There’s good propaganda and bad propaganda. Bad propaganda is generally crude, amateurish Judy Miller “mobile weapons lab-type” nonsense that figures that people are so stupid they’ll believe anything that appears in “the paper of record.” Good propaganda, on the other hand, uses factual, sometimes documented material in a coordinated campaign with the other major media to cobble-together a narrative that is credible, but false.
The so called Fed’s transcripts, which were released last week, fall into the latter category. The transcripts (1,865 pages) reveal the details of 14 emergency meetings of the Federal Open Market Committee (FOMC) in 2008, when the financial crisis was at its peak and the Fed braintrust was deliberating on how best to prevent a full-blown meltdown. But while the conversations between the members are accurately recorded, they don’t tell the gist of the story or provide the context that’s needed to grasp the bigger picture. Instead, they’re used to portray the members of the Fed as affable, well-meaning bunglers who did the best they could in ‘very trying circumstances’. While this is effective propaganda, it’s basically a lie, mainly because it diverts attention from the Fed’s role in crashing the financial system, preventing the remedies that were needed from being implemented (nationalizing the giant Wall Street banks), and coercing Congress into approving gigantic, economy-killing bailouts which shifted trillions of dollars to insolvent financial institutions that should have been euthanized.
What I’m saying is that the Fed’s transcripts are, perhaps, the greatest propaganda coup of our time. They take advantage of the fact that people simply forget a lot of what happened during the crisis and, as a result, absolve the Fed of any accountability for what is likely the crime of the century. It’s an accomplishment that PR-pioneer Edward Bernays would have applauded. After all, it was Bernays who argued that the sheeple need to be constantly bamboozled to keep them in line. Here’s a clip from his magnum opus “Propaganda”:
“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country.”
Sound familiar? My guess is that Bernays’ maxim probably features prominently in editors offices across the country where “manufacturing consent” is Job 1 and where no story so trivial that it can’t be spun in a way that serves the financial interests of the MSM’s constituents. (Should I say “clients”?) The Fed’s transcripts are just a particularly egregious example. Just look at the coverage in the New York Times and judge for yourself. Here’s an excerpt from an article titled “Fed Misread Crisis in 2008, Records Show”:
“The hundreds of pages of transcripts, based on recordings made at the time, reveal the ignorance of Fed officials about economic conditions during the climactic months of the financial crisis. Officials repeatedly fretted about overstimulating the economy, only to realize time and again that they needed to redouble efforts to contain the crisis.” (“Fed Misread Crisis in 2008, Records Show”, New York Times)
This quote is so misleading on so many levels it’s hard to know where to begin.
First of all, the New York Times is the ideological wellspring of elite propaganda in the US. They set the tone and the others follow. That’s the way the system works. So it always pays to go to the source and try to figure out what really lies behind the words, that is, the motive behind the smokescreen of half-truths, distortions, and lies. How is the Times trying to bend perceptions and steer the public in their corporate-friendly direction, that’s the question. In this case, the Times wants its readers to believe that the Fed members “misread the crisis”; that they were ‘behind the curve’ and stressed-out, but–dad-gum-it–they were trying their level-best to make things work out for everybody.
How believable is that? Not very believable at all.
Keep in mind, the crisis had been going on for a full year before the discussions in these transcripts took place, so it’s not like the members were plopped in a room the day before Lehman blew up and had to decide what to do. No. They had plenty of time to figure out the lay of the land, get their bearings and do what was in the best interests of the country. Here’s more from the Times:
”My initial takeaway from these voluminous transcripts is that they paint a disturbing picture of a central bank that was in the dark about each looming disaster throughout 2008. That meant that the nation’s top bank regulators were unprepared to deal with the consequences of each new event.”
Have you ever read such nonsense in your life? Of course, the Fed knew what was going on. How could they NOT know? Their buddies on Wall Street were taking it in the stern sheets every time their dingy asset pile was downgraded which was every damn day. It was costing them a bundle which means they were probably on the phone 24-7 to (Treasury Secretary) Henry Paulson whining for help. “You gotta give us a hand here, Hank. The whole Street is going toes-up. Please.”
Here’s more from the NYT:
“Some Fed officials have argued that the Fed was blind in 2008 because it relied, like everyone else, on a standard set of economic indicators. As late as August 2008, “there were no clear signs that many financial firms were about to fail catastrophically,” Mr. Bullard said in a November presentation in Arkansas that the St. Louis Fed recirculated on Friday. “There was a reasonable case that the U.S. could continue to ‘muddle through.’ (“Fed Misread Crisis in 2008, Records Show”, New York Times)
There’s that same refrain again, “Blind”, “In the dark”, “Behind the curve”, “Misread the crisis”.
Notice how the Times only invokes terminology that implies the Fed is blameless. But it’s all baloney. Everyone knew what was going on. Check out this excerpt from a post by Nouriel Roubini that was written nearly a full year before Lehman failed:
“The United States has now effectively entered into a serious and painful recession. The debate is not anymore on whether the economy will experience a soft landing or a hard landing; it is rather on how hard the hard landing recession will be. The factors that make the recession inevitable include the nation’s worst-ever housing recession, which is still getting worse; a severe liquidity and credit crunch in financial markets that is getting worse than when it started last summer; high oil and gasoline prices; falling capital spending by the corporate sector; a slackening labor market where few jobs are being created and the unemployment rate is sharply up; and shopped-out, savings-less and debt-burdened American consumers who — thanks to falling home prices — can no longer use their homes as ATM machines to allow them to spend more than their income. As private consumption in the US is over 70% of GDP the US consumer now retrenching and cutting spending ensures that a recession is now underway.
On top of this recession there are now serious risks of a systemic financial crisis in the US as the financial losses are spreading from subprime to near prime and prime mortgages, consumer debt (credit cards, auto loans, student loans), commercial real estate loans, leveraged loans and postponed/restructured/canceled LBO and, soon enough, sharply rising default rates on corporate bonds that will lead to a second round of large losses in credit default swaps. The total of all of these financial losses could be above $1 trillion thus triggering a massive credit crunch and a systemic financial sector crisis.” ( Nouriel Roubini Global EconoMonitor)
Roubini didn’t have some secret source for data that wasn’t available to the Fed. The financial system was collapsing and it had been collapsing for a full year. Everyone who followed the markets knew it. Hell, the Fed had already opened its Discount Window and the Term Auction Facility (TAF) in 2007 to prop up the ailing banks–something they’d never done before– so they certainly knew the system was cratering. So, why’s the Times prattling this silly fairytale that “the Fed was in the dark” in 2008?
I’ll tell you why: It’s because this whole transcript business is a big, freaking whitewash to absolve the shysters at the Fed of any legal accountability, that’s why. That’s why they’re stitching together this comical fable that the Fed was simply an innocent victim of circumstances beyond its control. And that’s why they want to focus attention on the members of the FOMC quibbling over meaningless technicalities –like non-existent inflation or interest rates–so people think they’re just kind-hearted buffoons who bumbled-along as best as they could. It’s all designed to deflect blame.
Don’t get me wrong; I’m not saying these conversations didn’t happen. They did, at least I think they did. I just think that the revisionist media is being employed to spin the facts in a way that minimizes the culpability of the central bank in its dodgy, collaborationist engineering of the bailouts. (You don’t hear the Times talking about Hank Paulson’s 50 or 60 phone calls to G-Sax headquarters in the week before Lehman kicked the bucket, do you? But, that’s where a real reporter would look for the truth.)
The purpose of the NYT article is to create plausible deniability for the perpetrators of the biggest ripoff in world history, a ripoff which continues to this very day since the same policies are in place, the same thieving fraudsters are being protected from prosecution, and the same boundless chasm of private debt is being concealed through accounting flim-flam to prevent losses to the insatiable bondholders who have the country by the balls and who set policy on everything from capital requirements on complex derivatives to toppling democratically-elected governments in Ukraine. These are the big money guys behind the vacillating-hologram poseurs like Obama and Bernanke, who are nothing more than kowtowing sock puppets who jump whenever they’re told. Here’s more bunkum from the Gray Lady:
”By early March, the Fed was moving to replace investors as a source of funding for Wall Street.
Financial firms, particularly in the mortgage business, were beginning to fail because they could not borrow money. Investors had lost confidence in their ability to predict which loans would be repaid. Countrywide Financial, the nation’s largest mortgage lender, sold itself for a relative pittance to Bank of America. Bear Stearns, one of the largest packagers and sellers of mortgage-backed securities, was teetering toward collapse.
On March 7, the Fed offered companies up to $200 billion in funding. Three days later, Mr. Bernanke secured the Fed policy-making committee’s approval to double that amount to $400 billion, telling his colleagues, “We live in a very special time.”
Finally, on March 16, the Fed effectively removed any limit on Wall Street funding even as it arranged the Bear Stearns rescue.” (“Fed Misread Crisis in 2008, Records Show”, New York Times)
This part deserves a little more explanation. The author says “the Fed was moving to replace investors as a source of funding for Wall Street.” Uh, yeah; because the whole flimsy house of cards came crashing down when investors figured out Wall Street was peddling toxic assets. So the money dried up. No one buys crap assets after they find out they’re crap; it’s a simple fact of life. The Times makes this sound like this was some kind of unavoidable natural disaster, like an earthquake or a tornado. It wasn’t. It was a crime, a crime for which no one has been indicted or sent to prison. That might have been worth mentioning, don’t you think?
More from the NYT: “…on March 16, the Fed effectively removed any limit on Wall Street funding even as it arranged the Bear Stearns rescue.”
Yipee! Free money for all the crooks who blew up the financial system and plunged the economy into recession. The Fed assumed blatantly-illegal powers it was never provided under its charter and used them to reward the people who were responsible for the crash, namely, the Fed’s moneybags constituents on Wall Street. It was a straightforward transfer of wealth to the Bank Mafia. Don’t you think the author should have mentioned something about that, just for the sake of context, maybe?
Again, the Times wants us to believe that the men who made these extraordinary decisions were just ordinary guys like you and me trying to muddle through a rough patch doing the best they could.
Right. I mean, c’mon, this is some pretty impressive propaganda, don’t you think? It takes a real talent to come up with this stuff, which is why most of these NYT guys probably got their sheepskin at Harvard or Yale, the establishment’s petri-dish for serial liars.
By September 2008, Bernanke and Paulson knew the game was over. The crisis had been raging for more than a year and the nation’s biggest banks were broke. (Bernanke even admitted as much in testimony before the Financial Crisis Inquiry Commission in 2011 when he said “only one ….out of maybe the 13 of the most important financial institutions in the United States…was not at serious risk of failure within a period of a week or two.” He knew the banks were busted, and so did Paulson.) Their only chance to save their buddies was a Hail Mary pass in the form of Lehman Brothers. In other words, they had to create a “Financial 9-11″, a big enough crisis to blackmail congress into $700 no-strings-attached bailout called the TARP. And it worked too. They pushed Lehman to its death, scared the bejesus out of congress, and walked away with 700 billion smackers for their shifty gangster friends on Wall Street. Chalk up one for Hank and Bennie.
The only good thing to emerge from the Fed’s transcripts is that it proves that the people who’ve been saying all along that Lehman was deliberately snuffed-out in order to swindle money out of congress were right. Here’s how economist Dean Baker summed it up the other day on his blog:
“Gretchen Morgensen (NYT financial reporter) picks up an important point in the Fed transcripts from 2008. The discussion around the decision to allow Lehman to go bankrupt makes it very clear that it was a decision. In other words the Fed did not rescue Lehman because it chose not to.
This is important because the key regulators involved in this decision, Ben Bernanke, Hank Paulson, and Timothy Geithner, have been allowed to rewrite history and claim that they didn’t rescue Lehman because they lacked the legal authority to rescue it. This is transparent tripe, which should be evident to any knowledgeable observer.” (“The Decision to Let Lehman Fail”, Dean Baker, CEPR)
Here’s the quote from Morgenson’s piece to which Baker is alluding:
“In public statements since that time, the Fed has maintained that the government didn’t have the tools to save Lehman. These documents appear to tell a different story. Some comments made at the Sept. 16 meeting, directly after Lehman filed for bankruptcy, indicate that letting Lehman fail was more of a policy decision than a passive one.” (“A New Light on Regulators in the Dark”, Gretchen Morgenson, New York Times)
Ah ha! So it was a planned demolition after all. At least that’s settled.
Here’s something else you’ll want to know: It was always within Bernanke’s power to stop the bank run and end to the panic, but if he relieved the pressure in the markets too soon (he figured), then Congress wouldn’t cave in to his demands and approve the TARP. Because, at the time, a solid majority of Republicans and Democrats in congress were adamantly opposed to the TARP and even voted it down on the first ballot. Here’s a clip from a speech by, Rep Dennis Kucinich (D-Ohio) in September 2008 which sums up the grassroots opposition to the bailouts:
“The $700 bailout bill is being driven by fear not fact. This is too much money, in too short of time, going to too few people, while too many questions remain unanswered. Why aren’t we having hearings…Why aren’t we considering any other alternatives other than giving $700 billion to Wall Street? Why aren’t we passing new laws to stop the speculation which triggered this? Why aren’t we putting up new regulatory structures to protect the investors? Why aren’t we directly helping homeowners with their debt burdens? Why aren’t we helping American families faced with bankruptcy? Isn’t time for fundamental change to our debt-based monetary system so we can free ourselves from the manipulation of the Federal Reserve and the banks? Is this the US Congress or the Board of Directors of Goldman Sachs?”
But despite overwhelming public resistance, the TARP was pushed through and Wall Street prevailed. mainly by sabotaging the democratic process the way they always do when it doesn’t suit their objectives.)
Of course, as we said earlier, Bernanke never really needed the money from TARP to stop the panic anyway. (Not one penny of the $700 bil was used to shore up the money markets or commercial paper markets where the bank run took place.) All Bernanke needed to do was to provide backstops for those two markets and, Voila, the problem was solved. Here’s Dean Baker with the details:
“Bernanke deliberately misled Congress to help pass the Troubled Asset Relief Program (TARP). He told them that the commercial paper market was shutting down, raising the prospect that most of corporate America would be unable to get the short-term credit needed to meet its payroll and pay other bills. Bernanke neglected to mention that he could singlehandedly keep the commercial paper market operating by setting up a special Fed lending facility for this purpose. He announced the establishment of a lending facility to buy commercial paper the weekend after Congress approved TARP.” (“Ben Bernanke; Wall Street’s Servant”, Dean Baker, Guardian)
So, there you have it. The American people were fleeced in broad daylight by the same dissembling cutthroats the NYT is now trying to characterize as well-meaning bunglers who were just trying to save the country from another Great Depression.
I could be wrong, but I think we’ve reached Peak Propaganda on this one.
(Note: By “good” propaganda, I mean “effective” propaganda. From an ethical point of view, propaganda can never be good because its objective is to intentionally mislead people…..which is bad.)
Newly appointed Prime Minister of Ukraine and former central banker Arseniy Yatsenyuk
A reshuffled Ukrainian Parliament installed following a coup last week has voted to appoint Arseniy Yatsenyuk as the new prime minister of the country. Yats, as Victoria Nuland, the Assistant Secretary of State for European and Eurasian Affairs at the U.S. State Department, called him, is a natural choice. He is a millionaire former banker who served as economy minister, foreign minister and parliamentary speaker before Yanukovych took office in 2010. He is a member of Yulie Tymoshenko’s Fatherland Party. Prior to the revolution cooked up by the State Department and executed by ultra-nationalist street thugs, Tymoshenko was incarcerated for embezzlement and other crimes against the people of Ukraine. Now she will be part of the installed government, same as she was after the last orchestrated coup, the Orange Revolution.
Yats will deliver Ukraine to the international bankers. “Ukraine is on the brink of bankruptcy and needs to be saved from collapse — Yatsenyuk has a strong economic background,” Ariel Cohen, senior fellow at the Washington-based Heritage Foundation, told Bloomberg on Wednesday. “Ukraine faces difficult reforms but without them there won’t be a successful future.”
Discussion with the IMF is crucial, US Treasury Secretary Jacob Lew said earlier this week. In order to cinch the deal, the U.S. government will sweeten the pot. Lew talked with the IMF boss, Christine Lagarde, about Ukraine as he headed back from a globalist confab, the G-20 meeting in Sydney, Australia.
“Secretary Lew informed Managing Director Lagarde that he had spoken earlier in the day with Ukrainian leader Arseniy Yatsenyuk and advised him of the broad support for an international assistance package centered on the IMF, as soon as the transitional Ukrainian government is fully established by the Parliament,” MNI News reported on Monday. “Secretary Lew also noted that he had communicated to Mr. Yatsenyuk the need to quickly begin implementing economic reforms and enter discussions with the IMF following the establishment of the transitional government.”
