are critical events such as the tight labor markets of the late '90s, which forced employers to hire and train less-skilled workers, and the tech boom, which created a whole new generation of millionaires from ordinary people who happened to be working in the right place at the right time. The studies also miss the layoffs of educated workers during the tech bust, the massive surge of outsourcing to India and elsewhere, and the ongoing residential construction and renovation boom, which is boosting demand for less-educated workers. The final impact is hard to judge, but all of this change could easily have generated more movement -- up and down -- the income ladder.

Here's what we do know: Over the past decade, virtually every traditionally disadvantaged group made gains in absolute terms. Take, for example, families headed by immigrants who entered the country in the 1980s. The poverty rate for such families dropped sharply, from 26.6% in 1995 to 16.4% in 2003, the latest numbers available. Similarly, a combination of welfare reform and tight labor markets helped drive down the poverty rate for female-headed households with children from 46.1% in 1993 to 35.5% in 2003. That may not seem like much, but it beats the total lack of progress in the previous decade. And a new book, Moving Up or Moving On: Who Advances in the Low-Wage Labor Market?, uses a new set of data to look at the wage history of a group of low-earning workers from 1993 to 2001. Adjusted for inflation, those people saw their average earnings more than double over those nine years.

These gains came in part from the low unemployment rates in 1999 and 2000, which fell below 4% for the first time in 30 years. As a result, "some workers got access to better job opportunities," says Harry J. Holzer, a co-author of the book and a former chief economist at the Labor Dept.

There were also big wage gains in retailing and construction, two industries that hire a lot of entry-level workers. Adjusted for inflation, construction wages have gone up by 7.5% since 1995, compared with a 16.7% decline over the previous two decades. Retail wages have followed a similar pattern. That means more new low-end workers are entering industries where wages have been rising rather than falling.

Yet continuing those gains and doing even better is no sure thing. For one, absolute mobility depends on sustained productivity gains throughout the economy, which lift incomes for everyone.

Longer-term, there are two disturbing weak spots in the picture of mobility. One is higher education, where fast-rising costs in tuition have outstripped gains in income and financial aid programs. What's needed, among other things, is a big infusion by the federal government of financial aid funding as an investment in human capital.

The other issue is the health-care sector, which has generated almost 2 million jobs since 2000 and will be one of the biggest job creators in the future. While health care has always employed a mix of skilled, semi-skilled, and unskilled labor, workers in dead-end nonclinical positions, such as food services, haven't been able to easily make the jump into better-paying jobs. "There wasn't much opportunity at the entry level, especially for people who wanted to get ahead," says Phyllis Snyder, vice-president of the Council for Adult & Experiential Learning (CAEL), a nonprofit specializing in lifelong learning for workers. Under a Labor Dept. grant, CAEL has organized pilot programs at five sites that help less-skilled workers get the training to move into patient-care jobs while earning money at the same time. Says Diana Bamford-Rees, CAEL's associate vice-president: "It's about how to make them upwardly mobile."

If the past decade has shown us anything, it's that Americans are not fixed in place -- not in absolute terms, and probably not in relative terms, either. Despite what the Times and Journal stories say, today's economy is a place of growth and tumult, rather than stagnation and immobility -- and that's a good thing.

http://www.businessweek.com/magazine/content/05_25/b3938103_mz057.htm

Greed
05-06-2006, 04:46 PM
Grads gain the advantage
The lean job market college graduates faced in the first half of the decade is gone, and companies are upping the ante to obtain the best talent.
By Kate Moser | Correspondent of The Christian Science Monitor
May 01, 2006

Stephen Richardson knew what he wanted, waited for it, and got it. The management major from Purdue University in Indiana wasn't tempted to take the first job offer he got last October - something job seekers in a dicier economy might do. He also passed on three other offers.

His patience paid off. After graduating later this month, Mr. Richardson will have his dream job waiting for him.

"I knew what I was capable of, and I was pretty confident that the job market was flourishing at that time," says Richardson, who will start a finance job at Procter & Gamble in June.

It's a buyer's market for many college grads looking for their first jobs this spring. Job-market analysts and career counselors see hiring growth in many sectors of the economy. Nationwide, employers plan to hire 13.8 percent more new graduates than they did last year, according to a survey by the National Association of Colleges and Employers (NACE) in Bethlehem, Pa.

While grads from the first half of this decade faced a leaner job market, many from the class of 2006 will have their pick of career opportunities.

"I think today the difference is that people coming out of school aren't treating the offers cavalierly like they might have then," says John Challenger of Chicago outplacement firm Challenger, Gray & Christmas. "They're more careful to take the right job."

Especially for grads who have gained work experience through internships, 2006 is a good year to graduate, experts say. Students with backgrounds in engineering and financial services are especially in demand this year. At the Colorado School of Mines, 79 percent of its December 2005 graduates had snagged jobs by graduation - its highest rate in 13 years, says Ron Brummett, director of the engineering school's career center. "We're guessing that our May graduates will be higher than that."

Mr. Brummett attributes this bonanza to widespread growth in a number of industries. "We've seen the mining industry come back, and we've begun to see semiconductor companies recruiting again, which we haven't seen in a few years."

Among the 2006 graduates to benefit from that climate: Mikell Taylor, an electrical engineering major at Franklin W. Olin College of Engineering in Needham, Mass. She mulled over job offers from two robotics firms and the Jet Propulsion Laboratory in Pasadena, Calif. before choosing on Bluefin Robotics. The Cambridge, Mass. firm works with navies and research institutions around the world. "I feel so lucky," she says.

Hiring of grads in the Northeast will rise 24.8 percent this year, NACE reports, followed by smaller increases in the South, Midwest, and West. Employers in the service sector and manufacturing report the highest levels of hiring, it says. Government and nonprofit employers plan to increase their hiring of college grads by 9 percent this year.

The rush to hire has led to some fierce competition among employers, with companies again canvassing campuses in search of talent. "With unemployment dropping now down to 4.7 percent nationally, and lower in a lot of markets, a lot of companies are increasingly focusing on recruiting and attracting the right people," says Mr. Challenger of the Chicago outplacement firm. "They're putting it up to the top of their priority list."

Dan Black, who has been a campus recruiter for the professional services firm Ernst & Young for nine years, says the competition for top accounting graduates is heavier this year than he has ever seen. His firm plans to hire 5,380 new grads, a 13 percent jump from last year.

The applicant pool, Mr. Black says, seems to grow more qualified every year - many applicants have impressive internship experience, have traveled widely, and can speak several languages. "If I were looking for a job these days, I'd be nervous about competing against these students," he says.

Like many new graduates in finance-related fields, Boston University students Shirlene Chow and Andrew Ellis had several job offers. Mr. Ellis will work for IBM, while Ms. Chow took a job in audit services for Deloitte & Touche. Experts credit the four-year-old Sarbanes-Oxley Act, which sets tougher accounting standards for corporations, for helping to boost starting salary offers for accounting majors this spring to $45,058, a 5.4 percent jump.

Regardless of industry, almost 90 percent of the companies surveyed by NACE reported more competition over new grads this year, and more than 20 percent said they planned to increase starting salaries to make job offers more attractive.

"In a more competitive environment, companies want to sweeten the pot a little bit," says Stacey Rudnick, director for MBA career services at the McCombs School of Business at the University of Texas at Austin. She is seeing more signing bonuses this year than last, with companies putting more on the table to lure top candidates. Consulting firms, for example, are offering an average signing bonus of $25,000 to $30,000 for McCombs MBA graduates this year, compared with $20,000 to $25,000 last year, Ms. Rudnick says.

"That will even filter down to some signing bonus potential for top [undergraduate] performers," says Challenger. Tuition-reimbursement programs appear to be more common this year, too, he adds. "For example, a company might say 'If you stay here for three years after you graduate, we'll finance your MBA.' "

Mostly, though, competition for grads means higher starting salaries. Employers raised starting salary offers for accounting grads by 5.4 percent this year to $46,188, according to a separate survey by NACE. Liberal-arts graduates can expect average starting salaries of $30,958, which is 2 percent higher than last year's.

The increase in opportunities doesn't mean grads can afford to be lazy about the job search, career experts maintain. Although online job searching is a useful tool, job seekers still need to venture out and press the flesh. "In order to actually get the job, you have to use your network," says Pat Garrott, associate director of Purdue University's career center.

Of course, a good job market also doesn't solve the perennial problem of figuring out what one wants to do. "Most people don't even know what they want or what they're looking for," says Lillian Kang, a University of Kansas economics major who graduates later this month. While Ms. Kang will work as a financial adviser at the Highpointe Financial Group in Leawood, Kan., she says she's the only person she knows who already has a job lined up.

"Everything I've worked for has pretty much led up to being a financial adviser," she says.

Experts' job-hunting tips for the Class of '06
1. Don't delay your job search. "Even if you're anticipating taking a little trip after graduation, plant the seeds now," says Richard Wahlquist, president of the American Staffing Association, which represents temp agencies and placement firms across the country. "This is the peak employment season."

2. Build a peer network. Grads should collect contact information from fellow students before getting their diplomas. "That's a fabulous network that they'll have the rest of their lives," says Susan Joyce, editor of Job-Hunt.org.

3. Watch your electronic 'footprint.' Search engines like Google are great, but they also make it easy for potential employers to find "all of those nasty notes on blogs and dumb stuff in online profiles," Ms. Joyce says. "Be very careful with [what you write in an] e-mail, particularly e-mail to large groups - such as e-mail distribution lists for job seekers."

4. Be wary of bogus job sites. People tend to put too much sensitive information on their résumés and then circulate them widely over the Internet, Joyce says. "If a website wants you to register before you see any jobs, run in the other direction."

5. Consider temping or volunteering. If you lack work experience, a consultative visit at a staffing agency can help, says Mr. Wahlquist. "It's free, no obligations, and they have their finger on the pulse of the local job market every day." The fall election presents opportunities to volunteer. "It's a way to meet people and demonstrate what you can do," Joyce says.

http://www.csmonitor.com/2006/0501/p13s02-wmgn.html

nittie
05-06-2006, 05:18 PM
The question imo is "What U.S. economy"? I mean China owns the U.S. the oil producing countries have the U.S. in their hip pockets, there is no such thing as job security anymore and most new jobs are in the government or service sectors which basically amounts to tax dollars being redirected but no new manufacturing jobs, as I see it the U.S. economy is alot like the U.S. government nothing but a "paper tiger".

Greed
05-07-2006, 06:14 PM
1st of all there was never such a thing as "job security." job security is what they fight for in france. america has "employment security."

8 million jobs in this economy are lost and 8 million are created in a month. the difference is what's reported every month in the media. the unemployment number thats reported is 5% and for the most part its not the same 5% of the workforce unemployed month after month after month.

so you have a rotational 5% of the workforce going inbetween millions of jobs month to month. which corresponds with modern americans' attitude toward employment. patterns of not being loyal to any one employer for long is the now the norm.

no college graduate pretends like they'll be in their 1st job for the rest of their life.

that puts employers in weaker position not the employee. the employee has options. the employer has to figure out how to keep workers.

and so what if most jobs are service based, maybe we should stop tell each other than college isnt for everybody and condemning some people to lifelong competition with illegal immigrants.

BTW, the sky is falling mentality is decades old. every nation in the world is always 2 steps away from collapsing the US economy. seems to me like you and others like crying wolf alot more than you like being right in any way, shape, or form.

muckraker10021
05-08-2006, 02:59 AM
The question imo is "What U.S. economy"? I mean China owns the U.S. the oil producing countries have the U.S. in their hip pockets, there is no such thing as job security anymore and most new jobs are in the government or service sectors which basically amounts to tax dollars being redirected but no new manufacturing jobs, as I see it the U.S. economy is alot like the U.S. government nothing but a "paper tiger".

<font face="verdana" size="4" color="#333333">
Nitte as a fellow member of the "Reality Based" community I congratulate you for not being bamboozled by the corporate owned media’s <s>SPIN</s> LIES about the reality of the dire straits American workers face. Once again one of the best voices smacking-down the propaganda of the corporate owned business media is former Reagan administration economist Paul Craig Roberts. You won’t see him in the Wall Street Journal where he used to be a regular contributor, or Business Week magazine where he used to be a regular contributor because he is as the business elite say "Off Message”.</font>


<font face="arial black" size="6" color="#D90000">
The Fading US Economy</font>
<font face="georgia" size="3" color="#000000">

<br><strong>By Paul Craig Roberts
May 7th 2006</strong>
<br>[See also National Data, By Edwin S. Rubenstein: <a href="../rubenstein/060507_nd.htm">April Jobs: Hispanics Up, non-Hispanics Down</a>]
<br>The <a href="http://www.bls.gov/news.release/empsit.nr0.htm">Bureau of Labor Statistics payroll jobs</a> report released May 5 says the economy created 131,000 private sector jobs in April. Construction added 10,000 jobs, natural resources, mining and logging added 8,000 jobs, and manufacturing added 19,000. Despite this unusual gain, the economy has 10,000 fewer manufacturing jobs than a year ago.
<br>Most of the April job gain&mdash;72%&mdash;is in domestic services, with education and health services (primarily health care and social assistance) and waitresses and bartenders accounting for 55,000 jobs or 42% of the total job gain. Financial activities added 26,000 jobs and professional and business services added 28,000. Retail trade lost 36,000 jobs.
<br>During 2001 and 2002 the US economy lost 2,298,000 jobs. These lost jobs were not regained until early in February 2005. From February 2005 through April 2006, the economy has gained 2,584 jobs (mainly in domestic services).
<span style="background-color: #FFFF51"><b>
<br>The total job gain for the 64 month period from January 2001 through April 2006 is 7,000,000 jobs less than the 9,600,000 jobs necessary to stay even with population growth during that period. The unemployment rate is low because millions of discouraged workers have dropped out of the work force and are not counted as unemployed.</b></span>
<br>In 2005 the US had a current account deficit in excess of $800 billion. That means Americans consumed $800 billion more goods and services than they produced. A significant percentage of this figure is offshore production by US companies for American markets.
<br>The US current account deficit as a percent of Gross Domestic Product is unprecedented. As more jobs and manufacturing are moved offshore, Americans become more dependent on foreign made goods. This year the deficit could reach $1 trillion.
<span style="background-color: #FFFF51"><b>
<br>The US pays its current account deficit by giving up ownership of its existing assets or wealth. Foreigners don&rsquo;t simply hold the $800 billion in cash. They use it to acquire US equities, real estate, bonds, and entire companies. </b></span>
<br>The federal budget is also in the red to the tune of about $400 billion. As Americans have ceased to save, the federal government is dependent on foreigners to lend it the money to operate and to wage war in the Middle East.
<br>American consumers are heavily indebted. The growth of consumer debt is what has been fueling the economy. <a href="http://www.vdare.com/rubenstein/050324_nd.htm">Social Security</a> and <a href="http://www.vdare.com/rubenstein/medicare.htm">Medicare</a> are in financial trouble, as are many company pension plans. Decide for yourself&mdash;is this the economic picture of a superpower that can dictate to the world, or is it the picture of a second-rate country dependent on foreigners to finance its consumption and the operation of its government?
<br>No-think economists make rhetorical arguments that the decline of US manufacturing employment reflects higher productivity from technological improvements and not a decline in US manufacturing per se. George Mason University economist <a href="http://www.gmu.edu/departments/economics/wew/">Walter Williams</a> recently ridiculed the claim that US manufacturing jobs are moving to China. Williams asks how the US could be losing manufacturing jobs to China when the Chinese are losing jobs faster than the US:&nbsp;
<br><strong>&quot;Since, 2000, China has lost 4.5 million manufacturing jobs, compared with the loss of 3.1 million in the U.S.&quot; [<a href="http://www.wnd.com/news/article.asp?ARTICLE_ID=50024">Disappearing manufacturing jobs</a>, May 3, 2006]</strong>
<br>The 4.5 million figure comes from a Conference Board report that is misleading. The report that counts was written by Judith Banister under contract to the U.S. Department of Labor, Bureau of Labor Statistics, and published in November 2005 [<a href="http://www.bls.gov/fls/chinareport.pdf">PDF</a>]. Banister&rsquo;s report was peer reviewed both within the BLS and externally by persons with expert knowledge of China.
<br>Chinese manufacturing employment has been growing strongly since the 1980s except for a short period in the late 1990s when layoffs resulted from the restructuring and privatization of inefficient state owned and collective owned factories. To equate temporary layoffs from a massive restructuring within manufacturing with US long-term manufacturing job loss indicates extreme carelessness or incompetence.
<br>Banister concludes:
<br><strong>&quot;In recent decades, China has become a manufacturing powerhouse. The country&rsquo;s official data showed 83 million manufacturing employees in 2002, but that figure is likely to be understated; the actual number was probably closer to 109 million. By contrast, in 2002, the Group of Seven (G7) major industrialized countries had a total of 53 million manufacturing workers.&quot;</strong>
<br>The G7 is the US and Europe. In contrast to China&rsquo;s 109,000,000 manufacturing workers, the US has 14,000,000.
<br>When I was Assistant Secretary of the Treasury in the <a href="http://www.vdare.com/roberts/reagan.htm">Reagan administration,</a> the US did not have a trade deficit in manufactured goods. Today the US has a $500 billion annual deficit in manufactured goods. If the US is doing as well in manufacturing as no-think economists claim, where did an annual trade deficit in manufactured goods of one-half trillion dollars come from?
<br>If the US is the high-tech leader of the world, why does the US have a <a href="http://usinfo.state.gov/ei/Archive/2005/Jan/12-31762.html">trade deficit in advanced technology products with China? </a>
<span style="background-color: #FFFF51"><b>
<br>There was a time when American economists were empirical and paid attention to facts. Today American economists are merely the handmaidens of offshore producers. Apparently, they follow President Bush&rsquo;s lead and do not read newspapers&mdash;thus, their ignorance </b></span>of countless stories of <a href="http://www.vdare.com/roberts/060215_reality.htm">US manufacturers</a> moving entire plants and many thousands of US engineering jobs <a href="http://www.vdare.com/roberts/globalism.htm">to China. </a>
<br>Chinese firms, including state owned firms, have numerous reasons, tax and otherwise, to understate their employment. Banister&rsquo;s report gives the details.
<br>Banister points out that the excess supply of labor in China is about five to six times the size of the total US work force. As a result, there is no shortage of workers in China, nor will there be in the foreseeable future.
<br>The huge excess supply of labor means extremely low Chinese wages. <span style="background-color: #FFFF51"><b>The average Chinese wage is $0.57 per hour, a mere 3% of the average US manufacturing worker&rsquo;s wage. With first world technology, capital, and business know-how crowding into China, virtually free Chinese labor is as productive as US labor. This should make it obvious to anyone who claims to be an economist that offshore production of goods and services is an example of capital seeking absolute advantage in lowest factor cost, not a case of free trade based on comparative advantage. </b></span>
<br>American economists have failed their country as badly as have the Republican and Democratic parties. The sad fact is that there is no leader in sight capable of reversing the rapid decline of the United States of America.</font>

<hr noshade color="#0000ff" size="14"></hr>

Greed
05-09-2006, 09:14 AM
Economic Health May Be in Eye of Beholder
By TOM RAUM, Associated Press Writer
Sun May 7, 1:12 PM ET

America's economy is strong. Or it's in trouble. It just depends on who's talking. Trying to retool his message and right his listing presidency, President Bush is speaking out more frequently and forcefully on the economy.

It's in good shape right now, his advisers say, and they want him to take more credit for it.

The latest reports show healthy increases in economic growth, job creation, home ownership, retail sales and consumer spending. The Dow Jones Industrial Average is at a six-year high.

"This economy is powerful, productive and prosperous and we intend to keep it that way," Bush says.

Across town, Democrats are peddling a different message: Soaring gasoline and health care costs are burdening ordinary people; mortgage costs and credit card rates are on the rise; jobs are threatened by outsourcing.

As for those tax cuts treasured by Bush, Democrats argue they have benefited mainly the wealthy.

"There's no sharing in the prosperity that the president likes to herald," House Democratic leader Nancy Pelosi of California said.

Friday's unemployment report, showing the jobless rate holding steady at 4.7 percent with a lower-than-expected job-creation rate of 138,000 in April, was seized by both sides to buttress their great-economy/troubled-economy arguments.

Each party accuses the other of "cherry picking" statistics to bolster its case.

Nearly every major national issue — Iraq, energy policy, immigration — already is politically polarized. Thus it's no surprise the economy is, too.

So much so that Republicans and Democrats depict it in terms that are 180 degrees apart.

"One reason the president can't get a lot of traction when talking about the good economy is because it's not good for everyone," said Mark Zandi, chief economist at Moody's Economy.com.

"If you're from a wealthier household, the economy is performing very well. You have a job, your income is rising, your net worth is about as strong as it's ever been," Zandi said.

"If you're a lower or middle-income household, you're struggling. Your incomes aren't rising, certainly not as fast as inflation, so your standard of living is falling. You have debt and interest rates are rising," Zandi said.

Former Sen. John Edwards of North Carolina, the Democratic nominee for vice president in 2004 and a 2008 presidential prospect, talks about "two Americas" — one for the poor, one for the rich. Many economists suggest parallel economies exist as well.

Since former budget director Joshua Bolten took over as Bush's chief of staff late last month, the president and his lieutenants have been busy emphasizing good economic news.

Bush called a Rose Garden news conference to trumpet the stronger-than-expected 4.8 percent economic growth for the January-March period. He welcomed Friday's jobs report as more good news. He credits tax cuts passed during his first term for putting $880 billion into the hands of consumers and businesses and fueling a five-year recovery.

While the administration acknowledges that rising energy prices pose a potential drag, officials insist they are moving to ease the pain at the pump.

Bush relaxed environmental standards on gasoline additives; called for a temporary halt in filling the nation's emergency petroleum reserve; and pushed lawmakers to act to encourage alternative energy supplies. He also ordered a federal investigation into price gouging, although said he has seen no evidence of it.

Even so, a new AP-Ipsos poll shows public approval of Bush's handling of gas prices at just 23 percent.

Senate Republicans jumped into the act by proposing to send out $100 checks to help defray higher pump prices. That backfired and was widely scorned. It was withdrawn.

Democrats have proposed suspending the federal tax on gasoline, which amounts to 18.4 cents a gallon. That proposal hasn't generated much enthusiasm, either.

Trying to benefit from Bush's misfortunes, Democrats are working hard to stamp high oil prices as a proxy for the overall economy.

"If economists have their set of leading economic indicators, so do ordinary citizens. And for ordinary citizens, these are the cost of gas and the cost of health care," said Mark Mellman, a Democratic pollster and consultant. "When they see health care costs high and gasoline prices through the roof, they think the economy is in trouble."

Lamented GOP conservative consultant Greg Mueller: "We've let the good economy become a discussion about gas prices."

Economists are concerned that high gasoline prices eventually will take a toll on overall consumer spending. But so far, there have been few signs of a weakening economy.

"The economy's doing fine. We just don't know what's going to happen next," said David Wyss, chief economist at Standard and Poor's in New York.

Rising gasoline prices, he said, serve as a constant reminder of potential dangers ahead.

"If I was a Republican, I'd be running a little scared. Either way, you're going to get blamed — blamed for Iraq, blamed for oil prices which are connected to Iraq in people's minds," Wyss said. "People always want to blame someone else when things go wrong and take credit with things go right."

http://news.yahoo.com/news?tmpl=story&cid=2629&ncid=2629&e=45&u=/ap/20060507/ap_on_go_pr_wh/dueling_economies_1

nittie
05-09-2006, 12:37 PM
"The economy's doing fine. We just don't know what's going to happen next," said David Wyss, chief economist at Standard and Poor's in New York.

Here's what will happen next

1. The Fed will raise interest rates.

"One reason the president can't get a lot of traction when talking about the good economy is because it's not good for everyone," said Mark Zandi, chief economist at Moody's Economy.com.

If you're from a wealthier household, the economy is performing very well. You have a job, your income is rising, your net worth is about as strong as it's ever been," Zandi said.

2. These people will invest in stocks, move their businesses overseas or hire illegals thus driving down wages and impoverishing working class Americans.


"If you're a lower or middle-income household, you're struggling. Your incomes aren't rising, certainly not as fast as inflation, so your standard of living is falling. You have debt and interest rates are rising," Zandi said.


3. These people will see their wages shrink, they will start looking for someone to blame, eventually they'll lash out at someone, first it will be politicians, second it will be family members, then it will be some unsuspecting person who ain't did shit to them.


Former Sen. John Edwards of North Carolina, the Democratic nominee for vice president in 2004 and a 2008 presidential prospect, talks about "two Americas" — one for the poor, one for the rich. Many economists suggest parallel economies exist as well.


4. Eventually the middle class will disappear and America will become just another country with high poverty, overcrowded prisons, crumbling infrastructure, armed militias....hmmm?

Greed
06-30-2006, 06:31 PM
American manufacturing
Lean and unseen
Unlike General Motors and Delphi, most of America's manufacturers are thriving
Jun 29th 2006 | DES PLAINES, ILLINOIS

BY LOSING over $10 billion last year, General Motors (GM) at last managed to get its workers' attention. The troubled carmaker announced this week that 35,000 employees—nearly a third of its hourly paid workforce—have accepted the company's incentives to retire early on generous terms. GM expects that the job cuts will save it $1 billion a year. They are part of an overhaul that GM says will lower its annual fixed costs by $5 billion, giving it a better chance to reverse its fortunes. Delphi, a bankrupt car-parts maker that used to be part of GM, announced that 12,600 of its workers have also agreed to accept early retirement.

These huge cuts in an industry at the heart of American manufacturing have fed a popular belief that anyone who makes things in the United States is struggling against an onslaught of foreign competition. Whether American firms are building plants overseas as a way to exploit cheap labour, or closing down factories because they cannot compete any more, the widespread assumption is that the country's entire industrial base is being “hollowed out”. “Our media act as if American manufacturing is going to grind to a halt at around two o'clock this afternoon,” says Cliff Ransom, an independent analyst who scours America for the most assiduous metal-bashers.

But someone forgot to tell American manufacturers the bad news. Most of them have enjoyed roaring success of late. Net profits have risen by nearly 9% a year since the recession in 2001 and productivity has been growing even more rapidly than is usual during economic expansions (see chart). The country's various widget-makers, moreover, show no sign of losing their innovative edge.

Even in the automotive industry, GM and Delphi are arguably the exceptions. America has hundreds of car-parts makers, most of which are profitably supplying the plants of foreign carmakers such as Toyota and Honda, which this week announced that it will build a new plant in Indiana, to open in 2008. Caterpillar, which drove a harder bargain than GM and Ford did a few years ago with the United Auto Workers union, has since achieved huge gains in efficiency.

Capital equipment and durable goods-makers such as Caterpillar, General Electric, an industrial conglomerate, and Boeing, an aerospace giant, have always been the strongest bits of America's manufacturing base. Their position is the most secure, says James Womack of the Lean Enterprise Institute, a think-tank in Cambridge, Massachusetts, because there is so much knowledge embedded in what they make. Even when a company such as Boeing stumbles over its efficiency, as it did a few years ago, its intellectual property gives it room to recover. These days, however, American manufacturers of all sorts—not just the big durable-goods makers—are quickly improving their efficiency.

Take Littelfuse, a firm that makes fuses and other equipment to protect the electrical circuits in everything from cars and mobile phones to the machines in its customers' factories. It recently started three new production lines in an area of its plant in Des Plaines, Illinois. The sophistication of the equipment, the skills of the workers and the quality of the output are all admirable. But something else about the new 10,000 square foot (930 square metres) assembly area is even more impressive: it used to be a warehouse for the site. Littelfuse gained the space by drastically cutting back its need to store raw materials, unused scrap, unfinished goods and other sorts of wasteful material. After starting a new “lean manufacturing” drive three years ago, the plant took inches off its waistline. It now receives its raw materials—such as resins and high-grade zinc—“just-in-time” to pull them through its production line.

The same sort of thing is happening all over America. Manufacturers were already outpacing their rivals in rich countries during 1995 to 2000, when their productivity was growing by 4.0% a year. After 2000, the country's metal-bashers somehow managed to raise their productivity growth by another notch, to 5.1% a year, according to the Bureau of Labour Statistics. No serious economist thinks that America can maintain such a torrid rate of productivity growth over a longer period; indeed, the pace has already eased in the past year or two. But there are signs that America's productivity in manufacturing has been boosted by forces inherent in the structure of the economy, so that the sector should continue to thrive.

Until recently, it was hard to judge whether America's manufacturers might eventually lose a step once the effects of the 1990s information-technology boom tailed off. Research by Dale Jorgenson of Harvard University and Kevin Stiroh of the New York Federal Reserve Bank showed that IT drove much of America's productivity burst between 1995 and 2000. In a new paper, Messrs Jorgenson and Stiroh, along with Mun Ho of Resources for the Future, a think-tank, have compared the late 1990s with the productivity growth of the past five years. Not only has productivity growth accelerated further—by another 0.7% a year, to 3.2%—but the forces behind it also appear to have become more broadly based.

The economists looked at the entire private sector, not just manufacturing, and suggested that there could be several explanations for the recent strong performance. Because American firms are finding myriad ways to raise productivity, and are not merely riding one wave of innovation from the IT boom, the economists think that productivity growth will settle at a rate above what America achieved in the two decades before 1995. Over the next decade, they expect private businesses as a whole to boost productivity by 2.6% a year. That would be good news. Manufacturers, which are boosting productivity even more rapidly than the rest of the economy, should do even better.

Gordon Hunter, Littelfuse's chief executive, is confident that America can maintain its edge in manufacturing. He is an engineer from the north of England who spent much of his earlier career working for Intel, a semiconductor firm, in California. American firms will keep on improving their productivity, he says, because of a business environment that embraces innovation. “Being flexible and willing to learn are skills that America still excels at,” he says. Eventually, perhaps even GM will get the hang of it.

http://www.economist.com/business/displaystory.cfm?story_id=7119428

Greed
07-07-2006, 07:08 AM
America IS Fiscally Responsible
By Mike Norman
Tue Jun 27, 10:25 AM ET

I recently talked about the people in the "Debt Doomsday" crowd and their inability to see the federal government's debt and deficits in context. We often hear that government spending is out of control or that the United States is being "fiscally irresponsible." Few, if any, view the national debt as a percentage of total income (GDP). When considered that way, it is near the lowest levels ever in the post WWII period.

Similarly, when it comes to the deficit, we are never told that as a percentage of GDP it is far lower than what we saw under President Reagan and even smaller than where it was during part of President Clinton's first term. Instead, we are given a bunch of nonsense about deficits choking off economic growth or how the "skyrocketing" deficit will drive up interest rates.

America adopts the euro!
The fact of the matter is that the United States has been anything but fiscally irresponsible. On the contrary, America has been so financially responsible that it could qualify for entry into the euro system if it wanted to. And that is no small feat of fiscal conservatism when you consider that the two largest economies of Europe -- Germany and France -- had to be accorded special exemptions because their debt-to-GDP ratio was above the limit.

Government spending now, under President Bush, is much the same as it was under Clinton, when viewed as a percent of the economy (though this ratio is projected to rise by several percentage points over the next few years). It is therefore incorrect to say that government has grown so huge. From the point of view of spending, it simply hasn't.

Why deficits are good
While it's true that the nominal figures have grown, it's a mistake to examine the deficit and debt numbers without some frame of reference. That frame of reference is how big the economy has grown. To ignore the growth in inflows (or the asset side of the balance sheet) gives a totally lopsided view. It's as if you walked into a bank to get a loan and only showed the loan officer a list of your debts. In the real world, the banker would have the sense to also demand to see how much money you made and a list of the assets you owned. When it comes to the government, however, the Debt Doomsday crowd doesn't want you to know about the income and asset side of the balance sheet. All they want you to see is that big, scary debt figure.

If the debt-to-GDP ratio does not convince you that as a nation we are OK, then consider this: Since 1789 our country has only had a few periods when we ran surpluses, and each of those periods preceded a major economic downturn (the 1920s, 1999-2000). In contrast, the periods where we saw the strongest economic growth were when we ran large deficits (1939-1944, 1983, 2001-2003). Why isn't this ever mentioned? Did the near-continuous running of deficits cause America to decay into a third-rate power? Hardly. Deficits have had no impact on our rise to the status of greatest economic power on earth. Well, I take that back; they helped us finance the strong growth that still attracts so much of the world's savings.

Another thing that most people assume is that government surpluses are virtuous. That is flat out wrong. Government is not in business to make a profit, and therefore forcing it to save or run surpluses as a private enterprise or individual would is counterproductive. Just think about it for a second. By definition, a surplus results when the amount that government takes in -- from taxes and borrowing -- is higher than what it spends (in other words, when it siphonsoff more money and wealth than it pumps out). It is not recycling all or more of those proceeds back into the economy. Surpluses, therefore, drain wealth and savings from the private sector, not the opposite. This was clearly evident during the Clinton surplus years, when private sector net savings started a precipitous decline as the government moved from deficit to surplus.

Now, let's talk about what spending contributes. That's right, not what it takes away but what it contributes. Government spending adds to what we economists call aggregate demand. That simply means it boosts the overall demand for goods and services, which in turn raises economic growth, which then lowers unemployment, raises asset prices and incomes, and along with that, wealth and ... you guessed it, savings!

Beware of fearmongering
That's precisely why all this talk about "leaving a legacy of debt to our children" is such nonsense. It has been estimated that this current generation will inherit more than $20 trillion in wealth from our parents. We would not have been getting so much were it not for the fact that government spending raised economic growth over a generation. Where, then, is this legacy of debt? It's an illusion that has been propagated by misinformed individuals who really have their heads stuck in the old days of fixed exchange rates and the gold standard (but that's for a whole other article).

The fact of the matter is that unless we decide to end the growth policies that have been driving this nation's economy for the past two centuries, we shall be leaving the same or even more riches to our children and our grandchildren than we'll inherit from our parents. It's always been that way -- and it's the reason why all the worries about the Social Security and Medicare "time bomb" are misplaced. Do you realize that those dire forecasts have been around almost since Social Security's inception back in the 1930s? Yet they have never come to pass.

Of course, it doesn't mean we still can't mess it up. Unfortunately, stupid ideas are gaining more and more of a following. Well-known and highly credentialed people are advocating changes that might actually bring on a bust down the road. Policy recommendations that spring forth as a result of deep-seated misconceptions about America's financial position could spur the very debt and payments crises that the Doomsday crowd has been warning about for so long.

When talking about the deficit, John F. Kennedy once said, "To the extent that it does not create inflation, there is no theoretical limit to deficits." More recently, policy makers in Japan proved this by taking that nation from one of the most fiscally conservative countries to one with the largest deficit of any industrialized nation. The result: economic growth finally resumed and long-term interest rates stayed near zero.

Fool contributor Mike Norman is founder and publisher of the Economic Contrarian Update and is a Fox News Business contributor. He also is a radio show host at BizRadio Network.

http://news.yahoo.com/s/fool/20060627/bs_fool_fool/115141833203

Greed
07-25-2006, 12:21 PM
Tune Out the Debt Doomsday Crowd
By Mike Norman
06/16/2006

Have you ever seen one of those debt clocks? They show our national debt, with the numbers ticking away at the end so fast you can't even read them.

The debt is a source of popular conversation again, now that it has hit a new high of $8.4 trillion. And of course, it's never been out of favor with the Debt Doomsday crowd. I'm sure you know those folks. They're the ones who have been predicting a debt-driven collapse of the U.S. economy for decades -- yet it's never happened. Even so, you can be sure they won't go away. They're a patient and persistent bunch, so you can be sure they'll keep waiting for it and telling you it's only a matter of time before Doomsday unfolds.

You want my advice?

Ignore them.

Much ado about nothing
I'm going to let you in on a little secret: The U.S. debt is tiny. That's right, tiny. Take a look at this: The $8.4 trillion figure is only about two-thirds of our nation's economic output, which is currently at $13 trillion and growing. This happens to be far below the debt-to-GDP ratio (debt divided by gross domestic product) of most other countries. In fact, the United States ranked 35th on a list of 113 countries in a recent study.

You still think that's high? Well, perhaps you should consider this: America beat out such notable fiscal conservatives as France and Germany. And super-saver Japan, by comparison, weighed in as a super-heavyweight on the debt scales by taking position No. 3: Its bloated debt-to-GDP ratio was 170%, meaning that debt equals 1.7 times the nation's economic output. For those of you wondering who took the dubious top honors in the world of national debt, it was Uruguay, with a debt-to-GDP ratio of 793%!

For America, however, the debt news is really better than it appears. Of the $8.4 trillion that the government owes, $3.5 trillion is intragovernmental debt -- or what the government owes to itself. Essentially, this is all bookkeeping, and operationally never a cause for worry.

The remaining $4.9 trillion, however, is owed to the public. When you look at that as a percentage of GDP, however, it comes in at a very comfortable and manageable 38%, which is well below the post-World War II average of 43%.

Why is the debt-to-GDP ratio so important? Well, think about it in terms of an individual. For someone making $35,000 per year, $10,000 in debts may be a difficult amount to deal with. On the other hand, $10,000 in debt for Bill Gates would be nothing (even if he is leaving Microsoft). Even $10 million in debt would be nothing for him. Furthermore, if you've ever gone to a bank to get a loan or some other form of credit, you know that bankers and finance companies use the debt-to-income ratio all the time to help determine how much someone can comfortably borrow.

So follow the logic. Are we really supposed to believe that Uruguay's $136 billion national debt is less of a risk than the $8.4 trillion U.S. national debt just because it is so much smaller?

Hardly. Uruguay's economic output is $13 billion. The United States' economy is one thousand times larger! America is the Bill Gates of global economies. So as long as our economy keeps growing -- which it has since the inception of our country -- then paying that debt or continuously rolling it over, as we have been doing, is not a problem.

Countries need credit, too
Alexander Hamilton once said that having a national debt is a national treasure, because it's a reflection of a nation's ability to establish and maintain credit. Anyone who's ever been denied credit can understand how difficult life can be with credit troubles: You can't buy a car; you can't buy a home. Perhaps you are even denied work because of a bad credit history.

For countries, credit is equally important. The Debt Doomsday crowd will focus on that nominal $8.4 trillion number and tell you that "America is a debtor nation." What they won't tell you is that households and businesses own $60 trillion in assets, that we have the highest net worth of any nation in the world, and that our economy -- which is still the engine of the global economy -- cranks out $13 trillion in goods and services annually and is still growing at upwards of 5%. Talk about wealth creation -- it's no less than staggering!

So many books have been written on using "other people's money" to get rich. In real estate, it is done all the time. In the stock market, you can buy on margin, and leveraged buyout strategies have been the catalyst behind some of the greatest corporate takeovers we have ever seen.

Yet if we were asked to live our lives in the same fashion as many insist the government operate, few people would own homes or stocks or cars or much of anything. We'd be a vast nation of poor people, perhaps with a few wealthy or privileged folks reigning over us. Thankfully, we have thus far chosen not to follow that path.

In my next few columns, I plan to take on a number of myths and misconceptions about deficits, money, and how the federal government operates financially. I think you'll find it enlightening. There are many people out there in high positions on Wall Street, corporate America, or in policymaking who are either misinformed or naive about these things, and the public blindly follows them. Ultimately, policy often goes down the wrong path as a result.

In the meantime, let the Debt Doomsday crowd make their dire predictions about the end of the world, but don't listen to them. They're just trying to scare you. Even politicians use the national debt to try to scare you, because they know fear is a great motivator. And the next time you see one of those debt clocks, ask to see a GDP clock right alongside of it. You'll see the numbers on that thing tick up as fast as the debt, if not faster. Then calculate the debt-to-GDP ratio, and you'll see there's absolutely nothing to worry about. So get on with your activities of investing and making money and let the Debt Doomsday crowd worry their way to extinction.

http://www.fool.com/news/commentary/2006/commentary06061626.htm

Greed
08-08-2006, 08:45 AM
How Big Is Your Trade Deficit?
By Mike Norman
07/14/2006

Twin deficits will kill us?
This is my last in a series of articles, for the time being, on debt and deficits. I've already written about the budget deficit and the national debt, and I hope you now have some better perspective on those issues, so that the next time you hear the typical one-sided commentary, you'll be better equipped to analyze the arguments. Today, I'd like to discuss the trade deficit.

The trade deficit is often alluded to as being one half of America's "twin deficits," the other half being the budget deficit. Like the budget deficit and national debt, the trade deficit is characterized in much the same fashion, in that all of the attention is focused on the negative balance on one side of the ledger, with little mention of the positive inflows on the other side.

Let's take a look at the numbers. Last year, the United States exported $1.75 trillion worth of goods and services, an amount that made us the world's largest exporting nation. (Who says we don't export!) However, we also imported $2.46 trillion worth of goods and services from abroad, giving us a trade deficit of $710 billion.

All of a sudden, things are not looking so good, right?

Wrong!

That's because we haven't examined the other side of the balance sheet yet.

Reality check
Although we had a $710 billion outflow because of our big import tab, foreigners pumped a whopping $1.2 trillion in investment into our economy. They were snapping up Treasury bonds, stocks, and non-governmental bonds, and putting them into other forms of direct investment. The $1.2 trillion figure more than covered the $710 billion trade deficit, but as usual, the media and the so-called "experts" focused only on the red ink and not the good stuff happening on the financial side.

Yes, the media and the "experts" did talk about those capital inflows, but they totally mischaracterized them by saying that it was simply a case of foreigners "financing" us, and that it was only thanks to their largesse and generosity that we can continue with our profligate ways.

Baloney!

Nobody forces foreigners to invest in America. It's a free, global economy, and they can invest their money anywhere they want. But they put it here because the U.S. economy is the world's engine of growth. Foreign nations -- particularly Asian nations -- have been growing their economies and creating jobs for their citizens by selling products to America. In some cases, this has been going on for decades. In fact, some nations have become so dependent on this form of export-driven growth that they have engaged in all forms of protectionism, including impediments to trade and the costly manipulation of their currencies to maintain a competitive advantage.

At this point, you may be thinking, "Well, haven't they beaten us at the game, then? After all, Mike, you just said they've secured a competitive advantage."

The answer is no -- they haven't beaten us. All they've done is gain an advantage in exports, but it comes at a tremendous cost to their citizens' standard of living. Because to gain that advantage, they've had to divert vast amounts of the money they've earned toward protecting their markets, subsidizing certain industries at the exclusion of others, and keeping their currencies weak relative to the dollar, thereby reducing or suppressing their workers' purchasing power. That's not only inefficient; it's also unsustainable in the long term because it leads to an ever-widening gap between their living standards and those countries where economies are open, as in the case of America. Another way to state it is that imports are a benefit, while exports are a cost.

The average Joe's trade deficit
That may sound counterintuitive, but let me illustrate by way of example on the micro level.

Think about how any person operates in his or her daily life. Almost all of the things any person needs to live and function must be bought from some other person or entity that makes or supplies those products and services.

For example, you buy food from the grocery store and you buy clothing from the clothing store. Your electricity comes from the electric company, your telephone service from the telephone company. When you get sick, you go to a doctor, and you attend school to get an education. If you get in trouble with the law, you'd better go and see a lawyer. If you want to be entertained, you go to the movies, and to get to the theater, you'll probably have to hop in your car, which you bought from a manufacturer. And you're going to have to live someplace, so you'll need a homebuilder to build you a home -- or an apartment building owner can provide you with a nice apartment.

You're probably saying, "Yeah, so? What's the point?

The point is, YOU are running a trade deficit with all of the providers of goods and services I just mentioned -- along with many more, most likely. You buy more from them than you sell to them. In fact, it's a good bet that you buy everything you need from your vendors and sell them nothing, so your deficit with them is relatively important. I will even go one step further and say that you couldn't even live without that deficit unless you can grow your own food, generate your own electricity, provide your own communications services, have double degrees as a physician and attorney, are a filmmaker who owns a movie theater, can build your own car and home, and so on. Having that deficit sustains you.

I know what you're thinking. "Mike, c'mon, we need all those things to live, and it's obvious we can't make or provide them ourselves. However, that's not the case with the U.S. trade deficit. After all, America can produce a lot of the things we import, but we don't. That's the problem."

How wealth is created
That argument may sound correct, but it is false. Both situations -- the one on the micro level and the one on the macro level -- are entirely the same. Any one of us could choose to live a simpler life, perhaps on a farm somewhere without all of the fancy cell phones and BMWs and iPods and designer jeans and shoes and flat-screen TVs. We could build a little cabin and read books by candlelight for entertainment. But we don't, because for most of us, it would represent a major reduction in our standard of living. (No offense to folks who do live on farms.)

There's one very simple reason we buy the goods and services we need from vendors and suppliers, and that's because it's easier and more efficient, and it allows us to focus on what we really do best -- going to our jobs and earning a living. That's called productivity, and that's how wealth is created!

The deficit in trade that we have as individuals with our vendors and suppliers allows us to work and earn more than enough income to cover that deficit. The amount left over each month after we pay our bills, we call savings. For a country, it's called the net reserve position. And the whole thing, international capital flows minus trade position, is called the balance of payments. And America does not have a negative balance of payments; it only has a deficit in trade. So cheer up and let the foreigners do the worrying, because they need us more than we need them.

http://www.fool.com/news/commentary/2006/commentary06071406.htm

rawlo5660
08-08-2006, 10:43 AM
So how are we going to overcome this problem? Minorities are always the worst effected so what is the gameplan?

Greed
08-08-2006, 10:47 AM
problem? what specifically needs to be overcame?

Greed
08-13-2006, 10:50 PM
classic Milton Friedman television series Free to Choose:

<a href="http://video.google.com/videoplay?docid=8058189042056883618&q=free+to+choose">Volume 1: Power of the Market</a><br /><a href="http://video.google.com/videoplay?docid=749656471597681962&amp;q=free+to+choos e">Volume 2: The Tyranny of Control</a><br /><a href="http://video.google.com/videoplay?docid=4989202889946003008&q=free+to+choose">Volume 3: Anatomy of a Crisis</a><br /><a href="http://video.google.com/videoplay?docid=4556043875821956991&amp;q=free+to+choo se">Volume 4: From Cradle to Grave</a><br /><a href="http://video.google.com/videoplay?docid=976340959074207017&q=free+to+choose">Volume 5: Created Equal</a><br /><a href="http://video.google.com/videoplay?docid=7302782618479711536&amp;q=free+to+choo se">Volume 6: What’s Wrong With Our Schools?</a><br /><a href="http://video.google.com/videoplay?docid=8819608961969950404&q=free+to+choose">Volume 7: Who Protects the Consumer?</a><br /><a href="http://video.google.com/videoplay?docid=7812834152788837380&amp;q=free+to+choo se">Volume 8: Who Protects the Worker?</a><br /><a href="http://video.google.com/videoplay?docid=5001930921240221488&q=free+to+choose">Volume 9: How to Cure Inflation</a><br /><a href="http://video.google.com/videoplay?docid=-3619145167458703813&amp;q=free+to+choose">Volume 10: How to Stay Free</a>

Greed
08-14-2006, 06:19 PM
A young-er Don Rumsfeld is in the second one.

Greed
08-15-2006, 10:38 AM
3 is about welfare.
6 is about school vouchers.

and all these arguments are from 1980.

Greed
08-16-2006, 10:22 AM
Factory Shift: Manufacturers Struggle to Fill Highly Paid Jobs
By Molly Hennessy-Fiske
Times Staff Writer
August 14, 2006

WASHINGTON — Daniel McGee's parents were apprehensive when their son turned his back on the four-year college degree they always assumed he would earn. They figured a bachelor's degree was the key to success in the modern economy, and their son was on track to earn one, with athletic honors, a 3.0 grade point average at his Minnesota high school and scholarships in hand.

But as McGee saw it, his future lay in the old-world industry of metalworking. And to succeed, he would have to do something that would shock many parents: turn down the scholarships and study machine-tool technology at a two-year technical college.

McGee, 21, realized what many American workers are missing: Manufacturing, long known for plant closings and layoffs, is now clamoring for workers to fill high-paying, skilled jobs. While millions of manufacturing jobs have been outsourced or automated out of existence during the past decade, many of the remaining jobs require higher skills and pay well — $50,000 to $80,000 a year for workers with the necessary math, computer and mechanical abilities.

Some manufacturers are so desperate for workers who can program, run or repair the computers and robots that now dominate the factory floor that they are offering recruitment bonuses, relocation packages and other incentives more common to white-collar jobs.

In Ohio, American Micro Products Inc., an electrical parts maker, is offering $1,000 bonuses to workers who recruit technicians, and it is covering moving costs for the new employees. In San Antonio, Toyota cannot find enough qualified applicants for skilled positions at its new plant, even after the state sponsored a training program. In Fontana, California Steel Industries Inc. found it so hard to fill five mechanical and technical positions, some paying $28 an hour, that managers started paying employees to train for the unfilled jobs.

About 90% of manufacturers say they are having trouble filling skilled jobs such as machinists and technicians, according to a survey released in December by the National Assn. of Manufacturers, the leading industry group representing 12,000 manufacturers.

Of those manufacturers, 83% said the shortage of skilled workers affected their ability to serve customers. The shortfall has caught the attention of President Bush, who last week visited a metal parts maker in Green Bay, Wis., and noted that the company was unable to fill its orders because it couldn't find enough workers.

One of the biggest barriers to hiring young workers like McGee is manufacturing's reputation as dirty, low-paid and monotonous work. But McGee said he likes mechanical work — he had worked at a bicycle shop during high school and in his father's garage workshop — and was bored by the thought of liberal arts classes without real-world applications.

Now, after graduating from a private, Minneapolis-area high school, he is working as a paid apprentice at a local metal parts manufacturing firm, which also helped pay for his two-year technical training program at a community college.

"I find more value in on-the-job experience along with technical education experience" than in a four-year degree, McGee said. "I see a lot of people coming out of school with just the book knowledge and finding it hard to find a job."

At first, McGee's decision was tough for his parents to accept. Although Mike McGee, 49, is an academic dean at the community college his son attends, he still had visions of manufacturing work that involved "a blue-collar, tattoo on the arm, drink beer after the shift — not the kind of career for my son."

What changed his mind was seeing his son hired by E.J. Ajax & Sons Inc., which makes metal brackets, latches and other parts, some of which go into household appliances and industrial machinery. In addition to tuition and a $14-an-hour apprenticeship, the company is providing McGee with health insurance, a 401(k) and, once his training is complete, a salary of $58,240 a year.

That's more than his college-educated brother earns at an advertising job that took him two years to find.

"There are good jobs, and good benefits attached to them," Mike McGee said of skilled manufacturing workers. "It isn't the monotonous stand-at-the-line work."

The average industrial technician earned $54,643 last year, according to California's Employment Development Department. By comparison, median earnings for all full-time U.S. workers last year were under $34,000. Yet surveys show American youth see manufacturing as a low-paying career track they would rather avoid.

In Contra Costa County — home to a Dow Chemical plant that pays skilled workers up to $100,000, including overtime and bonuses — community college students think skilled manufacturing jobs pay less than $55,000, according to a county development board survey this year. Some 75% said they had not considered applying for a manufacturing job.

In addition to their image problem, manufacturers are having trouble finding skilled workers because older workers with the proper training are retiring in large numbers. And many assembly workers who were laid off in recent years are unwilling to return to manufacturing or unable to upgrade their math skills, said Mary Rose Hennessy, executive director of the Coalition for Manufacturers at Northern Illinois University.

Some companies say they are willing to pay to retrain workers, but that the community college programs they once relied on have been eliminated. Many of the 1,202 member colleges of the American Assn. of Community Colleges closed programs in recent years due to flagging student demand, said Norma Kent, vice president of communications.

Now, businesses are clamoring for new, updated programs that require costly training equipment, she said. Manufacturing is vulnerable to economic downturns, and colleges are wary that they will invest in expensive programs only to see jobs dry up.

When Toyota announced plans to open a new plant with 2,000 jobs in San Antonio, it received 100,000 applications from people eager to work. But for the 200 technician positions that required higher skills, the automaker had trouble finding applicants, said Daniel Sieger, spokesman for Toyota's North American manufacturing headquarters.

The state of Texas paid teacher Frank Quijano to train as many as 50 people at a time at a local community college for the skilled Toyota jobs, but only 20 signed up. When Quijano asked people at a job fair why they did not apply for the jobs, which will pay between $40,000 and $50,000, "they would all say it's low-paying, dangerous and dirty," he said.

Eventually, Toyota hired about 120 skilled workers, mostly by recruiting them from other manufacturers, Quijano said. That helped Toyota, Quijano said, but it also shifted the problem of finding skilled workers onto the companies whose employees had been lured away.

Sieger said Toyota expected to hire "a small percentage" of workers from other states so it could start production at the plant in November.

Quijano said that his classes are now full, as word has spread about the good pay for skilled jobs at Toyota. He said the company still needs 20 to 30 skilled workers, and may need more as business grows.

Shortages are forcing many manufacturers to recruit across state lines. Dow Chemical Co. is recruiting in Texas, Louisiana and Michigan to fill technician jobs for its plant in Pittsburg, Calif.

Such recruiting is riskier, since job candidates often balk at California's higher cost of living, suffer bouts of homesickness and later leave, said Alan Ichikawa, who is involved with recruiting at the plant.

Ichikawa is trying to fill 10 skilled jobs and expects to hire 80 to 90 more workers, mostly high-skilled, in the next five years. He hopes to hire some of the 25 students enrolled in a new, five-month, state-funded manufacturing program at nearby Los Medanos College.

During the past five years, Daniel McGee's employer, E.J. Ajax & Sons, has paid for training for all 50 of its workers, owner Erick Ajax said. But Ajax expects half the workforce to retire in the next 15 years and is having trouble finding replacements.

That is why Ajax wants to hold on to McGee. Ajax recently offered the young apprentice an additional incentive: If McGee enrolls in the manufacturing technology program to earn a bachelor's degree at the University of Minnesota, Ajax will pay his tuition.

This time, McGee says, he plans to accept the scholarship and earn the four-year degree he initially spurned.

"I plan on doing basically what my parents have done — have a house, cars, the American dream, I suppose," he said the other day while taking a break from working on the plant computers.

"I think it's actually going to happen quicker the way I'm doing it than most of the people my age, because I have on-the-job experience. Most people my age have another year of school, and then they're starting at the bottom."

http://www.latimes.com/news/nationworld/nation/la-na-manufacture14aug14,0,5735356.story?page=2&coll=la-home-headlines

Greed
08-18-2006, 06:58 AM
Why ‘Outsourcing’ May Lose Its Power as a Scare Word
By DANIEL GROSS
August 13, 2006

IN the 2004 political season, offshore outsourcing — the practice of hiring lower-paid service workers in places like India to carry out tasks previously done by higher-paid American workers — became an important issue.

The debate flared after the annual Economic Report of the President was issued in February 2004, just as the Democratic presidential primaries were heating up and payroll job growth was sluggish. Answering reporters’ questions about a section of the report on trade, N. Gregory Mankiw, then the chairman of the White House’s Council of Economic Advisers, made a statement that would be utterly unobjectionable if uttered in a classroom at Harvard, where he taught before joining the Bush administration and to which he has returned.

The crux of it was this: “outsourcing is just a new way of doing international trade.”

The phrase was translated into headlines, as well as politically motivated press releases, that accused Mr. Mankiw, and hence President Bush, of supporting the wholesale export of jobs from Bangor to Bangalore. Democrats and Republicans hastened to condemn the remark, which Mr. Mankiw hastened to clarify.

For Mr. Mankiw, the episode, which he recounts in a recent working paper that he wrote with Philip L. Swagel, former chief of staff at the council, stands as a case study of what happens when an academic economist is tossed into the meat grinder of the news cycle — and of the public’s general lack of economic education. “This is the sort of stuff I talk about in the first week of my introductory economics class,” he said.

Outsourcing has yet to make a significant appearance in this year’s political campaign. The furor surrounding the practice seems to have subsided quickly once the ballots were tallied in November 2004.

Mr. Mankiw and Mr. Swagel found that the number of references to “outsourcing” in four major newspapers spiked from about 300 in 2003 to 1,000 in 2004, but has since fallen. As the number of jobs has risen steadily — albeit not impressively — politicians now seem preoccupied with other issues, like Iraq and energy.

But it’s also possible that, considered in its macroeconomic context, outsourcing just isn’t that big a deal right now. In the years since Mr. Mankiw’s encounter with the buzz machine, economists have been crunching data on short-term trends in outsourcing in the vast service sector, which accounts for about 80 percent of domestic jobs. While there are some exceptions, they generally find more reason for concern than alarm.

In December 2005, the McKinsey Global Institute predicted that 1.4 million jobs would be outsourced overseas from 2004 to 2008, or about 280,000 a year. That’s a drop in the bucket. In July, there were 135.35 million payroll jobs in the United States, according to the Bureau of Labor Statistics. Thanks to the forces of creative destruction, more jobs are created and lost in a few months than will be outsourced in a year. Diana Farrell, director of the McKinsey Global Institute, notes that in May 2005 alone, 4.7 million Americans started new jobs with new employers.

What’s more, the threat of outsourcing varies widely by industry. Lots of services require face-to-face interaction for people to do their jobs. That is particularly true for the biggest sectors, retail and health care. As a result, according to a McKinsey study, only 3 percent of retail jobs and 8 percent of health care jobs can possibly be outsourced. By contrast, McKinsey found that nearly half the jobs in packaged software and information technology services could be done offshore. But those sectors account for only about 2 percent of total employment. The upshot: “Only 11 percent of all U.S. services job could theoretically be performed offshore,” Ms. Farrell says.

Economists have also found that jobs or sectors susceptible to outsourcing aren’t disappearing. Quite the opposite. Last fall, J. Bradford Jensen, deputy director at the International Institute of Economics, based in Washington, and Lori G. Kletzer, professor of economics at the University of California, Santa Cruz, documented the degree to which various service sectors and jobs were “tradable,” ranging from computer and mathematical occupations (100 percent) to food preparation (4 percent).

Not surprisingly, Mr. Jensen and Professor Kletzer found that in recent years there has been greater job insecurity in the tradable job categories. But they also concluded that jobs in those industries paid higher wages, and that tradable industries had grown faster than nontradable industries. “That could mean that this is our competitive advantage,” Mr. Jensen says. “In other words, what the U.S. does well is the highly skilled, higher-paid jobs within those tradable services.”

There is evidence that within sectors, lower-paying jobs are being outsourced while the more skilled ones are being kept here. In a 2005 study, Catherine L. Mann, senior fellow at the Institute for International Economics, found that from 1999 to 2003, when outsourcing was picking up pace, the United States lost 125,000 programming jobs but added 425,000 jobs for higher-skilled software engineers and analysts.

Economists also point out that jobs and services that are tradable won’t necessarily move to lower-cost places. Ms. Farrell of McKinsey said that despite their huge populations, China and India lack enough university graduates with the specific skills and experience to meet the staffing needs of Fortune 500 companies.

In addition, labor costs are only one of many factors that companies consider. Executives have to worry about reliable power supplies and the proximity of vendors and customers. Here, again, the United States has significant advantages over countries like India and China. As a result, only a small portion of the jobs that could be outsourced will be outsourced; Ms. Farrell believes that by 2008, outsourcing will affect less than 2 percent of all service jobs.

STILL, these projections aren’t universally accepted. Alan S. Blinder, former vice chairman of the board of governors at the Federal Reserve and an economics professor at Princeton, says they are too optimistic because they don’t take into account likely developments in the global economy.

“As the technology improves, and as the quality and experience of offshore work forces improves, the capacity to deliver services electronically will rise,” he says. Professor Blinder says that over the long term, far more than 2 percent of all service workers may be in danger of having their jobs outsourced overseas.

So while the debate about outsourcing has declined, “we shouldn’t be deluded that this has subsided as an issue,” Professor Blinder concludes. Should Mr. Mankiw decide to return to Washington to work for this administration, or a future one, he would be well advised to think twice before speaking about outsourcing.

http://www.nytimes.com/2006/08/13/business/yourmoney/13view.html?ex=1313121600&en=04b9596cd2957c23&ei=5090&partner=rssuserland&emc=rss

Greed
10-02-2006, 09:54 AM
Competitiveness Survey: U.S. Slides from 1st to 6th
SEP 26, 2006 11:31:17 AM

The World Economic Forum, an institute based in Switzerland, has released its annual report on worldwide competitiveness, and it found that the United States has slipped from the top slot last year to the sixth due to less-than-impressive public-finance scores, The Wall Street Journal reports.

The group also said that the United States’ massive budget deficit could continue to cut away at the competitiveness of the country’s economy, according to the Journal.

The group’s Global Competitiveness Report provides rankings of countries based on a number of factors like macroeconomic policies, the regulation of markets, developments in technology, academic institutes and public institutions, among others, and the World Economic Forum says those criteria are indictors of a county’s productivity and potential future economic growth, the Journal reports. Scores in the above mentioned categories are then combined with the results of a survey of business executives to determine final scores, according to the Journal.

This year, the Forum gave Switzerland the top slot due to the country’s effective public administration and market flexibility, the Journal reports.

“The U.S. remains a very competitive economy,” said Augusto Lopez-Claros, chief economist with the Forum, according to the Journal. “It leads in innovation and patent registrations, has some of the best universities in the world, and it has extremely high level of collaboration between universities and industry. However, how you manage your public finances is very important.”

The United States’ budget deficits have sparked an increase in public debt and more government dollars are therefore dedicated to debt service instead of to infrastructure or schools, the Journal reports.

Rapidly growing economies like those in India, China and Russia received middle-of-the-road scores, according to the Journal. Of the 125 countries included in the Forum’s report, India took the 43rd slot, China took 54th and Russia was ranked 62nd, the Journal reports.

According to the Journal, the top 15 countries ranked by the Forum are as follows:


Switzerland
Finland
Sweden
Denmark
Singapore
U.S.
Japan
Germany
Netherlands
U.K.
Hong Kong
Norway
Taiwan, China
Iceland
Israel


http://www.cio.com/blog_view.html?CID=25226

Greed
10-10-2006, 06:04 AM
U.S. economist wins Nobel for work on inflation, jobs
By Amanda Cooper
Mon Oct 9, 4:51 PM ET

American Edmund Phelps took the 2006 economics Nobel on Monday for work in the 1960s on the link between unemployment and inflation that economists say shapes the way central banks formulate monetary policy today.

