December 5, 2012

Jobs First Because Jobs Fix Deficits

What happened to jobs? The pubic wants government to do something about jobs and getting the economy moving, and in DC the only thing is this weird argument about ... anything but jobs and getting the economy moving! "Fiscal cliff?" What about jobs? Fixing the economy will fix the debt, not the other way around.

Economic Storm Clouds

The economy is slowing, with signs of trouble on the horizon. Recent economic indicators are not so good. Trade deficits are huge, a bad manufacturing number this week, Europe still stagnant and slipping (because of austerity), China slowing. NY Times says, "Recent economic data "surprisingly weak," and "recovery sputtering." From Republicans Balk at Short-Term Stimulus in Obama Plan,

“As the debate rages in Washington, data has shown the recovery once again sputtering, with the underlying rate of growth too slow to bring down the unemployment rate by much and some of the economic momentum gained in the fall dissipating in the winter.”

It's Demand Stupid

This slowing is not happening because people are "worried about the fiscal cliff." It is because there are not enough jobs, and the wages of the people who do have jobs are stagnant with all the gains in the economy going to a very few at the very top of the economic ladder. Europe is slowing because they attacked deficits instead of hiring people to do jobs. We are slowing because the government stopped stimulus and started cutting.

The slowdown is because the jobs are not coming back fast enough, wages are stagnant and falling, and the government is not doing anything about it. And that means that there is not enough "demand" in the economy to cause investment and hiring.

Businesses want customers, not tax cuts -- and certainly not cutbacks. In fact most of what DC is focused on -- austerity -- will make the situation worse, possibly even much worse, as it has done in Europe.

Small Stimulus In President's Proposal

To his credit the President's "fiscal cliff" proposal does contain a limited stimulus to help keep the economy moving, at least at its current slow pace. But we really need a massive investment in jobs. The President's offer of $50 billion in stimulus for one year is insufficient, but at least it is something. The Republicans offer less than nothing, they want government efforts cut.

Jobs Fix Problems: The DC elite, major media and lobbying apparatus is focused like a laser beam on how much to cut, so the wealthy can have even more. But the public isn't stupid, they get that there is a disconnect because they know that jobs fix problems, jobs fix deficits and lots of jobs fixes wage stagnation. Strong employment = wage growth. Strong wages = strong economic growth.

The People Spoke -- The Election Was Supposed To Have Decided This

The election made it obvious, the public wants jobs, wants government services like Medicare and Social Security protected and even expanded, and more than anything wants taxes raised on the ultra-wealthy.

The election made the public’s wishes clear. But Washington continues to simply ignore what the public wants, and is focused like a laser beam on what a few billionaires want.

It was like there was an intense focus on the election, the public spoke, and then the very next day all attention shifted back away from what the public wanted and onto this austerity agenda that helps the billionaires at the expense of the rest of us.

A Government Of, By and For We, the People

I recently watched the PBS series The Dust Bowl. One thing that stood out was how the government actually cared about what was going on with the people, was trying to solve the problems, and how the people got it that the government was on their side.

Today it is a very different story, with the government isolated and largely under the control of wealthy and powerful interests. The current "fiscal cliff" absorption being only the most recent example.

The public doesn't get what is going on in DC. They want JOBS first, they want the meager government services they do get preserved and even expanded. And they want a fix to the problem of the last few decades of wage stagnation, corporate domination, outsourcing manufacturing, deferring infrastructure maintenance, unionbusting, age discrimination, and cancelling TV shows everyone likes. (Just seeing if you are still reading.)

Economy Has Lots Of Jobs That Need Doing

Jobs solve problems. Right now the country has lots of problems, so the country needs lots of jobs, which solve problems. And by great coincidence right now the country needs lots of things done. The country needs to repair and modernize its infrastructure. The country needs to update its electrical grid. The country needs to make its buildings and homes more energy efficient. All of these are things that improve the economy in the long run. And the remarkable thing is that all of these are things that will have to get done sooner or later.

So the country could just hire people to do those jobs that need doing -- like FDR did. How hard is it to understand that?

1) Hire people to modernize the infrastructure and make buildings and homes energy efficient.
2) All those people are participating in the economy again: paying taxes, buying things, not getting food stamps and unemployment.
3) The economy is much more efficient because of the work that got done on the infrastructure and energy efficiency.
4) The newly efficient economy is more than able to pay off the cost of all the work that was done -- that had to be done eventually.

Republicans Obstructing Everything

The current Republican view is that government itself hurts the economy, is "in the way," and that taxes and government spending "take money out of the economy." So they continue to block all efforts to revive the economy through jobs programs, investment in infrastructure, even helping the unemployed.