Ukraine’s story is right out of the IMF playbook. The nation’s corrupt leaders past and present – most notably Tymoshenko, who went to prison for corruption and wholesale thievery – have enriched themselves at the expensive of ordinary Ukrainians.
“Ukraine at the dawn of independence was among the ten most developed countries, and now it drags out a miserable existence,” Communist Party leader Petro Symonenko said last year. The nation’s leaders “signed a memorandum with the International Monetary Fund to meet the requirements of the oligarchs, but on the other hand — to timely pay the interest on the IMF loans and to raise the prices for gas and electricity,” Symonenko said.
The Orange Revolution – initiated by NED, IRI, Soros and the CIA – installed a rogue’s gallery of self-seeking sociopaths who further bankrupted a country already seriously debilitated by corruption.
For the IMF and the financial elite, Ukraine is nothing less than a tantalizing bounty. “Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics,” notes ABO, a website covering energy resources. “Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR.”
After breaking away from the Soviet Union and declaring independence, it was thought the country would “liberalize” its industry and resources, in other words open them up for privatization by transnational corporations and international banks, but this did not happen quickly enough for the financiers and the corporatists.
“The drop in steel prices and Ukraine’s exposure to the global financial crisis due to aggressive foreign borrowing lowered growth in 2008 and the economy contracted more than 15 percent in 2009, among the worst economic performances in the world,” ABO explains. “In August 2010, Ukraine, under the Yanukovych Administration, reached a new agreement with the IMF for a $15.1 billion Stand-By Agreement. Economic growth resumed in 2010 and 2011, buoyed by exports. After initial disbursements, the IMF program stalled in early 2011 due to the Ukrainian Government’s lack of progress in implementing key gas sector reforms, namely gas tariff increases. Economic growth slowed in the second half of 2012 with Ukraine finishing the year in technical recession following two consecutive quarters of negative growth.”
Now that Yanukovych is out of the picture, the banker minion Yats is lording over the Parliament, and thuggish fascists control the streets and guard against a counter revolution that my threaten Wall Street’s coup, the coast is clear for the IMF to pick up where it left off. Ukraine, now one of the poorest countries in Europe thanks to a kleptocracy supported by Washington and Wall Street, is wide open for further looting.
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” – John Maynard Keynes, The General Theory of Employment, Interest and Money
It’s too bad Keynes isn’t around today to see how the toxic combo of financial engineering, central bank liquidity and fraud have transformed the world’s biggest economy into a hobbled, crisis-prone invalid that’s unable to grow without giant doses of zero-rate heroin and mega-leverage crack-cocaine. This is exactly what the British economist warned about more than half a century ago in his magnum opus, “The General Theory…”, that you can’t build a vital, prosperous economy on the ripoff, Ponzi scams of Wall Street charlatans, mountebanks and swindlers. It can’t be done. And, yet– here we are again– in the middle of another historic asset-price bubble conceived and engineered by the bubbleheaded crackpots at the Federal Reserve. Go figure?
Just take a look at housing, which is at the end of an astonishing 18-month run that was entirely precipitated by what?
Consumer confidence, bigger incomes, credit expansion, growing revenues, pent-up demand?
No, no, no, no and no. Economic fundamentals played no part in the so called housing rebound. In fact–as everyone knows–the economy stinks as bad today as it did 4 years ago when the government number-crunchers announced the end of the recession. The reason prices have been rising is because of the Fed’s loosy-goosey monetary policy (fake rates and QE), inventory suppression, bogus gov mortgage modification programs, and unprecedented speculation. (mainly Private Equity and investors groups) Those are the four legs of the stool propping up housing. Only now it looks like a couple of those legs are in the process of being sawed off which is going to put downward pressure on sales and prices. Take a look at this from DS News:
“A majority of experts surveyed by Zillow and Pulsenomics expect large-scale investors will pull out of the housing market in the next few years…
Out of 110 economists, real estate experts, and investment strategists surveyed in Zillow’s latest Home Value Index, 57 percent said they think institutional investors will work to sell the majority of homes in their portfolios “in the next three to five years.” These investors are largely credited with propping up housing during its recession, helping to keep sales volumes from plummeting too far.
While their withdrawal will most certainly affect today’s still-fragile market—79 percent of those surveyed said the impact would be “significant or somewhat significant” should investor activity curtail this year.”
Experts Predict Level Playing Field as Investors Withdraw, DS News
This is what we were afraid of from the very beginning, that the big PE firms would pack-it-in and move on once they’d made a killing, which they have, since prices soared 12 percent in one year. Now they want to get out while they getting is good, which means that–in some of the hotter markets where investors represented upwards of 50 percent of all purchases–there will have to be a new source of demand. Unfortunately, the demand for housing has never been weaker.
Sales are down, purchase applications are down, and the country’s homeownership rate has slipped to levels not seen since 1995, 18 years ago. The Fed’s $1 trillion purchase of mortgage backed securities (MBS) and zero rates have done nothing to stimulate “organic” consumer demand. Zilch. No “trickle down” at all. All the policy has done is generate a temporary surge of speculation that’s distorted prices and created conditions for another big bust. Get a load of this article from Housing Perspectives:
“Although household growth is the major driver of housing demand, getting an accurate picture of recent trends in this measure is difficult…In its recent release, the HVS reported annual household growth of just 448,800 in 2013. This represents a 48 percent drop in household growth relative to that from 2012 and marked the lowest annual household growth measure since 2008, in the depths of the Great Recession (Figure 1).
Source: US Census Bureau, Housing Vacancy Survey
Repeat: “…a 48 percent drop in household growth relative to that from 2012 and marked the lowest annual household growth measure since 2008, in the depths of the Great Recession.”
Do you really think there are enough firsttime homebuyers in out there in Mortgageland to fill that gap?
In your dreams! Keep in mind, that a lot of firsttime homebuyers are collage grads who want to start a family and put down roots. Regrettably, nearly half of those potential buyers have been scrubbed from the list due to their burgeoning student loans which now exceed $1 trillion. These kids will probably never own a home, let-alone have a positive impact on sales in 2014. Ain’t gonna happen.
Maybe this is why the banks are suddenly speeding up their foreclosure filings, because they want to offload more of their distressed inventory before prices fall. Is that it? Check out this article on Housingwire:
“Monthly foreclosure filings — including default notices, scheduled auctions and bank repossessions — reversed course and increased 8% to 124,419 in January from December, according to the latest report from RealtyTrac.
This marks the 40th consecutive month where foreclosure activity declined on an annual basis, with filings down 18% from January…
As a whole, 57,259 U.S. properties started the foreclosure process for the first time in January, rising 10% from December…
…this month’s foreclosure starts increased from a year ago in 22 states, including Maryland (up 126%), Connecticut (up 82%), New Jersey (up 79%), California (up 57%), and Pennsylvania (up 39%).
Scheduled foreclosure auctions jumped 13% in January compared to the previous month.”RealtyTrac: Monthly foreclosure filings reverse course, rise 8%, Housingwire
Like most articles on housing, you have to sift through the bullshit to figure out what’s really going on, but it’s worth the effort. The banks have been dragging their feet for 40 months now, slowing down the foreclosure process (and adding to the shadow supply of distressed homes.) in order to push up prices hoping to ignite another boom. Now–after 3 and a half years of blatant collusion–they’ve done a 180 and started speeding up foreclosures. Why?
It’s because they agree with the above-mentioned “110 economists, real estate experts, and investment strategists” who think that “institutional investors” are going to call-it-quits and move on to greener pastures. That’s going to push down prices, which means they’re going to lose money. So they want to get ahead of the curve and dump more houses on the market before the stampede. That way, they lose less money.
Keep in mind, the banks are up-to-their-eyeballs in distressed inventory. Even conservative estimates of shadow backlog puts the figure of 90-day delinquent or worse, above 3 million homes. But if you review the gloomier prognostications, the sum could easily exceed 6 million homes, enough to suck the entire bleeding banking system into a black hole of insolvency. There was an interesting article on the topic in Bloomberg last week. It seems that, “bond king” Jeffrey Gundlach has been warning mortgage-backed security purchasers that they should to pay more attention to underlying collateral in MBSs (vacant homes, that is) which have been “rotting away” for “six years” or more. Here’s a clip from the article:
“The housing market is softer than people think,” Mr. Gundlach said, pointing to a slowdown in mortgage refinancing, shares of homebuilders that have dropped 13% since reaching a high in May, and the time it’s taking to liquidate defaulted loans…
About 32% of seriously delinquent borrowers, those at least 90 days late, haven’t made a payment in more than four years, up 7% from the beginning of 2012, according to Fitch analyst Sean Nelson.
“These timelines could still increase for another year or so,” Mr. Nelson said, leading to even higher losses because of added legal and tax costs, and a greater potential for properties to deteriorate.”
Gundlach Counting Rotting Homes Makes Subprime Bear, Bloomberg
Let me get this straight: The number of “seriously delinquent borrowers” has actually gone up in the last year? Not only that, but many of these people “haven’t made a payment in more than four years”?
That’s a mighty fine recovery you got there, Mr. Bernanke. Sheesh.
Keep in mind, the backlog of unwanted homes could be a lot bigger than most people think. Way bigger. I was reading an article by Keith Jurow the other day, (“The Coming Mortgage Delinquency Disaster”, Keith Jurow, dshort.com) that paints a pretty grim picture of what is really going on behind the faux inventory numbers. Jurow–who has done extensive research on pre-foreclosure notice filings in New York state– says: “The number of monthly foreclosure filings in Suffolk County on Long Island …(were) more than 180,000 (while) fewer than 1,000 foreclosure filings had been served each month in (the last 4 years). By this calculation, Jurow figures that there should have been 1,192,000 foreclosures in New York state while the actual percentage of homes that have been repossessed remains in the single digits. (Read the whole article here.)
Chew on that for a minute. So, that’s a total of 180,000 homeowners who would have faced foreclosure under normal conditions, while less than 48,000 have actually been foreclosed. That’s 132,000 fewer foreclosures than there should have been IN JUST ONE COUNTY IN ONE STATE ALONE.”
The reason the prodigious shadow stockpile continues to balloon is quite simple, as Jurow points out in his piece: “Servicers do not foreclose on seriously delinquent borrowers throughout the entire NYC metro area. Completed foreclosures have actually declined rather dramatically throughout the nation in the past two years. The difference is that in the NYC metro, the servicers have not been foreclosing since the spring of 2009.”
So, there you have it; the banks haven’t been foreclosing because it hasn’t been in their interest to foreclose. Foreclosure sales push down prices which batters balance sheets and scares shareholders. Who wants that? So the game goes on. Only now, the dynamic is changing. Skittish investors are eyeing the exits, QE is winding down, and housing prices have peaked. The recovery has reached its zenith, which is why the bankers want get off on the top floor before the elevator begins its bumpy descent.
People who are thinking about buying a house in the near future, should watch developments in the market closely and proceed with extreme caution. No one wants to get burned in another bank swindle.
The corporate media would have us believe that the nation is in the midst of an economic recovery.
In the shadow of the approaching mid-term elections, the president cites the number of jobs created and speaks optimistically about America’s economic future. The future is indeed bright, but only if you are among the wealthiest one percent of the population.
For instance, since the 2007 recession, the greatest crisis of capitalism in 75 years, corporate profits have risen, CEO salaries and bonuses are at record levels and the stock market is soaring. By contrast, workers’ wages have stagnated for more than four decades, benefits are either few or non-existent, and workers are encumbered with debt that forces them to perform multiple jobs— if they can find them—in order to survive.
Jobs that offer long-term security and a living wage are scarce even for those with university degrees. Adjusted for inflation, today’s workers are worse off than they were in the late 1960s.
Whose economic recovery is this?
According to economic forecaster Gerald Celente, 90 percent of the jobs created in 2013 were part-time, most of them paying low wages and providing no benefits. Student loan debt exceeds $1.1 trillion, a number that surpasses the combined credit card liability of the nation.
These debts cannot be discharged through bankruptcy. The big banks and corporations that finance political campaigns have no such restrictions placed upon them.
Even the unemployment figures are deceiving. According to the latest government data, unemployment is at 6.7 percent. In reality, that number is probably closer to 17 or 18 percent, according to economist Richard Wolff.
The government does not count people whose unemployment benefits have expired or those who have given up looking for work. A cashier working 10 hours a week at Food Lion is counted as fully employed.
We have students, many of them burdened with immense debt, entering a job market that makes it difficult for them to earn a decent living. This is the economic minefield that workers across America must navigate. A little truth might help them find their way and comprehend why this is happening.
One of the many reasons we face such a bleak economic future is the implementation of Free Trade Agreements (FTAs).
In 1992, the North American Free Trade Agreement (NAFTA) was implemented between the governments of the United States, Canada and Mexico. NAFTA was fast-tracked through Congress by President H.W. Bush and signed into law by President Clinton. NAFTA was promoted in the commercial media as an engine for job creation in the United States, an assertion that is contradicted by the facts. According to Wolff, more than 700,000 jobs fled the country as the result of NAFTA, many of them providing middle class incomes and benefits.
Those jobs are never coming back. It is not just the number of jobs created that matter, it is the quality of those jobs that is a predictor of economic success.
Furthermore, the mass movement of U.S. corporations to Mexico wrecked the already struggling Mexican economy, particularly its sustainable, locally-based businesses. The situation initiated a mass migration of immigrant Mexican workers to the U.S. in search of better-paying jobs than were available to them in the homeland. Multinational corporations seeking a source of cheap labor and a climate of deregulation are the primary benefactors. The quantifiable effect that NAFTA has had on the U.S. workers is staggering job loss, reduced wages and increasing economic disparity.
Now, with the backing of corporate lobbyists, yet another FTA—the Trans-Pacific Partnership (TPP)—is being fast-tracked through Congress. Both Democrats and Republicans are enthusiastically backing the legislation.
The Electronic Frontier Foundation describes the process: “The Trans-Pacific Partnership is a secretive, multi-national trade agreement that threatens to extend restrictive intellectual property (IP) laws across the globe and rewrite international rules on its enforcement.” TPP is currently being negotiated between nine to 12 nations.
If enacted, TPP will permit privately-owned corporations to have hegemony over the governments of sovereign nations. For instance, if the state of West Virginia were to ban the use of genetically modified soybeans, Monsanto Corporation could either overturn the decision or extort billions of dollars in remuneration from their projected loss of profits. FTAs belligerently put corporate profits before the legitimate needs of the people and the welfare of the biosphere.
The implications for students and working class people will be profoundly detrimental.
Hundreds of thousands of jobs will flee the country, wages will fall yet again, autonomy will be lost, and the job market will resemble the wreckage of the Hesperus. FTAs are the means by which the power elite are turning the U.S. into a Third World economy.
Can the sharing economy movement address the root causes of the world’s converging crises? Unless the sharing of resources is promoted in relation to human rights and concerns for equity, democracy, social justice and sustainability, then such claims are without substantiation – although there are many hopeful signs that the conversation is slowly moving in the right direction.
In recent years, the concept and practice of sharing resources is fast becoming a mainstream phenomenon across North America, Western Europe and other world regions. The internet is awash with articles and websites that celebrate the vast potential of sharing human and physical assets, in everything from cars and bicycles to housing, workplaces, food, household items, and even time or expertise. According to most general definitions that are widely available online, the sharing economy leverages information technology to empower individuals or organisations to distribute, share and re-use excess capacity in goods and services. The business icons of the new sharing economy include the likes of Airbnb, Zipcar, Lyft, Taskrabbit and Poshmark, although hundreds of other for-profit as well as non-profit organisations are associated with this burgeoning movement that is predicated, in one way or another, on the age-old principle of sharing.
As the sharing economy receives increasing attention from the media, a debate is beginning to emerge around its overall importance and future direction. There is no doubt that the emergent paradigm of sharing resources is set to expand and further flourish in coming years, especially in the face of continuing economic recession, government austerity and environmental concerns. As a result of the concerted advocacy work and mobilisation of sharing groups in the US, fifteen city mayors have now signed the Shareable Cities Resolution in which they officially recognise the importance of economic sharing for both the public and private sectors. Seoul in South Korea has also adopted a city-funded project called Sharing City in which it plans to expand its ‘sharing infrastructure’, promote existing sharing enterprises and incubate sharing economy start-ups as a partial solution to problems in housing, transportation, job creation and community cohesion. Furthermore, Medellin in Colombia is embracing transport-sharing schemes and reimagining the use of its shared public spaces, while Ecuador is the first country in the world to commit itself to becoming a ‘shared knowledge’-based society, under an official strategy named ‘buen saber’.
