There are many threats to the alleged economic recovery in the United States. As the Empire declines, it is hard to choose one particular area of concern while ignoring all the others. America's decline is all-encompassing, not piecemeal. It is ubiquitous, not isolated. This makes it almost impossible for most people to see it, even if they were psychologically inclined to accept it, which they almost never are.
Cognitive failure to comprehend our massive societal breakdown is especially prevalent among those who are in some sense "successful" within the current mess, i.e. they have a job of some importance, they make good money, their personal lives are in order, etc. These people want to believe the Empire is still salvageable, even when they admit its deep flaws. They still take America's corrupt politics seriously while engaging (for example) in earnest discussions of whether Obama has "compromised his principles" in recent deals with the Republicans. Obama's principles? WTF?
Another perception problem stems from gradualism. The Empire has been falling apart for three decades now. A fish swimming in polluted water gets used to swimming in polluted water—if that water hasn't already killed it. For example, look at this graph.
Source. Public debt, including government "borrowing" from social security (i.e. intragovernmental holdings)
After the early 1980's, economic (GDP) growth and our Imperial military presence overseas required more and more debt to cover the bills. In the private sector, household debt grew and grew to cover the income deficit required to support increased consumption. See my post Keynesian Delusions. Those born in 1970 were only 10 years old when the debt equation started to change. If you were born after 1980, you never lived in a world which wasn't like this. Those under 40 years old might be forgiven for asking Decline? What decline?
For the successful types I talked about above, regardless of how old they are, it seems that no amount of damage will persuade them that we're up shit creek without a paddle. In the decades leading up to 2008, things fell apart at a sufficiently slow pace to allow them to constantly adapt to new conditions. Even now, after the meltdown, they are still able to put a happy face on unemployment well above 10% and the still-crashing Housing Market. In other words, successful adaptations make it impossible for such people to be insightful observers of contemporary conditions.
Thus when we talk about new threats to the economy, we must remember that many people simply deny that the country is in deep, deep trouble. Moreover, any specific threat must be understood in the context of the Empire's decline. In its proper historical context, a collapse in some new sector (e.g. Muni bonds) should be seen as just another brick in the wall.
With this brief preamble out of the way, we can point to two major risks to our economy in 2011. The first—naturally!—is the debt and pension obligation problem in the 50 states, their cities and other municipalities. This 60 Minutes video highlights those problems.
The other major threat is the continuing crash of the Housing Market, which I reported on yesterday. Tech Ticker's Aaron Task interviewed Richard Suttmeier of ValuEngine.com. If you think I'm a pessimist, listen to Richard, who thinks that there is downside risk of a 15-30% drop in average national home prices. And just like me, he's a level-headed guy
In upcoming days and weeks, I will talk about other threats to our economy in 2011. There's no dearth of things to choose from.
Is the Housing Market the forgotten crisis, as columnist Rex Nutting recently asserted? It depends. If you check in with Calculated Risk everyday, then you receive the same updates on the disaster I do. But if you look for mainstream media reports, there are few new stories making the rounds because glowing reports are hard to come by. There are no new initiatives to "save" the market because all the previous ones, such as HAMP, were miserable failures. Here's Nutting—
For typical Americans, two things determine their financial well-being: Their job and the equity they have in their home [left]. They get almost all of their income from wages and salaries, while most of their wealth is tied up in their house. When wages and house prices are rising, they are confident. When wages and house prices are falling, they are fearful.
Policy makers may have rescued the banks, but they haven’t figured out a way to bring back the jobs that were lost, nor have they found any answer to the problem that was the nucleus of the crisis: housing...
Housing is the forgotten crisis. It wasn’t always so neglected. Early on in the downturn, the government dug deep into its policy tool kit to find answers for the collapse of housing.
They lowered interest rates in an effort to boost affordability. They took over Fannie Mae and Freddie Mac, and they told the Federal Housing Administration to lend freely. The Federal Reserve purchased more than $1 trillion in mortgage-backed securities and bonds to support housing. They approved tax credits for buyers, and extended those credits several times. They tried to get lenders to modify loans.
Nothing has worked.
Not only has nothing worked, but the Housing Market continues to deteriorate. According to Core Logic's House Price Index, house prices have fallen for 3 months in a row, the most recent decline being 1.9% in October from the September level, which itself showed a decline of 1.8% from August.
From Calculated Risk. I took the liberty of marking the Bubble Era (1995-2007). The bubbly times also include the first first bubble in Tech (the Web, Telecommunications) as reflected in the NASDAQ. This first bubble burst in 2000. From CR: "In Q3 2010, household percent equity (of household real estate) declined to 38.8% as the value of real estate assets fell by almost $650 billion. Note: something less than one-third of households have no mortgage debt. So the approximately 50+ million households with mortgages have far less than 38.8% equity."