They say that providing unemployment benefits keeps people from being forced to take the lowest-paying, nastiest, most demeaning job that comes along. But progressives believe in democracy and say that's the point of helping each other -- that we are a country where we are in this together to build mutual prosperity -- unemployment benefits prevent a death spiral of continually falling demand.

Republicans talk about “pro-growth” policies, always meaning tax cuts for the rich. They say that only rich people "create jobs" so giving more and more money to these "job creators" will eventually trickle down to the rest of us. But all actual evidence shows that this policy does nothing to promote growth, only inequality. In fact the times of highest taxes on the wealthy have been the times of more jobs and more economic growth shared by more of us.

Business Gets It

I recently came across this Comstock Partners, Market Commentary: The Deficit Did Not Cause The Recession; The Recession Caused The Deficit,

Both Wall Street and Washington have lost sight of the major cause of the deep recession and exceedingly slow economic recovery. To hear all the talk, the major concern is about the impending fiscal cliff and the federal budget deficit. Fix the fiscal cliff and make major reductions in the deficit, they say, and all will be ok. We think they've got it wrong.

Go read why...


This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 12:14 PM | Comments (1) | Link Cosmos

November 13, 2012

Fiscal Cliff Scare Talk Follows Shock Doctrine Script

Anyone who has read The Shock Doctrine understands exactly what this "Fiscal Cliff" scare is.

If you have already read The Shock Doctrine by Naomi Klein you have probably been rolling your eyes at all this "Fiscal Cliff" scare talk. "Here they go again" you're thinking... If you haven't read the book, you should. You really, really should.

The Phony "Fiscal Cliff" Scare

At the end of the year the Bush tax cuts expire. When this happens tax rates will rise modestly to where they were when Clinton was President. Also at the end of the year budget "sequestration" occurs. This means that the various cuts Congress approved to end the debt ceiling "crisis" will begin to phase in. (Remember, the debt-ceiling "crisis" was when Republicans refused to allow the country to honor its debts, holding the economy hostage, unless they got deep budget cuts in the things We the People do for each other.)

That's it. That's the "crisis." All of the people who had been hysterical about the budget deficit "crisis" are now hysterical that taxes will go up and spending will go down. Go figure. Maybe -- just maybe -- I shouldn't even say it -- these "serious people" weren't ... serious ... when they said they were worried about the deficit. You see, the hysteria now is because tax rates at the top will go up (cutting the deficit), and because a big part of those budget cuts (cutting the deficit) is military spending. Unfortunately the sequestration also cuts important things that help a lot of people and our economy. But these cuts do not take place all at once (a "cliff"), they will be phased in over time, and the Congress can act at any time to halt any of these cuts.

The "Fiscal Cliff" is not a cliff and the language itself is intended to scare people. The name itself is designed to create panic, evoking disaster imagery of people and the economy falling off a cliff. It is the latest manufactured "crisis" and we are all supposed to be terrified and demand immediate and extreme solutions.

Again, the very people screaming loudest about deficits are the people who passed tax cut after tax cut, and military spending increase after military spending increase, and started war after war. Then these same "serious people" terrify the public, telling them that budget deficits will lead to the destruction of the country — and soon. After a decade of screaming “9/11,” “9/11,” noun verb “9/11,” they screamed "deficit, deficit, deficit." Now they scream, "fiscal cliff, fiscal cliff, fiscal cliff."

Then after the public is suitably stirred up and terrified they offer “solutions” they say are necessary to cut the scary deficit (that they caused, for this purpose).

And the fixing all has to happen right now, in the "lame duck" Congress, before those new legislators We, the People elected can take office.

The "Grand Bargain"

The "serious people" are pushing for a "grand bargain" that they say will "solve" the "deficit problem" "once and for all."

Of course, nothing in any "grand bargain" can bind the Congress, and any part of this "grand bargain" can and will be undone by Congress at the earliest opportunity.

The outline of this "bargain" involves "tax reform" and "getting a handle on entitlements." Tax "reform" does not involve raising tax rates on the wealthy, it "reforms" taxes by getting rid of various deductions and lowering tax rates. "Getting a handle on entitlements" means cutting Social Security, Medicare, Medicaid, Food Stamps and the rest of the things that We, the People do for each other -- the things we are entitled to as citizens in a democracy.

(Note -- Social Security by law can not and does not contribute to the deficit -- they just threw it in because it is "in crisis." The Social Security "crisis" is that under certain economic projections its funding might run a bit short many years down the road. Compare this possible future shortfall to the huge, vast, bloated, enormous military budget which, unlike Social Security, has no separate funding mechanism and runs 100% short every year. But that is not a "crisis.")