Many proponents of the sharing economy therefore have great hopes for a future based on sharing as the new modus operandi. Almost everyone recognises that drastic change is needed in the wake of a collapsed economy and an overstretched planet, and the old idea of the American dream – in which a culture that promotes excessive consumerism and commercialisation leads us to see the ‘good life’ as the ‘goods life’, as described by the psychologist Tim Kasser – is no longer tenable in a world of rising affluence among possibly 9.6 billion people by 2050. Hence more and more people are rejecting the materialistic attitudes that defined recent decades, and are gradually shifting towards a different way of living that is based on connectedness and sharing rather than ownership and conspicuous consumption. ‘Sharing more and owning less’ is the ethic that underlies a discernible change in attitudes among affluent society that is being led by today’s young, tech-savvy generation known as Generation Y or the Millennials.
However, many entrepreneurial sharing pioneers also profess a big picture vision of what sharing can achieve in relation to the world’s most pressing issues, such as population growth, environmental degradation and food security. As Ryan Gourley of A2Share posits, for example, a network of cities that embrace the sharing economy could mount up into a Sharing Regions Network, then Sharing Nations, and finally a Sharing World: “A globally networked sharing economy would be a whole new paradigm, a game-changer for humanity and the planet”. Neal Gorenflo, the co-founder and publisher of Shareable, also argues that peer-to-peer collaboration can form the basis of a new social contract, with an extensive sharing movement acting as the catalyst for systemic changesthat can address the root causes of both poverty and climate change. Or to quote the words of Benita Matofska, founder of The People Who Share, we are going to have to “share to survive” if we want to face up to a sustainable future. In such a light, it behoves us all to investigate the potential of sharing to effect a social and economic transformation that is sufficient to meet the grave challenges of the 21st century.
Two sides of a debate on sharing
There is no doubt that sharing resources can contribute to the greater good in a number of ways, from economic as well as environmental and social perspectives. A number of studies show the environmental benefits that are common to many sharing schemes, such as the resource efficiency and potential energy savings that could result from car sharing and bike sharing in cities. Almost all forms of localised sharing are economical, and can lead to significant cost savings or earnings for individuals and enterprises. In terms of subjective well-being and social impacts, common experience demonstrates how sharing can also help us to feel connected to neighbours or co-workers, and even build community and make us feel happier.
Few could disagree on these beneficial aspects of sharing resources within communities or across municipalities, but some controversy surrounds the broader vision of how the sharing economy movement can contribute to a fair and sustainable world. For many advocates of the burgeoning trend towards economic sharing in modern cities, it is about much more than couch-surfing, car sharing or tool libraries, and holds the potential to disrupt the individualist and materialistic assumptions of neoliberal capitalism. For example, Juliet Schor in her book Plenitude perceives that a new economics based on sharing could be an antidote to the hyper-individualised, hyper-consumer culture of today, and could help rebuild the social ties that have been lost through market culture. Annie Leonard of the Story of Stuff project, in her latest short video on how to move society in an environmentally sustainable and just direction, also considers sharing as a key ‘game changing’ solution that could help to transform the basic goals of the economy.
Many other proponents see the sharing economy as a path towards achieving widespread prosperity within the earth’s natural limits, and an essential first step on the road to more localised economies and egalitarian societies. But far from everyone perceives that participating in the sharing economy, at least in its existing form and praxis, is a ‘political act’ that can realistically challenge consumption-driven economics and the culture of individualism – a question that is raised (although not yet comprehensively answered) in a valuable think piece from Friends of the Earth, as discussed further below. Various commentators argue that the proliferation of new business ventures under the umbrella of sharing are nothing more than “supply and demand continuing its perpetual adjustment to new technologies and fresh opportunities”, and that the concept of the sharing economy is being co-opted by purely commercial interests – a debate that was given impetus when the car sharing pioneers, Zipcar, were bought up by the established rental firm Avis.
Recently, Slate magazine’s business and economics correspondent controversially reiterated the observation that making money from new modes of consumption is not really ‘sharing’ per se, asserting that the sharing economy is therefore a “dumb term” that “deserves to die”. Other journalists have criticised the superficial treatment that the sharing economy typically receives from financial pundits and tech reporters, especially the claims that small business start-ups based on monetised forms of sharing are a solution to the jobs crisis – regardless of drastic cutbacks in welfare and public services, unprecedented rates of income inequality, and the dangerous rise of the precariat. The author Evgeny Morozov, writing an op-ed in the Financial Times, has gone as far as saying that the sharing economy is having a pernicious effect on equality and basic working conditions, in that it is fully compliant with market logic, is far from valuing human relationships over profit, and is even amplifying the worst excesses of the dominant economic model. In the context of the erosion of full-time employment, the assault on trade unions and the disappearance of healthcare and insurance benefits, he argues that the sharing economy is accelerating the transformation of workers into “always-on self-employed entrepreneurs who must think like brands”, leading him to dub it “neoliberalism on steroids”.
Problems of definition
Although it is impossible to reconcile these polarised views, part of the problem in assessing the true potential of economic sharing is one of vagueness in definition and wide differences in understanding. The conventional interpretation of the sharing economy is at present focused on its financial and commercial aspects, with continuous news reports proclaiming its rapidly growing market size and potential as a “co-commerce revolution”. Rachel Botsman, a leading entrepreneurial thinker on the potential of collaboration and sharing through digital technologies to change our lives, has attempted to clarify what the sharing economy actually is in order to prevent further confusion over the different terms in general use. In her latest typology, she notes how the term ‘sharing economy’ is often muddled with other new ideas and is in fact a subset of ‘collaborative consumption’ within the entire ‘collaborative economy’ movement, and has a rather restricted meaning in terms of “sharing underutilized assets from spaces to skills to stuff for monetary or non-monetary benefits” [see slide 9 of the presentation]. This interpretation of changing consumer behaviours and lifestyles revolves around the “maximum utilization of assets through efficient models of redistribution and shared access”, which isn’t necessarily predicated on an ethic of ‘sharing’ by any strict definition.
Other interpretations of the sharing economy are far broader and less constrained by capitalistic assumptions, as demonstrated in the Friends of the Earth briefing paper on Sharing Cities written by Professor Julian Agyeman et al. In their estimation, what’s missing from most of these current definitions and categorisations of economic sharing is a consideration of “the communal, collective production that characterises the collective commons”. A broadened ‘sharing spectrum’ that they propose therefore not only focuses on goods and services within the mainstream economy (which is almost always considered in relation to affluent, middle-class lifestyles), but also includes the non-material or intangible aspects of sharing such as well-being and capability [see page 6 of the brief]. From this wider perspective, they assert that the cutting edge of the sharing economy is often not commercial and includes informal behaviours like the unpaid care, support and nurturing that we provide for one another, as well as the shared use of infrastructure and shared public services.
This sheds a new light on governments as the “ultimate level of sharing”, and suggests that the history of the welfare state in Europe and other forms of social protection is, in fact, also integral to the evolution of shared resources in cities and within different countries. Yet an understanding of sharing from this more holistic viewpoint doesn’t have to be limited to the state provision of healthcare, education, and other public services. As Agyeman et al elucidate, cooperatives of all kinds (from worker to housing to retailer and consumer co-ops) also offer alternative models for shared service provision and a different perspective on economic sharing, one in which equity and collective ownership is prioritised. Access to natural common resources such as air and water can also be understood in terms of sharing, which may then prioritise the common good of all people over commercial or private interests and market mechanisms. This would include controversial issues of land ownership and land use, raising questions over how best to share land and urban space more equitably – such as through community land trusts, or through new policies and incentives such as land value taxation.
The politics of sharing
Furthermore, Agyeman et al argue that an understanding of sharing in relation to the collective commons gives rise to explicitly political questions concerning the shared public realm and participatory democracy. This is central to the many countercultural movements of recent years (such as the Occupy movement and Middle East protests since 2011, and the Taksim Gezi Park protests in 2013) that have reclaimed public space to symbolically challenge unjust power dynamics and the increasing trend toward privatisation that is central to neoliberal hegemony. Sharing is also directly related to the functioning of a healthy democracy, the authors reason, in that a vibrant sharing economy (when interpreted in this light) can counter the political apathy that characterises modern consumer society. By reinforcing values of community and collaboration over the individualism and consumerism that defines our present-day cultures and identities, they argue that participation in sharing could ultimately be reflected in the political domain. They also argue that a shared public realm is essential for the expression of participatory democracy and the development of a good society, not least as this provides a necessary venue for popular debate and public reasoning that can influence political decisions. Indeed the “emerging shareability paradigm”, as they describe it, is said to reflect the basic tenets of the Right to the City (RTTC) – an international urban movement that fights for democracy, justice and sustainability in cities and mobilises against the privatisation of common goods and public spaces.
The intention in briefly outlining some of these differing interpretations of sharing is to demonstrate how considerations of politics, justice, ethics and sustainability are slowly being allied with the sharing economy concept. A paramount example is the Friends of the Earth briefing paper outlined above, which was written as part of FOEI’s Big Ideas to Change the World series on cities that promoted sharing as “a political force to be reckoned with” and a “call to action for environmentalists”. Yet many further examples could also be mentioned, such as the New Economics Foundation’s ‘Manifesto for the New Materialism’ which promotes the old-fashioned ethic of sharing as part of a new way of living to replace the collapsed model of debt-fuelled overconsumption. There are also signs that many influential proponents of the sharing economy – as generally understood today in terms of new economic models driven by peer-to-peer technology that enable access to rather than ownership of resources – are beginning to query the commercial direction that the movement is taking, and are instead promoting more politicised forms of social change that are not merely based on micro-enterprise or the monetisation/branding of high-tech innovations.
Janelle Orsi, a California-based ‘sharing lawyer’ and author of The Sharing Solution, is particularly inspirational in this regard; for her, the sharing economy encompasses such a broad range of activities that it is hard to define, although she suggests that all its activities are tied together in how they harness the existing resources of a community and grow its wealth. This is in contradistinction to the mainstream economy that mostly generates wealth for people outside of people’s communities, and inherently generates extreme inequalities and ecological destruction – which Orsi contends that the sharing economy can help reverse. The problem she recognises is that the so-called sharing economy we usually hear about in the media is built upon a business-as-usual foundation, which is privately owned and often funded by venture capital (as is the case with Airbnb, Lyft, Zipcar, Taskrabbit et cetera). As a result, the same business structures that created the economic problems of today are buying up new sharing economy companies and turning them into ever larger, more centralised enterprises that are not concerned about people’s well-being, community cohesion, local economic diversity, sustainable job creation and so on (not to mention the risk of re-creating stock valuation bubbles that overshadowed the earlier generation of dot.com enterprises). The only way to ensure that new sharing economy companies fulfil their potential to create economic empowerment for users and their communities, Orsi argues, is through cooperative conversion – and she makes a compelling case for the democratic, non-exploitative, redistributive and truly ‘sharing’ potential of worker and consumer cooperatives in all their guises.
Sharing as a path to systemic change
There are important reasons to query which direction this emerging movement for sharing will take in the years ahead. As prominent supporters of the sharing economy recognise, like Janelle Orsi and Juliet Schor, it offers both opportunities and reasons for optimism as well as pitfalls and some serious concerns. On the one hand, it reflects a growing shift in our values and social identities as ‘citizens vs consumers’, and is helping us to rethink notions of ownership and prosperity in a world of finite resources, scandalous waste and massive wealth disparities. Perhaps its many proponents are right, and the sharing economy represents the first step towards transitioning away from the over-consumptive, materially-intense and hoarding lifestyles of North American, Western European and other rich societies. Perhaps sharing really is fast becoming a counter-cultural movement that can help us to value relationships more than things, and offer us the possibility of re-imagining politics and constructing a more participative democracy, which could ultimately pose a challenge to the global capitalist/consumerist model of development that is built on private interests and debt at the cost of shared interests and true wealth.
On the other hand, critics are right to point out that the sharing economy in its present form is hardly a threat to existing power structures or a movement that represents the kind of radical changes we need to make the world a better place. Far from reorienting the economy towards greater equity and a better quality of life, as proposed by writers such as Richard Wilkinson and Kate Pickett, Tim Jackson, Herman Daly and John Cobb, it is arguable that most forms of sharing via peer-to-peer networks are at risk of being subverted by conventional business practices. There is a perverse irony in trying to imagine the logical conclusion of these trends: new models of collaborative consumption and co-production that are co-opted by private interests and venture capitalists, and increasingly geared towards affluent middle-class types or so-called bourgeois bohemians (the ‘bobos’), to the exclusion of those on low incomes and therefore to the detriment of a more equal society. Or new sharing technology platforms that enable governments and corporations to collaborate in pursuing more intrusive controls over and greater surveillance of citizens. Or new social relationships based on sharing in the context of increasingly privatised and enclosed public spaces, such as gated communities within which private facilities and resources are shared.
This is by no means an inevitable outcome, but what is clear from this brief analysis is that the commercialisation and depoliticisation of economic sharing poses risks and contradictions that call into question its potential to transform society for the benefit of everyone. Unless the sharing of resources is promoted in relation to human rights and concerns for equity, democracy, social justice and sound environmental stewardship, then the various claims that sharing is a new paradigm that can address the world’s interrelated crises is indeed empty rhetoric or utopian thinking without any substantiation. Sharing our skills through Hackerspaces, our unused stuff through GoodShuffle or a community potluck through mealshare is, in and of itself, a generally positive phenomenon that deserves to be enjoyed and fully participated in, but let’s not pretend that car shares, clothes swaps, co-housing, shared vacation homes and so on are going to seriously address economic and climate chaos, unjust power dynamics or inequitable wealth distribution.
Sharing from the local to the global
If we look at sharing through the lens of just sustainability, however, as civil society organisations and others are now beginning to do, then the true possibilities of sharing resources within and among the world’s nations are vast and all-encompassing: to enhance equity, rebuild community, improve well-being, democratise national and global governance, defend and promote the global commons, even to point the way towards a more cooperative international framework to replace the present stage of competitive neoliberal globalisation. We are not there yet, of course, and the popular understanding of economic sharing today is clearly focused on the more personal forms of giving and exchange among individuals or through online business ventures, which is mainly for the benefit of high-income groups in the world’s most economically advanced nations. But the fact that this conversation is now being broadened to include the role of governments in sharing public infrastructure, political power and economic resources within countries is a hopeful indication that the emerging sharing movement is slowly moving in the right direction.
Already, questions are being raised as to what sharing resources means for the poorest people in the developing world, and how a revival of economic sharing in the richest countries can be spread globally as a solution to converging crises. It may not be long until the idea of economic sharing on a planetary scale – driven by an awareness of impending ecological catastrophe, life-threatening extremes of inequality, and escalating conflict over natural resources – is the subject of every dinner party and kitchen table conversation.
Agyeman, Julian, Duncan McLaren and Adrianne Schaefer-Borrego, Sharing Cities, Friends of the Earth briefing paper, September 2013.
Bollier, David, Bauwens Joins Ecuador in Planning a Commons-based, Peer Production Economy, 20th September 2013, bollier.org
Botsman, Rachel, The Sharing Economy Lacks a Shared Definition: Giving Meaning to the Terms, Collaborative Lab on Slideshare.net, 19th November 2013.
Childs, Mike, The Power of Sharing: A Call to Action for Environmentalists, Shareable.net, 5th November 2013.
Daly, Herman and John Cobb, For the Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future, Beacon Press, 1991.
Eberlein, Sven, Sharing for Profit – I’m Not Buying it Anymore, Shareable.net, 20th February 2013.
Enright, Michael in interview with Benita Matofska and Aidan Enns, Sharing, Not Buying at Christmas (Hr. 1), CBC Radio, 16th December 2012.
Friends of the Earth, Big Idea 2: Sharing – a political force to be reckoned with?, 26th September 2013.
Gaskins, Kim, The New Sharing Economy, Latitude, 1st June 2010.
Gorenflo, Neal, What’s Next for the Sharing Movement?, Shareable.net, 31st July 2013.
Grahl, Jodi (trans.), World Charter for the Right to the City, International Alliance of Inhabitants et al, May 2005.
Griffiths, Rachel, The Great Sharing Economy, Co-operatives UK, London UK, 2011.
Grigg, Kat, Sharing As Part of the New Economy: An Interview with Lauren Anderson, The Solutions Journal, 20th September 2013.
Heinberg, Richard, Who knew that Seoul was a leader in the sharing economy?, Post Carbon Institute, 12th November 2013.
Herbst, Moira, Let’s get real: the ‘sharing economy’ won’t solve our jobs crisis, The Guardian, 7th January 2014.
Jackson, Tim, Prosperity without Growth: Economics for a Finite Planet, Routeledge, 2011.
Johnson, Cat, From Consumers to Citizens: Welcome to the Sharing Cities Network, Shareable.net, 9th January 2014.
Kasser, Tim, The High Price of Materialism, MIT Press, 2003.
Kisner, Corinne, Integrating Bike Share Programs into a Sustainable Transportation System, National League of Cities, City Practice Brief, Washington D.C., 2011.