As house prices decline, more mortgages go underwater (i.e. into negative equity), there are more foreclosures and unsold inventory increases. This causes house prices to decline further, which means more mortgages go underwater, ... and so on. I don't exactly when this pernicious positive feedback loop will stabilize, and neither does anybody else. When it does, we can say the Housing Market has hit bottom.
Nutting is concerned about the impact that equity loss has on "consumer" spending. I have decided that I will never again use the word "consumer" without quotation marks. From Nutting—
Since early 2006, American families have lost $7 trillion in home equity — more than half of their equity has simply vanished. Many millions, of course, have lost everything they put into their house, and more.
Years of blood, tears and sweat equity gone. Remember, for most families, home equity accounts for most of their wealth. In the past, wealth in the form of home equity has often been the ticket to upward mobility; many a small business or college education has been funded from real estate wealth...
Rising housing wealth helped drive consumer spending in the middle of the last decade. The best guess by economists is that consumers will spend about a nickel more if their housing wealth rises by $1, or spend a nickel less if wealth falls by a dollar. The bubble boosted consumption by about 6 trillion nickels.
Needless to say, spending driven by phony equity created by the bubble is not coming back anytime soon. Nutting does not mention, and may not know, that Americans flocked into houses during the bubbly times to compensate for the wealth they were not accruing in wages and incomes. The median income in the United States has been falling since 1997, and it's not an accident that this fall comes just after the beginning of the Bubble Era (see chart above).
Anyway, that's all over and done with. The bubbles being blown now by the Federal Reserve will not have a new "positive" effect on household balance sheets. Rising gasoline prices or rising stock prices or rising asset prices in China do not increase the household wealth of ordinary Americans.
Nutting goes on to say that the rich are spending more money, as I've written about lately. Of course this does nothing to help the Middle Class, whose ranks are dwindling, nor does it help the poor, whose ranks are swelling. Here's Nutting's conclusion—
The upper middle class and the rich, of course, haven’t slowed down. Spending isn’t as volatile for them as it is for the rest of us. Their holdings of stocks, mutual funds and other financial assets are worth more than their home equity, so they feel richer than they did a year ago.
Not so for those in the middle or bottom of the income scale, who have fewer financial resources to buffer themselves from economic shocks. For them, the recession never ended. And it might be getting worse.
The huge loss of phony housing equity that ordinary Americans have sustained over the last 3 years accentuates the failure of real median wages and incomes to rise for 13 years now. Americans were not buffered from economic shocks before the Housing Bubble, they weren't protected from economic shocks during the Housing Bubble—obviously!—and now they are more vulnerable than ever before after the Housing Bubble. Homeowners will continue to lose equity until the Housing Market bottoms out. Nobody knows when that will occur. Will it happen next year? — unlikely. 2012? — perhaps. 2013? — possibly.
From this point of view, the American economy has been fraudulent for a long, long time now. The collapse of the Housing Bubble exposed this fraud. But if you read DOTE every day, you already know that. Nothing has changed, at least for the better. In fact, some circumstances have gotten worse. Counterintuitively, mortgage interest rates are rising post-QE2. Will wonders never cease?
The greatest tragedies to emerge from the Great Recession and its aftermath are the accelerating destruction of America's Middle Class and the swelling ranks of the poor. This tendency was well underway in the decades leading up to 2008, but the recession cemented the deal. It's A Great Time To Be Rich, says Business Week, but there's never been a worse time to be anything else.
Those in the media and the government always refer to "The Economy" as a monolithic entity in which we all participate. That's the Great Lie, for there are two economies in the United States, one where the wealthy or well-off live and another where everyone else struggles to survive. I have called this America's New Gilded Age. 77% of those living in the "Main Street" economy live paycheck-to-paycheck, but you would never know it listening to glowing reports about November's retail sales numbers. As I demonstrated in A Tale Of Two Christmases, it is spending by the rich that is driving those numbers.
Extending unemployment benefits is said to be a great "stimulus" to "The Economy" because the jobless tend to spend every penny they get. No kidding! Therefore these so-called transfer payments are said to boost spending, or in economist-speak, they have a high multiplier effect on "The Economy" ($1.64 in the chart below).
On the other hand, permanent tax breaks are said to have little stimulative effect on "The Economy" (>$0.50). The multiplier is particularly low for the rich, who don't spend the extra money they receive. They don't spend it because they're already spending what they want to spend. Giving them more money is not likely to change that, although its always possible some hedge fund king may want to swap out that smaller, inferior yacht for a much roomier, glitzier one they've had their eye on.
But of course this is all complete nonsense. There are two economies, not one. In the "Main Street" economy where 90% of Americans live, preventing some of those people from falling into abject poverty by offering them unemployment insurance will naturally have a high "multiplier" effect. Temporarily increasing food stamps to prevent those citizens from starving has an even higher effect ($1.73). In the other economy where the rich folks dwell, giving them more money they don't need has little or no effect on those living on Main Street.