The Royal Swedish Academy of Sciences said the Columbia University professor won for challenging the assumption that policy-makers could cut unemployment in the long-term by stimulating demand. The award extended an American sweep of all the Nobels so far this year.

Phelps, 73, who owns neither a house nor a car, showed that cutting interest rates or taxes would give only a short-term boost to employment and create higher inflation down the road.

"In the case of inflation policy, I thought sending up the employment level at the cost of ... higher inflation is a bit like eating your store of oats for the winter and facing future costs," Phelps told reporters at his home in New York.

Phelps' research suggested that inflation was not a cause of unemployment but argued that there was a base level of unemployment in the economy that helped keep prices steady.

"A lot of central bankers always understood the natural rate of unemployment. The truth is, I didn't invent the natural rate of unemployment, I only made sense of it," Phelps told a news conference.

Phelps, called the "economist's economist" by his colleagues at Columbia, said he was awoken on Monday by his wife, who told him he had an international phone call.

"It didn't take me very long to realize what it could be," he told Reuters.

'INFLATION TARGETING'

The Swedish academy said the theoretical framework Phelps developed in the late 1960s helped economists understand the root of soaring prices and unemployment in the 1970s and the limitations of policies to deal with these problems.

His framework helped central banks shift their focus toward using inflation expectations to set monetary policy rather than concentrating on money supply and demand.

U.S. Federal Reserve Chairman Ben Bernanke is known to be an advocate of so-called inflation targeting, whereby interest rates are set in accordance with the central bank's goal for the rate of increase in consumer prices.

Richard Iley, a senior economist at BNP Paribas in New York, said the legacy of Phelps' work can be seen in current U.S. monetary policy under Bernanke.

"Bernanke and the Fed aren't talking really about trading off the rate of inflation against the unemployment rate. They're talking about the need to increase economic slack ... to produce a deceleration in the inflation rate," Iley said.

The 10 million Swedish crowns ($1.37 million) prize, known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was not in the original list of awards set up by the Swedish dynamite millionaire.

It was added by the Swedish central bank and first awarded in 1969.

Phelps said that he had no immediate plans for his prize money but would probably invest it.

"It may amuse you to know that my wife and I don't have a lot of hard assets." he said. "We don't own a house and we don't own a car. We have a few clothes here and there. But don't misunderstand me. We don't live a very austere life."

http://news.yahoo.com/s/nm/20061009/ts_nm/nobel_economics_dc;_ylt=Agj1aJpPYLYBMBbwkJjWCBxZ.3 QA;_ylu=X3oDMTA5aHJvMDdwBHNlYwN5bmNhdA--

QueEx
11-13-2006, 12:00 AM
<font size="5"><center>Global Market Brief:
A Look Ahead -- The Next Big One</font size></center>

STRATFOR
November 09, 2006 2306 GMT


The U.S. economy is decelerating and will bottom out in the first half of 2007. The dreaded word "recession" might not be appropriate to use, because the United States might not actually meet the technical definition of two consecutive quarters of negative growth.

But a slowdown is clear. The yield curve has been inverted for months (which indicates money is being used irrationally); productivity gains have now fallen below gross domestic product (GDP) growth while labor costs are rising (which indicates the labor market is overheated); and the housing sector -- red hot for nearly a decade -- has finally lost steam.

However, there is no looming disaster about to befall the U.S. economy, or a structural imbalance that will imminently tear the system apart. The trade deficit is not a concern, and the budget deficit is not the monster it once appeared to be turning into. And no matter what one might think of a Republican, Democrat or split Congress, it is a rarity when the legislature's decisions affect the economy on a time frame of less than a year. Every aspect of this slowdown appears to be part and parcel of a normal economic cycle. The fundamentals of the American economy -- cultural, political and financial -- remain sound.

For now.

From time to time Stratfor takes the long view, peering ahead to spotlight the development trends that are as critical as they are unavoidable. Now is one of those times.

Money, Money Everywhere

Ultimately, long-term economic trends filter out much of what happens in the day-to-day life of policymakers. Those policymakers can shape the underlying strengths and weaknesses of an economy -- and that is indeed important, as they determine the relative speed of growth that an economy can achieve -- but they have very little control over the macroenvironment that dictates the range of possibilities in which policymakers play.

The macroenvironment of the past 15 years has been remarkably conducive to strong growth in the United States. Do not confuse this with specifics of the U.S. system of mass education, reward for risk, functional bankruptcy laws, a mobile population, enthusiasm for technology, relatively uncorrupt culture or any of the other factors that help spark growth. What is being discussed is the overarching environment in which the United States and the rest of the economies in the world swim.

The single most notable characteristic of that environment has been cheap -- extraordinarily cheap -- credit. Stratfor and others have made much of the idea that the Asian economies function on a system of cheap credit to stimulate their economies. In most Asian states -- with China and Japan atop the list -- the state actively intervenes in the financial system to ensure that anyone who needs cash can get access to loans at well-below-market rates, regardless of the soundness of the borrower's business plan.

In such systems the concern is not for profitability, but instead for market share and mass employment. Consequently, firms that would have been shut down in the United States because they cannot make money (to be more accurate, they bring in plenty of revenues, they just cannot break even) are habitually allowed to continue operating. We will not deal with the consequences of this system here (interested readers can follow these links for Stratfor's take on the situations in China and Japan) but these states do not operate in a vacuum. Their financial choices affect the rest of the planet because their artificially cheap credit does not halt at their borders.

Japan's cheap credit policies have flooded the system with more than $1 trillion in yen as Japanese firms tap that credit for international operations. China's system -- not even touching private or state-firm capital flight -- has resulted in $1 trillion in U.S. Treasury bond purchases. By an extraordinarily conservative measure that does not even take into account Taiwan, South Korea or any of the other Asian states that have modifications on the theme, Asia has added $2 trillion in cheap cash to the system.

And that is the small end of this picture. The real source of cash is not in Asia, but right here in the United States.

Baby Boom Bomb

From a financial viewpoint, people fall into three categories. First are the young workers who are buying homes and raising children. Aside from those lucky enough to have an income that allows it all to be done with cold hard cash, these people have to borrow. They need to get a mortgage, maybe even a second one when it is time to think about college for the kids. Living from paycheck to paycheck -- or credit card statement to credit card statement -- is a way of life. Young workers consume credit, and lots of it.

Second are the mature workers. The mortgage is paid off and their house moves from their debt sheet to their asset list. The kids are moved out and through college. Such workers' debts are paid off and they are preparing for retirement. Money that once went to the children or the mortgage or to interest payments on credit cards now goes into a variety of savings and investments. These mature workers generate the credit the young workers consume.

Finally, there are the retirees who live off of their savings and who want no surprises. They move the vast majority of their investments from the adrenaline-provoking roller coasters that are the stock and private bond markets, and into the sedate world of government Treasury bills. With every year their nest egg shrinks a little bit.

And so the system flows: People turn from ravenous credit consumers to seasoned credit suppliers and eventually withdraw from the system altogether. The system works well so long as the demographic forces remain in balance, so long as there are enough mature workers to support the young workers and so long as the retirees do not pull too much money out of the system.

It is this demographic balance that is shifting.

In the United States the baby boomers are the mature worker generation. They are the largest population cohort that the United States has ever produced (as measured by their percentage of the total population). Beginning in the early 1990s their kids started leaving college, and as of 2006 nearly all of their kids have moved on to their own lives. Some of the older baby boomers are already starting to take early retirement, but the bulk of them will not leave the work force until after 2012. It is the baby boomers who have supplied the bulk of the working capital for the United States for the past 15 years. Their investments -- well out of proportion to what any generation before them has ever been able to provide -- caused the low interest rate environment of the 1990s and 2000s, and single-handedly funded the most expensive and revolutionary transformation the U.S. economy has ever experienced: the computer revolution.

When the baby boomers retire en masse, that surge of capital will simply go away, being poured into government bonds. Replacing them in their role as the country's financiers will be Generation X, the children of today's newest crop of retirees, the war babies. And unlike the baby boomers, there are very few members of Generation X. In fact, they are the smallest population cohort that the country has ever produced (again, as measured by their percentage of the total population). Collectively Generation X cannot hope to hold a candle to the amount of money the baby boomers have proven able to sock away these past 15 years.

Consuming this reduced pool of credit will be another large population cohort, the baby boomers' kids: Generation Y. Often called the echo boomers, Generation Y is nearly as large a population cohort as their parents. And they are about to need loads of credit for their own kids, cars and homes.

Replace the baby boomers with the numerically smaller Xers and add in the demands of the numerically larger Yers, and the United States faces an inversion of the credit environment. Instead of a large generation supplying credit to a small generation, soon a small generation will be supplying credit to a large one.

Getting By With Less

A reduced supply of capital and credit has two implications. First and most obvious, the cost of financing the purchase of anything -- whether a group of aircraft carriers or a staple gun -- will go up. Fewer people and governments will be able to afford the payments that go along with higher interest costs, leading to reduced consumption and slower growth across all sectors and economies. All in all this is horrible news for anyone who is not one of the Generation Xers, who will be able to demand top dollar for their scarce investment dollars.

Second, a smaller pool of anything -- credit, in this instance -- results in a smaller margin for error. Economists have a fancy bit of jargon they use to describe this: volatility. Supply crunches are rare occurrences in well- or over-supplied markets. Lower availability means not only lower growth, but that the swings between booms and busts will be far more rapid and disruptive.

And that is the good news.

Japan had something similar to the U.S. baby boomer bulge, but instead of peaking now, it peaked in 2000. Instead of capitalizing on that population bulge as the United States did with the computer revolution, Japan squandered the opportunity on chronic deficit spending and now faces a national debt that is the largest in human history (and still getting bigger). Japan faces a 20-year dearth of credit as its post-World War II baby bust takes over the reins of capital formation. And after a brief respite from Japan's 1970s baby boom, the country faces a credit collapse.

Such "population chimneys" -- a term that describes how a population bell hollows out over time because of reductions in the birth rate -- are not limited to the developed countries. Russia's post-Cold War trauma has given it a demographic picture that is worse than even Japan's, and though 60 years of China's one-child policy has indeed slowed population growth to a crawl, it has done so at the expense of unbalancing the country's demographics. On average, every four Chinese grandparents now have but one grandchild. The only major economy in the world that has a "traditional" population bell curve is India, a country that has never been an exporter of capital.

A Bit of Good News

Unlike Japan, Germany or China, the United States has a generation waiting in the wings to take the baton from Generation X. There are a lot of Generation Yers, and when they mature into providers of credit in their own right, the spot that today's baby boomers are just now beginning to step out of, much of this demographic/financial imbroglio will rectify itself. That, however, is some time off; it will not happen until today's college students not only have kids, but have put those kids through college themselves. Until then, the forecast is for more and more expensive credit in the United States and internationally -- for upward of the next 40 years.

CHINA: The Beijing No. 1 Intermediate People's Court on Nov. 6 identified IBM as one of three companies that Zou Jianhua introduced to Chairman Zhang Enzhao of the China Construction Bank Corp. Zou -- who is said to have promoted the use of IBM equipment at the bank -- has been indicted for paying approximately $340,000 in bribes to Zhang, who was sentenced to jail Nov. 2. The court assumes IBM paid $225,000 to Zhang. This is latest in a long series of such cases that have embarrassed China's banking industry. Chinese banks are in the midst of trying to raise foreign capital to modernize operations in preparation for China's December World Trade Organization deadline to open its financial market to foreign competitors. However, these scandals do not seem to have shaken investor enthusiasm for Chinese banks, if the recent successful $9.2 billion initial public offering of China's Construction Bank is any indication.

VIETNAM: The World Trade Organization (WTO) on Nov. 7 formally invited Vietnam to become a member. The invitation comes after more than a decade of entry talks. During that time, Vietnam has gradually reduced tariff levels and agreed to open its banking sector. The country has already successfully completed bilateral trade agreements with the European Union, Japan and Australia. As a WTO member, Vietnam will likely enjoy increased foreign investment and will benefit from the removal of quotas on its textile exports to the United States and Europe. However, Vietnam will be forced to stop giving subsidies and tax breaks to domestic companies and must continue to open its markets to foreign competition. Vietnam's legislative National Assembly must still ratify the conditions of membership, 30 days after which Vietnam will officially become a member.

ARGENTINA/VENEZUELA: Argentina and Venezuela's ministers of finance and economy announced Nov. 8 that they will sell $1 billion in an joint bond issue. The plans were first announced by the two countries in July. The move is unprecedented; joint sovereign bonds have never been issued by any country. The decision to issue a joint bond appears to be politically motivated; Argentina has a close financial relationship with Venezuela, from which it has borrowed more than $3.2 billion in the past year. Both countries have relatively easy access to local capital markets, where the bonds will be issued. However, Argentina remains unable to issue debt in international markets without risking the seizure of funds by holdout investors who did not agree to Argentina's previous debt restructuring and who hold $20 billion in untendered debt.

GULF OF MEXICO: Norwegian oil company Statoil has expanded its drilling in the U.S. sector of the Gulf of Mexico with the acquisition of deepwater stakes from Anadarko Petroleum Corp., representatives from both companies said Nov. 6. Statoil is the world's second-largest subsea operator and has extensive expertise in deepwater extraction.

INDIA: Local police in the Indian capital of New Delhi had to use tear gas and water cannons this week to disperse violent demonstrators who were protesting a government sealing drive against illegally constructed businesses. Protesters blocked traffic, and commercial truckers in the city, who operate more than 80,000 commercial trucks in Delhi every day, have joined in the demonstration to pressure the government to aid the traders in stalling the sealing drive. The truckers have lost a great deal of business from the traders, who have closed their shops in protest. With the truckers on strike, businesses throughout New Delhi have been roped into the conflict. The protesters are also looking to India's well-organized medical and legal associations to join in the demonstrations. The government will most likely be forced to stall the sealing drive once again to bring daily life in the capital back to normal, but in the meantime the protests serve as an example of the difficulties of enforcing controversial legislation in India.

GERMANY: Germany's five "wise men" of independent government-sponsored economics late Nov. 8 issued a damning evaluation of the government's economic plan and inability to overcome political impasses to achieve structural reforms, saying that economic policy was following a "slow-moving zigzag course without a recognizable strategy" and was all the more "disappointing" because "the year 2006 offered not only good political conditions" for decisive reforms "but also the most supportive cyclical environment in years."

`

muckraker10021
03-07-2007, 05:36 PM
<font face="times new roman" size="4" color="#333333">
Take the story headline below
<b>-U.S. economy leaving record numbers in severe poverty-</b>
put it in quotes (“U.S. economy leaving record numbers in severe poverty”)
and paste it into the search engine Google or Yahoo or Ask or Altavista or AllTheWeb.

Look at the results on page one. You will see that this story appeared everywhere EXCEPT the so called mainstream media. CBS, ABC, NBC, CNN, Wash. Post. NY Times, LA Times, <s>FOX</s> Fake, etc.

The story originates from <b><font color="#ff0000">McClatchy Newspapers</b></font> (http://www.mcclatchy.com/100/story/179.html)which is the Second-largest newspaper publisher in the United States. The story with 18 pages of graphs, charts and statistics was included in the Goldman Sachs research that I receive.

Why did the mainstream media white-out of the substance of this story???? No 60 minutes report, No Dateline report, No 20/20 report. If you’ve been watching the excellent four part series <b><font color="#ff0000">NEWS WARS on FRONTLINE</b></font> ( http://www.pbs.org/wgbh/pages/frontline/newswar/ ) you know that McClatchy Newspapers was the ONLY national media that reported before the invasion of Iraq that the Bush camarilla’s “weapons of mass destruction” mantra was BULLSHIT.

The second article is about the people who are presented to us incessantly in the so-called mainstream media; The 1/10th of 1 %.
How much do you have to earn as of 2006 to be in the 1/10th of 1 %?
The answer is $133,000. or more Monthly.
Let’s put that $133,000.+ a month in income into perspective.
51.7% of ALL American earn less than $31,000. per year.
66% of ALL Americans pay more in Social Security & Medicare than they pay in income taxes.
Remember Social Security & Medicare taxes STOP on all earned income above $97,000.
Corporate income taxes as a percentage of TOTAL income taxes collected has fallen from 23% in 1971 to the lowest it has ever been which was 6% in 2005. If bush corporate income tax cuts continue it will fall to 4% by 2008. The US tax burden has been shifted onto the American working class. The American working classes wages have been stagnant for the past seven years. It will get worse. The American auto industry is effectively gone! The American steel industry is gone. The American trucking industry will be next. Bush has proposed to allow Mexican truckers who make 7 to 8 bucks an hour with NO health care benefits or 401k type programs to be allowed to drive their trucks as far north as the Canadian border. This will kill American truckers who currently can easily make $80,000.-$120,000 per year. They will be wiped out. This war on the backbone of America, the middle class can only be halted by an awakened populace and a Democratic congress that hasn’t already sold their souls to the corporate fascist. Oh by the way, Americas highways are being sold off to foreign corporations. My former employer Goldman Sachs is the prime facilitator and financial advisor for these highway sales. You can read all about it here.
READ – <b><font color="#ff0000"> The Highwaymen</b></font> ( http://www.motherjones.com/news/feature/2007/01/highwaymen.html)
</font>
<br>
<hr noshade color="#0000ff" size="6"></hr>
<br>

http://www.mcclatchy.com/static/images/logo.jpg

<font face="georgia" size="5" color="#d90000">
<b>U.S. Economy Leaving Record Numbers in Severe Poverty</b></font>

<font face="helvetica, verdana" size="3" color="#000000">
<b>
Feb. 22, 2007

McClatchy Newspapers (http://www.mcclatchy.com/100/story/179.html)

By Tony Pugh</b>

WASHINGTON - The percentage of poor Americans who are living in severe poverty has reached a 32-year high, millions of working Americans are falling closer to the poverty line and the gulf between the nation's "haves" and "have-nots" continues to widen.

A McClatchy Newspapers analysis of 2005 census figures, the latest available, found that nearly 16 million Americans are living in deep or severe poverty. A family of four with two children and an annual income of less than $9,903 - half the federal poverty line - was considered severely poor in 2005. So were individuals who made less than $5,080 a year.

The McClatchy analysis found that the number of severely poor Americans grew by 26 percent from 2000 to 2005. That's 56 percent faster than the overall poverty population grew in the same period. McClatchy's review also found statistically significant increases in the percentage of the population in severe poverty in 65 of 215 large U.S. counties, and similar increases in 28 states. The review also suggested that the rise in severely poor residents isn't confined to large urban counties but extends to suburban and rural areas.

The plight of the severely poor is a distressing sidebar to an unusual economic expansion. Worker productivity has increased dramatically since the brief recession of 2001, but wages and job growth have lagged behind. At the same time, the share of national income going to corporate profits has dwarfed the amount going to wages and salaries. That helps explain why the median household income of working-age families, adjusted for inflation, has fallen for five straight years.

These and other factors have helped push 43 percent of the nation's 37 million poor people into deep poverty - the highest rate since at least 1975.

The share of poor Americans in deep poverty has climbed slowly but steadily over the last three decades. But since 2000, the number of severely poor has grown "more than any other segment of the population," according to a recent study in the American Journal of Preventive Medicine.

"That was the exact opposite of what we anticipated when we began," said Dr. Steven Woolf of Virginia Commonwealth University, who co-authored the study. "We're not seeing as much moderate poverty as a proportion of the population. What we're seeing is a dramatic growth of severe poverty."

The growth spurt, which leveled off in 2005, in part reflects how hard it is for low-skilled workers to earn their way out of poverty in an unstable job market that favors skilled and educated workers. It also suggests that social programs aren't as effective as they once were at catching those who fall into economic despair.

About one in three severely poor people are under age 17, and nearly two out of three are female. Female-headed families with children account for a large share of the severely poor.

Nearly two out of three people (10.3 million) in severe poverty are white, but blacks (4.3 million) and Hispanics of any race (3.7 million) make up disproportionate shares. Blacks are nearly three times as likely as non-Hispanic whites to be in deep poverty, while Hispanics are roughly twice as likely.

Washington, D.C., the nation's capital, has a higher concentration of severely poor people - 10.8 percent in 2005 - than any of the 50 states, topping even hurricane-ravaged Mississippi and Louisiana, with 9.3 percent and 8.3 percent, respectively. Nearly six of 10 poor District residents are in extreme poverty.


<b>`'I DON'T ASK FOR NOTHING'</b>

A few miles from the Capitol Building, 60-year-old John Treece pondered his life in deep poverty as he left a local food pantry with two bags of free groceries.

Plagued by arthritis, back problems and myriad ailments from years of manual labor, Treece has been unable to work full time for 15 years. He's tried unsuccessfully to get benefits from the Social Security Administration, which he said disputes his injuries and work history.

In 2006, an extremely poor individual earned less than $5,244 a year, according to federal poverty guidelines. Treece said he earned about that much in 2006 doing odd jobs.

Wearing shoes with holes, a tattered plaid jacket and a battered baseball cap, Treece lives hand-to-mouth in a $450-a-month room in a nondescript boarding house in a high-crime neighborhood. Thanks to food stamps, the food pantry and help from relatives, Treece said he never goes hungry. But toothpaste, soap, toilet paper and other items that require cash are tougher to come by.

"Sometimes it makes you want to do the wrong thing, you know," Treece said, referring to crime. "But I ain't a kid no more. I can't do no time. At this point, I ain't got a lotta years left."

Treece remains positive and humble despite his circumstances.

"I don't ask for nothing," he said. "I just thank the Lord for this day and ask that tomorrow be just as blessed."

Like Treece, many who did physical labor during their peak earning years have watched their job prospects dim as their bodies gave out.

David Jones, the president of the Community Service Society of New York City, an advocacy group for the poor, testified before the House Ways and Means Committee last month that he was shocked to discover how pervasive the problem was.

"You have this whole cohort of, particularly African-Americans of limited skills, men, who can't participate in the workforce because they don't have skills to do anything but heavy labor," he said.


<b>'A PERMANENT UNDERCLASS'</b>

Severe poverty is worst near the Mexican border and in some areas of the South, where 6.5 million severely poor residents are struggling to find work as manufacturing jobs in the textile, apparel and furniture-making industries disappear. The Midwestern Rust Belt and areas of the Northeast also have been hard hit as economic restructuring and foreign competition have forced numerous plant closings.

At the same time, low-skilled immigrants with impoverished family members are increasingly drawn to the South and Midwest to work in the meatpacking, food processing and agricultural industries.

These and other factors such as increased fluctuations in family incomes and illegal immigration have helped push 43 percent of the nation's 37 million poor people into deep poverty - the highest rate in at least 32 years.

"What appears to be taking place is that, over the long term, you have a significant permanent underclass that is not being impacted by anti-poverty policies," said Michael Tanner, the director of Health and Welfare Studies at the Cato Institute, a libertarian think tank.

Arloc Sherman, a senior researcher at the Center on Budget and Policy Priorities, a liberal think tank, disagreed. "It doesn't look like a growing permanent underclass," said Sherman, whose organization has chronicled the growth of deep poverty. "What you see in the data are more and more single moms with children who lose their jobs and who aren't being caught by a safety net anymore."

About 1.1 million such families account for roughly 2.1 million deeply poor children, Sherman said.

After fleeing an abusive marriage in 2002, 42-year-old Marjorie Sant moved with her three children from Arkansas to a seedy boarding house in Raleigh, N.C., where the four shared one bedroom. For most of 2005, they lived off food stamps and the $300 a month in Social Security Disability Income for her son with attention deficit hyperactivity disorder. Teachers offered clothes to Sant's children. Saturdays meant lunch at the Salvation Army.

"To depend on other people to feed and clothe your kids is horrible," Sant said. "I found myself in a hole and didn't know how to get out."

In the summer of 2005, social workers warned that she'd lose her children if her home situation didn't change. Sant then brought her two youngest children to a temporary housing program at the Raleigh Rescue Mission while her oldest son moved to California to live with an adult daughter from a previous marriage.

So for 10 months, Sant learned basic office skills. She now lives in a rented house, works two jobs and earns about $20,400 a year.

Sant is proud of where she is, but she knows that "if something went wrong, I could well be back to where I was."

<b>`'I'M GETTING NOWHERE FAST'</b>

As more poor Americans sink into severe poverty, more individuals and families living within $8,000 above or below the poverty line also have seen their incomes decline. Steven Woolf of Virginia Commonwealth University attributes this to what he calls a "sinkhole effect" on income.

"Just as a sinkhole causes everything above it to collapse downward, families and individuals in the middle and upper classes appear to be migrating to lower-income tiers that bring them closer to the poverty threshold," Woolf wrote in the study.

Before Hurricane Katrina, Rene Winn of Biloxi, Miss., earned $28,000 a year as an administrator for the Boys and Girls Club. But for 11 months in 2006, she couldn't find steady work and wouldn't take a fast-food job. As her opportunities dwindled, Winn's frustration grew.

"Some days I feel like the world is mine and I can create my own destiny," she said. "Other days I feel a desperate feeling. Like I gotta' hurry up. Like my career is at a stop. Like I'm getting nowhere fast. And that's not me because I've always been a positive person."

After relocating to New Jersey for 10 months after the storm, Winn returned to Biloxi in September because of medical and emotional problems with her son. She and her two youngest children moved into her sister's home along with her mother, who has Alzheimer's. With her sister, brother-in-law and their two children, eight people now share a three-bedroom home.

Winn said she recently took a job as a technician at the state health department. The hourly job pays $16,120 a year. That's enough to bring her out of severe poverty and just $122 shy of the $16,242 needed for a single mother with two children to escape poverty altogether under current federal guidelines.

Winn eventually wants to transfer to a higher-paying job, but she's thankful for her current position.

"I'm very independent and used to taking care of my own, so I don't like the fact that I have to depend on the state. I want to be able to do it myself."

The Census Bureau's Survey of Income and Program Participation shows that, in a given month, only 10 percent of severely poor Americans received Temporary Assistance for Needy Families in 2003 - the latest year available - and that only 36 percent received food stamps.

Many could have exhausted their eligibility for welfare or decided that the new program requirements were too onerous. But the low participation rates are troubling because the worst byproducts of poverty, such as higher crime and violence rates and poor health, nutrition and educational outcomes, are worse for those in deep poverty.

Over the last two decades, America has had the highest or near-highest poverty rates for children, individual adults and families among 31 developed countries, according to the Luxembourg Income Study, a 23-year project that compares poverty and income data from 31 industrial nations.

"It's shameful," said Timothy Smeeding, the former director of the study and the current head of the Center for Policy Research at Syracuse University. "We've been the worst performer every year since we've been doing this study."

With the exception of Mexico and Russia, the U.S. devotes the smallest portion of its gross domestic product to federal anti-poverty programs, and those programs are among the least effective at reducing poverty, the study found. Again, only Russia and Mexico do worse jobs.

One in three Americans will experience a full year of extreme poverty at some point in his or her adult life, according to long-term research by Mark Rank, a professor of social welfare at the University of Wisconsin, Madison.

An estimated 58 percent of Americans between the ages of 20 and 75 will spend at least a year in poverty, Rank said. Two of three will use a public assistance program between ages 20 and 65, and 40 percent will do so for five years or more.

These estimates apply only to non-immigrants. If illegal immigrants were factored in, the numbers would be worse, Rank said.

"It would appear that for most Americans the question is no longer if, but rather when, they will experience poverty. In short, poverty has become a routine and unfortunate part of the American life course," Rank wrote in a recent study. "Whether these patterns will continue throughout the first decade of 2000 and beyond is difficult to say ... but there is little reason to think that this trend will reverse itself any time soon."

<b>'SOMETHING REAL AND TROUBLING'</b>

Most researchers and economists say federal poverty estimates are a poor tool to gauge the complexity of poverty. The numbers don't factor in assistance from government anti-poverty programs, such as food stamps, housing subsidies and the Earned Income Tax Credit, all of which increase incomes and help pull people out of poverty.

But federal poverty measures also exclude work-related expenses and necessities such as day care, transportation, housing and health care costs, which eat up large portions of disposable income, particularly for low-income families.

Alternative poverty measures that account for these shortcomings typically inflate or deflate official poverty statistics. But many of those alternative measures show the same kind of long-term trends as the official poverty data.

Robert Rector, a senior researcher with the Heritage Foundation, a conservative think tank, questioned the growth of severe poverty, saying that census data become less accurate farther down the income ladder. He said many poor people, particularly single mothers with boyfriends, underreport their income by not including cash gifts and loans. Rector said he's seen no data that suggest increasing deprivation among the very poor.

Arloc Sherman of the liberal Center on Budget and Policy Priorities argues that the growing number of severely poor is an indisputable fact.

"When we check against more complete government survey data and administrative records from the benefit programs themselves, they confirm that this trend is real," Sherman said. He added that even among the poor, severely poor people have a much tougher time paying their bills. "That's another sign to me that we're seeing something real and troubling," Sherman said.

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States with the most people in severe poverty:

California - 1.9 million

Texas - 1.6 million

New York - 1.2 million

Florida - 943,670

Illinois - 681,786

Ohio - 657,415

Pennsylvania - 618,229

Michigan - 576,428

Georgia - 562,014

North Carolina - 523,511

Source: U.S. Census Bureau

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© 2007, McClatchy-Tribune Information Services.</font>

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INSIDE THE BILLIONAIRE SERVICE INDUSTRY</font>

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Need designer lighting for your jet? Fancy a dressage horse for your daughter? Have staffing issues in your 50,000-square-foot house? A growing army of experts stands ready to bear any burden for the ultrarich </b></font>

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The Atlantic Monthly | September 2006

BY SHEELAH KOLHATKAR </b>

http://www.theatlantic.com/doc/prem/200609/billionaire-service

The gap between the rich and the poor has been growing wider for some time, but the really rich have now achieved escape velocity. They have far more money than ever before—and a mind-boggling number of decisions to make about spending it. The “ultrarich"—loosely defined as those with investable assets of more than $30 million—often lead tremendously complicated lives. There are approximately 30,000 such people based in the United States, and nearly 50,000 elsewhere in the world, according to Capgemini and Merrill Lynch’s World Wealth Report of 2005. They are the aristocracy of a new Gilded Age—and providing services to them has turned into a gold rush.

Becoming wealthy in the first place might seem like the hard part, but once a person has money, other real challenges present themselves: What kind of rich person does one want to be? Is a sprawling mansion or a slender townhouse preferable? Should one build a game park or an English garden? And then there is the matter of figuring out who should look after all these things. To hear the caretakers of the ultrarich describe it, the wealthiest among us are like dinghies adrift on the open sea—lost in their money and the endless options that come with it. (You could call it “Overwhelmed Billionaire Syndrome.”) Fortunately, the free market will provide: an army of experts has sprung up to help them navigate their lives.
One of these experts is Natasha Pearl, a former management consultant who was trekking through Nepal five years ago when she realized what she was put on earth to do: help the wealthiest people make their lives easier. She came home and transformed herself into a “lifestyle consultant,” and she hasn’t looked back.

Some of Pearl’s customers have problems that the merely upper-middle class could hardly conceive of. She has helped parents look into buying a $40,000 dressage horse for their daughter to ride while away at college, sorted through museum-quality art collections forgotten in storage, and found an expert to negotiate aircraft leases. One family considered hiring her to find public- relations specialists who could help with crisis management—basically, to keep them out of the news and off the Forbes 400 list. (Getting on the list may be a triumph in some circles, but in others it’s even better to stay off.) And a young hedge-fund manager asked Pearl if she could find someone to identify the best parties in New York, Las Vegas, and Los Angeles each week—and to make sure he was invited. (She turned down this assignment.)

Business for consultants like Pearl isn’t likely to slow down anytime soon. A look at the wealthiest Americans reveals that those at the very pinnacle—the top 0.1 percent—have done so well in recent years that everyone else is eating their (gold) dust. An analysis by David Cay Johnston in The New York Times found that the average annual inflation-adjusted income of this group increased by two and a half times, to $3 million, from 1980 to 2002. The average net worth of those on the Forbes 400 list has mushroomed in the last twenty years, rising from $390 million to $2.8 billion, and the number of U.S. billionaires has increased over that same time from thirteen to 374. By some measures, the fortunes of today’s richest people are as concentrated as those of their predecessors in the Roaring Twenties and the robber-baron era of the late 1800s.

In the meantime, America’s less fortunate have seen their share of the country’s wealth drop—but there’s nothing like shopping to ease the pain! Lubricated with cheap credit and the social acceptability of carrying huge amounts of personal debt, Americans at all income levels pile into the luxury marketplace alongside those who can actually afford to shop there. And so the truly wealthy have had to get more creative about spending money in order to distinguish themselves from the shopgirls waiting on them, who are likely to be carrying the same Hermès handbag (or at least a convincing knockoff). One way to set themselves apart is by pouring resources into experience and “lifestyle.”

All manner of professionals see a future in whispering into billionaires’ ears. (It would be a decidedly “soft” science, but one can imagine “helicopter-fleet management” becoming a university degree.) Like any subculture, this piece of the service sector comes with its own assumptions and its own delusions. Its practitioners are as slick and on-message as a group of Wharton-trained management consultants. Plenty of self-aggrandizing jargon gets thrown around: terms like ultra-high net worth are mixed in with Jack Welch–style business talk; rich people are principals, and even the most minute aspects of their lives require management in order to be optimized. This work requires subtlety, even amateur psychoanalysis; those providing the services are selling trust to people with unlimited resources, coaxing them into articulating their dissatisfactions and then doing something about them (which usually means spending boatloads of money). Sometimes pie charts are involved.

The job isn’t all champagne and roses. “You have to be selective,” says Mark Hancock, a managing director at Tiedemann Trust Company who handles finances for eight ultrarich families. “I’m not just taking any multibillionaire off the street. These people are typically control freaks—extremely focused, sometimes extremely difficult. You don’t become a billionaire by just sitting passively by.”

The wealthier the client is, the more options there are for insourcing advice on how to spend creatively. Pearl touts her company, Aston Pearl, as “The Private Bank for Everything Except Money,” and she comes armed with a Rolodex that would make a village yenta proud: 3,800 names in 267 subcategories, including “designers of lighting for Gulfstream aircraft” and “specialists in seventeenth-century hand colored maps.” Once all those advisers are hired, they need to be managed, transforming the wealthy person into a corporation in miniature.
Her sense that the ultrarich are sometimes almost helpless when confronted with the challenges of everyday life infuses Pearl with compassion; she sees her job as a combination of sales and public service. Around the next corner, for example, an opportunistic decorator might be lurking, hoping to bilk an unsuspecting billionaire on overpriced housewares. (Recall the former Tyco CEO Dennis Kozlow¬ski’s explanation of the wildly extravagant shower curtain found in his apartment after he was indicted: “I understand why a $6,000 shower curtain seems indefensible,” he told The New York Times. “But I didn’t even know about it. I just wasn’t even aware of it.”) “The wealthiest people are very vulnerable to being taken advantage of,” Pearl says, her voice taking on an urgent tone. “New money doesn’t know what things cost, because they’ve never bought a Mercedes Maybach or a $10 million home. And old money also has difficulties, because they’re shielded from these things. They don’t shop, generally. They have people shopping for them.”

Even vacationing is no simple matter. For the ultrarich, time-shares have morphed into “destination clubs.” At the travel firm Tanner & Haley, for example, $1.5 million up front—an “investment” that may be resold at market value when the client leaves—and an annual fee of $75,000 buys a membership to the company’s “Legendary Retreats": thirty-four homes around the world, each worth $7 million to $10 million. “Some people really care about doing it as well as it can possibly be done,” says Rob McGrath, Tanner & Haley’s CEO. “If you end up in a house in Telluride that has a bowling alley in it, a game room, a staff of nine, twenty-seven TVs, and a private chef, and you’re right on the slopes, and you fly in on your Lear 60, that’s pretty damn good.”

A comparable level of exclusivity is available to the well-heeled patient wanting insulation from the American health-care system. For initiation fees of $1,000 to $15,000 and annual dues of between $2,500 and $50,000 (six levels of membership are available), a company called PinnacleCare assigns “advocates” who will manage a client’s health care—investigating specialists and medical research, securing access to top doctors, and juggling appointments. (The cost of the treatment itself is separate.) Nearly all of the advocates are women, and they exude a motherly efficiency, cooing to their clients and sweet-talking the surgeons. But one suspects that their claws come out when necessary. Having an advocate present during a hospital stay, one client said, is like having an extremely knowledgeable relative on hand for hours a day, exerting relentless pressure to get whatever the patient needs.

The ultrarich often have a “fix me, get me surgery right away” attitude, and will pay handsomely to have it accommodated, says John Hutchins, who cofounded Pinnacle in 2002. (He was the director of international services at Johns Hopkins Hospital from 1994 to 2001, and held a similar post at the Cleveland Clinic before that; both were treatment centers of choice for sheikhs, Latin American moguls, and other well-connected foreigners.) I heard of one family that kept a group of doctors on retainer for years, paying some of them more than $100,000 annually to be available at a moment’s notice. But the arrangement became difficult to maintain: the best doctors resisted being tied to a small group of patients, and some questioned whether the practice was ethical. So the family joined Pinnacle instead.

And of course there are the children to think of. The ultrarich mirror other Americans in their anxious devotion to their progeny, and they have taken to hiring specialized psychologists to address the various issues—aimlessness, a sense of entitlement, and so on—that may afflict them. One financial adviser was reportedly asked to find someone to teach a client’s children about wealth and the responsibilities that come with it. He got quotes from four “wealth counselors”: the cheapest was $1,600 a day, the most expensive, $16,000.
As this story illustrates, finding the market price is one of the trickier aspects of serving the ultrarich. “There’s no transparency about what the fees should be,” Pearl says. “How much do you charge someone to curate their wine collection? You can’t comparison shop for that.” She does offer one rule of thumb: “If you’re not the type of person who’s planning an anniversary party in the south of France for fifty friends, where you’re going to fly them over, we’re probably not going to be able to help you. It’s not that we can’t help you; but you’ll find that our fees are prohibitive for what you want done.”

<b>BECOMING SUPER-JEEVES</b>
There are now entire schools devoted to training professionals to serve the ultrarich. One of the most prominent is the Starkey International Institute for Household Management, in Denver. On the first day of a four-week course on running a household (programs last four or eight weeks), there was much talk about a recent star graduate, a retired Air Force lieutenant colonel who had just landed a $125,000-a-year job as an estate manager near Washington, D.C. His boss, a businessman worth about $1.2 billion, had a grand vision for integrating architecture, landscaping, and a vast modern-art collection on his nearly 200-acre estate. The former lieutenant colonel would be designing a model for running it and two other properties, setting up security for all three, maintaining a private jet, and generally trying to ensure his boss’s perfect quality of life.

An estate manager’s role goes far beyond that of the classic butler or personal assistant—picture Jeeves crossed with the CEO of a Fortune 500 company. It usually involves overseeing multiple residences (a “household manager,” by contrast, is typically in charge of just one). This job has become a hot second career for former members of the military, who may retire as young as forty and are seen as trustworthy and able to take orders without flinching. Along with others who have already had substantial careers or who hold advanced degrees—people who would normally never consider a position as a “domestic”—they are signing up at the institute in droves.

The Starkey International Institute was founded by Mary Louise Starkey in 1990. A hard-nosed fiftysomething entrepreneur with watery hazel eyes and a voice that could cut through lead, Starkey is fond of grand pronouncements like “The age of service is upon us.” When that age arrived, she was more than ready for it.

Perched on a chair in her bright, cluttered office, Starkey told me that her business—which includes several ventures in addition to the school—is “exploding.” The day we spoke, she was a little bleary, having just returned from Vanuatu, a cluster of islands in the South Pacific. An American investor had bought one of the islands and hired Starkey to create a vacation spot worth renting for, say, $250,000 a week. There will be just one villa, offering absolute privacy. Being on the island is “like being the only person on the planet,” Starkey said. The name of the island is a secret, and rentals will be by invitation only, to protect against paparazzi. Two of Starkey’s graduates were already there, preparing to train locals in six-figure pampering.

Starkey’s bread and butter, however, is placing graduates of the institute inside mega-mansions in the United States. The school is housed in a 13,000-square-foot Georgian mansion. Gilt mirrors, potted orchids, and glittering crystal abound. The students attend lectures in the basement and rotate through all the jobs they might either hold or have to supervise, from household manager to assistant chef. They spring like panthers at the sight of a fleck of lint. As a result, the place is brilliantly, terrifyingly clean.

The crop of new students I met consisted of four men and two women, all age forty or so. Two—one man and one woman—were enlisted aides in the armed forces (a position that entails keeping quarters and preparing meals for top-ranking officers); the military was paying their tuition. One man had just retired after thirty years in the Air Force. The remaining two men were strikingly cherubic: one had been an interior designer and a private chef in Texas; the other had managed households for six families in Florida (he was looking to brush up on his skills). The sixth student, a mother of three young children, owns a property-management firm in Chicago. The instructor, meanwhile, had been a White House chef to George H. W. Bush and served on the private staff of Al and Tipper Gore.

On the first morning, Starkey delivered a pep talk clearly aimed at convincing the students that they do not face a future of indentured servitude. “Service is a well-recognized expertise and a highly paid career path,” she declared. Dressed in black, with a turquoise wrap flung over her shoulders, she worked the room with evangelical zeal; after each statement, she narrowed her eyes and stared at the students with blazing intensity, as if the Almighty Himself were speaking through her. It was important to learn “to be on someone else’s agenda,” she said, adding, “It’s much easier serving someone who knows what they want.” She showed slides of alumni: a young man with a passion for cars who had been placed with an auto collector; a grinning woman who had become the head stewardess on one of the biggest yachts in the world. “This is one of my Chinese graduates,” Starkey said, showing a picture of a man in a servant’s jacket reminiscent of the ones worn on The Love Boat. “Isn’t he beautiful? I fall in love with all my students.”

It must be tough love: Starkey has stringent expectations. She admonishes students to begin a placement by studying their employers as if they were laboratory specimens, in order to thoroughly understand their lifestyles and needs. (To illustrate her point, she cited clients in Denver, “Pakistani royalty” who take their main meal each day at 2 a.m. and fly cooked dinners to their grown children in California daily.) Suggested “talking points” in the institute’s textbook include the following: “What are your overall goals and dreams of your lifestyle?” “Could you please use descriptive words and experiences to list three everyday priorities that speak to quality of life for you?” “At the end of your life, what accomplishments will you be most proud of?” Students are urged to make lists of their employers’ tastes and sort them into the ten categories in the textbook’s “Service Matrix.” Under “Culinary Standards” the choices include “prefers clean, fresh style foods,” “comfort food,” “popcorn and chocolate,” “loves all cookies.” There are spaces on the grid for “prefers foreign autos,” “never travels commercially,” “wants all light bulbs changed weekly,” “prefers household manager to know smart-home technology.” It’s all geared toward creating the ultimate luxury product: a remote brain calibrated to an employer’s every whim and desire, one that can anticipate all needs and eliminate most decisions from daily life.

On Day Two, the students were given laminated floor plans for a “fairly large house” (6,000 square feet) under construction near Fort Worth. Working in pairs, they had to determine how many employees would be needed to maintain the house, which will include a library, a music room, and a “Moroccan room”; then they had to “zone” each floor for the cleaning staff. The students huddled and strategized, using Sharpie markers to create intricate diagrams studded with colorful arrows. The Moroccan room wouldn’t know what hit it.
Most of the people who contact Starkey seeking household help are retired CEOs, current business owners, or entrepreneurs who have sold their companies. She also gets calls from resorts and from private hospitals that want to emulate four-star hotels. In 2002 she initiated a process with the Department of Labor to design a national apprenticeship program for household managers. The first apprentice began training in June.

The institute doesn’t advertise, but revenues from tuition and placement fees were up 35 percent last year compared with the year before. About a hundred students go through the school annually. And yet there is more demand for household and estate managers than there are trained candidates to meet it.

“People who have money will tell you the first thing they do is buy their dream car. It’s usually red or black, and it’s usually a convertible,” Starkey told me. “And then they discover that they don’t like standing out and having everyone in the world knowing who they are and what they’re doing. So they get rid of the car and get something more low-profile. Same thing happens with homes. When they realize they have money, they buy a huge acreage and build a 35,000- or 55,000-square-foot home. Then they realize that they have to staff it.”
Most families first try a local solution. But that almost inevitably falls short of what they need—they decide they don’t want someone who’s earning $30,000 a year looking after $40 million worth of stuff. Usually it’s the woman of the house who has to deal with the situation, and she’s driven to despair. (“The weariness of our clients is their common denominator,” Starkey’s assistant, Heili Lehr, told me.) “Then they come to me,” Starkey says.

Starkey conducts a “site visit” to look for “patterns and priorities of what’s important” to the family and develop a service-management plan. She starts by getting the lady and gentleman of the house in one place to talk about it, usually over dinner (they pay). During the meal she peppers them with questions: “What is your vision of service?” “What is your lifestyle and quality of life?” “Outline the family tree.” The next day she inspects the property. She probes every room (“I open the drawers and look inside and underneath”), occasionally finding an “outrageous surprise”—a three-year-old child with a hundred pairs of shoes, perhaps, or a woman with scores of Judith Leiber purses in a closet “bigger than most people’s houses.” She asks more questions: “Do you have an entourage?” “Do you wear Armani or St. John” (or workout clothes)? “Do you eat ice cream late at night?” She also poses questions to herself: “Is she a micromanager?” (it usually is the woman), or “Who’s got the power in the house?” (sometimes it’s the dog). At the end of the visit, Starkey produces a document—it might run to forty-five pages—outlining what she thinks the family needs. If appropriate, she tries to make a match with one of her graduates. The positions she fills are strictly executive; the cleaners and cooks don’t come through her. This is reflected in the tuition for her courses—about $13,000 for eight weeks, including room and board—and in graduates’ salaries, which range from about $60,000 to $150,000 a year (Starkey takes a 25 to 35 percent commission).

The motivation to hire someone at a hefty wage to look after the details of an estate has to do in part with what one financial adviser calls “asymmetric risk”: for some, a bad experience hosting a dinner party is more painful than losing money on the stock market. Starkey believes that as wealthy people become wealthier and more sophisticated in their expectations, demand for her graduates will continue to grow. She predicts that in twenty years there will be a service school in every major U.S. city.

One characteristic Starkey shares with others in the field is relentless positivity in the face of constant, almost pornographic displays of wealth. “I hope you’re writing about how wonderful it all is,” she said to me more than once. And it is wonderful—in the way that unapologetic evidence of the fruits of one’s success can be both awe-inspiring and unseemly, not to say quintessentially American. (In the ultimate aspirational society, we love hard work, but we love flaunting it even more.)

Then, out of the blue during one of our later conversations, Natasha Pearl said something surprising: “If the income inequality persists, we could end up with real armed camps, like in South Africa.” She said she was increasingly aware of the tension between the “haves” and the “have-nots,” and she described a surge in demand among the ultrarich for real estate in out-of-the-way places such as New Zealand and rural Argentina—expensive insurance policies in case things go haywire for some reason at home. “The wise ones are thinking about it now,” Pearl said. Indeed, it might be worth planning ahead; I wonder what the going salary will be for a spot in an oligarch’s private army.



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g-money
03-07-2007, 07:03 PM
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Take the story headline below
<b>-U.S. economy leaving record numbers in severe poverty-</b>
put it in quotes (“U.S. economy leaving record numbers in severe poverty”)
and paste it into the search engine Google or Yahoo or Ask or Altavista or AllTheWeb.

Look at the results on page one. You will see that this story appeared everywhere EXCEPT the so called mainstream media. CBS, ABC, NBC, CNN, Wash. Post. NY Times, LA Times, <s>FOX</s> Fake, etc.

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I appreciate this information brother, good stuff

BigUnc
03-08-2007, 03:44 PM
The writings been on the wall for years. The U.S. economy can't sustain this type of spending forever. The people who loaned the U.S. all those trillions are gonna what a bigger return soon. Everything that needs to be said is somewhere in this thread. Believe what you want. I have been in the process of shifting assets out of the U.S. and diversifying globally,regionally, and by sectors. End of the line consumer products are not were you wanna be. Basic commodities-food,water,oil,gas,or anything electricity related should have a healthy chunk of your portfolio. Precious metals like gold ,silver,platinum, palladium, and the mining sector should be increasing also. But be prepared to stop buying and go into a holding pattern soon. I stopped buying Dec 2006

The big boys started shifting their assets since 3Q 2006 in huge chunks.
World Banks have increased their gold reserves substancially since 3Q 2006

Somethings up!!!!!....and it's gonna hit this year

Prepare yourself and your family for a permanent shift of world economic realities.

QueEx
06-22-2007, 09:50 AM
<font size="5"><center>Housing takes toll on US economy </font size></center>

BBC News
May 21, 2007

The slowdown in the US housing market will hit the country's economy harder than previously thought, according to a group of economic professionals.

The National Association of Business Economists (NABE) has lowered its forecast for economic growth from 2.8% in 2007 to 2.3%.

The downgrade came after official data showed that the economy grew only 1.3% in the first three months of the year.

But the group predicts a rebound in 2008 to gross domestic growth of 3.2%.

The forecast is the average of the predictions from a panel of 48 economists.

The majority of the forecasters put the chances of there being a recession in the next year at above 25%.

Former Federal Reserve chairman Alan Greenspan puts the risk at one in three.

Rising interest rates have slowed the housing market, with particular problems in the sub-prime mortgage market, which lends money to people with poor credit records.

http://news.bbc.co.uk/2/hi/business/6677863.stm

QueEx
06-22-2007, 09:58 AM
<font size="5"><center>Bernanke sees US rebound ahead </font size></center>

BBC News
Tuesday, 5 June 2007

Ben Bernanke, the head of the US central bank, the Federal Reserve, says that the US economy will rebound, even as housing sales continue to slump.

Mr Bernanke reiterated the Fed's view that the economy will expand "at a moderate pace" though the housing market is a "drag" on economic growth.

The upbeat view echoes May data showing consumers were unexpectedly optimistic.

The comments fuel the view that the Fed is not planning to cut interest rates.

Limited impact

The housing slump in the US has been a serious concern, creating fears that it could have a knock-on effect on other sectors of the economy, say analysts.

But Mr Bernanke, who was speaking via satellite to an international monetary conference in Cape Town, South Africa, said the impact of the slump appeared limited.

"We have not seen major spillovers from housing onto other sectors of the economy," said Mr Bernanke.

Construction of new homes looks set to remain "subdued for a time" and the glut of properties in the market will remain, he added.

'Inflation somewhat elevated'

There has been particular concern over the impact of the sub-prime market - which provides loans to high risk individuals - as the number of default loans has risen.

Mr Bernanke said the Fed would look at further ways to regulate the sub-prime market, following response to calls from Congress to toughen regulation of the sub-prime market.

On another note, Mr Bernanke said the level of inflation remained "somewhat elevated".

US stocks slid in early trade following Mr Bernanke remarks, a day after the Dow Jones industrial average reached a new record.

The Fed next meets to consider interest rates on 27-28 June, and most analysts expect rates to remain at 5.25%, where they have been for more than a year.

http://news.bbc.co.uk/2/hi/business/6723463.stm

blackIpod
06-22-2007, 03:59 PM
<< Just fainted call 911 :lol: :lol:

>>>>>>>>>>>READ THIS>>>>>>>>>>>>>>>>>>

"The United States public debt, commonly called the national debt, gross federal debt or U.S. government debt, is the amount of money owed by the United States federal government to creditors who hold U.S. Debt Instruments.

As of the end of 2006, the total U.S. public debt was $4.9 trillion.

This does not include the money owed by states, corporations, or individuals, nor does it include the money owed to Social Security beneficiaries in the future.

If intragovernment debt obligations are included, the debt figure rises to $8.7 trillion.

If unfunded future obligations are added (i.e. Medicare and Social Security)
this figure rises dramatically to a total of $59.1 Trillion

In 2005 the public debt was 64.7% of GDP. According to the CIA's World Factbook" :eek:
http://en.wikipedia.org/wiki/United_States_public_debt

Medicare and Social Security AKA Welfare = The Death Of this Country.

With Obama and Hillary running. We might as well think about this.
We have Medicare and Social Security now add Universal Health-Care to that Bill

Better start teaching your kids Chinese cause thats who they will be working for.
:lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol:

interesting read............not sure if i agree with everything................in anycase i don't seea slow down in the economy being the major problem facing the US but bad spending habits and debt
http://www.optimist123.com/optimist/2007/01/bestkept_secret.html

Read ......."Best-kept secret about the national debt."

Debt is not always a bad thing.... crazy Idea.... :lol: :lol:

MADNESS

QueEx
06-22-2007, 04:34 PM
Medicare and Social Security AKA Welfare = The Death Of this Country.
Damn! I didn't know Social Security was WELFARE! New one on me.

QueEx

blackIpod
06-22-2007, 04:53 PM
Greed is a 2 way street. It's always those who have not earned wealth that will preach of taking it away from those who have earned it.

blackIpod
06-22-2007, 05:06 PM
It' surly not a savings account.

QueEx
07-27-2007, 12:11 PM
<font size="5"><center>Economy Growth Is Best in a Year</font size></center>

Jul 27, 11:50 AM (ET)
Associated Press
By JEANNINE AVERSA

WASHINGTON (AP) - The economy snapped out of a lethargic spell and grew at a 3.4 percent pace in the second quarter, the strongest showing in more than a year. A revival in business spending was a main force behind the energized performance.

The new reading on gross domestic product, released by the Commerce Department on Friday, marked a big improvement from the first three months of this year, when economic growth skidded to a near halt at just a 0.6 percent pace, the slowest in more than four years.

At the White House, President Bush said job growth has been strong and the economy is resilient and flexible. "I want the American people to take a good look at this economy of ours," crowed Bush, whose economic stewardship has received weak marks.

Stronger spending by businesses and government powered the rebound in the April-to-June quarter. Individuals, however, tightened their belts as they coped with high gasoline prices and the ill effects of the housing slump. The sour housing market continued to weigh on national economic activity in the spring but not nearly as much as it had in previous quarters.

Inflation - outside a burst in energy and food prices - moderated.

On Wall Street, stocks seesawed in early trading Friday - one day after the Dow Jones industrial average suffered its second biggest drop of the year, plunging by 311.50 points.

Treasury Secretary Henry Paulson called the market turbulence a "wake up call" to investors to re-examine their degree of risk.

"Lenders need to be very aware of the risks. Borrowers need to be aware of risks. I would submit people are more aware of those risks and the need for discipline today than maybe they were a month or two ago," Paulson said in a briefing with reporters.

"So again let's keep eye on the very strong underlying economy, which puts us in a position of strength," he added.

The second quarter's performance was better than the 3.2 percent growth rate economists were expecting. It was the strongest showing since the first quarter of 2006, when the economy expanded at a brisk 4.8 percent annual rate.

Gross domestic product measures the value of all goods and services produced in the United States. It is considered the best barometer of the country's economic fitness.

"I think the confidence level of companies has come back. That's why there was a modest pickup in capital spending," said Ken Mayland, president of ClearView Economics.

Even as the economy picked up speed in the spring, inflation managed to settle down.

An inflation gauge closely watched by the Federal Reserve showed "core" prices - excluding food and energy - rose at a rate of just 1.4 percent in the second quarter. That was down sharply from a 2.4 percent pace in the first quarter and was the smallest increase in four years.

That should help ease some inflation concerns. Fed Chairman Ben Bernanke has said the biggest threat to the economy is if inflation doesn't recede as policymakers anticipate. Out-of-control prices are bad for the economy and the pocketbook. They eat into paychecks, erode purchasing power and reduce the value of investments.

The Fed has kept a key interest rate at 5.25 percent for more than a year. Economists predict that rate will stay where it is through the rest of 2007.

Bush has been trying to counter weak public-approval ratings for his handling of the economy. Only 37 percent approve of his performance, close to a record low, according to a recent AP-Ipsos poll.

Problems in the troubled housing and mortgage markets have rattled investors in recent days. Friday's report showed that the ailing housing market is still crimping economic activity, but not as much as it had.

Investment in home building was cut by 9.3 percent, on an annualized basis, in the second quarter. That wasn't nearly as deep as the 16.3 percent annualized drop in the first quarter. It was the smallest cut in just over a year.

Businesses, meanwhile, regained their appetite to spend and invest in the second quarter.

They boosted their spending on new plants, buildings and other commercial construction at a whopping 22.1 percent rate, the most in 13 years. Investment on equipment and software posted a 2.3 percent growth rate, an improvement from a meager 0.3 percent growth rate in the first quarter.

Businesses also replenished their inventories in the second quarter, adding to overall economic growth. Stronger export growth helped the nation's trade picture and added to the economy's momentum.

Also contributing to the second quarter's rebound: Government spending increased at a 4.2 percent pace. That compared with a 0.5 percent annualized drop in the first quarter.

However, consumers, whose spending largely prevented the economy from stalling out in the first three months of this year, lost energy in the second quarter. They boosted spending at a pace of just 1.3 percent, the smallest since the final quarter of 2005.

High gas prices and fallout from the housing slump are beginning to take their toll on peoples' appetite to spend. Still, a solid jobs climate - the nation's unemployment rate is at a relatively low 4.5 percent - should help cushion some of these negative forces.

The government also issued annual revisions that showed the economy grew at an average annual rate of 3.2 percent from 2003 through 2006, or 0.3 percentage point less than previously estimated. The revisions are based on more complete data.

Last year the economy grew by 2.9 percent - slower than the 3.3 percent increase previously calculated. The new figure marked the weakest annual growth since 2003 and underscored the depth of the housing slump.



http://apnews1.iwon.com//article/20070727/D8QL197G1.html

QueEx
07-27-2007, 12:20 PM
<font size="5"><center>
Economy Growth Is Best in a Year</font size></center>

Jul 27, 11:50 AM (ET)
Associated Press
By JEANNINE AVERSA

WASHINGTON (AP) - The economy snapped out of a lethargic spell and grew at a 3.4 percent pace in the second quarter, the strongest showing in more than a year. A revival in business spending was a main force behind the energized performance.

The new reading on gross domestic product, released by the Commerce Department on Friday, marked a big improvement from the first three months of this year, when economic growth skidded to a near halt at just a 0.6 percent pace, the slowest in more than four years.

At the White House, President Bush said job growth has been strong and the economy is resilient and flexible. "I want the American people to take a good look at this economy of ours," crowed Bush, whose economic stewardship has received weak marks.

Stronger spending by businesses and government powered the rebound in the April-to-June quarter. Individuals, however, tightened their belts as they coped with high gasoline prices and the ill effects of the housing slump. The sour housing market continued to weigh on national economic activity in the spring but not nearly as much as it had in previous quarters.

Inflation - outside a burst in energy and food prices - moderated.

On Wall Street, stocks seesawed in early trading Friday - one day after the Dow Jones industrial average suffered its second biggest drop of the year, plunging by 311.50 points.

Treasury Secretary Henry Paulson called the market turbulence a "wake up call" to investors to re-examine their degree of risk.

"Lenders need to be very aware of the risks. Borrowers need to be aware of risks. I would submit people are more aware of those risks and the need for discipline today than maybe they were a month or two ago," Paulson said in a briefing with reporters.

"So again let's keep eye on the very strong underlying economy, which puts us in a position of strength," he added.

The second quarter's performance was better than the 3.2 percent growth rate economists were expecting. It was the strongest showing since the first quarter of 2006, when the economy expanded at a brisk 4.8 percent annual rate.

Gross domestic product measures the value of all goods and services produced in the United States. It is considered the best barometer of the country's economic fitness.

"I think the confidence level of companies has come back. That's why there was a modest pickup in capital spending," said Ken Mayland, president of ClearView Economics.

Even as the economy picked up speed in the spring, inflation managed to settle down.

An inflation gauge closely watched by the Federal Reserve showed "core" prices - excluding food and energy - rose at a rate of just 1.4 percent in the second quarter. That was down sharply from a 2.4 percent pace in the first quarter and was the smallest increase in four years.

That should help ease some inflation concerns. Fed Chairman Ben Bernanke has said the biggest threat to the economy is if inflation doesn't recede as policymakers anticipate. Out-of-control prices are bad for the economy and the pocketbook. They eat into paychecks, erode purchasing power and reduce the value of investments.

The Fed has kept a key interest rate at 5.25 percent for more than a year. Economists predict that rate will stay where it is through the rest of 2007.

Bush has been trying to counter weak public-approval ratings for his handling of the economy. Only 37 percent approve of his performance, close to a record low, according to a recent AP-Ipsos poll.

Problems in the troubled housing and mortgage markets have rattled investors in recent days. Friday's report showed that the ailing housing market is still crimping economic activity, but not as much as it had.

Investment in home building was cut by 9.3 percent, on an annualized basis, in the second quarter. That wasn't nearly as deep as the 16.3 percent annualized drop in the first quarter. It was the smallest cut in just over a year.

Businesses, meanwhile, regained their appetite to spend and invest in the second quarter.

They boosted their spending on new plants, buildings and other commercial construction at a whopping 22.1 percent rate, the most in 13 years. Investment on equipment and software posted a 2.3 percent growth rate, an improvement from a meager 0.3 percent growth rate in the first quarter.

Businesses also replenished their inventories in the second quarter, adding to overall economic growth. Stronger export growth helped the nation's trade picture and added to the economy's momentum.

Also contributing to the second quarter's rebound: Government spending increased at a 4.2 percent pace. That compared with a 0.5 percent annualized drop in the first quarter.

However, consumers, whose spending largely prevented the economy from stalling out in the first three months of this year, lost energy in the second quarter. They boosted spending at a pace of just 1.3 percent, the smallest since the final quarter of 2005.

High gas prices and fallout from the housing slump are beginning to take their toll on peoples' appetite to spend. Still, a solid jobs climate - the nation's unemployment rate is at a relatively low 4.5 percent - should help cushion some of these negative forces.

The government also issued annual revisions that showed the economy grew at an average annual rate of 3.2 percent from 2003 through 2006, or 0.3 percentage point less than previously estimated. The revisions are based on more complete data.