Martin, Elliot and Susan Shaheen, The Impact of Carsharing on Household Vehicle Ownership, Access (UCTC magazine), No. 38 Spring 2011.
Matofska, Benita, Facing the future: share to survive, Friends of the Earth blog, 4th January 2013.
Morozov, Evgeny, The ‘sharing economy’ undermines workers’ rights, Financial Times, 14th October 2013.
Olson. Michael J. and Andrew D. Connor, The Disruption of Sharing: An Overview of the New Peer-to-Peer ‘Sharing Economy’ and The Impact on Established Internet Companies, Piper Jaffray, November 2013.
Opinium Research and Marke2ing, The Sharing Economy An overview with special focus on Peer-to-Peer Lending, 14th November 2012.
Orsi, Janelle and Doskow, Emily, The Sharing Solution: How to Save Money, Simplify Your Life and Build Community, Nolo, May 2009.
Orsi, Janelle et al, Policies for Shareable Cities: A Sharing Economy Policy Primer for Urban Leaders, Shareable / The sustainable Economics Law Centre, September 2013.
Orsi, Janelle, The Sharing Economy Just Got Real, Shareable.net, 16th September 2013.
Quilligan, James B., People Sharing Resources: Toward a New Multilateralism of the Global Commons, Kosmos Journal, Fall/Winter 2009.
Schor, Juliet, Plenitude: The New Economics of True Wealth, Tantor Media, 2010.
Simms, Andrew and Ruth Potts, The New Materialism: How our relationship with the material world can change for the better, New Economics Foundation, November 2012.
Standing, Guy, The Precariat: The New Dangerous Class, Bloomsbury Academic, 2011.
Tennant, Ian, What’s in it for me? Do you dare to share?, Friends of the Earth blog, 8th January 2014.
Wiesmann, Thorsten, Living by the Principle of Sharing – an interview with Raphael Fellmer, Oiushare.net, February 2013.
Wilkinson, Richard and Kate Pickett, The Spirit Level: Why Equality is Better for Everyone, Penguin, 2010.
Yglesias, Matthew, There Is No “Sharing Economy”, Slate.com, 26th December 2013.
“I was part of that strange race of people aptly described as spending their lives doing things they detest, to make money they don’t want, to buy things they don’t need, to impress people they don’t like.” ― Emile Gauvreau
If ever a chart provided unequivocal proof the economic recovery storyline is a fraud, the one below is the smoking gun. November and December retail sales account for 20% to 40% of annual retail sales for most retailers. The number of visits to retail stores has plummeted by 50% since 2010. Please note this was during a supposed economic recovery. Also note consumer spending accounts for 70% of GDP. Also note credit card debt outstanding is 7% lower than its level in 2010 and 16% below its peak in 2008. Retailers like J.C. Penney, Best Buy, Sears, Radio Shack and Barnes & Noble continue to report appalling sales and profit results, along with listings of store closings. Even the heavyweights like Wal-Mart and Target continue to report negative comp store sales. How can the government and mainstream media be reporting an economic recovery when the industry that accounts for 70% of GDP is in free fall? The answer is that 99% of America has not had an economic recovery. Only Bernanke’s 1% owner class have benefited from his QE/ZIRP induced stock market levitation.
The entire economic recovery storyline is a sham built upon easy money funneled by the Fed to the Too Big To Trust Wall Street banks so they can use their HFT supercomputers to drive the stock market higher, buy up the millions of homes they foreclosed upon to artificially drive up home prices, and generate profits through rigging commodity, currency, and bond markets, while reducing loan loss reserves because they are free to value their toxic assets at anything they please – compliments of the spineless nerds at the FASB. GDP has been artificially propped up by the Federal government through the magic of EBT cards, SSDI for the depressed and downtrodden, never ending extensions of unemployment benefits, billions in student loans to University of Phoenix prodigies, and subprime auto loans to deadbeats from the Government Motors financing arm – Ally Financial (85% owned by you the taxpayer). The country is being kept afloat on an ocean of debt and delusional belief in the power of central bankers to steer this ship through a sea of icebergs just below the surface.
The absolute collapse in retail visitor counts is the warning siren that this country is about to collide with the reality Americans have run out of time, money, jobs, and illusions. The most amazingly delusional aspect to the chart above is retailers continued to add 44 million square feet in 2013 to the almost 15 billion existing square feet of retail space in the U.S. That is approximately 47 square feet of retail space for every person in America. Retail CEOs are not the brightest bulbs in the sale bin, as exhibited by the CEO of Target and his gross malfeasance in protecting his customers’ personal financial information. Of course, the 44 million square feet added in 2013 is down 85% from the annual increases from 2000 through 2008. The exponential growth model, built upon a never ending flow of consumer credit and an endless supply of cheap fuel, has reached its limit of growth. The titans of Wall Street and their puppets in Washington D.C. have wrung every drop of faux wealth from the dying middle class. There are nothing left but withering carcasses and bleached bones.
The impact of this retail death spiral will be vast and far reaching. A few factoids will help you understand the coming calamity:
- There are approximately 109,500 shopping centers in the United States ranging in size from the small convenience centers to the large super-regional malls.
- There are in excess of 1 million retail establishments in the United States occupying 15 billion square feet of space and generating over $4.4 trillion of annual sales. This includes 8,700 department stores, 160,000 clothing & accessory stores, and 8,600 game stores.
- U.S. shopping-center retail sales total more than $2.26 trillion, accounting for over half of all retail sales.
- The U.S. shopping-center industry directly employed over 12 million people in 2010 and indirectly generated another 5.6 million jobs in support industries. Collectively, the industry accounted for 12.7% of total U.S. employment.
- Total retail employment in 2012 totaled 14.9 million, lower than the 15.1 million employed in 2002.
- For every 100 individuals directly employed at a U.S. regional shopping center, an additional 20 to 30 jobs are supported in the community due to multiplier effects.
The collapse in foot traffic to the 109,500 shopping centers that crisscross our suburban sprawl paradise of plenty is irreversible. No amount of marketing propaganda, 50% off sales, or hot new iGadgets is going to spur a dramatic turnaround. Quarter after quarter there will be more announcements of store closings. Macys just announced the closing of 5 stores and firing of 2,500 retail workers. JC Penney just announced the closing of 33 stores and firing of 2,000 retail workers. Announcements are imminent from Sears, Radio Shack and a slew of other retailers who are beginning to see the writing on the wall. The vacancy rate will be rising in strip malls, power malls and regional malls, with the largest growing sector being ghost malls. Before long it will appear that SPACE AVAILABLE is the fastest growing retailer in America.
The reason this death spiral cannot be reversed is simply a matter of arithmetic and demographics. While arrogant hubristic retail CEOs of public big box mega-retailers added 2.7 billion retail square feet to our already over saturated market, real median household income flat lined. The advancement in retail spending was attributable solely to the $1.1 trillion increase (68%) in consumer debt and the trillion dollars of home equity extracted from castles in the sky, that later crashed down to earth. Once the Wall Street created fraud collapsed and the waves of delusion subsided, retailers have been revealed to be swimming naked. Their relentless expansion, based on exponential growth, cannibalized itself, new store construction ground to a halt, sales and profits have declined, and the inevitable closing of thousands of stores has begun. With real median household income 8% lower than it was in 2008, the collapse in retail traffic is a rational reaction by the impoverished 99%. Americans are using their credit cards to pay their real estate taxes, income taxes, and monthly utilities, since their income is lower, and their living expenses rise relentlessly, thanks to Bernanke and his Fed created inflation.
The media mouthpieces for the establishment gloss over the fact average gasoline prices in 2013 were the second highest in history. The highest average price was in 2012 and the 3rd highest average price was in 2011. These prices are 150% higher than prices in the early 2000′s. This might not matter to the likes of Jamie Dimon and Jon Corzine, but for a middle class family with two parents working and making 7.5% less than they made in 2000, it has a dramatic impact on discretionary income. The fact oil prices have risen from $25 per barrel in 2003 to $100 per barrel today has not only impacted gas prices, but utility costs, food costs, and the price of any product that needs to be transported to your local Wally World. The outrageous rise in tuition prices has been aided and abetted by the Federal government and their doling out of loans so diploma mills like the University of Phoenix can bilk clueless dupes into thinking they are on their way to an exciting new career, while leaving them jobless in their parents’ basement with a loan payment for life.
The laughable jobs recovery touted by Obama, his sycophantic minions, paid off economist shills, and the discredited corporate legacy media can be viewed appropriately in the following two charts, that reveal the false storyline being peddled to the techno-narcissistic iGadget distracted masses. There are 247 million working age Americans between the ages of 18 and 64. Only 145 million of these people are employed. Of these employed, 19 million are working part-time and 9 million are self- employed. Another 20 million are employed by the government, producing nothing and being sustained by the few remaining producers with their tax dollars. The labor participation rate is the lowest it has been since women entered the workforce in large numbers during the 1980′s. We are back to levels seen during the booming Carter years. Those peddling the drivel about retiring Baby Boomers causing the decline in the labor participation rate are either math challenged or willfully ignorant because they are being paid to be so. Once you turn 65 you are no longer counted in the work force. The percentage of those over 55 in the workforce has risen dramatically to an all-time high, as the Me Generation never saved for retirement or saw their retirement savings obliterated in the Wall Street created 2008 financial implosion.
To understand the absolute idiocy of retail CEOs across the land one must parse the employment data back to 2000. In the year 2000 the working age population of the U.S. was 213 million and 136.9 million of them were working, a record level of 64.4% of the population. There were 70 million working age Americans not in the labor force. Fourteen years later the number of working age Americans is 247 million and only 144.6 million are working. The working age population has risen by 16% and the number of employed has risen by only 5.6%. That’s quite a success story. Of course, even though median household income is 7.5% lower than it was in 2000, the government expects you to believe that 22 million Americans voluntarily left the labor force because they no longer needed a job. While the number of employed grew by 5.6% over fourteen years, the number of people who left the workforce grew by 31.1%. Over this same time frame the mega-retailers that dominate the landscape added almost 3 billion square feet of selling space, a 25% increase. A critical thinking individual might wonder how this could possibly end well for the retail genius CEOs in glistening corporate office towers from coast to coast.
This entire materialistic orgy of consumerism has been sustained solely with debt peddled by the Wall Street banking syndicate. The average American consumer met their Waterloo in 2008. Bernanke’s mission was to save bankers, billionaires and politicians. It was not to save the working middle class. You’ve been sacrificed at the altar of the .1%. The 0% interest rates were for Jamie Dimon and Lloyd Blankfein. Your credit card interest rate remained between 13% and 21%. So, while you struggle to pay bills with your declining real income, the Wall Street bankers are again generating record profits and paying themselves record bonuses. Profits are so good, they can afford to pay tens of billions in fines for their criminal acts, and still be left with billions to divvy up among their non-prosecuted criminal executives.
Bernanke and his financial elite owners have been able to rig the markets to give the appearance of normalcy, but they cannot rig the demographic time bomb that will cause the death and destruction of our illusory retail paradigm. Demographics cannot be manipulated or altered by the government or mass media. The best they can do is ignore or lie about the facts. The life cycle of a human being is utterly predictable, along with their habits across time. Those under 25 years old have very little income, therefore they have very little spending. Once a job is attained and income levels rise, spending rises along with the increased income. As the person enters old age their income declines and spending on stuff declines rapidly. The media may be ignoring the fact that annual expenditures drop by 40% for those over 65 years old from the peak spending years of 45 to 54, but it doesn’t change the fact. They also cannot change the fact that 10,000 Americans will turn 65 every day for the next sixteen years. They also can’t change the fact the average Baby Boomer has less than $50,000 saved for retirement and is up to their grey eye brows in debt.
With over 15% of all 25 to 34 year olds living in their parents’ basement and those under 25 saddled with billions in student loan debt, the traditional increase in income and spending is DOA for the millennial generation. The hardest hit demographic on the job front during the 2008 through 2014 ongoing recession has been the 45 to 54 year olds in their peak earning and spending years. Combine these demographic developments and you’ve got a perfect storm for over-built retailers and their egotistical CEOs.
The media continues to peddle the storyline of on-line sales saving the ancient bricks and mortar retailers. Again, the talking head pundits are willfully ignoring basic math. On-line sales account for 6% of total retail sales. If a dying behemoth like JC Penney announces a 20% decline in same store sales and a 20% increase in on-line sales, their total change is still negative 17.6%. And they are still left with 1,100 decaying stores, 100,000 employees, lease payments, debt payments, maintenance costs, utility costs, inventory costs, and pension costs. Their future is so bright they gotta wear a toe tag.
The decades of mal-investment in retail stores was enabled by Greenspan, Bernanke, and their Federal Reserve brethren. Their easy money policies enabled Americans to live far beyond their true means through credit card debt, auto debt, mortgage debt, and home equity debt. This false illusion of wealth and foolish spending led mega-retailers to ignore facts and spread like locusts across the suburban countryside. The debt fueled orgy has run out of steam. All that is left is the largest mountain of debt in human history, a gutted and debt laden former middle class, and thousands of empty stores in future decaying ghost malls haunting the highways and byways of suburbia.
The implications of this long and winding road to ruin are far reaching. Store closings so far have only been a ripple compared to the tsunami coming to right size the industry for a future of declining spending. Over the next five to ten years, tens of thousands of stores will be shuttered. Companies like JC Penney, Sears and Radio Shack will go bankrupt and become historical footnotes. Considering retail employment is lower today than it was in 2002 before the massive retail expansion, the future will see in excess of 1 million retail workers lose their jobs. Bernanke and the Feds have allowed real estate mall owners to roll over non-performing loans and pretend they are generating enough rental income to cover their loan obligations. As more stores go dark, this little game of extend and pretend will come to an end. Real estate developers will be going belly-up and the banking sector will be taking huge losses again. I’m sure the remaining taxpayers will gladly bailout Wall Street again. The facts are not debatable. They can be ignored by the politicians, Ivy League economists, media talking heads, and the willfully ignorant masses, but they do not cease to exist.
“Facts do not cease to exist because they are ignored.” – Aldous Huxley
Source: The Burning Platform
The tradeoff for cheap goods and financial cronyism is coming back in a big way…
There is always a tradeoff in economics. The adage about a free lunch comes to mind to the rise of low wage capitalism in America. It is a complicated web driven by financial cronyism and a system largely driven by ignoring the plight of the working class. The story of US manufacturing is probably one tiny example of how we exported our middle class in exchange for cheaper goods and a massive amount of income inequality at the top. Yet there is a winner here as well. While the US middle class is shrinking the middle classes of China and India are growing and so is ourincome inequality. This trend tends to grow the economies overseas bus has placed a large burden on the unskilled and working class in the US. This is possibly an inevitably given the global nature of our markets. When you get addicted to low cost goods, you may find yourself in a race to low wage capitalism. In the US and Europe people would not take on the jobs that pay near wage-slave levels and have terrible working conditions in countries that are now booming. While the top wage earners in the US are doing fantastic protected by Wall Street and Washington D.C. (many are diversified across the world), those who get paid in US dollars and come from the working and middle class are having a tough time adapting. The tradeoff has been coming home to roost in a big way.
A low wage bias
While the recession ended in the summer of 2009, the jobs that have been added since then have largely tended to favor low wage employment. Hard to export cashiers and food service workers (although the industry is getting closer to automating those jobs as well). Nothing happens at once. The gradual erosion of the working and middle class goes back a generation. So it is no surprise that this recovery has largely been one of low wage employment. This is why young American workers are in such a tough position with student debt, wages, and being able to purchase a home.
The low wage hiring bias is evident:
A large amount of hiring has come in the form of lower paying and temporary work. You might say this is simply the modern way of things. Yet the massive financial bailouts during the crisis have protected the financiers of Wall Street to the point that they are fully recovered. The crisis occurred largely because they systematically gambled America away by creating instruments of debt to implode the economy. Some hedge funds actually made wealth by betting America’s economy would fail and encouraged the pushing of additional bad mortgage debt to increase their gains when things went bust.
The problem of course is that we have a system where austerity is the new game in town for working and middle class Americans while the financially connected get to fail and put the bill on those who least can afford it. Take a look at the drop in manufacturing jobs and the growth of our financial sector:
In 1960 you had roughly 8 manufacturing jobs for each one in finance. Today this is less than 2 manufacturing jobs per each job in finance. In the real economy, we still purchase goods that have to be made (i.e., cars, real estate, etc). Yet we have a giant industry that for the most part, is rent seeking. Is high frequency trading making things better? What about the crazy unrestricted derivatives market? With real estate most of the recent sales are going to investors. In other words, the shifting of current real assets in the world into the hands of fewer people.
Even in the once stable construction field, we see weak job growth in spite of a booming real estate market.