It is good to know that standard economic thinking has decided it is better to prevent people from starving to death or living under bridges in cardboard boxes than it is to bulldoze more money to the very wealthy. Still, the standard view is a bad joke and the joke's on you. Disregarding commonsense and any remaining vestige of human compassion, the Great Lie that says there is one economy—we're all in this together—must be maintained at any cost. Conveniently for America's elites inside or outside of government, the Great Lie covers up the fact that most Americans are increasingly down and out.
And that is why we have trickle-down economics. This Original Lie asserted that giving more money to the rich would eventually help everyone else—the "benefits" would trickle-down to poor schmucks like you. This "theory" was simply a justification for giving more money to the rich emanating from those who had been paid (bribed) to direct more money to the rich. Bush the First called this view "voodoo economics." It is said that hardly anyone believes this obvious nonsense now—we're far too sophisticated to swallow such a transparent excuse for further enriching the wealthy.
But now in 2010, it's all trickle-down all the time because when we refer to "The Economy" instead of talking about America's two economies, the implicit assumption is that spending, no matter where it comes from, is good for everybody. GDP goes up, and that's what we all want, right? It doesn't matter that almost all increased spending is coming from the rich, whereas subsistence spending supports the rest. It doesn't matter that many of the latter have impossible debt loads. It doesn't matter that what happens in one economy has little effect on what happens in the other.
So the next time some airhead on NPR or CBS or wherever refers to "The Economy", remember what I told you here. This is America's Great Lie. To paraphrase Charles Dickens, who knew a thing or two about these matters, for the Rich, it is the best of times. But for everyone else, it is the worst of times.
Bonus Video — Polanski's version of Dickens' Oliver Twist (2005). Please, Sir, I want some more.
I've got a terrible cold today, so I'm going to take the easy way out by playing a few personal favorites. You may have to crank the volume when you're watching the Spalding Gray video. Enjoy.
Lately I have featured David Stockman, who refers to our alleged recovery. He is alarmed by the effect of the new round of tax cuts on America's out-of-control public debt. MSNBC's Dylan Ratigan, who also thinks the recovery is a sham, sat down with Stockman to discuss upcoming 1.4 trillion dollar deficits and massive expansions of government debt.
But before we watch the video, it is important to understand why we might care about the debt. I described some of those concerns in The Biggest Ponzi Scheme Ever Conceived, from which I now quote—
Government bond issuance differs from run-of-the-mill Ponzi Schemes created to rip-off investors for private gain. In the government case future economic "growth" is assumed to pay for current financing needs, as Bill Gross points out. Taking a benign view, we might look upon such debt financing as a Ponzi Scheme undertaken for a good cause—higher standards of living in the future.
However, sometime in the last decade—we had a balanced budget in the year 2000—government debt financing grew disproportionately large just as the structural basis for economic growth was being undermined (e.g. by the Housing Bubble, by growing Medicare costs). With growth in doubt, as Gross said, there is no longer a sound basis for continuing the previous arrangement. The typical "benign" Ponzi Scheme governments routinely engage in has thus become a malignant cancer in the United States, and may now be perceived as a danger to those vested in it (listed below).
Ponzi Schemes collapse when participants refuse to roll over their investments, seeking to cash out instead. Alternatively, a Ponzi Scheme will collapse when new participants can no longer be found, and current investors refuse to up the ante. However, that's not a problem in the case of our federal government now that our Central Bank has stepped in as the buyer of last resort.
A pure Madoff-style Ponzi scheme collapses when new investors can not be found whose money can be used to pay out too-good-to-be-true returns to previous investors. In the government's scheme, another type of failure exists in which our creditors will only loan us money at exorbitant interest rates (8-10%) to hedge their risk. We see this today in Greece and Ireland. Interestingly, the new round of tax cuts seems to have caused yields on the benchmark 10-year Treasury note to rise.
The benchmark 10-year note's yield touched 3.564%, the highest level since 3.611% on May 13.
"People are repricing for a better economic outlook with better data and stimulus from both the monetary and fiscal sides," said David Coard, head of fixed-income trading in New York at Williams Capital Group...
The 10-year note's yield, a benchmark to set U.S. consumer and corporate borrowings, has surged about 130 basis points from this year's trough in early October. The yield had risen about 40 basis points since Dec. 7 when it broke above 3%.
Coard said he expects the 10-year yield to trade in a range of 3.25% and 3.6% in the short term. That has been sharply higher than just a month ago when many market participants expected a range of 2.5% to 3%.
Is the rise in 10-year yields a sign of things to come? That's the important question. Perhaps the recent surge in bond yields is just another sign of Chaos In The End Times.