Last year the economy grew by 2.9 percent - slower than the 3.3 percent increase previously calculated. The new figure marked the weakest annual growth since 2003 and underscored the depth of the housing slump.


http://apnews1.iwon.com//article/20070727/D8QL197G1.html

QueEx
08-01-2007, 06:03 AM
<font size="5"><center>As U.S. income stagnates,
Democrats reject free trade</font size></center>


http://media.mcclatchydc.com/smedia/2007/07/31/18/112-20070731-FREETRADE.small.prod_affiliate.91.jpg


By Kevin G. Hall
McClatchy Newspapers
August 1, 2007

WASHINGTON — The Democratic-led Congress won’t give President Bush the special authority he needs to negotiate future free-trade deals. The Senate is moving on retaliatory trade legislation against China. The House of Representatives won’t approve deals with three small neighboring Latin American countries. Global trade talks are near collapse.

Washington's mood on free trade hasn’t been this negative in at least two decades, and a pullback is evident. Whether this becomes a full-blown return to protectionism remains to be seen. But for now Americans, and the politicians they elect to represent them, are in no mood to expand international trade.

“For decades we took for granted that everyone agreed with us economists that free trade is good, protectionism is bad. Somewhere along the way, that stopped being the conventional wisdom,” acknowledged U.S. Trade Representative Susan Schwab, in an interview with McClatchy Newspapers. “And whereas the default vote on a trade bill in Congress used to be a ‘yes’ vote, the default vote on a trade bill now in Congress is a ‘no’ vote.” Why? Because lots of people are no longer convinced that a rising tide of trade lifts all boats — and there's evidence to back them up.

For three decades, the richest 10 percent of Americans have been growing even richer much faster than everyone else. Over the past five years, real wages for all the rest of American workers have been almost flat. Many blame globalization.

During a mid-July congressional hearing, Federal Reserve Chairman Ben Bernanke contended that education levels largely determine income inequality. But he was angrily interrupted by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, who declared, “Mr. Bernanke, that’s simply not true.”

Frank said that the 29 percent of Americans who have bachelor’s and even master's degrees haven't seen real income growth, on average, over the past five years. That's what Democrats in Congress are focused on, he said.

“As long as we have the current situation … you are going to see the kind of gridlock where trade promotion (authority), immigration and other issues don’t go anywhere,” he warned. “And I just urge people … help us diminish inequality or you will have continued economic gridlock."

Frank quoted repeatedly from a new report published by the Financial Services Forum, a think tank run by President Bush’s close friend, former Commerce Secretary Donald Evans. The report was co-written by Matthew Slaughter, a former member of Bush’s Council of Economic Advisers.

The report concluded that “over time, the pressures of global engagement spread economy-wide to alter the earnings of even those not directly exposed to international competition.”

Since 2000, the report said, most American workers have seen meager income growth. Only “a small share of workers at the very high end has enjoyed strong growth in incomes.” This occurred despite strong productivity growth, which in the past raised wages and salaries.

“Real income growth for workers has not been evenly distributed across all workers. That economic reality has an important political” consequence, Slaughter said in an interview.

Small but already negotiated trade deals with Panama, Colombia and Peru are being held up. While those deals wouldn't affect the U.S. economy greatly, given how small those economies are, they're important to those countries and their blockage sends signals worldwide about changing U.S. attitudes.

Meanwhile, Asian nations continue integrating into the fast-growing Chinese economy's sphere of influence.

For now, the only trade-related legislation moving on Capitol Hill tends toward protecting U.S. domestic interests at the expense of opening markets more to competition from overseas.

Last week, the Senate Finance Committee passed, by a 20-1 vote, bipartisan legislation to force the Commerce Department to weigh whether another country is deliberately undervaluing its currency when considering whether to impose unfair trade penalties against foreign goods. The target was China, but that standard could be applied to other Asian nations too.

By the end of September, Congress is expected to pass bills that would expand federal trade-adjustment assistance to a wider array of U.S. workers whose jobs have been lost to overseas competition. These could include engineers, software designers, accountants, call-center agents, even computer-aided architectural designers.

This shift in opinion against a long-dominant presumption that free trade provides broad net benefits to the U.S. economy is rooted not only in the experience of stagnant incomes, but it's also gaining intellectual respectability as economic theory. Alan Blinder, a Princeton economist and a former vice chairman of the Federal Reserve, was a lifelong free-trader, like most economists, until he began looking hard at how globalization is evolving.

Recently he shocked free-trade orthodoxy by warning that modern technology and trade practices will put at risk as many as 40 million American jobs within a decade or two.

Blinder doesn't champion a return to protectionism in the form of tariffs and trade barriers. Instead, he believes that government must do far more to help workers displaced by trade, that the U.S. education system must aim to train people for jobs that can't be performed abroad and that the tax code should give incentives to firms to produce here.

The Financial Services Forum report backs similar solutions as necessary to head off a turn toward outright protectionism, which helped prolong the Great Depression in the 1930s.

Yet with the 2008 presidential election looming and polls showing widespread public anxiety about globalization, neither party’s candidates are trumpeting free trade.

“I think we definitely see evidence of anxiety. We see evidence unfortunately of a politicization of trade and increased partisanship about trade. … It is unfortunate and it does present real challenges,” said Schwab, the U.S. trade representative.

Ironically, all the anguish about trade is occurring when U.S.-made exports are booming. The strong global economy and the dollar's slumping value helped U.S. exports to grow by 6.4 percent from April through June, which is definitely good for U.S. business.

Commerce Secretary Carlos Gutierrez said last Friday that U.S. exports have grown since 2004 at about an 8.3 percent annual rate, thanks in no small part to the Bush administration's free-trade policies. But Democrats are focused more on the lack of income growth among ordinary Americans, and therein lies the rub when Republicans and Democrats seek to set economic policies.

To read the Financial Services Forum report, go to Financial Services Forum , then click on "issues," then on "trade and globalization."

2007 McClatchy Newspapers

http://www.mcclatchydc.com/226/story/18562.html

BigUnc
08-03-2007, 07:53 PM
The meltdown has begun gentlemen and no one knows where the bottom is. Hearing projections that a major U.S. bank may fail. Problems in the credit markets are affecting foreign banks. Not only are there problems in the subprime market but weakness in the Alt A and Prime with foreclosures up in both. Bloomberg has a nice recap:


U.S. Stocks Drop on Credit Woes; Bear Stearns Leads Banks Lower

By Eric Martin


Women hug outside American Home Mortgage headquarters Aug. 3 (Bloomberg) -- Stocks tumbled on evidence losses in the mortgage market may slow the economy and reduce bank profits, sending the Standard & Poor's 500 Index to its worst three-week retreat since 2003.

Bear Stearns Cos., the manager of two hedge funds that collapsed last month, helped carry financial shares to their biggest decline in five years after S&P cut the company's credit outlook. Energy shares fell to the lowest since May, led by Exxon Mobil Corp. and Chevron Corp., on speculation weaker job growth and falling oil prices will hurt earnings.

The S&P 500 erased its gain for the week, falling 39.14, or 2.7 percent, to 1433.06 in its worst day since Feb. 27. The Dow Jones Industrial Average slumped 281.42, or 2.1 percent, to 13,181.91. The Nasdaq Composite Index sank 64.73, or 2.5 percent, to 2511.25.

The sell-off exacerbated a rout last week that wiped $2.1 trillion in value from global equity markets. Shares declined in Europe, with benchmark indexes dropping in all 18 western European markets except Luxembourg. An index of market volatility in the U.S. rose to a four-year high.

``We're just seeing more and more credit problems,'' said Michael Strauss, who helps manage $40 billion at Commonfund in Wilton, Connecticut. ``It's going to be difficult for the market to trade with any confidence.''

Almost 12 stocks fell for every one that rose on the New York Stock Exchange as all 24 industry groups in the S&P 500 and all 30 members of the Dow fell.

The yield on the benchmark 10-year Treasury note fell 9 basis points, or 0.09 percentage point, to 4.68 percent. The dollar fell the most in almost a month against the euro, trading within a cent of its record low. Some 2.1 billion shares changed hands on the NYSE, 29 percent more than the three-month average.

Stocks opened the day lower after the Labor Department said employers added fewer jobs than economists forecast in July and a private report showed growth in U.S. service industries slowed.

Bear Stearns

Bear Stearns had its credit-rating outlook cut to negative by S&P on concern declining prices for mortgage-backed securities will decrease earnings. The perceived risk of owning the New York-based company's bonds rose to the highest in at least six years.

Stocks fell to their lows of the day after the firm said its return on equity in July may be close to the lowest ever and borrowing costs may slow mergers and acquisitions.

'As Bad as I've Seen It'

``I've been out here for 22 years, and this is as bad as I've seen it in the fixed-income markets,'' Chief Financial Officer Samuel Molinaro said on a conference call with analysts. He compared the crisis to 1998, when hedge fund Long-Term Capital Management collapsed and Russia defaulted on its debt. Bear Stearns fell $7.28, or 6.3 percent, to $108.35, the lowest since 2005.

The S&P 500 Financials Index fell 3.8 percent, its steepest loss since 2002, and contributed the most to the drop in the overall S&P 500. An index of brokerages and money managers in the S&P 500 has fallen 15 percent since reaching a record on May 30.

Countrywide Financial Corp., the largest U.S. mortgage lender, sank $1.77 to $25. CIT Group Inc., the biggest U.S. independent commercial finance company, lost $1.87 to $36.68. Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage bonds, dropped $4.67, or 7.7 percent, to $55.78.

American Home Mortgage Investment Corp., which traded at more than $10 a week ago, sank 76 cents to 70 cents after it became the second-biggest residential lender to fail this year. The last day for most employees will be today, Chief Executive Officer Michael Strauss told the staff in an e-mailed memo obtained by Bloomberg.

Investment bankers cut off credit earlier this week, leaving the lender unable to fund at least $750 million of mortgages.

Mary Feder, a company spokeswoman, didn't return a call seeking comment.

`One of the Biggest Bubbles'

The U.S. subprime-market rout has ``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.

``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of New York-based Beeland Interests Inc., said in an interview from Hong Kong.

Credit-market losses stemming from subprime lending are leading to a tightening of funds available for investment, and helping to drive up the cost of borrowing for consumers and companies.

Union Investment Asset Management Holding AG, Germany's third-largest mutual fund manager, halted redemptions from a fund after clients withdrew $137 million in the past month. The ABS- Invest Fund, sold to institutional investors across Europe, has about 6 percent of its assets in securities related to subprime mortgage loans.

'Big Logjam of Credit'

``You've got a big logjam of credit that can't clear,'' said Brian Barish, who helps oversee about $10 billion at Cambiar Investors in Denver. ``Add a lot of fear and rumor, and it makes for a tough situation.''

Crude oil fell on concern economic growth will slow, reducing demand for gasoline and other fuels. Futures for September delivery lost $1.38, or 1.8 percent, to $75.48 a barrel and dropped 2 percent in the week. Exxon, the biggest oil company, fell $3.10 to $82.08. Chevron dropped $2.87 to $81.02.

Network Appliance Inc. dropped $5.74, or 20 percent, to $22.97. Revenue at the maker of computers that store and distribute data was $684 million to $688 million in the quarter ended July 27, short of the forecast of $745 million to $753 million, the company said today in a statement. Net income was 8 cents to 9 cents a share, instead of 14 cents to 15 cents.

GM, Take-Two

General Motors Corp., the largest U.S. automaker, fell $1.35, or 4 percent, to $32.04. Toyota Motor Corp. reported first-quarter profit that beat analysts' estimates as a weaker yen increased revenue from Corolla compacts and Camry sedans sold outside Japan. Toyota's American depositary receipts advanced 31 cents to $118.90.

Take-Two Interactive Software Inc. tumbled $2.75 to $14.16. The company said it delayed the release of the next ``Grand Theft Auto'' video game until the second quarter of fiscal 2008 and lowered its sales and profit forecast for this year.

Procter & Gamble Co. dropped 42 cents to $62.88. The largest U.S. consumer-goods company said it will spend as much as $30 billion over the next three years to buy back shares.

SanDisk Corp., the world's largest maker of flash memory cards, added 66 cents to $53.43. Samsung Electronics Co., the world's second-largest chipmaker, will shut down some of its production lines for as long as two days because of a power outage, costing the company up to $54 million in lost sales and potentially boosting sales of competitors.

Volatility Surge

The Chicago Board Options Exchange Volatility Index rose to 25.16, the highest since April 2003. Higher readings in the so- called VIX, derived from prices paid for S&P 500 options, indicate more risk in stocks.

In economic reports, the Labor Department said 92,000 jobs were added to payrolls in July compared with a forecast for an increase of 127,000 in a Bloomberg survey of economists. The jobless rate rose to 4.6 percent in July from 4.5 percent in June. Economists in a Bloomberg survey had expected it to remain at 4.5 percent.

The report said homebuilders cut payrolls by 12,000 after a 3,000 increase the previous month as the housing slump continues.

Homebuilders Slump

A gauge of homebuilders in S&P indexes dropped 5.3 percent as a group as all 16 of its members declined. D.R. Horton Inc., the second-largest U.S. builder, slipped 69 cents to $16.46. Pulte Homes, the third biggest, lost $1.40 to $18.59.

After the employment report, JPMorgan pushed back its forecast for when the Federal Reserve will change interest rates. The firm expects an increase in the middle of next year, compared with its prior prediction of around the end of this year.

The Institute for Supply Management said its non- manufacturing index dropped to 55.8 last month, from 60.7 in June. Economists in a survey had expected a reading of 59 for July. The index, which shows service industries still expanding, has averaged 56.8 in the past 12 months.

The Russell 2000 Index, a benchmark for companies with a median market value of $647 million, dropped 3.6 percent to 755.42. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 2.7 percent to 14,432.34. Based on its decline, the value of stocks decreased by $497 billion.

Today's sell-off left the S&P 500 with a 1.8 percent drop for the week and a 1 percent advance for the year. The Dow lost 0.6 percent this week and is up 5.8 percent in 2007.

QueEx
08-06-2007, 09:57 AM
http://media.mcclatchydc.com/smedia/2007/08/06/09/375-080607pettusat1.slideshow_main.prod_affiliate.91.j pg
Joel Pett / Lexington Herald-Leader (August 6, 2007)

QueEx
08-11-2007, 03:48 PM
<font size="5"><center>Fed injects $38 billion to ease Wall Street fears</font size></center>

By Kevin G. Hall | McClatchy Newspapers
Posted on Fri, August 10, 2007

WASHINGTON — The largest Federal Reserve System intervention in the banking system since the 9-11 terrorist attacks halted a sure skid Friday on Wall Street. But jitters reigned as central banks across the globe moved to ensure that the world's financial system doesn't freeze up.

The Fed injected new money for the banking system three times, for a total of $38 billion. Adding to the intrigue surrounding the unusual move, the Fed allowed banks that were seeking to borrow this money temporarily to use mortgage-backed securities as collateral.

These securities are a main cause of the current gyrations on Wall Street as wary investors try to shed them but are finding few buyers. By accepting the securities as collateral, the Fed tried to show that it thought they were reliable investment instruments.

"Today's Fed moves were designed to both add liquidity and boost confidence in the area where it is needed most," Mark Vitner, senior economist for Charlotte, N.C.-based Wachovia Economics Group, said Friday in a late-afternoon note to investors.

Friday action's by the Fed followed similar moves by the European Central Bank and the Bank of Japan, which pumped another $91 billion into their systems. The Fed will watch markets in Asia and London closely over the weekend for signs whether more intervention is needed at home Monday.

The Dow ended the day down just over 31 points.

Economists and financial analysts said Friday that the chances the Fed would be forced to drop overall interest rates had grown sharply. One indicator, the Chicago Board of Trade's futures market, puts the odds of a cut in the benchmark federal funds rate at 82 percent. The Fed's Open Market Committee, which sets rates, is scheduled to meet Sept. 18.

When the Fed moved in 2001, it pumped $100 billion in new funds into the banking system. In a statement Friday, the Fed said it "will provide reserves as necessary" and reminded depositors that it remains the lender of last resort if "unusual funding needs" arise.

"The Fed is worried that the financial system is going to freeze up . . . what the Fed is trying to do is calm down markets, to say, `There is plenty of liquidity, we're here to help you, don't panic,' " said Nariman Behravesh, chief economist for Global Insight, an economic-forecasting firm in Waltham, Mass.

As trading began Friday, the Fed announced that it was making $19 billion available, a show of symbolism to tell the markets that the Fed was on the job. The move had little immediate impact, however, and with the Dow down about 200 points the Fed provided another $16 billion to ensure that credit — the lifeblood of the banking system — didn't dry up. At 1:50 p.m., the Fed acted again, adding another $3 billion.

The Fed actions didn't end the volatility, as Friday trading was marked by wild mood swings. But the Dow Jones Industrial Index closed down 31.14 points, far more comforting than the 387 points — a 2.8 percent drop — on Thursday.

By making more money available, the Fed is trying to make sure that banks have enough funds to conduct their overnight lending to one another. This is akin to making sure that a business avoids cash-flow problems.

"You don't want banks or other financial institutions to suddenly experience difficulty . . . and you risk a chain reaction," said a former Fed insider who worked at the Federal Reserve when it took similar steps to reassure the financial system. The former official spoke on condition of anonymity out of concern that his comments could influence the market.

Federal Reserve Chairman Ben Bernanke is trying to fend off a credit crunch, in which the banking system seizes up like an engine without oil. Already, important companies who are now perceived as risky find themselves unable to borrow money. The latest case involved giant mortgage-lender Countrywide Financial. It announced Thursday that it couldn't sell $1 billion in home loans in the secondary market and was being forced to hold on to them.

Countrywide's news came after last week's spectacular bankruptcy of American Home Mortgage, a major home lender previously thought to be healthy. And there was a sell-off by investors on investment house Bear Stearns, which had been rumored to have more exposure to troubled mortgage-backed securities than it had disclosed.

The White House repeated Friday that it's watching developments. President Bush talked up the economy earlier in the week, saying that economic fundamentals remain strong.

If the turmoil continues and threatens to spill over into the broader economy, the Fed may be forced to drop its benchmark lending rate.

The federal funds rate — the benchmark for a wide array of consumer and business lending rates — stands at 5.25 percent. It hasn't changed since June 2006. It hit its lowest point in June 2003, when it was 1 percent.

"I think my feeling right now is it is time to cut rates," said David Wyss, chief economist for the rating agency Standard & Poor's. "The first requirement for the Fed is maintenance of orderly markets. And there is a risk to markets getting disorderly. Once that happens, it's not a matter of bailing people out. Once that happens, the Fed loses control."

Bernanke has faced this dilemma for months. The housing market has been in a slow-motion spiral downward. Trying to reverse that through interest rates is a problem, however, because core inflation — the measure the Fed watches most closely — is running at an annual rate of 1.9 percent, barely within Bernanke's stated 2 percent comfort zone.

A career academic and expert on the Great Depression, Bernanke took the helm of the Fed last year without the stature of the two previous long-serving chairmen, Paul Volcker and Alan Greenspan. While he's been widely praised, this turmoil is the first real test of his mettle.

"I think it is," said Alice Rivlin, a former Fed vice chairman, who sees similarities with a 1998 crisis that followed the collapse of investment giant Long-Term Capital Management. Back then, inflation was on the high end and worries about credit availability were spreading. The Fed stepped in with a series of rate cuts to boost investor and consumer confidence.

Higher interest rates keep inflation in check by reducing economic activity. Lowering the federal funds rate — with its wide influences on other lending rates — would spark economic activity, but that also could turn inflation embers into flames.

Bernanke, an inflation hawk, thinks that cutting rates would undermine the Fed's inflation-fighting credentials and credibility.

That's why the Fed's Open Market Committee met Tuesday and issued a plain vanilla statement that recognized that stock markets were gyrating but said nothing about what the Fed might do about it. The statement didn't even hint that the Fed would stand by to help.

The stocks of big investment banks such as Goldman Sachs, Lehman Brothers and others that lend heavily to hedge funds were hit particularly hard in early trading Friday, recovering later in the day. Rumors spread that many hedge funds — which are lightly regulated and control huge pools of investment — were preventing their investors from withdrawing money. That's the equivalent of putting a lock and chain around the exit doors.

At the heart of the uncertainty that's roiling Wall Street are mortgage-backed securities, which essentially are home loans bundled together and sold to investors. The big investment houses were the prime issuers of these mortgage-backed securities, and hedge funds snapped up a lot of them.

The markets are afraid that defaults are growing on both the sub-prime mortgages given to weaker borrowers and better-quality home loans that often were akin to second mortgages. These growing default rates have led to investors to flee anything related to the housing sector, from the stocks of home builders to investment banks to mortgage lenders. Banks of all stripes are increasingly wary of any lending, no matter the level of risk, until the problems on Wall Street are sorted out.

Although the troubles in the sub-prime lending sector have spooked financial markets for months, the worst may lie ahead. Most housing analysts think that there was a period in late 2005 and 2006 when lending standards weakened sharply and large numbers of adjustable-rate and exotic loans were extended to people who had weak credit histories. These adjustable-rate loans are scheduled to reset with much higher interest rates later this year and next year.

Many borrowers took out these loans expecting to refinance before the more onerous terms took effect. But in some markets homes are worth less now than they were when they were purchased two years ago, and banks are in no mood — and in some cases no shape — to refinance the loans.

"It's because everybody expects these resets to be a problem that everyone is selling off now," Wyss said.

The problem is that mortgage-backed securities generally aren't bought and sold like stock but usually are held until maturity, like bonds. Investors are trying to get rid of their holdings in sub-prime mortgage bonds but aren't finding buyers, even at fire-sale prices.

"They're very difficult to dump, because even when markets are good these things don't sell very well" in secondary markets, Wyss said. "These are very illiquid securities even under the best of times."


McClatchy Newspapers 2007

http://www.mcclatchydc.com/economics/story/18847.html

QueEx
08-11-2007, 03:58 PM
<font size="5"><center>What's the fuss with Wall Street and the Fed?</font size></center>

By Kevin G. Hall | McClatchy Newspapers
Posted on Fri, August 10, 2007

Here are some key answers about the Federal Reserve System's $38 billion intervention Friday on Wall Street:

Q. What exactly did the Federal Reserve System do?

A. Through complicated repurchase agreements, the Fed effectively pumped $38 billion into credit markets to defend the current interest-rate structure. Its benchmark federal funds rate, which influences consumer and business loans, is set by market forces and had risen to 6 percent Friday morning. That's well above the 5.25 percent target that the Fed's policy-making Open Markets Committee had set Tuesday. The Fed move brought the federal funds rate back to previous levels.

Q. How did its action help banks?

A. In the United States, Europe and Asia, central banks fear that lending might cease because lenders are increasingly afraid to take risks in today's volatile environment. The Fed's action, along with similar moves by the European Central Bank and others, tells banks that money is available if it's needed to ensure that overnight bank lending and other routine transactions can continue.

Q. What does all this have to do with housing?

A. At the root of today's uncertainty are poorly performing home loans, mostly those given to borrowers with weaker credit histories or who have overextended themselves by taking on large amounts of debt. These so-called sub-prime loans are going into delinquency and default at alarming rates, and the worst of the problem is still ahead. The real problem loans are expected late this year and throughout next year. Housing and financial analysts think that lenders dangerously weakened lending standards in late 2005 and 2006, when there was a flurry of exotic home loans and adjustable-rate mortgages. Many of these loans are due to bump up to higher interest rates late this year and next year. And since home prices are falling or stagnant, and banks wary of lending, these loans may prove hard to refinance.

Q. Why does Wall Street worry about sub-prime loans

A. Years ago, banks held home loans on their balance sheets. Today, they're sold on the secondary mortgage market, where they're pooled together, bundled and sold to investors as so-called mortgage-backed securities. The big investment banks such as Bear Stearns, Lehman Brothers and others are deeply involved in this, and may also have extended credit to some of the buyers of these securities. Generally, better-quality loans are sold to Fannie Mae, the quasi-government agency that does some of this packaging. The riskier loans have been issued by so-called private label issuers, Wall Street firms who sell these bonds to investors here and abroad.

Q. What are federal regulators doing?

A. The Securities and Exchange Commission reportedly is looking at the books of major investment banks to see how they're valuing their mortgage-backed securities. SEC spokesman John Heine would neither confirm or deny it, but news reports said regulators feared that major Wall Street firms might be masking the size of their sub-prime losses.

Q. Who holds these riskier mortgage securities?

A. That's not entirely clear, adding to today's market volatility. It's thought that lightly regulated hedge funds, which control huge pools of investment money, own quite a bit of them. Average Americans increasingly have a stake in hedge funds because public and corporate pension funds plunk portions of their portfolios into them. Foreigners are exposed too. France's largest bank, BNP Paribas, on Thursday froze three investment funds that held mortgage bonds and other exotic U.S. bonds.

Q. Is a U.S. government bailout coming?

A. President Bush said this week that he didn't want to bail out lenders but was willing to help borrowers. The problem is that helping borrowers lets lenders off the hook. Fannie Mae has asked the federal government to allow it to expand its mortgage holdings by 10 percent. This would allow Fannie Mae to help some troubled homeowners refinance into manageable loans. Bush wants revisions to Fannie Mae before homeowners are rescued; Democrats want quicker action.

Q. Does this mean a recession is ahead?

A. Bush and his economic team are talking up the economy and saying that the fundamentals remain strong. Most economists think the housing sector's problems will shave a full percentage point of growth from the economy this year. As long as employment indicators remain strong and consumer confidence robust, there shouldn't be a recession. But if credit problems in the banking sector become a full-blown credit freeze and people can't get loans to buy homes or cars or to start businesses, the economy would be hit hard.

Q. What will happen to my 401(k) plan or my individual retirement account? What should I do?

A. Most financial advisers suggest taking a long view on investing. They think that despite the short-run turmoil and gyrations, stocks are a good investment over a longer period. To be sure, individual stocks and mutual funds are going backward right now, but the stock market is still up 6.2 percent for this year. Many analysts think that a 10 to 15 percent price correction has been in order, suggesting that further dips are ahead. If you're uneasy about how the recent volatility affects your retirement assets, it may be a good time to consult an expert.


McClatchy Newspapers 2007

http://www.mcclatchydc.com/economics/story/18849.html

BoyJupiter
08-11-2007, 04:03 PM
1933 is calling...

QueEx
08-11-2007, 04:28 PM
1933 is calling...
I don't think any of the articles say 1933; what makes you believe so?
By the way, I think the year you're talking about is 1929, isn't it?

QueEx

BigUnc
08-11-2007, 05:20 PM
First and foremost the Federal Reserve only "purchased" this paper for 3 days. Come Monday morning whomever the Fed bought them from has to find a buyer or liquidate/give up assets to buy them back from the Fed, plus interest of course. Monday should be a very interesting day.


Some economic prognosticators are openly calling for a recession with 1 that i know of openly saying we are in a recession now, if you listen to Cramer from CNBC many more are telliing him in private how bad they think the situation is but aren't willing to go public. Wall street seems to be betting the government is going to step in to stave off a deeper crisis. Read that as a taxpayer bailout for the dumbass lending decisions of Wall Street investors. How the public will react to that possibility if they actually do it I don't know. What i do know is the government won't bail me out if I make fucked up financial decisions so why should these multi-billion dollar companies along with the rich investors get one.

With millions of mortgages resetting this year and next how much money the Fed is willing to pump into the market to prop up the financial sector is unknown. The Fed isn't in the business of holding onto worthless paper. My guess is if shit gets to bad the Fed will allow a market correction regardless of the fallout.


I'm not exactly sure about this but the market did crash in August 1929??? wiping out alot of banks. I seem to remember that the general public didn't start to really feel the impact until 1930 then it went full bore until the mid 30's when it started to ease a little then ended with WWII and full employment or something similar to that. Oddly comparisons are being made between then and now ini regards that both were caused by risky investment in financial instruments that had no real value which relied on exchanging paper IOU's promising huge profits sometime in the distant future in exchange for loaning cash money up front with the caveat that as long as new investors are constantly brought in everything should work fine. Is that a ponzi scheme or a pyamid I forget.

thoughtone
08-16-2007, 12:16 PM
This is a old story, but in light of the current housing loan and stock market crises, it is even more relevant. If this is not a reason to roll back Reaganomics, then I don’t know what is.

source: msnbc (http://www.msnbc.msn.com/id/11098797/)


Consumers depleting savings to buy cars, other big-ticket items

Updated: 12:10 p.m. ET Jan 30, 2006
WASHINGTON - Americans’ personal savings rate dipped into negative territory in 2005, something that hasn’t happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.

The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.

The savings rate has been negative for an entire year only twice before — in 1932 and 1933 — two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.

With employment growth strong now, analysts said that different factors are at play. Americans feel they can spend more, given that the value of their homes, the biggest asset for most families, has been rising sharply in recent years.

But analysts cautioned that this behavior was risky at a time when 78 million Americans are on the verge of retirement.

“Americans seem to have the feeling that it is wimpish to save,” said David Wyss, chief economist at Standard & Poor’s in New York. “The idea is to put away money for old age and we are just not doing that.”

The Commerce report said that consumer spending for December rose by 0.9 percent, more than double the 0.4 percent increase in incomes last month.

A price gauge that excludes food and energy rose by a tiny 0.1 percent in December, down from a 0.2 percent rise in November. This inflation index linked to consumer spending is closely watched by officials at the Federal Reserve.

The central bank meets on Tuesday, when it is expected it will boost interest rates for a 14th time. However, many economists believe those rate hikes are drawing to a close with perhaps another quarter-point hike at the March 28 meeting as the central bank is starting to see the impact of the previous rate hikes in a slowing economy.

The government reported on Friday that overall economic growth slowed to a 1.1 percent rate in the final three months of the year, the most sluggish pace in three years.

That slowdown was heavily influenced by a big drop for the quarter in spending on new cars, which had surged in the summer as automakers offered attractive sales incentives.

A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases. For the month, the savings rate fell to 0.7 percent, the largest one-month decline since a 3.4 percent drop in August.

The 0.5 percent negative savings rate for 2005 followed a 1.8 percent rate of savings in 2004. The last negative rates occurred in 1932, a drop of 0.9 percent, and a record 1.5 percent decline in 1933. In those years Americans exhausted their savings to try to meet expenses in the wake of the worst economic crisis in U.S. history.

One major reason that consumers felt confident in spending all of their disposable incomes and dipping into savings last year was that a booming housing market made them feel more wealthy. As their home prices surged at double-digit rates, that created what economists call a “wealth effect” that supported greater spending.

The concern, however, is that the housing boom of the past five years is beginning to quiet down with the rise in mortgage rates. Analysts are closing watching to see whether consumer spending, which accounts for two-thirds of total economic activity, falters in 2006 as Americans, already carrying heavy debt loads, don’t feel as wealthy as the price appreciation of their homes would seem to indicate.

For December, the 0.4 percent rise in incomes was in line with Wall Street expectations. It followed a similar 0.4 percent increase in November, with both months lower than the 0.6 percent rise in October.

The 0.9 percent rise in spending with slightly above the expectation for a 0.8 percent increase and was almost double the 0.5 percent increase in November.

© 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

QueEx
08-17-2007, 11:11 AM
<font size="5"><center>
Odds grow for recession,
but lenders hold the key</font size></center>


http://media.mcclatchydc.com/smedia/2007/08/16/17/70-20070816-MARKETS.small.prod_affiliate.91.jpg

By Kevin G. Hall
McClatchy Newspapers
Posted on Fri, August 17, 2007

WASHINGTON — Wall Street's woes are raising the risk that the U.S. economy could sink into recession late this year or early next year.

Although few economic analysts put the odds of recession at better than 50 percent, most are now upping their probabilities.

"We've lowered our 2008 growth forecast to 1.5 percent, down from 2.3 percent previously and 1.8 percent in 2007. We now expect a consumer recession, for the first time in 17 years," said a revised forecast issued Thursday by Merrill Lynch.

Whether Wall Street’s turmoil brings a sharp slowdown or a full-blown recession depends on three inter-related variables: how quickly banks resume lending to businesses and home buyers; whether the recession in the housing sector bottoms out or deepens; and whether falling home prices and a lack of lending combine to hit the consumer’s ability to spend.

“What we’re going through now is unlike anything we’ve seen before. All financial crises have their unique characteristic — this one is characterized by a seizing-up in the home-mortgage market,” said Lyle Gramley, a former governor of the Federal Reserve System in the 1980s who's now with the Stanford Group, a consulting firm.

He puts the odds of recession at 50 percent.

Gramley was referring to the spate of bankruptcies by companies that issued home loans to risky borrowers — and increasingly companies that gave loans to credit-worthy homeowners.

The nation’s biggest mortgage lender, Countrywide Financials, tried to stave off bankruptcy Thursday by tapping an $11.5 billion line of credit. It was viewed as a last-ditch effort to stay solvent as investors flee anything with the word “mortgage” attached. That's making it hard for even creditworthy people to finance a home purchase.

“The volatility in today’s market is making it extremely difficult to qualify borrowers for mortgage loans. And the news about Countrywide’s woes doesn’t make the picture any brighter,” said Dawn Holly, a mortgage broker in Columbia, Md. She said that lenders have basically stopped underwriting all but the safest of home loans.

The credit crunch isn't confined to homebuyers. Banks, threatened by the risk that their loans are endangered by the spreading crisis, are withholding new loans even from sound businesses.

Gramley’s concerned that there aren’t good measures right now of how much lenders are pulling back. “None of us knows for sure how much credit availability has declined, but to be sure it is substantial,” he said.

If banks don’t extend credit, businesses can’t borrow to grow. Nor can they issue bonds to finance expansion, since investors are fleeing virtually all forms of risk. If businesses don’t grow, they don’t hire. If this trend goes on very long, eventually it will turn today’s strong job numbers — unemployment is only at 4.6 percent — much weaker.

Another way that Wall Street's woes affect Main Street is that falling stock prices mean declining wealth. As Americans lose wealth in their investments and home prices continue to erode, they're likely to reduce spending, which drives the economy.

“Consumer spending depends on wealth, because if wealth contracts or asset prices fall, it undermines the growth of retail sales and other consumption … and that’s two thirds of GDP (gross domestic product),” said Joel Prakken, chairman of Macroeconomic Advisers LLC, an economic forecasting firm in St. Louis, Mo.

There's no question that stock prices are sliding; Thursday marked one of the wildest rides on Wall Street in years. The Dow Jones Industrial Average was down by 343 points at one point before rallying near the close of trading to end down just 15.69 points, or 0.12 percent. Even so, the Dow's down almost 1,200 points since its peak on July 19 at 14,000. Everyone with a 401(k) is probably watching its value decline.

Prakken doesn’t offer a probability for recession, partly because Wall Street's volatility makes any long-term projection difficult. But he expects economic growth to start slipping in October. He cited falling stock prices and the spreading credit crunch for both businesses and homebuyers as signs of a coming slowdown.

“We associate all those with downward revisions of the forecasts,” he said. “It’s just incredibly difficult to make these calls. The volatility is incredible.”

The lack of firm data about how bad lending conditions are leaves most analysts scratching their heads, worried but uncertain whether a recession is coming.

“I think it’s very hard to tell, and I think it’s less than 50 percent likely. But there’s no good data to support one argument or the other,” said Irwin M. Stelzer, director of economic policy studies at the Hudson Institute, a conservative think tank in Washington, D.C.

2007 McClatchy Newspapers

http://www.mcclatchydc.com/227/story/18997.html

QueEx
09-27-2007, 11:10 PM
Greenspan sees threat of '70s-style inflation

http://media.mcclatchydc.com/smedia/2007/09/26/17/779-20070926-INFLATION.small.prod_affiliate.91.jpg

By Kevin G. Hall and Robert A. Rankin | McClatchy Newspapers
Posted on Thursday, September 27, 2007

WASHINGTON —An important point in Alan Greenspan's much-hyped memoir has gone largely unnoticed: He acknowledges that global economic forces, more than Federal Reserve policy, kept inflation low and manageable for two decades.

By global forces he means free trade, the rise of emerging, cheap-labor economies led by China and India and the benefits from information technology and the Internet.

He warns that these forces — "globalization," in shorthand — are weakening as they mature. He fears that could mean a gradual return to persistent 1970s-style inflation over the next 20 years or so. And he worries that could cripple a U.S. economy that's already facing strains from the graying of the population over the same period.

Not everyone agrees.

"I do think he's overly pessimistic. Which is not to say things he's pointing to aren't real or potentially real," said Alan Blinder, a former Fed vice chairman and Princeton University economist who thinks that U.S. and European policymakers are unlikely to let inflation get out of hand because they learned hard lessons in the '70s.

Inflation measures the rise of prices across the economy over time. It's relatively stable at the moment: Consumer prices rose only 2 percent over the 12 months through August. But oil prices are high — more than $80 a barrel — commodities from corn to gold are flirting with records and Americans are increasingly fearful that free trade is hurting wages and workers at home, and may restrain it.

All those factors threaten to boost inflation.

It roared out of control from the late 1960s through 1981. Prices rose so quickly that they eroded the purchasing power of a dollar. In 1979, $100 on Jan. 1 was worth $87 by Dec. 31.

To avoid that erosion of their wealth, '70s investors moved money out of stocks and bonds into nonproductive assets such as gold and art. The economy shrank four years out of the nine from 1974 to 1982. Living standards fell.

And interest rates soared. To ensure profit on eroding money, lenders charged higher interest and investors demanded higher yields. That made car loans, college tuition and credit card debt more costly to finance.

Mortgage rates rose too, making it harder to finance home purchases and putting downward pressure on home prices. A $200,000 fixed-rate 30-year mortgage with a 6 percent interest rate carries a monthly payment of $1199.10. If inflation pushes the mortgage rate to 10 percent, that mortgage costs $1755.14 per month, almost half again as much.

Greenspan, the leading economic seer of the roaring 1990s, fears that the table's being set for it all to happen again.

The biggest reason is that "having largely bestowed its benefits, globalization will slow its pace," he wrote.

For several decades, the benefits of globalization — primarily abundant foreign-made goods produced for low wages and purchased for low prices &mash; helped hold down U.S. inflation. But that's changing.

China, for example, the biggest source of U.S. imported goods, has a growing inflation problem. Its inflation rate hit an 11-year high of 6.5 percent in August.

Wages in China grew 13.5 percent last year. As Chinese workers demand higher pay to cover rising prices, production costs rise. Eventually, the price of Chinese-made goods purchased by Americans will rise as well.

Just as inexpensive imports helped hold down inflation here the past two decades, inflation here will rise with import prices. How much, how fast? While U.S. inflation rates varied greatly over the years, on average from 1939 through 1989 consumer prices rose by 4.5 percent per year.

"That's probably not a bad first approximation of what we will face," Greenspan warns in his book "The Age of Turbulence." An annual inflation rate of 4.5 percent would reduce the purchasing power of $10,000 to $6,439 in one decade, according to the Tax Policy Center, run by the Urban Institute and the Brookings Institution.

Greenspan says the threat of rising inflation is already here. He told CBS's "60 Minutes" that his successor, Ben S. Bernanke, faces a different economic chessboard from the one he had in the '90s.

"We were dealing with an environment back there where inflation was easing. We could have acted without the fear of stoking inflationary pressures. You can't do that anymore," Greenspan said.

Mainstream economists agree.

"I don't think inflation is an imminent danger, but I do agree with him that he had a very favorable environment . . . and I don't think Bernanke is going to have the same luck," said David Wyss, chief economist for Standard & Poor's, a financial-research firm.

Bernanke's Fed said rising inflation was the biggest threat to the economy as recently as Aug. 7. Then a gathering credit crisis rooted in the housing sector's problems led the Fed to switch priorities and slash interest rates by half a percentage point this month to avoid recession.

Some analysts fear that only poured fuel on the glowing embers of incipient inflation, and may come back to haunt Bernanke, perhaps as soon as next year.

Greenspan, too, thinks that future Fed chairmen will need to raise interest rates to keep a lid on inflation — the Fed's primary mission — but he fears that the emerging populist political environment, as reflected in Democrats' rising opposition to free trade, may not allow it. He fears that the Fed could be forced into accepting higher inflation.

In response to soaring double-digit inflation, Greenspan's predecessor Paul Volcker raised interest rates even higher beginning in 1979, deliberately forcing a recession in 1981-82. Volcker's move was unpopular. At its peak the banks' prime lending rate — the one they charge their best borrowers — stood at 21.5 percent. Few could afford loans. But when the economy emerged from recession in 1982, inflation was effectively crushed.

The 1980 inflation rate of 12.5 percent fell to 3.8 percent in 1982. It's been modest ever since, averaging 3.24 percent from 1982 to 2006.

The era of low stable inflation coincided with the greatest sustained burst of economic expansion in world history. The U.S. economy has shrunk in only 16 months of the 25 years since the 1982 recession ended. That's convinced economists that low inflation provides an essential foundation to permit sustained economic growth. Blinder, the former Fed vice chairman, thinks the lesson won't soon be forgotten.

He argues that globalization is still dynamic and foreign competition will remain a check on U.S. prices.

"I think he (Greenspan) underestimates how much of the China and India phenomenon is still in the future, not in the past," Blinder said. "When it comes to India and services, I think we've barely scratched the surface. I think there's a huge downward pressure on a variety of services prices . . . to come for many years. And services are a much bigger portion of the consumer's basket than goods."

While that trend would keep a lid on many U.S. wages, it also would help contain inflation here.

2007 McClatchy Newspapers

http://www.mcclatchydc.com/226/story/19988.html

QueEx
11-27-2007, 10:36 AM
Signs Are Pointing South on Wall St.
Credit Woes Foster Bets on Bad Times

By Neil Irwin
Washington Post Staff Writer
Tuesday, November 27, 2007; Page A01

Wall Street is betting on a recession.

Investors in stocks and bonds are paying prices that indicate they believe a snowballing housing crisis and worsening credit crunch will soon tip the U.S. economy into a recession, analysts said. Many economists, including leaders of the Federal Reserve, don't think things will get that bad, but some say the risk of a serious downturn has risen in recent weeks.

Investors were so eager to buy ultra-safe government bonds yesterday that they were willing to accept sharply lower interest rates. The rate on the 10-year Treasury bond fell to 3.84 percent from 4 percent Friday. The low rates indicate investors expect the Federal Reserve to cut interest rates aggressively in the coming year to ease the pain of recession.

Stocks are now down more than 10 percent from their peak in October. The Standard & Poor's 500-stock index fell 2.3 percent yesterday, dropping the market to a level that Wall Street analysts say reflects an expectation that corporate profits will fall.

Taken together, those and other data indicate that financial markets have a decidedly negative prognosis for the economy. "They're saying the odds of a recession are pretty damn high," said Diane Swonk, chief economist at Mesirow Financial.

There are reasons to think things will not get that bad, however. Holiday sales started Friday with a strong 8.3 percent gain over last year, and U.S. consumers have proven resilient in past periods of financial distress. With the dollar weakening, U.S. exporters will be at an advantage; joblessness remains near historic lows, at 4.7 percent; and the stock market, an old joke goes, has predicted nine of the past five recessions.

Moreover, economic growth could slow sharply through the first half of next year, as the Federal Reserve and myriad private firms predict, without technically falling into recession territory. A recession is defined as a significant decline in economic activity, as measured by a variety of indicators, that lasts more than a few months. The nonprofit Conference Board said yesterday that its index of leading economic indicators fell in October, but not by so much as to suggest a recession is about to begin.

Other events yesterday showed how widely worry has spread.

The Federal Reserve Bank of New York said it would make at least $8 billion available so banks do not find themselves short of cash through early January. Former Treasury secretary Lawrence Summers said in a column in yesterday's Financial Times that he now believes the odds favor a recession, a view he did not hold a few weeks ago.

Housing prices are falling sharply in many of the nation's biggest cities, and millions of foreclosures are forecast for the next two years. Oil prices are near $100 per barrel, which could thin out consumers' pocketbooks if the winter is especially cold. And as the value of the dollar drops, imports as varied as French wine and Japanese electronics could become more expensive.

In a view increasingly typical among Wall Street economists, analysts at Merrill Lynch published a research note yesterday with the headline: "We believe we are going to see a recession in '08."

Widespread expectations of a recession could be self-fulfilling because of how financial markets and mainstream America are interconnected. If investors are sufficiently convinced a recession is ahead, they would be reluctant to lend money to businesses that want to expand, making it so.

Just a month ago, financial markets seemed to be healing from the tumult of the summer, when fear of losses in the mortgage sector caused many markets to effectively shut down. But throughout November, the very institutions that were expected to ease the blow to the economy have shown more evidence of trouble.

Investors are worried that major banks are suffering such severe losses from mortgage and other risky securities that they will not be able to lend as much money to consumers and businesses in the months ahead. The same fears apply to Fannie Mae and Freddie Mac, the government-sponsored housing finance companies.

"It looked like the problems in the credit markets were going away or at least calming down a few weeks ago," said David A. Wyss, chief economist of Standard & Poor's. "Now the signs are that they're not."

The credit problems are no abstraction. They make it more expensive for individuals to obtain mortgages and for businesses to expand.

Higher interest rates for risky mortgages, for example, could make it difficult for would-be buyers to afford a home, which could cause prices to drop further. That, in turn, could spur more foreclosures, which could lead financial institutions to further increase rates they charge on mortgages.

"These things feed off of each other," Wyss said.

The same is true for businesses. Continuing expansion of the commercial real estate sector, for example, including office buildings and shopping centers, has been a major cushion from the housing downturn in recent months and has kept construction workers employed.

In February, owners could borrow against such properties at interest rates about one percentage point above the rate for Treasury bonds, based on a Morgan Stanley index for moderately risky commercial mortgage-backed securities. At the end of September, commercial property owners had to pay an additional four percentage points. By yesterday, the premium was seven percentage points.

Higher borrowing costs could make commercial builders less likely to move forward with new construction, analysts said, eliminating a crucial source of growth in jobs and in the gross domestic product.

The potential freeze in bank lending could mirror the savings and loan crisis of the early 1990s, a major cause of the 1990-91 recession.

"In any recession, you get to a tipping point where sentiment unravels and feeds on itself. Psychology takes over," said Mark Zandi, chief economist of Moody's Economy.com.

Staff writer David Cho contributed to this report.

http://www.washingtonpost.com/wp-dyn/content/article/2007/11/26/AR2007112602206.html?hpid=topnews

QueEx
11-27-2007, 10:42 AM
Related Threads:


Economy Fucked Up, This Is One Reason
http://www.bgol.us/board/showthread.php?t=209010&highlight=economy


Is the economy really bad?
http://www.bgol.us/board/showthread.php?t=209239&highlight=economy


World economy too reliant on China and US
http://www.bgol.us/board/showthread.php?t=18317&highlight=economy

`

BigUnc
11-27-2007, 11:04 AM
Mixed news today but the trend is negative for next year. Consumers are feeling the pinch and say they're going to start cutting back. Businesses are starting to layoff.


U.S. Economy: Confidence Drops More Than Predicted (Update1)

By Shobhana Chandra and Bob Willis
Last Updated: November 27, 2007 11:09 EST
Nov. 27 (Bloomberg) -- Consumer confidence fell more than forecast in November as Americans struggled with surging fuel costs and falling home prices.

The Conference Board's confidence index decreased to 87.3, the lowest level since the aftermath of Hurricane Katrina in 2005, the New York-based group said today. House values dropped 4.5 percent in the third quarter from a year earlier, the most since records began in 1988, S&P/Case-Shiller reported separately today.

The gloomier mood increases the likelihood that holiday sales, which account for a fifth of retailers' yearly revenue, will be disappointing. Federal Reserve policy makers and private economists have cut growth forecasts as the housing slump enters its third year and jeopardizes consumer spending.

``This is a strong indication that consumers are going to pull back sharply and growth is going to be very weak,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``The message to the Fed should be that they need to keep cutting rates.''

October's confidence reading was revised down to 95.2, from a previously reported 95.6. None of the 67 economists surveyed by Bloomberg News predicted the size of the decline. The median forecast was 91.

Stocks Jump

Treasury securities remained lower and stock prices rose following the reports as investors focused on news that Citigroup Inc. will receive a cash infusion from Abu Dhabi's government. The Dow Jones Industrial Average was up 138 points, or 1.1 percent, at 11:09 a.m. in New York.

Property prices may keep sliding in coming months as slowing sales and rising foreclosures aggravate the glut of unsold homes, economists said.

The housing recession will drive down property values by $1.2 trillion next year and slash tax revenue by more than $6.6 billion, according to a report issued today by the U.S. Conference of Mayors. The 361 largest U.S. cities will experience a combined loss of $166 billion in economic growth, led by $10.4 billion in the New York-Northern New Jersey area, according to the study.

Lower property values make it harder for owners to tap home equity, while gasoline at more than $3 a gallon and higher home- heating bills also sour Americans' mood. A report last week showed the Reuters/University of Michigan sentiment index fell this month to a two-year low.

Job Focused

Compared with other sentiment gauges, the Conference Board's index tends to be more influenced by attitudes about the state of the labor market, economists said.

An average of 330,000 workers filed first-time claims for jobless benefits per week in November, up from 306,000 as recently as July. The increase suggests firings are mounting as businesses try to cut costs.

Fed policy makers are counting on wage gains to help Americans maintain spending, according to the minutes of their Oct. 31 meeting. Still, there was a risk falling home prices could ``further sap consumer confidence.''

The Conference Board's measure of present conditions fell to 115.4 from 118 the prior month. The gauge of expectations for the next six months decreased to 68.7, the lowest since March 2003, from 80.

Today's report showed the share of consumers who said jobs are plentiful retreated to 23.2 percent in November from 24.1 percent the prior month. The proportion of people who said jobs are hard to get also decreased to 21.3 percent from 22.8 percent.

Wage Concerns

The proportion of people who expect their incomes to rise over the next six months dropped to 18.7 percent from 19.9 percent. The share expecting more jobs decreased to 10.8 percent from 13.3 percent.

The number of people planning to buy a home or an automobile within the next six months fell.

Retailers are bracing for a slowdown through the holidays and into 2008. Target Corp., the second-biggest U.S. discounter, last week reported its first profit decline in two years, and said it expects slowing sales growth through the first quarter.

The National Retail Federation this week maintained its forecast that combined sales for November and December will show the smallest increase in five years even after purchases were stronger than forecast after the Thanksgiving holiday. Americans spent less per person even as more went shopping, the group said.

``Elevated energy costs and the anticipation of further increases continues to impact Americans' ability to spend on discretionary projects,'' Robert Niblock, chief executive officer of Lowe's Cos., the second-largest home improvement retailer, said on a conference call last week. ``Access to mortgage financing is a concern we'll continue to watch.''

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net Bob Willis in Washington at bwillis@bloomberg.net

ezlovr
11-27-2007, 11:15 AM
Being that most working class Americans cycle in and out of poverty I really find it hard to believe that it is the people fault for lack of income. I put the blame totally on the Federal Reserve system as well as the fraus that was committed to allow the 16 amendment to become legal. No taxtion without representation. Even though the Boston tea party did not apply directly to black that still do not change the fact that even stupid white people do have basic understanding of economics. Tax = inflation = working class = poverty. peace

Greed
12-03-2007, 11:31 PM
http://educationalrap.imeem.com/music/xY4REVq-/rhythm_rhyme_results_demand_supply/?d=1

Greed
12-05-2007, 07:19 AM
November 27, 2007
That 'Top One Percent'
By Thomas Sowell

People who are in the top one percent in income receive far more than one percent of the attention in the media. Even aside from miscellaneous celebrity bimbos, the top one percent attract all sorts of hand-wringing and finger-pointing.

A recent column by Anna Quindlen in Newsweek (or is that Newsweak?) laments that "the share of the nation's income going to the top 1 percent is at its highest level since 1928."

Who are those top one percent? For those who would like to join them, the question is: How can you do that?

The second question is easy to answer. Virtually anyone who owns a home in San Francisco, no matter how modest that person's income may be, can join the top one percent instantly just by selling their house.

But that's only good for one year, you may say. What if they don't have another house to sell next year?

Well, they won't be in the top one percent again next year, will they? But that's not unusual.

Americans in the top one percent, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring "class" -- especially by those who have overdosed on the magic formula of "race, class and gender," which has replaced thought in many intellectual circles.

At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005.

Among the top one-hundredth of one percent, three-quarters of them were no longer there at the end of the decade.

These are not permanent classes but mostly people at current income levels reached by spikes in income that don't last.

These income spikes can occur for all sorts of reasons. In addition to selling homes in inflated housing markets like San Francisco, people can get sudden increases in income from inheritances, or from a gamble that pays off, whether in the stock market, the real estate market, or Las Vegas.

Some people's income in a particular year may be several times what it has ever been before or will ever be again.

Among corporate CEOs, those who cash in stock options that they have accumulated over the years get a big spike in income the year that they cash them in. This lets critics quote inflated incomes of the top-paid CEOs for that year. Some of these incomes are almost as large as those of big-time entertainers -- who are never accused of "greed," by the way.

Just as there may be spikes in income in a given year, so there are troughs in income, which can be just as misleading in the hands of those who are ready to grab a statistic and run with it.

Many people who are genuinely affluent, or even rich, can have business losses or an off year in their profession, so that their income in a given year may be very low, or even negative, without their being poor in any meaningful sense.

This may help explain such things as hundreds of thousands of people with incomes below $20,000 a year living in homes that cost $300,000 and up. Many low-income people also have swimming pools or other luxuries that they could not afford if their incomes were permanently at their current level.

There is no reason for people to give up such luxuries because of a bad year, when they have been making a lot more money in previous years and can expect to be making a lot more money in future years.

Most Americans in the top fifth, the bottom fifth, or any of the fifths in between, do not stay there for a whole decade, much less for life. And most certainly do not remain permanently in the top one percent or the top one-hundredth of one percent.

Most income statistics do not follow given individuals from year to year, the way Internal Revenue statistics do. But those other statistics can create the misleading illusion that they do by comparing income brackets from year to year, even though people are moving in and out of those brackets all the time.

That especially includes the top one percent, who have become the focus of so much angst and so much rhetoric.

Copyright 2007, Creators Syndicate, Inc.

http://www.realclearpolitics.com/articles/2007/11/the_transient_income_classes.html

QueEx
12-14-2007, 11:18 PM
China and the Arabian Peninsula
as Market Stabilizers

Strategic Forecasting, Inc.
Geopolitical Intelligence Report
By George Friedman
December 11, 2007

The single most interesting thing about today's global economy is what has not occurred. In 1979, oil prices soared to slightly more than $100 a barrel in current dollars, and they are approaching that historic high again. Meanwhile, the subprime meltdown continues to play out. Many financial institutions have been hurt, many individual lives have been shattered and many Wall Street operators once considered brilliant have been declared dunderheads. Despite all the predictions that the current situation is just the tip of the iceberg, however, the crisis is progressing in a fairly orderly fashion. Distinguish here between financial institutions, financial markets and the economy. People in the financial world tend to confuse the three. Some financial institutions are being hurt badly. Those experiencing the pain mistakenly think their suffering reflects the condition of the financial markets and economy. But the financial markets are managing, as is the economy.

What we are seeing is the convergence of two massive forces. Oil prices, along with primary commodity prices in general, have soared. Also, one of the periodic financial bubbles -- the subprime mortgage market -- has burst. Either of these alone should have created global havoc. Neither has. The stock market has not plummeted. The Standard & Poor's 500 fell from a high of about 1,565 in mid-October to a low of 1,400 on Oct. 19. Since then, it has rebounded as high as 1,550. Given the media rhetoric and the heads rolling in the financial sector, we would expect to see devastating numbers. And yet, we are not.

Nor are the numbers devastating in the bond markets. By definition, a liquidity crisis occurs when the money supply is too tight and demand is too great. In other words, a liquidity crisis would be reflected in high interest rates. That hasn't happened. In fact, both short-term and, particularly, long-term interest rates have trended downward over the past weeks. It might be said that interest rates are low, but that lenders won't lend. If so, that is sectoral and short-term at most. Low interest rates and no liquidity is an oxymoron.

This is not the result of actions at the Federal Reserve. The Fed can influence short-term rates, but the longer the yield curve, the longer the payoff date on a loan or bond and the less impact the Fed has. Long-term rates reflect the current availability of money and expectations on interest rates in the future.

In the U.S. stock market -- and world markets, for that matter -- we have seen nothing like the devastation prophesied. As we have said in the past, the subprime crisis compared with the savings and loan crisis, for example, is by itself small potatoes. Sure, those financial houses that stocked up on the securitized mortgage debt are going to be hurt, but that does not translate into a geopolitical event, or even into a recession. Many people are arguing that we are only seeing the tip of the iceberg, and that defaults in other categories of the mortgage market coupled with declining housing markets will set off a devastating chain reaction.

That may well be the case, though something weird is going on here. Given the broad belief that the subprime crisis is only the beginning of a general financial crisis, and that the economy will go into recession, we would have expected major market declines by now. Markets discount in anticipation of events, not after events have happened. Historically, market declines occur about six months before recessions begin. So far, however, the perceived liquidity crisis has not been reflected in higher long-term interest rates, and the perceived recession has not been reflected in a significant decline in the global equity markets.

When we add in surging oil and commodity prices, we would have expected all hell to break loose in these markets. Certainly, the consequences of high commodity prices during the 1970s helped drive up interest rates as money was transferred to Third World countries that were selling commodities. As a result, the cost of money for modernizing aging industrial plants in the United States surged into double digits, while equity markets were unable to serve capital needs and remained flat.

So what is going on?

Part of the answer might well be this: For the past five years or so, China has been throwing around huge amounts of cash. The Chinese made big, big money selling overseas -- more than even the growing Chinese economy could metabolize. That led to massive dollar reserves in China and the need for the Chinese to invest outside their own financial markets. Given that the United States is China's primary consumer and the only economy large and stable enough to absorb its reserves, the Chinese -- state and nonstate entities alike -- regard the U.S. markets as safe-havens for their investments. That is one of the things that have kept interest rates relatively low and the equity markets moving. This process of Asian money flowing into U.S. markets goes back to the early 1980s.

Another part of the answer might lie in the self-stabilizing feature of oil prices, the rise of which should be devastating to U.S. markets at first glance. The size of the price surge and the stability of demand have created dollar reserves in oil-exporting countries far in excess of anything that can be absorbed locally. The United Arab Emirates, for example, has made so much money, particularly in 2007, that it has to invest in overseas markets.

In some sense, it doesn't matter where the money goes. Money, like oil, is fungible, which means that if all the petrodollars went into Europe then other money would flow into the United States as European interest rates fell and European stocks rose. But there are always short-term factors to consider. The Persian Gulf oil producers and the Chinese have one thing in common -- they are linked to the dollar. As the dollar declines, assets in other countries become more expensive, particularly if you regard the dollar's fall as ultimately reversible. Dollars invested in dollar-denominated vehicles make sense. Therefore, we are seeing two massive inflows of dollars to the United States -- one from China and one from the energy industry. China's dollar reserves are derived from sales to the United States, so it is stuck in the dollar zone. Plus, the Chinese have pegged the yuan to the dollar. The energy industry, also part of the dollar zone, needs to find a home for its money -- and the largest, most liquid dollar-denominated market in the world is the United States.

The United States has created an odd dollar zone drawing in China and the Persian Gulf. (Other energy producers such as Russia, Nigeria and Venezuela have no problem using their dollars internally.) Unhinging China from the dollar is impossible; it sells in dollars to the United States, a linkage that gives it a stable platform, even if it pays relatively more for oil. Additionally, the Arabian Peninsula sells oil in dollars, and trying to convert those contracts to euros would be mind-bogglingly difficult. Existing contracts and new contracts managed in multiple currencies -- both spot and forward managed -- would have to be renegotiated. Any business working in multiple currencies faces a challenge, and the bigger the business, the bigger the challenge. The Arabian Peninsula accordingly will not be able to hedge currencies and manage the contracts just by flipping a switch.

This provides an explanation for the resiliency of U.S. markets. Every time the news on the subprime situation sounds so horrendous that it seems the U.S. markets will crash, the opposite occurs. In fact, markets in the United States rose through the early days, then sold off and now have rallied again. Where is the money coming from?

We would argue that the money is coming from the dollar bloc and its huge free cash flow from China, and at the moment, the Arabian Peninsula in particular. This influx usually happens anonymously through ordinary market actions, though occasionally it becomes apparent through large, single transactions that are quite open. Last week, for example, Dubai invested $7 billion in Citigroup, helping to clean up the company's balance sheet and, not incidentally, letting it be known that dollars being accumulated in the Persian Gulf will be used to stabilize U.S. markets.

This is not an act of charity. Dubai and the rest of the Arabian Peninsula, as well as China, are holding huge dollar reserves, and the last thing they want to do is sell those dollars in sufficient quantity to drive the dollar's price even lower. Nor do they want to see a financial crisis in the U.S. markets. Both the Chinese and the Arabs have far too much to lose to want such an outcome. So, in an infinite number of open market transactions, as well as occasionally public investments, they are moving to support the U.S. markets, albeit for their own reasons.

It is the only explanation for what we are seeing. The markets should be selling off like crazy, given the financial problems. They are not. They keep bouncing back, no matter how hard they are driven down. That money is not coming from the financial institutions and hedge funds that got ripped on mortgages. But it is coming from somewhere. We think that somewhere is the land of $90-per-barrel crude and really cheap toys.

Many people will see this as a tilt in global power. When others must invest in the United States, however, they are not the ones with the power; the United States is. To us, it looks far more like the Chinese and Arabs are trapped in a financial system that leaves them few options but to recycle their dollars into the United States. They wind up holding dollars -- or currencies linked to dollars -- and then can speculate by leaving, or they can play it safe by staying. In our view, these two sources of cash are the reason global markets are stable.

Energy prices might fall (indeed, all commodities are inherently cyclic, and oil is no exception), and the amount of free cash flow in the Arabian Peninsula might drop, but there still will be surplus dollars in China as long as it is an export-based economy. Put another way, the international system is producing aggregate return on capital distributed in peculiar ways. Given the size of the U.S. economy and the dynamics of the dollar, much of that money will flow back into the United States. The United States can have its financial crisis. Global forces appear to be stabilizing it.