Why? Because most of the trading is going to investors looking for deals, not new families pushing for new demand on new homes. New home sales are still weak. Of course that should be expected when the typical American worker is making something like $27,000 a year and the median household income is $50,000 a year. Adjusting for inflation, this is now back to levels last seen in the 1980s:
The tradeoff has been tough but people like cheap goods. It is easy to offshore this development and have workers on the other side of the world work for menial wages so people can buy cheap goods. Yet at a certain point, the market hits an equilibrium and the pain comes back home. Once this happens it can be very quickly as we are seeing now with the middle class being hollowed out. At least we’ve done a good job exporting our middle class outside of the US.
Source: My Budget 360
Millions of older Americans say they will never be able to retire. They simply don’t have the savings. According to CNN, “Roughly three-quarters of Americans are living paycheck-to-paycheck, with little to no emergency savings…50% have less than a three-month cushion and 27% had no savings at all….” (“76% of Americans are living paycheck-to-paycheck“, CNN Money)
“No savings at all”?
That’s right. So retirement is out of the question. A sizable chunk of the adult population is going to punch a clock until they keel-over in the office parking lot and get hauled off in the company dumpster. And those are the lucky ones, the so called baby boomers. By the time we get to the millennials it’ll be even worse because the economy will have been ravaged by 25 or 30 years of austerity leaving the proles to scrape by on hardtack and gruel. Pensions are already being looted, Social Security is under fire, and any small stipend that supports the poor, the unemployed, or the infirm is going to be terminated. That’s why everyone is so down-in-the-mouth, because their expectations of the future are so bleak. Check this out from Business Insider:
“For millennials, the situation is even more grim. Compared to their parents at their age, the under-30 set is worth only half as much. And while this is a sobering reminder of the scale of the Great Recession’s impact on younger generations, it’s not the whole story. These households were actually falling behind even before the stock market and housing crash, researchers found.
Young people not only saw their wages stagnate or drop but also suffered a rise in fixed costs. They leave college with an average $27,000 debt load and have a harder time finding jobs that pay well, while facing more expensive health care and housing costs.
“If these generations cannot accumulate wealth, they will be less able to support themselves when unexpected emergencies arise or when they eventually retire,” the study authors said. “This financial uncertainty could reverberate throughout the economy, since entrepreneurial activity, saving, and investment tend to build on a base of confidence and growing wealth.”(“AMERICA IN DECLINE: Young People Are Much Worse Off Than Their Parents Were At That Age“, Business Insider)
An entire generation of young people have been raped and discarded by their government and all the author cares about is the impact it will have on personal consumption.
Go figure. And there’s a larger point here too, which is that Americans have always believed that their children would enjoy a higher standard of living than their own. Until now, that is. Now most people think things are going to get worse, much worse. You see it in all the surveys. Expectations have changed, the future looks darker than ever before, and people are scared. Check this out from CNN:
“Things appear to be looking up for the economy.
On Wednesday the Federal Reserve felt confident enough to begin slowly withdrawing the huge economic stimulus the central bank has been pumping into the economy.
Unemployment is the lowest in five years. Economic growth picked up recently. The housing sector — which got us into this mess in the first place — is bouncing back. Home sales, prices and construction are all on the rise.
Auto sales recently had their strongest growth since 2006. Gas prices have fallen dramatically this year, and the stock market has risen sharply.
And there’s some reason to be hopeful for next year too. The Fed announced a slightly improved outlook for unemployment in 2014.
But things aren’t always as good as they seem. For many Americans, all the good news in the larger economy isn’t translating over to everyday life. Only 24% of the public believe economic conditions are improving, while nearly four-in-ten say the nation’s economy is actually getting worse, according to a recent CNN poll.” (“Is the economy as good as it looks?“, CNN Money)
That’s right; no one is buying the “recovery” crappola any more. They all know it’s BS. And a closer look at the CNN survey tells you why.
“Looking specifically at the economy, 39% feel that the economy is still in a downturn, up six points from April. Only 24% believe that an economic recovery is under way. Thirty-six percent are in the middle – they don’t think we’re in a recovery but they believe conditions have stabilized.” (CNN Politics)
So, 3 out of 4 people think we’re either still in a severe slump or running in place.(stagnation) That’s your recovery in a nutshell. And it explains why people hate bankers, Wall Street, and Congress. It also explains why millennials have given up on Obama after finally acknowledging that the man is a bumptious blowhard who’s never lifted a finger to help the people who shoehorned his worthless keister into office. Take a look at this from Policy Mic:
“Debt-weary millennials are disillusioned with Obama’s performance with regard to the economy, the implementation of the Affordable Care Act, his handling of foreign relations”…
A new poll conducted by Harvard University’s Institute of Politics has revealed that young Americans’ support for President Barack Obama has reached the lowest point yet. According to the poll, only 41% of Americans aged 18-29 approve of Obama’s performance in office, an 11% drop since April.” (“Millennials officially hate Obama. Here’s why“, policymic)
Ahhh, so people are finally waking up to what an unprincipled phony this guy is. Good!
Unfortunately, ripping Obama won’t pay the bills, which is why so many people are making painful adjustments in their own lives to make ends meet. Aside from cutting back on trips to the doctor and setting the thermostat on “Off”, America’s plenteous graybeards are staying on the job longer than ever. Here’s a clip from an article in Forbes:
“An alarming 37% of middle class Americans believe they’ll work until they’re too sick or until they die.
Another 34% believes retirement will come at the ripe age of 80…
It’s a grim look at the state of retirement which seems to be getting worse for middle class Americans.
Wells Fargo WFC -0.09% interviewed 1,000 Americans between age 25 and 75 and with household income ranging between $25,000 and $99,000. More than half (59%) said their top day-to-day financial concern is paying the monthly bills; that’s up from 52% who said the same last year.
“We do this survey every year and for the past three years, the struggle to pay bills is a growing concern and the prospect of saving for retirement looks dim, particularly for those in their prime saving years,” Laurie Nordquist, head of Wells Fargo Institutional Retirement and Trust, says in the report.
And here’s something for leaders in Washington DC to consider: One third of those surveyed said their primary source of retirement income will come from social security. That figure gets even bigger for those who make less than $50,000–48% of those earners say social security is going to be their primary retirement income.” (“Work Until You Die? More Middle Class Americans Say They Can Never Retire“, Halah Touryalai, Forbes)
How do you like that, eh? So nearly half the people who make less than $50,000 are counting on Social Security as their “primary retirement income.” At the same time, our old buddy Obama is planning to cut Social Security to keep his criminal friends on Wall Street happy.
That means a whole lot of us are going to be stuck bussing tables at Olive Garden until they carry us out feet first.
Your doing a hechuva job, Barry!
In 33 years of forecasting trends, the Trends Research Institute has never seen a new year that will witness severe economic hardship and social unrest on one hand, and deep philosophic enlightenment and personal enrichment on the other. A series of dynamic socioeconomic and transformative geopolitical trend points are aligning in 2014 to ring in the worst and best of times.
Ready or not, here they come.
March Economic Madness: One of the most difficult aspects of trend forecasting is getting the timing right. And when it comes to economics, there are many wildcards that can stall or detour any on-rushing trend. We called the Crash of ’87, the 1997 Asian Currency Crisis and the Panic of ’08 (we even established the domain name in 2007) right on the button. But we missed the mark with our Crash of 2010 prediction.
Why? The Federal Reserve and central banks around the world were secretly pumping tens of trillions of dollars into a failing financial system. These were, at the time, unimagined schemes for nations that pride themselves on capitalism. And while we are not naïve to the dirty dealings of the financial industry, rigging the daily multi-trillion dollar LIBOR and FOREX markets was not on our radar. Thus, what we believed to be economic truths and hard facts were, in fact, cover-ups and lies….
Such unforeseeable factors aside, we forecast that around March, or by the end of the second quarter of 2014, an economic shock wave will rattle the world equity markets. What will cause this econo-shock? How can you prepare for it? It’s a Top Trend of 2014. Read about it in the Winter Trends Journal.
Global Chinatowns: Name the continent or pick a country, every one contains its own brand of Chinatown. The Chinese global buying binge, now in its early growth stage, will noticeably accelerate in 2014. From coal mines in Zambia, to Borscht Belt resorts in New York, to factories in Italy, and to farmlands in Ukraine, a seemingly endless variety of Chinese development projects are being incubated around the world. If there is a deal to be had and a need to be filled, Chinese players are increasingly at the front of the line.
Wealthy investors, college graduates without jobs, skilled and unskilled laborers will be migrating out of their overpopulated, congested and highly polluted nation to foreign shores. Where are the new growth areas? What actions will be taken to stop or control the trend? Who will benefit? Who will lose? And what are the dangers and opportunities? You’ll find the answers in the Winter Trends Journal.
Wake Up Call: Last year we forecast the Great Awakening 2.0, a period reminiscent of the first Great Awakening that provided the intellectual, philosophical and spiritual ammunition that ignited the American Revolution. The “Awakening” has begun. Throughout 2014, and beyond, you will hear the Wake Up Call. It will be loud and distinct.
In 2013, the White House and Congress proved their extreme incompetence with a series of public failures. From closing down the government, to the debt ceiling debacle, to the aborted attack on Syria and, ultimately, to the disastrous launch of Obamacare, the ineptness of our political leaders was overwhelming. As polls show, a majority of citizens registered levels of scorn and ridicule unparalleled in modern America.
But this phenomenon is not limited to America. Around the world, citizen distrust has turned into universal disdain for entrenched political parties whose draconian austerity measures and punishing economic policies have thrown millions into poverty and pushed millions of protesters into the streets. Civil wars, civil unrest, revolts and revolutions will be just some of the cards dealt by an angry public that has lost everything and has nothing left to lose.
Will those in power hear the Wake Up Call? Or will they attempt to stamp it down and drown it out? Hear it or not, the movement is unstoppable. It will be a battle of the classes. What will it mean? Where will it take the biggest toll? Can the protests and disturbances of tomorrow bring peace and enlightenment that will lead to the Great Awakening 2.0? It’s all in the Top Trends 2014 Winter Trends Journal.
Seniors Own Social Media: Seniors now comprise the fastest-growing user segment of the social media world, and the year ahead will see the retail, business, political, health and entertainment industries evolve aggressive strategies to realize the robust economic potential in engaging seniors.
The gamut of possibilities is so grand that we forecast technological and product advances that impact everything from nursing home life to political campaigns and causes. Read the Winter Trends Journal to pinpoint how this trend will unfold and affect you and your interests.
Populism: Regardless of how professional politicians deride it or how the traditional media describe it, “populism” is a megatrend sweeping Europe, and it will soon spread across the globe. Mired in prolonged recession, disgusted with corrupt political parties, and forced to follow EU, ECB and IMF austerity dictates, populist movements are seeking to regain national identity and break free from the euro and Brussels domination. These movements are positioned to bring down ruling parties and build up new ones.
The discontent of the one-size-fits-all Euro Union formula is so deep that populists are expected to gain some 25 percent of the European Parliament seats in next year’s elections. “We have the big risk to have the most ‘anti-European’ European Parliament ever,” cried Italian Prime Minister Enrico Letta. “The rise of populism is today the main European social and political issue,” Mr. Letta added. “To fight against populism, in my view, is a mission today – in Italy and in the other countries.”
Already, some nations, such as Spain, have passed new laws restricting public demonstrations while imposing police-state measures to stamp out dissent. What is the future of populism? How far will it spread? Will it lead to the formation of new parties, or lead to civil wars? Read about it in the Trends Journal’s Top Trends 2014 edition.
Trouble in Slavelandia: Even as total US personal wealth soars above a record high of $77 trillion, fueled by the stock market’s own record highs, life for the growing number of have-nots in Slavelandia has become more desperate. In today’s Plantation Economy – driven by the bottom line needs of multinationals and flailing austerity-prone governments – low-paying service jobs and reduced hours engineered to evade corporate responsibility to provide benefits, are making it tough for the working poor, a group that now includes debt-burdened and underemployed college graduates and seniors as well as the traditional underclass.
Nearly half of the requests for emergency assistance to stave off hunger or homelessness comes from people with full-time jobs. As government safety nets are pulled out from under them – as they will continue to be for the foreseeable future – the citizens of Slavelandia will have no recourse but action. The fast-food worker strikes of 2013, seeking a higher minimum wage, were just a mild taste of what is to come. Learn more in the WinterTrends Journal.
The New Altruism: Several burgeoning trends identified for 2014 will coalesce in a welcome trend toward selfless concern for the wellbeing of others and an interest in the common good. Across the age divide, from people in their youth to those of advanced years, the search for meaning will intensify and become more widespread in response to waning resources, want, and an over-commodified culture. As despair quietly takes more prisoners, Doing Good will be recognized as the key to escape.
Ironically, the Internet that has been much maligned for currying narcissism will make the donation of money, time and talents so easy that people will be able to enact their better natures without resistance. Be they Boomers in renaissance or populists in revolt, people will discover and expand the humanist side of globalism and act accordingly. See why in the Top Trends of 2014 Winter edition of the Trends Journal.
Private Health Goes Public: While the world focused on the blockbuster NSA surveillance revelations and other cyber-snooping episodes of 2013, another powerful trend line was firmly planted: Your health data has been progressively mined, assembled and made accessible to a widening group of interested parties.
While signing up for the Affordable Care Act brought some attention to this developing trend, around the globe, data on individuals’ health status, behaviors, prescriptions and even their genetic indicators have been funneled to a wide range of databases. Those databases have many purposes and a growing number of hands on them.
The positive and negative implications of this trend are equally powerful. Individuals and their health care providers can more easily tie vital physical data with worldwide medical databases to anticipate and potentially prevent disease. But, in the wrong hands, the data can be used to exploit, damage and take advantage of individuals and their families. Security concerns will rise in equal importance with the potential benefits of this critical trend line.
What does this mean for you, your family, or your business? The Winter Trends Journal will provide the answers.
Boomer Renaissance Arrives: Distinct and strengthening economic, lifestyle and societal determinants are building a creative foundation for the older population as it discovers new approaches to work and finds long-elusive contentment in the process.
You already know that older workers, seeing their retirement plans shattered, have to work beyond traditional retirement years. You also know that those same economic dynamics are forcing aging Boomers to entirely rethink retirement. And, of course, you know that as Boomers are living longer, traditional thinking about retirement has been stood on its head. What you might not realize is how these factors are compelling Boomers to unearth potent creative energies not only to survive, but to realize potential that evaded them in traditional work roles.
In 2014, we will see growing evidence of this Boomer Renaissance, accentuated by waves of self-guided entrepreneurism that alchemizes commerce, survival and self-actualization into a new world and self view. The Winter Trends Journal will explore this compelling 2014 trend in depth.
Digital Learning Explodes: Fears that online educational platforms fall short of providing depth and effectiveness in the learning experience will all but disappear. Across the entire educational spectrum, online learning will expand to include not only course instruction, but also a wealth of real-life learning experience, with considerable participation by the skills-hungry business community.
For individuals, educational institutions, industries, small businesses and up-and-coming entrepreneurs, the implications are enormous. From traditional degree-based education to very specific micro skills-based learning, this trend line explodes. The Trends Research Institute will break down the implications for individuals, business professionals and a range of industries in its Winter Trends Journal.
Turkey is a democracy in name only. Prime Minister Recep Tayyip Erdogan is ruling despot.
He’s led Ankara’s Justice and Development Party (AKP) since August 2001. He’s been prime minister since March 2003. Why Turks put up with him they’ll have to explain.
Last spring, anti-government protests rocked Ankara, Istanbul and other Turkish cities. Police violence followed. Brutality is longstanding policy. Corruption is deep-seated.
It’s rife in Turkey’s construction sector. Erdogan established a land sales office. Ostensibly it was to build affordable public housing.
Widespread privatizations followed. Billions of dollars worth of government assets were sold.
Sweetheart deals and bribes accompanied them. Well-connected companies got no-bid contracts. State banks provided generous financing.
Projects developed had nothing to do with public housing. Berat Albayrak heads Calik Holding. He’s well connected. He’s Erdogan’s son-in-law.
He may be linked to the corruption probe. He builds power plants in Turkmenistan. He’s involved in an AKP backed oil pipeline project. He has other government related business.
The current scandal stems from a year ago anonymous letter. It was sent to police. It alleged Ankara and local government authorities illegally facilitated construction projects. Huge profits were involved.
Surveillance, phone tapping, and other investigatory methods followed. They produced considerable evidence of corruption. Government ministers are involved. Million dollar bribes were paid.
State-run Halk Bank head was found with about $4.5 million in cash. It was at home. It was stashed in shoe boxes.
Millions more were seized from other suspects. Over a dozen are accused of bribery and money laundering, as well as gold and antiques smuggling.