Alternatively, should the American economy start to grow in earnest, as measured by phony GDP fueled by government borrowing or money printing, investors might demand higher and higher rates of interest on the money we borrowed to fuel the growth. In that case, rising interest rates might destroy that very recovery. We can easily imagine a situation in 2020 in which the federal budget contains only three large line items—health care payouts, defense spending and interest on the debt.
I don't think we'll get to 2020 without some hugely disruptive fiscal upheaval as described above. Once the $858 billion of unaffordable tax cuts are signed into law, the debt countdown begins.
Although the debt clock has been running at a furious pace for years now, I believe (along with Stockman) that we have just reached a turning point. At issue here is whether the United States can act in a completely irresponsible manner forever without punitive repercussions. That is simply impossible, as history clearly shows. There is no Free Lunch. Some day soon, the United States will have to pay the piper.
One scenario I have not discussed here is America hyper-inflating its way out of the debt. The idea that we will go the way of the Weimar Republic is so horrific that it requires no additional comment from me.
That sets the context for Ratigan/Stockman video. Watch it and weep.
The government propaganda machine has been particularly busy as Christmas approaches. Retails sales were said to be up 0.8% in November, which yields a year-over-year increase of 7.7%. These sales are not inflation-adjusted, so they're up "only" 6.9% excluding gasoline sales. (Average national gas prices have gone up about 10 cents per gallon over the last month, and now stand at $2.984.) And if we "deflate" retail sales using the price producer index (PPI) instead of the consumer price index (CPI), sales are actually falling.
Even if spending is not rising at nearly the rate the official propaganda suggests, and may actually be falling, the natural question which arises is who is doing all this spending? Both anecdotal evidence and polling data suggest that the well-off are doing most of it. Consider Economic recovery leaving some behind this Christmas by a staff reporter at the Washington Post. I hope you have a strong stomach, or lacking that, a handy place nearby where you can throw up.
A new division is emerging in America between those who have moved on from the recession and those still caught in its grip.
This holiday season, those two worlds have been thrown into stark relief: At Tiffany's, executives report that sales of their most expensive merchandise have grown by double digits. At Wal-Mart, executives point to shoppers flooding the stores at midnight every two weeks to buy baby formula the minute their unemployment checks hit their accounts. Neiman Marcus brought back $1.5 million fantasy gifts in its annual Christmas Wish Book. Family Dollar is making more room on its shelves for staples like groceries, the one category its customers reliably shop.
"When you start to line up all the pieces, you see a story that starts to emerge," said James Russo, vice president of global consumer insights for The Nielsen Co. "You kind of see this polarized Christmas."
This tale of two Christmases is being played out from the shopping mall to the kitchen table. At Towson Town Center outside Baltimore, sales are exceeding expectations in the mall's new wing of luxury retailers such as Burberry, Louis Vuitton and Tiffany's, executives said...
The divide is evident in retailers' sales. Sales at luxury stores open at least a year - a key measure of retail health - plunged by a monthly average of 9 percent last year, [but have] skyrocketed 7 percent so far this year, according to industry analysis. Discount stores eked out a 0.5 percent gain a year ago and are up just 2.6 percent this year.
OK, here's my favorite part, keep that bucket close by in case you start feeling queasy—
"During the recession, it was very unfashionable to be fashionable and that is slowly changing," said Stephanie Brager, vice president for asset management at General Growth, which owns the Towson mall and Tysons Galleria.
That is not to say that luxury consumers have abandoned the lessons of the recession. Coach, for example, reported that sales in North America grew by double digits during its most recent quarter - but only after it lowered prices of its signature handbags and leather goods by 10 percent. Still, the company said customers' plans to buy in the future were at the highest level in two years.
"I honestly think people are tired of the recession," said Paula Reynolds, 56, a photographer who was holiday shopping at Towson on a recent afternoon. "I think people are ready to move on, but I think they're being cautious."
Reynolds bought clothes for her son at the Gap, two skirts for herself at Ann Taylor and nosed around Tiffany's for a new wedding ring for her husband, who lost his while surfing in the Pacific Ocean. She said more people are calling to buy her high-end prints, which she takes as a hopeful sign. And as a retail industry veteran, Reynolds said, she understood that "the more we shop, the better it is."
I've always been an advocate of social and economic justice—what human being worth a damn is not?—but it's only been during the Great Recession and its aftermath that I finally understood at a gut level the outrage that early socialists must have felt during the late 19th and early 20th centuries. Those times have come again.
Self-reported spending by those making less than $90,000/year. Lower- and middle-income Americans' self-reported spending averaged $56 per day during November, up from $51 in October and September's $48. Spending by this group — those making less than $90,000 a year — was running below the 2009-2010 "new normal" monthly spending range of $52 to $64 during September and October, but returned to that range in November. Still, their spending continues to trail 2009 comparables.