The Chinese and the Arabs are not in the U.S. markets because they like the United States. They don't. They are locked in. Regardless of the rumors of major shifts, it is hard to see how shifts could occur. It is the irony of the moment that China and the Arabian Peninsula, neither of them particularly fond of the United States, are trapped into stabilizing the United States. And, so far, they are doing a fine job.

stratfor.com

QueEx
01-04-2008, 07:50 AM
<font size="4"><center>Ahead of the Bell: Unemployment Rate</font size></center>

BusinessWeek
January 4, 2008
WASHINGTON

Government data is forecast to show the nation's unemployment rate rose in December for the first time in four months.

Economic growth has been slowed by turmoil in the housing and credit sectors and rising energy prices.

Wall Street economists surveyed by Thomson/IFR predict the unemployment rate rose to 5 percent in December from 4.7 percent, a level it has remained at since September. Payrolls are expected to have grown by 70,000 in December, compared with growth of 94,000 a month earlier.

The Labor Department is scheduled to release the December data at 8:30 a.m. EST on Friday.

The department on Thursday said new applications for unemployment benefits fell by 21,000 to 336,000 last week. The decline beat Wall Street expectations as economists predicted a drop to 345,000 claims. The government's four-week moving average of new claims, which smooths out week-to-week fluctuations, fell by 750 to 343,750.

Other jobs news was bleak this week. Regional bank National City Corp. said it's cutting an additional 900 mortgage jobs. The Cleveland-based bank already has cut 3,400 jobs companywide.

Wachovia Corp. started cutting 243 mortgage and other banking-related jobs in San Antonio, Texas, in layoffs that will be complete by Sept. 30. Elsewhere, automaker Chrysler LLC said it will eliminate the third shift at its Belvidere, Ill., assembly plant and cut nearly 1,100 employees as part of a planned work force reduction starting Jan. 31.

http://www.businessweek.com/ap/financialnews/D8TV1OJO0.htm

QueEx
01-05-2008, 09:04 AM
<font size="4"><center>Fed Boosts Next Two Special Auctions to $30 Billion</font size><font size="4">
part of a global attempt by central bankers
to restore faith in the money markets.</font size></center>

By Daniel Kruger

Jan. 4 (Bloomberg) -- The Federal Reserve will increase the size of two scheduled auctions of emergency loans by 50 percent to $30 billion as part of a global attempt by central bankers to restore faith in the money markets.

The Fed reiterated that it will continue the loan auctions, designed to increase the amount of cash available in the banking system, ``for as long as necessary,'' in a statement released today. The third and fourth auctions will be conducted on Jan. 14 and 28. The central bank will announce on Feb. 1 whether further auctions will be conducted.

Since the first of the auctions on Dec. 17, companies' cost to borrow in dollars for three months has fallen to the lowest in two years, suggesting central banks are succeeding in spurring bank lending.

``It's a step in the right direction,'' Bill Gross, the founder and chief investment officer of Pacific Investment Management Co., said in a Bloomberg Television interview from Newport Beach, California. ``They're making some progress.''

The Board of Governors of the Federal Reserve System established the temporary Term Auction Facility, dubbed TAF, in December to provide cash after interest-rate cuts failed to break banks' reluctance to lend amid concern about losses related to subprime mortgage securities. The program will make funding from the Fed available beyond the 20 authorized primary dealers that trade with the central bank.

Rate Cuts

Policy makers have cut the Fed's target rate for overnight loans between banks by 100 basis points to 4.25 percent since mid-September, and the discount rate by 150 basis points. A basis point is 0.01 percentage point.

Futures show the probability of the Fed cutting rates another half percent point at the end of the month increased to 68 percent today after the Labor Department said unemployment rose to a more than two-year high of 5 percent and job growth was less than forecast in December. Traders had factored in a zero percent probability a week ago.

The Fed uses the TAF to auction funds to institutions that are eligible to borrow at its discount window. All TAF credit must be fully collateralized, and TAF accepts a broad range of collateral at the same values and margins applicable for the other Fed lending programs.

On Dec. 21 the Fed and European Central Bank loaned a total of $30 billion in 35-day funds at an interest rate of 4.67 percent, 2 basis points more than at the initial auctions four days earlier. The rates were less than the 4.75 percent banks are charged to borrow directly at the Fed's discount window, suggesting the central bank was making progress in alleviating a credit crunch. The Fed auctioned $20 billion in each of those instances.

`It's Working'

The three-month London interbank offered rate, a lending benchmark that fluctuates depending on how willing banks are to lend to each other, fell to 4.62 percent today, the lowest since January 2006, according to the British Bankers' Association. The rate is 37 basis points above the Fed's target, down from a difference of 86 basis points last month, the highest since 1999.

The Fed's decision to increase the auction size ``tells you they think it's working,'' said Andrew Brenner, co-head of structured products and emerging markets in New York at MF Global Ltd. The Fed wants to employ ``surgical strikes against the problem and not just a general overall easing,'' he said.

Results will be announced the day following each auction and the sales will settle three days after that.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

Last Updated: January 4, 2008 16:17 EST

http://www.bloomberg.com/apps/news?pid=20601103&sid=aBPbErlft9cI&refer=news

thoughtone
01-05-2008, 09:18 AM
I thought conservatives/Libertarians wanted the government out of people’s lives. Oh, ok, only when they need help.

Greed
01-07-2008, 09:58 AM
Investor's Business Daily
America's Pursuit Of Happiness
Wednesday January 2, 6:20 pm ET
Ibd

Public Opinion: Each time you open a newspaper or turn on a TV, you'll hear how unhappy, glum and dissatisfied Americans are. Don't believe it. The U.S. is, to borrow a phrase, the happiest place on Earth.

A long-forgotten 1960s movie title pretty much sums up how Americans feel about their lives: "What's So Bad About Feeling Good?" According to a new Gallup Poll, for most people that's not just a rhetorical question.

"Most Americans say they are generally happy, with a slim majority saying they are 'very happy,'" according to the Gallup Poll released on the final day of 2007. "More than 8 in 10 Americans say they are satisfied with their personal lives at this time, including a solid majority who say they are 'very satisfied.'"

Another extensive survey conducted in 2007 by the Pew Research Center found that 65% of Americans termed themselves "satisfied" with their lives. That compares with the four economic powerhouses of Britain, France, Germany and Italy, which averaged about 53%.

This difference isn't something new. It's been around for a long time. It's a part of what foreign-affairs mavens call "American exceptionalism." The question is, why are Americans so darned happy?

For one thing, Americans are far richer than those in other countries. And yes, this matters. Contrary to popular belief, neither the Europeans nor the Japanese lead better lives than Americans.

A study a few years back by Sweden's Timbro think tank came to these startling conclusions: Virtually every nation in Europe lagged the U.S. in income. Indeed, if it were a state, the EU would rank 47th in per capita GDP -- on par with Mississippi and West Virginia.

Americans' homes have roughly twice the square footage per occupant as those in the EU, Americans own more appliances, and, on average, they spend about 77% more each year than Europeans.

Yet, though the U.S. economy is head-and-shoulders above the others, you'd never know it from our friends in the mainstream media. As repeated surveys show, U.S. media coverage of the economy is overwhelmingly slanted toward the negative side of things.

But a look at the facts shows something quite different.

U.S. household wealth climbed from $38.8 trillion in 2002 to $58.6 trillion in the third quarter of 2007, an unprecedented 51% surge in just five years. That includes the recent meltdown in home prices.

By any historical standard, Americans are unbelievably wealthy.

Moreover, despite the near-collapse in housing, the U.S. economy remains strong. It grew at a 3.1% rate during the first three quarters, and almost certainly kept growing in the final three months.

Economist Irwin Stelzer adds another reason why Americans are happy right now: a million new jobs over the last year, a milestone that is underpinning U.S. economic growth right now.

But can economics really matter that much? You bet. Money may not buy love, but it helps buy happiness. In fact, according to the Pew folks, there's a 72% correlation between per capita GDP growth in a country and its citizens' happiness.

What about social trends? As economist Irwin Stelzer recently noted, "teenage drug use, pregnancies, smoking and drinking are all on the decline; welfare reform is working, bringing down child poverty, and the divorce rate is falling."

Oh, and we're having more babies than at any time since the 1970s -- not something that a gloomy, depressed society does. Our 2.1 babies per adult woman puts us at the top of the developed world's fertility rankings (Europe, by comparison, has a population-shrinking 1.5 rate). A child is the biggest bet on a happy future that two people can make.

Then there's religion. A 2006 Harris Poll found on average that 43% of those in Britain, Germany, Italy, Spain and France believed in a Supreme Being. In the U.S., it's 73%. That suggests a link, in developed nations anyway, between religiosity and happiness.

Face it, Americans are an unusually happy, optimistic people. In a way, it defines us. A big reason is our economy -- huge, innovative, low-tax and less regulated than others.

That's what makes us different. Vive la difference!

http://biz.yahoo.com/ibd/080102/issues01.html

Greed
01-07-2008, 10:21 AM
How do the right and left differ?
The conclusion of today's ec 10 lecture:

In today's lecture, I have discussed a number of reasons that right-leaning and left-leaning economists differ in their policy views, even though they share an intellectual framework for analysis. Here is a summary.

* The right sees large deadweight losses associated with taxation and, therefore, is worried about the growth of government as a share in the economy. The left sees smaller elasticities of supply and demand and, therefore, is less worried about the distortionary effect of taxes.

* The right sees externalities as an occasional market failure that calls for government intervention, but sees this as relatively rare exception to the general rule that markets lead to efficient allocations. The left sees externalities as more pervasive.

* The right sees competition as a pervasive feature of the economy and market power as typically limited both in magnitude and duration. The left sees large corporations with substantial degrees of monopoly power that need to be checked by active antitrust policy.

* The right sees people as largely rational, doing the best the can given the constraints they face. The left sees people making systematic errors and believe that it is the government role’s to protect people from their own mistakes.

* The right sees government as a terribly inefficient mechanism for allocating resources, subject to special-interest politics at best and rampant corruption at worst. The left sees government as the main institution that can counterbalance the effects of the all-too-powerful marketplace.

* There is one last issue that divides the right and the left—perhaps the most important one. That concerns the issue of income distribution. Is the market-based distribution of income fair or unfair, and if unfair, what should the government do about it? That is such a big topic that I will devote the entire next lecture to it.


http://gregmankiw.blogspot.com/2007/12/how-do-right-and-left-differ.html

Greed
01-07-2008, 10:29 AM
Tax rates: Current vs Historical averages

A new CBO report (http://www.cbo.gov/ftpdoc.cfm?index=8885&type=2) gives the effective federal tax rate by income group. These numbers include all federal taxes, not just income taxes, and are expressed as a percentage of household income. (If you have questions about the CBO methodology, click here (http://cboblog.cbo.gov/?p=40).)

The first number below is for 2005, the most recent year available. For comparison, I computed, and present in parentheses below, the average effective tax rate from 1979 to 2005, the time span covered in the report.

All households: 20.5 (21.6)

Lowest quintile: 4.3 (7.2)
Second quintile: 9.9 (13.2)
Middle quintile: 14.2 (17.1)
Fourth quintile: 17.4 (20.1)
Highest quintile: 25.5 (26.1)

Top 10 percent: 27.4 (27.6)
Top 5 percent: 28.9 (29.0)
Top 1 percent: 31.2 (31.7)

Notice that all groups are paying lower tax rates than the historical average. But in contrast to some popular perceptions, the change is not concentrated among the upper income groups. In fact, the opposite is true.

http://bp0.blogger.com/_djgssszshgM/R2dk6met94I/AAAAAAAAAOg/kGf4xK1oJ6o/s400/income+tax+progressivity.gif

http://gregmankiw.blogspot.com/2007/12/tax-rates-current-vs-historical.html
http://gregmankiw.blogspot.com/2007/12/progressivity-of-income-tax.html

thoughtone
01-12-2008, 03:01 AM
Wonder why the rich are getting richer and most everyone else is losing ground?


The Single Best Gauge Of The Economy, The Unemployment Rate.

Check out between 1992 and 2000, the Clinton years.

source: U.S. Department of Labor (http://www.bls.gov/eag/eag.us.htm)

http://data.bls.gov/PDQ/graphics/LNS14000000_127933_1200157941684.gif

source: Center on Budget and Policy Priorities (http://www.cbpp.org/10-16-03tax.htm#Table%201)

Corporate Income Tax Receipts Have Dropped

http://www.cbpp.org/10-16-03tax-f2.jpg

…did you know that wage earners pay Social Security taxes on only their first $90,000 of income. Over that amount you don’t pay FICA tax.

Greed
01-12-2008, 02:48 PM
Unemployment Rate


Age: 16 years and over
Race: Black or African American
Year Annual Rate
1993 13
1994 11.5
1995 10.4
1996 10.5
1997 10
1998 8.9
1999 8
2000 7.6
2001 8.6
2002 10.2
2003 10.8
2004 10.4
2005 10
2006 8.9
2007 8.3
Average Rate
1993-2000 10.0
2001-2007 9.6
1997-2000 8.6
2005-2007 9.1


Age: 20 years and over
Race: Black or African American
Sex: Men
Year Annual Rate
1993 12.1
1994 10.3
1995 8.8
1996 9.4
1997 8.5
1998 7.4
1999 6.7
2000 6.9
2001 8
2002 9.5
2003 10.3
2004 9.9
2005 9.2
2006 8.3
2007 7.9
Average Rate
1993-2000 8.8
2001-2007 9.0
1997-2000 7.4
2005-2007 8.5


Age: 20 years and over
Race: Black or African American
Sex: Women
Year Annual Rate
1993 10.7
1994 9.8
1995 8.6
1996 8.7
1997 8.8
1998 7.9
1999 6.8
2000 6.2
2001 7
2002 8.8
2003 9.2
2004 8.9
2005 8.5
2006 7.5
2007 6.7
Average Rate
1993-2000 8.4
2001-2007 8.1
1997-2000 7.4
2005-2007 7.6


Age: 16 to 19 years
Race: Black or African American
Year Annual Rate
1993 38.8
1994 35.2
1995 35.7
1996 33.6
1997 32.4
1998 27.6
1999 27.9
2000 24.5
2001 29
2002 29.8
2003 33
2004 31.7
2005 33.3
2006 29.1
2007 29.4
Average Rate
1993-2000 32.0
2001-2007 30.8
1997-2000 28.1
2005-2007 30.6

Greed
01-12-2008, 02:59 PM
Unemployment Rate


Age: 16 years and over
Race: White
Year Annual
1993 6.1
1994 5.3
1995 4.9
1996 4.7
1997 4.2
1998 3.9
1999 3.7
2000 3.5
2001 4.2
2002 5.1
2003 5.2
2004 4.8
2005 4.4
2006 4
2007 4.1
Average Rate
1993-2000 4.5
2001-2007 4.5
1997-2000 3.8
2005-2007 4.2


Age: 20 years and over
Race: White
Sex: Men
Year Annual
1993 5.7
1994 4.8
1995 4.3
1996 4.1
1997 3.6
1998 3.2
1999 3
2000 2.8
2001 3.7
2002 4.7
2003 5
2004 4.4
2005 3.8
2006 3.5
2007 3.7
Average Rate
1993-2000 3.9
2001-2007 4.1
1997-2000 3.2
2005-2007 3.7


Age: 20 years and over
Race: White
Sex: Women
Year Annual
1993 5.2
1994 4.6
1995 4.3
1996 4.1
1997 3.7
1998 3.4
1999 3.3
2000 3.1
2001 3.6
2002 4.4
2003 4.4
2004 4.2
2005 3.9
2006 3.6
2007 3.6
Average Rate
1993-2000 4.0
2001-2007 4.0
1997-2000 3.4
2005-2007 3.7


Age: 16 to 19 years
Race: White
Year Annual
1993 16.2
1994 15.1
1995 14.5
1996 14.2
1997 13.6
1998 12.6
1999 12
2000 11.4
2001 12.7
2002 14.5
2003 15.2
2004 15
2005 14.2
2006 13.2
2007 13.9
Average Rate
1993-2000 13.7
2001-2007 14.1
1997-2000 12.4
2005-2007 13.8

nittie
01-12-2008, 03:10 PM
Actually those unemployment rates aren't too bad when you consider Black's basically depend on whites to employ us. The sad truth is we don't have the ability to hire our own if we did our unemployment rates would be the same as everyone else's.

Greed
01-12-2008, 03:16 PM
Difference in Black and white unemployment rates

Age: 16 years and over
Difference: Black Rate-White Rate
Year Annual Rate
1993 6.9
1994 6.2
1995 5.5
1996 5.8
1997 5.8
1998 5.0
1999 4.3
2000 4.1
2001 4.4
2002 5.1
2003 5.6
2004 5.6
2005 5.6
2006 4.9
2007 4.2
Difference between average rates
1993-2000 5.5
2001-2007 5.1
1997-2000 4.8
2005-2007 4.9


Age: 20 years and over
Difference: Black Rate-White Rate
Sex: Men
Year Annual Rate
1993 6.4
1994 5.5
1995 4.5
1996 5.3
1997 4.9
1998 4.2
1999 3.7
2000 4.1
2001 4.3
2002 4.8
2003 5.3
2004 5.5
2005 5.4
2006 4.8
2007 4.2
Difference between average rates
1993-2000 4.8
2001-2007 4.9
1997-2000 4.2
2005-2007 4.8


Age: 20 years and over
Difference: Black Rate-White Rate
Sex: Women
Year Annual Rate
1993 5.5
1994 5.2
1995 4.3
1996 4.6
1997 5.1
1998 4.5
1999 3.5
2000 3.1
2001 3.4
2002 4.4
2003 4.8
2004 4.7
2005 4.6
2006 3.9
2007 3.1
Difference between average rates
1993-2000 4.5
2001-2007 4.1
1997-2000 4.1
2005-2007 3.9


Age: 16 to 19 years
Difference: Black Rate-White Rate
Year Annual Rate
1993 22.6
1994 20.1
1995 21.2
1996 19.4
1997 18.8
1998 15.0
1999 15.9
2000 13.1
2001 16.3
2002 15.3
2003 17.8
2004 16.7
2005 19.1
2006 15.9
2007 15.5
Difference between average rates
1993-2000 18.3
2001-2007 16.7
1997-2000 15.7
2005-2007 16.8

Greed
01-12-2008, 03:22 PM
Age: 16 years and over
Difference: Black Rate-White Rate
Year Percentage that Black rate is higher than White rate
1993 113.11%
1994 116.98%
1995 112.24%
1996 123.40%
1997 138.10%
1998 128.21%
1999 116.22%
2000 117.14%
2001 104.76%
2002 100.00%
2003 107.69%
2004 116.67%
2005 127.27%
2006 122.50%
2007 102.44%
Percentage that Black rate is higher than White rate
1993-2000 120.11%
2001-2007 111.32%
1997-2000 125.49%
2005-2007 117.60%


Age: 20 years and over
Difference: Black Rate-White Rate
Sex: Men
Year Percentage that Black rate is higher than White rate
1993 112.28%
1994 114.58%
1995 104.65%
1996 129.27%
1997 136.11%
1998 131.25%
1999 123.33%
2000 146.43%
2001 116.22%
2002 102.13%
2003 106.00%
2004 125.00%
2005 142.11%
2006 137.14%
2007 113.51%
Percentage that Black rate is higher than White rate
1993-2000 122.54%
2001-2007 119.10%
1997-2000 134.13%
2005-2007 130.91%


Age: 20 years and over
Difference: Black Rate-White Rate
Sex: Women
Year Percentage that Black rate is higher than White rate
1993 105.77%
1994 113.04%
1995 100.00%
1996 112.20%
1997 137.84%
1998 132.35%
1999 106.06%
2000 100.00%
2001 94.44%
2002 100.00%
2003 109.09%
2004 111.90%
2005 117.95%
2006 108.33%
2007 86.11%
Percentage that Black rate is higher than White rate
1993-2000 112.93%
2001-2007 104.33%
1997-2000 120.00%
2005-2007 104.50%


Age: 16 to 19 years
Difference: Black Rate-White Rate
Year Percentage that Black rate is higher than White rate
1993 139.51%
1994 133.11%
1995 146.21%
1996 136.62%
1997 138.24%
1998 119.05%
1999 132.50%
2000 114.91%
2001 128.35%
2002 105.52%
2003 117.11%
2004 111.33%
2005 134.51%
2006 120.45%
2007 111.51%
Percentage that Black rate is higher than White rate
1993-2000 133.30%
2001-2007 118.14%
1997-2000 126.61%
2005-2007 122.28%

Greed
01-12-2008, 03:27 PM
Feel free to disagree with my logic. The rate for black people is consistently 100+% more than the rate for white. That includes years for onethought's first black president and the years for the president that onethought feels is the devil.

For the record I've always spoke out against the Clintons and the Clinton years as nothing black people should be happy about.

nittie
01-12-2008, 03:44 PM
I agree with your logic onethought can be a pain in the ass. Unemployment, wealth, power are different things. They don't have a lot to do with whose in office or not. They are about money, power, wealth building. Blacks offically became a permanent underclass in 2000 because we don't create jobs for our people. That is not political, it's economical and to a lesser degree behavioral.

thoughtone
01-12-2008, 08:53 PM
I'm going to give you and shitty a chance to reformulate your argument based on these numbers before I respond. If you say the Clinton years are nothing Black folk should be proud of, how should they feel under GW, the so called ownership society?

Greed
01-12-2008, 09:22 PM
I said the numbers were consistent through the two presidents. I characterized the numbers as bad overall. I invited people to disagree with my logic and the way I put together the numbers. What am I saying that's confusing to you?

thoughtone
01-12-2008, 10:44 PM
Don’t play that Bill O'Reilly crap with me. Clinton inherited a disastrous economy from George Bush, which was a continuation of the trickle down, supply side policies of Ronald Reagan. The unemployment rate was going down, from a high of 7.8 in June of 92. The graph illustrates that clearly, if you cannot visualize it from the tables. Averaging misrepresents the facts. On top of that, the buying power of all those that traded with the US dollar had gone up, due to the falling federal deficit. I won’t go in to what the dollar is worth today, or what the deficit is. Let me reiterate, Clinton was not my favorite president. NAFTA, GATT has done damage to this country as a whole. But after 12 years of trickle down, he was better, considering.

African Herbsman
01-16-2008, 04:59 PM
Subprime Nation
Posted: January 14, 2008
9:29 p.m. Eastern

By Patrick J. Buchanan
© 2008


Since it began to give credit ratings to nations in 1917, Moody's has rated the United States triple-A. U.S. Treasury bonds have been seen as the most secure investment on earth. When crises erupt, nervous money seeks out the world's great safe harbor, the United States. That reputation is now in peril.

Last week, Moody's warned that if the United States fails to rein in the soaring cost of Social Security, Medicare and Medicaid, the nation's credit rating will be down-graded within a decade.

Our political parties seem oblivious. Republicans, save Ron Paul, are all promising to expand the U.S. military and maintain all of our worldwide commitments to defend and subsidize scores of nations.

Democrats, with entitlement costs drowning the federal budget in red ink, are proposing a new entitlement – universal health coverage for the near 50 million who do not have it – another magnet for illegal aliens. Moody's is telling America it needs a time of austerity, while the U.S. government is behaving like the governments we used to bail out.

(Column continues below)

California has already hit the wall. With an economy as large as a G-8 nation, the Golden State is looking at a $14 billion deficit in 2009 and a $3 billion shortfall in 2008. Gov. Schwarzenegger has called for slashing prison staff by 6,000, including 2,000 guards, early release of 22,000 inmates, closing four dozen state parks and a 10 percent across-the-board cut in all state agencies. The Democratic legislature is demanding tax hikes, which would drive more taxpayers back over the mountains whence their fathers came.

Meanwhile, Washington drifts mindlessly toward the maelstrom. With the dollar sinking, oil surging to $100 a barrel, the Dow having its worst January in memory, foreclosures mounting, credit card debt going rotten, and consumers and businesses unable or unwilling to borrow, we appear headed into recession.

If so, tax revenue will fall and spending on unemployment will surge. The price of the stimulus packages both parties are preparing will further add to the deficit and further imperil the U.S. credit rating. This all comes in the year that the first of the baby boomers, born in 1946, reach early retirement and eligibility for Social Security.

To stave off recession, the Fed appears anxious to slash interest rates another half-point, if not more. That will further weaken the dollar and raise the costs of the imports to which we have become addicted. While all this is bad news for the Republicans, it is worse news for the republic. As we save nothing, we must borrow both to pay for the imported oil and foreign manufactures upon which we have become dependent.

We are thus in the position of having to borrow from Europe to defend Europe, of having to borrow from China and Japan to defend Chinese and Japanese access to Gulf oil, and of having to borrow from Arab emirs, sultans and monarchs to make Iraq safe for democracy.

We borrow from the nations we defend so that we may continue to defend them. To question this is an unpardonable heresy called "isolationism."

And the chickens of globalism are coming home to roost.

We let Europe to get away with imposing value-added taxes averaging 15 percent on our exports to them, while they rebate that value-added tax on their exports to us. Thus, the euro has almost doubled in value against the dollar in the Bush years, as NATO Europe begins to bail out on Iraq and Afghanistan.

We sat still as Japan protected her markets and dumped high quality goods into ours and China undervalued its currency to suck jobs, technology and factories out of the United States. Now, China and Japan have $2 trillion in cash reserves. The Arabs have an equal amount of petrodollars. Both are headed here to spend their depreciating dollars snapping up U.S. assets – banks, ports, highways, defense contractors.

America, to pay her bills, has begun to sell herself to the world.

Its balance sheet gutted by the subprime mortgage crisis, Citicorp got a $7.5 billion injection from Abu Dhabi and is now fishing for $1 billion from Kuwait and $9 billion from China. Beijing has put $5 billion into Morgan Stanley and bought heavily into Barclays Bank.

Merrill-Lynch, ravaged by subprime mortgage losses, sold part of itself to Singapore for $7.5 billion and is seeking another $3 billion to $4 billion from the Arabs. Swiss-based UBS, taking a near $15 billion write-down in subprime mortgages, has gotten an infusion of $10 billion from Singapore.

Bain Capital is partnering with China's Huawei Technologies in a buyout of 3Com, the U.S. company that provides the technology that protects Pentagon computers from Chinese hackers.

This self-indulgent generation has borrowed itself into unpayable debt. Now the folks from whom we borrowed to buy all that oil and all those cars, electronics and clothes are coming to buy the country we inherited. We are prodigal sons, and the day of reckoning approaches.

http://www.worldnetdaily.com/staticarticles/article59693.html

thoughtone
01-16-2008, 05:32 PM
source: zfacts.com (http://zfacts.com/p/318.html)

http://zfacts.com/metaPage/lib/National-Debt-GDP-L.gif
<!-- start zFacts Debt Gizmo -->
<table id="zDebtBox">
<tr><td><script type="text/javascript" src="http://www.zfacts.com/giz/G05/debt.js"></script></td></tr>
<tr><td><a href="http://zfacts.com/p/461.html" id='zF05' style="color:black;font-size:12px">The Gross National Debt</a></td></tr>
</table>
<!-- end gizmo -->

nittie
01-17-2008, 02:39 PM
I think there's something more ominious going on here for America. The truth is this country has always used the national debt to transfer wealth. Whether it's to contractors or foreign allies the debt never really meant much. Bush II said it was just paper. Matter of fact if you go back to the Reagan years there's a record of each president inheriting a recession. Bush I raised taxes to fight off his recession and it cost him his job. Clinton raised taxes, Bush II gave Elites a tax cut, every president used the excuse to transfer wealth. Now things are different, the global economy is not what business expected, America can't compete with countries who pay 1 dollar a day with no regulations whatsoever. Now we have started to slide and those foreign allies we paid for years are sitting back laughing while we do.

thoughtone
01-17-2008, 03:40 PM
I think there's something more ominious going on here for America. The truth is this country has always used the national debt to transfer wealth. Whether it's to contractors or foreign allies the debt never really meant much. Bush II said it was just paper. Matter of fact if you go back to the Reagan years there's a record of each president inheriting a recession. Bush I raised taxes to fight off his recession and it cost him his job. Clinton raised taxes, Bush II gave Elites a tax cut, every president used the excuse to transfer wealth. Now things are different, the global economy is not what business expected, America can't compete with countries who pay 1 dollar a day with no regulations whatsoever. Now we have started to slide and those foreign allies we paid for years are sitting back laughing while we do.

Your observations are instightful. I have been saying this on this board from day one. Clinton raised taxes and two years later the newly elected republican congress and senate cut spending. This combination lend to stronger job growth which in turn decreased the deficit. The right believes in serfdom. The wealthy throw bones and expect everyone else to be thankful for the charity. They are happy with high unemployment because that drives labor down. They rail against government intervention, yet the Federal Reserve has saved many a conservative investor from financial ruin. They claim they support a world economy where labor flows over national boundaries as easily as capital, yet they are jingoistic hawks when it comes to immigration policies. Reagan actually stated that deficits don’t mean anything. It only means that the dollar’s buying power is lessened. It’s time to ask the corporatists, is the economy here for the people or are people here for the economy. How can a company put their corporate charter on an off shore tax haven, yet have the US military invade countries and use American lives and American tax money, so they can expand their business. When unemployment hit 5%, Bush said the economy was solid. When the Stock Market continued to drop, he said we now need a stimulus program. It is a shame that the economy has to tank before the masses get fed up enough to take action.

nittie
01-17-2008, 04:12 PM
It is a shame that the economy has to tank before the masses get fed up enough to take action.

I hope the economy doesn't have to tank before forward thinking people take action. I have a little money but I side with the working man and my question is 'How do we free ourselves from this'. I think the answer is us forming our own economic plan. Forget what the elites in Washington and Wall Street do. The Constitution give us the right to assemble. We can start our own partnerships, our own business plans, the only thing stopping us is our conditioning. We have got to start thinking outside the box, realize we only have one life to give so it might as well be for our progeny. That's not a radical concept, it's what got our people through 400yrs of slavery.

thoughtone
01-17-2008, 04:43 PM
I hope the economy doesn't have to tank before forward thinking people take action. I have a little money but I side with the working man and my question is 'How do we free ourselves from this'. I think the answer is us forming our own economic plan. Forget what the elites in Washington and Wall Street do. The Constitution give us the right to assemble. We can start our own partnerships, our own business plans, the only thing stopping us is our conditioning. We have got to start thinking outside the box, realize we only have one life to give so it might as well be for our progeny. That's not a radical concept, it's what got our people through 400yrs of slavery.

I'm all for that, but if we think of ourselves as republicans or democrats instead of Black or African Americans then we won't get nowhere near that goal. Jews are always Jews, whites rally around that perceived whiteness. Can we rally around something common?

nittie
01-17-2008, 05:05 PM
I don't know. The problem as I see it is the internet is the only way to start such a movement and that poses all kinds of logistical problems. There's no way to organize it effectively and believe me I've given it plenty of thought. I don't think what we face is a racial struggle, I see it as a class problem but given America's racial and class history a multi-racial, grassroots crusade is out of the question.

Fuckallyall
01-17-2008, 05:44 PM
I'm all for that, but if we think of ourselves as republicans or democrats instead of Black or African Americans then we won't get nowhere near that goal. Jews are always Jews, whites rally around that perceived whiteness. Can we rally around something common?

"Be the change you want to see in the world" - Mohandas Ghandi

thoughtone
01-17-2008, 06:15 PM
"Be the change you want to see in the world" - Mohandas Ghandi

http://www.artandantiqueemporium.com/mirror/big-images/mirror_fretwork_english_looking-glass.png

Fuckallyall
01-17-2008, 06:17 PM
http://www.artandantiqueemporium.com/mirror/big-images/mirror_fretwork_english_looking-glass.png

You should use it. You are the one constantly spouting off falsehoods and mis-characterizing the stances other have.:smh:

thoughtone
01-17-2008, 06:20 PM
You should use it. You are the one constantly spouting off falsehoods and mis-characterizing the stances other have.:smh:

Nobody makes you say the crap you say.

Fuckallyall
01-18-2008, 10:06 AM
Nobody makes you say the crap you say.
Because unlike you, what I say is not crap.:yes:

QueEx
01-18-2008, 12:36 PM
<font size="5"><center>Bush calls for $145 billion stimulus package</font size><font size="4">
President sees tax rebates as priority</font size></center>

MSNBC
Associated Press
January 18, 2008

WASHINGTON - President Bush on Friday called for about $145 billion worth of tax relief and other incentives to stimulate a sagging economy and fend off a possible recession. He said a growth package must include tax incentives for business investment and “direct and rapid” tax relief for individuals.

Bush said that to be effective, an economic stimulus package would need to roughly represent 1 percent of the gross domestic product — the value of all U.S. goods and services and the best measure of the country’s economic standing. White House advisers say that, in current terms, 1 percent would amount to around $145 billion, which is along the lines of what private economists say should be sufficient to help give the economy a short-term boost.

“Letting Americans keep more of their money should increase consumer spending,” he said.

Bush said that Congress should work as soon as possible to send him legislation to “keep our economy growing and creating jobs.”

The president and Congress are scrambling to take action as fears mount that a severe housing slump and painful credit crisis could cause people to close their wallets and businesses to put a lid on hiring, throwing the nation into its first recession since 2001.

“This growth package must be big enough to make a difference in an economy as large and dynamic as ours, which means it should be about 1 percent of GDP,” Bush said. He said the package should be built on “broad-based tax relief” that will directly affect economic growth.

The president and Congress are scrambling to take action as fears mount that a severe housing slump and painful credit crisis could cause people to close their wallets and businesses to put a lid on hiring, throwing the nation into its first recession since 2001.

Federal Reserve Chairman Ben Bernanke entered the stimulus debate Thursday, endorsing the idea of putting money into the hands of those who would spend it quickly and boost the flagging economy.

The scramble to take action came as fears mounted that a severe housing slump and a painful credit crisis could cause people to clamp down on their spending and businesses to put a lid on hiring, throwing the country into its first recession since 2001.

The president did not push for a permanent extension of his 2001 and 2003 tax cuts, many of which are due to expire in 2010, officials said. That would eliminate a potential stumbling block to swift action by Congress, since most Democrats oppose making the tax cuts permanent.

White House counselor Ed Gillespie said Friday on CNN the White House would still like to see the tax cuts made permanent, but the president believes a stimulus plan needs to be put into place within the next few weeks.

Bernanke voiced his support for a stimulus package in an appearance before the House Budget Committee. He stressed that it must be temporary and must be implemented quickly — so that its economic effects could be felt as much as possible within the next 12 months.

“Putting money into the hands of households and firms that would spend it in the near term” is a priority, he said.

Especially important is making sure a plan can put cash into the hands of poor people and the middle class, who are most likely to spend it right away, he said, though he added that research shows affluent people also spend some of their rebates.

Bernanke declined to endorse any particular approach, but he did say he preferred one that would not have a long-term adverse impact on the government’s budget deficit.

Senior aides to House Democrats and Republicans said in addition to included tax rebates for individuals, the emerging measure would contain tax breaks for businesses investing in new equipment, increases in food stamps, and higher unemployment benefits. They spoke on condition of anonymity, since the talks are ongoing and lawmakers have promised not to reveal details.

House Speaker Nancy Pelosi said she wanted legislation enacted within a month and said the government must “spend the money, invest the resources, give the tax relief in a way that again injects demand into the economy, puts it in the hands of those who need it most and into the middle class ... so that we can create jobs.”

For now, Bernanke was hopeful the country could skirt a dangerous downturn.

“We’re not forecasting recession but, rather, at this point, slow growth,” he told lawmakers. Still, the toll of the housing and credit debacles will be felt into early next year, he added.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

http://www.msnbc.msn.com/id/22725498/

Greed
01-20-2008, 09:33 AM
Is the New Supply Side Better Than the Old?
By AUSTAN GOOLSBEE
January 20, 2008

THE presidential campaign has brought back to the fore the vexing question of how much to tax high-income Americans. For the most part, the arguments have run strictly along party lines.

The leading Democratic contenders would allow President Bush’s tax cuts to expire for the very well-off — those earning more than, say, a quarter-million dollars a year — on the grounds of restoring balance and raising money.

All the major Republican candidates have called for extending the Bush tax cuts indefinitely, and several advocate several hundred billion dollars in additional high-income cuts — on the grounds that this would help the economy grow.

The Republicans have not been shy about claiming the old mantle of supply-side economics, proclaiming that tax cuts will pay for themselves by getting people to work harder or to start their own companies.

In some circles, supply-side economics fell into disrepute because it didn’t seem to work. After all, the budget deficit exploded when the government cut taxes in the 1980s and again in the 2000s, and it disappeared when the government raised taxes in the 1990s.

But many critics have missed important research by some very prominent economists that has revived some supply-side ideas, giving them an aura of academic respectability. The leading Republican candidates do not advertise their academic influences, but they appear to have adopted these ideas.

The work of the new supply-siders shies away from the old claims that low taxes will generate an explosion of entrepreneurship or extra hours on the job. Instead, it just looks at the data. When top marginal rates fell, as they did under President Ronald Reagan in 1981 and 1986 or under President Bush in 2001 and 2003, taxpayers whose rates declined the most reported the biggest increases in income in the following years. The supply-side advocates attribute those gains to tax cuts and argue that the Laffer curve — which suggests that some tax cuts can pay for themselves — may live yet.

Some of the most important research was done by Lawrence B. Lindsey, former head of the National Economic Council under President Bush and now the senior economic adviser to the Republican presidential contender Fred D. Thompson. But the origins of the current debate, and the seriousness with which it is taken in academic circles, largely center on the work of the Harvard economist Martin Feldstein.

Professor Feldstein, head of the National Bureau of Economic Research, is perhaps the godfather of modern public-sector economics and is often cited as a potential Nobel laureate. The former chairman of President Reagan’s Council of Economic Advisers, he has always been known for his conservative views. He has brought more comprehensive data to bear and has made the most influential case; if you accept the evidence he offers, progressivity in the tax code appears very damaging. Raising taxes on high-income people seems to make the economy much less efficient and raises little revenue.

As he put it in a 2006 interview published in a magazine of the Federal Reserve Bank of Minneapolis, when you raise top marginal rates, “it shows up as lower taxable income.” He added: “A reduction in taxable income, whether it occurs because I work less or because I take my compensation in this other form, creates the same kind of inefficiency.”

But for all the renewed interest in supply-side ideas, the politicians espousing these views have missed three important points that have come out of the continuing academic debate.

First, the impact of high-income tax cuts depends on how much additional income a person can keep. When President John F. Kennedy cut top marginal rates to 70 percent from 91 percent, take-home pay more than tripled for these taxpayers, to 30 percent from 9 percent. That is a big difference. By contrast, letting the Bush tax cuts expire so top rates rise to 39.6 percent in 2011 from 35 percent, cutting the take-home share to 60.4 percent from 65 percent, hardly seems the stuff of tax revolution.

Second, other research has shown that the new supply-side movement missed a fundamental shift over the last 30 years — the dramatic, disproportionate rise in the compensation of high-income people. The new supply-siders have confused this shift with the impact of tax cuts.

An example illustrates the point: Emmanuel Saez, a professor of economics at the University of California, Berkeley, has compiled data on the incomes of the very rich from 1913 to 2006. Using his data, my calculations show that in the four years after top marginal rates were cut in 1981 and 1986, and in the three years after the rate cut of 2003, average real salaries (subtracting inflation) for the top 1 percent of earners grew 18.8 percent, 22.5 percent and 17.4 percent. But for the bottom 90 percent of earners over those periods, the average salary changes were 2.6 percent, minus 0.3 percent and minus 0.1 percent. A supply-sider might see this as evidence of the growth power of cutting top rates.

But the data also show that incomes at the top have been growing rapidly regardless of what happened to tax rates. In the four years after the increase in top marginal rates in 1993, average salaries grew 18.7 percent among the top 1 percent of earners and less than 0.1 percent for the bottom 90 percent.

Seeing the same pattern when taxes rose as when they fell indicates that tax cuts weren’t responsible. It suggests that cuts for high-income taxpayers likely gave windfalls to those whose incomes were already rising sharply because of broader market forces.

Third, recent research has documented that much of what the new supply-side economics attributed to tax cuts was really just the relabeling of income. Sometimes the increase in personal income was matched by an equal and opposite decrease in corporate income. At other times, increases in personal income turned out to be a result of corporate executives shifting the timing of their year-end compensation from a high-tax year to a low-tax year.

Shifts like these have nothing to do with supply-side economics. The academic debate continues, but thus far, the new Laffer curve has looked more like a fleeting figment of economic imagination.

That is sad, because it would be great if we could cut taxes and raise revenue at one stroke. Alas, the research suggests that we will have to pay for high-income tax cuts the old-fashioned way — by actually cutting spending or just busting the budget.

Austan Goolsbee is a professor of economics at the University of Chicago Graduate School of Business and a research fellow at the American Bar Foundation. He is advising the campaign of Senator Barack Obama of Illinois for the Democratic presidential nomination. E-mail: goolsbee@nytimes.com.

http://www.nytimes.com/2008/01/20/business/20view.html

kmaster26
01-21-2008, 10:46 PM
I said before and I'll say it again. Whoever becomes the next US president will be facing the worst economic situation since the 1930's depression. The era of consumerism is over, and the US can't continue to export its wealth overseas in return for energy. It just doesn't balance.

thoughtone
01-22-2008, 05:05 PM
source: Financial Freedom (http://www.coeinc.org/financialstatistics.htm)

Most Americans (70%) earn less than $50,000 per year. However, taking into consideration dual income families, the average household income is much higher than $50,000. The $50,000 to $100,000 income range consist of 25% of American households while 5% earn more than $100,000 per year. Of the 105 million households in America, only 4 million households (approx. 4%) have accumulated a net worth of $1 million or more even though 30% of all Americans earn more than $50,000 per year.

What is the makeup of the 4 million households that call themselves "millionaires". The average taxable income is $131,000. Of course, income is only taxed when it is realized. Tax deferred investments are a high priority for those who desire to increase their wealth. Surprisingly, 80% of those in the millionaire status are first generation and in 70% of the households, the male contributes 80% of the income. Almost all millionaires are married (95%) and 1/2 of the wives do not work outside of the home. The number one job of wives in millionaire households is a teacher. Half of all millionaires (50%) have lived in the same home for more than 20 years. Less than 25% drive current year model cars and only a small minority ever lease autos. (see Book List - The Millionaire Next Door)

The follow list of statistics makes it clear why so few Americans are millionaires and the great need there is in our country to become better money managers: (see In The News)

70% are living paycheck to paycheck (Source: Wall Street Journal)

Less than 30% use a written monthly budget to manage household finances/

Average American spends $1.22 for every dollar they earn. (Myvesta.org, Inc

95% argue about money related topics on a regular basis

Credit Card Debt results in deaths...(Fox News, 5/13/02)

55% always or sometimes worry about money (Source: Marist Institute poll published in USA Today)

Personal saving rate in America is 3.6%, down from 8.7% in 2000. (8/31/02) (Ned Davis Research, Inc.)

62% of all American H.H. don't save or don't save regularly (Source: data from the Federal Reserve Board's Survey of Consumer Finances dating from 1998. Data released 5/13/02 in an article "New Report Finds One-Quarter Of U.S. Households Are Wealth-Poor".

Household net worth is less than $15,000 (excluding equity in house) (Source: "The Millionaire Next Door," pg. 2)

Typical non-mortgage household debt is $38,000 or more

185 mil. Americans (population of 282 million) have at least one credit card with the average number of cards per person at 6.5. (Source: www.cardweb.com)

84 mil. households (total of 105 million) have at least one credit card with the average number of cards per H.H. at 14.3. (Source: www.cardweb.com)

Average balance per H.H. (with at least one credit card) is $8,562. (Source: www.cardweb.com)

95% finance one or more autos at an average of $375/mo. for 60 months

Household debt as % of disposable income exceeds 100% (Source: Federal Reserve)

Personal debt as a % of net worth is 27.2% (6/30/02) (Ned Davis Research, Inc.)

Mortgage debt as a % of personal income is 87.54%; Consumer Credit as a % of personal income is 19.22%; Total debt as a % of personal income is 106.76%. (9/30/02) (Ned Davis Research, Inc.)

Less than 10% have computed a target goal for retirement

Only 44% of Americans are preparing for retirement

62% will retire with less than $10,000 income per year (Source: U.S. Census Bureau)

75% do not have a legal will or trust

Only 28% of people with insurance (life, auto, home, health or disability) really understood the details of their coverage-according to NAIC. (Source: The Washington Post - 3/13/03)

5 billion credit card solicitations were mailed out in 2001 (average 20 solicitations for every adult and child in the U.S.), up from 3.5 billion in 2000

Average U.S. family took on more than $1,400 in new debt during the first six months since the recession began in 3/01 - according to The Wall Street Journal.

2001 median incomes: all families = $39,900; top 10% = $169,600

2001 net worth: all families = $120,000 (whites); top 10% = $833,600
Source - Federal Reserve Consumer Finances Report


http://www.coeinc.org/images/survey1.gif
The chart above shows the average annual income that is earned by the 104 million American households by income range. For example, 31 million of the total 104 million households in America earn between $25,000 to $50,000.

http://www.coeinc.org/images/survey2.gif
The chart above shows that of the total 104 million households in America, only 4 million households have a net worth of $1 million or greater.

http://www.coeinc.org/images/survey3.gif
The chart above shows that although there are approximately 40 million households in America that earn more than $50,000/yr (40%) of which 11 million earn over $100,000/yr there are only 4 million households with a net worth of $1 million or more. When in reality the typical American household has a net worth of less than $15,000.

thoughtone
01-22-2008, 05:20 PM
I said before and I'll say it again. Whoever becomes the next US president will be facing the worst economic situation since the 1930's depression. The era of consumerism is over, and the US can't continue to export its wealth overseas in return for energy. It just doesn't balance.

The supply siders have made the US economy in to an investor economy. Bush said he wanted to have more tax cuts for capital gains and stock dividends, as well as inheritance tax elimination. These tax reductions do nothing for the overall health of the US economy, other than breed generations of sit on their asses, class consciences, spoiled brats. These are policies realized during the Reagan administration (Voodoo Economics as Bush 1 described them) and carried out to their natural conclusions during this Bush regime. The so called stimulus package will do nothing other than allow typical families to pay off a little dept, while the investor classes will speculate even more with US economy. And then when they fuck the economy up even more, ask the government to bail them out again. It is imperative that the next president take a long term view of fixing the economy. Planning for an economy that will create jobs that will be more than service jobs that attract low skilled illegal workers and make speculators bloat the US dept with their money mismanaging ways!

nittie
01-22-2008, 07:17 PM
Last week Bill Moyer did a show about what's really wrong with the U.S. economy. I watched the show and couldn't help noticing how much of what was said had been discussed here months ago. The thread about 400 Richest Americans reads almost exactly like what experts on the economy said during the show. The rich get rich because they feed on the poor. Warren Buffet gets 400 million from our government every year. Bill Gates is still on every government computer even though it is one of the worst operating systems ever. The real problem though is people don't do anything, we pick a president or senator and basically thats it, the money behind the parties give us our choice of poisons and we drink. Things will not change until we take back the economy, it's like Dr. King said "the problem is not with the bad people and the things they do. The problem is with the good people who sit back and do nothing".

thoughtone
01-24-2008, 11:09 AM
source: http://redwoodage.com/content/view/126415/43/

Bloomberg Rips Federal Stimulus Package
New York Mayor Michael Bloomberg castigated the White House and Congress on Wednesday for what he said was a shortsighted economic stimulus package and years of lousy financial management.

"We can't borrow our way out of this. The jig is up," Bloomberg said in prepared remarks to be delivered Wednesday evening before the U.S. Conference of Mayors, which is honoring his environmental efforts.

The billionaire mayor, who is said to be considering an independent presidential bid yet denies that he is a candidate, said the $150 billion stimulus package being hammered out between Democratic and Republican leaders won't be enough.

"There's just one problem: It's not going to make much of a difference because we've already been running huge deficits," Bloomberg said.

Some of those urging Bloomberg to run for president say his record as a CEO is his biggest selling point in a time of economic turmoil.

Despite his public denials, Bloomberg is conducting an analysis of voter data in all 50 states to better understand his chances as a third-party candidate. Aides have said he would delay a decision until after the major parties produce clear front-runners.

The metropolitan mayor used a farming analogy to heap scorn on the current crop of Washington leaders.

"They spent most of this decade running up bills with reckless abandon and when the economy started heading for the ditch, the special interest giveaways got even bigger. They ate the seed corn without worrying about the next year's harvest. Well, the next year is here, and the seed corn is gone. All we've got is a barn full of IOU's," he said.

Details of the stimulus package are still being negotiated, but the centerpiece of the measure is expected to be a tax rebate similar to the $300-$600 checks sent out in the summer of 2001. The emergency measure would more than double last year's deficit spending of $163 billion, according to new congressional budget estimates.

Bloomberg argued that the government's first goal should be to stop the bleeding in the housing sector. "What good is a rebate going to do for a family who's about to lose their home?" he argued.

source: Free Republic.com (http://www.freerepublic.com/focus/f-news/1957919/posts)

Stimulus plan won't stop a recession
SeaCoast Online ^ | Jan. 22,2008 | Dr. Mark W. Hendrickson

Posted on 01/22/2008 4:28:19 PM PST by SeekAndFind

The dreaded "R" word — recession — is on the tip of many tongues right now.

Far be it from me to trespass on the sacred territory of the official keepers of economic data in Washington — those who officially decree the onset or end of a recession (although not until months after the fact) — but take a look around.

New home construction has declined nearly 25 percent in the last year. Those employed in the construction industry must feel like they are in a recession.

Home sales have plummeted. Lots of real-estate agents are experiencing their own recession.

In southeastern Michigan, the auto industry is doing so poorly that it feels more like a depression. Nationwide, not only are there record home foreclosures, but delinquency rates on auto loans and credit card debt are increasing at a worrisome rate.

Retail sales are down modestly year over year. If this isn't a recession, it sure seems like one.

So, what is a politician to do when confronted by these disquieting economic conditions in January of an election year? Ride to the rescue, of course.

Thus, last Thursday, Federal Reserve Board Chairman Ben Bernanke appeared before a congressional committee to appeal for an "economic stimulus" package. The very next day, President Bush and Treasury Secretary Hank Paulson echoed Bernanke's remarks.

Obviously, this was a tightly coordinated political operation, with Bernanke having been chosen to make the opening gambit. (Yes, the chairman of the Fed is supposed to be apolitical. Climate science is supposed to be apolitical, too, but in Washington, everything is political.)

The stated purpose of an "economic stimulus" package is for Uncle Sam to use fiscal policy (that is, government's taxing and spending powers) to "juice" economic activity in order to mitigate, shorten or prevent a recession. In the present case, President Bush has proposed tax rebates to individuals and tax incentives to businesses to invest, expand, and hire more workers.

Will it work? I doubt it.

I will concede that some businesses will benefit from various tax breaks, although such measures are unlikely to help the businesses that need relief the most, such as the real-estate sector. More importantly, though, these business tax breaks raise issues of fairness.

Just as recent legislative proposals to bail out holders of adjustable rate mortgages is unfair to Americans who opted for fixed-rate mortgages, so giving tax breaks to businesses for upgrading their equipment this year is unfair to their competitors who upgraded last year. On the other hand, the bipartisan willingness to accept such tax incentives is evidence that current legislators understand that taxes cripple the competitiveness and hiring ability of American companies.

This raises an important question: Why don't they permanently reduce such harmful taxes?

The lion's share of the stimulus package will be in the form of rebates to individual taxpayers — up to $800 per person in Bush's proposal. The impact of this policy is likely to be inflationary. After all, if Congress has the U.S. Treasury send out tens of billions of dollars to taxpayers to spend and doesn't reduce its own spending — which it won't — then we will instantly have a huge increase in total spending chasing after an unchanged supply of goods and services.

Presto, inflation!

And if the Treasury disgorges all those billions to taxpayers, where will it get the money to continue federal spending unabated? It will either have to go deeper into debt — debt for which the taxpayer will be liable — or their friends at the Federal Reserve will have to print more money. Wouldn't that be just what the doctor ordered now that prices are already rising?

Other than the details, it's a done deal. Can $800 apiece halt the decline in home prices, get Americans out of debt, revive the domestic auto industry, or recapitalize financial institutions that have suffered multi-billion-dollar losses? I don't think so. Politically, an economic stimulus package may buy a few votes this fall, but economically, it's essentially worthless.

Greed
01-27-2008, 10:29 AM
The Coalition against Fiscal Stimulus

* Andrew Samwick
* Steven Landsburg
* Robert Samuelson
* Russell Roberts
* James Hamilton
* James Cramer
* Arnold Kling
* Donald Boudreaux
* Alan Reynolds
* Bruce Bartlett
* George Will

http://gregmankiw.blogspot.com/2008/01/coalition-against-fiscal-stimulus.html

On the actual blogpage are links to articles written by each person listed.

QueEx
01-29-2008, 01:44 AM
<font size="5"><center>
The Economy Is Fine (Really)</font size></center>


http://s.wsj.net/public/resources/images/ED-AH008_wesbur_20080127174644.jpg

The Wall Street Journal
By BRIAN WESBURY
January 28, 2008; Page A15

It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble.

True, retail sales fell 0.4% in December and fourth-quarter real GDP probably grew at only a 1.5% annual rate. It is also true that in the past six months manufacturing production has been flat, new orders for durable goods have fallen at a 0.8% annual rate, and unemployment blipped up to 5%. Soft data for sure, but nowhere near the end of the world.

It is most likely that this recent weakness is a payback for previous strength. Real GDP surged at a 4.9% annual rate in the third quarter, while retail sales jumped 1.1% in November. A one-month drop in retail sales is not unusual. In each of the past five years, retail sales have reported at least three negative months. These declines are part of the normal volatility of the data, caused by wild swings in oil prices, seasonal adjustments, or weather. Over-reacting is a mistake.

A year ago, most economic data looked much worse than they do today. Industrial production fell 1.1% during the six months ending February 2007, while new orders for durable goods fell 3.9% at an annual rate during the six months ending in November 2006. Real GDP grew just 0.6% in the first quarter of 2007 and retail sales fell in January and again in April. But the economy came back and roared in the middle of the year -- real GDP expanded 4.4% at an annual rate between April and September.

With housing so weak, the recent softness in production and durable goods orders is understandable. But housing is now a small share of GDP (4.5%). And it has fallen so much already that it is highly unlikely to drive the economy into recession all by itself. Exports are 12% of the economy, and are growing at a 13.6% rate. The boom in exports is overwhelming the loss from housing.

Personal income is up 6.1% during the year ending in November, while small-business income accelerated in October and November, during the height of the credit crisis. In fact, after subtracting income taxes, rent, mortgages, car leases and loans, debt service on credit cards and property taxes, incomes rose 3.9% faster than inflation in the year through September. Commercial paper issuance is rising again, as are mortgage applications.

Some large companies outside of finance and home building are reporting lower profits, but the over-reaction to very spotty negative news is astounding. For example, Intel's earnings disappointed, creating a great deal of fear about technology. Lost in the pessimism is the fact that 20 out of 24 S&P 500 technology companies that have reported earnings so far have beaten Wall Street estimates.

Models based on recent monetary and tax policy suggest real GDP will grow at a 3% to 3.5% rate in 2008, while the probability of recession this year is 10%. This was true before recent rate cuts and stimulus packages. Now that the Fed has cut interest rates by 175 basis points, the odds of a huge surge in growth later in 2008 have grown. The biggest threat to the economy is still inflation, not recession.

Yet many believe that a recession has already begun because credit markets have seized up. This pessimistic view argues that losses from the subprime arena are the tip of the iceberg. An economic downturn, combined with a weakened financial system, will result in a perfect storm for the multi-trillion dollar derivatives market. It is feared that cascading problems with inter-connected counterparty risk, swaps and excessive leverage will cause the entire "house of cards," otherwise known as the U.S. financial system, to collapse. At a minimum, they fear credit will contract, causing a major economic slowdown.

For many, this catastrophic outlook brings back memories of the Great Depression, when bank failures begot more bank failures, money was scarce, credit was impossible to obtain, and economic problems spread like wildfire.

This outlook is both perplexing and worrisome. Perplexing, because it is hard to see how a campfire of a problem can spread to burn down the entire forest. What Federal Reserve Chairman Ben Bernanke recently estimated as a $100 billion loss on subprime loans would represent only 0.1% of the $100 trillion in combined assets of all U.S. households and U.S. non-farm, non-financial corporations. Even if losses ballooned to $300 billion, it would represent less than 0.3% of total U.S. assets.

Beneath every dollar of counterparty risk, and every swap, derivative, or leveraged loan, is a real economic asset. The only way credit troubles could spread to take down the entire system is if the economy completely fell apart. And that only happens when government policy goes wildly off track.

In the Great Depression, the Federal Reserve allowed the money supply to collapse by 25%, which caused a dangerous deflation. In turn, this deflation caused massive bank failures. The Smoot-Hawley Tariff Act of 1930, Herbert Hoover's tax hike passed in 1932, and then FDR's alphabet soup of new agencies, regulations and anticapitalist government activity provided the coup de grace. No wonder thousands of banks failed and unemployment ballooned to 20%.

But in the U.S. today, the Federal Reserve is extremely accommodative. Not only is the federal funds rate well below the trend in nominal GDP growth, but real interest rates are low and getting lower. In addition, gold prices have almost quadrupled during the past six years, while the consumer price index rose more than 4% last year.

These monetary conditions are not conducive to a collapse of credit markets and financial institutions. Any financial institution that goes under does so because of its own mistakes, not because money was too tight. Trade protectionism has not become a reality, and while tax hikes have been proposed, Congress has been unable to push one through.

Which brings up an interesting thought: If the U.S. financial system is really as fragile as many people say, why should we go to such lengths to save it? If a $100 billion, or even $300 billion, loss in the subprime loan world can cause the entire system to collapse, maybe we should be working hard to build a better system that is stronger and more reliable.

Pumping massive amounts of liquidity into the economy and pumping up government spending by giving money away through rebates may create more problems than it helps to solve. Kicking the can down the road is not a positive policy.

The irony is almost too much to take. Yesterday everyone was worried about excessive consumer spending, a lack of saving, exploding debt levels, and federal budget deficits. Today, our government is doing just about everything in its power to help consumers borrow more at low rates, while it is running up the budget deficit to get people to spend more. This is the tyranny of the urgent in an election year and it's the development that investors should really worry about. It reads just like the 1970s.

The good news is that the U.S. financial system is not as fragile as many pundits suggest. Nor is the economy showing anything other than normal signs of stress. Assuming a 1.5% annualized growth rate in the fourth quarter, real GDP will have grown by 2.8% in the year ending in December 2007 and 3.2% in the second half during the height of the so-called credit crunch. Initial unemployment claims, a very consistent canary in the coal mine for recessions, are nowhere near a level of concern.

Because all debt rests on a foundation of real economic activity, and the real economy is still resilient, the current red alert about a crashing house of cards looks like another false alarm. Warren Buffett, Wilbur Ross and Bank of America are buying, and there is still $1.1 trillion in corporate cash on the books. The bench of potential buyers on the sidelines is deep and strong. Dow 15,000 looks much more likely than Dow 10,000. Keep the faith and stay invested. It's a wonderful buying opportunity.

Mr. Wesbury is chief economist for First Trust Portfolios, L.P.

http://online.wsj.com/article/SB120147855494820719.html?mod=opinion_main_comment aries

thoughtone
01-29-2008, 08:01 AM
How out of touch are these Wall Street types? After the end of Mondays trading the S&P gained over 100 points, despite the lower housing numbers. I guess the new tact is to try and ignore the realities. They are setting themselves up for as bigger fall. These money changers need to feel the economic pain that most other Americans are feeling.

source: CNN Money.com (http://money.cnn.com/2008/01/28/news/economy/newhomes/index.htm?eref=rss_topstories)

New home sales: Biggest drop ever
Weak December sales caps 2007's record slide, with prices for the month off sharply from a year earlier.

By Chris Isidore, CNNMoney.com senior writer
January 28 2008: 4:40 PM EST

NEW YORK (CNNMoney.com) -- New home sales posted the biggest drop on record in 2007, according to the government's latest look at the battered housing market, as a year that saw a meltdown in the mortgage market and a drop in home values ended with yet more signs of weakness.

December sales came in at an annual rate of 604,000, the Census Bureau report showed, down from 634,000 in November, which was also revised lower.

The reading was well below the consensus forecast of 645,000, according to economists surveyed by Briefing.com.

The weak December sales left full-year new home sales at 774,000, down 26 percent from the 1.05 million sales in 2006. That was the biggest drop since the government started tracking new home sales in 1963, surpassing the 23 percent decline posted in 1980.

No bottom yet Adam York, an economist with Wachovia, said the report confirms fears that the housing market won't bounce back anytime soon.

"We're expecting sales to decline into at least mid-2008," he said. "We think housing still has a long way to go."

The mortgage market woes were a major part of the problem for new home sales in 2007. Homes financed by conventional mortgages fell 27 percent, the biggest drop since the government started tracking financing in 1988.

But the weakness in prices made buyers reluctant to jump into the market, even if the availability of financing was not an issue. The number of new homes bought with cash fell nearly 24 percent, while mortgages guaranteed by federal agencies such as the Federal Housing Administration or the Veterans Administration fell 16 percent.

Existing homes post first annual price drop
There are rising concerns among economists that the problems in housing could drag the overall economy into a recession, if it hasn't done so already.

Rate cuts may not help The Federal Reserve has cited problems in housing as one of the main reasons it has cut rates by 1.75 percentage points since September. Many economists are forecasting further rate cuts at the central bank's meeting on Wednesday.

But more rate cuts might not help housing recover in the next few months.

Mike Larson, a real estate analyst with Weiss Research, expects further home price declines in the coming months due to the rising rate of unemployment.

"We've had the downturn in housing up until recently without any downturn in employment," he said. "Now if you layer on broad economic weakness on top of the glut of homes on the market, that's another reason I don't think the problem will be solved with Fed rate cuts."

Glut of home driving down prices The median price of a new home sold in December was $219,200, down 10.4 percent from $244,700 a year earlier. It was the sharpest year-over-year drop in monthly median home prices since 1970. .

This decline probably doesn't accurately capture the weakness in prices for new homes, as about three out of four builders have reported having to pay buyers' closing costs or offer other incentives such as expensive features for free in order to maintain sales.