On December 17, Turkey’s Financial Crimes and Battle Against Criminal Incomes department detained 47 people.
Sons of Ankara’s Economy, Interior and Environment and Urban Planning ministers are involved.
So is Fatih district municipality major Mustafa Demir and real estate tycoon Ali Agaoglu. Minister of European Union Affairs Minister Egemen Bagis is being investigated.
Whether scandal touches Erdogan remains to be seen. He claims attempts to do so will be “left empty handed.”
On Christmas day, he reshuffled his cabinet. Three ministers resigned. He sack 10 others. He replaced them. Events are fast-moving.
Erdogan Bayraktar was Minister of Environment and Urban Planning. He was a member of parliament. He felt forced to resign both posts.
He said Erdogan should do so. He claimed suspect construction projects under investigation were approved with Erdogan’s full knowledge.
“With your permission, I want to make very short statements in the form of a press statement,” he said.
“It is of course a right and an authority for Mr. Prime Minister to work with whichever minister he wants and to remove whichever minister he wants from office.”
“But I do not accept the pressure being put on me which says, ‘Resign because of an operation in which there are statements of bribery and corruption and release a declaration that will relieve me.’ “
“I do not (accept it) because a big part of the zoning plans that are in the investigation file and were confirmed were made with approval from Mr. Prime Minister.”
“For the sake of the well-being of this nation, I believe the prime minister should resign.”
He accused him of involvement in suspect property deals. He’s linked to profiteering business interests.
Scandal heads closer to directly connecting him. Perhaps it will as investigations continue. Turkish Professor Soli Ozel called Bayraktar’s call for Erdogan’s resignation “extraordinarily dramatic.”
He’s “someone who was very close to the prime minister. This is someone you’d expect to fall on his sword without question.”
Other analysts see things potentially spinning out of control. Whether Erdogan can prevent it remains to be seen.
He may end up victimized by his own transgressions. It depends on how much public anger grows. He weathered previous crises. It’s hard to know if this one is too great to contain.
Investigations targeted over 90 suspects. Over two dozen were arrested. Dozens of police chiefs were sacked. Erdogan is far from squeaky-clean.
On December 21, Ankara’s police department Anti-Smuggling and Organized Crime Unit head Hakan Yuksekdag was found dead in his car. Officially it was pronounced suicide.
Further investigation is being conducted. The incident occurred a day after 14 senior Ankara National Police Department officials were removed from their posts.
Erdogan blamed ongoing events on an international conspiracy. He vowed revenge on figures connected to Muhammed Fethullah Gulen.
He heads the movement bearing his name. He claims a million or more followers. They include judges and senior police officials.
He’s currently in self-imposed exile. He’s in Pennsylvania. He’s a writer, former imam, and Islamic opinion leader. He’s an important figure.
He’s involved with issues relating to Turkey’s future. He and Erdogan haven’t gotten along for years.
Former Minister of Internal Affairs Idris Naim Sahin said Erdogan’s actions fall short of law and justice. He’s trying to defuse public anger, he said. He’s shifting blame to do it.
Thousands of Istanbul, Ankara, and Ismir protesters demanded Erdogan’s resignation. They did so on Christmas. They did it in other cities. They protested last spring.
They’re justifiably outraged. Their longstanding anger hasn’t waned. Erdogan works against their well-being. Clashes with police erupted. Arrests followed.
Protesters chanted; “Three ministers aren’t enough. The whole government should resign. Corruption is everywhere. Resistance is everywhere.”
Opposition party members accused Erdogan of deepening despotic rule. Critics use the term “deep state.” It refers to a shadowy power structure. It lacks checks and balances.
Turkey’s Republican People’s Party (CHP) is Erdogan’s main rival. It’s Turkey’s oldest political party. It’s AKP’s Main Opposition in the Grand National Assembly. Kemal Kilicdaroglu heads it.
“Erdogan has a ‘deep state,’ ” he said. His AKP “has a ‘deep state.’ ” Efkan Ala is new Interior Minister.
He’s an Erdogan crony. He formerly was Diyarbakir Province governor. He’s part of what’s ongoing, said Kilicdaroglu.
He believes Ala’s appointment is part of an Erdogan power grab. He wants greater police control. Outgoing Interior Minister Muammer Guler fired hundreds of police officers. Senior commanders were sacked.
Erdogan’s new ministers were carefully chosen. He appointed officials “that will not show any opposition to him,” said Kilicdaroglu.
Turkey is more police state than democracy. Press freedom is compromised. Censorship is standard practice. Dissent is verboten. Challenging government authority is called terrorism.
No country imprisons more journalists than Turkey. Corruption is deep-seated. Neoliberal harshness writ large is policy. Popular interests are spurned.
Erdogan represents wealth, power and privilege. It’s hard imagining he’s not involved in corruption in some way. He’s gotten his son-in-law business tycoon sweetheart deals.
He prioritizes Turkey’s business model. It reflects capitalism’s dark side. It includes unrestrained profit-making, privatizations, cheap labor, deregulation, corporate-friendly tax cuts, marginalized worker rights, and speculative capital inflows.
Economic conditions are inherently unstable. Turkey suffers rolling recessions, crisis conditions, and fragile largely jobless recoveries. It’s increasingly dependent on imports of resources and capital goods.
Youth unemployment tops 22%. An entire generation is affected. Conditions are socially and economically unstable.
Privation fuels public anger. Eventually it may spiral out-of-control. It may be just a matter of time. Turkey has a long history of rebellion.
Erdogan is increasingly hated. He weathered last spring’s anti-government protests. It remains to be seen what’s next.
Nicolas Spiro heads Spiro Sovereign Strategy. “The dismissal of half an entire cabinet is worrying enough,” he said. “The corruption probe is escalating by the day.”
It’s “causing a further deterioration in market sentiment towards Turkey.” Erdogan’s new cabinet includes four deputy prime ministers.
Ayse Islam is the only woman appointed. She’s Family and Social Policy Minister. Others include:
Deputy prime minister: Bulent Arinc
Deputy prime minister: Ali Babacan
Deputy prime minister: Besir Atalay
Deputy prime minister: Emrullah Isler
Justice: Bekir Bozdag
Defense: Ismet Yilmaz
Interior: Efkan Ala
Foreign Affairs: Ahmet Davutoglu
European Union: Mevlut Cavusoglu
Finance: Mehmet Simsek
Economy: Nihat Zeybekci
Energy and Natural Resources: Taner Yildiz
National Education: Nabi Avci
Labour and Social Security: Faruk Celik
Environment and Urban Development: Idris Gulluce
Health: Mehmet Muezzinoglu
Transport: Lutfi Elvan
Food, Agriculture and Husbandry: Mehmet Mehdi Eker
Science, Industry and Technology: Fikri Isik
Culture and Tourism: Omer Celik
Forestry and Water Affairs: Veysel Eroglu
Customs and Trade: Hayati Yazici
Development: Cevdet Yilmaz
Youth and Sports: Akif Cagatay Kilic
Scandal erupted months ahead of next March’s local elections. Parliamentary elections involving Erdogan are scheduled in 2015.
If held today, voters might oust him. It’s way too early to know how they’ll react in 2015. Istanbul-based Global Source Partners analyst Atilla Yesilada said ongoing events suggest Erdogan is losing control.
“Forced to act, (he) tried to get rid of his burdens,” he said. “But this is a political crisis, and it is hard to tell how it will unfold. These investigations may expand in coming months.”
Doing so perhaps may link Erdogan to deep-seated corruption. If so, he may be forced to resign. The fullness of time will tell.
Stephen Lendman lives in Chicago. He can be reached at firstname.lastname@example.org.
His new book is titled “Banker Occupation: Waging Financial War on Humanity.”
Visit his blog site at sjlendman.blogspot.com.
Indeed. End the Fed.
Sounds so radical doesn’t it? Isn’t the Federal Reserve there to smooth out the economy, to stabilize the currency? To make sure the world doesn’t blow up?
What if I told you that it doesn’t smooth out the business cycle, but exacerbates it. That the dollar has lost 95% of its value since the establishment of the Federal Reserve. And that the world has “blown up” multiple times under the Fed regime? The world is worse for having the Fed in it.
A reasonable person might ask, “Well, I don’t buy it. That’s not what I’ve been told. Wouldn’t things have been even worse without the Fed?”
No. The Fed is the reason we have so much economic instability, and why the world economy is prone to long periods of sub optimal performance. The Fed juices the economy to counter what it perceives as downturns. In so doing it creates malinvestment while times are “good.” When (artificially) easy money flows businesses and governments make stupid decisions. They leverage themselves out too much, much more than if the market set the overall rates of interest. They build where they shouldn’t build. They loan money to people they shouldn’t loan money to. And eventually all this malinvestment crumbles on itself and creates a recession or depression.
Sadly the Fed doesn’t then just abolish itself in the face of another failure. No, it is usually during these times where the Fed, the very entity which has created the problems in the economy, gains more power as politicians scurry around trying to look as if they are solving the country’s economic problems.
This is what happened in the wake of 2008.
The Fed screwed up by keeping rates too low for too long. The banks took advantage of the easy money.Then the big banks came tumbling down – really just a reversion to the mean. Then the Fed bailed out the banks and in the process expanded its power.
The Fed failed. The manipulation of interest rates failed. The manipulation of the market mechanism failed. But because people (especially Congress) think the bankers at the Federal Reserve have some God-like insight into the world of high finance, they hand over more of the economy to the Fed in the wake of each Fed induced crisis.
It’s as if America has fallen into a Stockholm Syndrome induced trance. The Fed has captured the economy and after 100 years the general public (and Washington) now look to its captor for economic answers. We know nothing else. Won’t the world end if we take off the chains the FOMC has told us protect us? What if we decided to be free?
Nope, nope, too scary to contemplate. The wizards at the Fed will take care of things.
The so-called wizards, are just men and women. They are prone to mistakes (obviously.) But because the Fed has such massive power when these men and women made of flesh and blood mess up, they mess up the whole world. No political entity should ever be able to do this.
The Fed is far too powerful. It’s time to stop identifying with our captors and to put the bank in its place, which is to say in the dustbin of history.
According to a new Washington Post-ABC poll, Barack Obama now ranks among the least popular presidents in the last century. In fact, his approval rating is lower than Bush’s was in his fifth year in office. Obama’s overall approval rating stands at a dismal 43 percent, with a full 55 percent of the public “disapproving of the way he is handling the economy”. The same percentage of people “disapprove of the way he is handling his job as president”. Thus, on the two main issues, leadership and the economy, Obama gets failing grades.
An even higher percentage of people are upset at the way the president is implementing his signature health care system dubbed “Obamacare”. When asked “Do you approve or disapprove of the way Obama is handling “implementation of the new health care law?” A full 62% said they disapprove, although I suspect that the anger has less to do with the plan’s “implementation” than it does with the fact that Obamacare is widely seen as a profit-delivery system for the voracious insurance industry. Notwithstanding the administration’s impressive public relations campaign, a clear majority of people have seen through Obama’s health care ruse and given the program a big thumb’s down.
Of course, Obamacare is just the straw that broke the camel’s back. The list of policy disasters that preceded this latest fiasco is nearly endless, including everything from blanket pardons for the Wall Street big-wigs who took down the global financial system, to re-upping the Bush tax cuts, to appointing a commission of deficit hawks to slash Social Security and Medicare (Bowles-Simpson), to breaking his word on Gitmo, to reneging on his promise to pass Card Check, to expanding to wars in Africa, Asia and the Middle East, to droning 4-times as many civilians as the homicidal maniac he replaced as president in 2008.
Obama’s treatment of undocumented immigrants has been particularly shocking although the details have been kept out of the media, presumably because the news giants don’t want to expose the Dear Leader as a heartless scoundrel who has no problem separating mothers from their children, locking them up in privately-owned concentration camps and booting them out of the country with nothing more than the shirt on their back. Check out this blurb which sums up Obama’s “progressive” immigration policy in one paragraph:
“Obama is on track to deport 3 million immigrants without papers by the end of his second term, more than any other president. George W. Bush deported about 2 million over two terms. Obama will likely hit that mark this month….. The average daily count of immigrants in detention now is about 33,000. In 2001, it was 19,000. In 1994, it was 5,000, according to the Detention Watch Network. Almost all of the detainees and deportees are Latino. True, the population of illegal immigrants has also doubled in that time to more than 11 million. But the detainee and deportee counts have escalated more than twice as fast.
“He could go down as the worst president in history toward immigrants,” said Arturo Carmona, executive director of the liberal activist group Presente.org.
Hooray for the Deporter in Chief! You’re Numero Uno, buddy. You even beat Bush! Is it any wonder why the man’s ratings are in freefall?
All told, Obama has been bad for the economy, bad for civil liberties, bad for minorities, bad for foreign wars, and bad for health care. He has, however, been a very effective lackey-sock puppet for Wall Street, Big Pharma, the oil magnates, and the other 1% -vermin Kleptocrats who run the country and who will undoubtedly attend his $100,000-per-plate speaking engagements when he finally retires in comfort to some gated community where he’ll work on his memoirs and cash in on his 8 years of faithful service to the racketeer class.
But, let’s face it; no one really gives a rip about “drone attacks in Waziristan” or “hunger strikes in Gitmo”. What they care about is keeping their jobs, paying off their student loans, putting the food on the table or avoiding the fate of next-door-neighbor, Andy, who got his pink slip two months ago and now finds himself living in a cardboard box by the river. That’s what the average working stiff worries about; just scraping by enough to stay out of the homeless shelter. But it’s getting harder all the time, mainly because everything’s gotten worse under Obama. It’s crazy. It’s like the whole middle class is being dismantled in a 10-year period. Wages are flat, jobs are scarce, incomes are dropping like a stone, and everyone’s broke. (Everyone I know, at least.) Did you know that 76% of Americans are living paycheck-to-paycheck. Check it out:
“Roughly three-quarters of Americans are living paycheck-to-paycheck, with little to no emergency savings, according to a survey released by Bankrate.com Monday.
Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses, enough to help cushion the blow of a job loss, medical emergency or some other unexpected event, according to the survey of 1,000 adults.
Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all….
Last week, online lender CashNetUSA said 22% of the 1,000 people it recently surveyed had less than $100 in savings to cover an emergency, while 46% had less than $800. After paying debts and taking care of housing, car and child care-related expenses, the respondents said there just isn’t enough money left over for saving more.”
Are you kidding me? What’s that? Who do you know that’s able to save money in this economy? Maybe rich uncle Johnny whose lived on canned sardines and Akmak for the last 50 years, but nobody else can live like that. Subtract the rent, the groceries, the doctor bills etc, and there’s barely enough leftover to fill the tank to get to work on Monday. Saving just isn’t an option, not in the Obamaworld, that is.
Now check this out from Business Insider:
“Thousands of Americans aged 55 and older are going back to school and reinventing themselves to get an edge in a difficult labor market, hoping to rebuild retirement nest eggs that were almost destroyed by the recession….
According to the Federal Reserve, household financial assets, which exclude homes, dropped from a peak of $57 trillion in the third quarter of 2007 to just over $49 trillion in the fourth quarter of last year, the latest period for which data is available.
A survey to be released this summer by the Public Policy Institute of AARP, an advocacy group for older Americans, found a quarter of Americans 50 years and older used up all their savings during the 2007-09 recession. About 43 percent of the 5,000 respondents who took part in the survey said their savings had not recovered.” (“Unemployed Baby Boomers Are Getting Hired By Going Back To School”, Business Insider)
Sure they’re going back to work. What do you expect them to do? They’re broke! They got wiped out in Wall Street’s mortgage laundering scam and they’re still behind the eightball five years later. And what’s left of the money they set aside for retirement is yielding a big zilch thanks to the Fed’s zero rate policy which is forcing people back into another decade of penal servitude at minimum wage. That’s why you see so many hunched over graybeards in red vests with “Happy to Serve You” splattered on their chests lugging shopping bags out to the cars for old ladies. Because they’re broke and out of options. Everyone knows someone like this unless, of course, they’re one of the fortunate few who make up the Nobel 1%; aka–The Job Cremators. Then they don’t have to fret about that sort of thing.
Here’s another gem you might not have seen in USA Today a few months back:
“Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.
Survey data exclusive to The Associated Press points to an increasingly globalized U.S. economy, the widening gap between rich and poor, and the loss of good-paying manufacturing jobs as reasons for the trend….
Hardship is particularly growing among whites, based on several measures. Pessimism among that racial group about their families’ economic futures has climbed to the highest point since at least 1987. In the most recent AP-GfK poll, 63% of whites called the economy “poor.”
“I think it’s going to get worse,” said Irene Salyers, 52, of Buchanan County, Va., a declining coal region in Appalachia. Married and divorced three times, Salyers now helps run a fruit and vegetable stand with her boyfriend, but it doesn’t generate much income….