Self-reported spending by those making more than $90,000/year. Upper-income Americans' spending averaged $120 per day in November — not much different than the $123 and $118 of the previous two months, or the $117 of a year ago. Spending among this group making $90,000 or more annually remains at the upper end of the 2009-2010 "new normal" monthly spending range of $107 to $121 per day.
This is the tale of Two Christmases. Spending by those making $90,000 per year or more, which is about 11% of those with jobs, is twice that of the 89% of those making less than $90,000. As high-end print maker Paula Reynolds said as she nosed around Tiffany's for a new wedding ring for her husband, who lost his while surfing in the Pacific Ocean, "the more we shop, the better it is."
In the 2010 midterm elections Democrats suffered from a so-called "enthusiasm gap." If Democrats agree to the tax plan just negotiated by the White House with Republican leaders, they’ll face a "why-should-I-get-up-out-of-my-chair" gap that will make 2010's Dem enthusiasm seem like a pep rally by comparison.
It's a $70,000 gift for every millionaire, financed by a gigantic hole in the federal budget that will put on the cutting board education, infrastructure and everything else most other Americans need and want...
It's not just the Dem base that worries about the deal. Independents who believe the dice are increasingly loaded in favor of the privileged and powerful are also concerned. Just the latest example: The New York Times today reports on a small cabal of bankers from the biggest Wall Street houses who meet regularly to maintain their lock on the lucrative multi-trillion-dollar derivatives trade. The Times story could have gone further and revealed how much the big banks are spending on lobbyists to gut provisions of the financial reform act aimed at regulating derivatives trading....
Most Democrats, many independents and everyone else who still sees government as our last bulwark against privilege and power are aghast by the deal.
They ask: How could it have come to this? And when 2012 rolls around, why should I get out of my chair?
Reich is concerned that Democrats and Independents will not show up on election day in 2012. Why bother? The fix is in. For ordinary Americans, it's heads you lose, tails you lose. Why should you get out of your chair? How could it have come to this? Reich asks.
Here at DOTE we know that not only has it come to this, but it came to this a long time ago. During the mid-term elections, I urged people not to participate. Here's Reich again—
The point is that with income and wealth more concentrated at the top than it's been since 1928, with money flooding politics as never before (much of it secret), and with cynicism about government at a post-World War II high, Obama's tax deal couldn't come at a worse time.
The most encouraging fact about the the election just past was that the voter turnout was only 41.5%. If I had my way—I never get my way—voter turnout would have been less than 10%. Only then would our supposed Democracy have been exposed as the joke that it is. As things stand, the low turnout should have cast serious doubt on our election charades.
When is this asshole guy going to talk about Sarah Palin, you may be asking. That's the only reason I'm reading this crap!
How could anyone in 2010 seriously believe that government is the last bulwark against privilege and power? Wall Street is about to report its best 4th quarter ever—
Wall Street’s biggest banks, rebounding after a government bailout, are set to complete their best two years in investment banking and trading, buoyed by 2010 results likely to be the second-highest ever.
The five largest U.S. firms by investment-banking and trading revenue — Goldman Sachs Group, Inc., JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Morgan Stanley — will likely have a better fourth quarter than the previous two periods, driven by equity underwriting and higher volume in stock and bond trading, according to data compiled by Bloomberg. Even if this quarter only matches the third, the banks’ revenue will top that of any year except 2009.
The surge has come after the five banks took a combined $135 billion from the Treasury Department’s Troubled Asset Relief Program and borrowed billions more from the Federal Reserve’s emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Brothers Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed’s purchases of fixed-income securities.
We are long, long past Obama's change you can believe in. We are long, long past the time when it made sense to divide the world up into Republicans and Democrats. The government saved the banking system. The government didn't save ordinary Americans, it didn't save you. Which part of that doesn't Robert Reich understand? Sure, he knows what's going on, but he doesn't really know what going on. It just hasn't sunk in.
Reich is still talking about Republicans and Democrats and elections in 2012. America's corrupt political system is set up to "bulldoze money toward rich people," as New York Times columnist Bob Herbert put it. No other outcome is possible. The process whereby the few are enriched at the expense of the many could not possibly be more blatant than it's been over the last few years.
Empires rise and empires fall. You happen to be living during the Decline and Fall. There's nothing to be done about it. If Sarah Palin were to become President, that would do more to convince people of where they stand than any 10 books I might write. And what would Robert Reich say then? There would be nothing to say. No "reasonable" spin would be possible, as seems possible with Barack Obama. With Sarah Palin in the Oval Office, Reich would be looking for a place to hide just like the rest of us. I can see Russia the Rose Garden from my house!
The historic tax cut compromise ensures that those forces tearing American society apart will become even more entrenched. Among these trends, one that doesn't get much attention is a key new industry here in the United States: we are "manufacturing" poor people like there's no tomorrow. And for these newly poor citizens, the so-called 99ers whose unemployment benefits have expired or will soon, there may not be a tomorrow. Obama's "compromise" does not extend "Tier 5" benefits, which means those who have exhausted their 99 weeks of unemployment insurance are screwed..