Prices have been driven down by the glut of new homes on the market. The report showed a record 195,000 completed new homes available at the end of the period, bringing total inventory - including new homes under construction and not yet started - to 494,000, equal to a nearly 10-month supply.

Builders were finding it typically takes 6.3 months to sell a completed home in the current market, according to the report. That's the longest it's taken them to sell a complete home since March 1993.

The report is the latest sign of trouble in the overall housing market.

Last week, the National Realtors Association reported that 2007 saw the biggest drop in the pace of existing single-family homes in 27 years. It was also the first year on record that existing home prices fell. An earlier Census Bureau report showed housing starts posted their biggest drop in 27 years as well.

Homebuilders suffer The downturn in home sales has hammered the results of the nation's leading homebuilders, and experts see no hopes for a quick recovery.

Last week, Lennar (LEN, Fortune 500), the nation's biggest homebuilder, reported a $1.25 billion fourth-quarter loss, the largest in the company's history.

Earlier this month, KB Home (KBH, Fortune 500), the nation's No. 5 builder by sales, reported a fiscal fourth quarter loss that was nearly 10 times worse than forecasts. CEO Jeff Mezger told investors during an earnings call that "as we enter 2008, we see no indication markets are stabilizing."

Analysts are also forecasting that No. 2 homebuilder Centex (CTX, Fortune 500), No. 3 D.R. Horton (DHI, Fortune 500) and No. 4 Pulte Homes (PHM, Fortune 500) will all report continuing losses until at least their final quarters of this calendar year. Hovnanian Enterprises (HOV, Fortune 500), the sixth-largest homebuilder, is expected to post losses in both fiscal 2008 and 2009.

The company forecast to see the quickest return to profitability is luxury home builder Toll Brothers (TOL, Fortune 500), which is expected to post a narrow gain in the quarter ending in July. It reported its first loss as a public company in its most recent period, which ended in October.

QueEx
02-01-2008, 08:36 PM
<font size="5">
Jobs fall in a harbinger of recession</font size>


http://media.mcclatchydc.com/smedia/2008/02/01/19/976-20080201-Unemployment.large.prod_affiliate.91.jpg

By Kevin G. Hall | McClatchy Newspapers
Posted on Friday, February 1, 2008


WASHINGTON — Breaking a four-year string of growth in hiring, employers shed jobs in January, the clearest sign yet that the U.S. economy is nearing a recession, if not already in it.

The Labor Department reported Friday that the nation's unemployment rate dropped a hair to 4.9 percent in January. But non-farm payroll employment fell by 17,000 jobs, led by declines in construction, manufacturing and even health care, which until recently had been one of the few growth sectors for employment.

The last time employment turned negative was in August 2003, and Friday's poor jobs numbers follow economic growth data earlier this week that showed that the economy grew by a scant 0.6 percent in the last three months of 2007.

Not all of the news in the Labor Department report was bad. Not only did the unemployment rate fall from 5 percent in December to 4.9 percent in January, statisticians revised upward the weak December jobs data, which had shown 18,000 new jobs. December employment actually grew by 82,000 jobs, still subpar growth but far better than the first estimates.

Together, however, these statistics point to a U.S. economy that's stalled or could be shrinking.

"We're not happy with these numbers," Commerce Secretary Carlos Gutierrez said in an interview. Nonetheless, he discounted recession concerns and predicted a rebound in the second half of 2008. "We believe we're going to continue to grow, but our growth will continue to slow."

Coming amid a tough presidential election campaign, the job numbers immediately were fodder for partisan purposes. President Bush toured a Hallmark greeting card plant in Kansas City, Mo., on Friday and said that the numbers underscored the need for the Senate to pass the $150 billion economic stimulus plan that he supports. The measure, which the House of Representatives has passed, includes tax rebates of up to $600 for most Americans and tax relief for employers.

Bush urged the Senate to act quickly next week because "the sooner we can get money into our consumers' hands, the more likely it is that this economy will get back, recover from this period of uncertainty."

But Senate Democrats want to add more direct aid for seniors and the poor and to extend unemployment benefits by 13 weeks. On Friday, they sought to score political points from the job losses.

"Even though unemployment didn't rise last month, we see from the establishment survey that the economy hasn't created new jobs in two months. ... More people are going to have difficulty finding a job," said Sen. Charles Schumer, D-N.Y., during a Joint Economic Committee hearing, which he scheduled for minutes after the new jobs numbers were released.

Schumer summoned Keith Hall, the commissioner of the Bureau of Labor Statistics, to explain Friday's numbers and questioned him like a prosecuting attorney.

Asked whether the jobs data mean a recession, Hall cautioned that "there have been periods in expansion where there has been a pause like this," and he warned against reading too much into a single month's data.

Schumer responded: "It seems clear to me, at least, that's where the data shows we're headed."

Hall later conceded that the last recession, which lasted nine months, began in March 2001 and was accompanied by a jobs contraction that month.

Still, Bush noted Friday that "the fundamentals are strong — we're just in a rough patch."

Friday's weak jobs numbers give credence to Federal Reserve Chairman Ben S. Bernanke's bold moves to knock down the Fed's benchmark lending rate by an unprecedented 1.25 percentage points over an eight-day period in late January. Critics accused him of knuckling under to pressure from Wall Street after steep stock market slides, but the recent growth and employment data show a tepid U.S. economy that needs a spark from lower interest rates.

Most mainstream economists now put the odds of a recession at 50 percent or better. But not all indicators point to a downturn. Business investment is up, non-residential construction is healthy and durable goods orders have increased.

There also was encouraging data Friday from the Institute for Supply Management. Its index of manufacturing activity rose to 50.7 from a December reading of 48.4. Any reading above 50 indicates a stable manufacturing environment.

The Manufacturers Alliance/MAPI, an industry trade group, said Friday that it expected manufacturing of consumer goods to contract. But chief economist Dan Meckstroth said production of capital goods and exports "should cushion the downturn."

Aided by a weakening U.S. dollar, exports for much of the year offset the housing sector's deep slump. But in the fourth quarter of 2007, exports accounted for less than half a percentage point of economic growth.

The BLS report on January employment: http://www.bls.gov/news.release/pdf/empsit.pdf

http://www.mcclatchydc.com/homepage/story/26104.html

thoughtone
02-02-2008, 09:24 AM
I don’t understand why you would post the unemployment statics QueEx. The centrist and right thinkers claim that unemployment is not that bad and doesn’t really matter anyway. I guess like the national debt, as long as the stock market is making inflated money and the top 5% are making out like fat cats, it is a non issue. According to the centrist and right thinkers, those that are unemployed are lazy, unmotivated and deserve to be where they are at. Of course when the market speculators see their paper wealth side, they beg the government for federal bank loan rate cuts and welfare in the form of a stimulus package for the lowly under class and emphasis to them to spend and not save it or pay down their debts. The debts that earlier fueled this masquerade of an economic expansion.

QueEx
02-02-2008, 09:43 AM
You're killing me with your convenient, simplistic, no-thought-required "Analysis-By-Political-Label". Just pigeonhole it.

QueEx

thoughtone
02-02-2008, 09:48 AM
You're killing me with your convenient, simplistic, no-thought-required "Analysis-By-Political-Label". Just pigeonhole it.

QueEx

Did you say you were centrist? Do ask if so called liberal endorsements hurt Obama? By extrapolation, you have labeled yourself.

QueEx
02-02-2008, 09:53 AM
So, you're of the opinion that a mere label is indicative of a person's entire thought process??? Is that what you're telling me ???

QueEx

QueEx
02-03-2008, 01:41 PM
Recession? Not Yet http://www.ibdeditorials.com/IBDArticles.aspx?id=286762134235127

`

nittie
02-03-2008, 02:57 PM
I think the real issue is how does the economic climate effect you personally. Are you making money, are you worried about losing your job, can you pay your bills. Those stats mean different things to different people.

QueEx
02-04-2008, 10:08 AM
<font size="5">Recession? Not Yet</font size>

By INVESTOR'S BUSINESS DAILY
Posted Friday, February 01, 2008 4:20 PM PT

<font size="4">Economy:</font size><font size="3"> Recent poor data, including Friday's drop in
payroll jobs, have prompted a number of economists to
pronounce the U.S. is in a recession. But how can we
really know for sure?</font size>


An old rule of thumb used by Wall Street and business alike is that two straight quarters of declining GDP is how a recession is defined. By that gauge, we're not there yet. Nor were we in 2001, when a recession was declared even though GDP fell for only one quarter.

How can this be? Wall Street doesn't decide when a recession begins. That job is done by a rather obscure think tank called the National Bureau of Economic Research.

Here's how the NBER defines it: "A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales."

http://www.ibdeditorials.com/images/editimg/issues020408.gif

That's a lot to look at. Timing, as they say, is everything.

If the economy isn't slipping into a recession, it makes no sense to "stimulate" anything. Problem is, the NBER isn't exactly prompt in declaring a downturn. By its own admission, it takes six to 18 months after a recession has begun to declare that one has started. Way too long, in other words, to craft a meaningful policy response.

Some shortcuts, however, can be used to tell if we've entered a recession. The best is to look at key monthly data. Friday's jobs report, for example, showed payrolls shrank 17,000 in January, the first drop in 53 months. Though the jobless rate dipped to 4.9% from 5%, the longer-term trend appears to be up. Worse, the aggregate hours index — a very good coincident indicator for the economy — fell sharply.

Based on these nasty developments — along with soaring oil prices, crashing housing markets and gloomy consumers — many are convinced we already are in a recession or soon will be. They include former Treasury Secretary Larry Summers, ex-Fed chief Alan Greenspan and a number of influential Wall Street investment houses. As we've noted before, the Intrade.com futures market puts the likelihood of a recession this year at over 60%.

Case closed? Maybe not.

Congress' Joint Economic Committee, leaning heavily on the work of economists Marcelle Chauvet and Jim Hamilton, recently created an Employment Recession Probability Index that uses changes in jobless claims and the unemployment rate. It has predicted every recession since World War II.

What's it show today? Believe it or not, the likelihood the U.S. was in recession in January was 6% — down from 35.5% in December.

So, yes, we've hit a slow patch. But no, despite the bleatings of a media establishment eager for "change" in Washington, we're not in a recession yet.

http://www.ibdeditorials.com/IBDArticles.aspx?id=286762134235127

MASTERBAKER
03-10-2008, 08:52 AM
So this journalist goes on holiday to Berlin with $100.
<object type="application/x-shockwave-flash" width="450" height="370" wmode="transparent" data="http://www.liveleak.com/player.swf?autostart=false&token=ad4_1205149877"><param name="movie" value="http://www.liveleak.com/player.swf?autostart=false&token=ad4_1205149877"><param name="wmode" value="transparent"><param name="quality" value="high"></object>

MASTERBAKER
03-10-2008, 04:06 PM
<object type="application/x-shockwave-flash" width="450" height="370" wmode="transparent" data="http://www.liveleak.com/player.swf?autostart=false&token=573_1205177533"><param name="movie" value="http://www.liveleak.com/player.swf?autostart=false&token=573_1205177533"><param name="wmode" value="transparent"><param name="quality" value="high"></object>
]AIN'T THAT SOME SH**t!?:angry:

QueEx
03-12-2008, 03:46 AM
<font size="5"><center>Federal Reserve intervenes and market soars</font size></center>

By Kevin G. Hall | McClatchy Newspapers
Posted on Tuesday, March 11, 2008

WASHINGTON — The Federal Reserve announced Tuesday that it will provide up to $200 billion in short-term loans, accepting a wide range of mortgage bonds as collateral in a bid to boost credit markets, keep housing finance alive and avoid a recession.

In a short statement, the Fed noted the increasing "pressures in some of these markets" and announced the new loans and a coordinated loan-financing effort with the central banks of Canada, England, Switzerland and the European Union.

Stocks, which had slumped over the past three sessions, soared throughout the day on news of the Fed's action. The Dow Jones Industrial Average closed up 416.66 points. The S&P 500 was up 47.28 and Nasdaq jumped 86.42 points.

"The Fed's action is creative and laudable and should help alleviate the worst of the liquidity problems currently plaguing the financial system," said Mark Zandi, the chief economist of Moody's Economy.com, a forecaster in West Chester, Pa.

Although the announcement was about credit markets, mortgage bonds are at the heart of today's problems. Mortgage lending has virtually seized up, and the mortgage-finance problems have spread more broadly to credit markets in recent weeks, affecting lending for cars, college loans and corporate finance.

While Wall Street seems pleased with the Fed's action, some think that it might not be enough to fix the fiscal troubles that are roiling the housing and credit markets. Some even have suggested more direct government intervention much like what occurred in the savings and loan crisis of the late 1980s, in which taxpayers eventually took ownership of 35,000 properties worth $10 billion.

In Tuesday's bid to ease market fears, the Fed will begin a series of weekly auctions March 27 in which it provides 28-day loans to banks and securities dealers. It will swap treasury bonds from its vast reserves for a wide range of collateral, including mortgage bonds, also called mortgage-backed securities.

The Fed is trying to lead by example, recognizing that investors are afraid to touch any financial instrument tied to the U.S. housing sector and hoping to show that there's nothing to fear but fear itself.

To that end, the Fed will accept as collateral the very bonds that financial markets are shunning, both agency-backed mortgage bonds — those issued by government-supported entities Freddie Mac and Fannie Mae — and the highest-rated mortgage bonds issued by the private sector.

The Fed hopes to shore up confidence in Fannie and Freddie because publicly traded shares of these mortgage giants have plunged in recent months.

Investors are afraid that sinking home prices will make it difficult to determine the real value of mortgage bonds. That's what happened to private-sector mortgage bonds, the source of much of today's turmoil in financial markets.

Investors have reason to fear. Financial markets hold about $4.43 trillion in outstanding pools of mortgage debt sold as bonds by Fannie and Freddie, and about $700 billion of that is on the balance sheets of commercial banks, said Brian Bethune, an economist with forecaster Global Insight in Lexington, Mass.

The Fed's action amounts to a "full-scale assault" to ensure that investor confidence won't erode further, and it might prompt a rebound, Bethune said.

If the Fed is willing to accept mortgage bonds, the reasoning goes, investors will see that they have less reason to be fearful. The Fed also creates a de facto price on the privately issued mortgage bonds, whose value has been hard to determine of late. That's important because without the market for mortgage bonds working properly, banks are wary of issuing new home loans, consumers suffer and home prices fall further.

Usually, the Fed tackles problems in the economy through monetary policy, lowering interest rates to give incentive for more lending to businesses and consumers. But despite lowering its benchmark federal funds rate from 5.25 percent last September to 3 percent in January — and it's expected to cut rates further next Tuesday — fear continues to grip credit markets, and lending to business and consumers has slowed markedly.

In a conference call, senior Fed staffers explained that they were concerned that financial markets were showing signs of new distress and that lending could seize up if they didn't act.

The move marks the first time that the Fed has accepted mortgage-backed securities as collateral in the short-term loan program, and that offers both risk and reward.

While it's a welcome move, some analysts such as Moody's Zandi think that the government eventually will have to buy problem loans as a bold step to calm markets.

"I suspect (Tuesday's action) won't solve the mounting credit problems in the MBS (mortgage-backed securities) and broader credit markets," Zandi said. "Policymakers will likely have to address those problems more directly in coming weeks and months."

Some lawmakers in Washington are privately weighing the potential creation of an entity like the Resolution Trust Corp., which was formed in 1989 during the savings and loan crisis to purchase assets from insolvent lenders in order to stabilize the real estate market.

Zandi advocates a similar measure now, which would carve out the problem sub-prime loans — given to the borrowers with the weakest credit histories — and remove them from the broader mortgage market.

These sub-prime loans are packaged into bundles of home loans that are sold as mortgage bonds. The process of identifying which loan bundles were affected has been difficult, and has soured investors more generally to any housing-related financial instrument.

http://www.mcclatchydc.com/226/story/30034.html

BadDebt
03-17-2008, 11:44 PM
3-16!!!

thoughtone
03-18-2008, 09:50 AM
source: Yahoo News.com (http://news.yahoo.com/s/ap/20080314/ap_on_bi_ge/fed_credit_crisis)

Fed takes rare path to aid Bear Stearns

By MARTIN CRUTSINGER, AP Economics Writer
Fri Mar 14, 4:54 PM ET

WASHINGTON - The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis.

The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was "doing a good job under tough circumstances."

The Fed announcement came in a brief two-sentence statement that was issued as stocks were plunging on Wall Street over worries that a plan to ease a liquidity crisis at Bear Stearns Cos. might not work. Federal Reserve Chairman Ben Bernanke, delivering a speech later Friday, told a housing group he had had a "busy morning." He did not elaborate on the Fed's action regarding Bear Stearns.

"The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system," the board said in its statement. It said members had voted unanimously to approve the arrangement, announced by JP Morgan Chase and Bear Stearns earlier.

Delivering a speech on the economy in New York, Bush voiced confidence in the Fed's actions to aggressively cut interest rates and the Fed announcement last week that it would supply up to $200 billion in loans to cash-strapped financial institutions.

"It was a strong action by the Fed and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans," Bush said. "Today's actions are fasting moving, but the chairman of the Federal Reserve and the secretary of the treasury are on top of them and will take the appropriate steps to promote stability in our markets."

The plan announced Friday will supply secured funding to Bear Stearns for an initial period of 28 days, seeking to provide short-term relief for Bear Stearns.

Senior Federal Reserve staffers said the arrangement allows JP Morgan Chase to borrow from the Fed's discount window and put up collateral from Bear Stearns to back up the loans. JP Morgan, a bank, has access to the discount window to obtain direct loans from the Fed, but Bear Stearns, an investment house, does not.

While JP Morgan is serving as a conduit for the loans, the Fed and not JP Morgan will bear the risk if the loans are not repaid, officials said.

This type of procedure, Fed officials said, dates back to the Great Depression of the 1930s but has rarely been used since that time.

In his speech, Bush said the administration had a plan to deal with the problems in credit and housing markets and said he opposed a number of measures pending in Congress to go further by allocating billions of dollars to purchase abandoned and foreclosed home and changing the bankruptcy code to allow judges to adjust mortgage terms.

However, Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the problems at Bearn Stearns, one of the country's largest investment banks, highlighed the need for more aggressive efforts.

"Instead of cheerleading and reacting with tepid measures, the administration should act boldly and decisively to prevent the looming foreclosure crisis from having catastrophic consequences for our economy and our markets," Dodd said in a statement.

Treasury Secretary Henry Paulson praised the Fed's leadership and said that the country's financial system would be able to weather the problems.

"As we have been saying for some time, there are challenges in our financial markets and we continue to address them," Paulson said in a statement. "This is another challenge that market participants and regulators are addressing. We are working closely with the Federal Reserve" and the Securities and Exchange Commission.

Paulson said he appreciated the leadership of the Fed "in enhancing the stability and orderliness of our markets."

The action by the Fed board in Washington represented an endorsement of a rescue effort for Bear Stearns that had already been arranged by JPMorgan and the Federal Reserve's New York regional bank.

It was seen as a last-ditch effort to save the investment bank, which on Friday acknowledged its serious financial problems after a week of denials.

After the situation at Bear Stearns worsened late Wednesday, there were a series of conference calls throughout the day on Thursday with officials from the Fed, the New York Fed and the SEC to assess the potential impact on the broader economy, according to a Treasury official, who spoke on condition of anonymity because of the sensitive nature of the discussions.

This official said that Paulson had been keeping Bush updated on the proposed rescue effort.

JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.

The Securities and Exchange Commission issued a statement saying it has been "in close contact" with Treasury, the Federal Reserve and the Federal Reserve Bank of New York during discussions concerning an agreement by J.P. Morgan Chase & Co. to provide a secured loan facility to The Bear Stearns Companies.

"We will continue to work closely together in a way that contributes to orderly and liquid markets," the SEC said.

Last week, the Fed announced an industry-wide rescue package that would provide as much as $200 billion in loans to banks and investment houses and allow them to put up risky home-loan packages as collateral. It was the Fed's latest effort to stem a global credit crisis that began last August with rising loan defaults for subprime mortgages, loans provided to borrowers with weak credit histories.

Why should I bail out those that made bad
decisions? HYPOCRITES!!!

Greed
04-19-2008, 10:22 AM
Krugman's conundrum
The elusive link between trade and wage inequality
Apr 17th 2008
From The Economist print edition

“THIS paper is the manifestation of a guilty conscience.” With those words, Paul Krugman began the recent presentation of his new study of trade and wages at the Brookings Institution. Mr Krugman, a leading trade economist (as well as a New York Times columnist), had concluded in a 1995 Brookings paper* that trade with poor countries played only a small role in America's rising wage inequality, explaining perhaps one-tenth of the widening income gap between skilled and unskilled workers during the 1980s. Together with several studies in the mid-1990s that had similar findings, Mr Krugman's paper convinced economists that trade was a bit-part player in causing inequality. Other factors, particularly technological innovation that favoured those with skills, were much more important.

At some level that was a surprise. In theory, although trade brings gains to the economy as a whole, it can have substantial effects on the distribution of income. When a country with relatively more high-skilled workers (such as America) trades with poorer countries that have relatively more low-skilled workers, America's low skilled will lose out. But when the effect appeared modest, economists heaved a sigh of relief and moved on.

In recent years, however, the issue has returned. Opinion polls suggest that Americans have become increasingly convinced that globalisation harms ordinary workers. As a commentator, Mr Krugman has become more sceptical. “It's no longer safe to assert that trade's impact on the income distribution in wealthy countries is fairly minor,” he wrote on the VoxEU blog last year. “There's a good case that it is big and getting bigger.” He offered two reasons why. First, more of America's trade is with poor countries, such as China. Second, the growing fragmentation of production means more tasks have become tradable, increasing the universe of labour-intensive jobs in which Chinese workers compete with Americans. His new paper set out to substantiate these assertions.

That proved hard. Certainly, America's trade patterns have changed. Poor countries' share of commerce in manufactured goods has doubled. In contrast to the 1980s, the average wage of America's top-ten trading partners has fallen since 1990. All of which, you might think, would increase the impact of trade on wage inequality.

But by how much? If you simply update the approach used in Mr Krugman's 1995 paper to take into account today's trade patterns, you find that the effect on wages has increased. Josh Bivens, of the Economic Policy Institute, a Washington, DC, think-tank, did just that and found that trade widened wage inequality between skilled and unskilled workers by 6.9% in 2006 and 4.8% in 1995. But even with that increase, trade is still far from being the main cause of wage inequality. Lawrence Katz, a Harvard economist who discussed Mr Krugman's paper at Brookings, estimates that, using Mr Bivens's approach, trade with poor countries can account for about 15% of the growth in the wage gap between skilled and unskilled workers since 1979.

Even this is almost certainly an overstatement. Many imports from China have moved up-market from easy-to-produce products, such as footwear, to more sophisticated goods, such as computers and electronics. As a result, to use economists' jargon, the “factor content” of American imports—in effect, the amount of skilled labour they contain—has not shifted downwards. Mr Katz says factor-based models suggest trade with poor countries explains only 5% of rising income inequality.

Mr Krugman argues that the effect is bigger, but that import statistics are too coarse to capture it. Thanks to the fragmentation of production, Chinese workers are doing the low-skill parts of producing computers. Just because computers from China are classified as skill-intensive in America's imports does not prevent them from hurting less-skilled American workers. Mr Krugman may be right but, as he admits, it is hard to prove.

Blame it on the rich

Robert Lawrence, another Harvard economist, has looked at the same evidence and reached rather different conclusions. In a new book, “Blue Collar Blues”, he points out that the contours of American inequality sit ill with the idea that trade with poor countries is to blame. Once you measure income properly, the gap between white- and blue-collar workers has not risen that much since the late 1990s when China's global integration accelerated. The wages of the least skilled have improved relative to those in the middle. Some types of inequality have increased, notably the share of income going to the very richest. But there is little sign that wage inequality has behaved as traditional trade theory might suggest.

Mr Lawrence offers two reasons why. One possibility is that America no longer makes some of the low-skilled, labour-intensive goods that it imports. In those goods there are no domestic workers to lose out to foreign competition. Second, even when America does produce something that is imported from China, it may make it in a different way, with more machinery and only a few high-skilled workers. If imports from China and other poor countries compete with more-skilled American workers, they may displace workers but will not widen wage inequality.

Given the lack of fine-grained statistics, none of these studies settles the debate. It is possible that globalisation is becoming a bigger cause of American wage inequality. But contrary to the tone of the political debate, and the thrust of Mr Krugman's commentary, the evidence is inconclusive. “How can we quantify the actual effect of rising trade on wages?” Mr Krugman asked at the end of his paper. “The answer, given the current state of the data, is that we can't.”

http://www.economist.com/finance/economicsfocus/displaystory.cfm?story_id=11050137

Greed
05-11-2008, 07:38 AM
Seeing Inflation Only in the Prices That Go Up
By DAVID LEONHARDT
Published: May 7, 2008

Next week, the Bureau of Labor Statistics will release its monthly report on inflation, and it sure is going to sound strange. Wall Street is expecting the bureau to announce that the Consumer Price Index rose just three-tenths of a percentage point in April. Over the last year, the index has risen only about 4 percent.

Pumps show gasoline prices in Newbury, N.H., in the 1960s. Federal Reserve officials base interest rates on underlying price trends, instead of being overly influenced by gas or food prices.

I’m guessing that doesn’t square with your sense of reality.

In my household, we just broke the $60 barrier for filling up our gas tank. Nationwide, the price of bananas is up almost 20 percent over the last year, while eggs are up 35 percent. Costco and Sam’s Club recently began rationing rice, to prevent hoarding. All the while, some of the big-ticket items that have been getting more expensive for years — like health care and college — just keep on getting more so.

This contrast between the official government statistics and day-to-day reality has led to a boomlet in skepticism about what the government is up to. Last month, when I did an online Q. and A. with Times readers, I got three separate, thoughtful questions about — of all things — how the inflation rate is calculated. The current cover story in Harper’s, called “Numbers Racket: Why the Economy Is Worse Than We Know,” deals with the same subject. Written by Kevin Phillips, the Nixon aide turned left-leaning commentator, it concludes that the real inflation rate “is as high as 7 or even 10 percent.”

This isn’t just an academic discussion about numbers, either. The Consumer Price Index helps determine the size of Social Security checks and affects annual raises at many companies. If the index is wrong, senior citizens and workers are being cheated, and the economy is indeed much worse than we know.

So what’s going on here?

To answer that question, it helps to go back a few years, to a time when trips to the supermarket didn’t induce sticker shock. In 2003, a pound of hamburger cost all of $2.20. More than two decades earlier, in 1980, it cost $1.86, which means that the nominal price of burger meat rose only 18 percent over a period in which the nominal hourly pay of the typical American worker rose 150 percent.

Similar stories can be told about eggs, bananas, bread and frozen orange juice. Food was getting cheaper relative to everything else, as Neil Harl, an agriculture professor at Iowa State University, explained to me, because of a combination of government subsidies, global trade and the rise of industrial farms.

During the 1980s and 1990s, though, did you ever stop and marvel at what a small share of your paycheck you were spending at the supermarket? I didn’t. I also didn’t really notice that gas cost less in the late 1990s than it had in the 1980s. Yet lately, every time my wife or I pass a new benchmark for filling up our tank — $40, $50 and now $60 — we have a conversation about it.

Price increases are simply more noticeable — more salient, as psychologists would say — than price decreases. Part of this comes from the notion of loss aversion: human beings dislike a loss more than they like a gain of equivalent size. If you have to sell your house for less than you bought it for, you’re really unhappy. You hate that ground chuck now costs $2.83 a pound, but you didn’t notice that oranges are 31 percent cheaper than they were a year ago.

There is also something particular to inflation that aggravates loss aversion. Price increases are obvious. But price declines are often hidden. The cost of an item stays about the same for years, while everything else gets more expensive and nominal incomes rise.

When you dig into the Consumer Price Index, you start to realize just how many things fall into this category. The price of major appliances has been flat over the last year. Furniture is 1 percent less expensive. A decade ago, a basic four-door Toyota Corolla LE cost $16,018, according to the company. The 2009 basic model costs $16,650, and it’s a safer, more powerful, more fuel-efficient car than its predecessor.

To top it all off, most people don’t buy any of these items very often. “People tend to remember things they do frequently,” says Stephen Cecchetti, an economist at Brandeis University who studies inflation. “And what do you buy more frequently than gas and food?”

But combine the less noticeable trends with some true price declines, like a 5 percent drop in women’s clothing over the last year, and an inflation rate of 4 percent starts to seem more reasonable. Inflation really has gotten worse recently — it was only 2 percent a year and a half ago — but it’s not as bad as it feels.

The conspiracy theories about inflation play off these human instincts, but they also depend on two other oddities. The first is the amount of attention given to the so-called core inflation rate. This is a version of inflation that excludes food and energy, which makes it a little like a grade point average that excludes math and French.

The core inflation rate does have a purpose. Its movements help Federal Reserve officials base interest rates on underlying price trends, instead of being overly influenced by food or gas prices, both of which can be volatile. But when Ben S. Bernanke, the Fed chairman, talks publicly about core inflation, he can leave the impression that the government is cooking the books. In fact, all the important economic indicators, including real wages, are based on overall inflation, as are Social Security checks and cost-of-living raises.

The final piece of the puzzle — and the focus of the Harper’s article — is the way that the Bureau of Labor Statistics has changed the price index recently. Back in the mid-1990s, a committee of academic economists concluded that the Consumer Price Index overstated inflation. To take just one example, years would often pass before the index included new products — like cellphones — and therefore it missed the enormous price declines that occurred shortly after those products entered the mainstream.

In response, the bureau tweaked the index. But economists who have studied the changes say they have had only a modest effect on the inflation rate, lowering it by perhaps a half point a year. More to the point, the changes seem to have made the index more accurate than it used to be.

“It’s about as accurate as anybody is going to get it,” Mr. Cecchetti said.

That said, there is one way in which the official numbers were clearly understating inflation. To track housing costs, the Consumer Price Index analyzes rents, not home prices. (Why? Long story.) And rents didn’t go up anywhere near as much as house prices during the real estate boom. So the index missed the huge run-up in home values that made life harder on anyone trying to buy a first home.

Since 2006, of course, home prices have been falling. But rents have kept rising slowly, which means that, as far as the Consumer Price Index is concerned, housing has somehow gotten more expensive during the real estate crash.

So when the new inflation numbers come out next week, they will indeed be misleading. They will be artificially high.

http://www.nytimes.com/2008/05/07/business/07leonhardt.html

Greed
05-22-2008, 07:03 AM
Under current law, rising costs for health care and the aging of the population will cause federal spending on Medicare, Medicaid, and Social Security to rise substantially as a share of the economy....In response to your letter of May 15, 2008, the Congressional Budget Office (CBO) has prepared the attached analysis of the potential economic effects of...using higher income tax rates alone to finance the increases in spending....

With no economic feedbacks taken into account and under an assumption that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double. The tax rate for the lowest tax bracket would have to be increased from 10 percent to 25 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent; and the tax rate of the highest bracket would have to be raised from 35 percent to 88 percent. The top corporate income tax rate would also increase from 35 percent to 88 percent.

Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion.

CBO writes to Congressman Paul Ryan (http://www.cbo.gov/ftpdocs/92xx/doc9216/LongtermBudget_Letter-to-Ryan.pdf)

Greed
05-22-2008, 07:08 AM
You Can't Soak the Rich
By DAVID RANSON
May 20, 2008; Page A23

Kurt Hauser is a San Francisco investment economist who, 15 years ago, published fresh and eye-opening data about the federal tax system. His findings imply that there are draconian constraints on the ability of tax-rate increases to generate fresh revenues. I think his discovery deserves to be called Hauser's Law, because it is as central to the economics of taxation as Boyle's Law is to the physics of gases. Yet economists and policy makers are barely aware of it.

Like science, economics advances as verifiable patterns are recognized and codified. But economics is in a far earlier stage of evolution than physics. Unfortunately, it is often poisoned by political wishful thinking, just as medieval science was poisoned by religious doctrine. Taxation is an important example.

The interactions among the myriad participants in a tax system are as impossible to unravel as are those of the molecules in a gas, and the effects of tax policies are speculative and highly contentious. Will increasing tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?

Mr. Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." What a pity that his discovery has not been more widely disseminated.

http://s.wsj.net/public/resources/images/ED-AH556B_ranso_20080519194014.gif

The chart nearby, updating the evidence to 2007, confirms Hauser's Law. The federal tax "yield" (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an "independence theorem," and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser's Law says it will also lower tax revenue. That's a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich – if they knew about it.

Although Hauser's Law sounds like a restatement of the Laffer Curve (and Mr. Hauser did cite Arthur Laffer in his original article), it has independent validity. Because Mr. Laffer's curve is a theoretical insight, theoreticians find it easy to quibble with. Test cases, where the economy responds to a tax change, always lend themselves to many alternative explanations. Conventional economists, despite immense publicity, have yet to swallow the Laffer Curve. When it is mentioned at all by critics, it is often as an object of scorn.

Because Mr. Hauser's horizontal straight line is a simple fact, it is ultimately far more compelling. It also presents a major opportunity. It seems likely that the tax system could maintain a 19.5% yield with a top bracket even lower than 35%.

What makes Hauser's Law work? For supply-siders there is no mystery. As Mr. Hauser said: "Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation."

Putting it a different way, capital migrates away from regimes in which it is treated harshly, and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax-intolerant.

The economics of taxation will be moribund until economists accept and explain Hauser's Law. For progress to be made, they will have to face up to it, reconcile it with other facts, and incorporate it within the body of accepted knowledge. And if this requires overturning existing doctrine, then so be it.

Presidential candidates, instead of disputing how much more tax to impose on whom, would be better advised to come up with plans for increasing GDP while ridding the tax system of its wearying complexity. That would be a formula for success.

Mr. Ranson is head of research at H.C. Wainwright & Co. Economics Inc.

http://online.wsj.com/article/SB121124460502305693.html

Greed
06-07-2008, 02:54 PM
A Lot More Than a Penny Earned
By STEVEN E. LANDSBURG
June 5, 2008; Page A19

Whatever Happened to Thrift?
By Ronald T. Wilcox
(Yale University Press, 159 pages, $40)

Do Americans save enough? That depends on what the meaning of the word "enough" is. Enough for our own good? Enough for that of our neighbors? Our grandchildren? Our neighbors' grandchildren and our grandchildren's neighbors?

Ronald T. Wilcox, a business professor at the University of Virginia, acknowledges that these are very different questions, but he believes that they all have the same answer. By any standard that Mr. Wilcox can imagine, he is sure that we save too little.

By most standards, he is probably right. Like philanthropy, saving is an act of self-denial that enriches your neighbors (by leaving more goods available for them to consume). But unlike philanthropy, saving is punished by the tax system (via the taxes on interest, dividends, capital gains and inheritance). That's nuts. When you tax saving, you encourage people – wealthy people in particular – to spend more and grab a larger share of the consumption pie. "More consumption by the rich" should not be among the primary objectives of the tax code.

The alternative is to tax consumption. Mr. Wilcox thus believes (as do I and probably most economists) that a consumption tax is better than an income tax, at least in principle. But he withholds his full endorsement for a variety of spurious reasons, mostly born of his false assumption that any consumption tax must be levied at the point of sale. He worries, for example, that a consumption tax is necessarily nonprogressive. But you can easily implement a consumption tax with a Form 1040 that says: "How much did you earn this year? How much did you save? Now pay tax on the difference." And you can make that tax as progressive as you like.

The tax code alone is reason to believe that Americans don't save enough. Mr. Wilcox offers a menu of other reasons, not all of them convincing. He repeats the canard, popularized by Robert Frank of Cornell University, that "keeping up with the Joneses" is a force for excessive consumption. One could argue equally well that it is a force for excessive saving. If I am trying to outshine the neighbors' Mercedes, I might well decide to be extra frugal until I can afford a Rolls Royce.

Mr. Wilcox makes another fundamental error when he points to high foreign savings as a cause of excessive U.S. consumption. When foreigners save, U.S. interest rates drop. This makes it smart for Americans to consume more. "More" is not always the same as "excessive."

Such errors aside, traditional economic theory does suggest that we save too little for the general good. It denies, however, that we save too little for our own good. Regarding the second point, I suspect, along with Mr. Wilcox, that traditional economic theory is wrong. Smart people make stupid investment decisions all the time. They thoughtlessly accept the default asset allocations in their retirement plans; they fail to grasp the miraculous power of compound interest; they hire financial advisers to help them pick individual stocks; they choose taxable savings vehicles instead of IRAs. I know an internationally renowned economist who, for 10 years, unknowingly put all his retirement savings in bonds instead of equities because he had checked the wrong box on a form.

Mr. Wilcox does an excellent job of addressing these problems. He stresses education, and indeed the single best investment you can make in your children's future is to teach them the returns to saving. You can do that by pointing to some of Mr. Wilcox's graphs, or you can just quote the numbers I always quote to my students: Invest $1,000 a month in 3% bonds and in 40 years you'll have almost a million dollars. Invest the same $1,000 a month in a diversified portfolio of stocks earning the historical average of 8% and you'll have more than $3.5 million. Give it 50 years instead of 40 and that $3.5 million grows to $8 million. (All these numbers are corrected for inflation. If inflation runs at 2%, you can expect a 10% return on the stock market. In the end, you'll have the equivalent of eight million of today's dollars; if prices double, you'll have 16 million instead of eight.)

It is worth noting that a 1% management fee on your mutual fund can easily eat up two of those eight million. Yet almost nobody pays attention to these fees. Moral: Stick with low-fee funds. Bigger moral: There are some very simple things that we can all do to become wiser investors.

In "Whatever Happened to Thrift?," Mr. Wilcox draws these morals and others to help individual savers. He also has advice for paternalistic employers who want their workers to save more: Offer a limited number of low-fee mutual funds; offer targeted financial education; above all, reset the defaults on your pension plans to something other than 100% cash, and so that 401(k) plans are opt-out rather than opt-in.

The idea here is to increase employee pension-fund participation, which means that you'll probably have to cut back on matching funds. That's good for your financially naïve employees but bad for the financially savvy ones who would have participated anyway. Mr. Wilcox acknowledges this fact but fails to acknowledge that your financially savvy employees are likely to be smarter and more valuable. (Interestingly, he makes this very observation earlier in the book but seems to forget it by the end.) I'm not sure that it is good company policy to make your most productive workers subsidize the rest.

Mr. Wilcox has an enviably lively prose style and an admirable commitment to brevity. Not everything he says is correct, but much of what he says is both correct and valuable. A conscientious reader could easily secure a comfortable retirement by taking his advice to heart.

Mr. Landsburg is the author of "More Sex Is Safer Sex: The Unconventional Wisdom of Economics."

http://online.wsj.com/article/SB121262362809746881.html

Greed
06-09-2008, 10:51 PM
Why Are Workers Unhappy, With Only 5.0% Unemployed? Almost 5 Million Have “Opted Out” of the Labor Force
Apr 29th, 2008 by jfrankel

Payroll employment peaked in December, and according to numbers released today had declined by 260,000 jobs as of April. (Source: BLS.) Since we have not yet seen a single negative number on GDP growth, this job loss is easily the most tangible statistical evidence we have so far that the much-heralded recession indeed may have started in the first quarter of 2008.

It has been noted that the unemployment rate started out from a low level — averaging 4.6 % in 2007 — so that even after a period of gradual increase, it remains relatively low by historical standards: 5.0% in April. This is still inside the range that has usually been considered by politicians as too low to generate serious discontent (and by central bankers as too low to put downward pressure on wages and prices). But why, then, is there so much popular dissatisfaction with the economy?

One answer is the old “discouraged worker” effect. Workers who stop looking for a job are not counted in the labor force, and so are not counted as unemployed. There is an obvious way to capture this phenomenon. Compare employment to the entire population, rather than only to those who are actively in the work force. The chart does that. (These figures include farm jobs, as in the standard BLS employment ratio.)

http://ksghome.harvard.edu/~jfrankel/blog/images/employment_to_pop_ratio.jpg

The path of the employment/population ratio during the current decade has been remarkable. The steep slide in jobs that began with the 2001 recession continued thereafter, and actually accelerated in late 2002. Finally the freefall leveled out. (The Bush Administration trumpeted the turnabout in terms similar to those it now uses to sell the aftermath of the troop surge in Iraq: the response to an unacceptable casualty rate was to make things worse for a half-year, and thereafter to compare the post-surge rate of casualties to the high-point, rather than to the period that came before.)

Employment did indeed rise between the years 2003 and 2007. But it barely stayed ahead of population growth. It did very little to make up for the decline equal to 2-3% of the population that had taken place during the first two years of the Bush Administration. The labor force participation rate normally rises in a boom, as good labor market conditions lure workers out of homes, schools and retirement. This is certainly what happened during the record expansion of 1992-2000. But it did not happen during the most recent expansion. To the contrary, the labor force participation rate was at a minimum in 2007, even though that year appears to have been the peak of the business cycle. As a result, employment as a share of the population was well below what it had been at the preceding business cycle peak year (2000). The fraction of Americans with jobs shows a decline from 64.7% to 62.6%, which translates into 4.9 million missing jobs ! Little wonder that, as employment once again starts to decline even in absolute terms, workers are unhappy.

Greed
06-15-2008, 06:09 PM
Despite Positive First Quarter, Odds of 2008 Recession Are Still Above 50%
May 29th, 2008 by jfrankel | 3 Comments »

The Commerce Department this morning revised upward its estimate of first quarter growth in real GDP to 0.9% (precisely in line with the expectations of economic forecasters).

As a member of the Business Cycle Dating Committee of the NBER, I am asked frequently if the country is about to enter a recession, or if we have already done so. I cannot speak for the Committee, and I am not a professional forecaster. But I can give my views, for what they are worth.

It is hard to say that we entered a recession in the early part of the year, without a single negative growth quarter, let alone two of them. Even so, three minor qualifications to that 0.9% remain:
1) The number will be revised again, and could move in either direction.
2) A bit of the measured growth consisted of an increased rate of inventory investment, which was almost certainly not desired by firms and is likely to reverse later in the year.
3) As Martin Feldstein has pointed out, the QI growth number is defined as the change for the quarter as a whole relative to QIV of 2007; within QI, the information currently available suggests that GDP fell from January to February to March.

The reason why many suspected a QI turning point in the first place is employment, which is virtually as important an indicator to the NBER BCDC as is GDP. Jobs have been lost each month since January. Total hours worked is my personal favorite, because in addition to employment it captures the length of the workweek, which firms tend to cut before they lay off workers. This indicator too has been falling.

And of course there are the longer run indicators that have been very worrisome for almost a year: depressed household balance sheets, mortgage defaults, high oil prices, low consumer confidence, etc.

The economy is a four-engine airplane flying at stall speed, skimming along the top of the waves without yet going down. Real gross domestic purchases increased only 0.1 percent in the first quarter — almost as flat as you can get. But net exports provided an important source of demand for US products, and are likely to remain a positive engine of growth in the future. The same is true of the fiscal policy engine, as consumers receive and spend their tax cuts in the 2nd and 3rd quarters. On the other wing, the investment engine has been knocked out; inventory investment is likely to fall and residential construction will remain negative for sometime. The big question mark is the consumption engine. Is the long-spending American household taking a hard look at its diminished net worth and taking steps to raise its saving rate above the very low levels of recent years? If so, a recession will ensue.

We are already clearly in a “growth recession.” All in all, I put the odds of an outright recession sometime this year at greater than 50%. That number is meant to add together:
(1) the odds that it will turn out that we have already passed the turning point and
(2) the odds that the sharp recent expansions in monetary and fiscal policy will succeed in postponing the recession, but only until later in the year.
Come the fall, if demand starts to slow, I can’t see either the Fed delivering a second big dose of interest rate cuts (as they were able to in the 2001 recession, when the dollar was strong and inflation under control), nor the government delivering a second big dose of tax cuts (as they could in the 2001 recession, when the budget outlook was strong and debt under control).

http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/29/despite-positive-first-quarter-odds-of-recession-in-2008-still-above-50/

QueEx
06-16-2008, 12:00 PM
<font size="5"><center>Decline in U. S. Dollar
Disrupts Caribbean Economy</font size>
<font size="4">
Workers Sent 43 Billion Dollars in 'remittances',
money earned in the U.S. and sent to family
back home, last year</font size></center>

Black Press USA
by Crystal Cranmore
NNPA Special Correspondent

WASHINGTON(NNPA) - The decline in the U.S. dollar is having a ripple affect on the Caribbean causing islands to suffer a loss in remittances, the money sent home by Caribbean immigrants working in the United States.

“The U.S. dollar dominates everything which causes a rippling effect. In comparison to the US, prices have gone up and the cost of living is high. The money that we receive from family [in the U.S.] helps, but with prices sky rocketing it is quickly used up,” says Trinidadian Joycelyn Wilshire, recently visiting family in New York.

She says that prices have increased up to 120 percent.

In places like Trinidad and Guyana, the standard of living has increased so much that people are encouraged to grow food in their back yards to help each other out.

The current state of the U.S. economy is strenuous to most of its citizens, especially those who work extra hours just to send enough money back to loved ones abroad. Last year, U.S. immigrant workers sent $42 billion dollars abroad, the most from any country, according to the BBC.


Jamaica is Largest Recipient of Remittances in Carribean

Jamaica is the largest recipient of remittances in the English-speaking Caribbean. The BBC reported that up until November 2007, Jamaica received up to $1.8 billion dollars based on money from the U.S., which does not include unofficial money that is sent through family and friends instead of by money order.

Remittances are a very importance source of revenue for families in Jamaica and the depreciation in the dollar can mean depreciation in remittances.

Jamaica is not feeling the impact of the decline in the U.S. economy as much as the rest of the Caribbean according to Andrew Knight, a graduate of the Howard School of Business and a native of Jamaica.

“Since Jamaica gets so much of its cash flow from funds coming from the United States, Jamaica doesn’t feel the impact as hard,” he said. “Nonetheless, the cost of everything is still going up. At the end of the day, if the value of the dollar in the states goes down, so will the value of the remittances.”

According to Kenrick Hunte, a professor of economics at Howard University, it is not safe to determine the impact of a possible recession in the United States on Jamaica at the moment.


Guyana Recives Largets Amount of Remittances, Per Capita

He said, “Even though Jamaica receives the largest amount of remittances from around the world, Guyana is the largest receiver of remittances per capita since it has a much smaller population. But, it cannot be determined if the decline in the dollar is going to have an impact on either of these countries without sufficient data.”

In islands like Trinidad, much of the revenue comes from oil. If the price of oil in the United States drops because of the recession and economic hard times, Trinidad will feel the impact. Wilshire said that the cost of transportation has generally increased, but if the price of oil decreases, the amount of money that it will take to operate various businesses will increase, potentially causing the unemployment rate to climb. A situation that is currently apparent in the U.S.

The Labor Department said that 378,000 people filed for claims, much higher than what was expected. According to CNN, economists had expected to see initial job claims rise by 4,000 to 360,000, but unemployment claims have continued to surge, making it the highest level since Hurricane Katrina.

Unemployment benefit applications increased by 38,000 in the span of one week at the end of March. This level of jobless claims, which will undergo more review, is one indicator that the U.S. is in a slight recession or that the country is experiencing negative economic growth.

In addition to remittances, some islands often rely on tourism for a source of income. A downturn in the US economy will ultimately affect tourism in the Caribbean. With prices going up, less people are focusing on traveling to the islands and concentrating more on necessities.

Cherill Lewis, a native of Guyana, would love to go back home but with a series of bills to pay and increasing prices, she finds it hard to do so. “It’s been years since I went back, but now that I want to go, I can’t because I do not have the extra funds.”

Lewis has been living in New Jersey for 19 years but moved to Brooklyn from Guyana in 1985. Since then, part of her income has always gone back home to help her younger sisters.

Said Lewis, “I suggest that the Caribbean starts depending less on the U.S. for income and maybe that will help to alleviate any possible strains the economy may have.”


http://www.blackpressusa.com/News/Article.asp?SID=12&Title=Diaspora+Digest&NewsID=15735

QueEx
06-28-2008, 08:36 AM
<font size="5"><center>Bust, boom or treading water? </font size><font size="6">
What's up with the economy?</font size></center>

McClatchy Newspapers
By Kevin G. Hall
Friday, June 27, 2008

WASHINGTON — Everywhere you turn, the news on the economy seems dire. Oil prices are through the roof, home prices are through the floor, the stock market's plunging and the entire U.S. economy seems shaky. Here's a look at what's going on, why and when we'll know things are turning around.

Q. What's hurting the U.S. economy now?
A. There are three big drags on our economy: the slumping housing market, the sustained rise in oil prices and an increasingly fragile banking system. Combined, they're socking it to the economy.

Q. When will housing stabilize and rebound?
A. The answer will determine when the economy bounces back. Housing is shaving about 1 percentage point off national economic growth every quarter. Nationally, home prices in April were 15.3 percent lower than in April 2007, according to the S&P/Case-Shiller Index of 20 major metropolitan areas.

It varies by local market, but virtually all are down. Hard-hit Miami was off 26.7 percent. Even Charlotte, N.C., one of the nation's hotter markets, saw a year-over-year drop in home prices.

Home prices shot up excessively from 2002 to 2006 and are correcting. The million-dollar question is whether they'll flatten out or keeping falling in a way that mirrors the steep run-up.

"I think there's some room to go (down) on this market," said Cameron Findlay, chief economist for online mortgage lender LendingTree.com in Irvine, Calif.

Home prices are unlikely to bottom before next March, he said. Until then, "I think foreclosures are going to continue to drive those prices down, and that's driven primarily by the higher inventory of unsold homes."

Q. How will we know when the worst is over?
A. When home sales start to pick up consistently in the hardest-hit markets, such as Florida and California. "House prices have to stop falling, or at least the rate of decline has to slow," said Mark Zandi, chief economist for forecaster Moody's Economy.com.

Q. How do high oil prices affect today's economy?
A. Businesses spend more on oil and products derived from it, including plastics, packaging and transportation. Consumers spend more of their income on gasoline, leaving less for other purchases, from restaurant meals to TVs.

High oil prices boost inflation, the rise of prices across the economy. Businesses have resisted passing along all their rising energy costs to consumers, and oil's rise hasn't yet shown up in "core inflation," the measure that strips out volatile energy and food prices to show deeper trends.

But the longer that oil stays high, the greater the chance of an inflationary spiral in which wages and prices chase each other upward.

Most Americans don't blame falling home prices for high oil prices, but the two are related.

"The weak housing market and banking system undermine the economy and thus the U.S. dollar," Zandi explained. In response to a weakening economy, the Federal Reserve lowered interest rates. That led to a weaker dollar. Since oil is traded in dollars, oil-producing nations demand more dollars for oil to make up for exchange-rate losses.

"As long as they (oil prices) are north of $100 and rising, that's a problem. If they start falling in a consistent way back toward $100, I think you can assume the coast is clear," said Zandi. He thinks that another turning point will be when a prolonged strengthening of the dollar occurs against the euro, Europe's currency.

Q. Are we talking a return to the dismal 1970s?
A. The Fed learned the importance of squashing inflation before it strangles the economy in the 1979-82 period, so a return to '70s-style double-digit inflation is highly improbable. But the U.S. economy could face stagflation — weak growth with stubbornly high inflation — indefinitely.

The Fed's primary tool to combat inflation is to raise interest rates to slow the economy. The economy's weak 1 percent growth rate in the first quarter of this year suggests that a hike in interest rates anytime soon could tip the economy into recession.

Most economists think that the Fed will begin raising rates later this year, but the Fed seems to be betting for now that the current slowdown will keep inflation in check.

Q. Where does the banking crisis fit into all this?
A. Problems in the banking sector began with the meltdown of sub-prime mortgages, given to the weakest borrowers. That led to a buyers' strike against every institution holding tainted sub-prime assets, with investors frowning on everything from shares of bank stocks to mortgage-backed securities sold as bonds. The financial sector is dragging down the broader stock market, much as tech stocks did when the "dot-com" bubble went bust in 2000-2001.

The result is that banks have less money available to lend. Concerns are growing that credit card debt and car loans will go the way of mortgages and see rising delinquencies soon. Banks are socking away greater amounts of capital to offset possible future loan losses, so there's less money available for new loans — for cars, homes or businesses. That further slows the economy and a housing recovery.

Q. Stocks keep skidding. Are we in a bear market?
A. Bear markets are loosely defined as a sustained 20 percent drop from the peak of a bull market. At the close Friday, the Dow Jones Industrial Average was about 19.8 percent off of highs set last October. To some that signals the start of a bear market, although technically stocks would have to fall a bit further and stay down for at least two months.

"All we're doing in the stock market is, for the third time, testing the crisis level. We're down to the same level as on January 1st and (in) March and now we're back here again," said James Paulsen, chief investment strategist for Wells Capital Management, a subsidiary of Wells Fargo Bank. "We are bottoming out."

Q. So is there any good news?
A. Lots of it, according to Paulsen, who's more upbeat than most analysts. He points to a large number of indicators that have been better than expected, including retail sales, consumption, capital spending and foreign trade.

"I think the economy is showing signs of bottoming. It's turned the corner," Paulsen said. "If oil would go back to the $120s, do you realize how good everything would look? If we didn't have this oil spike in the last couple of months, I wonder where we'd be now. I think the negatives are still there, but they're lessening in intensity."

Q. What about those stimulus checks? Are they helping?
A. The one-time tax rebates seem to be providing a boost. Many economists now think that second-quarter growth could be 1.5 percent to 2 percent, in part thanks to the stimulus checks washing through the economy.

But everything boils down to housing, oil and banking. If home prices fall at a slower pace, if oil prices drop, if banks resume lending, the economic outlook brightens. If not, the outlook worsens.

"I don't think the economy is going to hit bottom until the fourth quarter," said David Wyss, chief economist for the rating agency Standard & Poor's in New York. "I think it's a mild recession, but I think it is going to be a longer recession. It's going to drag on."

McClatchy Newspapers 2008

http://www.mcclatchydc.com/227/story/42512.html

Greed
07-05-2008, 08:42 AM
Did GDP Fall Within the 1st Quarter or Not?
Jun 19th, 2008 by jfrankel |

Over the past month, I , citing Feldstein, have said that if one looks at available information on monthly GDP, available from estimates of MacroAdvisers, that output declined within the first quarter of the year, even though as standardly reported GDP was higher in QI overall than it had been in the last quarter of 2007. But, as it turns out, there is some ambiguity to the question.

The estimates do show GDP falling in February, by a hefty 10.1% anualized. But the numbers for January and March are up. To net out the three months, one must split hairs. The positive numbers for January plus March are just slightly greater in absolute value than February’s negative 0.9 (monthly). So the net is up? Not necessarily.

We are trying to figure out the change within the quarter, from beginning to end. Technically, that means from January 1 to March 30. But of course even Macroadvisors doesn’t report daily or weekly estimates. Estimated total real GDP in the month of March was just slightly above total real GDP in the month of December. So again the net is up? The most precise measure of the change between January 1 to March 30 is the change between the December-January average and the March-April average. That is a tiny negative number: GDP fell by an estimated $28 billion within the first quarter (in year-2000 $). And April is so flat as to be essentiallz zero.

I think I am sorry I brought the subject up.

It would in any case be a mistake to make much of these numbers. The reason the Commerce Department’s Bureau of Economic Analysis doesn’t report monthly numbers is that the data are so unreliable, and subject to revision. For anyone who needs some sort of estimate of monthly GDP, as we do on the NBER Business Cycle Dating Committee as an input into our thinking, this is what we have to go on. But one sees here yet another illustration as to why the BCDC waits a long time, until all the data are in, before declaring a recession.

http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/06/19/correction-gdp-is-not-estimated-to-have-fallen-within-1st-quarter/

thoughtone
07-07-2008, 03:41 AM
Are Republicans better for the economy than Democrats?

source: htthttp://www.newsday.com/business/yourmoney/ny-bzstox295744415jun29,0,5589162.storyp://

Dow's worst June since the Depression

COMBINED NEWS REPORTS
June 29, 2008

Stock investors are fortunate that June has only 30 days. Unfortunately, there's still one more day to go.

Wall Street opens for trading tomorrow after a depressing week of losses that pushed the Dow Jones industrial average to its worst June since the Great Depression. The blue-chip index is at its lowest point since September 2006.

Investors are again contending with a relentless stream of troubling news from record oil prices to renewed concerns over the health of the financial sector.

"I think the market is trying to make a bottom, but the question is: Will it hold there or just crash through?" said Alexander Paris, an economist and market analyst for Barrington Research. "It feels just like the top of the technology bubble in 2000 - you know there's something wrong, but it is hard to time it."

The Dow closed Friday at 11,346.51, a loss of 4.2 percent for the week. The Nasdaq composite index finished at 2,315.63, down 3.8 percent. The S&P 500 index ended the week at 1,278.38, a drop of 3.0 percent.

Friday's 107-point decline in the Dow left the index down 10.2 percent in June and on the brink of a bear market. The Dow has plunged 19.9 percent since setting an all-time high in October. Market experts define a bear market as a drop of at least 20 percent from a recent high.

"We are already in a bear market," said Peter Kenny, managing director at Knight Equity Markets. "Even the good ships get stranded on the beach when the tide goes out."

11,914

DOW

11,297

2,419

NASDAQ

2,290

1,335

S&P

1,272

Numbers are week's intraday highs and lows

VectorVega
07-07-2008, 05:27 AM
An orderly decline to keep the masses unawares.

VectorVega
07-18-2008, 07:20 AM
<IFRAME SRC="http://www.hermes-press.com/2008_depression.htm" WIDTH=850 HEIGHT=1500>
<A HREF="http://www.hermes-press.com/2008_depression.htm">link</A>

</IFRAME>

Greed
07-27-2008, 07:24 AM
Commodity Prices, Again: Are Speculators to Blame?
Jul 25th, 2008 by jfrankel |

In the 1955 movie version of East of Eden, the legendary James Dean plays Cal. Like Cain in Genesis, he competes with his brother for the love of his father, a moralizing patriarch. Cal “goes long” in the market for beans, in anticipation of an increase in demand if the United States enters World War I. Sure enough, the price of beans goes sky high, Cal makes a bundle, and offers it to his father to make up money lost in another venture. But the father is morally offended by Cal’s speculation, not wanting to profit from others’ misfortunes, and angrily tells him that he will have to “give the money back.” Cal has been the agent of Adam Smith’s famous invisible hand: By betting on his hunch about the future, he has contributed to upward pressure on the price of beans in the present, thereby increasing the supply so that more is available precisely when needed (by the British Army). The movie even treats us to a scene where Cal watches the beans grow in a farmer’s field, something real-life speculators seldom get to.

Among politicians, pundits, and the public, many currently are trying to blame speculators for the high prices of oil and other mineral and agricultural products. Is it their fault?

Sure, speculators are important in the commodities markets, more so than they used to be. The spot prices of oil and other mineral and agricultural products — especially on a day-to-day basis — are determined in markets where participants typically base their supply and demand in part on their expectations of future increases or decreases in the price. That is speculation. But it need not imply bubbles or destabilizing behavior.

The evidence does not support the claim that speculation has been the source of, or has exacerbated, the price increases. Indeed, expectations of future prices on the part of typical speculators, if anything, lagged behind contemporaneous spot prices in this episode. Speculators have often been “net short” (sellers) on commodities rather than “long” (buyers). In other words they may have delayed or moderated the price increases, rather than initiating or adding to them. One revealing piece of evidence is that commodities that feature no futures markets have experienced as much volatility as those that have them. Clearly speculators are the conspicuous scapegoat every time commodity prices go high. But, historically, efforts to ban speculative futures markets have failed to reduce volatility.

One can distinguish three kinds of speculation in the face of rising prices. First, there is the “bearer of bad tidings” like Cal in East of Eden. The news that, in the future, increased demand will drive prices up is delivered by the speculator. Not only would it be a miscarriage of justice to shoot the messenger, but the speculator is actually performing a social service, by delivering the right price signal that is needed to get real resources better in line with the future balance between supply and demand. Without him, the subsequent price rise would be even greater, because supply would be less. But it does not appear that speculators played this role in the commodity boom that started earlier this decade: as already mentioned they, if anything, lagged behind the spot price.

Second, when the price is topping out, stabilizing speculators can sell short in anticipation of a future decline to a lower equilibrium price. This type of speculator again adds to the efficiency of the market, and dampens natural volatility, rather than adding to it.

Third, in some cases, when an upward trend has been going on for a few years, speculators sometimes jump on the bandwagon. Market participants begin simply to extrapolate past trends. Self-confirming expectations create a speculative bubble, which carries the price well above its equilibrium. Examples of previous peaks in speculative bubble peaks include the dollar in 1985, the Japanese stock and real estate markets in 1990, the yen in 1995, the NASDAQ in 2000, and the housing market in 2005.


It is the third kind of speculation, the destabilizing kind (also called bandwagon behavior), about which people tend to worry. As noted, there is little evidence that it has played a role in this run-up of commodity prices. So far, that is. Just because the boom originated in fundamentals does not rule out that we could still go into a speculative bubble phase. The aforementioned bubbles each followed on trends that had originated in fundamentals (respectively: rising US real interest rates, 1980-84; easy money and rapid growth in Japan, 1987-89; US recession, 1990-91, and Japanese trade surpluses; the ICT boom in the late 1990s; and easy US monetary policy after 2001).

It is not hard to identify in economic fundamentals the origins of this decade’s boom in commodity markets: easy money in the US; rapid growth worldwide, but especially in China and India; instability among oil producers, especially in the Middle East; misguided ethanol subsidies; drought in Australia, etc., etc. Even so, a bubble could take hold yet.

http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/07/25/commodity-prices-again-are-speculators-to-blame/

thoughtone
07-30-2008, 11:02 AM
Capitalism at all costs!

http://www.thomhartmann.com/images/stories/what-now-2.jpg

thoughtone
08-06-2008, 11:05 AM
source: http://www.nytimes.com/2008/08/07/business/07freddie.html?_r=1&ref=business&oref=slogin

Freddie Mac Loses $821 Million and Cuts Dividend

By CHARLES DUHIGG
Published: August 6, 2008

Freddie Mac, the nation’s second-largest mortgage finance giant, reported its fourth consecutive quarterly loss on Wednesday and said it would cut its dividend as it struggled through a housing crisis that had cost Wall Street tens of billions of dollars so far.