So a fix for a budget problem caused by cutting taxes, massively increasing military spending and crashing the economy will be "solved" by ... not fixing those things. Once again the income and wealth of the country will be shifted away from We, the People and upward to the same 1% who have been benefiting from everything in our economy since the election of Ronald Reagan and the disaster-capitalism formula: cut taxes, raise military spending, then use the resulting deficits to scare people into accepting extreme "solutions." Rinse and repeat.

The Shock Doctrine

The Shock Doctrine is a book by Naomi Klein that describes a "disaster capitalism" strategy used by wealthy and powerful people to take advantage of crises -- even causing crises -- to herd people into accepting "solutions" to those crises that really just enrich the 1% at the expense of the rest of us.

In times of crisis (real or perceived) the public is in a state of shock, distracted and ready to grasp at straws to get out of the panic. This is the perfect time for "serious people" to come in and offer pre-planned "solutions." These solutions usually involve privatizing public institutions and wealth, cutting public services, cutting taxes on the rich, seizing property, lowering wages and pensions ... well, just look at Europe's "austerity" and you get the picture.

This shock-doctrine disaster capitalism model has become standard practice. We see this happening over and over again: crises occur or are manufactured, the media whips people into a panic, and then the "solution" is introduced. The solution involves a "reform" that transfers wealth or institutions into a few private hands.

The Real Problem And Real Solution

We have a jobs problem, not a deficit problem. The best way to deal with the deficit is to put Americans back to work. The real job creators are working people with money in their wallets. We can’t cut our way to growth. These are not just slogans, these are solutions to real problems.

We need to invest in our economy, restoring and modernizing our infrastructure, retrofitting our homes and buildings to be more energy efficient, upgrading our public schools and universities, and fighting to create the manufacturing ecosystems for the new industries of the future,. All of these investments create jobs while they are underway, and pay off by improving our economy for the long term.

Inoculate yourself by reading The Shock Doctrine. Inoculate your friends by telling them about the book, and how this game works, over and over again.

“Nothing is more important in the face of a war than cutting taxes." — Republican Majority Leader Tom Delay, 2003


This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 5:07 PM | Comments (0) | Link Cosmos

October 17, 2012

Must-Read To Understand Why Austerity So Wrong

The wrecking society: Economics today

As the evidence keeps telling us, the basic story is about as simple as it gets. The housing bubbles were driving demand prior to the collapse both directly through building booms and indirectly from the consumption generated by bubble generated housing equity. When the bubbles burst the construction booms went bust. And when the bubble generated housing equity vanished so did the consumption for which it provided a basis.

"The economists are instead steering the world toward more years of stagnation and rising unemployment and poverty."

The basic economic problem in this context was finding a way to replace the lost demand. The right-wing politicians and their allied economists can repeat all the nonsense the like about promoting business confidence and tax breaks for job creators, but there is no remotely plausible story in which it would be possible to generate enough demand from investment to make up for the demand lost from the collapse of the bubbles.

This means that in the short-term the only way to make up the demand is from the government budget deficits. This is not even economic theory, it is simply accounting.

Posted by Dave Johnson at 1:58 PM | Comments (0) | Link Cosmos

October 5, 2012

So DO Tax Cuts Create Jobs?

In Wednesday's debate Mitt Romney repeated his claim that cutting individual and corporate income taxes creates jobs. But when you look at what actually happened, the periods when we had the highest tax rates were the periods we had the greatest job and economic growth. And the periods with lower taxes had lower job and economic growth. (And we all know what happened in the Bush years...)

Here is Romney at Wednesday's debate,

"54 percent of America's workers work in businesses that are taxed not at the corporate tax rate, but at the individual tax rate. And if we lower that rate, they will be able to hire more people. For me, this is about jobs. This is about getting jobs for the American people."


"The problem with raising taxes is that it slows down the rate of growth. And you could never quite get the job done. I want to lower spending and encourage economic growth at the same time."

So DO tax cuts for rich people and already-profitable businesses create jobs? DO businesses hire people when they have extra money? When few customers are coming through the door will tax cuts cause businesses to hire people to sit around reading newspapers or checking Twitter?

I think that people with jobs have money to spend and then the businesses that get their business will hire people, and will make money and be happy they have profits to pay taxes on. And I think that the numbers -- and charts that help us visualize those numbers -- back me up. Here are some of those numbers.

Michael Linden at Center for American Progress took a look at tax rates and job creation, in Rich People’s Taxes Have Little to Do with Job Creation, Conservative Arguments that Higher Income Taxes for the Wealthy Hurt Employment Don’t Hold Up to Scrutiny,

... in years when the top marginal rate was more than 90 percent, the average annual growth in total payroll employment was 2 percent. In years when the top marginal rate was 35 percent or less—which it is now—employment grew by an average of just 0.4 percent.