Calculated Risk recently posted a chart you should take a look at. He also quoted a 99er in Oregon who's about to lose his benefits.
"This is just as scary as people lobbing mortars over your head at 2 o'clock in the morning." —James Mitchell, a 64-year-old Vietnam veteran who lost his job in early 2009 and is about to exhaust his unemployment benefits.
You can easily see that the United States is creating far more poor people than it has created jobs. From Calculated Risk
And then there is congresswoman Michelle Bachmann (R, Minn), who was put out because the tax cuts might interfere with our manufacture of poor people, which is America's fastest growing industry—
Michele Bachmann is the latest member of Congress to demonstrate that she does not completely understand unemployment legislation.
In a statement to MinnPost on Tuesday, the Minnesota Republican criticized the deal President Obama crafted with Republican leaders to preserve rich people's tax cuts for two years and extend unemployment benefits for 13 months.
"As part of the compromise, the President wants to extend unemployment benefits for another 13 months," Bachmann said. "Unemployment benefits are already at a historical length of 99 weeks, and the President's request would push benefits to three years."
Problem is, the president's request would do no such thing. It would preserve the 99 weeks by reauthorizing Emergency Unemployment Compensation and Extended Benefits programs, which together provide up to 73 weeks of benefits beyond the standard 26 funded by states...
The version of the statement on Bachmann's website is better. It says, "Unemployment benefits are already at a historical length of 99 weeks, and the President's request will cost another $56 billion."
Michelle is a member of Congress, which may seem a bit of a stretch to some observers. They would argue that important questions remain unanswered about whether Michelle's mere membership in our species Homo sapiens qualifies her to vote, to drive a car, to make babies, to raise children, to hold a job, to run a household, to cook a meal, and so on. On the other hand, she is a Republican legislator, and many would argue that at least for that job, she is perfectly qualified, even if she does fall short in all those other areas I mentioned. I briefly discussed these important issues in Sociopaths In America.
Some have argued on economic grounds that creating millions of destitute people is not very good for American society—
James Hamilton at Econbrowser, however, points to some well-traveled comments from the CEO of Wal-Mart, reminding just how impactful UI [unemployment insurance] benefits are:
“And you need not go further than one of our stores on midnight at the end of the month. And it’s real interesting to watch, about 11 p.m., customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs,and continue to shop and mill about the store until midnight, when electronic — government electronic benefits cards get activated and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher.
“And if you really think about it, the only reason somebody gets out in the middle of the night and buys baby formula is that they need it, and they’ve been waiting for it. Otherwise, we are open 24 hours — come at 5 a.m., come at 7 a.m., come at 10 a.m. But if you are there at midnight, you are there for a reason.”
As Hamilton points out, it's safe to assume the "multiplier" is pretty high here. This could be a problem.
Yessiree, this could be a problem, people doing without baby formula, milk, bread and eggs.
The 99ers are our National Shame, but what would Jesus Michelle Bachmann do? Some people, many of whom serve in the Congress or work at the White House or do business Inside The Beltway, have no shame. They have no conscience. They feel no guilt. Those parts of their psyche are missing. These psychological components just don't exist in those Big Brains of theirs.
And like all poor people, the 99ers will soon be forgotten. But at least no one can claim that America doesn't "manufacture" things anymore. Poor people are our biggest product. That's the Good News.
I'm starting to think that the oil markets in 2010 are just a more chaotic version of the markets as they were in 2007. You will recall that in 2007 oil the price was rising, demand was outstripping supply, OPEC said the markets were well-supplied, and would not raise output quotas and the Venezuelans were saying $100/barrel was a fair price for oil. Most of this has happened just in the past week. Consider these two statements made in a recent Bloomberg report—
Global oil demand has exceeded supply by more than 900,000 barrels a day on a seasonally adjusted basis since May, Goldman Sachs Group Inc. said in an e-mailed report today. Goldman expects the world oil market to remain in deficit in the first half of next year, it said.
OPEC maintained its output quotas, forecasting demand growth will slow as the global economy struggles to recover amid ample supplies. Oil supply and demand are “in balance,” and $70 to $80 is “a good price” for oil, Saudi Arabian Oil Minister Ali al-Naimi said at the group’s meeting in Quito, Ecuador, on Dec. 11.
Who are you going to believe? Well, you should never believe Goldman Sachs, given their constant efforts to drive up the oil price to support their index-trading money-making machine. But you should never believe OPEC either, given their constant efforts to drive up the oil price by withholding oil from the market. If $70 to $80 is a "good price" for oil, why did OPEC maintain their quotas just as the price touched $90/barrel on the NYMEX last week? One thing we do know is that OPEC producers are breaking their quotas left and right—
OPEC is breaching its production limits the most in six years, signaling the world’s biggest suppliers are ready to pump more crude next year as oil rallies toward $100 a barrel.