The company revealed $2.5 billion in credit losses associated with increased delinquency and foreclosure rates, and said the value of its portfolio of mortgage-backed securities had declined by $1 billion.

Freddie Mac reiterated that it would raise at least $5.5 billion from investors. The company has been under pressure from regulators and federal officials to raise additional money but as the share price has declined, the cost of raising the funds has skyrocketed.

In the second quarter, Freddie Mac lost $821 million, compared with a profit of $729 million in the period a year earlier. Over the past year, the company has lost more than $4.6 billion. The quarter’s loss of $1.63 a share exceeded analysts’ estimates of a loss of 41 cents a share, according to Thomson Reuters.

Those losses pushed the fair value of Freddie Mac’s assets down to negative $5.6 billion from negative $5.2 billion in the first quarter.

Freddie Mac shares were down more than 12 percent Wednesday in early trading.

“While we expect continued housing and economic weakness will affect our overall performance this year, we continue to maintain a surplus over all regulatory capital requirements,” the chief executive and chairman, Richard F. Syron, in a statement. He added that the company would evaluate raising capital beyond the $5.5 billion “as market conditions mandate.”

Freddie Mac also said it would cut its quarterly dividend by 80 percent to 5 cents a share, pending board approval.

In addition to selling stock to raise capital and cutting its dividend, Freddie Mac said the company was reviewing other options, including “slowing purchases into its credit guarantee portfolio.”

Freddie Mac’s share price has declined by more than 80 percent in the last year as the housing economy has turned grim and shareholders became concerned the company would require a government bailout. Freddie Mac and the nation’s other major mortgage finance company, Fannie Mae, purchase mortgages from banks and other lenders, providing those financial institutions with capital to make new loans.

The companies are linchpins of the housing marketplace, but investors became spooked last month when some observers said the firms were at financial risk.

Shares of both companies went into a freefall until the Treasury secretary Henry M. Paulson Jr. proposed an emergency plan that would give the federal government the power to inject billions of dollars into the firms. That plan, which was signed into law last week, has not been activated.

Freddie Mac and Fannie Mae own or guarantee more than $5 trillion in mortgages, or nearly half of all home loans in the United States.

Freddie Mac indicated that some aspects of its financial health was improving. The company said revenue grew by more than 10 percent from last quarter to $1.69 billion, including a 92 percent increase in net interest income to $1.5 billion.

Freddie Mac’s shares closed Tuesday at $8.04, up 6.9 percent.

Greed
08-06-2008, 12:48 PM
Are you for the bailout of Freddie Mac and Fannie Mae?

thoughtone
08-06-2008, 01:06 PM
Are you for the bailout of Freddie Mac and Fannie Mae?

No! Simple enough?

thoughtone
08-19-2008, 01:06 PM
source: Jacksonville Business Journal (http://www.bizjournals.com/jacksonville/stories/2008/08/18/daily8.html)

Tuesday, August 19, 2008 - 9:16 AM EDT
Fannie Mae, Freddie Mac fall on Barron's curtain call
Jacksonville Business Journal

Fannie Mae and Freddie Mac shares reached their lowest levels in almost two decades Monday after a Barron's report said it is increasingly likely the government will have to bail out the mortgage giants.

"It may be curtains soon for the management and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac," wrote Barron's Jonathan Laing, saying the Treasury Department is likely to recapitalize them in the months ahead.

"Such a move would almost certainly wipe out existing holders of the agencies'' common stock," Laing wrote.

He also predicted a bailout would also mean losses for holders of the companies' preferred shares and holders of their combined $19 billion in subordinated debt.

Fannie Mae stock fell as much as 17 percent Monday. Freddie Mac shares fell as much as 14 percent. Both stocks have lost more than 80 percent of their value this year.

Neither company issued public comments Monday on the Barron's report. Both companies have previously said they are able to raise sufficient capital on their own. Treasury Secretary Henry Paulson earlier this month indicated a bailout would not be necessary.

The housing bill passed by Congress in July gave the Treasury authority to pump money into Fannie Mae and Freddie Mac by buying their stock, debt or mortgage-backed securities.

Fannie Mae (NYSE: FRE) and Freddie Mac (NYSE: FNM) reported a combined second quarter loss of $3.1 billion. Both companies also slashed their shareholder dividends this month.

BigUnc
08-19-2008, 06:32 PM
Just came across this interesting article. A little something to put in the mix.

http://www.bloomberg.com/apps/news?pid=20601087&sid=azlFYsJ8OqgQ&refer=home


Large U.S. Banks May Fail Amid Recession, Rogoff Says (Update5)

By Shamim Adam


Aug. 19 (Bloomberg) -- Credit market turmoil has driven the U.S. into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund.

``The worst is yet to come in the U.S.,'' Rogoff, a Harvard University professor of economics, said in an interview in Singapore today. ``The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.''

The U.S. housing slump has triggered about $500 billion in credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest U.S. securities firm. Bonds of regional banks such as National City Corp. and Keycorp are under pressure on expectations of more fallout. Rogoff, 55, said the government should nationalize Fannie Mae and Freddie Mac, the nation's biggest mortgage-finance firms.

Freddie Mac and Fannie Mae ``should have been closed down 10 years ago,'' he said. ``They need to be nationalized, the equity holders should lose all their money. Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds.''

Last month, President George W. Bush signed into law a housing bill that provides Treasury Secretary Henry Paulson the power to make equity purchases in Fannie Mae and Freddie Mac. Paulson asked for the authority July 13 after the shares of the firms, which own or guarantee almost half of the $12 trillion of U.S. mortgages, slid to the lowest level in more than 17 years.

Shares Slump

The mortgage lenders have been battered by record delinquencies and rising losses. Fannie Mae fell 14 cents to $6.01 at 4 p.m. in New York Stock Exchange composite trading, its lowest level since May 1989 amid concern the government- chartered companies will fail to raise the capital they need to offset losses. Freddie Mac declined 5 percent to the lowest since January 1991.

Banks repossessed almost three times as many U.S. homes in July as a year earlier and the number of properties at risk of foreclosure jumped 55 percent, according to RealtyTrac Inc., an Irvine, California-based seller of foreclosure data. U.S. builders broke ground on the fewest houses in 17 years last month, according to a Bloomberg News survey.

Rogoff told a conference in Singapore today that the credit crisis is likely to worsen and a large bank may fail, Reuters reported earlier. He was the IMF's chief economist from August 2001 to September 2003.

``Like any shrinking industries, we are going to see the exit of some major players,'' Rogoff told Bloomberg, declining to name the banks he expects to fail. ``We're really going to see a consolidation even among the major investment banks.''

IndyMac Bancorp

IndyMac Bancorp Inc., once the second-largest U.S. independent mortgage lender, filed for bankruptcy protection Aug. 1, three weeks after it was taken over by the Federal Deposit Insurance Corp. amid a run by depositors that left it strapped for cash. Bear Stearns collapsed in March and sold itself to JPMorgan Chase & Co. for $10 a share.

``The only way to put discipline into the system is to allow some companies to go bust,'' Rogoff said. ``You can't just have an industry where they make giant profits or they get bailed out.''

Federal Reserve Chairman Ben S. Bernanke, seeking to allay renewed concerns over the health of the nation's financial system, said on July 8 that the central bank may extend its emergency-loan program for investment banks into next year.

Regulatory Gap

His comments followed calls by Paulson for regulatory changes that would allow financial firms to fail without threatening market stability.

Paulson has identified a legal gap that leaves unspecified how to deal with failures of companies that don't take deposits, such as investment banks. He proposed tightening supervisors' oversight of lenders and dealers while at the same time discourage companies from depending on a government rescue if their bets go wrong.

``We need to create a resolution process that ensures the financial system can withstand the failure of a large complex financial firm,'' Paulson said in a speech in London on July 2.

In the case of commercial banks, the use of taxpayer funds in an emergency requires the approval of two-thirds majorities of the FDIC and Federal Reserve boards, and of the Treasury secretary in consultation with the president.

U.S. Recession

The world's largest economy is already in a recession, and the housing market will continue to deteriorate, Rogoff said. The U.S. slowdown will last into the second half of next year, he said, predicting a faster recovery in Europe and Asia.

The Federal Reserve, which has left its key interest rate at 2 percent after the most aggressive series of rate reductions in two decades, risks raising inflationary pressures, he said.

``Rates are too low,'' Rogoff said. ``They must realize we're going to get inflation if things stay where they are. They need to raise rates but I don't think they are going to because they're way too nervous.''

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net.
Last Updated: August 19, 2008 16:10 EDT

thoughtone
08-26-2008, 02:20 PM
There seems to be a pattern developing here. Thats supply side economics for you.

source: Newsweek (http://www.newsweek.com/id/155667)

FDIC: bank profits fell by 86 percent in 2Q
FDIC: US banking profits dropped by 86 percent in second quarter; 117 banks on troubled list
By MARCY GORDON AP Business Writer | AP
Aug 26, 2008

(WASHINGTON) U.S. banking industry profits plunged by 86 percent in the second quarter and the number of troubled banks jumped to the highest level in about five years, as slumps in the housing and credit markets continued.

Federal Deposit Insurance Corp. data released Tuesday show federally-insured banks and savings institutions earned $5 billion in the April-June period, down from $36.8 billion a year earlier. The roughly 8,500 banks and thrifts also set aside a record $50.2 billion to cover losses from soured mortgages and other loans in the second quarter.

The FDIC said 117 banks and thrifts were considered to be in trouble in the second quarter, up from 90 in the prior quarter and the biggest tally since mid-2003.

"By any yardstick, it was another rough quarter for bank earnings," FDIC Chairman Sheila Bair said in a statement. However, the results were not surprising "as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle," she added.

Total assets of troubled banks jumped from $26 billion to $78 billion in the second quarter, the FDIC said, with $32 billion of the increase coming from IndyMac Bank, which failed in July — the biggest regulated thrift to fail in the United States.

The $50.2 billion set aside to cover loan losses in the April-June period was four times the $11.4 billion the banking industry salted away a year earlier. Nearly a third of the industry's net operating revenue went into building up reserves against losses in the latest quarter, according to the FDIC.

Except for the fourth quarter of 2007, the earnings reported Tuesday were the lowest for the banking industry since the final quarter of 1991, the agency said.

Concern has been growing over the solvency of some banks amid the housing slump and the steep slide in the mortgage market. The pressures of tighter credit, tumbling home prices and rising foreclosures have been battering banks of all sizes nationwide.

The FDIC has been keeping an especially close eye on banks and thrifts with high levels of exposure to the riskiest borrowers and markets, agency officials say, including subprime mortgages and construction loans in overbuilt areas.

Troubled assets — loans that are 90 or more days past due — continued to rise in the second quarter, jumping by $26.7 billion, or 19.6 percent, over the first quarter. It was the first time since 1993 that the percentage of total loans that were troubled broke 2 percent, at 2.04 percent.

The FDIC doesn't disclose the names of institutions on its internal list of troubled banks. On average, 13 percent of banks that make the list fail.

Nine FDIC-insured banks have failed so far this year, compared with three in all of 2007. More banks are in danger of collapsing this year, agency officials say, and they expect turbulence in the banking industry to continue well into next year.

"More banks will come on the (troubled) list as credit problems worsen," Bair said. "Assets of problem institutions also will continue to rise."

Pasadena, Calif.-based IndyMac was taken over by the FDIC on July 11 with about $32 billion in assets and deposits of $19 billion. It was the second-largest financial institution to close in U.S. history, after Continental Illinois National Bank in 1984.

Its failure is expected to cost the federal deposit insurance fund, currently at $53 billion, between $4 billion and $8 billion.

Last week, the FDIC announced a program under which thousands of troubled home borrowers with loans from IndyMac will be able to switch into 30-year, fixed-rate mortgages with interest rates capped at around 6.5 percent, in what could be an important test case for future bank resolutions.

FDIC officials have said the agency expects to raise insurance premiums paid by banks and thrifts to replenish its reserve fund after the payout to depositors at IndyMac.

thoughtone
08-27-2008, 08:26 AM
source: Associated Press (http://ap.google.com/article/ALeqM5im7vDRMYCHb80J8mbj_wexTdskBAD92Q6F503)

Citi pays $18M for questioned credit card practice

By MADLEN READ – 16 hours ago

NEW YORK (AP) — Citigroup Inc. will pay nearly $18 million in refunds and settlement charges for taking $14 million from customers' credit card accounts, California's attorney general said Tuesday.

Citigroup will make refunds to the 53,000 customers affected, and pay $3.5 million in damages and civil penalties to the state of California, which had been investigating the questionable practices for three years, the attorney general said.

The bank will also pay 10 percent interest to California customers, who accounted for $1.6 million of the money "swept" out of accounts and into a Citi fund between 1992 and 2003.

Citigroup's "account sweeping program" automatically removed positive balances from customers' credit card accounts, Attorney General Edmund G. Brown Jr. said. For instance, if a customer double-paid a bill by mistake or refunded a purchase for credit, that positive balance was then taken from the customer without notification, Brown said.

"The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps," said Brown in a statement. "When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice."

Citigroup, however, said in a statement that it voluntarily stopped the computerized "sweeping" practice in 2003, and that it also voluntarily began refunding customers before the settlement.

"We take issue with the state's characterization of our conduct and the parties' voluntary settlement," Citigroup said in a statement.

"This agreement affirms our actions, and we are continuing to make full refunds to all affected customers," Citigroup said.

Citigroup shares rose 23 cents, or 1.3 percent, to $17.84 Tuesday.

thoughtone
08-28-2008, 09:12 AM
source: Forbes.com (http://www.forbes.com/afxnewslimited/feeds/afx/2008/08/27/afx5361575.html)

FDIC may borrow money from U.S. Treasury - WSJ
08.27.08, 3:06 AM ET

LONDON, Aug 27 (Reuters) - Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.

The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.

The borrowed money would be repaid once the assets of that failed bank are sold.

'I would not rule out the possibility that at some point we may need to tap into [short-term] lines of credit with the Treasury for working capital, not to cover our losses,' Chairman Sheila Bair said in an interview with the paper.

Bair said such a scenario was unlikely in the 'near term.' With a rise in the number of troubled banks, the FDIC's Deposit Insurance Fund used to repay insured deposits at failed banks has been drained.

In a bid to replenish the $45.2 billion fund, Bair had said on Tuesday that the FDIC will consider a plan in October to raise the premium rates banks pay into the fund, a move that will further squeeze the industry.

The agency also plans to charge banks that engage in risky lending practices significantly higher premiums than other U.S. banks, Bair said.

The last time the FDIC had borrowed funds from the Treasury was at nearly the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered.

The fact that the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis, the Journal said.

YoungPacific20
08-31-2008, 08:30 PM
Within the next 2 years the dollar will fall.. making way for the "AMEURO" some sort of "terrorist attack" will happen and the government will blame iran.. and what better justification to go to war with them than a terroist attack.. not only that iran has been trying for years to only sell oil to countries who only have euro as currency.. how convient of the US to make the dollar fall


The world bank has been printing fake dollars for a long time and we will ALWAYS be in debt to the world bank aka jews


but no one pays attention to ne of this.. jus care about wat new wayne songs are out or j's to put on ur feet smh



n i like obama but dont think he aint down with them he aint got a choice

thoughtone
09-04-2008, 02:34 PM
Geed, spin these facts.

source: msn (http://articles.moneycentral.msn.com/Investing/Dispatch/080904markets.aspx)

A stormy September batters stocks

The Dow falls more than 300 points as weekly jobless claims jump a day before the government's August jobs report comes out. Merrill Lynch is having problems unloading some troubled assets. Boeing faces a strike. Wal-Mart's August same-store sales come in higher than expected.

By Charley Blaine and Elizabeth Strott

So far, September is living up to its reputation as a nasty month: Stocks plunged today on worries about shrinking jobs, weakness among financial companies and falling commodity prices.

At 3 p.m. ET, the Dow Jones industrials were down 305 points, or 2.7%, to 11,228. The Standard & Poor's 500 Index was down 34 points, or 2.7% to 1,241, and the Nasdaq Composite Index was off 66 points, or 2.8%, to 2,268.

Crude oil, meanwhile, closed down $1.46 a barrel to $107.89 and is down more than 26% since its peak in mid-July.

The slump is big and broad. Only two of the 30 Dow stocks were higher -- Wal-Mart Stores (WMT, news, msgs) and Coca-Cola (KO, news, msgs). Only 28 S&P 500 stocks were showing gains, along with five stocks in the Nasdaq-100 Index ($NDX.X). Apple (AAPL, news, msgs), down 2.4% to $163, and Research In Motion (RIMM, news, msgs), down 4.4% to $109.69, have subtracted 11 points from the index, which was down 2.3% to 1,791.

The selling has put the major averages back into bear market territory. The Dow and S&P 500 are down 20.4% from their highs on Oct. 9. The Nasdaq is off 20.2% from its all-time high on Oct. 31. The popular definition of a bear market is a decline of 20% or more from a high.

* Get free, real-time stock quotes on MSN Money

The market looks like it is will test its lows reached in July. In fact, the NYSE Composite Index ($NYA.X) was at 8,030 this afternoon, down 239 points, or 2.9%, on the day and nearly 60 points, under its intraday low of 8,089 on July 15.

The S&P 500 is only 34 points above its July low, the Dow 429 points above and the Nasdaq up 108 points.

Here's what's blown up the market:

* A weakening jobs picture. The number of initial jobless claims rose by 15,000 last week to a seasonally adjusted 444,000 rate -- more than economists had predicted. Most economists believe that a jobless claims figure above 400,000 indicates weakness in the economy. The number of Americans collecting benefits rose to 3.44 million in the week ending August 23, the highest level since November 2003. Apprehension is high that Friday's payrolls report from the Labor Department will be especially weak.

* Merrill Lynch. Shares of investment house Merrill Lynch (MER, news, msgs) were down 7.3% to $26.26 this afternoon on reports that negotiations to sell bad debt to Korea Asset Management were foundering. Financial stocks generally pushed lower. The Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund was down 4.2% to $21.13.

* The continuing sell-off in commodity stocks. The sell-off reflects the decline in prices for oil, copper, silver, gold, and grains. Freeport-McMoRan Copper & Gold (FCX, news, msgs) was off 7.9% to $74.04. Fertilizer maker Potash of Saskatchewan (POT, news, msgs) was off 5.5% to $146.89. U.S. Steel (X, news, msgs) has tumbled 5.2% to $112.54.

* Continued stress in housing. Housing starts have been bad, and earnings reports from Hovnanian Enterprises (HOV, news, msgs) and Toll Bros. (TOL, news, msgs), two of the biggest homebuilding companies, suggest that the bottom in the housing market isn’t yet at hand.

* Weak retail sales. While Wal-Mart had a decent report on August sales, the rest of the picture was not so pretty. The Standard & Poor's Retail Index($RLX.X) was down 2.2% to 405 this afternoon.

No relief on the jobs picture
There was other jobs news out this morning as well: Automatic Data Processing's unemployment report showed a decline of 33,000 jobs in August. Economists had predicted ADP to show a loss of 25,000 jobs.

On Friday, economists will get the August jobs report from the government; the estimate is for a loss of 75,000 jobs last month, which would be the eighth month in a row of job losses. The ADP report counts only private-sector jobs, while the Labor Department's includes government payrolls.

In separate economic news, the Institute of Supply Management's service index came in at 50.6 in August, up from 49.5 in July -- and above economists' expectations for a 49.5 reading for August. Readings above 50 indicate expansion in the sector.

Meanwhile, second-quarter nonfarm productivity was revised higher this morning, up to a 4.3% annual rate from a previous reading of 2.2%. Unit labor costs, a gauge of inflation, fell 0.5%, revised lower from a previous gain of 1.3%.

"Higher productivity permits businesses to better absorb increases in wages and benefit costs, and have something left over to help cover higher material costs," Peter Morici, professor of economics at the University of Maryland, wrote in a note today. "Higher productivity should ease Federal Reserve fears about inflation and cause it to keep interest rates steady."
Boeing machinists prepare to strike
Boeing (BA, news, msgs) shares were down 5.3% to $62.60 this afternoon after the aircraft maker's machinists approved a strike. The stock’s drop subtracted 26 points from the Dow.

The International Association of Machinists said that 87% of its members voted to strike, after rejecting a contract offer of an 11% raise over three years and a $2,500 signing bonus. The IAM did, however, delay the strike action by 48 hours in case last-ditch efforts solved the crisis.

"We've got to keep talking to see if the gap can be narrowed," said Doug Kight, Boeing vice president and lead negotiator. "Our job at this time is to listen to the union."

A strike would be the seventh by the IAM in 73 years; the most recent strike was called in 2005 and lasted four weeks. It would cost Boeing $100 million per day in lost revenue, according to CNBC.
Sales jump at Wal-Mart
Recession or no recession, shoppers are still showing up at Wal-Mart.

The retail giant this morning said August sales at stores open at least one year rose 3%, excluding fuel, an increase well above the consensus estimate of a 1.6% gain. Wal-Mart had forecast August sales to rise between 1% and 2%.

Looking forward, the company said that comparable-store sales, excluding fuel, will increase between 2% and 3% in September.

Shares of the Dow component rose 0.7% to $60.23 this afternoon.
The broader retail picture
But while Wal-Mart has had success pitching bargains to consumers anxious about recession, other retailers have struggled. Overall, same-store sales are expected to rise 2% in August, according to an estimate from the International Council of Shopping Centers. That would be lower than the 2.9% growth rate seen in August 2007.

"You'll see a compressed back-to-school shopping season this year, with consumers waiting until they have to spend . . . and waiting for the best prices," retail analyst Patrick McKeever of MKM Partners, told Bloomberg Television.

Nordstrom (JWN, news, msgs) this morning said same-store sales fell 7.9% last month; Limited Brands (LTD, news, msgs) said August sales were down 7%. Both fell more than economists had expected. Nordstrom was off 4% to $32; Limited was off 6.2% to $20.70.

Target (TGT, news, msgs) said sales fell 2.1%, better than the consensus estimate of a 2.6% drop, while Costco Wholesale's (COST, news, msgs) sales jumped 9%, shy of analysts' expectations of a 9.9% increase.

Target was off 2% to $53.94; Costco shed 0.6% to $67.89.
Homebuilders report losses
Meanwhile, the housing sector -- source of the current weakness in the economy -- has a way to go before any real recovery, it seems.

Hovnanian late Wednesday said its fiscal-third-quarter loss was $202.5 million, or $2.67 per share, more than double last year's loss of $80.5 million, or $1.27 per share. Analysts had been expecting a loss of $1.68 per share.

"As we continue to compete against record foreclosures, higher than normal levels of resale listings and poor consumer confidence, the housing market remains challenging," Ara Hovnanian, president and chief executive, said in a press release.

Hovnanian wasn't all gloom and doom, however. "The recently enacted $7,500 federal tax credit for first-time homebuyers should help spur some short-term demand."

That wasn't enough to lift the stock: Shares of the company fell 17.6% to $6.39.

Toll Bros. also had a bleak quarter, losing $29.3 million, or 18 cents per share, better than the 25-cents-per-share loss analysts expected but reversing its year-ago results of $26.5 million, or 16 cents per share.

Shares of Toll Bros. slipped 0.4% to $24.71this afternoon.

thoughtone
09-06-2008, 05:04 PM
source: The Washington Times (http://www.washingtontimes.com/news/2008/sep/05/fannie-mae/)

Fannie Mae, Freddie Mac takeover expected
Alan Zibel ASSOCIATED PRESS
Friday, September 5, 2008

WASHINGTON (AP) _ The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments. While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

Many in Washington and on Wall Street hadn't expected Treasury Secretary Henry Paulson to intervene unless the companies had trouble issuing debt to fund their operations. This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.

Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages — almost half the nation's total.

Representatives of Fannie and Freddie declined to comment on the government assistance plan.

Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."

Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.

Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities. He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange was president of the Federal Reserve Bank of Boston in the early 1990s.

Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie. A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.

But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.

QueEx
09-06-2008, 05:34 PM
Within the next 2 years the dollar will fall.. making way for the "AMEURO" some sort of "terrorist attack" will happen and
Stop dreaming.

QueEx

Greed
09-07-2008, 08:19 PM
The dream for a human capital agenda
By Edward L. Glaeser | September 5, 2008

ONE OF an economist's jobs is to be a sort of public scrooge, complaining loudly and obnoxiously when politicians come up with foolish ways of playing St. Nicholas with taxpayers' dollars. Subsidies for Iowa farmers or Detroit carmakers? Bah humbug. Gas tax holidays? Rent control? Certainly not. Go ahead and raise Bob Cratchit's rent.

But in this hopeful season of presidential change, even economists need to be for something. Some of my colleagues labor to improve healthcare; others fight for tax reform. My dream is that one, or both, candidates will make human capital the centerpiece of their campaign.

More than 70 percent of Americans routinely tell pollsters that the country is headed in the wrong direction. America will not change course just by electing a new president, no matter how much charisma or character that leader might have. America's future will instead depend on the skills of its citizens. In a remarkable new book, my colleagues Claudia Goldin and Lawrence Katz make a compelling case that America's 20th-century achievements owed much to our nation's once-robust investment in education, and that since the 1970s the growth in that investment has slowed dramatically.

Also since the mid-1970s, America has become much more unequal. Not all inequality is bad. I wouldn't mind if the guys who gave us Google earned even more, given their contributions to society. I do, however, care deeply that millions of Americans seem to have reaped, at best, modest benefits from the past 30 years of technological change.

Scrooge-like economists stress that most means of fighting inequality carry large costs. Progressive taxation reduces the incentives for entrepreneurship. Taxes on capital gains reduce investment. Allegedly redistributive regulations, like rent control, restrict the supply of things, like apartments, that should be abundant. Large welfare programs create the prospect of a permanent, government-funded underclass.

By contrast, investing in human capital offers the potential for permanent increases in earnings that encourage work. Education increases the ability to deal with innovation, so that investing in skills today will make Americans better able to weather the storms of future technological changes.

The attractiveness of education, to liberals and conservatives, explains why President Bush and Senator Edward M. Kennedy came together to pass the No Child Left Behind Act in 2001. Despite the law's flaws, it was a legislative high point of the last decade. But it was a small intervention, relative to the size of the education sector, targeted at failing students and schools.

A national human capital agenda requires investing in all children, not just those who might be left behind, and it requires much more than $50 billion a year.

Such spending needs to be justified by more than just a desire to reduce inequality. The case for governmental investment in education reflects the fact all of us become more productive when our neighbors know more. The success of cities like Boston reflects the magic that occurs when knowledgeable people work and live around each other. As the share of adults in a metropolitan area with college degrees increases by 10 percent, the wages of a worker with a fixed education level increases by 8 percent. Area level education also seems to increase the production of innovations and speed economic growth.

American education is not just another arrow in a quiver of policy proposals, but it is the primary weapon, the great claymore, to fight a host of public ills. One can make a plausible case that improving American education would do as much to improve health outcomes as either candidate's health plans. People with more years of schooling are less obese, smoke less, and live longer. Better-educated people are also more likely to vote and to build social capital by investing in civic organizations.

Improving America's human capital requires more than just writing a large check. My next columns will outline the details of a Marshall Plan for American Education. Because education is both important and difficult, it should be at the center of the presidential political debates.

Edward L. Glaeser, a professor of economics at Harvard University, is director of the Rappaport Institute for Greater Boston.

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/05/the_dream_for_a_human_capital_agenda/

nittie
09-07-2008, 11:22 PM
America needs to get back to the basics. Honest days work, honest days pay. There's too many educated experts getting paid enormous salaries despite their poor job performaces. When a funds manager, business executive, pro athlete, or anyone gets paid million dollar wages they should deliver million dollar results.

thoughtone
09-10-2008, 11:29 AM
Here we fucking go again. Investors and speculators need to start taking the hard hits. They are the ones supporting McCain, they are they ones saying the private sector can work best on it's own. Let your 401k drop to nothing, they then will understand why Social Security was created.

source: Wall Street Journal (http://blogs.wsj.com/deals/2008/09/09/should-the-fed-step-in-to-help-lehman-can-it/)

September 9, 2008, 5:38 pm
Should the Fed Bail Out Lehman? Can It?
Posted by Heidi N. Moore

Is it time for the government to help out Lehman Brothers Holdings?

It has been all of two days since the Fannie Mae-Freddie Mac bailout was announced, the Dow Jones Industrial Average fell 280 points and a general sense of doom hangs over the markets.

And yet, Lehman is the center of an anxiety show all of its own. Its shares fell 45% on news that Korea Development Bank wasn’t interested in a deal. Then there are the three fears: coming third-quarter earnings, expected to be horrid; its exposure to risky real estate and mortgages, a market already plagued with uncertainty amid the government intervention at Fannie Mae and Freddie Mac; and the threat that worried counterparties might avoid doing business with Lehman in a replay of what happened to Bear Stearns. Banc of America Securities analyst Michael Hecht tonight said, “from here, we continue to view the situation as very binary, with a worst case scenario including a [Bear Stearns] type of bail-out/outright sale (which likely leaves little value left for common stockholders of about $2 per share after setting aside a ~$20B+ reserve for troubled asset markdowns, plus severance & retention).” The other option would be for Lehman to limp along by raising capital or selling off a portion of Neuberger Berman at fire sale prices.

When it comes to banks and thrifts, the Federal Reserve and Treasury have a wealth of legally approved options, including taking over and liquidating assets or creating a “bridge bank.” When it comes to broker-dealers like Lehman, federal regulators have only a hammer, a plumb line and a wrench. They can force a shotgun marriage, arrange a line of credit or put their authority–often referred to as “moral suasion”–behind an industry-led bailout of Lehman. Deal Journal took a look at their options.

Line of credit: The Fed discount window still is open for Lehman, so unless things really are dire the Fed probably won’t be called upon to further boost the company’s access to funding. Remember, the Fed offered a $30 billion line of credit to Bear Stearns, and this summer the Treasury extended a line of credit to Fannie Mae and Freddie Mac.

Shotgun marriage: This is a tried-and-true method of federal intervention that keeps the pressure off the government. The technique has more of a history among deposit institutions–which are heavily regulated–than investment banks like Lehman. Still, examples abound. One banking lawyer recalled how Riggs Bank, facing a money-laundering investigation, was nudged into a deal with PNC Financial in 2005 after the two banks had blown two other attempts to merge. This April, Fremont General sold its deposits and bank branches to Capital Source weeks after regulators ordered Fremont to raise capital or put itself up for sale.

The problem with this option for Lehman is the paucity of potential partners to whom the Fed or Treasury could make an appeal. Saddling another bank with Lehman’s mortgage-backed securities wouldn’t exactly be the definition of a bailout.

Moral suasion: The Fed is a guardian of the U.S. economy. Moral suasion is the term for the Fed’s ability to intervene so that the company to be saved isn’t embarrassed by an official Fed censure. The best example is the bailout of Long-Term Capital Management, in which the Fed called 13 banks to the table and asked them to work out a solution themselves. Another was the bailout of Chrysler, in which low-cost funding was provided by the government, with the Fed and Treasury sitting on the “stabilization committee” overseeing the process. In the 1970 case of Penn Central, the Fed didn’t impose a bailout but said it would be available to help businesses access the then-constricted market for short-term commercial paper. In New York City’s fiscal crisis in the 1970s, the Fed was the fiscal agent.

Of course, the Fed isn’t a bottomless pit of resources, and it has lavished a considerable chunk of its own balance sheet on asset acquisitions and bailouts this year, to the tune of at least $200 billion. Paul Volcker fretted about the Fed’s funding in May when the Fed still had about $800 billion in Treasury securities on its balance sheet to save the markets. It has considerably less room now. Treasury, as well, has its balance sheet occupied with Fannie Mae and Freddie Mac. Bailing out Lehman is one thing; if that were to then lead to a bailout of the regulators themselves, that would be quite another.

Update: We added Hecht’s observation tonight. In addition, Lehman just announced that it would release its second-quarter earnings and an update on its “key strategic initiatives” tomorrow morning at 7:30 a.m., with a conference call at 8 a.m.

keysersoze
09-15-2008, 01:25 PM
bump.

QueEx
09-16-2008, 11:06 PM
THE ECONOMY


<font size="5"><center>Fed Leaves Key Rate Unchanged
Central Bank Resisted Pleas From Wall Street</font size></center>


http://media3.washingtonpost.com/wp-dyn/content/photo/2008/09/16/PH2008091603509.jpg
Traders in Chicago react to the Fed's announcement
yesterday that it would leave its main interest rate at
2 percent. (By Tim Boyle -- Bloomberg News)

Washington Post
By Neil Irwin
Washington Post Staff Writer
Wednesday, September 17, 2008; Page D01

The Federal Reserve yesterday elected to leave the interest rate it controls unchanged, rebuffing calls to bolster the economy at a time of global turmoil in financial markets.

The central bank's policymaking committee, in a meeting scheduled long before the convulsions that are reshaping Wall Street, decided that it would leave the federal funds rate unchanged at 2 percent. That rate ultimately affects what consumers pay to borrow money through a credit card or pay for an adjustable-rate mortgage, and what businesses must pay to borrow money to expand.

Many on Wall Street were urging the Fed to cut that rate following the bankruptcy of Lehman Brothers, the acquisition of Merrill Lynch, and the turbulence at insurance firm AIG. But Fed leaders were trying to draw a clear line between their efforts to address problems in the financial markets -- such as injecting $70 billion in cash into the banking system yesterday -- and their broad policy to deal with the nation's economic distress. The Fed concluded that it was impossible to know whether, or how much, the volatile times on Wall Street would slow the economy on Main Street.

"They want to see if this is just a temporary blip in the financial turmoil or whether it lasts for a while," said David Wyss, chief economist at Standard & Poor's. "For them to cut rates, it would take some evidence this is hurting the economy, not just the financial markets."

Indeed, the policymaking Federal Open Market Committee didn't seem tremendously concerned about the turbulence in the financial world. "Strains in financial markets have increased significantly," it said in its announcement of the action, which in the view of many analysts was an understatement.

"It does read a little bit like it was written last week," said Michael J. Feroli, a U.S. economist at J.P. Morgan Chase. "It could sound like having a bit of a tin ear to what's going on in the markets."

The central bank also seemed to indicate that risks of higher inflation and weaker-than-expected growth are roughly balanced, indicating that they "are both of significant concern to the Committee" and that it will "act as needed" to promote sustainable growth and low inflation. Many market watchers had expected a clearer signal that the Fed would consider cutting interest rates in the future if the economy gets much worse.

The Fed was meeting under different circumstances than it has for most of the year: Prices for oil and other commodities have fallen sharply in the past three months, and other world economies are slowing, suggesting that upward pressure on energy and other resources may continue to ease. The policymaking committee said in its statement that it "expects inflation to moderate later this year and next year."

One sign of the easing of inflation concerns: For the first time in a year, the committee was unanimous, as members who had previously dissented in favor of being more vigilant about inflation went with the crowd.

But the committee didn't express great confidence in the prediction that inflation will moderate, saying the outlook "remains highly uncertain."

Federal Reserve Chairman Ben S. Bernanke has designed his response to the financial crisis in part by relying on his knowledge of the Great Depression, of which he was a leading scholar. By allowing a cascading series of failures in the financial sector and not cutting interest rates, Bernanke concluded in his academic research, the Fed allowed a "financial accelerator" to take hold in which a weak financial sector and weak economy fed back into each other, creating a vicious cycle.

By cutting interest rates to 2 percent in the spring, from 5.25 percent in 2007, Bernanke was aiming to avert a similar phenomenon. Now, with the crisis deepening, the open question is whether that will be enough.

On one hand, the economy has weakened significantly in the past six months, but roughly along the lines that Bernanke and his Fed colleagues had forecast when slashing the rate.

On the other hand, banks and other financial institutions, walloped by the troubles on Wall Street, have tightened their lending standards and charged higher rates for loans. For example, despite the aggressive Fed rate cuts, mortgage rates are still about where they were a year ago. In that sense, the Fed rate cuts have merely prevented the rates that many consumers pay from rising, not lowered the cost of borrowing money in many cases.

In the past few days, the crisis in the financial system has made it hard for the Fed to maintain the rate near its 2 percent target; the central bank buys and sells government bonds to try to maintain the rate, and it has had to make a series of massive cash injections, including the $70 billion yesterday, to keep cash-hoarding banks from bidding up the rate.

"It purely reflects a lack of confidence," said Diane Swonk, chief economist at Mesirow Financial. "No one's willing to lend at 2 percent right now, so it takes these large interventions to get the rate to that point."

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/16/AR2008091601923.html?hpid=topnews

keysersoze
09-17-2008, 12:32 PM
What's funny is that no one cared about the Fed changing the rate or not. The big news was the AIG story.

Greed
09-20-2008, 07:56 AM
Don't Worry About Inflation
By FREDERIC S. MISHKIN
SEPTEMBER 18, 2008

The Federal Reserve is facing a major challenge because high commodity prices, especially oil, have produced high headline inflation. But the Fed should not overreact.

The Consumer Price Index (CPI) last month rose more than 5% over a year earlier, way above a rate that is consistent with price stability. At the same time, the federal-funds rate is at 2%, so the real interest rate on federal funds -- the interest rate adjusted for inflation -- has turned very negative.

Will this low real interest rate lead to inflation spiraling out of control? Shouldn't the Fed react more to the currently high inflation numbers by tightening policy, a view often advocated on this page, or at least not further lower the fed-funds rate if the economy looks like it might go into a tailspin? The answer is no.

It is certainly true that central banks should be worried about high headline inflation caused by high commodity prices. After all, households daily pay for energy and food items, and they are a big chunk of people's budgets. But central banks cannot control relative prices for food and energy. When a cold snap freezes the Florida orange crop or a tropical storm hits the gasoline refineries along the Gulf Coast, monetary policy cannot reverse the resulting spikes in prices for fresh orange juice or for gasoline at the pump that lead to high inflation in the short run. Particularly volatile items like food and energy, which are included in headline measures of inflation, are inherently noisy and often do not reflect changes in the underlying rate of inflation, the rate at which headline inflation is likely to settle and which monetary policy can affect.

This is why the Fed pays attention to measures of core inflation, which attempt to strip out or smooth volatile changes in particular prices to distinguish the inflation signal from the transitory noise. Relative to changes in headline inflation measures, changes in core measures are much less likely to be reversed, provide a clearer picture of the underlying inflation pressures, and so serve as a better guide to where headline inflation itself is heading. Of course, if a particular shock to noncore prices turns out to be more persistent, then the higher costs are likely to put some upward pressure on core prices.

Central bankers must always be aware of this risk. However, research has shown that over the past 25 years or more, headline inflation in the U.S. declines more strongly toward core inflation than core inflation has moved toward headline inflation. As that record suggests, core measures often are much better than headline indexes at providing a first approximation of the permanent changes to inflation.

The current situation illustrates exactly this point. While headline CPI inflation over the past year was above 5%, core CPI inflation was around 2.5%. With the sharp decline in oil prices from over $140 per barrel to below $100 now, and the decline in other commodity prices, headline inflation should fairly quickly move back towards core inflation.

If the monetary authorities react to headline inflation numbers, they run the risk of making serious policy mistakes. We have seen that headline inflation has risen well above its underlying trend as the price of energy has risen. But with energy prices having fallen, it will soon fall back to or below its underlying trend. A tightening of monetary policy in reaction to the rise in headline inflation would lead to a decline in employment and inflation. Because of the long lags between monetary policy actions and changes in economic activity, that decline would occur sometime down the road, when inflation would more likely be at or below its underlying trend.

The outcome of such a policy would be a more pronounced fall in inflation, with a decline in employment. It would increase volatility in inflation and employment, which is the opposite of what a central bank should be trying to achieve as it seeks to promote price stability and maximum sustainable employment.

Monetary policy should not overreact to headline inflation. It can do little about the first-round effects of a rise in energy prices, which include both its direct impact on the energy component of overall consumer prices, and the pass-through of higher energy costs into prices of non-energy goods and services. But the Fed does have to worry about possible second-round effects associated with changes in the underlying trend rate of inflation. Such second-round effects are likely to be quite limited only as long as the rise in the relative price of energy does not lead to a rise in long-run inflation expectations. Here there is good news as well. Inflation expectations have remained quite well grounded during this recent spike in energy and commodity prices.

Longer run inflation expectations have ticked up a couple of tenths as measured by surveys of professional forecasters and households. Even more telling is that information about inflation expectations from the financial markets have not risen appreciably. One widely watched measure called the break-even inflation rate -- the difference between yields on longer maturity Treasury Inflation Protection Securities (TIPS) and Treasury bonds -- has fallen substantially in the last couple of months. Not all of this decline should be attributed to falling longer-run inflation expectation -- break-even inflation also is affected by inflation uncertainty and liquidity considerations. But it certainly suggests that inflation expectations are more likely to be falling rather than rising.

Of course, the Fed should not be complacent about the current inflation situation. Headline inflation is certainly way too high. There is always a possibility that the currently high numbers could lead to longer-run inflation expectations becoming unhinged, which would weaken the Fed's nominal anchor and produce rising underlying inflation in the future.

The Fed must preserve the nominal anchor at all costs. As I have argued in many of my speeches when I was governor of the Federal Reserve, a strong long-term commitment to providing a nominal anchor is crucial to not only keeping inflation under control, but to reducing volatility of unemployment and output growth. Thus the Fed must remain vigilant and take the appropriate steps to tighten monetary policy, when that is needed to ensure that inflation expectations and underlying inflation remain under control.

But isn't the currently low fed-funds rate -- which is certainly below underlying inflation and implying a negative real policy rate -- very accommodative? Doesn't this mean that underlying inflation is likely to rise?

Again, the answer is no. It is true that real interest rates on federal funds and Treasury bills are very low. But we are in the throes of major financial disruption that has led to a slowing economy and a substantial widening of credit spreads, so the interest rates that businesses and households must pay to finance their purchases are not low at all.

As recent events indicate, we are also far from sure that the worst is over. There is still plenty of downside risk to the economy. The Fed not only has to be vigilant on the inflation front, but needs to be ready, if necessary, to respond aggressively to possible negative developments in the financial markets and the aggregate economy.

At some point in the future, financial markets and the economy will begin to recover, credit spreads will fall and then the current fed-funds rate will be too accommodative. Surely that time is not now.

Mr. Mishkin is a professor of finance and economics at Columbia University's Graduate School of Business, a former member of the Board of Governors of the Federal Reserve System, and the author of "Monetary Policy Strategy" (MIT Press, 2007).

http://online.wsj.com/article/SB122169336538749851.html

Greed
09-30-2008, 06:08 AM
Wall Street Will Drown Alone
Sunday, September 28, 2008
Casey B. Mulligan

There was a time when people believed that the Sun and stars revolved around the Earth. Of course, now we know that the Earth is not the center of the universe, or even the center of our little solar system. In the somewhat more recent past, economists thought that the non-financial sector in a modern economy revolved around financial markets, despite the facts that only 4 percent of the workforce was employed in the financial sector (including insurance and real estate), and even today that sector employs only 6 percent of the total. President Bush and supporters of the recent massive Wall Street bailout plan still believe Wall Street to be the center of the entire economy.

Economic research over the last couple of decades rejects this belief. It has shown that the financial and non-financial sectors experience quite independent changes, especially over the short and medium term. Take for example the promised yield on the best commercial paper. Fluctuations in this yield are critically important to persons in the financial sector (such as money market traders), but have hardly anything to do with activity outside of that sector. Since World War II, the correlation between the inflation-adjusted commercial paper yield and subsequent inflation-adjusted growth of GDP per capita is zero. That is, GDP growth has been high following high yields just as often as it has been low. It is equally hard to detect a correlation between stock returns, long term bond returns, or commodity returns and subsequent GDP growth. Quite simply, history has shown that the non-financial sector can do well when the financial sector does poorly, and vice versa.

In order to find good predictors of non-financial sector performance, and GDP growth generally, we look to the non-financial sector itself. One of those predictors is the profitability of non-financial capital, or the “marginal product of capital” as we economists call it. The marginal product of capital after-tax is a measure of how much profit (revenue net of variable costs and taxes) that each unit of capital is producing during, say, the last year. When the marginal product of capital after-tax is above average, subsequent rates of economic growth (and subsequent marginal products of capital) also tend to be above average.

Since World War II, the marginal product of capital after-tax averaged between 7 and 8 percent per year. During 2007 and the first half of 2008 – exactly the time when financial markets had been spooked by oil price spikes and housing price crashes – the marginal product had been over 10 percent per year: far above the historical average. Compare this to the marginal product of capital in 1930-33 (the years of Depression-era bank panics): 0.5 percentage points per year less than the postwar years and significantly less than in 1929. The marginal product of capital was also below average prior to the 1982 recession (in this case, far below average) and prior to the 2001 recession. Thus, the surprise was not that GDP continued to grow 2007-8 despite the bleak outlook from Wall Street’s corner of the world, but that GDP growth failed to be significantly above the average. More important from today’s perspective is that much capital in America continues to be productive, and that this will likely permit Americans to advance their living standards as they have in years past. The non-financial sector today looks nothing like it did in 1930.

The weak correlation between asset prices and non-financial sector performance and the strong profitability of today’s non-financial capital are two good reasons to scoff at the idea that the non-financial sector will collapse because of the recent events on Wall Street, and even better reasons to scoff at the Bernanke-Paulson-Bush idea that a massive bailout of financial firms is the key to avoiding a non-financial collapse. Wall Street’s woes are and will be largely limited to Wall Street. The Bush administration should not use the power of the IRS to force the rest of us to board Wall Street’s sinking ship.

Of course, six percent of the workforce is bigger than zero, so a Wall Street mess has indirect effects on the non-financial sector as it absorbs former Wall Street employees and finds alternatives to the financial services Wall Street once provided. But, as long as the government does not get in the way, the marketplace will quickly react to provide the non-financial sector with financial services, even if the main players in that marketplace are no longer named Lehman, Merrill, or Goldman. There are two basic obstacles that Washington might create in this process, both of which are included in the Bernanke-Paulson-Bush proposal. One is to pile on regulation and further impede entry by new firms that might provide financial services to the non-financial sector in the years ahead. The second is to impose a heavy tax burden on the non-financial sector to pay for Wall Street subsidies. The Treasury and the Fed should let Wall Street drown alone, to be replaced by new financial service providers who can swim as robustly as are non-financial American businesses.

http://caseymulligan.blogspot.com/2008/09/wall-street-will-drown-alone.html

QueEx
10-05-2008, 03:35 PM
<font size="5"><center>
The Fall of America, Inc.</font size><font size="4">

Along with some of Wall Street's most storied firms,
a certain vision of capitalism has collapsed.
How we restore faith in our brand.</font size></center>



http://ndn.newsweek.com/media/62/capitalism-fukuyama-IN01-vl-vertical.jpg
Illustration: Steve Brodner for Newsweek


NEWSWEEK
By Francis Fukuyama
Published Oct 4, 2008
From the magazine issue dated Oct 13, 2008


The implosion of America's most storied investment banks. The vanishing of more than a trillion dollars in stock-market wealth in a day. A $700 billion tab for U.S. taxpayers. The scale of the Wall Street crackup could scarcely be more gargantuan. Yet even as Americans ask why they're having to pay such mind-bending sums to prevent the economy from imploding, few are discussing a more intangible, yet potentially much greater cost to the United States—the damage that the financial meltdown is doing to America's "brand."

Ideas are one of our most important exports, and two fundamentally American ideas have dominated global thinking since the early 1980s, when Ronald Reagan was elected president. The first was a certain vision of capitalism—one that argued low taxes, light regulation and a pared-back government would be the engine for economic growth. Reaganism reversed a century-long trend toward ever-larger government. Deregulation became the order of the day not just in the United States but around the world.

The second big idea was America as a promoter of liberal democracy around the world, which was seen as the best path to a more prosperous and open international order. America's power and influence rested not just on our tanks and dollars, but on the fact that most people found the American form of self-government attractive and wanted to reshape their societies along the same lines—what political scientist Joseph Nye has labeled our "soft power."

It's hard to fathom just how badly these signature features of the American brand have been discredited. Between 2002 and 2007, while the world was enjoying an unprecedented period of growth, it was easy to ignore those European socialists and Latin American populists who denounced the U.S. economic model as "cowboy capitalism." But now the engine of that growth, the American economy, has gone off the rails and threatens to drag the rest of the world down with it. Worse, the culprit is the American model itself: under the mantra of less government, Washington failed to adequately regulate the financial sector and allowed it to do tremendous harm to the rest of the society.

Democracy was tarnished even earlier. Once Saddam was proved not to have WMD, the Bush administration sought to justify the Iraq War by linking it to a broader "freedom agenda"; suddenly the promotion of democracy was a chief weapon in the war against terrorism. To many people around the world, America's rhetoric about democracy sounds a lot like an excuse for furthering U.S. hegemony.

The choice we face now goes well beyond the bailout, or the presidential campaign. The American brand is being sorely tested at a time when other models—whether China's or Russia's—are looking more and more attractive. Restoring our good name and reviving the appeal of our brand is in many ways as great a challenge as stabilizing the financial sector. Barack Obama and John McCain would each bring different strengths to the task. But for either it will be an uphill, years-long struggle. And we cannot even begin until we clearly understand what went wrong—which aspects of the American model are sound, which were poorly implemented, and which need to be discarded altogether.

Many commentators have noted that the Wall Street meltdown marks the end of the Reagan era. In this they are doubtless right, even if McCain manages to get elected president in November. Big ideas are born in the context of a particular historical era. Few survive when the context changes dramatically, which is why politics tends to shift from left to right and back again in generation-long cycles.

Reaganism (or, in its British form, Thatcherism) was right for its time. Since Franklin Roosevelt's New Deal in the 1930s, governments all over the world had only grown bigger and bigger. By the 1970s large welfare states and economies choked by red tape were proving highly dysfunctional. Back then, telephones were expensive and hard to get, air travel was a luxury of the rich, and most people put their savings in bank accounts paying low, regulated rates of interest. Programs like Aid to Families With Dependent Children created disincentives for poor families to work and stay married, and families broke down. The Reagan-Thatcher revolution made it easier to hire and fire workers, causing a huge amount of pain as traditional industries shrank or shut down. But it also laid the groundwork for nearly three decades of growth and the emergence of new sectors like information technology and biotech.

Internationally, the Reagan revolution translated into the "Washington Consensus," under which Washington—and institutions under its influence, like the International Monetary Fund and the World Bank—pushed developing countries to open up their economies. While the Washington Consensus is routinely trashed by populists like Venezuela's Hugo Chávez, it successfully eased the pain of the Latin American debt crisis of the early 1980s, when hyperinflation plagued countries such as Argentina and Brazil. Similar market-friendly policies are what turned China and India into the economic powerhouses they are today.

And if anyone needed more proof, they could look at the world's most extreme examples of big government—the centrally planned economies of the former Soviet Union and other communist states. By the 1970s they were falling behind their capitalist rivals in virtually all respects. Their implosion after the fall of the Berlin Wall confirmed that such welfare states on steroids were an historical dead end.

Like all transformative movements, the Reagan revolution lost its way because for many followers it became an unimpeachable ideology, not a pragmatic response to the excesses of the welfare state. Two concepts were sacrosanct: first, that tax cuts would be self-financing, and second, that financial markets could be self-regulating.

Prior to the 1980s, conservatives were fiscally conservative— that is, they were unwilling to spend more than they took in in taxes. But Reaganomics introduced the idea that virtually any tax cut would so stimulate growth that the government would end up taking in more revenue in the end (the so-called Laffer curve). In fact, the traditional view was correct: if you cut taxes without cutting spending, you end up with a damaging deficit. Thus the Reagan tax cuts of the 1980s produced a big deficit; the Clinton tax increases of the 1990s produced a surplus; and the Bush tax cuts of the early 21st century produced an even larger deficit. The fact that the American economy grew just as fast in the Clinton years as in the Reagan ones somehow didn't shake the conservative faith in tax cuts as the surefire key to growth.

More important, globalization masked the flaws in this reasoning for several decades. Foreigners seemed endlessly willing to hold American dollars, which allowed the U.S. government to run deficits while still enjoying high growth, something that no developing country could get away with. That's why Vice President Dick Cheney reportedly told President Bush early on that the lesson of the 1980s was that "deficits don't matter."

The second Reagan-era article of faith—financial deregulation—was pushed by an unholy alliance of true believers and Wall Street firms, and by the 1990s had been accepted as gospel by the Democrats as well. They argued that long-standing regulations like the Depression-era Glass-Steagall Act (which split up commercial and investment banking) were stifling innovation and undermining the competitiveness of U.S. financial institutions. They were right—only, deregulation produced a flood of innovative new products like collateralized debt obligations, which are at the core of the current crisis. Some Republicans still haven't come to grips with this, as evidenced by their proposed alternative to the bailout bill, which involved yet bigger tax cuts for hedge funds.

http://www.newsweek.com/id/162401/page/1

QueEx
10-05-2008, 03:39 PM
<font size="5">
The Fall of America, Inc.</font size><font size="4">
Part Two

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The problem is that Wall Street is very different from, say, Silicon Valley, where a light regulatory hand is genuinely beneficial. Financial institutions are based on trust, which can only flourish if governments ensure they are transparent and constrained in the risks they can take with other people's money. The sector is also different because the collapse of a financial institution harms not just its shareholders and employees, but a host of innocent bystanders as well (what economists soberly call "negative externalities").

Signs that the Reagan revolution had drifted dangerously have been clear over the past decade. An early warning was the Asian financial crisis of 1997-98. Countries like Thailand and South Korea, following American advice and pressure, liberalized their capital markets in the early 1990s. A lot of hot money started flowing into their economies, creating a speculative bubble, and then rushed out again at the first sign of trouble. Sound familiar? Meanwhile, countries like China and Malaysia that didn't follow American advice and kept their financial markets closed or strictly regulated found themselves much less vulnerable.

A second warning sign lay in America's accumulating structural deficits. China and a number of other countries began buying U.S. dollars after 1997 as part of a deliberate strategy to undervalue their currencies, keep their factories humming and protect themselves from financial shocks. This suited a post-9/11 America just fine; it meant that we could cut taxes, finance a consumption binge, pay for two expensive wars and run a fiscal deficit at the same time. The staggering and mounting trade deficits this produced—$700 billion a year by 2007—were clearly unsustainable; sooner or later the foreigners would decide that America wasn't such a great place to bank their money. The falling U.S. dollar indicates that we have arrived at that point. Clearly, and contrary to Cheney, deficits do matter.

Even at home, the downside of deregulation were clear well before the Wall Street collapse. In California, electricity prices spiraled out of control in 2000-2001 as a result of deregulation in the state energy market, which unscrupulous companies like Enron gamed to their advantage. Enron itself, along with a host of other firms, collapsed in 2004 because accounting standards had not been enforced adequately. Inequality in the United States rose throughout the past decade, because the gains from economic growth went disproportionately to wealthier and better-educated Americans, while the incomes of working-class people stagnated. And finally, the bungled occupation of Iraq and the response to Hurricane Katrina exposed the top-to-bottom weakness of the public sector, a result of decades of underfunding and the low prestige accorded civil servants from the Reagan years on.

All this suggests that the Reagan era should have ended some time ago. It didn't partly because the Democratic Party failed to come up with convincing candidates and arguments, but also because of a particular aspect of America that makes our country very different from Europe. There, less-educated, working-class citizens vote reliably for socialist, communist and other left-learning parties, based on their economic interests. In the United States, they can swing either left or right. They were part of Roosevelt's grand Democratic coalition during the New Deal, a coalition that held through Lyndon Johnson's Great Society in the 1960s. But they started voting Republican during the Nixon and Reagan years, swung to Clinton in the 1990s, and returned to the Republican fold under George W. Bush. When they vote Republican, it's because cultural issues like religion, patriotism, family values and gun ownership trump economic ones.

This group of voters will decide November's election, not least because of their concentration in a handful of swing states like Ohio and Pennsylvania. Will they tilt toward the more distant, Harvard-educated Obama, who more accurately reflects their economic interests? Or will they stick with people they can better identify with, like McCain and Sarah Palin? It took an economic crisis of massive proportions from 1929 to 1931 to bring a Democratic administration to power. Polls indicate we may have arrived again at that point in October 2008.

The other critical component of the American brand is democracy, and the willingness of the United States to support other democracies around the world. This idealistic streak in U.S. foreign policy has been constant over the past century, from Woodrow Wilson's League of Nations through Roosevelt's Four Freedoms to Reagan's call for Mikhail Gorbachev to "tear down this wall."

Promoting democracy—through diplomacy, aid to civil society groups, free media and the like—has never been controversial. The problem now is that by using democracy to justify the Iraq War, the Bush administration suggested to many that "democracy" was a code word for military intervention and regime change. (The chaos that ensued in Iraq didn't exactly help democracy's image either.) The Middle East in particular is a minefield for any U.S. administration, since America supports nondemocratic allies like the Saudis, and refuses to work with groups like Hamas and Hizbullah that came to power through elections. We don't have much credibility when we champion a "freedom agenda."

The American model has also been seriously tarnished by the Bush administration's use of torture. After 9/11 Americans proved distressingly ready to give up constitutional protections for the sake of security. Guantánamo Bay and the hooded prisoner at Abu Ghraib have since replaced the Statue of Liberty as symbols of America in the eyes of many non-Americans.

No matter who wins the presidency a month from now, the shift into a new cycle of American and world politics will have begun. The Democrats are likely to increase their majorities in the House and Senate. A huge amount of populist anger is brewing as the Wall Street meltdown spreads to Main Street. Already there is a growing consensus on the need to re-regulate many parts of the economy.

Globally the United States will not enjoy the hegemonic position it has occupied until now, something underscored by Russia's Aug. 7 invasion of Georgia. America's ability to shape the global economy through trade pacts and the IMF and World Bank will be diminished, as will our financial resources. And in many parts of the world, American ideas, advice and even aid will be less welcome than they are now.

Under such circumstances, which candidate is better positioned to rebrand America? Barack Obama obviously carries the least baggage from the recent past, and his postpartisan style seeks to move beyond today's political divisions. At heart he seems a pragmatist, not an ideologue. But his consensus-forming skills will be sorely tested when he has to make tough choices, bringing not just Republicans but unruly Democrats into the fold. McCain, for his part, has talked like Teddy Roosevelt in recent weeks, railing against Wall Street and calling for SEC chairman Chris Cox's head. He may be the only Republican who can bring his party, kicking and screaming, into a post-Reagan era. But one gets the sense that he hasn't fully made up his mind what kind of Republican he really is, or what principles should define the new America.

American influence can and will eventually be restored. Since the world as a whole is likely to suffer an economic downturn, it is not clear that the Chinese or Russian models will fare appreciably better than the American version. The United States has come back from serious setbacks during the 1930s and 1970s, due to the adaptability of our system and the resilience of our people.

Still, another comeback rests on our ability to make some fundamental changes. First, we must break out of the Reagan-era straitjacket concerning taxes and regulation. Tax cuts feel good but do not necessarily stimulate growth or pay for themselves; given our long-term fiscal situation Americans are going to have to be told honestly that they will have to pay their own way in the future. Deregulation, or the failure of regulators to keep up with fast-moving markets, can become unbelievably costly, as we have seen. The entire American public sector—underfunded, deprofessionalized and demoralized—needs to be rebuilt and be given a new sense of pride. There are certain jobs that only the government can fulfill.

As we undertake these changes, of course, there's a danger of overcorrecting. Financial institutions need strong supervision, but it isn't clear that other sectors of the economy do. Free trade remains a powerful motor for economic growth, as well as an instrument of U.S. diplomacy. We should provide better assistance to workers adjusting to changing global conditions, rather than defend their existing jobs. If tax cutting is not a path to automatic prosperity, neither is unconstrained social spending. The cost of the bailouts and the long-term weakness of the dollar mean that inflation will be a serious threat in the future. An irresponsible fiscal policy could easily add to the problem.

And while fewer non-Americans are likely to listen to our advice, many would still benefit from emulating certain aspects of the Reagan model. Not, certainly, financial-market deregulation. But in continental Europe, workers are still treated to long vacations, short working weeks, job guarantees and a host of other benefits that weaken their productivity and will not be financially sustainable.

The unedifying response to the Wall Street crisis shows that the biggest change we need to make is in our politics. The Reagan revolution broke the 50-year dominance of liberals and Democrats in American politics and opened up room for different approaches to the problems of the time. But as the years have passed, what were once fresh ideas have hardened into hoary dogmas. The quality of political debate has been coarsened by partisans who question not just the ideas but the motives of their opponents. All this makes it harder to adjust to the new and difficult reality we face. So the ultimate test for the American model will be its capacity to reinvent itself once again. Good branding is not, to quote a presidential candidate, a matter of putting lipstick on a pig. It's about having the right product to sell in the first place. American democracy has its work cut out for it.


Fukuyama is professor of International Political Economy at the Johns Hopkins School of Advanced International Studies.

© 2008 Newsweek

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nittie
10-05-2008, 04:06 PM
Wall Street will not fall unless a new institution emerges to replace it. The powers that be will keep pouring money into it. There has to be another model or else the status quo will prevail. People should see whats happening as a opportunity to move up, get out of the rat race, quit worshiping mere mortals. The people on Wall Street, in Congress, have proven for the umpteenth time they don't know what the fuck they're doing.

Greed
10-20-2008, 09:41 AM
Consensus Emerges to Let Deficit Rise
By LOUIS UCHITELLE and ROBERT PEAR
October 20, 2008

Like water rushing over a river’s banks, the federal government’s rapidly mounting expenses are overwhelming the federal budget and increasing an already swollen deficit.

The bank bailout, in the latest big outlay, could cost $250 billion in just the next few weeks, and a newly proposed stimulus package would have $150 billion or more flowing from Washington before the next president takes office in January.

Adding to the damage is that tax revenues fall as the economy weakens; this is likely just as the government needs hundreds of billions of dollars to repair the financial system. The nation’s wars are growing more costly, as fighting spreads in Afghanistan. And a declining economy swells outlays for unemployment insurance, food stamps and other federal aid.

But the extra spending, a sore point in normal times, has been widely accepted on both sides of the political aisle as necessary to salvage the banking system and avert another Great Depression.