And there’s no cherry-picking here. Pick any threshold. When the marginal tax rate was 50 percent or above, annual employment growth averaged 2.3 percent, and when the rate was under 50, growth was half that.

In fact, if you ranked each year since 1950 by overall job growth, the top five years would all boast marginal tax rates at 70 percent or higher. The top 10 years would share marginal tax rates at 50 percent or higher. The two worst years, on the other hand, were 2008 and 2009, when the top marginal tax rate was 35 percent. In the 13 years that the top marginal tax rate has been at its current level or lower, only one year even cracks the top 20 in overall job creation.

OK, got that? The periods of highest job growth correspond to the periods of highest tax rates on the wealthy. 70% top tax rates. 90% top tax rates. Maybe this is because that money gets used to build roads and bridges and buildings and ports and dams and the things that make our economy more efficient and competitive. And maybe because the years of low tax rates are the years of government cutbacks because there isn't enough revenue coming in -- infrastructure not maintained, education budgets cut, etc.

What do tax rates do to economic growth? Romney says raising taxes hurts the economy. Is that what happens?

Michael Linden looked at what happens with taxes and GDP growth, in The Myth of the Lower Marginal Tax Rates, Conservatives’ Go-To Growth Solution Doesn’t Hold Up (I'll spare you the blow-up photo of Speaker Boehner's face),

The top marginal income tax rate has ranged all the way from 92 percent down to 28 percent over the last 60 years. With such a large range, it should be easy to see the enormous impact of lower rates on overall economic growth, as conservatives routinely claim. Years with lower marginal rates should boast higher growth, right?

That’s definitely not what happened. In fact, growth was actually fastest in years with relatively high top marginal tax rates. Back in the 1950s, when the top marginal tax rate was more than 90 percent, real annual growth averaged more than 4 percent. During the last eight years, when the top marginal rate was just 35 percent, real growth was less than half that.

Altogether, in years when the top marginal rate was lower than 39.6 percent—the top rate during the 1990s—annual real growth averaged 2.1 percent. In years when the rate was 39.6 percent or higher, real growth averaged 3.8 percent. The pattern is the same regardless of threshold. Take 50 percent, for example. Growth in years when the tax rate was less than 50 percent averaged 2.7 percent. In years with tax rates at or more than 50 percent, growth was 3.7 percent.

These numbers do not mean that higher rates necessarily lead to higher growth. But the central tenet of modern conservative economics is that a lower top marginal tax rate will result in more growth, and these numbers do show conclusively that history has not been kind to that theory.

Zaid Jilani at CAP's Think Progress also takes a look, in Top Reagan Economic Advisor: Return To Clinton-Era Tax Rates Would Not Hurt Economic Growth,

Historically, the United States has actually had some of its strongest periods of economic growth while taxes were high. As this graph from Slate shows, some of our strongest periods of growth in gross domestic product actually occured while taxes were very high:

In the 1950s, which had one of the sharpest periods of economic growth in all of American economic history, the top marginal tax rates for the richest Americans stretched above 90 percent. Likewise, economic growth in the relatively higher-taxed 1990s was much stronger than in the 2000s. This isn’t to say that higher taxes necessarily cause greater economic growth, but it does seem to show that higher taxes do not appear necessarily to be impeding job growth, nor are lower taxes especially helpful.

OK, did you see those charts? Not only do high taxes on the rich not impede growth, but growth looks to be higher when taxes are higher. Maybe this is because higher taxes on the rich means that the government -- We, the People -- has more to spend on the things that make our economy more efficient and competitive like schools, roads, bridges, transit systems, courthouses, judges, etc...

And, again, the periods of low taxes are the periods of government cutbacks ...

David Leonhardt at the NY Times looks at recent numbers, in Do Tax Cuts Lead to Economic Growth?

President George W. Bush and Congress, including Mr. Ryan, passed a large tax cut in 2001, sped up its implementation in 2003 and predicted that prosperity would follow.

The economic growth that actually followed — indeed, the whole history of the last 20 years — offers one of the most serious challenges to modern conservatism. Bill Clinton and the elder George Bush both raised taxes in the early 1990s, and conservatives predicted disaster. Instead, the economy boomed, and incomes grew at their fastest pace since the 1960s. Then came the younger Mr. Bush, the tax cuts, the disappointing expansion and the worst downturn since the Depression.

(Click that graphic for larger)

Whoa, did you see what happened after Bush cut taxes for the rich? Do you remember what happened after Bill Clinton got taxes increased on the rich?

My own 2010 post, Did The Rich Cause The Deficit? included this chart, (The red line is the tax rates, the blue is growth and the red arrow shows the trend.

Top Tax Rate vs GDP

But, from that post, one thing that cutting taxes on the rich obviously does cause is deficits:


And deficits cause government to cut back, cut infrastructure projects, cut the things government -- We, the People - does for We, the People. And the economy slows...