Nationwide, the count of America’s poor remains stuck at a record number: 46.2 million, or 15% of the population, due in part to lingering high unemployment following the recession. While poverty rates for blacks and Hispanics are nearly three times higher, by absolute numbers the predominant face of the poor is white…
“Poverty is no longer an issue of ‘them’, it’s an issue of ‘us’,” says Mark Rank, a professor at Washington University in St. Louis who calculated the numbers. “Only when poverty is thought of as a mainstream event, rather than a fringe experience that just affects blacks and Hispanics, can we really begin to build broader support for programs that lift people in need.” (“4 in 5 in USA face near-poverty, no work”, USA Today)
Does Obama have any idea of the damage he’s doing with his Rich-First policies? The country is in a terrible state and yet Obama continues to approve bills that throw millions of people off unemployment benefits, sharply cut government spending, or undermine vital safetynet programs that keep the sick and the elderly from dying on the streets. It’s like he’s trying to reduce 300 million Americans to grinding third world poverty in his short eight-year term. Is that the goal?
Did you know that–according to Gallup–20.0% of all Americans did not have enough money to buy food that they or their families needed at some point over the past year? Or that –according to a Feeding America hunger study–more than 37 million people are now using food pantries and soup kitchens? Or that one out of six Americans is now living in poverty which is the highest level since the 1960s? Or that the gap between the rich and poor is greater than any in history?
Everything has gotten worse under Obama. Everything. And, not once, in his five years as president, has this gifted and charismatic leader ever lifted a finger to help the millions of people who supported him, who believed in him, and who voted him into office.
These latest poll results indicate that many of those same people are beginning to wake up and see what Obama is really all about.
Guess who’s investing in America’s future?
Nobody, that’s who.
Just check out this excerpt from an article by Rex Nutting at Marketwatch and you’ll see what I mean. The article is titled “No one is investing in tomorrow’s economy”:
“The U.S. economy simply isn’t investing enough to ensure that there will be enough good paying jobs for our children and our children’s children. Net investment — the amount of capital added to our stock — remains at the lowest levels since the Great Depression. …
Net investment…measures the additional stock of buildings, factories, houses, equipment, software, and research and development — above and beyond the replacement of worn-out capital. In 2012, net fixed investment totaled $485 billion, only about half of the $1.1 trillion invested in 2006…
If businesses, consumers and governments were investing for the future at usual rate, the economy would be at least 3% larger, employing millions more people. That’s a huge hole in the economy that can’t be filled by heavily indebted consumers, especially at a time when government is handcuffed by forces of austerity.” (“No one is investing in tomorrow’s economy”, Rex Nutting, Marketwatch)
Now the author seems to believe that the lack of net investment is just a temporary phenom that will work itself out in the years ahead. But he could be wrong about that. After all, why would a company build up its capital stock for the future when the future is so uncertain? Certainly, there’s nothing in the data that would suggest that the US economy is about to shake off its five year post-recession funk and shift into high-gear again, is there? No, of course not. In fact, it looks like the economy has reset at a lower level of activity that will only get worse as the impact of budget cuts and stagnation are felt. That will further curtail consumer spending which, to this point, had been the primary driver of growth.
Bottom line: Net investment is down because there’s no demand. And there’s no demand because unemployment is high, wages are flat, incomes are falling, and households are still digging out from the Crash of ’08. At the same time, the US Congress and Team Obama continue to slash public spending wherever possible which is further dampening activity and perpetuating the low-growth, weak demand, perma-slump.
So, tell me: Why would a businessman invest in an economy where people are too broke to buy his products? He’d be better off issuing dividends to his shareholders or buying back shares in his own company to push stock prices higher.
And, guess what? That’s exactly what CEOs are doing. Check this out in the Washington Post:
“Battered by months of disappointing sales, networking giant Cisco needed a way to give its shareholders a pick-me-up. So the San Jose-based firm did what has become routine for many big U.S. companies in a slow-growing economy: It announced last month that it was buying back shares of its stock…..
This is what U.S. multinationals do now with their cash. Rather than tout big new investments, raise worker wages or hire more employees, companies are more likely to set aside funds to reward shareholders — a trend that took a dip during the recession but has roared back during the recovery.
The 30 companies listed on the Dow Jones industrial average have authorized $211 billion in buybacks in 2013, according to data from Birinyi Associates, helping to lift the benchmark stock index to heights not seen since the tech boom of the late 1990s. By comparison, the amount is nearly three times what the group spent on research and development last year, according to data from S&P Capital IQ.
Why spend so much on stock repurchasing?
When the number of shares outstanding falls, the value of each one goes up, instantly rewarding shareholders.” (“Companies turning again to stock buybacks to reward shareholders”, Washington Post)
Corporations don’t care about the future. What they care about is maximizing shareholder value, that’s the name of the game; profits. If that means boosting net fixed investment then, okay, that’s what they’ll do. But if the Fed creates incentives to do something else, like gaming the system with stock buybacks, then they can make the adjustment. And that’s what the Fed’s zero rate policy does. It’s incentivizes businesses to use their capital in a way that’s damaging to the real economy. Here’s more from the same article:
“Helping to fuel the stock market’s meteoric rise is the Federal Reserve’s stimulus program designed to lower borrowing costs. Companies are taking advantage, often by borrowing money at low rates to repurchase shares, although it’s unclear how much of the debt is being used to pay for buybacks.
“It somehow feels scarier if they borrowed the money to buy back stock than if they had some investment opportunities,” Inker said. “That somehow seems more sustainable than just levering up to reduce the share count.”
Some analysts say companies are better off repurchasing shares than pouring money into investments promising dubious payoffs, especially in a slow-growing economy.” (“Companies turning again to stock buybacks to reward shareholders”, Washington Post)
There you have it; instead of investing in R&D, factories or new technologies, (all of which produce more high-paying jobs) companies are taking advantage of the Fed’s cheap money, goosing stock prices and raking in hefty profits. That’s just the way the policy works. The only way change the outcome, is to change the incentives. But the Fed doesn’t want to do that, and neither does the Congress because, at present, they have working people right where they want them, under their bootheel.
If you are looking for proof that workers are getting shafted, just look at the condition of the US consumer who is still on the ropes 5 years after the recession ended. Now, according to the latest Fed’s Flow of Funds report, “Household net worth rose by $1.9 trillion in the last quarter” which means that everything should be hunky dory, right? It means the long period of deleveraging should be over and consumers should be ready to go on another madcap spending spree like they did up-until 2007. Unfortunately, the Fed’s report is a bunch of baloney. The $1.9 trillion merely accounts for rising asset prices that have been reflated by Bernanke’s quantitative easing boondoggle. While working people have seen some uptick in housing prices, the bulk of the gains have gone to stock and bond speculators who’ve made out like bandits. As for consumers, well, they’re still stuck in the doldrums as economist Stephen S. Roach points out in this article at Project Syndicate. Here’s a clip:
“In the 22 quarters since early 2008, real personal-consumption expenditure… has grown at an average annual rate of just 1.1%, easily the weakest period of consumer demand in the post-World War II era.” (It’s also a) “massive slowdown from the pre-crisis pace of 3.6% annual real consumption growth from 1996 to 2007.” (“Occupy QE“, Stephen S. Roach, Project Syndicate)
So, personal consumption has dropped from 3.6% to 1.1%?!?
Yep. No wonder there’s no recovery. And, keep in mind, this is no short-term deal either, mainly because Democrats and Republicans are equally committed to future budget cuts which means it will be more difficult for households to get out of the red and resume spending. More austerity means more retrenchment and hard times for consumers, households and workers. Economist William R. Emmons provides a good summary of what’s-in-store for consumers in a recent post titled “Don’t Expect Consumer Spending To Be the Engine of Economic Growth It Once Was”. Here’s a clip from the article:
“Lower wealth: First and foremost, U.S. household wealth took a beating during the Great Recession. …., the loss of significant amounts of wealth and the severe pressure in some households to deleverage their balance sheets (reduce debt) are likely to contribute to restrained consumer spending for some time.
Stagnant incomes: The economic recovery under way since mid-2009 has been mediocre, at best. Job growth barely matches population growth, while incomes of the typical worker are barely keeping up with inflation. …, most of the overall gains in income appear to be flowing to high-income workers.
Tight credit: Consumer lenders either have disappeared altogether or are offering credit on a much more restricted basis than before the downturn.. …
Fragile confidence: Major consumer-confidence indexes have rebounded from their lowest levels during 2009 in the immediate aftermath of the recession, but they remain below the levels that prevailed just as the recession began in late 2008 …
Looming reversal of stimulus: The Federal Reserve has explored options to “exit” its extraordinarily accommodative monetary policy, while Congress and the president agree that budget consolidation is necessary in the not-too-distant future. In both cases, a tightening of policy measures represents a withdrawal of support for household incomes and wealth and, therefore, consumer spending.”
Individually, any of the five obstacles noted above might be surmountable. But combined, these contractionary forces make the outlook for broad-based consumer spending growth challenging. To be sure, some households weathered the economic and financial storms well, but we can’t count on these fortunate few to step up their spending sufficiently to offset the lost spending caused by declines in wealth, income, access to credit, confidence and government support.” (“Don’t Expect Consumer Spending To Be the Engine of Economic Growth It Once Was”, William R. Emmons, The Regional Economist |via The Big Picture
Emmons offers a bleak, but realistic assessment of our present predicament. There’s really no way the US economy can rebound without a dramatic reversal in the current fiscal policy. Most Americans appear to grasp this point which is why survey after survey show that the majority think the country is “on the wrong track”. The public’s frustration with Congress -(whose public approval rating is at all-time lows) is reflected in growing pessimism which is affecting their spending habits. This is completely normal, given that most middle income working people do not expect their financial situation to improve in the next year. Lower expectations mean more penny pinching, fewer job openings, skimpy net investment, and sluggish growth. That’s the future in a nutshell.
It’s worth noting that the investor class will also pay a heavy price for the current misguided policy. Stocks have had an impressive 4-year run, but there are signs that the day of reckoning is fast approaching. Get a load of this from USA Today:
“A potential warning to stock investors: the fourth-quarter earnings pre-announcement season is shaping up to be the most negative on record. In what seems like a major disconnect, the number of profit warnings relative to upbeat guidance is the widest it has ever been — at a time when the U.S. stock market is trading near record territory. The Standard & Poor’s 500 index notched a new closing high of 1809 Monday.
For every 10 companies warning of weaker-than-expected earnings for the October-through-December period, only one has said it will top forecasts, says earnings-tracker Thomson Reuters I/B/E/S. The actual 10.4-to-1 negative-to-positive pre-announcement ratio is on track to eclipse the prior record of 6.8 warnings for every positive one back in the first quarter of 2001. The long-term ratio is 2.3 warnings for each positive one.
“This is off the charts, I’ve never seen it this high,” says Gregory Harrison, analyst at Thomson Reuters.” (“As stocks hit record highs, so do profit warnings”, USA Today)
So why is Wall Street taking such dire warnings in their stride, you ask?
It’s because investors no longer pay attention to the fundamentals. Demand doesn’t matter. Earnings don’t matter. What matters is the Fed and the Fed alone. “Is Bernanke going to keep pumping trillions in liquidity into the financial markets or not?” That’s the policy upon which all investment decisions are made.
So when Bernanke announces his plan to “taper” his asset purchases (scale-back QE), equities will adjust accordingly.
Did somebody say “crash”?
What is more frightening, then the loss of your money. Since most people have, some meager amount held in some form of a financial institution, the prospect of the banksters’ cabal placing a charge against your account for the mere privilege of maintaining a deposit, is horrible. The Business Insider warns, In The Future, You May Have To Pay The Bank To Hold Your Money, and raises a very dreadful prospect.
“In recent weeks, economists have discussed the idea of how to implement a negative interest rate while preventing people from hoarding paper currency. Economist Miles Kimball has discussed creating an electronic currency and having an exchange rate between it and dollar bills. Others have discussed going cashless and eliminating paper currency altogether.”
Negative interest rates simply mean it will cost you, in fees or service charges, to hold money in banking accounts. Examine Professor Kimball’s ivory tower justification for seizing the value and purchasing power of your savings.
“University of Michigan economist Miles Kimball has developed a theoretical solution to this problem in the form of an electronic currency that would allow the Fed to bring nominal rates below zero to combat recessions. He’s been presenting his plan to different economists and central bankers around the world. Kimball has also written repeatedly about it and was recently interviewed by Wonkblog’s Dylan Matthews.”
Now dig deep into the mind of a mentally ill pseudo intellectual to see just how far from rational money policy such monetary eggheads go to provide cover for the fractional reserve central bankers.
“If we repealed the “zero lower bound” that prevents interest rates from going below zero, there would be no need to rely on the large scale purchases of long-term government debt that are a mainstay of “quantitative easing,” the quasi-promises of zero interest rates for years and years that go by the name of “forward guidance,” or inflation to make those zero rates more potent.”
This threat is a continuation from the initial trial balloon that appeared in the Financial Times. A video rant about, Banks to Start Charging You on Deposits, goes ballistic with outrage that the money-centered banks are emboldened as to telegraph their intentions of raiding the nest egg savings of depositors. While the justifiable emotion is understandable for a beleaguered public, the economic aftermaths of interjecting massive QE reserves is explained well by Zerohedgein recent reports with the accompanied chart.
“Furthermore, contrary to what the hypocrite banker said that “the danger is that banks are pushed into riskier assets to find yield“, banks are already in the riskiest assets: just look at what JPM was doing with its hundreds of billions in excess deposits, which originated as Fed reserves on its books – we explained the process of how the Fed’s reserves are used to push the market higher most recently in “What Shadow Banking Can Tell Us About The Fed’s “Exit-Path” Dead End.”
What the real danger is, is that once the Fed lowers IOER and there is a massive outflow of deposits, that banks which have used the excess deposits as initial margin and collateral on marginable securities to chase risk to record highs (as JPM’s CIO explicitly and undisputedly did) that there would be an avalanche of selling once the negative rate deposit outflow tsunami hit.”
Hence, this move to prepare the bank customer for another hosing by imposing negative rates actually is a desperate attempt to keep the derivative “day of reckoning” from hitting. This strategy will not work. In the Negotium article, Low Interest Rates Impoverish Savers, makes the point: “Designed lowering of our standard of living is visible at every turn. The money-centered banks recapitalized their balance sheets at the expense of the passbook accounts customers.”With the expectation that bank accounts will actually experience debit fees for parking money will result in a massive outflow of capital. Where will the money go? Will the banks allow the return of your deposits in cash or will they impose significant costs and delay withdrawals?
Consider that under a banking system, which automatically reduces your balances, the acceleration of stripping your net worth goes into high gear. No sane individual would accept this theft willingly. However, the transition to a cashless economy might well inflict a call back of cash (Federal Reserve Notes) in circulation for an enforced substitute legal tender. Or else some variation of the “killer” Kimball electronic compulsory account may be imposed under strict governmental supervision.
Under such a circumstance, the mandatory medium of exchange strips all personal ownership from the individual. Money, in whatever form it takes, no longer will be your own property.
Negative interest rates institutionalize systemic inflation into every transaction. Throughout history, usury is condemned for charging interest on lending. What term should be used for paying no interest on capital saved? Anthony Migchels argues in Our Chains are Forged by Usury, that the objective is to create an interest-free money supply. Much like the Kimball electronic currency, the Migchels alternative resides in his own twisted hermitage, read accordingly.
“The problem is not the creation of money! Quite the opposite: it’s marvelous that we never need to have a shortage of money. The problem is when the bookkeeper starts raping the debitor with interest for no other reason than the associated minus.”
While debt is the central issue in all financial bubbles, the solution is not to destroy wealth creation through capital saving. Until a universal model of wizardry or alchemy is adopted that creates a stable store of value, independent from work, ingenuity or greed; expectations of an interest free currency are pipe dreams.
The benefits from negative interest rates all go to the banksters. The borrower never sees FREE interest loans, nor does the saver earn a fair rate of return. The maxim remains, Those with the Gold, Make the Rules, is no different in the age of the New World Order of central banking. Starving the saver is negative for the rest of us.
As U.S. corporate profits soar to record highs, food stamps for the neediest were quietly cut. The politicians who are demanding endless cuts to social programs — Democrats and Republicans alike — insist that the U.S. is broke, all the while conveniently ignoring the mountains of tax-free wealth piling up in the pockets of the super rich.
This newest flood of cash for the nation’s wealthiest 1% is a blatant government subsidy: the Federal Reserve continues to pump out an extra $75 billion a month, the vast majority of which fattens the already-bursting overseas bank accounts of the rich. Since Obama has been president this pro-corporate policy has helped funnel 95 percent of the nation’s new income to the wealth-soaked rich.