The Organization of Petroleum Exporting Countries excluding Iraq pumped 26.78 million barrels a day this year, exceeding the quotas by an average of 1.934 million a day, the highest level since 2004, according to data compiled by Bloomberg. Crude rose 12 percent in 2010 as demand recovered, trading at about $90 for the first time in two years. Options to buy at $100 next December are near a five-month high.
And then there's the UK consultancy Wood Mackenzie, who said worldwide oil demand posted a new record in the 3rd quarter just past—
HOUSTON, Dec. 8 — Worldwide oil demand for this year’s third quarter will set a record at 88.3 million b/d, said Wood Mackenzie Ltd., Edinburgh, in its latest analysis.
According to the report, provisional data shows that global oil demand for the recent quarter will almost certainly exceed the previous highest quarter—the fourth quarter of 2007—when demand averaged 88 million b/d.
Just 3 years from the onset of the great recession, global oil demand has recovered to the pre-recession peak seen in 2007, the report said. The analysis finds that world oil demand in 2010 will likely reach an annual average of 86.7 million b/d, 100,000 b/d more than in 2007.
Further, WoodMac expects worldwide oil demand in 2011 to exceed pre-recession levels, averaging a new all-time high of 88.1 million b/d. Oil demand in 2012 will climb to almost 90 million b/d, according to the forecast.
I'm not sure what WoodMac counts as oil. Aside from ethanol, does this very large 88.3 million figure include Crisco, extra-virgin olive oil, whatever Willie Nelson puts in his bus, palm oil, nearly-extinct-fish oil and illicit whale oil? It's not clear, at least not to me. Who knows? — maybe WoodMac is long crude oil, or at least their clients are.
And finally there is the price: as money flows into "hard" assets (like commodities) following on QE2 and other free loose money policies, the price of oil is negatively correlated with the Dollar Index. If financial considerations are driving the market, the price isn't a reliable short-term guide to the global supply and demand balance.
Or so it would appear. What does the current price really mean? Does it mean the world is well-supplied, as OPEC claims? On the other hand, if Goldman Sachs and Wood Mackenzie are right, why isn't the price $110/barrel? Or $120/barrel? Or some other completely unaffordable number?
In short, standard reporting on what's going on in the oil markets tells you next to nothing about what's really going on in the oil markets. And that's why I had a same-as-it-ever-was moment last week as I tried discern the larger trends we need to worry about. It's just like 2007 in 2010, and of course we still remember—we still do remember, right?—what happened in mid-2008.
Fortunately, there is some terra firma for us to stand on. Oil demand in the developed world (i.e. the OECD nations) is basically flat, and considerably lower than it was in 2007. All the new demand for oil is coming from emerging markets, especially China—
China's implied oil demand in November rose 13.7 percent from a year earlier to a record of nearly 9.3 million barrels per day, Reuters calculations based on preliminary official data showed on Monday [today].
And from Bloomberg as cited above—
China, which last year overtook the U.S. as the world’s biggest energy user, boosted net imports of crude by 26 percent in November from a month earlier as refineries ramped up processing rates to ease a diesel shortage. Net purchases were 20.3 million metric tons, or 5 million barrels a day, the highest since September’s record 22.9 million tons, data from the Beijing-based General Administration of Customs showed.
Refineries processed 36.65 million metric tons in November, or 8.96 million barrels a day. That exceeded the record of 8.76 million barrels a day in October.
Data from Reuters. Look at the difference between China's domestic production (green line) and crude oil processed (blue line) to calculate China's imports. 1 metric ton = 7.3 barrels.
Here's some advice: if you want to know what's going to happen to oil prices over the next year or two, pay attention to what's happening in China. Forget OPEC. Forget Goldman Sachs. Forget Wood Mackenzie, and forget the countless other bullshitters out there who claim they have some insight into the oil markets. As far as oil demand and prices go, it's all China, all the time.
And that's why the video below should be of some interest to you if you're wondering what's up with oil. This is Jim Chanos (hat tip, Mish) talking to CNBC about what's going on in China's increasingly shaky economy. This is the kind of thing you need to know because as goes Chinese oil demand, so goes the oil price—
The overdependence on new real estate in China, when the demand isn't there, will cause the nation to eventually "hit a wall," hedge fund manager James Chanos told CNBC Friday.
“Construction is 60-plus percent of GDP, compared to exports of 5,” said Chanos, who is the founder and president of Kynikos Associates.
“The problem is that consumption as a percentage of Chinese economy has declined in the last 10 years, from 40 to 35 percent. It’s all real estate,” he said. After the US, China has the world's second largest economy...