The real job creators are working people with money in their wallets.

Tax the rich, use the money to modernize our infrastructure and help regular working people. Build roads, schools, bridges, ports, airports, dams, courthouses, wind farms, water systems, high-speed rail, municipal transit systems, all the things that make our economy efficient and competitive...

(PS I also came across a chart showing that lowering capital gains rates correlates with lower, not higher, economic growth. But somehow we knew that would be the case...)

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 12:07 PM | Comments (0) | Link Cosmos

September 15, 2012

Tax Cuts Make People Work Harder?

A quick note on something I enountered while reading Do Tax Cuts Lead to Economic Growth? -

Longer term, people will presumably work harder if they keep more of the next dollar they earn.

This is right-wing conventional wisdom. It has been repeated and repeated until people ... just repeat it. It is the Ayn Rand argument that people will "go Gault" if that have to pay taxes, and just stop working.

Who don't people think that people will "work harder" if taxes are raised, because they have to make up what was taxed?

In other words, this kind of argument is just making stuff up because you have to have something to say. Either one works -- if you want taxes cut say people will "work harder' because they earn more.

One more thing: in what kind of world is "making people work harder" a societal good? Maybe in Ayn Rand's world.

Shouldn't our economy be about enabling people to have fuller lives, enabling people to have more leisure time, enabling people to spend more time with their kids, or reading and hiking and throwing frisbees with dogs?

Posted by Dave Johnson at 2:35 PM | Comments (0) | Link Cosmos

September 12, 2012

Austerity Suicide -- Literally

You might be hearing about the "Fiscal Cliff." And you might be hearing about a "Grand Bargain." You certainly have heard about "Simpson Bowles." You will be hearing more and more about these strangely-named things because the usual suspects are cranking up the usual propaganda machine again, getting the usual DC elite ready to play out another of the usual take-from-the-people-to-give-to-the-rich games right after the election. This time it's a push for austerity.

Why Deficits?

I always start any discussion of deficits and debt by reminding people that the country had a big budget surplus before Bush cut taxes for the rich, and doubled the military budget.

Deficit history: Reagan dramatically cut taxes on the wealthy and corporations. He doubled the military budget. Huge deficit resulted and the country began accumulating massive debt. They called it "strategic deficits," a plan to "starve the beast" by bankrupting the country and forcing cuts to government, to the things government does for We, the People, and the ways government protects us from exploitation by the wealthy and powerful.

After 12 years of Reaganomics people were fed up, and elected Clinton. Clinton raised taxes on the rich. Those increases combined with the stock market bubble created a surplus and we were paying off the debt, and then something changed. 'W' Bush again cut taxes for the wealthy and again doubled the military budget and now the deficits are enormous. So here we are.

But fixing what caused the deficits is not on the table. It never is, because that doesn't fit the plan.

Fiscal Cliff

They say the country faces a "Fiscal Cliff" at the end of the year. After the election the Bush tax cuts for the wealthy expire. And – this is a bit complicated – something called “sequestration” also kicks in. This is a series of budget cuts that happen because of the “debt ceiling” deal, when Republicans held the debt ceiling hostage and threatened to put the country into default, demanding that we immediately take trillions out of the economy. The sequestration deal was a compromise that was intended to force the Congress to agree to a bipartisan solution, which failed.

The sequestration includes military cuts, which our billionaire-backed DC elite believe would ruin the economy when combined with expiration of the Bush tax cuts -- because in their minds tax cuts do not cause deficits and unlike other government spending military spending creates jobs. So to avoid the "Fiscal Cliff" after the election Congress is supposed to meet to keep the military budget intact, keep taxes on the rich from rising and cut the things our government does for We, the People.

Why After The Election?

That pesky democracy thing keeps on getting in the way of Wall Street’s plans for our economy. But after the election comes what's called a "lame duck" session of the Congress. The legislators who have been chosen by the people aren't in office yet, the ones who have been defeated are still there and the ones who were re-elected know that anything they do will be long forgotten by the next election. Democracy and the will of the people will not be a factor. Every poll says the public wants immediate action on jobs and no cuts in the things government does for We, the People.

If Obama is re-elected the post-election debate will be between the Obama deficit plan, a "Grand Bargain" based on the "Simpson-Bowles" plan vs the Ryan plan -- the budget the House Republicans passed that privatizes Medicare and reduces spending on most things government does for our people. If Romney is elected all bets are off.