“Right now would not be the time to balance the budget,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan Washington group that normally pushes the opposite message.

Confronted with a hugely expensive economic crisis, Democratic and Republican lawmakers alike have elected to pay the bill mainly by borrowing money rather than cutting spending or raising taxes. But while the borrowing is relatively inexpensive for the government in a weak economy, the cost will become a bigger burden as growth returns and interest rates rise.

In addition, outlays for Medicare and Social Security are expected to balloon as the first baby boomers reach full retirement age in the next three years.

“The next president will inherit a fiscal and economic mess of historic proportions,” said Senator Kent Conrad, Democrat of North Dakota and chairman of the Senate Budget Committee. “It will take years to dig our way out.”

The Congressional Budget Office estimates that the deficit in the current fiscal year, which started this month, will reach roughly $700 billion, up more than 50 percent from the previous year. Measured as a percentage of all the nation’s economic activity, the deficit, at 5 percent, would rival those of the early 1980s, when a severe recession combined with stepped-up federal spending and Reagan-era tax cuts resulted in huge budget shortfalls.

Resorting to credit has long been the American solution for dealing with expensive crises — as long as the solution has wide public support. Fighting World War II certainly had that support. Even now many Americans tolerate running up the deficit to pay for the wars in Iraq and Afghanistan, which cost $11 billion a month combined. And so far there is wide support for an initial outlay of at least $250 billion for a rescue of the financial system, if that will stabilize banks and prevent a calamitous recession.

“There are extreme circumstances when a larger national debt is accepted as the lesser of two evils,” said Robert J. Barbera, chief economist at the Investment Technology Group, a research and trading firm.

There are also assumptions that help to make America’s deficits tolerable, even logical.

One is that people all over the world are willing, even eager, to lend to the United States, confident that the world’s most powerful nation will always repay on time, whatever its current difficulties.

“So far the market is showing that it is quite willing to finance our needs,” said Stephen S. McMillin, deputy director of the White House Office of Management and Budget.

Lenders are accepting interest rates of 4 percent or less, often much less, to buy what they consider super-safe American debt in the form of Treasury securities. The 4 percent rate means that the annual cost of borrowing an extra $1 trillion is $40 billion, a modest sum in a nearly $14 trillion economy, helping to explain why the current growing deficit has encountered little political resistance so far.

But if recent history repeats itself, the deficit is likely to be an issue again when the economy recovers.

Interest rates typically rise during a recovery, so the low cost of servicing the nation’s debt will not last — unless a recession set off by the banking crisis endures, repeating the Japanese experience in the 1990s and perhaps even stripping the United States and the dollar of their pre-eminent status.

The assumption is that will not happen, and as the economy recovers, the private sector will step up its demand for credit, making interest rates rise.

Higher rates in turn would increase the cost of financing the deficit, and there would probably be more pressure to reduce it through cuts in spending. That happened in the late 1980s, as Congress and the White House coped with the swollen Reagan deficits. The Gramm-Rudman-Hollings Act, with its attempt to put a ceiling on deficits, came out of this period.

Another assumption, also based on 60 years of post-World War II experience, is that although the economy is sliding into recession, in a year or two that recession will end and the national income (also known as the gross domestic product) will expand once again.

When that happens, the national debt — the accumulated borrowing to finance all the annual deficits — will shrink in relation to the income available to pay off the debt.

The nation’s debt as a percentage of all economic activity, while growing alarmingly now, is not at historic highs. The portion held outside the American government, here and abroad, in the form of Treasury securities was $5.8 trillion at the end of last month.

That is a relatively modest 40.8 percent of the nation’s annual income, far below the 109 percent coming out of World War II or the nearly 50 percent in much of the 1990s.

Put another way, if the entire national income were dedicated to debt repayment, the debt would be paid off in less than five months. For most of the years since 1940, paying down the debt would have taken longer, putting a greater strain on income.

Still, these are not ordinary times. The banking system is broken, and the national economy, in response, is plunging toward recession in a manner that evokes comparisons with the Great Depression. To soften the blow, the administration and Congress ran up a record $455 billion deficit in the just-ended 2008 fiscal year, and they are en route to a shortfall of $700 billion or more this year.

“I do think we need to be ready for a very significant increase in the budget deficit,” said Peter Orszag, director of the Congressional Budget Office.

Apart from the war spending, outlays for unemployment insurance have risen by one-third and spending on food stamps has increased 13 percent over the last 12 months. Congress has agreed to expand education benefits for veterans of the current wars, and last spring it authorized $168 billion for a stimulus package, most of it in the form of tax rebate checks. Now the Democratic Congressional leadership is pushing for another stimulus of at least that much.

All of this is happening as tax revenues are falling, particularly corporate tax receipts, which were down $66 billion, or 18 percent, in the fiscal year that just ended. The decline accelerated in September.

Many Republicans would probably go along with two elements in the stimulus package proposed by the Democrats — a tax cut of some sort and extended unemployment benefits. But they resist stepped-up spending on public works projects and a temporary increase in federal aid to the states.

Representative Roy Blunt of Missouri, the House Republican whip, said the stimulus bill should not be used to finance “a huge public works plan” or to bail out “states that spent a lot more money than they should have on Medicaid and other social programs.”

To pay for the surge in spending — and the shortfall in taxes — the federal government increased the national debt by $768 billion over the last year, to the present $5.8 trillion, with $300 billion of that amount going to the Federal Reserve for a variety of rescue initiatives for the financial system.

The outlays swell as each day brings fresh reports of a financial system that is costly to repair and a rapidly sinking economy in need of a leg up.

“The deficit is a burden in a long-term sense,” Mr. Barbera, the economist, said, “but it is small beer compared to the concerns of the moment.”

http://www.nytimes.com/2008/10/20/business/economy/20cost.html?_r=1&oref=slogin&ref=business&pagewanted=print

nittie
10-20-2008, 03:14 PM
If economy is defined as

An economy is the realized social system of production, exchange, distribution, and consumption of goods and services of a country or other area.


Then any group can build their own economy. 100 people can generate enuff revenue to support themselves and not be hostage to what those idiots on Wall Street do.

Greed
11-16-2008, 06:13 PM
Depression 2009: What would it look like?
Lines at the ER, a television boom, emptying suburbs. A catastrophic economic downturn would feel nothing like the last one.
By Drake Bennett | November 16, 2008

OVER THE PAST few months, Americans have been hearing the word "depression" with unfamiliar and alarming regularity. The financial crisis tearing through Wall Street is routinely described as the worst since the Great Depression, and the recession into which we are sinking looks deep enough, financial commentators warn, that a few poor policy decisions could put us in a depression of our own.

It's a frightening possibility, but also in many ways an abstraction. The country has gone so long without a depression that it's hard to know what it would be like to live through one.

Most of us, of course, think we know what a depression looks like. Open a history book and the images will be familiar: mobs at banks and lines at soup kitchens, stockbrokers in suits selling apples on the street, families piled with all their belongings into jalopies. Families scrimp on coffee and flour and sugar, rinsing off tinfoil to reuse it and re-mending their pants and dresses. A desperate government mobilizes legions of the unemployed to build bridges and airports, to blaze trails in national forests, to put on traveling plays and paint social-realist murals.

Today, however, whatever a depression would look like, that's not it. We are separated from the 1930s by decades of profound economic, technological, and political change, and a modern landscape of scarcity would reflect that.

What, then, would we see instead? And how would we even know a depression had started? It's not a topic that professional observers of the economy study much. And there's no single answer, because there's no one way a depression might unfold. But it's nonetheless an important question to consider - there's no way to make informed decisions about the present without understanding, in some detail, the worst-case scenario about the future.

By looking at what we know about how society and commerce would slow down, and how people respond, it's possible to envision what we might face. Unlike the 1930s, when food and clothing were far more expensive, today we spend much of our money on healthcare, child care, and education, and we'd see uncomfortable changes in those parts of our lives. The lines wouldn't be outside soup kitchens but at emergency rooms, and rather than itinerant farmers we could see waves of laid-off office workers leaving homes to foreclosure and heading for areas of the country where there's more work - or just a relative with a free room over the garage. Already hollowed-out manufacturing cities could be all but deserted, and suburban neighborhoods left checkerboarded, with abandoned houses next to overcrowded ones.

And above all, a depression circa 2009 might be a less visible and more isolating experience. With the diminishing price of televisions and the proliferation of channels, it's getting easier and easier to kill time alone, and free time is one thing a 21st-century depression would create in abundance. Instead of dusty farm families, the icon of a modern-day depression might be something as subtle as the flickering glow of millions of televisions glimpsed through living room windows, as the nation's unemployed sit at home filling their days with the cheapest form of distraction available.

The odds are, most economists say, we will yet avoid a full-blown depression - the world's policy makers, they argue, have learned enough not to repeat the mistakes of the 1930s. Still, in a country that has known little but economic growth for 50 years, it matters to think about what life would look like without it.

. . .

There is, in fact, no agreed-upon definition of what a depression is. Economists are unanimous that the Great Depression was the worst economic downturn the industrial world has ever seen, and that we haven't had a depression since, but beyond that there is not a consensus. Recessions have an official definition from the National Bureau of Economic Research, but the bureau pointedly declines to define a depression.

What sets a depression apart, most economists would agree, are duration and the scale of joblessness. To be worthy of the name, a depression needs to be more than a few years long - far longer than the eight-month average of our recent recessions - and it needs to put a lot of people out of work. The Great Depression lasted a decade by some measures, and at its worst, one in four American workers was out of a job. (By comparison, unemployment now is at a 14-year high of 6.5 percent.)

In a modern depression, the swelling ranks of the unemployed would likely change the landscape of the country, uprooting people who would rather stay where they are and trapping people who want to move. In the 1930s, this took the visible form of waves of displaced tenant farmers washing into California, but it also had another, subtler effect: it froze the movement of the middle class. The suburbanization that was to define the post-World-War-II years had in fact started in the 1920s, only to be brought sharply to a halt when the economy collapsed.

Today, a depression could reverse that process altogether. In a deep and sustained downturn, home prices would likely sink further and not rise, dimming the appeal of homeownership, a large part of suburbia's draw. Renting an apartment - perhaps in a city, where commuting costs are lower - might be more tempting. And although city crime might increase, the sense of safety that attracted city-dwellers to the suburbs might suffer, too, in a downturn. Many suburban areas have already seen upticks in crime in recent years, which would only get worse as tax-poor towns spent less money on policing and public services.

"You could have a sort of desurburbanization phenomenon," suggests Michael Bernstein, a historian of the Depression and the provost of Tulane University.

The migrations kicked off by a depression wouldn't be in one direction, but a tangle of demographic crosscurrents: young families moving back to their hometowns to live with the grandparents when they can no longer afford to live on their own, parents moving in with their adult children when their postretirement fixed incomes can no longer support them. Some parts of the country, especially the Rust Belt, could see a wholesale depopulation as the last remnants of the American heavy-manufacturing base die out.

"There will be some cities like Detroit that in a real depression could just become ghost towns," says Jeffrey Frankel, a Harvard economist and member of the National Bureau of Economic Research committee that declares recessions. (Frankel does not, he emphasizes, think we are headed for a depression.)

. . .

At the household level, the look of want is different today than during the last prolonged downturn. The government helps the unemployed and the poor with programs that didn't exist when the Great Depression hit - unemployment insurance, Medicaid, food stamps, Social Security for seniors. Beyond that, two of the basics of existence - food and clothing - are a lot cheaper today, thanks to industrial agriculture and overseas labor. The average middle-class man in the late 1920s, according to the writer and cultural critic Virginia Postrel, could afford just six outfits, and his wife nine - by comparison, the average woman today has seven pairs of jeans alone. So we're less likely to see one of the iconic images of the Great Depression: Formerly middle-class workers in threadbare clothes lining up for free food.

If we look closely, however, we might see more former lawyers wearing knockoffs, doing their back-to-school shopping at Target or Wal-Mart rather than Banana Republic and Abercrombie & Fitch. Lean times might kill off much of the taboo around buying hand-me-downs, and with modern distribution networks - and a push from the reduce-reuse-recycle mind-set of environmentalism - we might see the development of nationwide used-clothing chains.

In general, novelty would lose some of its luster. It's not simply that we'd buy less, we'd look for different qualities in what we buy. New technology would grow less seductive, basic reliability more important. We'd see more products like Nextel phones and the Panasonic Toughbook laptop, which trade on their sturdiness, and fewer like the iPhone - beautiful, cleverly designed, but not known for durability. The neighborhood appliance shop could reappear in a new form - unlicensed, with hacked cellphones and rebuilt computers.

And while very few would starve, a depression would change how we eat. Food costs remain far below what they were for a family in the 1920s and 1930s, but they have been rising in recent years, and many people already on the edge of poverty would be unable to feed themselves on their own in a harsh economic climate - soup kitchens are already seeing an uptick in attendance. At the high end of the market, specialty and organic foods - which drove the success of chains like Whole Foods - would seem pointlessly expensive; the booming organic food movement could suffer as people start to see specially grown produce as more of a luxury than a moral choice. New England's surviving farmers would be particularly hard-hit, as demand for their seasonal, relatively high-cost products dried up.

According to Marion Nestle, a food and public health professor at New York University, people low on cash and with more time on their hands will cook more rather than go out. They may also, Nestle suggests, try their hands at growing and even raising more of their own food, if they have any way of doing so. Among the green lawns of suburbia, kitchen gardens would spring up. And it might go well beyond just growing your own tomatoes: early last month, the English bookstore chain Waterstone's reported a 200 percent increase in the sales of books on keeping chickens.

At the same time, the cheapest option for many is decidedly less rustic: meals like packaged macaroni and cheese and drive-through fast food. And we're likely to see a move in that direction, as well, toward cheaper, easier calories. If so, lean times could have the odd effect of making the population fatter, as more Americans eat like today's poor.

. . .

To understand where a depression would hit hardest, however, look at the biggest-ticket items on people's budgets.

Housing, health insurance, transportation, and child care are the top expenses for American families, according to Elizabeth Warren, a bankruptcy law specialist at Harvard Law School; along with taxes, these take up two-thirds of income, on average. And when those are squeezed, that could mean everything from more crowded subways to a proliferation of cheap, unlicensed day-care centers.

Health insurance premiums have risen to onerous levels in recent years, and in a long period of unemployment - or underemployment - they would quickly become unmanageable for many people. Dropping health insurance would be an immediate way for families to save hundreds of dollars per month. People without health insurance tend to skip routine dental and medical checkups, and instead deal with health problems only when they become acute - meaning they get their healthcare through hospital emergency rooms.

That means even longer waits at ERs, which are even now overtaxed in many places, and a growing financial drain on hospitals that already struggle to pay for the care they give uninsured people. And if, as is likely, this coincided with cuts in money for hospitals coming from cash-strapped state and local governments, there's a very real possibility that many hospitals would have to close, only further increasing the burden on those that remain open. In their place people could rely more on federally-funded health centers, or the growing number of drugstore clinics, like the MinuteClinics in CVS branches, for vaccines, physicals, strep throat tests, and other basic medical care. And as the costs of traditional medicine climbed out reach for families, the appeal of alternative medicine would in all likelihood grow.

Higher education, another big expense, would probably take a hit as well. Students unable to afford private universities would opt for public universities, students unable to afford four-year colleges would opt for community colleges, and students unable to afford community college wouldn't go at all. With fewer applicants, admissions standards would drop, with spots that once would have been filled by more qualified, poorer students going instead to wealthier applicants who before would not have made the cut. Some universities would simply shrink. In Boston, a city almost uniquely dependent on higher education, the results - fewer students renting apartments, going to restaurants and bars, opening bank accounts, buying books, taking taxis - would be particularly acute.

A depression would last too long for unemployed college graduates to ride out the downturn in business or law school, so people would have to change career plans entirely. One place that could see an uptick in applications and interest is government work: Its relative stability, combined with a suspicion of free-market ideology that would accompany a truly disastrous downturn, could attract more people and even help the public sector shake off its image as a redoubt for the mediocre and the unambitious.

. . .

In many ways, though, today's depression would not look like the last one because it would not look like much at all. As Warren wrote in an e-mail, "The New Depression would be largely invisible because people would experience loss privately, not publicly."

In the public imagination, the Depression was a galvanizing time, the crucible in which the Greatest Generation came of age and came together. That is, at best, only partly true. Harvard political scientist Robert Putnam has found that, for many, the Depression was isolating: Kiwanis clubs, PTAs, and other social groups lost around half their members from 1930 to 1935. And other studies on economic hardship suggest that it tends to sap people's civic engagement, often permanently.

"When people become unemployed in the Great Depression, they hunker down, they pull in from everybody." Putnam says.

That effect, Putnam believes, would only be more pronounced today. The Depression was, famously, a boom time for movies - people flocked to cheap double features to escape the dreariness of their everyday poverty. Today, however, movies are no longer cheap. Nor is a day at the ballpark.

Much of a modern depression would unfold in the domestic sphere: people driving less, shopping less, and eating in their houses more. They would watch television at home; unemployed parents would watch over their own kids instead of taking them to day care. With online banking, it would even be possible to have a bank run in which no one leaves the comfort of their home.

There would be darker effects, as well. Depression, unsurprisingly, is higher in economically distressed households; so is domestic violence. Suicide rates go up in tough times, marriage rates and birthrates go down. And while divorce rates usually rise in recessions, they dropped during the Great Depression, in part because unhappy couples found they simply couldn't afford separation.

In precarious times, hunkering down can become not simply a defense mechanism, but a worldview. Grant McCracken, an anthropologist affiliated with MIT who studies consumer behavior, calls this distinction "surging" vs. "dwelling" - the difference, as he wrote recently on his blog, between believing that the world "teems with new features, new things, new opportunities, new excitement" and thinking that life's pleasures come from counting one's blessings and appreciating and holding onto what one already has. Economic uncertainty, he argues, drives us toward the latter.

As a nation, we have grown very accustomed to the momentum that surging imparts. And while a depression remains far from inevitable, it's as close as it has been in a lifetime. We might want to get a sense for what dwelling feels like.

Drake Bennett is the staff writer for Ideas. E-mail drbennett@globe.com.

http://www.boston.com/bostonglobe/ideas/articles/2008/11/16/depression_2009_what_would_it_look_like/?page=full

BigUnc
11-19-2008, 02:26 AM
Good Morning it's a little after 3 am thought I'd stop in for a minute or two.Hope everyone is reasonably well.

Interesting times we're living in.This economy dived a year later than I expected and took some unexpected turns also.Never thought there would be no safe havens for those that stayed in the casino too long.

Appears to me this will be a multi year event and we'll never return to the party times of the late 20th and early 21st centuries.

IMHO the TARP will be a failure and it looks like Citi Group will be the first of the big banks to go under. A bailout of GM, Ford and Chrysler will fail unless the UAW gives up huge concessions to stave off massive layoffs even with the bailout and there has to be at least a 35% redution in corporate staff. Far too much legacy cost for them to survive with the present system. Not to mention sales will be down no matter what they do cause no one gonna want to buy and the banks are hesitant to loan.

Gotta run the situation is heating up where I'm at. I'll check in later.

Peace

Greed
12-08-2008, 04:11 PM
The Velocity of Money
John Mauldin
Dec 08, 2008 11:30 am

Depending upon which monetary measure you use, the money supply is growing very slowly, alarmingly fast, or just about right. This might be called the velocity of money - and it affects the growth of the economy.

First, let's look at the adjusted monetary base, or plain old cash plus bank reserves (remember that fact) held at the Federal Reserve. That’s the only part of the money supply the Fed has any real direct control of. Until recently, there was very little year-over-year growth. The monetary base grew along a rather predictable long-term trend line, with some variance from time to time, but always coming back to the mean.

But in the last few months the monetary base has grown by a staggering amount - over 1400% on an annual basis, as shown in the next chart from my friend Dr. Lacy Hunt at Hoisington Asset Management. And when you see the "J-curve" in the monetary base (which is likely to rise even more!) it does demand an explanation. There are those who suggest this is an indication of a Federal Reserve gone wild and that 2,000-dollar gold and a plummeting dollar are just around the corner. They are looking at that graph and leaping to conclusions. But it is what you don't see that is important.

https://admin.minyanville.com/assets/FCK_Aug2007/File/Cory/mau1.jpg

Now, the same graph but in percentage terms:

https://admin.minyanville.com/assets/FCK_Aug2007/File/Cory/mau2.jpg

Several of my readers have sent me questions related to the chart below, which compares the above graph to the value of the US dollar, as measured in the trade-weighted dollar index. If the Fed is flooding the market with dollars, does that not mean a crash in the dollar is imminent? What foreign government or investor would want to hold dollars when the Fed is debasing the currency so rapidly?

https://admin.minyanville.com/assets/FCK_Aug2007/File/Cory/mau3.jpg

Give Me Your Tired, Your Poor, Your Illiquid

The answer is that the Fed is not creating money in the sense of monetizing the national debt. Remember that the adjusted monetary base is cash plus bank reserves on deposit at the Fed. Banks have to hold a certain portion of their assets as liquid assets in order to meet potential demand from depositors for their money. If they go below that required number, the regulators come in and demand they increase their liquid assets immediately.

Various assets have been getting a "haircut" as to their ability to count as liquid reserves. With more and more assets becoming illiquid, the amount of money held in the liquid asset portion of many US banks assets has been dwindling. What to do? The Fed decided to take these assets and trade them (temporarily) for US treasuries, which are quite liquid. But while the Fed did create the T-bills, they did not inject new capital into the overall system. If a bank had one billion in assets and gave the Fed $100 million to get liquid T-bills, it still just has $1 billion in assets. Yes, it could sell them to someone else to get cash, but that someone else would use already existing dollars. The Fed has provided liquidity but did not inject (yet) new cash into the overall system through this program. At some point in the future, when banks are once again doing business with each other and the system is more liquid, banks will take those T-bills back to the Fed and receive back whatever collateral they used to get them in the first place.

To illustrate what I am saying, let's look at Money of Zero Maturity, or MZM. Stated another way, you can think of it as cash, whether in a bank, a money market fund, or in your hands. We will look at the growth of MZM in the next two charts, one of which shows the actual growth and the other the growth in annual percentage terms.

Now remember, Friedman taught us that inflation is a monetary phenomenon. If you increase the money supply too fast, you risk an unwanted rise in inflation. If the money supply shrinks or grows too slowly, you could see deflation develop.

https://admin.minyanville.com/assets/FCK_Aug2007/File/Cory/mau4.jpg

https://admin.minyanville.com/assets/FCK_Aug2007/File/Cory/mau5.jpg

Note that MZM was growing at close to an 18% rate year-over-year earlier in the year but that growth is now down to 10%. Also note that less than 3 years ago MZM was growing close to zero. Since then inflation has increased. Therefore, one could make the case that the Fed is causing inflation by allowing the money supply to increase too rapidly. Case closed?

Maybe not. Correlation is not causation. More cash sometimes means that people and businesses are taking less risk. The Fed cannot control what we do with our money, only how much bank reserves it allows and how much cash it puts into the system.

Forecasting inflation from a money-supply graph is very difficult. It used to be a lot simpler, but in recent decades it’s proven very unreliable. But it is much too simplistic to draw a direct comparison between inflation and an arbitrary money-supply measure.

If we look at a graph of M2, which includes time deposits, small certificates of deposit, etc., we again see a rise in recent growth. M2 is the measure of money supply that most economists use when they are thinking about inflation. And we see that M2 is growing at a sprightly 7% year over year. This is not all that high historically, but again it is up significantly from the past few years. See the graph below. Note that there have been several times (as recently as 2000) when annual M2 growth was over 10%.

https://admin.minyanville.com/assets/FCK_Aug2007/File/Cory/mau6.jpg

But there is more to the inflation/deflation debate than just money supply. Money supply is what you see. And now we look at what most of us don't see.

The Velocity of Money

Now, let's introduce the concept of the velocity of money. Basically, this is the average frequency with which a unit of money is spent. Let's assume a very small economy of just you and me, which has a money supply of $100. I have the $100 and spend it to buy $100 worth of flowers from you. You in turn spend the $100 to buy books from me. We have created $200 of our "gross domestic product" from a money supply of just $100. If we do that transaction every month, in a year we would have $2400 of "GDP" from our $100 monetary base. So, what that means is that gross domestic product is a function not just of the money supply but how fast the money supply moves through the economy. Stated as an equation, it is Y=MV, where Y is the nominal gross domestic product (not inflation-adjusted here), M is the money supply, and V is the velocity of money. You can solve for V by dividing Y by M.

Now, let's complicate our illustration just a bit. Let's imagine an island economy with 10 businesses and a money supply of $1,000,000. If each business does approximately $100,000 of business a quarter, then the gross domestic product for the island would be $4,000,000 (4 times the $1,000,000 quarterly production). The velocity of money in that economy is 4.

But what if our businesses got more productive? We introduce all sorts of interesting financial instruments, banking, new production capacity, computers and such and now everyone is doing $100,000 per month. Now our GDP is $12,000,000 and the velocity of money is 12. But we have not increased the money supply. Again, we assume that all businesses are static. They buy and sell the same amount every month. There are no winners and losers as of yet.

Now let's complicate matters. Two of the kids of the owners of the businesses decide to go into business for themselves. Having learned from their parents, they immediately become successful and start doing $100,000 a month themselves. GDP potentially goes to $14,000,000. But, in order for everyone to stay at the same level of gross income, the velocity of money must increase to 14.

Now, this is important. If the velocity of money does NOT increase, that means that on average each business is now going to buy and sell less each month. Remember, nominal GDP is money supply multiplied with velocity. If velocity does not increase and money supply stays the same, GDP must stay the same, and the average business (there are now 12) goes from doing $1,200,000 a year down to $1,000,000.

Each business now is doing around $80,000 per month. Overall production on our island is the same, but is divided up among more businesses. For each of the businesses, it feels like a recession. They have fewer dollars, so they buy less and prices fall. They fall into actual deflation (very simplistically speaking). So, in that world, the local central bank recognizes that the money supply needs to grow at some rate in order to make the demand for money "neutral."

It is basic supply and demand. If the demand for corn increases, the price will go up. If Congress decides to remove the ethanol subsidy, the demand for corn will go down, as will the price.

If the central bank increased the money supply too much, you would have too much money chasing too few goods, and inflation would rear its ugly head. Let's say the central bank doubles the money supply to $2,000,000. If the velocity of money is still 12, then the GDP would grow to $24,000,000. That would be a good thing, wouldn't it?

No, because only 20% more goods is produced from the two new businesses. There is a relationship between production and price. Each business would now sell $200,000 per month or double their previous sales, which they would spend on goods and services, which only grew by 20%. They would start to bid up the price of the goods they want, and inflation sets in. Think of the 1970s.

So, our mythical bank decides to boost the money supply by only 20%, which allows the economy to grow and prices to stay the same. Smart. And if only it were that simple.

Let's assume 10 million businesses, from the size of Exxon down to the local dry cleaners, and a population which grows by 1% a year. Hundreds of thousands of new businesses are being started every month, and another hundred thousand fail. Productivity over time increases, so that we are producing more "stuff" with fewer costly resources.

Now, there is no exact way to determine the right size of the money supply. It definitely needs to grow each year by at least the growth in the size of the economy, plus some more for new population, and you have to factor in productivity. If you don't then deflation will appear. But if money supply grows too much, then you've got inflation.

And what about the velocity of money? Friedman assumed the velocity of money was constant. And it was from about 1950 until 1978 when he was doing his seminal work. But then things changed. Let's look at two charts sent to me by Lacy. First, let's look at the velocity of money for the last 108 years.

https://admin.minyanville.com/assets/FCK_Aug2007/File/Cory/mau7.jpg

Now, let's look at the same chart since 1959, but with shaded gray areas which show us the times the economy was in recession. Note that (with one exception in the 1970s) velocity drops during a recession. What is the Fed response? An offsetting increase in the money supply to try and overcome the effects of the business cycle and the recession. Y=MV. If velocity falls then the money supply must rise for nominal GDP to grow. The Fed attempts to jump-start the economy back into growth by increasing the money supply.

https://admin.minyanville.com/assets/FCK_Aug2007/File/Cory/mau8.jpg

If you can't read the print at the bottom of the chart, he assumes that GDP is $14.17 trillion, M2 is $7.6 trillion and therefore velocity is 1.85, down from almost 1.95 just a few years ago. If velocity reverts to or below the mean, it could easily drop 10% from here. We will explore why this could happen in a minute.

Y=MV

But let's go back to our equation, Y=MV. If velocity slows by 10%, then money supply (M) would have to rise by 10% just to maintain a static economy. But that assumes you do not have 1% population growth, 2% productivity growth and a target inflation of 2%, which means M (money supply) would need to grow about 5% a year, even if V is constant. And that is not particularly stimulative, given that we are in recession. And notice above that M2 is growing just about in line with that.

Bottom line? Expect money-supply growth well north of 7% annually for the next few years. Is that enough? Too much? We won't know for a long time. This will allow armchair economists to sit back and Monday morning quarterback for many years. My friends at GaveKal have their own measure of world velocity, and as you might expect it is slowing too. This slowing is a global problem and is one of the reasons we are in a global recession.

https://admin.minyanville.com/assets/FCK_Aug2007/File/Cory/mau9.jpg

A Slowdown in Velocity

Why is the velocity of money slowing down? Notice the significant real rise in V from 1990 through about 1997. Growth in M2 (see the above chart) was falling during most of that period, yet the economy was growing. That means that velocity had to have been rising faster than normal. Why? It is financial innovation that spurs above-trend growth in velocity. Primarily because of the financial innovations introduced in the early '90s, like securitizations and CDOs, etc., we saw a significant rise in V.

And now we are watching the Great Unwind of financial innovations, as they went to excess and caused a credit crisis. In principle, a CDO or subprime asset-backed security should be a good thing. And in the beginning they were. But then standards got loose, greed kicked in, and Wall Street began to game the system.

What drove velocity to new highs is no longer part of the equation. The absence of new innovation and the removal of old innovations (even if they were bad innovations, they did help speed things up) are slowing things down. If the money supply did not rise significantly to offset that slowdown in velocity, the economy would already be in a much deeper recession.

While the Fed does not have control over M2, when they lower interest rates it is supposed to make us want to take on more risk, borrow money, and boost the economy. So, they have an indirect influence.

I expect the Fed to cut at least another 50 basis points next week, and to give us a statement with a nod toward difficult economic conditions. The latest Beige Book from the Fed was simply dreadful, so you can bet the governors will have a deteriorating economy in mind. Given the 25-plus-year low in consumer confidence, they have little choice.

I believe the Fed will soon move rates close to zero.

Within a few quarters we will be facing outright deflation. The Fed is going to monetize at least a portion of what will be a $1+ trillion dollar US deficit. They have announced they are going to purchase $800 billion in mortgage-backed and other types of consumer loan assets. That will be a direct infusion of dollars into the economy. That is serious monetization. But they may feel they have no choice if they want to keep the US economy from going Japanese.

How much monetization will be enough to halt deflation and overcome the slowdown in the velocity of money and the rise in personal savings? No one knows. There is no fancy equation or model which can encompass all the factors, or at least not one I know of.

We’ll also see which of the additional deflation-fighting policies that Bernanke outlined in his 2002 "helicopter" speech the Fed will adopt. It is highly likely that we will see more than a few of them. It is quite possible that we will see the Fed start to set rates on longer-term bills and even bonds in an effort to pull down longer-term rates for corporations and individuals.

Remember that there will come a time when the Fed will have to "take back" some of the liquidity they're going to provide. That means we could be in for a multi-year period of slow growth after we pull out of this recession.

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes out to over one million readers each week. For more information on John, or to read his free weekly economic letter, go to Frontlinethoughts.com.

Copyright 2008 Minyanville Publishing and Multimedia, LLC. All Rights Reserved.

http://www.minyanville.com/articles/Fed-liquidity-velocity/index/a/20257

Greed
12-24-2008, 07:39 PM
Are Employers Unwilling to Hire, or Are Some Workers Unwilling to Work?
By Casey B. Mulligan
December 24, 2008, 6:30 am

President-elect Barack Obama was not the first University of Chicago professor to serve in the United States Senate. More than 50 years ago, a professor named Paul Douglas became a United States senator representing Illinois.

As an economics professor, Professor Douglas wrote about the supply and demand for labor. Some of his techniques can lead us to a surprising conclusion about today’s recession: The recent decrease in employment may be due less to employers’ unwillingness to hire more workers and more to workers’ unwillingness to work.

As you’ve probably heard, employment has been falling over the past year. After peaking in December 2007, employment fell 1.4 percent over the next 11 months. Hours per employee also fell. As a result, if total hours worked had continued the upward trend they had been on in the years before the recession, they would be 4.7 percent higher than they are now.

Explanations for the decline — like most everything in economics — can be classified in two ways: supply or demand.

In many recessions, the demand for labor gets much of the blame. The demand explanation says that, with orders for their products down, many companies have trouble finding productive uses for employees. Some workers are then let go. In this view, productivity — the amount produced per hour worked — should decline because reduced productivity is a driving force of layoffs. (Gross domestic product thereby declines for two reasons: fewer workers and less productivity per worker.)

Indeed, hourly productivity did decline in the 1981-82 recession, falling three out of four quarters for a cumulative peak-to-trough decline of 2.3 percent. Productivity fell faster and longer during the Depression.

The second type of explanation is reduced labor supply.

Suppose, just for the moment, that people were less willing to work, with no change in the demand for their services. This means that employees would have to be more productive because they have to get by with fewer workers.

Of course, people have not suddenly become lazy, but the experiment gives similar results to the actual situation in which some employees face financial incentives that encourage them not to work and some employers face financial incentives not to create jobs.

Professor Douglas gave us a formula for determining how much output per work hour would increase as a result of a reduction in the aggregate supply of hours: For every percentage point that the labor supply declines, productivity would rise by 0.3 percentage points.

As mentioned earlier, in late 2008, labor hours were 4.7 percent below where trends from previous years would predict the number to be. According to Professor Douglas’s theory, this means productivity should rise 1.4 percent above its previous trend by the fourth quarter.

So let’s take a look at the numbers. Unlike in the severe recessions of the 1930s and early 1980s, productivity has been rising. Through the third quarter of 2008, productivity had risen six consecutive quarters, with an increase of 1.9 percent over the past three, or 0.7 percent above the trend for the previous 12 quarters.

Because productivity has been rising — almost as much as the Douglas formula predicts — the decreased employment is explained more by reductions in the supply of labor (the willingness of people to work) and less by the demand for labor (the number of workers that employers need to hire).

Why would some people have fewer incentives to take a job in 2008 than they did in 2006 and 2007 (and employers fewer incentives to create jobs)?

I will tackle that question in my next post, but even without a specific answer we learn a lot about today’s recession from the conclusion that labor supply – not labor demand – should be blamed. First of all, it suggests that a fundamental solution to the recession would encourage labor supply (perhaps cutting personal income tax rates, so people can keep more of their wages), rather than tinker with demand.

Second, the recent supply reduction may be more short-lived than the demand reductions of past severe recessions. In particular, as people adjust to the reality of depleted retirement accounts and vanished home equity, many of them will decide to make up for some of the shortfall by working more and retiring later.

And on another note, the department of economics at the University of Chicago does not conform to stereotypes: Professor Douglas ran for senator on the Democratic Party ticket and was occasionally accused of being a socialist. I teach his formula frequently and with admiration.

Casey B. Mulligan is an economist at the University of Chicago.

http://economix.blogs.nytimes.com/2008/12/24/are-employers-unwilling-to-hire-or-are-workers-unwilling-to-work/

Greed
12-29-2008, 09:42 PM
Bailout of Long-Term Capital: A Bad Precedent?
By TYLER COWEN
Published: December 26, 2008

THE financial crisis is a result of many bad decisions, but one of them hasn’t received enough attention: the 1998 bailout of the Long-Term Capital Management hedge fund. If regulators had been less concerned with protecting the fund’s creditors, our current problems might not be quite so bad.

Long-Term Capital was advised by finance quants, or quantitative analysts, who made a number of unsound, esoteric bets, including investments in interest rate derivatives. When Russia’s inability to pay its debts roiled global markets, the fund, saddled with high-leverage and off-balance-sheet obligations, was near collapse.

Because Long-Term Capital owed large sums to banks and other financial institutions, the Federal Reserve Bank of New York organized a consortium of companies to buy it out and cover the debts. Alan Greenspan, then the Fed chairman, eased monetary policy to restart capital markets, which were starting to freeze up. Long-Term Capital’s shareholders were wiped out, but none of the creditors took losses.

At the time, it may have seemed that regulators did the right thing. The bailout did not require upfront money from the government, and the world avoided an even bigger financial crisis. Today, however, that ad hoc intervention by the government no longer looks so wise. With the Long-Term Capital bailout as a precedent, creditors came to believe that their loans to unsound financial institutions would be made good by the Fed — as long as the collapse of those institutions would threaten the global credit system. Bolstered by this sense of security, bad loans mushroomed.

Of course, there were many reasons for the reckless lending and failures of risk management that led to the most recent systemic credit shocks. And we have now entered the realm of trillion-dollar bailouts, vast contagion across financial institutions, rapid deleveraging of banks and an economic crisis that some people are starting to compare to the Great Depression.

The Long-Term Capital episode looks small when viewed against all of that. But it was important precisely because the fund was not a major firm. At the time of its near demise, it was not even a major money center bank, but a hedge fund with about 200 employees. Such funds hadn’t previously been brought under regulatory protection this way. After the episode, financial markets knew that even relatively obscure institutions — through government intervention — might be able to pay back bad loans.

The major creditors of the fund included Bear Stearns, Merrill Lynch and Lehman Brothers, all of which went on to lend and invest recklessly and, to one degree or another, pay the consequences. But 1998 should have been the time to send a credible warning that bad loans to overleveraged institutions would mean losses, and that neither the Fed nor the Treasury would make these losses good.

What would have happened without a Fed-organized bailout of Long-Term Capital? It remains an open question. An entirely private consortium led by Warren E. Buffett might have bought the fund, but capital markets might still have frozen because of the realization that bailouts were not guaranteed.

And Fed inaction might have had graver economic consequences, especially if a Buffett deal had fallen through. In that case, a rapid financial deleveraging would have followed, and the economy would have probably plunged into recession. That sounds bad, but it might have been better to have experienced a milder version of a downturn in 1998 than the more severe version of 10 years later.

In 1998, there was no collapsed housing bubble, the government’s budget was in surplus rather than deficit, bank leverage was much lower, and derivatives markets were smaller and less far-reaching. A financial crisis related to Long-Term Capital, however painful, probably would have been easier to handle than the perfect storm of recent months.

The ad hoc aspect of the bailout created a precedent for what has come to be called “regulation by deal” — now the government’s modus operandi. Rather than publicizing definite standards and expectations for bailouts in advance, the Fed and the Treasury confront each particular crisis anew. Decisions are made as to whether a merger is possible, whether a consortium can be organized, what kind of loan guarantees can be offered and what kind of concessions will be extracted in return. So far, every deal — or lack thereof, in the case of Lehman Brothers — has been different.

While there are some advantages to leaving discretion in regulators’ hands, this hasn’t worked out very well. It has become increasingly apparent that the market doesn’t know what to expect and that many financial institutions are sitting on the sidelines, waiting to see what regulators will do next. Regulatory uncertainty is stifling the ability of financial markets to engineer at least a partial recovery.

John Maynard Keynes famously proclaimed that “in the long run we are all dead.” From the vantage point of 1998, today is indeed the “long run.”

We’re not quite dead, but we are seriously ailing. As we look ahead, we may be tempted again to put off the hard choices. But perhaps the next “long run,” too, is no more than 10 years away. If we take the Keynesian maxim too seriously, and focus only on the short run, our prospects will be grim indeed.

Tyler Cowen is a professor of economics at George Mason University.

http://www.nytimes.com/2008/12/28/business/economy/28view.html?pagewanted=print

QueEx
01-09-2009, 11:05 AM
<font size="5"><center>
New jobs numbers portray an economy
in near free fall</font size></center>


McClatchy Newspapers
By Kevin G. Hall
Friday, January 9, 2009


WASHINGTON — The U.S. recession gathered steam in December as employers shed another 524,000 jobs, the unemployment rate leapt half a percentage point to 7.2 percent, the length of the average workweek fell to a record low and job losses were spread widely across almost all sectors of the economy, the government said Friday.

December's unemployment rate was the highest since January 1993, and was up by much more than expected over November's rate of 6.7 percent, according to the Labor Department. The December job losses brought the full-year total to more than 2.6 million.

There was little to cheer in the report from the Bureau of Labor Statistics. Although the December job losses were just a touch higher than the consensus forecast, many analysts think that they'll be revised next month.

Several state employment offices saw their computer systems crash in December with the soaring number of people who were seeking jobless benefits, and this may have resulted in a number lower than it really is.

The Labor Department also revised its employment reports from October and November, noting that job losses in those months were worse than first reported. Employers rid themselves of 423,000 jobs in October, not the originally reported 320,000, and 584,000 positions in November, not the 533,000 first reported by the BLS.

While the steep jump in unemployment and mounting job losses grabbed the headlines, there was even more troubling news buried deeper down in the report. The BLS said that the average hourly workweek for production and nonsupervisory jobs had shrunk 0.2 percent to 33.3 hours. That marks the lowest that this number has registered since the government started compiling these statistics in 1964.

"The message in the decline in hours worked to a record low is that more big job losses are coming," said Mark Zandi, chief economist of Moody's Economy.com, a forecaster in West Chester, Pa. "Employers first cut their employees' hours and then their jobs if business doesn't quickly improve."

It's hard to see how business will improve anytime soon. The December jobs numbers point to an economy in near free fall, as the BLS said 1.9 million jobs had been lost in the final four months of 2008. In all, 11.1 million Americans are thought to be unemployed.

"In December, job losses were large and widespread across most major industry sectors," the BLS employment report said.

Manufacturers shed 149,000 jobs in December and 791,000 for all of last year. The biggest manufacturing losers were metal-makers and companies that make cars and car parts. Construction fell by 101,000 jobs in December and by 899,000 since its peak in September 2006.

Retailers dropped 67,000 positions in December and 522,000 last year, more than half of those jobs lost in the last four months of 2008. Warehousing and transport employment fell by 24,000 jobs in December, while the information industry lost 20,000 positions. Food services fell by 20,000 last month.

Only health care showed robust growth, adding 32,000 jobs in December and 372,000 positions last year. "The decline in jobs across so many industries and occupations is disturbing. There is no safe place in the job market," Zandi said.

In another troubling indicator, the number of involuntary part-time workers, those who want to work full time but can't find such jobs, rose to 8 million in December and increased by 3.4 million for all of last year.

Additionally, the number of long-term unemployed — jobless for 27 weeks or more — rose to 2.6 million in December and increased by 1.3 million for all of 2008. This number essentially doubled as many of the unemployed remained that way for much of the year.

http://www.mcclatchydc.com/251/story/59365.html

BoyJupiter
01-11-2009, 02:12 PM
<font size="5"><center>As U.S. income stagnates,
Democrats reject free trade</font size></center>


http://media.mcclatchydc.com/smedia/2007/07/31/18/112-20070731-FREETRADE.small.prod_affiliate.91.jpg


By Kevin G. Hall
McClatchy Newspapers
August 1, 2007

WASHINGTON — The Democratic-led Congress won’t give President Bush the special authority he needs to negotiate future free-trade deals. The Senate is moving on retaliatory trade legislation against China. The House of Representatives won’t approve deals with three small neighboring Latin American countries. Global trade talks are near collapse.

Washington's mood on free trade hasn’t been this negative in at least two decades, and a pullback is evident. Whether this becomes a full-blown return to protectionism remains to be seen. But for now Americans, and the politicians they elect to represent them, are in no mood to expand international trade.

“For decades we took for granted that everyone agreed with us economists that free trade is good, protectionism is bad. Somewhere along the way, that stopped being the conventional wisdom,” acknowledged U.S. Trade Representative Susan Schwab, in an interview with McClatchy Newspapers. “And whereas the default vote on a trade bill in Congress used to be a ‘yes’ vote, the default vote on a trade bill now in Congress is a ‘no’ vote.” Why? Because lots of people are no longer convinced that a rising tide of trade lifts all boats — and there's evidence to back them up.

For three decades, the richest 10 percent of Americans have been growing even richer much faster than everyone else. Over the past five years, real wages for all the rest of American workers have been almost flat. Many blame globalization.

During a mid-July congressional hearing, Federal Reserve Chairman Ben Bernanke contended that education levels largely determine income inequality. But he was angrily interrupted by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, who declared, “Mr. Bernanke, that’s simply not true.”

Frank said that the 29 percent of Americans who have bachelor’s and even master's degrees haven't seen real income growth, on average, over the past five years. That's what Democrats in Congress are focused on, he said.

“As long as we have the current situation … you are going to see the kind of gridlock where trade promotion (authority), immigration and other issues don’t go anywhere,” he warned. “And I just urge people … help us diminish inequality or you will have continued economic gridlock."

Frank quoted repeatedly from a new report published by the Financial Services Forum, a think tank run by President Bush’s close friend, former Commerce Secretary Donald Evans. The report was co-written by Matthew Slaughter, a former member of Bush’s Council of Economic Advisers.

The report concluded that “over time, the pressures of global engagement spread economy-wide to alter the earnings of even those not directly exposed to international competition.”

Since 2000, the report said, most American workers have seen meager income growth. Only “a small share of workers at the very high end has enjoyed strong growth in incomes.” This occurred despite strong productivity growth, which in the past raised wages and salaries.

“Real income growth for workers has not been evenly distributed across all workers. That economic reality has an important political” consequence, Slaughter said in an interview.

Small but already negotiated trade deals with Panama, Colombia and Peru are being held up. While those deals wouldn't affect the U.S. economy greatly, given how small those economies are, they're important to those countries and their blockage sends signals worldwide about changing U.S. attitudes.

Meanwhile, Asian nations continue integrating into the fast-growing Chinese economy's sphere of influence.

For now, the only trade-related legislation moving on Capitol Hill tends toward protecting U.S. domestic interests at the expense of opening markets more to competition from overseas.

Last week, the Senate Finance Committee passed, by a 20-1 vote, bipartisan legislation to force the Commerce Department to weigh whether another country is deliberately undervaluing its currency when considering whether to impose unfair trade penalties against foreign goods. The target was China, but that standard could be applied to other Asian nations too.

By the end of September, Congress is expected to pass bills that would expand federal trade-adjustment assistance to a wider array of U.S. workers whose jobs have been lost to overseas competition. These could include engineers, software designers, accountants, call-center agents, even computer-aided architectural designers.

This shift in opinion against a long-dominant presumption that free trade provides broad net benefits to the U.S. economy is rooted not only in the experience of stagnant incomes, but it's also gaining intellectual respectability as economic theory. Alan Blinder, a Princeton economist and a former vice chairman of the Federal Reserve, was a lifelong free-trader, like most economists, until he began looking hard at how globalization is evolving.

Recently he shocked free-trade orthodoxy by warning that modern technology and trade practices will put at risk as many as 40 million American jobs within a decade or two.

Blinder doesn't champion a return to protectionism in the form of tariffs and trade barriers. Instead, he believes that government must do far more to help workers displaced by trade, that the U.S. education system must aim to train people for jobs that can't be performed abroad and that the tax code should give incentives to firms to produce here.

The Financial Services Forum report backs similar solutions as necessary to head off a turn toward outright protectionism, which helped prolong the Great Depression in the 1930s.

Yet with the 2008 presidential election looming and polls showing widespread public anxiety about globalization, neither party’s candidates are trumpeting free trade.

“I think we definitely see evidence of anxiety. We see evidence unfortunately of a politicization of trade and increased partisanship about trade. … It is unfortunate and it does present real challenges,” said Schwab, the U.S. trade representative.

Ironically, all the anguish about trade is occurring when U.S.-made exports are booming. The strong global economy and the dollar's slumping value helped U.S. exports to grow by 6.4 percent from April through June, which is definitely good for U.S. business.

Commerce Secretary Carlos Gutierrez said last Friday that U.S. exports have grown since 2004 at about an 8.3 percent annual rate, thanks in no small part to the Bush administration's free-trade policies. But Democrats are focused more on the lack of income growth among ordinary Americans, and therein lies the rub when Republicans and Democrats seek to set economic policies.

To read the Financial Services Forum report, go to Financial Services Forum , then click on "issues," then on "trade and globalization."

2007 McClatchy Newspapers

http://www.mcclatchydc.com/226/story/18562.html

Props, This article just helped me with an assignment.

BGOL is the shit.

Greed
02-01-2009, 01:36 PM
Whaples, Consensus on the Great Depression
Posted on Thursday, January 15th, 2009
By Amity Shlaes

One of the things we’ve been thinking about at the Council is the meaning of the New Deal and its impact on the Great Depression. We also talked a lot about it in my course at NYU/Stern. I get the impression some colleagues believe that the professional consensus is that the New Deal worked, economically. At Newsweek Daniel Gross sounds pretty certain of himself when he mocks those who are skeptical about the New Deal. Daniel writes that I, “George Will, and assorted libertarians cling bitterly to the notion that the New Deal didn’t work, that FDR’s policies of regulatory reform and sharply increased government spending were an abject failure, that the economy didn’t turn around until the day Japanese bombers dropped their payloads on Pearl Harbor. They believe Keynesian-style stimulus didn’t work in the 1930s, so it won’t work now.”

Back in the 1990s the Journal of Economic History published analysis of a survey of economic historians on their opinions about various events in history. (I want to thank the Beacon and Marginal Revolution, who pointed this out to me). This survey was well before the current stimulus was a gleam in President-elect Obama’s eye, or the bailout a gleam in Secretary Paulson’s eye. The author, Robert Whaples, put forward the following proposition in an anonymous survey of randomly selected economic historians. Some were trained more as historians and some were economists.

“Taken as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression.”

A full seventy-four percent of historians disagreed. That’s a high rate of New Deal supporters — but still leaves one in four on the other side, not supporting.

Economists had a different reply. Forty-nine percent of the economists agreed, or agreed with provisos, with the idea that the New Deal made the Depression worse. Fifty-one percent disagreed.

In other words, there’s a big debate over government’s role, and no consensus at all among those who emphasize numbers when they look at this period. The late Arthur Schlesinger (historian, not economist) wrote, quoting someone else, that history is an argument without end, and concluded “that is why we love it so.” That is why most of us love it so, too.

Robert Whaples, the author of that original paper, emailed today with an update. Whaples wrote that in 2007 he did do a random sample of history department members, which is different from economic historians. To this group, Whaples put forward the following statement:

“Taken as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression.”

Here are their responses in percentage terms:
1 (strongly disagree) 35
2 (disagree) 49
3 (neutral) 5
4 (agree) 5
5 (strongly agree) 5

To me this Whaples work suggests that the farther away from econ you get, the lefter you get when it comes to your New Deal take.

What about that the question of whether the war ended the Great Depression? Dan in Newsweek seems to think that’s a nondebatable. But it is debatable. Even members of the new administration provide evidence for that. Check out Christina Romer’s paper which emphasizes monetary policy as the conclusion to the Depression (NBER). Hunting around (http://www.marginalrevolution.com/marginalrevolution/2008/11/what-ended-the.html) I see that Tyler Cowen has written about Dr Romer.

http://blogs.cfr.org/shlaes/2009/01/15/whaples-consensus-on-the-great-depression/

thoughtone
02-03-2009, 10:08 AM
Keep in mind the revisionist rhetoric spewed daily by the opposition.

Paul Krugman Schools George Will On The Great Depression

source: Huffington Post (http://www.huffingtonpost.com/2008/11/17/paul-krugman-schools-geor_n_144298.html)

On ABC's This Week, conservative pundit George Will took up the case against Franklin Roosevelt's New Deal, arguing that it sent confusing signals to capitalists (who apparently might otherwise have pursued lucrative deals in the 1930s market place) and turned a depression into the Great Depression.

Thankfully, Nobel laureate Paul Krugman was around to remind Will of some history -- that the economy improved after the New Deal, and that it was FDR's attempt to balance the budget in 1937 (a move favored now by many conservatives) that then cut into that progress.

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thoughtone
02-03-2009, 10:25 AM
This is how this thread was started, portraying how conservative economics had this thing under control. So much for quoting right wing republican op ed pieces.:lol:

In this economy, the 'R' word means resilient
Despite major blows, the US sees 10 strong quarters of growth.
By Mark Trumbull | Staff writer of The Christian Science Monitor

Near-record energy prices. Hurricane devastation and displacement. Rising interest rates, with the Federal Reserve expected to raise its short-term rate to 4 percent Tuesday.
It all spells trouble for the US economy, right?

Possibly. Yet for years now, the world's largest economy has shown an impressive ability to absorb shocks and keep rolling ahead.

Among the latest signs are healthy boosts in consumer spending, worker incomes, and the nation's output of goods and services. That output, known as gross domestic product (GDP), expanded at a 3.8 percent annual pace in the third quarter, which includes the immediate aftermath of hurricanes Katrina and Rita, according to the government's preliminary estimate.

The number, stronger than analysts expected, suggests that the economy retains many of the strengths that helped America move through the dotcom bust, the 9/11 attacks, and corporate scandals like Enron with only a mild recession a few years ago.

The economy hasn't yet escaped cyclical swings entirely. But observers say the levers of finance and the gears of production have become better managed, more flexible, and less volatile. And for all its agility, the economy also benefits from gargantuan scale - with some $12 trillion in annual output.

"The US economy is this massive thing," not easily knocked off track, says Brian Wesbury, an economist at Claymore Securities in the Chicago area. Now in particular, he adds, "This economy has tremendous momentum."

Consider this: Last week's news marks the 10th straight quarter of 3 percent or greater growth in annual GDP. That's the longest such streak since the mid-1980s.

In the intervening years, business cycles seem to be getting smoother. The economy's slide in 2001 was so shallow that it has been almost 15 years since GDP has shrunk for consecutive quarters. And with the exception of 1991, you have to look back to 1982 to find a time when the economy was smaller at the end of the year than it was at the beginning.

Of course, an economy with smoother business cycles still endures hardship and challenges. Poverty has persisted even in an era of generally strong growth. Hurricanes this year and last have meant upheaval for millions of people.

Nor is there a guarantee of smooth sailing ahead. With the prospect of high heating bills this winter, consumer confidence as measured by the University of Michigan has plunged in the past two months to well below its 2001 valley.

A slowing housing market and higher interest rates are having an impact, too. Rising home values until now have buoyed consumers, providing a new source of wealth to tap. Meanwhile, low interest rates helped spur consumers to take a higher ratio of debt to income than in the past.

Now, as rates rise, some foresee a large brake on consumer spending.

Yet for all the challenges, economists generally don't see recession clouds on the horizon. Consumer spending rose 0.5 percent in September and incomes went up 1.7 percent, the biggest rise this year, the Commerce Department reported Monday.

"2006 looks like it's going to be a pretty good year," with about 3 percent growth, says Mark Vitner, an economist at Wachovia Corp., a bank based in Charlotte. N.C. "I think there's very little downside risk."

This year's final quarter, he warns, could see some slowing - to about 2.5 percent, he figures.

Many economists expect slower growth, but no decline, in consumer spending. Other components of GDP, such as exports, government spending, and business investment, are also moving higher.

"The biggest mistake of economists over the past 20 years" has been to be too pessimistic, Mr. Vitner says. "We've consistently underestimated growth."

What explains its vitality?

• The shift to a service economy. Some of the more volatile manufacturing industries constitute a smaller share of the economy today. The rise of service industries has given the economy greater breadth and balance.

• Better information and management. A widely held view is that policymakers at the Fed, and business leaders, now have timelier data on the economy. Corporations manage their inventories more wisely. The Fed, while still often criticized, has a stronger reputation for fighting inflation without hurting the economy's natural growth.

• Flexible markets. Fed Chairman Alan Greenspan has repeatedly cited a wave of deregulation as a crucial factor enabling the economy to cushion shocks. In labor markets, growing flexibility has meant ongoing layoffs, but it also has spurred job creation that has kept unemployment low.

• New financial tools. In a recent speech, Mr. Greenspan said that new instruments for spreading risks have helped create "a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter century ago."

• Worker productivity. The rapid growth of labor output per hour in recent years has allowed for stronger economic growth without fueling inflation.

Also, foreign governments and investors are now happy to invest in US bonds, allowing the US to become the world's great debtor. Economists say that imbalance will need to ease eventually.

Still, for all the genuine concerns out there, the "R word" that most economists are using is still resilience, not recession.

As economist Nariman Behravesh of Global Insight puts it, "We seem to be able to absorb serial shocks."

http://www.csmonitor.com/2005/1101/p01s01-usec.html

Greed
02-15-2009, 09:50 AM
News Flash: Economists Agree
By Greg Mankiw
Saturday, February 14, 2009

The recent debate over the stimulus bill has lead some observers to think that economists are hopelessly divided on issues of public policy. That is true regarding business cycle theory and, specifically, the virtues or defects of Keynesian economics. But it is not true more broadly.

My favorite textbook covers business cycle theory toward the end of the book (the last four chapters) precisely because that theory is controversial. I believe it is better to introduce students to economics with topics about which there is more of a professional consensus. In chapter two of the book, I include a table of propositions to which most economists subscribe, based on various polls of the profession. Here is the list, together with the percentage of economists who agree:

1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
2. Tariffs and import quotas usually reduce general economic welfare. (93%)
3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
5. The United States should not restrict employers from outsourcing work to foreign countries. (90%)
6. The United States should eliminate agricultural subsidies. (85%)
7. Local and state governments should eliminate subsidies to professional sports franchises. (85%)
8. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
9. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
10. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
11. A large federal budget deficit has an adverse effect on the economy. (83%)
12. A minimum wage increases unemployment among young and unskilled workers. (79%)
13. The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
14. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

If we could get the American public to endorse all these propositions, I am sure their leaders would quickly follow, and public policy would be much improved. That is why economics education is so important.

Note that the proposition about fiscal policy (#4) does not distinguish between taxes and spending as the best tool for purposes of macro stabilization. Maybe that question should be added in a future poll. I doubt, however, that the answer would make it onto this list of widely agreed upon propositions.

http://gregmankiw.blogspot.com/2009/02/news-flash-economists-agree.html

Greed
02-15-2009, 10:00 AM
This is how this thread was started, portraying how conservative economics had this thing under control. So much for quoting right wing republican op ed pieces.:lol:
So the economy didn't record 10 quarters of growth?

Obviously there is a difference between us. I don't buy into the "Death Spiral" talk and you do. Enjoy your $12 trillion dollars of government spending in less than two years.

Cruise
02-15-2009, 12:54 PM
News Flash: Economists Agree
By Greg Mankiw
Saturday, February 14, 2009

The recent debate over the stimulus bill has lead some observers to think that economists are hopelessly divided on issues of public policy. That is true regarding business cycle theory and, specifically, the virtues or defects of Keynesian economics. But it is not true more broadly.

My favorite textbook covers business cycle theory toward the end of the book (the last four chapters) precisely because that theory is controversial. I believe it is better to introduce students to economics with topics about which there is more of a professional consensus. In chapter two of the book, I include a table of propositions to which most economists subscribe, based on various polls of the profession. Here is the list, together with the percentage of economists who agree:

1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
2. Tariffs and import quotas usually reduce general economic welfare. (93%)
3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
5. The United States should not restrict employers from outsourcing work to foreign countries. (90%)
6. The United States should eliminate agricultural subsidies. (85%)
7. Local and state governments should eliminate subsidies to professional sports franchises. (85%)
8. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
9. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
10. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
11. A large federal budget deficit has an adverse effect on the economy. (83%)
12. A minimum wage increases unemployment among young and unskilled workers. (79%)
13. The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
14. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

If we could get the American public to endorse all these propositions, I am sure their leaders would quickly follow, and public policy would be much improved. That is why economics education is so important.

Note that the proposition about fiscal policy (#4) does not distinguish between taxes and spending as the best tool for purposes of macro stabilization. Maybe that question should be added in a future poll. I doubt, however, that the answer would make it onto this list of widely agreed upon propositions.

http://gregmankiw.blogspot.com/2009/02/news-flash-economists-agree.html

Wow!

The next generation will look back on this and think we were crazy (like looking back at a textbook from the 50s/60s).

Greed
02-15-2009, 01:28 PM
Wow!

The next generation will look back on this and think we were crazy (like looking back at a textbook from the 50s/60s).
You'll have to be more clear. We'll be looked at as crazy because of what economist agree about or that we ignore what economist agree about?

Cruise
02-15-2009, 01:52 PM
You'll have to be more clear. We'll be looked at as crazy because of what economist agree about or that we ignore what economist agree about?

The only thing that makes sense is 7, ending subsidies for pro sports teams (and maybe 6).

Now, for the big question, who sponsored this so-called study of what economists think?

It's hard to believe most ecnomists would believe this. But, it would explain why the money and the economy are wrecked.

thoughtone
02-15-2009, 05:44 PM
So the economy didn't record 10 quarters of growth?

Obviously there is a difference between us. I don't buy into the "Death Spiral" talk and you do. Enjoy your $12 trillion dollars of government spending in less than two years.

So the economy didn't record 10 quarters of growth?

That is an understatement!

Obviously there is a difference between us. I don't buy into the "Death Spiral" talk and you do.

Ignorance is bliss, especially when you are trying to justify an ideology.

Enjoy your $12 trillion dollars of government spending in less than two years.

No, no. $10.5 trillion of that was accrued by the GOP. And the return of the Iraqi troops has not been factored in to that either.

Revisionism is part of your DNA.

Greed
02-15-2009, 06:28 PM
That was actually funny. What liberal blog did you get that accrued line from?

thoughtone
02-16-2009, 10:19 AM
That was actually funny. What liberal blog did you get that accrued line from?

I use English. What do use use?

source: Associated Press (http://asia.news.yahoo.com/081109/ap/d94be7mo0.html)

Sunday November 9, 9:17 PM

THE DEFICIT: A few hundred billion here and there, soon you've added another trillion

Even before an economic slump that may morph into a full-blown recession and the $700 billion financial bailout, Obama wasn't facing a pretty budget picture.