And while it’s true that the global super rich have an estimated $32 trillion [!] stashed away abroad in off shore tax havens, an even newer way to avoid taxes has gripped the endlessly-greedy minds of U.S.-based billionaires.
Instead of shielding themselves behind the classic ‘C’ corporation structure — and all the burdensome taxes and regulations associated with it — two-thirds of new corporations have “evolved” into pseudo-legal “partnership” structures, commonly referred to as “pass throughs,” the idea being that the corporate-partnership instantly passes the profits through to the shareholders, no corporate tax necessary.
The most common form of pass throughs are “innovative” variations of a Limited Liability Company, a tax structure created in 1975 for narrowly regulated purposes. But now rich investors are performing accounting and legalistic somersaults to exploit the tax structure, practices that were illegal before the regulators were “captured” by the big banks.
The pro-billionaire Economist magazine recently discussed the pass through fad:
“A mutation in the way companies are financed and managed will change the distribution of the wealth they create…The corporation is becoming the distorporation…More businesses are now twisting themselves into forms that allow them to qualify as pass throughs.”
So, for example, imagine that nine rich guys get together and call themselves a pass through corporation of some variety. They do this because they want to avoid personal liability in case things go awry. Their partnership only buys and sells stocks and goes on to make billions, while paying zero corporate taxes. When their risky bets go bust and the partnership is sued by hoodwinked investors, the company instantly declares bankruptcy, since all profits were quickly “passed through.” The partners (the nine guys) cheerfully go home to swim through their sea of cash.
In real life shady pass throughs make massive wealth. Richard Kinder, who co-founded the biggest pass through, named Kinder Morgan, personally received $376 million in dividends last year alone [!], according to the Economist.
The pass through fad is on track to becoming the dominant way that the super rich get together to make huge amounts of money — pass throughs were 63 percent of all corporate profits in 2008, and are likely higher now, since many of the big private-equity companies making a killing by the cheap fed dollars are organized under pass through umbrella structures.
There is a huge society-wide risk for this type of behavior, which resembles the reckless gambling that destroyed the economy in 2008. As an ever-larger share of wealth is poured into these risky, non-regulated vehicles, the potential grows for them to self-destruct and pull down the broader economy with them. Pass throughs — which include most private-equity firms — function “efficiently” when the government is handing them cheap money; when interest rates go up, the pass throughs go bust, with predictable outcomes.
“But wait,” the billionaire will protest, “we pay individual taxes, which help fund social services.” Not necessarily. If the billionaire investor paid their legal obligation of “capital gains” taxes, they’d already be paying far less than the average worker. But the pass-through billionaires excel at avoiding all taxes. The Economist again:
“For a [pass through] partner a payout can be considered merely a return of capital rather than a profit, and consequently no tax is due until the sale of the underlying security. When tied to nuances of estate law, this may mean no tax at all.”
This type of blatantly criminal behavior used to be actually illegal, but as Wall Street bought Congress, the rules were either bent or ignored.
The Economist explains:
“The limitations on becoming [a pass through] seem to be tied more to legal dexterity [!] and influence [buying politicians] than any underlying principle. Politicians want to extend the benefits of [pass through] partnerships to industries they have come to favor either on the basis of ideology [of the corporate type], or astute lobbying [bribery], or a bit of both.”
The rest of society is affected because public services are being starved of funds, while these new pass throughs face vastly less regulation than the standard C corporations, and push wealth inequality to new heights while threatening a deeper recession.
Historically, government began regulating corporations because everyone realized the profound effects these institutions were having on the rest of society; the nation was becoming more unequal, the labor force more exploited and the environment torn to shreds.
As the super wealthy organized themselves into corporations they took most of society’s wealth with them; government realized that a semi-functioning country would need to tax these institutions and regulate their behavior, since the “natural” behavior of the capitalist — greed — was capable of pushing the rest of society into the dregs.
The new pass through fad is also indicative of the current state of U.S. capitalism; instead of investing profits in a company to buy machines or hire new workers, all the cash is either sitting in overseas bank accounts, or is being instantly funneled, via pass throughs, into the hands of ever-richer billionaires, who are proving to everyone that there is no bounds to the amount of cash they can accumulate. Where there are barriers to accumulation (regulations and taxes), they will supersede them while paying politicians of both major parties to ignore it or make it legal.
This dynamic occurs, in part, because the wealthy are basically refusing to invest in the real economy, as they fear the unstable economic conditions are not safe enough to make long term investments, which they believe won’t yield long term higher rates of profits. Safer to speculate on risky stocks, pocket the money and be the first one out when things go bust, as they did in 2008.
Of course the big name C corporations are up to their eyes in fraud too. Apple made big news when it only paid 2 percenttaxes on $74 billion in profits, by “declaring” its profits in Ireland, a corporate tax haven.
This occurs while other giant companies simply use clever accounting tricks to pay zero taxes, including giants like WellsFargo, Boeing, Verizon and General Electric. In fact, General Electric even finagled a rebate.
When it comes to oversea tax havens, it’s estimated that the U.S. national budget is annually starved of $280 billion in tax revenue.
Politicians have been struggling with ways to deal with the problem, since even in their mind some amount of tax collection needs to happen, if only to fund the military, provide more subsidies to corporations, and please the public by appearing to try to reduce the billionaire’s obscene behavior.
One popular idea among the politicians is to declare a corporate “tax holiday,” where the trillions of off-shore profits can be ceremoniously brought back to the U.S. while the feds look the other way. The idea is that, once the money is actually back in the U.S., the wealthy will want to spend it on something which will eventually help the economy — trickle down economics at its finest.
What seems certain to happen is that lowering corporate taxes will be a central piece of any “grand bargain” that eventually emerges, since there is a clear bi-partisan consensus that corporations need to pay lower taxes.
Some argue that if corporate taxes are low enough — and regulations removed — the corporations will reward the nation by not stockpiling their profits abroad and not creating pass through loopholes.
Of course all of this implies that the wealthy have a stranglehold over the U.S. economy. It’s telling that politicians want to deal with corporate tax evasion by lowering the corporate tax rate, instead of actually sending the IRS after them and throwing them in jail, as they do with working and middle class people.
The above dynamics create an ever-increasing wealth inequality that claws at the thinning strings holding society together. The bankruptcy and social disintegration of Detroit is a foreshadowing event for the rest of the country, unless this dynamic is stopped.
When the next crash happens the nation will have learned its lessons: the big banks and wealthy investors who destroyed the economy in 2008 are back at it, encouraged by Obama’s pro-corporate behavior and the Federal Reserve’s money flooding.
It’s becoming increasingly obvious that breaking the power of the super wealthy is the first step towards balancing the budget, job growth, protecting the safety net, and creating a semblance of a rational society. Until then the U.S. will lurch from one crisis to another, while blaming everyone but the real culprits.
A Flimsy Piece of Worn Out Script…
“If the dollar does indeed lose its role as leading international currency, the cost to the United States would probably extend beyond the simple loss of seigniorage, narrowly defined. We would lose the privilege of playing banker to the world, accepting short-term deposits at low interest rates in return for long-term investments at high average rates of return. When combined with other political developments, it might even spell the end of economic and political hegemony.”
– Economist Menzie Chinn, “Will the Dollar Remain the World’s Reserve Currency in Five Years?”, CounterPunch 2009
Barack Obama’s economic recovery has been a complete bust. Unemployment is high, the economy is barely growing, and inequality is greater than anytime on record. On top of that, inflation has dropped to 1.2 percent, private sector hiring continues to disappoint and, according to Gallup’s “Economic Confidence” survey, households and consumers remain “deeply negative”. More tellingly, the Federal Reserve’s emergency program dubbed QE– which was designed to mitigate the fallout from the 2008 stock market crash and subsequent recession–is still operating at full-throttle five years after Lehman Brothers defaulted. This is inexcusable. It’s an admission that US policymakers have no idea what they’re doing.
Why is it so hard to get the economy up and running? Everyone knows that spending generates growth, so if the private sector (consumers and businesses) can’t spend the public sector (the government) must spend. That’s how sluggish economies shake off recession, through growth.
Spend, spend, spend and spend some more. That’s how you grow your way out of a slump. There’s nothing new or original about this. This isn’t some cutting-edge, state-of-the-art theory. It’s settled science. Economics 101.
So is it any wonder why the rest of the world is losing confidence in the US? Is it any wonder why China and Japan have slashed their purchases of US debt? Get a load of this from Reuters:
“China and Japan led an exodus from U.S. Treasuries in June after the first signals the U.S. central bank was preparing to wind back its stimulus, with data showing they accounted for almost all of a record $40.8 billion of net foreign selling of Treasuries….
China, the largest foreign creditor, reduced its Treasury holdings to $1.2758 trillion, and Japan trimmed its holdings for a third straight month to $1.0834 trillion. Combined, they accounted for about $40 billion in net Treasury outflows.” (“China, Japan lead record outflow from Treasuries in June”, Reuters)
While things have improved since August, the selloff is both ominous and revealing. Foreign trading partners are losing confidence in US stewardship because of policymakers erratic behavior. Here’s how former Fed chairman Paul Volcker summed it up:
“We have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate.”
Naturally, this loss of confidence is going to hurt the dollar vis a vis its position as the world’s reserve currency. But don’t kid yourself, China and Japan want to be the top-dog either. They’re fine with the way things are right now. The problem is, it’s looking more and more like the US is not up-to-the-task anymore given the irresponsible way it conducts its business. And we’re not talking about the government shutdown either, although that circus sideshow certainly lifted a few eyebrows in capitals around the world. Foreign leaders have come to expect these tedious outbursts from the lunatic fringe in Congress. But, the fact is, the government shutdown fiasco had very little effect on the bond market. The benchmark 10-year US Treasury shrugged off congress’s screwball antics with a wave of the hand. No big deal. Not so the talk of “tapering” by the Fed, which sent 10-year yields soaring more than 100 basis points to 3 percent in less that a month. Tapering put the fear of god in everyone. The sudden jolt to mortgage rates was enough to put the kibosh on new and existing homes sales putting a swift end to Bernanke’s dream of reflating the housing bubble. The rising long-term rates threatened to push the economy back into recession and wipe out five years of zero rates and pump priming in the blink of an eye. That’s why China and Co. started to jettison USTs. They figured if the Fed was going to scale back its asset purchases, rates would rise, and they’d be left with a whole shedload of US paper that would be worth less than what they paid for it. So they got out while the gettin’ was good.
So don’t believe the media’s fairytale that Bernanke postponed tapering because the economy still looked weak. That’s nonsense. It was the selloff in USTs that slammed on the brakes. The Fed actually wants to reduce its purchases because there are humongous bubbles emerging in financial assets everywhere. But how to do it without triggering another crash, that’s the question. The Fed has distorted prices across the board, which is why the main stock indices are climbing to new highs every day on the back of an economy that has less people in the workforce than it did 10 years ago. What a joke. And people wonder why foreign lenders are getting nervous?
What China wants from the United States is simple. They want proof that the US hasn’t lost its mind. That’s all. “Just show us that you still know how to fix the economy and run the system.” Is that too much to ask?
Unfortunately, Washington doesn’t think it needs to answer to anyone. We’re Numero Uno, le grand fromage. “What we say goes!”
Okay. But the only thing that’s going is the US’s reputation, it’s economic dominance, it’s behemoth debt market, and its reserve currency status. Not because the world is rebelling, but because the US is imploding. “Stupid” is a disease that has spread to every part of the body politic. The country is run by crackpots who implement counterproductive policies that weaken demand, boost unemployment, shrink growth leave the rest of the world scratching their heads in bewilderment. This is from Bloomberg:
“While government debt was a haven as the U.S. endured the worst recession in seven decades, primary dealers such as Barclays Plc (BARC) and Goldman Sachs Group Inc. say the gains this month show the Fed’s $85 billion of monthly bond purchases are masking the risk of owning fixed-income securities as the recovery in America takes hold.
“Treasuries are just not worth the risk,” Thomas Higgins, the Boston-based global macro strategist at Standish Mellon Asset Management Co., which oversees $167 billion of fixed-income investments, said in a telephone interview on Oct. 23.” (Bloomberg)
Not worth the risk, indeed, which is why the dollar is getting pummeled mercilessly at the same time. This is from Reuters:
“The dollar fell towards a nine-month low against a basket of currencies on Monday, with more investors selling on growing confidence the Federal Reserve will keep policy accommodative….
Most expect the central bank to delay withdrawing stimulus until March 2014…. The longer the Fed keeps policy accommodative, the more U.S. yields stay anchored, making the dollar less attractive to hold.” (Reuters)
So the dollar isn’t looking too hot either, is it, which is why China and Japan have started to reconsider their holdings. This is from Businessweek:
“U.S. government debt has already lost some of its appeal among foreign investors. They were net sellers of Treasuries for five-straight months ended August, disposing of $133 billion in that span, last week’s Treasury data showed.
The streak is the longest since 2001 as China, the largest overseas U.S. creditor, reduced its holdings to $1.268 trillion, the least since February….With the economy recovering from the depths of that recession, Treasuries may be more vulnerable to a selloff this time.” (“Treasuries Risk Shown as Fed Distorts Correlation to Stocks”, Businessweek)
Of course, there’s going to be a selloff. Why wouldn’t there be? And probably a panic too to boot.
Look, it’s simple: If the biggest buyer of US Treasuries (The Fed) signals that its either going to scale back its purchases or reduce its stockpile of USTs, then what’s going to happen?
Well, the supply of USTs will increase which will lower prices on US debt and push up rates. Supply and demand, right?
So, if the other participants in the market (aka China and Japan) think the Fed is about to taper, they’re going to try to sell before other investors race for the exits.
The question is: What’s that going to do to the dollar?
And the answer is: The dollar going to get hammered.
The US gov going to have to borrow at higher rates which could tip the economy back into recession. Also, the US could lose the ”exorbitant privilege” of exchanging colored pieces of paper for valuable goods and services produced by human sweat and toil. Isn’t that what’s really at stake?
Of course, it is. The entire imperial system is balanced on a flimsy piece of worn scrip with a dead president’s face on it. All that could change in the blink of an eye if people lose faith in US stewardship of the system.
But, what exactly would the US have to do for foreign countries to ditch the dollar? Here’s how economist and author Menzie Chinn answered that question in an interview in CounterPunch in 2009:
“If the US administration were to pursue highly irresponsible policies, such as massive deficit spending for many years so as to push output above full employment levels, or if the Fed were to delay too long an ending to quantitative easing, then the dollar could lose its position.” (“Will the Dollar Remain the World’s Reserve Currency in Five Years?” An Interview With Economist Menzie Chinn, Counterpunch)
Funny how Chinn anticipated the problems with winding down QE way back in 2009, isn’t it? His comments sound downright prophetic given Wall Street’s strong reaction.
But we keep hearing that China is stuck with the US and has to keep buying Treasuries or its currency will rise and kill its exports. Is that true or will China eventually split with the dollar?
Menzie Chinn again:
“It is true that each Asian central bank stands to lose considerably, in the value of its current holdings, if dollar sales precipitate a dollar crash. But we agree with Barry Eichengreen that each individual participant will realize that it stands to lose more if it holds pat than if it joins the run, when it comes to that. Thus if the United States is relying on the economic interests of other countries, it cannot count on being bailed out indefinitely.” (Counterpunch)
Well, that sounds a bit worrisome. But maybe China won’t notice that we’re governed by morons who’ve forgotten how to fix the economy or generate demand for their products. Any chance of that?
No chance at all, in fact, China already has already started its transition away from the dollar. Here’s the scoop from former chief economist for Morgan Stanley Asia, Stephen S. Roach:
“China has made a conscious strategic decision to alter its growth strategy. Its 12th Five-Year Plan, enacted in March 2011, lays out a broad framework for a more balanced growth model that relies increasingly on domestic private consumption. These plans are about to be put into action….
Rebalancing is China’s only option…..With rebalancing will come a decline in China’s surplus saving, much slower accumulation of foreign-exchange reserves, and a concomitant reduction in its seemingly voracious demand for dollar-denominated assets. Curtailing purchases of US Treasuries is a perfectly logical outgrowth of this process…..
For China, this is not a power race. It should be seen as more of a conscious strategy to do what is right for China as it confronts its own daunting growth and development imperatives in the coming years.” (“China gets a wake-up call from US”, Stephen S. Roach, Project Syndicate via bangkokpost.com)
In other words, “No hard feelings, Uncle Sam. We just don’t need your fishwrap currency anymore.”
No matter how you cut it, the dollar is going to be facing stiff headwinds in the days ahead. If Roach’s analysis is correct, we can expect a gradual move away from the buck leading to a persistent erosion of US economic and political power.
The end of dollar hegemony means America’s “unipolar moment” may be drawing to a close.