Simpson-Bowles is a budget plan put together by a Republican Senator and a Director of the Wall Street bank Morgan Stanley. After the President's National Commission on Fiscal Responsibility and Reform ("Deficit Commission") failed to make recommendations, the two came up with a plan that cuts Social Security, cuts a number of other things government does for our people, cuts a bit from military and cuts tax rates on the rich and corporations, calling it "reform." (The plan also eliminates the home mortgage interest deduction, for example.)

Important point: At least Simpson-Bowles is not a "cuts cause growth" plan. It is sold as a deficit plan, even though it cuts taxes at the top and for big corporations. It clearly asks that any cuts not take place until the economy has improved because cuts slow growth.

Grand Bargain

The "Grand Bargain" is the idea that Democrats and Republicans can reach a compromise involving Republicans "allowing" tax "reform" that eliminates some tax deductions like the home mortgage interest deduction and reducing tax rates on the wealthy and corporations, in "exchange" for cuts in things government does for us, including Medicare, Social Security and Medicaid. (These cuts do not eliminate the need, they just shift the cost away from the government onto the larger economy.) (If this sounds like a "bargain" that entirely benefits the wealthy and large corporations, that's just how Washington works these days.) ("Reform" always means cutting out things government does for We, the People and reducing taxes on the wealthy.)


Austerity is the word used to describe attempts to lower budget deficits by cutting government spending on the things that government does for its citizens.

The theory is that cutting way back on government will cause the economy to grow because government is "in the way" and helping citizens "takes money out of the economy." Also, when government provides fewer safety-net services unemployed people are forced to take any work they can get, which drives wages down and increases corporate profits. Government cutbacks also mean they can't enforce regulations, which unleashes businesses to pollute, commit fraud, cut safety procedures and other things government polices that restrict corporate profits.

But austerity literally "takes money out of the economy." Public-employee wages and pensions are cut. Government services and safety net programs are cut. Public assets are sold off for immediate cash (reducing the government's income in later years). So the demand side of the economy is reduced as people are not able to spend.

The Results Of Austerity

In practice the theory that removing government makes the economy grow has not worked out. Several European countries have been severely cutting budgets, and the result has been that the economies in the "austerity" countries have suffered. These economies appear to have fallen into a downward cycle where the "reforms" reduce demand, growth stalls, this reduces tax revenue, which means the deficit-cutting is not effective. (And meanwhile the economies are ruined and people are in misery.)

The austerity cycle happening in Europe works something like this:

Bankers demand "austerity" which drives up unemployment, cuts demand and slows economic growth. The reduction in economic growth causes tax revenue to shrink and increases use of whatever "safety net" programs remain, thereby increasing budget shortfalls.

So bankers demand more "austerity" which drives up unemployment, cuts demand and slows economic growth. The reduction in economic growth causes tax revenue to shrink and increases use of whatever "safety net" programs remain, thereby increasing budget shortfalls. .

So bankers demand more "austerity" which drives up unemployment, cuts demand and slows economic growth. The reduction in economic growth causes tax revenue to shrink and increases use of whatever "safety net" programs remain, thereby increasing budget shortfalls.

So bankers demand more "austerity" ... well you might be starting to get the picture.

Recession Resulting From Austerity

These are the GDP growth rates in European "austerity" countries:

Spain expects -1.7% from 0.4% 2011
Greece -10% to 11%
Portugal -1.2%
Italy -0.7%
Ireland -1.1%
UK -.7%


Unemployment Resulting From Austerity

These are the official unemployment rates in European "austerity" countries:

Spain 24.6%
Greece 24.4%
Portugal 15%
Italy 10.7%
Ireland 14.9%
UK 8%

Austerity NOT Lowering Debt

Here is a chart of the debt-to-GDP ration as these countries shrink their GDP - and tax revenue - through austerity (click for larger):

Decline Resulting From Austerity

CNBC: Europe Facing Mental Health "Catastrophe" as Crisis Worsens,

Europe is approaching a crisis as the region’s debt crisis and austerity measures increase the rates of depression, suicide and psychological problems – just as governments cut healthcare spending by up to 50 percent, according to campaigners, policy makers and health organizations.

NY Times: ‘Shocking’ Dip in Britain’s Output Reflects European Stress

Guardian: Portuguese death rate rise linked to pain of austerity programme,

Portugal's health service is being forced into sweeping cuts as last May's EU/IMF bailout terms begin to bite

Catholic Online: European economic crisis takes emotional toll

Suicides Resulting From Austerity

Alternet, April: Crisis to Suicide: How Many Have to Die Before We Kill the False Religion of Austerity?

Telegraph, April: Italian businessman becomes country's 25th 'austerity suicide' of the year

CNN, April: Austerity drives up suicide rate in debt-ridden Greece

Digital Post, July: Austerity takes its toll with suicides increasing in Greece

Tampa Bay Times, August: Suicide rates rise in Europe amid job losses and severe cutbacks

Digital Post, August: Italian dies after setting himself alight in austerity protest

Reuters, August: Study links British recession to 1000 suicides,

A painful economic recession, rising unemployment and biting austerity measures may have already driven more than 1,000 people in Britain to commit suicide, according to a scientific study published on Wednesday.