You may not have noticed the news last month that the deficit registered an ugly $455 billion for the budget year that ended Sept. 30. That is a new record in dollar terms but not quite as bad as the deficit Clinton faced when measured against the size of the economy. That is the way most economists prefer to measure deficits and whether they are too big for the nation's fiscal good.

But hold on. The deficit could double in the current year after accounting for the costs of the bailout, further erosion in tax revenues due to the sour economy and a second relief bill exceeding $150 billion.

Something else you may not have noticed: <SPAN style="BACKGROUND-COLOR: #ffff00">The national debt is now about $10.5 trillion, almost double the debt that Bush inherited eight years ago. Last month Congress had to raise the legal limit on the size of the debt to $11.3 trillion to accommodate borrowing to finance the bailout.</SPAN>

With the economy so lousy, the deficit is not a big concern in the near term. In fact, Obama and Democrats controlling Congress are likely to press for new public works spending and other deficit-financed stimulus steps to try to jolt the economy out of its slump.

Over the longer term, however, big budget deficits in the range of $500 billion or more for years on end cannot help but put a crimp in Obama's priority items like his proposed expansion in health care. Otherwise, huge deficits might lead to interest rates too high for the economy's good.

For those reasons _ coupled with the unsustainable demands on Medicare and Social Security as baby boomers retire _ closing deficit simply has to return as an issue.

Actually balancing the budget is probably out of the question in Obama's first term and is not likely to even be a goal. Rather, economic advisers such as former Treasury Secretary Robert Rubin advocate keeping deficits in the range of 2 percent _ or about $300 billion in today's dollars _ of the size of the economy once things stabilize.

Greed
02-24-2009, 07:54 PM
A Dollar Saved Is Not a Dollar Hoarded
By George Reisman
February 24, 2009

Saving is the foundation of capital accumulation, which in turn is the foundation of increasing production, employment, and credit. Saving is the act of abstaining from consuming funds that have been earned in the sale of goods or services.

Saving does not mean not spending. It does not mean hoarding. It means not spending for purposes of consumption. Abstaining from spending for consumption makes possible equivalent spending for production. Whoever saves is in a position to that extent to buy capital goods and pay wages to workers, to lend funds for the purchase of expensive consumers’ goods, or to lend funds to others who will use them for any of these purposes.

It is necessary to stress these facts because of the prevailing state of utter ignorance on the subject. Such ignorance is typified by a casual statement made in a recent New York Times news article. The statement was offered in the conviction that its truth was so well established as to be non-controversial. It claimed that “A dollar saved does not circulate through the economy and higher savings rates translate into fewer sales and lower revenue for struggling businesses.” (Jack Healy, “Consumers Are Saving More and Spending Less,” February 3, 2009, p. B3.)

The writer of the article apparently believes that houses and other expensive consumers’ goods are purchased out of the earnings of a single week or month, which is the normal range of time between paychecks. If that were the case, no savings would be necessary in order to purchase them. In fact, of course, the purchase of a house typically requires a sum equal to the purchaser’s entire income of three years or more; that of an automobile, the income of several months; and that of countless other goods, too large a fraction of the income of just one pay period to be affordable out of such limited funds.

In all such cases, a process of saving is essential for the purchase of consumers’ goods. The savings accumulated may be those of the purchaser himself, or they may be borrowed, or be partly the purchaser’s own and partly borrowed. But, in every case, savings are essential for the purchase of expensive consumers’ goods.

The Times reporter, and all of his colleagues, and the professors who supposedly educated him and his colleagues, all of whom spout such nonsense about saving, also do not know other, even more important facts abut saving. They do not know that saving is the precondition of retailers being able to buy goods from wholesalers, of wholesalers being able to buy goods from manufacturers, of manufacturers, and all other producers, being able to buy goods from their suppliers, and so on and on. It is also the precondition of sellers at any and all stages being able to pay wages.

Such expenditures must generally be made and paid for prior to the purchaser’s receipt of money from the sale of his own goods that will ultimately result. For example, automobile and steel companies cannot pay their workers and suppliers out of the receipts from the sale of the automobiles that will eventually come in as the result of using the labor and capital goods purchased. And even in the cases in which the payments to suppliers are made out of receipts from the sale of the resulting goods, the seller must abstain from consuming those funds, i.e., he must save them and use them to pay for the capital goods and labor he previously purchased.

In contrast, the Keynesian reporters and professors believe that sellers do nothing but consume or hoard cash. They are too dull to realize that if that were really the case, there would be no demand for anything but consumers’ goods. This becomes clear simply by following the pattern of the Keynesian textbooks in allegedly describing the process of spending.

Thus a consumer buys, say, $100 dollars worth of shirts in a department store; the owner of the department store, following his Keynesian “marginal propensity to consume” of .75, then buys $75 worth of food in a restaurant, and allegedly hoards the other $25 of his income; the owner of the restaurant then buys $56.25 (.75 x $75) worth of books, while allegedly hoarding the remaining $18.75 of his income; and so on and on. Now, unknown to the Keynesians, if such a sequence of spending actually took place, all that would exist is a sum of consumption expenditures and nothing else.

The fact is that most spending in the economic system rests on a foundation of saving. The seller of the shirts will likely save and productively expend $95 or more in buying replacement shirts and in paying his employees and making other purchases necessary for the conduct of his business, and perhaps only $5 on consumption. And so it will be for those who sell to him, or to the suppliers of his suppliers, or to the suppliers of those suppliers, and so on.

Any business income statement can provide a simple confirmation of such facts. The ratio of costs to sales revenues that can be derived from it, is an indicator of the ratio of the use of savings to make expenditures for labor and capital goods relative to sales revenues. For the costs it shows are a reflection of expenditures for labor and capital goods made in the past. The saving and productive expenditure out of current sales revenues will show up as costs in the future. The higher is the ratio of costs to sales, the higher is the degree of saving and productive expenditure relative to sales revenues. A firm with costs of $95 and sales revenues of $100 is a firm that can be understood as saving and productively expending $95 out of its $100 of sales revenues. This relationship applies throughout the economic system.

George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. He is also a Senior Fellow at the Goldwater Institute. His web site is www.capitalism.net and his blog is www.georgereisman.com/blog/.

http://www.realclearmarkets.com/articles/2009/02/a_dollar_saved_is_not_a_dollar.html

QueEx
03-29-2009, 11:43 PM
<font size="5"><Center>
Is the worst over?
Some economists see glimmer of hope</font size></center>



McClatchy Newspapers
By Kevin G. Hall
March 27, 2009


WASHINGTON — With the Dow Jones Industrial Average rising around 20 percent over the past few weeks, a down Friday notwithstanding, the question on many lips is whether the stock market has hit bottom and, if so, when might the broader economy follow?

Stock prices often reflect expectations of how the economy will be faring six months or so into the future. If the recent rise in stock prices reflects that the market has bottomed out and is starting a bull run — as some prominent analysts tentatively suggest — that would point to a turnaround for the economy by late summer or early fall.


Few analysts are willing to declare that we've hit bottom without hedging, especially since there's been plenty of premature speculation before about a market bottom during the past 16 months of recession. As if to mock the budding optimism, the Dow closed down Friday by 148.38 points to 7,776.18.

Most analysts now agree, however, that there are some encouraging shafts of light after months of pitch-black news.

"The best news now is that despite the worst . . . daily litany of horrible news, the strongest renewed bank fears, despite all of that, we've got stocks today essentially where they were in October," said James Paulsen, chief investment strategist for Wells Capital Management, owned by the giant bank Wells Fargo.

In October, all three asset classes — stocks, bonds and commodities such as oil and farm products — were in freefall. Today, stocks are up roughly 20 percent in the past two weeks, the biggest such short-term rally since 1938.

"Despite some of the worst news, stocks have stopped deteriorating and have put in what I think is a relatively strong bottom," Paulsen said.

He's not alone in spying a glimmer of hope.

"I think the worst is behind us," said James Dunigan, the managing director of investment for PNC Wealth Management in Pittsburgh.

Dunigan points to recent better-than-expected data on retail sales, which bumped up in January and held in February, as well as an unexpected February increase in sales of existing homes. New data this week showed a 3.4 percent February increase in orders of durable goods — big-ticket expenditures — which added a dose of feel-good.

"You are starting to get some whiffs of that in some of the indicators that are starting to come out. . . . All of the news isn't as consistently bad as we saw," Dunigan said. "I don't think we need to get a lot of good news. We need to get some consistently less-bad news."

The stock market is powered by confidence. When confidence is high, stocks run like a bull; when confidence is lacking, the market hibernates like a bear. Rarely has confidence plunged as in the period after September's collapse of investment bank Lehman Brothers and the government bailout of insurer American International Group. Stocks rose in the first two months after Barack Obama won the presidential election, but slumped badly again from the first of the year through early March.

Since September, however, Federal Reserve Chairman Ben Bernanke has gone into overdrive to reverse the recession. The Fed cut short-term lending rates to zero. It's doubled its balance sheet to $2 trillion by making loans across the economy. Bernanke announced a $1.2 trillion program in mid-March that's designed to drive down mortgage rates, which now are below 5 percent for 30-year loans. That's driving refinancings, which are putting fresh cash in homeowners' hands and sparking home sales.

"There is a pattern here, and it is a positive one for a change," investment analyst Ed Yardeni wrote in a research note. "It seems that economic activity fell so sharply from September through January . . . that some key economic indicators may be starting to bounce off their bottoms for this cycle."

That's why many analysts are beginning to suggest, even if in qualified tones, that perhaps the market's headed up, with the economy to follow by fall.

"I think, frankly, we may have found a bottom for the stock market, although I think we don't go straight up from here," said David Wyss, the chief economist for credit rating agency Standard & Poor's.

It will take the economy longer to recover. The next big test comes on Friday, when the Labor Department reports unemployment data for March. Analysts forecast job losses of 540,000 to 700,000, but job numbers are always a lagging indicator. Unemployment will keep rising for months even after growth resumes, though the monthly totals should grow smaller as recovery takes hold.

In addition, weak corporate earnings reports could continue to weigh on stocks.

"For the consumer, you've got to decrease that (unemployment) number, and for the businesses, you've got to decrease that red ink," said Ken Goldstein, a veteran economist with the Conference Board, a New York economic research group.

Goldstein has long argued that jobs are a huge driver of consumer confidence, and consumer spending drives two-thirds of U.S. economic activity. People who don't have jobs or are worried that they'll lose theirs spend less. Once employers stop shedding so many jobs and show some profits, confidence will return slowly.

"Are we still losing both jobs and profits at the same pace as we did in the fourth quarter (of 2008)? Probably by the second quarter" — which begins in April — "that is going to ease a bit, but we're still going to be losing jobs right on through January of next year," he said. "We're still going to be in red ink through next January."

Plenty can still go wrong, too. Many analysts, including billionaire investor George Soros, fear that defaults on commercial real estate loans may unleash a new wave of economic pain.

In short, analysts clearly differ on whether the glass is half empty or half full, but just weeks ago, all of them saw the glass as near empty.

"In terms of the economy, though, I think we've got another six months of recession. The groundhog is still seeing his shadow," said Wyss, the Standard & Poor's analyst, hopeful that a stock-market bottom points to a recovering economy by October. "If you squint your eyes and look at the charts, we may have found a bottom there."

http://www.mcclatchydc.com/251/story/64992.html

QueEx
03-29-2009, 11:52 PM
http://media.mcclatchydc.com/smedia/2009/03/27/18/922-20090327-ECONOMY-bounce.small.prod_affiliate.91.jpg

<font size="3">

For Larger View Click:</font size> http://media.mcclatchydc.com/smedia/2009/03/27/18/159-20090327-ECONOMY-bounce.large.prod_affiliate.91.jpg

`

thoughtone
06-03-2009, 11:08 PM
Is going to get worse with GM and Chrysler bankrupted.

source: UPI (http://www.upi.com/Business_News/2009/06/01/Manufacturing-down-for-16th-straight-month/UPI-65011243869049/)

Manufacturing down for 16th straight month

TEMPE, Ariz., June 1 (UPI) -- U.S. manufacturing activity failed to grow in 13 of 18 U.S. manufacturing businesses in May, the Institute for Supply Management said Monday.

The institute's headline index, the Purchasing Managers Index, reached 42.8 in May, an improvement over April's score of 40.1, but still far below 50 points, which is the break-even point between contraction and growth.

While component indexes in inventories and employment continued to decline, the new orders index, a leading component, reached 51.1 after showing a contraction at 47.2 in April.

"While employment and inventories continue to decline at a rapid rate and the sector continued to contract during the month, there are signs of improvement," said Norbert Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

"May is the first month of growth in the New Orders Index since November 2007, with nine of 18 industries reporting growth," Ore said.

In May, business activity in nonmetallic mineral products, plastic and rubber products, machinery, food beverage and tobacco and printing industries grew, while business activity declined in textile manufacturing, furniture production, electronics, appliances and fabricated metal products.

Greed
08-02-2009, 07:17 PM
The Soaring Twenties
What made the decade before the Depression so special?
Thomas F. Cooley, 07.29.09, 12:00 AM ET

It's not surprising that there has been a resurgence of interest in the economics of the Great Depression--and not just because of the economic meltdown we've experienced over the past months. So much of what happened back then shaped economic policy, financial markets and even the way we thought about the economy for decades to come. Equally important, however, and much less discussed, is the decade prior to the Great Depression. This was a period of remarkable transformation, both economic and social. That the decade gave rise to a number of misguided policy responses (by both the Hoover and Roosevelt administrations) says a lot about how little influential people at the time understood what was driving that transformation.

The 1920s were a period of dramatic technological change that transformed the fundamental structure of the economy, altered the nature of the family and challenged the social norms of the 19th century. I stress technology, because it was technological change that improved the economic welfare of many. So it is a mistake, a hyperbolical gesture, to view the 20s as one of those regular episodes of excess that seem to mark American economic life. When the Depression hit, a lot of the policy responses were aimed at trying to turn back the clock--not on excess, but on the changes brought by technology. Those attempts failed because it was all but impossible to do.

The technological revolution of the 1920s was driven by the continued development and widespread adoption of the internal combustion engine, the development of electrical machinery and the spread of electrification to households and manufacturing. This great transformation led to a rise in productivity in the agricultural sector that remade society. It changed productivity in the household, and altered fundamentally the size and organization of households and the lives of women. And it improved productivity in the manufacturing sector to an extent that raised living standards for many and changed both the rewards, and the nature, of work.

By the early 1920s, the agricultural sector in the U.S. was suffering. Productivity in agriculture had increased throughout the period of the First World War as American farmers increased their yields with more intense cultivation aided by gasoline-powered tractors. The increasing mechanization of agricultural production meant that a farmer who required 40 to 50 hours of labor to grow 100 bushels of wheat in 1890 could do it with only 15 to 20 hours by 1930.

The increased productivity and yields meant that prices were depressed and rural incomes suffered. Many farmers faced foreclosure because of debts they had incurred to expand and mechanize. The problems in the agricultural sector provided further impetus for the rural-urban migration that was already underway.

Technology also had a profound impact on household production--the set of tasks that are necessary to run a household and maintain a family. In 1907, only 8% of households had electricity. By 1930, 68.2% were electrified. There were also corresponding increases in the availability of central heating, running water and indoor plumbing. These innovations made possible the adoption of new technologies for household production--washers, electric irons, refrigerators and so on. The effect of these changes on the household have been studied by Jeremy Greenwood and his co-authors. They were dramatic. In 1900, they estimate, household production required 58 hours a week. By 1975 the estimate is 18 hours per week. By liberating women from much of the drudgery of basic household work, these innovations increased the time available for leisure, education and for work in the market sector. These changes, together with the shift from a rural to an urban economy, caused changes in the size of families.

The most dramatic productivity changes were in the manufacturing sector. The introduction of electrically driven machinery to the manufacturing process had dramatically accelerated productivity in the 1920s. By 1929, more than 70% of the industry was powered by electricity. The iconic symbol of this productivity boom was the Model T Ford which, by 1928, rolled off the assembly line every 10 seconds. Before World War I, a Ford would cost the equivalent of two years' wages for the average worker. By the late 1920s it took about three months' earnings.

The increased productivity increased incomes and led to the mass production of automobiles, consumer durables, the radio, motion pictures and many other things that changed the nature of everyday life. Household credit expanded to facilitate the purchase of all these new durable goods.

Along with the rise in productivity in the manufacturing sector, so, too, was there a rise in the compensation of executives. The data tend to be somewhat anecdotal, but suggest that executive compensation rose sharply in the 1920s and that incentive-based compensation in the form of bonuses and stock ownership became more common. And there were some excesses. One case that provoked public outrage was that of Eugene Grace, the president of Bethlehem Steel, when it was revealed that he received a base salary of $12,000 and a bonus of more than $1.6 million in 1929. Even Babe Ruth provoked a bit of a backlash by holding out for a higher salary in 1930--all of $80,000. When asked why he should be making $5,000 more than President Hoover, he reportedly replied, "I'm having a better year than he is."

The increase in the rewards to skilled labor and the returns to ability led inevitably to a rise in inequality. It is one of the well-known characteristics of technological revolutions that a different set of skills are required. The rewards that accrue to the people who have those skills lead to a rise in inequality. As I reported a few weeks ago, the share of income earned by the top 10% peaked at close to 50% in 1928. It did not reach that level again until 2006.

This is a cursory account of what happened during what was a great decade of economic progress. There are some striking parallels to the decade preceding our recent financial crisis. The policy responses that created the most trouble in the 1920s and 1930s--that made the Depression "great"--were those that tried to undo the inevitable consequences of technological progress: trying to keep prices from falling, trying to keep wages high, and demonizing those who gained great wealth from the revolution in technology.

Let's hope we have learned that we need to understand what got us here and not simply try to turn back the clock. Let's also hope we have learned to dig deeper into the facts behind economic change, rather than revert to catchy but insubstantial slogans. Had Roosevelt understood the issues surrounding technology and social transformation more clearly, perhaps we wouldn't have the Great Depression as an economic bogey to react against today.

http://www.forbes.com/2009/07/28/great-depression-roosevelt-hoover-opinions-columnists-thomas-f-cooley.html

QueEx
08-02-2009, 07:24 PM
Well, well, well. Look what the wind, blew in.

QueEx

Greed
08-02-2009, 07:34 PM
Yeah, I finally found a couple of things worth posting.

Greed
08-02-2009, 07:34 PM
http://www.kauffman.org/uploadedFiles/ResearchAndPolicy/TheStudyOfEntrepreneurship/Anatomy%20of%20Entre%20071309_FINAL.pdf

Greed
10-27-2009, 03:04 PM
http://educationalrap.imeem.com/music/xY4REVq-/rhythm_rhyme_results_demand_supply/?d=1

http://www.educationalrap.com/music/flat-world-economics

I have to admit that some of these songs aren't half-bad.

Greed
11-08-2009, 06:49 PM
And the Answer Is…Productivity

I teach Economics 1 with an “audience response system” similar to the ones you see on TV game shows. Think of the “Lifeline” on “Who Wants to be a Millionaire?” Each student in the lecture has a little hand-held transmitter. They press the keys on the transmitter to give their opinions on issues or answers to questions. Their answers come directly into my laptop computer and are immediately projected in a bar chart on the screen, creating an opportunity for discussion.

The Question (http://3.bp.blogspot.com/_GhUVXaopHNE/SuOSTjrb1bI/AAAAAAAAAIU/W19F2O7lJTQ/s1600-h/econ+1+question.jpg)

The question on the right generated a good discussion this week. I asked students to respond A through E at the start of the lecture, which was about labor productivity and wages. Later in the lecture I then presented and explained the chart below which shows that the best answer is B. Productivity growth is highly correlated with compensation growth over time as predicted by basic economic theory and leaves relatively little for A, C, D, or E to explain. But before seeing the graph many guess another answer, and I suspect most people are surprised that there is so little to explain after you take productivity into account.

In the chart (http://3.bp.blogspot.com/_GhUVXaopHNE/SuOOHZLo0DI/AAAAAAAAAIM/3D9OACMPHsQ/s1600-h/comp+per+hr+and+prod.jpg), labor productivity (output per hour of work) and compensation (wages plus fringe benefits per hour of work) pertain to the nonfarm business sector in the United States. Compensation is adjusted for inflation by dividing by the price of nonfarm business output which corresponds with the output measure. In the past few years the consumer price index (CPI) has grown faster than the price index for nonfarm business output. So if you adjust compensation by the CPI rather than the price index for nonfarm business as in the chart, compensation per hour deviates slightly below the productivity line in recent years, but the basic story over the long haul is the similar.

http://johnbtaylorsblog.blogspot.com/2009/10/and-answer-isproductivity.html

Greed
01-26-2010, 09:35 PM
"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

http://www.youtube.com/watch?v=d0nERTFo-Sk

da_snitch
01-26-2010, 10:31 PM
http://philanthropy.com/news/philanthropytoday/4233/editorial-barack-obamas-volunteer-plan

Obama's lost idea. :smh:

Greed
02-14-2010, 08:52 AM
http://www.gallup.com/poll/125645/Socialism-Viewed-Positively-Americans.aspx

QueEx
02-14-2010, 09:30 AM
assist
<IFRAME SRC="http://www.gallup.com/poll/125645/Socialism-Viewed-Positively-Americans.aspx" WIDTH=780 HEIGHT=1500>
<A HREF="http://www.gallup.com/poll/125645/Socialism-Viewed-Positively-Americans.aspx">link</A>

</IFRAME>

jermaine_dupri_fan
03-18-2010, 07:26 PM
Better start teaching your kids Chinese cause thats who they will be working for. [/B]
:lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol:


:lol:

Greed
06-19-2010, 09:20 AM
The Most Damaging U.S. Deficit: Trust
More than nature and beaches have been harmed by the Gulf oil spill. Chris Farrell looks at the erosion of trust in government and business

By Chris Farrell

The tragic reverberations of the Apr. 20 explosion aboard the Deepwater Horizon offshore rig aren't letting up. The Gulf oil spill is an ecological disaster for the affected coastlines of Florida, Louisiana, Alabama, Mississippi, and Texas. The eventual economic damage will be substantial, too. The local fishing and tourism industries face bleak years. The Federal Reserve Bank of Atlanta recently calculated that some 132,000 jobs are at risk in the accommodation and food industries of metropolitan areas along the Gulf.

The financial damage extends far beyond the Gulf and its environs. BP (BP) has lost some 45 percent, or $80 billion, of its market value, suspended its dividend, and agreed to put $20 billion into an escrow fund to compensate victims of the oil spill. Offshore oil rigs and their workers are idle, with the Administration having placed a six-month moratorium on deepwater drilling.

That said, the most worrisome long-term economic impact of the Gulf spill lies elsewhere: The catastrophe is adding to the gradual erosion in trust in U.S. professional elites and major institutions, from government to business. It has hardly inspired confidence to watch the White House scramble to prove that President Barack Obama wasn't as detached from the crisis as he often seemed, or to witness the inability of the world's best oil engineers to stop the underwater gusher.

Confidence in the economy's commanding heights has taken a beating following a long run of scandals and malfeasance. The list includes everything from the Enron and Worldcom failures, Bernie Madoff's massive fraud, the subprime loan mess, the government rescues of Fannie Mae, Freddie Mac, and AIG (AIG), the controversy surrounding Goldman Sachs' (GS) collateralized debt obligations, and so on. The Tea Party movement may grab all the attention with its antigovernment rhetoric, but surveys have repeatedly shown that its sentiment is widely shared. For instance, a series of long-run surveys by the Pew Research Center find that only 22 percent of those surveyed say they can trust government. That's about the lowest measure in half a century. The ratings are similarly abysmal for large corporations and banks and other financial institutions: respectively 25 percent and 22 percent.

Trust isn't as easy to measure as land, labor, and capital. It's more like a recipe or a software protocol that allows for economic exchange and all kinds of innovation. Nobel Prize Laureate Kenneth Arrow famously remarked that "virtually every commercial transaction has within itself an element of trust." Societies with high levels of trust are fertile ground for developing large corporations and innovative enterprises. Low-trust societies feature people who don't like to do business with folks outside their family or community; smaller, family-run companies are the norm.

TRUST: AN ECONOMIC MULTIPLIER
There is compelling evidence that large economic benefits stem from both high levels of trust in institutions and a belief in the general trustworthiness of individuals in society. What's more, trust becomes increasingly vital to commerce as the products or services that are traded grow more sophisticated. It takes a lot more trust to buy a giant printing press—from a belief that it is well-made to confidence that repair services will keep it running—than to buy a simple commodity such as wheat.

"Along these lines sociologists, political scientists, and recently, economists have argued—and showed—that having a higher level of trust can increase trade, promote financial development, and even foster economic growth," says Paolo Guiliano, professor at the Anderson School of Management, UCLA. "Hence the more trust, the better for a country's economy."

And vice-versa.

There's the rub. Take the stock market. The decision to buy stock partly reflects an analysis of value and risk tolerance. But it's also an act of faith or trust that the underlying data is reliable and that the system is fair. Research by economists Luigi Guiso of the European University Institute, Paola Sapienza of Northwestern University, and Luigi Zingales of the University of Chicago suggests that trusting individuals are significantly more likely to buy stocks and risky assets after adjusting for wealth, legal protection, and a number of other factors. For instance, in studying Dutch investors, they find that trusting others increases the probability of buying stock by 50 percent and raises the share of wealth invested in stocks by 3.4 percentage points.

What then are the implications of a decline in trust in the fairness and functioning of financial markets? A Financial Trust Index created by Sapienza and Zingales in December 2008 shows that in the first quarter of 2010, 23 percent of Americans trusted the nation's financial system, down 2 percent from the previous quarter. Looking at the stock market section of the survey in particular, only 16 percent of respondents said they trusted it. "I think that trust is important in transactions, especially financial transactions," says Zingales. "It's hard to quantify but it's very important to decisionmaking and development."

Perversely, attempts to counter the decline in trust in the aggregate may be exercising a dampening effect on the economy's vitality. Since the collapse of Enron in 2001, the government has imposed an increasing number of checks and balances on business, ranging from the corporate accounting and reporting reforms of Sarbanes-Oxley to the current financial services reform bill currently being hammered out in Congress.

LACK OF TRUST STIFLES INNOVATION
It isn't just government. Businesses have also established internal checks and balances, administrative layers of compliance, and auditing rules and regulations, all geared toward reassuring investors and employees that breaches in trust won't happen. The time clock and the expense report calculated to the penny have been replacing trust and common sense.

Many of these efforts are well-intentioned. Taken together, much of the government and corporate regulatory state is now counterproductive. "When the workplace become less trusting it becomes less innovative," says John Helliwell, professor emeritus of economics at the University of British Columbia. "Successful companies turn the 'I' into a 'we' and the lack of trust converts a lot of 'wes' into an 'I'."

The most dangerous element in the burgeoning trust shortage may be the inability of the nation's political system to put its enormous debt and deficit on a downward trajectory. Right now, global investors are making an enormous bet that Congress, the White House and the Federal Reserve will manage that Herculean feat. The rate on U.S. Treasuries is remarkably low. Even more striking, the U.S. Treasury Inflation Protected Security is predicting that inflation will average slightly less than 2 percent over the next 5 years, and a fraction over 2 percent for 10 years.

This boils down to an additional matter of trust—that prickly political factions can somehow pull together to make difficult fiscal choices. Given the tone and substance of the nation's political discourse, it's almost impossible to imagine Washington getting down to business and enacting over the medium-and long-term the kind of political compromises that will be needed to embrace fiscal conservatism.

If investors in U.S. Treasuries are wrong, the crowd that makes its bets on rampant inflation and financial disarray—i.e., gold investors—may have the last laugh. With the yellow metal closing at $1247.2 on the Comex on June 17—up about 25 percent over the past year—you may already hear them chuckling.

Farrell is contributing economics editor for Bloomberg Businessweek. You can also hear him on American Public Media's nationally syndicated finance program, Marketplace Money, as well as on public radio's business program Marketplace. His Sound Money column appears on Businessweek.com.

http://www.businessweek.com/investor/content/jun2010/pi20100617_388244.htm

Greed
06-28-2010, 08:34 AM
Another Myth: Gov't Can Cure Economy's Ills
By THOMAS SOWELL
Posted 06/17/2010 06:44 PM ET

Sometimes you can read a book that will change your mind on some fundamental issue.

Rarely, however, is there just one page that can undermine or destroy a widely held belief. But there is such a page — Page 77 of the book "Out of Work" by Richard Vedder and Lowell Gallaway.

The widespread belief is that government intervention is the key to getting the country out of a serious economic downturn.

The example often cited is President Franklin D. Roosevelt's intervention, after the stock market crash of 1929 was followed by the Great Depression of the 1930s, with its massive and long-lasting unemployment.

This is more than just a question about history.

Right here and right now there is a widespread belief that the unregulated market is what got us into our present economic predicament, and that the government must "do something" to get the economy moving again. FDR's intervention in the 1930s has often been cited by those who think this way.

What is on that one page in "Out of Work" that could change people's minds? Just a simple table, giving unemployment rates for every month during the entire decade of the 1930s.

Those who think that the stock market crash in October 1929 is what caused the huge unemployment rates of the 1930s will have a hard time reconciling that belief with the data in that table.

Although the big stock market crash occurred in October 1929, unemployment never reached double digits in any of the next 12 months after that crash.

Unemployment peaked at 9%, two months after the stock market crashed — and then began drifting generally downward over the next six months, falling to 6.3% by June 1930. This was what happened in the market, before the federal government decided to "do something."

What the government decided to do in June 1930 — against the advice of literally a thousand economists, who took out newspaper ads warning against it — was impose higher tariffs, in order to save American jobs by reducing imported goods.

This was the first massive federal intervention to rescue the economy, under President Herbert Hoover, who took pride in being the first president of the United States to intervene to try to get the economy out of an economic downturn.

Within six months after this government intervention, unemployment shot up into double digits — and stayed in double digits in every month throughout the entire remainder of the decade of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started.

If more government regulation of business were the magic answer that so many seem to think it is, the whole history of the 1930s would have been different.

An economic study in 2004 concluded that New Deal policies had prolonged the Great Depression. But the same story can be found on one page in "Out of Work."

While the market produced a peak unemployment rate of 9% — briefly — after the stock market crash of 1929, unemployment shot up after massive federal interventions in the economy.

It rose above 20% in 1932 and stayed above 20% for 23 consecutive months, beginning in the Hoover administration and continuing during the Roosevelt administration.

As Casey Stengel used to say, "You could look it up." It is all there on that one page.

Those who are convinced that the government has to "do something" when the economy has a problem almost never bother to find out what actually happens when the government intervenes.

The very fact that we still remember the stock market crash of 1929 is remarkable, since there was a similar stock market crash in 1987 that most people have long since forgotten.

What was the difference between these two stock market crashes?

The 1929 stock market crash was followed by the most catastrophic depression in American history, with as many as one-fourth of all American workers being unemployed. The 1987 stock market crash was followed by two decades of economic growth with low unemployment.

But that was only one difference. The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock market crash — despite many outcries in the media that the government should "do something."

http://www.investors.com/NewsAndAnalysis/Article/537686/201006171844/Another-Myth-Govt-Can-Cure-Economys-Ills.aspx

thoughtone
06-28-2010, 09:03 AM
Another Myth: Gov't Can Cure Economy's Ills
By THOMAS SOWELL
Posted 06/17/2010 06:44 PM ET

Sometimes you can read a book that will change your mind on some fundamental issue.

Rarely, however, is there just one page that can undermine or destroy a widely held belief. But there is such a page — Page 77 of the book "Out of Work" by Richard Vedder and Lowell Gallaway.

The widespread belief is that government intervention is the key to getting the country out of a serious economic downturn.

The example often cited is President Franklin D. Roosevelt's intervention, after the stock market crash of 1929 was followed by the Great Depression of the 1930s, with its massive and long-lasting unemployment.

This is more than just a question about history.

Right here and right now there is a widespread belief that the unregulated market is what got us into our present economic predicament, and that the government must "do something" to get the economy moving again. FDR's intervention in the 1930s has often been cited by those who think this way.

What is on that one page in "Out of Work" that could change people's minds? Just a simple table, giving unemployment rates for every month during the entire decade of the 1930s.

Those who think that the stock market crash in October 1929 is what caused the huge unemployment rates of the 1930s will have a hard time reconciling that belief with the data in that table.

Although the big stock market crash occurred in October 1929, unemployment never reached double digits in any of the next 12 months after that crash.

Unemployment peaked at 9%, two months after the stock market crashed — and then began drifting generally downward over the next six months, falling to 6.3% by June 1930. This was what happened in the market, before the federal government decided to "do something."

What the government decided to do in June 1930 — against the advice of literally a thousand economists, who took out newspaper ads warning against it — was impose higher tariffs, in order to save American jobs by reducing imported goods.

This was the first massive federal intervention to rescue the economy, under President Herbert Hoover, who took pride in being the first president of the United States to intervene to try to get the economy out of an economic downturn.

Within six months after this government intervention, unemployment shot up into double digits — and stayed in double digits in every month throughout the entire remainder of the decade of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started.

If more government regulation of business were the magic answer that so many seem to think it is, the whole history of the 1930s would have been different.

An economic study in 2004 concluded that New Deal policies had prolonged the Great Depression. But the same story can be found on one page in "Out of Work."

While the market produced a peak unemployment rate of 9% — briefly — after the stock market crash of 1929, unemployment shot up after massive federal interventions in the economy.

It rose above 20% in 1932 and stayed above 20% for 23 consecutive months, beginning in the Hoover administration and continuing during the Roosevelt administration.

As Casey Stengel used to say, "You could look it up." It is all there on that one page.

Those who are convinced that the government has to "do something" when the economy has a problem almost never bother to find out what actually happens when the government intervenes.

The very fact that we still remember the stock market crash of 1929 is remarkable, since there was a similar stock market crash in 1987 that most people have long since forgotten.

What was the difference between these two stock market crashes?

The 1929 stock market crash was followed by the most catastrophic depression in American history, with as many as one-fourth of all American workers being unemployed. The 1987 stock market crash was followed by two decades of economic growth with low unemployment.

But that was only one difference. The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock market crash — despite many outcries in the media that the government should "do something."

http://www.investors.com/NewsAndAnalysis/Article/537686/201006171844/Another-Myth-Govt-Can-Cure-Economys-Ills.aspx


An economic study in 2004 concluded that New Deal policies had prolonged the Great Depression.

Annual right wing revisionism.


The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock market crash...


You left one littler thing out. Reagan left the greatest government debt the world had ever known. Which set the stage for the current greatest dept the world had ever known.

How can you take the so called market siders with any credibility.. I guess that is why Cheney said "Reagan proved deficits don't matter…" (http://www.bgol.us/board/showthread.php?t=208741)

Greed
10-12-2010, 07:19 PM
Do We Really Need a Central Bank?
By John Tamny

The financial crisis of not long ago has not surprisingly generated a great deal of anguish within the electorate. Americans were and continue to be a skeptical lot when it comes to the competence of the various federal bureaucracies which dot the Washington, DC landscape. Despite their skepticism about the competence of regulators, they were still disappointed when those empowered to oversee our financial system were seemingly caught unware by a banking collapse.

Rightly or wrongly, the US Federal Reserve has become one of the biggest targets within the financial bureaucracy when it comes to public distrust, and as a result, its ongoing purpose is increasingly being questioned. Some in the political class seek greater congressional oversight of our central bank, while others, including Rep. Ron Paul, would like the Fed to be abolished altogether.

The Fed's greatly reduced reputation naturally raises questions about why we have a central bank to begin with. Although the Fed presently engages in a wide array of activities, its adherents generally support its continued existence on three grounds: They expect it to manage inflation through manipulation of short-term interest rates; to issue a currency which facilitates exchange; and, most important, they see an essential role as "lender of last resort" to banks during periods of tight credit.

These Fed functions seem compelling at first glance, but given a careful rethink, it becomes apparent that much of what it does is either ineffective or superfluous, and could be handled much more skillfully outside this government-chartered monopoly. Contrary to the broadly held view that we need the Federal Reserve, logic says we'd be much better off absent a central bank that economist George Selgin terms "fundamentally destabilizing."

How the Federal Reserve came into existence. As the Fed was created in 1913, the vast majority of us have never known a world without it. In that sense it's important to recall that there was a time when banks issued their own currency, and there was no government-sponsored entity waiting in the wings when banks ran short of cash.

The United States surely did experience a number of financial crises - 1873, 1884, 1893, and 1907 - prior to the Fed's charter. But Selgin writes that "by almost any measure, the major financial crises of the Federal Reserve era - those of 1920-21, 1929-33, 1937-38, 1980-82, and 2007-2009 most recently - have been more rather than less severe than those experienced between the Civil War and World War I." If greater financial stability had been the main purpose of creating the Fed, then it has failed on that score.

Of course it's arguable that stability wasn't the sole reason the Fed came into existence as is often assumed. As writer G. Edward Griffin observed in The Creature from Jekyll Island, its unannounced purpose was initially to drive out competition that was increasingly crimping the profits of money-center banks.

According to Griffin, by 1910 the number of banks in the US was increasing at a very high rate, and the majority "were springing up in the South and West, causing the New York banks to suffer a steady decline of market share." In 1913, when the Federal Reserve Act was passed, non-national banks accounted for 71% of all banks, and they could claim 57% of total deposits. From 1900 to 1910 70% of the funding of corporations was generated internally, which meant that financial innovation inside and outside traditional money center banks threatened to make them irrelevant.

The Federal Reserve Act of 1913 would serve to halt the market share decline of the traditional banks, because those banks, according to Secrets of the Temple author William Greider, would have "dominance over the new central bank," and in the bargain they would "enjoy new insulation against instability and their own decline." To put it more simply, as large banks all, they would have access to cash during shortfalls thanks to the creation of an entity that would restore and perpetuate their dominance.

If not banking stability, then what? If it's agreed then that the Fed's initial purpose wasn't as elegant or innocent as is often assumed, it can then be asked whether it's doing a good job in other areas where it's deemed essential.

The control of inflation is a good place to start. But to judge the Fed's inflation fighting skills, it's useful to briefly discuss definitions of the inflation problem. The late Jude Wanniski defined inflation as a "decline in the monetary standard," or more clearly, a decline in the value of the dollar.

This is an important distinction because it can't be stressed enough that today's Fed views inflation in an entirely different way. For evidence, we need only reference a 2008 speech by outgoing Fed vice chairman Donald Kohn: "A model in the Phillips curve tradition remains at the core of how most academic researchers and policymakers - including this one - think about fluctuations in inflation." Kohn went on to note that "bringing overall inflation immediately back to the low rate consistent with price stability could be associated with a much higher rate of unemployment for a short time."

The Fed divines what it supposes to be inflationary pressures through rates of unemployment and capacity utilization within US factories, and it then manipulates the short term interest rate as a way of moderating them. If Kohn et al are to be believed, when an economy grows too much such that labor and capacity are in short supply, prices rise and there's an inflationary event.

The obvious problem here is that neither capacity nor labor are finite even within the US. But even if they were, US companies most definitely have access to the world's supply of labor and manufacturing capacity. In short, the Fed's view of inflation misrepresents what is always a monetary phenomenon. What the Fed presumes to be the cause of rising prices quite simply cannot be that, given both the dynamic and global nature of labor and capacity.

When US central bankers manipulate the short rate of interest, they do not do so to control the value of the dollar. So here too the Fed's interest rate policies have nothing to do with inflation. Worse, the manipulations are in and of themselves economically destabilizing in that their impact on rates across the yield curve drive economic actors to "reschedule" economic growth around the Fed's directional control of rates. Contrary to popular belief, the Fed does not manage inflation through the rate mechanism, and it also doesn't stimulate economic growth so much as it just moves it around.

So if we define inflation traditionally as a monetary probem-specifically as a decline in the market value of money - the Fed has failed impressively. When the Federal Reserve Act passed in 1913, a dollar purchased 1/20th of an ounce of gold, while today it purchases 1/1350th.

It should be noted here that the dollar's value is the preserve of the US Treasury as several Wainwright Economics publications have made plain. That said, if inflation is one metric by which we should judge our central bank, its role as an inflation fighter would not be a reason to keep it, as evidenced by the dollar's staggering decline since the Fed came into existence.

Without the Fed, where would we get our money? Implicit in this question is the suggestion that we need a government sanctioned issuer of money in order to foster economic growth. This assumption not only defies simple history, but it also mistakes the very purpose of money.

As Griffin and Selgin both make apparent, there were periods in US history in which private banks themselves issued money to their depositors. Left alone, it's fairly easy to conclude that this now archaic form of private money would be ideal today. Indeed, a healthy banking system is certainly one in which poorly run financial institutions are regularly put out of business or swallowed by those well run. If banks were left to issue their own currency, there would exist an automatic incentive to issue sound money.

In a free market for money, it's fair to assume that one or more banks would develop reputations for issuing quality currency acceptable everywhere as a result of their not lending excessively or imprudently. Banks with sterling reputations would also reject the money of poorly run financial institutions, and the bad banks would then have a choice either to be credible in their banking practices or go out of business. Prudence would be forced on the entire banking system thanks to competing currencies. The result would be the opposite of Gresham's Law in that good money would quickly make bad money irrelevant.

More broadly, it's important to remember that money is only a measuring stick meant to facilitate the exchange of goods. Modern economic thinkers often believe that money creation itself is a source of economic energy - thus the alleged need for a central bank. But the greater truth is that an ideal currency, in the classic words of David Ricardo, "should be absolutely invariable in value." For that, we don't need a central bank, or for that matter, government issued money at all.

To believe otherwise is to buy into the naive belief that once individuals enter into government employ, they're transformed into paragons of virtue, oblivious to the influences that would compromise their integrity in the private sector. More to the point, anecdotal reality tells us that just about anything that governments and monopolies can do, a competitive profit-motivated private sector can do better. It's fair to suggest that currency is one of those products that might better be left to apolitical private enterprise.

Lender of last resort. If the Fed is neither a worthy opponent of inflation nor a necessary monopoly issuer of money, what about its stated role as lender of last resort? No less a personage than Walter Bagehot, the great 19th century monetary eminence, is to this day thought to have been a major advocate of central banks for this reason.

But a cursory read of Bagehot's classic book Lombard Street reveals that he wasn't quite so sanguine about central banks. As Selgin reminds us, he believed "central banks were financially destabilizing, and hence undesirable institutions and that it would have been better had England never created one." Selgin's read is that Bagehot found central banks to be an "unhealthy arrangement," and that the ideal scenario was "free banking, with numerous banks issuing their own notes and maintaining their own reserves."

And contrary to the suggestion that Bagehot felt central banks should "lend freely" during times of distress, financial historian Liaquat Ahamed reminds us that Bagehot actually meant that central banks should only lend to very solvent banks suffering short-term liquidity problems. Insofar as certain financial institutions were seriously in trouble back in 2008, had he been alive, Bagehot arguably would have opposed their bailout.

Central bank fan he was not, and Bagehot ultimately accepted the existence of the Bank of England with an unhappy countenance. As he put it in Lombard Street, "You might as well, or better, try to alter the English monarchy" than abolish England's central bank. Simply put, he learned to accept the BofE's role as lender of last resort given unhappy resignation that it would always exist.

Absent a Federal Reserve in today's climate, would the economy or banking system suffer for the Fed not fulfilling its most prominent role as lender in distress? Logic tells us that this wouldn't be terribly problematic.

Indeed, credit is credit, and if the Federal Reserve didn't exist, it's not a reach to suggest that other, non-financial institutions would eagerly take on the role of lending to banks during times of trouble at penalty rates much as our Fed does now. To offer up but a few examples, Target is best known for being a retailer, Harley-Davidson for manufacturing motorcycles, and Quicken for its innovative tax software. But despite all three continuing to pursue their core competencies, all have lending arms.

In a world without a Fed, logic says that free markets would create one or many similar funding sources that would come to the rescue of healthy banks suffering near-term liquidity problems. More important, since private sector lenders of last resort would have their own money on the line, it's a safe bet that they would prop up only the solvent institutions, while letting poorly run banks fail. This would accrue to, rather than detract from, the banking system's overall vitality.

Conclusion. We've been conditioned to believe that the health of the banking system and of the economy more generally are responsibilities of a powerful Federal Reserve. But if its core mission is analyzed even lightly, it becomes apparent that much of what the Fed does is ineffective, destabilizing, superfluous, or all three.

Implicit in the desire for a Federal Reserve is that individuals in government possess magical powers that enable them to do for us what we can't do on our own. More realistically, the US economy grew quite nicely without a central bank. Given continuous advances in financial alchemy, it's exciting to imagine what private actors would do for banking if the Fed ceased to exist.

Bagehot ultimately observed that magisterial central bank posts are "desired by vain men, by lazy men, by men of rank," and that such men are dangerous. In that case, the sooner the Fed is demystified, the sooner its role in our economy and banking system can at the very least be reduced; the impact of such a reduction a near-certain economic positive.

John Tamny is editor of RealClearMarkets, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.

http://www.realclearmarkets.com/articles/2010/10/12/do_we_really_need_a_central_bank__98712.html

thoughtone
07-09-2011, 01:22 PM
I bump this thread to contrast the justifications during the GW regime and what is happening now.

thoughtone
11-29-2011, 12:17 PM
<CENTER>
Is the worst over?
Some economists see glimmer of hope</CENTER>



McClatchy Newspapers
By Kevin G. Hall
March 27, 2009


http://www.mcclatchydc.com/251/story/64992.html


Not!

Lamarr
09-08-2012, 10:01 AM
I bump this thread to contrast the justifications during the GW regime and what is happening now.

Record 88,921,000 Americans ‘Not in Labor Force’—119,000 Fewer Employed in August Than July (http://cnsnews.com/news/article/record-88921000-americans-not-labor-force-119000-fewer-employed-august-july)

The number of Americans whom the U.S. Department of Labor counted as “not in the civilian labor force” in August hit a record high of 88,921,000.

The Labor Department counts a person as not in the civilian labor force if they are at least 16 years old, are not in the military or an institution such as a prison, mental hospital or nursing home, and have not actively looked for a job in the last four weeks. The department counts a person as in “the civilian labor force” if they are at least 16, are not in the military or an institution such as a prison, mental hospital or nursing home, and either do have a job or have actively looked for one in the last four weeks.

In July, there were 155,013,000 in the U.S. civilian labor force. In August that dropped to 154,645,000—meaning that on net 368,000 people simply dropped out of the labor force last month and did not even look for a job.

There were also 119,000 fewer Americans employed in August than there were in July. In July, according to the Bureau of Labor Statistics, there were 142,220,000 Americans working. But, in August, there were only 142,101,000 Americans working.

Despite the fact that fewer Americans were employed in August than July, the unemployment rate ticked down from 8.3 in July to 8.1. That is because so many people dropped out of the labor force and stopped looking for work. The unemployment rate is the percentage of people in the labor force (meaning they had a job or were actively looking for one) who did not have a job.

The Bureau of Labor Statistic also reported that in August the labor force participation rate (the percentage of the people in the civilian non-institutionalized population who either had a job or were actively looking for one) dropped to a 30-year low of 63.5 percent, down from 63.7 percent in July. The last time the labor force participation rate was as low as 63.5 percent was in September 1981.

thoughtone
09-08-2012, 11:37 AM
I bump this thread to contrast the justifications during the GW regime and what is happening now.

Record 88,921,000 Americans ‘Not in Labor Force’—119,000 Fewer Employed in August Than July (http://cnsnews.com/news/article/record-88921000-americans-not-labor-force-119000-fewer-employed-august-july)



And yet your feeble attempt to insist that that president Obama and GW are the same, you continually and conveniently omit this fact:

source: CBS Money Watch (http://www.cbsnews.com/8301-505123_162-37744468/stocks---bush-vs-obama/)

Stocks - Bush vs. Obama


<DT class=storyBlogBy>By Allan Roth <DT class=storyBlogBy>I live in a very politically conservative community - Colorado Springs. Whenever I'm around local investment professionals, I hear how bad Barack Obama has been for the stock market, which got me to wondering if that were actually true. So I thought it would be interesting to look at US stock market performance under Obama and G.W. Bush. While I'm at it, let's also take a longer-term look at stock performance under Democrats and Republicans. Finally, I'll offer my thoughts on what the statistics mean, along with what conclusion you shouldn't make.

Obama vs G.W. Bush
Let me first get it on the table that, though I'm a long-time registered Republican, I don't particularly identify myself with any political party. So when local investment advisors tell me that the market plummeted today because Obama gave a speech, I'm already skeptical. Especially considering that no one can accurately explain what the stock market does in any one day. However, when they tell me how bad the stock market has performed under Obama, that's something that's easy enough to check out.

To measure US stock returns, I looked at the total return of the US stock market and used the total return of the Wilshire 5000 (http://www.wilshire.com/Indexes/). I don't want the partial returns of narrower indexes like the DOW 30 or S&P 500. I then looked at the annualized returns under G.W. Bush for the eight years ending January 20, 2009. I did the same for the period since January 20, 2009 for Obama.

The results:


G.W. Bush - negative 3.5 percent annually
Obama - positive 20.1 percent annually
Fact: The US stock market performed better under Obama than G.W. Bush by a staggering 23.6 percentage points a year.

Democrats vs. Republicans
The same local investment advisors who declare that Obama is bad for stocks, also state that the market wants Republican pro-business policies. While those investment advisors also claim to be able to pick winning stocks and time the market, I've long since accepted that not only do I not possess those abilities, such abilities do not even exist. Nor does the ability exist to actually know what the stock market wants. I can, however, research past performance under Republican and Democratic administrations.

The October 2003 Journal of Finance (http://onlinelibrary.wiley.com/journal/10.1111/%28ISSN%291540-6261) published such a study by Pedro Stana-Clara and Rossen Valkanov that examined the issue. The study (http://www.investopedia.com/articles/financial-theory/08/political-party-democrat-republican-stock-returns.asp#axzz1YRZYQfRD)viewed stock market returns from 1927 - 1998, and was far more scientific than my simple analysis of stocks since 2001. It looked at excess returns over the risk free rate of a three month Treasury bill.

The results:


Republicans - positive 1.7 percent annually
Democrats - positive 10.7 percent annually
Fact: Through 1998, US stocks performed higher by nine percentage points annually under Democrats than Republicans. If this study were to be updated, the gap would widen further.

So what does this mean?
I caution you not to conclude that future stock performance will be better under Democrats. These statistics could just as easily be the result of finding patterns out of randomness, such as the Superbowl effect or September bear market trend.

What it does mean is that investment advisors, and even investors as a whole, are very loose with quoting market data. Accuracy seems to be irrelevant. Throw a little politics into the mix and the emotion drives the distortion higher by a factor of ten. People want the data to support their positions so they make up some facts. Others hear these faulty facts and let confirmation bias drive them to blindly believe and spread the word without bothering to verify the accuracy. Simply put, people believe these statements as fact because they want to believe them.

Whether Obama gets another term, or a Republican takes up residence in the White House, I'm sticking to my asset allocation policy. I'm even sticking to my asset allocation through the current destructive, make the other party look bad, lack of governance our politicians seem to be showing today. I don't claim to know everything financial markets want, but I've got to believe markets would rather have a functional government over what we currently have today. Admittedly, I have no data to support this last opinion.
</DT>

Cruise
09-08-2012, 11:48 AM
Only in the United States does fewer people working really mean that fewer people are unemployed.

Or, wait, didn't the governments do this kind of stuff in Nazi Germany and Soviet Russia?

Lamarr
09-08-2012, 12:51 PM
Fact: The US stock market performed better under Obama than G.W. Bush by a staggering 23.6 percentage points a year.


I've always held the opinion that Pres. Obama was an agent for Wall Street. Your article validates my views.

The stock market is hitting records levels AND the labor participation rate has diminished to levels not seen since Sept 1981 (the Reagan era). In laymans terms, high profits with fewer workers!

Wow, you now, promote the business model of Bain Capital!

:smh:

Cruise
09-08-2012, 01:26 PM
I've always held the opinion that Pres. Obama was an agent for Wall Street. Your article validates my views.

The stock market is hitting records levels AND the labor participation rate has diminished to levels not seen since Sept 1981 (the Reagan era). In laymans terms, high profits with fewer workers!

Wow, you now, promote the business model of Bain Capital!

:smh:

Obama is Romney.

Romney is Obama.

Democrat = Republican. Debt = Wealth. War = Peace. NO LIBERTIES = FREEDOM.

This is the United States in 2012. We have hit totalitarian levels where nothing means anything. Down is up. Left is right. Good is bad. Right is wrong.

UNEMPLOYMENT = EMPLOYMENT. WALL STREET = ECONOMY. ENERGY = WASTE. Criminal = Innocent. Law = Whim. Order = Disorder. Civil Rights = Civil Disobedience.

Yet, people don't see how this is all doomed. It cannot continue like this, and it never does. We are witnessing the end to this way of life.

QueEx
09-08-2012, 02:00 PM
We are witnessing the end to this way of life.

The anarchists dream.

thoughtone
09-08-2012, 05:18 PM
I've always held the opinion that Pres. Obama was an agent for Wall Street. Your article validates my views.

The stock market is hitting records levels AND the labor participation rate has diminished to levels not seen since Sept 1981 (the Reagan era). In laymans terms, high profits with fewer workers!

Wow, you now, promote the business model of Bain Capital!

:smh:

The only agent is your buddy Peter Shitt. What is is job?

Lamarr
09-08-2012, 05:36 PM
The only agent is your buddy Peter Shitt. What is is job?

Loss for words huh?

https://encrypted-tbn1.google.com/images?q=tbn:ANd9GcQt88sXBL-yG_lTAygTeKXmazLqNIVwViSkCKDV3g54gjgMRABb6w

Greed
09-08-2012, 08:43 PM
Majority of New Jobs Pay Low Wages, Study Finds

By CATHERINE RAMPELL
Published: August 30, 2012

While a majority of jobs lost during the downturn were in the middle range of wages, a majority of those added during the recovery have been low paying, according to a new report from the National Employment Law Project.

The disappearance of midwage, midskill jobs is part of a longer-term trend that some refer to as a hollowing out of the work force, though it has probably been accelerated by government layoffs.

“The overarching message here is we don’t just have a jobs deficit; we have a ‘good jobs’ deficit,” said Annette Bernhardt, the report’s author and a policy co-director at the National Employment Law Project, a liberal research and advocacy group.

The report looked at 366 occupations tracked by the Labor Department and clumped them into three equal groups by wage, with each representing a third of American employment in 2008. The middle third — occupations in fields like construction, manufacturing and information, with median hourly wages of $13.84 to $21.13 — accounted for 60 percent of job losses from the beginning of 2008 to early 2010.

The job market has turned around since then, but those fields have represented only 22 percent of total job growth. Higher-wage occupations — those with a median wage of $21.14 to $54.55 — represented 19 percent of job losses when employment was falling, and 20 percent of job gains when employment began growing again.

Lower-wage occupations, with median hourly wages of $7.69 to $13.83, accounted for 21 percent of job losses during the retraction. Since employment started expanding, they have accounted for 58 percent of all job growth.

The occupations with the fastest growth were retail sales (at a median wage of $10.97 an hour) and food preparation workers ($9.04 an hour). Each category has grown by more than 300,000 workers since June 2009.

Some of these new, lower-paying jobs are being taken by people just entering the labor force, like recent high school and college graduates. Many, though, are being filled by older workers who lost more lucrative jobs in the recession and were forced to take something to scrape by.

“I think I’ve been very resilient and resistant and optimistic, up until very recently,” said Ellen Pinney, 56, who was dismissed from a $75,000-a-year job in which she managed procurement and supply for an electronics company in March 2008.

Since then, she has cobbled together a series of temporary jobs in retail and home health care and worked as a part-time receptionist for a beauty salon. She is now working as an unpaid intern for a construction company, putting together bids and business plans for green energy projects, and has moved in with her 86-year-old father in Forked River, N.J.

“I really can’t bear it anymore,” she said, noting that her applications to places like PetSmart and Target had gone unanswered. “From every standpoint — my independence, my sense of purposefulness, my self-esteem, my life planning — this is just not what I was planning.”

As Ms. Pinney’s experience shows, low-wage jobs have not been growing especially quickly in this recovery; they account for such a big share of job growth mostly because midwage job growth has been so slow.

Over the last few decades, the number of midwage, midskill jobs has stagnated or declined as employers chose to automate routine tasks or to move them offshore.

Job growth has been concentrated in positions that tend to fall into two categories: manual work that must be done in person, like styling hair or serving food, which usually pays relatively little; and more creative, design-oriented work like engineering or surgery, which often pays quite well.

Since 2001, employment has grown 8.7 percent in lower-wage occupations and 6.6 percent in high-wage ones. Over that period, midwage occupation employment has fallen by 7.3 percent.

This “polarization” of skills and wages has been documented meticulously by David H. Autor, an economics professor at the Massachusetts Institute of Technology. A recent study found that this polarization accelerated in the last three recessions, particularly the last one, as financial pressures forced companies to reorganize more quickly.

“This is not just a nice, smooth process,” said Henry E. Siu, an economics professor at the University of British Columbia, who helped write the recent study about polarization and the business cycle. “A lot of these jobs were suddenly wiped out during recession and are not coming back.”

On top of private sector revamps, state and local governments have been shedding workers in recent years. Those jobs lost in the public sector have been primarily in mid and higher-wage positions, according to Ms. Bernhardt’s analysis.

“Whenever you look at data like these, there is this tendency to get overwhelmed, that there are these inevitable, big macro forces causing this polarization and we can’t do anything about them. In fact, we can,” Ms. Bernhardt said. She called for more funds for states to stem losses in the public sector and federal infrastructure projects to employ idled construction workers. Both proposals have faced resistance from Republicans in Congress.

http://www.nytimes.com/2012/08/31/business/majority-of-new-jobs-pay-low-wages-study-finds.html?_r=1

thoughtone
09-08-2012, 11:23 PM
Majority of New Jobs Pay Low Wages, Study Finds




Isn't that what you and Lamarr want? Doesn't that make us more competitive?

thoughtone
09-08-2012, 11:24 PM
Loss for words huh?

https://encrypted-tbn1.google.com/images?q=tbn:ANd9GcQt88sXBL-yG_lTAygTeKXmazLqNIVwViSkCKDV3g54gjgMRABb6w

This coming from the master of thread ignorers!

Greed
09-09-2012, 05:01 AM
Isn't that what you and Lamarr want? Doesn't that make us more competitive?

I'm perfectly fine with it since I work hard to make sure I deserve something other than low wages.

Can you relate? I doubt it.

thoughtone
09-09-2012, 06:01 PM
I'm perfectly fine with it since I work hard to make sure I deserve something other than low wages.

Can you relate? I doubt it.


So you and Lamarr are in agreement. President Obama is returning jobs to the USA (and eliminating government positions as you so fondly hope for) and at the same time, making us competetive with jobs that don't pay living wagers.

What are you and Lamarr complaining about?

Greed
09-09-2012, 07:56 PM
So you and Lamarr are in agreement. President Obama is returning jobs to the USA (and eliminating government positions as you so fondly hope for) and at the same time, making us competetive with jobs that don't pay living wagers.

What are you and Lamarr complaining about?
I didn't complain about anything. You're the one that wants to tell people a job isn't worth having if it's under a certain wage. People can pick the wage they want to work for and not be dictated to by a bunch of politicians that make the equivalent o $60/hour.

But then again why be a politician if you can't order people around.

thoughtone
09-09-2012, 11:11 PM
I didn't complain about anything. You're the one that wants to tell people a job isn't worth having if it's under a certain wage. People can pick the wage they want to work for and not be dictated to by a bunch of politicians that make the equivalent o $60/hour.

But then again why be a politician if you can't order people around.

So again, by you posting that article, you confirmed that you agree that President Obama is doing what you want.

Greed
09-10-2012, 10:26 AM
No, the article is interesting and that's why I posted it.

And unlike your view of your Jesus and presidents in general, he's not doing anything. He's not the reason jobs are coming back from China. China is the reason jobs are coming back from China. Unless you want to argue that rising standard of living and rising cost in China was orchestrated by President Obama?

And explicitly, what i want is the complete elimination of the minimum wage. Does it sound like I approve of your government?

thoughtone
09-10-2012, 12:02 PM
No, the article is interesting and that's why I posted it.

And unlike your view of your Jesus and presidents in general, he's not doing anything. He's not the reason jobs are coming back from China. China is the reason jobs are coming back from China. Unless you want to argue that rising standard of living and rising cost in China was orchestrated by President Obama?

And explicitly, what i want is the complete elimination of the minimum wage. Does it sound like I approve of your government?



Before you pat yourself on the back, I posted the article a long time ago. You don't read my posts!



Factory Jobs Gain, but Wages Retreat

And unlike your view of your Jesus and presidents in general, he's not doing anything.

Reagan, Bush, Bush and even Clinton did nothing to big back jobs. The only president in the last 30 years to explicity make the effort is Obama.


China is the reason jobs are coming back from China. Unless you want to argue that rising standard of living and rising cost in China was orchestrated by President Obama?


The higher standard of living in a communist country is due to the conservatives and the lower standard of living in the US is due to the conservatives.

And explicitly, what i want is the complete elimination of the minimum wage. Does it sound like I approve of your government?


Not unexpected. You want the rest of the country to have the poverty and educational ignorance of Mississippi and Alabama!

Greed
09-10-2012, 12:18 PM
Not unexpected. You want the rest of the country to have the poverty and educational ignorance of Mississippi and Alabama!

Everything you said is stupid, but you should consider how much you think like a politician when you declare that working for any wage a person agrees to is somehow bad.

You make work illegal. That's the morality of America.

Someone low-skilled with nothing should stay like that because a job isn't worth having below a certain wage. So says the decree from people who aren't paid anything close to minimum wage. Instead just rely on government. People would rather work than rely on government.

thoughtone
09-10-2012, 01:25 PM
Everything you said is stupid, but you should consider how much you think like a politician when you declare that working for any wage a person agrees to is somehow bad.

You make work illegal. That's the morality of America.

Someone low-skilled with nothing should stay like that because a job isn't worth having below a certain wage. So says the decree from people who aren't paid anything close to minimum wage. Instead just rely on government. People would rather work than rely on government.


This thinking like a politician is your straw dog. Your innuendo that Black folk are lazy, government leeches is typical right wing government self hate.

Still no answer about whites killing whites.