China has built new cities that are now essentially empty, he added. Despite the overbuilding, said Chanos, construction continues at a good clip, with 12 million to 15 million residential units this year. The units, priced similar to those for US residents, are intended for Chinese who earn about $3,500 annually and are in the bottom 20 percent of wage earners. Ironically, many of the Chinese who've moved to cities from the country are construction workers, he noted.
“When construction is 60 percent of your economy, and you are building lots of things that people don’t need, the state may let this get out of control,” he said.
All the world's a stage, And all the men and women merely players; They have their exits and their entrances, And one man in his time plays many parts —Shakespeare
In perhaps the greatest futile gesture of modern times, Bernie Sanders (I, Vt) filibustered the Senate on Friday, December 10, 2010. No Senator had actually done this since 1992. Bernie's wrath was aimed at President Obama's tax cut "compromise" with the Republicans. Sanders was particularly upset about new tax cuts for the rich in a country in which income and wealth inequality already stands at its highest point since 1928, which was right before the stock market crash of 1929 and the subsequent Great Depression.
Let me enumerate some of the reasons I am opposed to this agreement.
First, as everybody knows, this Nation has a recordbreaking $13.8 $13.9 trillion national debt at the same time as the middle class is collapsing and poverty is increasing. And I think it is important to say a word—because I am not necessarily sure a lot of Americans know this—about how we got to where we are today in terms of the national debt.
I know there are some people who think this all began the day President Obama took office. Well, that is not quite the case. When President Clinton left office, this country was running, in fact, a very significant surplus, and the projections were that we were going to continue to run a surplus. During the 8 years of President Bush's administration, for a number of reasons—the primary reasons being the war in Iraq, the war in Afghanistan, huge tax breaks for the wealthiest people in this country, a Medicare Part D prescription drug program, the Wall Street bailout, among other things, all of which were not paid for—we saw an almost doubling of the national debt. Since President Obama has been in office, we have passed a stimulus package which has also added to the deficit and national debt...
All true, all true.
We have been told not to worry too much because the extension of these tax breaks for the wealthy will only last 2 years—not to worry. Maybe that is the case. But given the political reality I have seen in Washington, my guess is that 2 years from now these tax breaks for the wealthiest people in this country will be extended again. What happens around here is that the argument will be made that if you end these tax breaks you are raising taxes. That is what we are hearing right now. I see no reason why, in the middle of a Presidential election, those arguments will not be made again and I see no reason not to believe that those tax breaks will be extended again.
Clearly, we have a number of Republicans who want to make that extension permanent. Whether it will ever be made permanent I don't know. But the point is, when you hear folks say it is only a 2-year extension, I suggest you take that with a grain of salt...
Let me say, if in fact we do what the Republicans have wanted to do right now as we enter this debate—they wanted a 10-year extension--that would add $700 billion to our national debt. I have four kids and I have six grandchildren. None of them has a whole lot of money. I think it is grossly unfair to ask my kids and grandchildren and the children all over this country to be paying higher taxes in order to provide tax breaks for billionaires because we have driven up the national debt. That is plain wrong. I think the vast majority of the American people, whether they are progressives like myself or whether they are conservatives, perceive that concept of giving tax breaks to billionaires when we have such a high national debt makes no sense at all.
[My note: I can not quote it all, of course. Bernie speechified for 9 hours.]
Grossly unfair? Yes, indeed! Just plain wrong? You betcha! Makes no sense at all? No doubt! And yet, sadly, all this is beside the point in a waning Empire.
At some point, somebody put me on Bernie's mailing list, so I often get e-mails from the Senator's office. I open them, look quickly at the Good Causes the Vermont independent is working on that week, and then delete them. "Go get 'em, Bernie," I think, "too bad there's not a snowball's chance in hell that the corrupt, dysfunctional Congress will do anything even faintly resembling the Right Thing."
I wonder what I would say to Bernie over a beer. I think I would ask him "Are you just naive? Do you really think you can make a difference? Or is it one of those deals where you've decided to fight against what you know are impossible odds because it's simply the right thing to do?" If his answer were the latter, I could understand it. It's an honorable way to spend your life. If Bernie were to protest that we must fight against the dying of the light—
Do not go gentle into that good night, Old age should burn and rave at close of day; Rage, rage against the dying of the light.
Though wise men at their end know dark is right, Because their words had forked no lightning they Do not go gentle into that good night —Dylan Thomas
—I would remind him that we are already Fallen and suggest he go home and spend some time with those children and grandchildren he loves so much. And sorry, Dylan, old age should not burn and rave at the close of day. You yourself never made it to 40 or you would have known better. Wise men do indeed know at their end that dark is right (i.e. is true). If they are wise, they do go gently into that good night. They leave the futile fight to the young.
I am entirely sympathetic to Bernie Sanders, but he's a fool. Still, he's a noble fool and a tragic figure. The President, the leader of the Democrats, who Bernie caucuses with, sold him and the rest of us down the river. Give 'em hell, Bernie.