CNN, September: Death and taxes in Italy

Watch the following news reports if you can stomach it:

What You Can Do

So the experiment in austerity that is playing out in Europe is coming to the US after the election - when democracy can't intervene.

But the way to reduce deficits is to grow the economy. When people have jobs they pay taxes and use fewer social services. Jobs programs that come out of fixing our infrastructure and making us less dependent on oil also make our economy more competitive in the future so they pay for themselves.

Contact your member of Congress and let them know that you do not think this is the time to cut the budget. Let them know that you want to see jobs programs, infrastructure maintenance and improvements, increase the safety net so people are not forced to take any work, cut the age when people can get Medicare and Social Security and increase the benefits so people can retire and open up jobs and renegotiate trade deals that are sucking us dry.

Tell them jobs fix deficits -- you want to grow us out of deficits, not pretend that cuts will work. Cuts make deficits worse.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 10:08 AM | Comments (0) | Link Cosmos

August 3, 2012

Weekend Reading

If you have a chance, please book mark this for weekend reading: Prosperity For America, and their Prosperity Economics report.

"Prosperity Economics: Building an Economy for All

Prosperity economics concludes that there is no trade-off between creating a strong, dynamic economy and fostering a society marked by greater health, broader security, increased equality of opportunity, and more broadly distributed growth."

Posted by Dave Johnson at 6:13 PM | Comments (0) | Link Cosmos

July 26, 2012

Urgent, Must-See, Must Spread!

Please watch this, visit their page, and email this to everyone you know, including your right-wing brother-in-law: The Story of Change / The Story of Stuff Project:

Posted by Dave Johnson at 4:07 PM | Comments (0) | Link Cosmos

July 14, 2012

We, the People

We, the People are supposed to be in charge. Why would we allow an economic system that don't serve We, the People? Why allow businesses that don't pay well, make things that last, provide service and pay back taxes to cover the infrastructure that supports our businesses?

Why would we allow corporations whose only purpose is "to make money for shareholders"? What kind of We, the People system would ever allow that?

Who is our economy for?

Posted by Dave Johnson at 10:23 AM | Comments (0) | Link Cosmos

July 9, 2012

Need More Jobs And Less Sabotage

Another lackluster jobs report with 80K new jobs and an unchanged 8.2% unemployment, Keep in mind that we lost 815,000 jobs in Bush's last month, but this still is not good enough. Republicans are intentionally sabotaging job-creation efforts thinking it will help them in the coming election. How do we stop this and get things moving?

In the chart below, the red lines on the left are the Bush years. On the right are the Obama years. Those red lines just keep going down, with a job loss above 800,000 as Obama takes office. Then you see the lines shooting up -- the effect of the "stimulus." The leveling off is the effect of the program's end -- the period of Republican job sabotage.

Romney In 2006

Watch Mitt Romney in 2006 explaining why a recovery takes time:

“I came in and the jobs had been just falling right off a cliff, I came in and they kept falling for 11 months. And if you are going to suggest to me that somehow the day I got elected, somehow jobs should have immediately turned around, well that would be silly. It takes awhile to get things turned around. We were in a recession, we were losing jobs every month.”

Jobs Report

The U.S. economy has added more than 4.3 Million private sector jobs in the last 28 months, while losing

Dean Baker, writing at the Center for Economic and Policy Research, Job Growth Remains Weak in June, Unemployment Steady at 8.2 Percent,

Restaurant employment grew at an average rate of 29,000 in the winter months; it has grown by just 13,000 a month over the last four months. Retail employment grew by 22,000 a month in October through January. Since January, employment has fallen by a bit more than 1,000 jobs a month.

Construction employment grew by an average of 48,000 a month from November to February. In the last four months it has fallen at an average rate of 14,000 a month. This drop is difficult to reconcile with Census data that show construction spending up 1.1 percent from February to May.

While the overall picture in the establishment data was weak, there were some positive signs. The local government sector added 4,000 jobs in June indicating that employment may be leveling off. Manufacturing added 11,000 jobs, maintaining its modest rate of growth. The health sector added just 13,000 jobs, about half the normal pace. This is likely an anomaly, but if not, it would imply a slower rate of growth of health costs.

Job Sabotage

Isaiah Poole writes in, Jobs Report: Challenge Congress To Act, Obama To Fight,

As we've repeated time and again, the corruption of the Obama agenda by the corporatists and anti-government ideologues in both political parties began when the 2009 Recovery Act emerged as a $787 billion program, more than half of which was tax cuts, instead of the more than $1 trillion in additional spending that was needed to begin adequately repairing the damage of the 2008 financial crash.

Since then, Republicans have assaulted the economy at every opportunity, forcing an austerity agenda of budget-cutting at the very time that the federal government should have been stepping up its spending in key areas, both to bring our infrastructure up to 21st-century needs and to prevent layoffs of teachers, first responders and other essential public workers by cash-strapped state and local governments. From June 2009 to May 2012, 605,000 state and local public sector jobs were cut. If public sector jobs had instead grown at the same pace as the three previous economic recoveries, there would be an extra 1.2 million jobs, and that level of additional employment would have supported the creation of an additional 500,000 jobs...

When the White House and Democrats in Congress tried several times to pass elements of the American Jobs Act, $450 billion worth of job-creation initiatives, Republicans in the House voted as a solid bloc against the efforts, and Senate Republicans filibustered the legislation. The 2 percentage-point reduction in worker payroll taxes was the only major component that survived. Among the opponents is Romney, who has argued that cutting government spending at all levels is necessary to "help the American people" even though, as Tyson said, the teachers, firemen, and police who are being laid off "are American people who help other American people."

Late last month, Congress pat itself on the back for passing a two-year surface transportation funding bill that is at best a status-quo stop-gap... The obstacle in the way was once again House Republicans, who refused to support the longer-term funding commitment needed by state and local transportation planners without numerous "poison pills," including provisions that would have authorized construction of the Keystone XL pipeline without robust environmental review and would have ended federal regulation of hazardous coal waste disposal from power plants.

If it were not for congressional Republicans' repeated obstruction or dilution of virtually every significant job-creation proposal sent to Congress since 2009, unemployment today would likely be under 7 percent instead of stubbornly persisting at around 8 percent. [emphasis added]

The Scariest Chart

Here is the chart of jobs doring this recession compared to previous recessions:

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 2:57 PM | Comments (0) | Link Cosmos

May 26, 2012

Capitalism Failed

Sara at AlterNet: Capitalism Has Failed: 5 Bold Ways to Build a New World

The problem, in a nutshell, is this: The old economic model has utterly failed us. It has destroyed our communities, our democracy, our economic security, and the planet we live on. The old industrial-age systems -- state communism, fascism, free-market capitalism -- have all let us down hard, and growing numbers of us understand that going back there isn't an option.

Posted by Dave Johnson at 11:16 AM | Comments (0) | Link Cosmos

May 1, 2012

We Can So Easily Create Jobs, Cut The Deficit And Revitalize Our Economy!

The path to creating millions of jobs is so easy and obvious. Hire people to modernize the infrastructure and to retrofit buildings to be energy efficient. Millions would be paying income taxes instead of receiving unemployment or food stamps. The companies that supply the materials and steel would also be hiring and paying taxes, and the companies that supply them ... and the companies that supply them. And when we are finished, the payoff to the economy from a modern infrastructure and energy efficiency will be enormous. Anyone who tells you we can't or shouldn't do this is up to no good.

Millions Of Jobs Need Doing, Millions Unemployed

We have millions of people unemployed at the same time as we have millions of jobs that need to be done. Connect the dots! It is so easy!

Dot: No net job gains since 2000. 8 million jobs lost in the recession. Never mind jobs for the 86,000 new people entering the labor force every month...

Dot: According to the American Society of Civil Engineers (ASCE)

“congested highways, overflowing sewers, and corroding bridges” were creating a “looming crisis that jeopardizes our nation’s prosperity and our quality of life.”

Dot: From a recent NY Times story on our country's water systems,

Today, a significant water line bursts on average every two minutes somewhere in the country, according to a New York Times analysis of Environmental Protection Agency data.

. . . State and federal studies indicate that thousands of water and sewer systems may be too old to function properly.

[. . .] “There’s a lot of evidence that people are getting sick,” he added. “But because everything is out of sight, no one really understands how bad things have become.”

Connect the dots.

Ten million jobs needed. Ten million jobs that need doing.

Connect the dots. We need a National Rebuild America Project! It would employ millions, it would get people and businesses back in the economy, paying taxes, buying things, and not receiving the badly-needed help of unemployment, food stamps, etc.

Jobs Fix Deficits

Jobs fix deficits. How hard is that to understand? We have a deficit of jobs. People who are not working are not paying income taxes, and are instead likely receiving unemployment, food stamps or other assistance. In any event they are certainly not contributing to the economy by making things or buying things. Jobs fix deficits.

The Payoff

There wold be an enormous economic payoff from investing in a National Rebuild America Project. I mean an economic payoff beyond getting people back to work, paying taxes, buying things and beyond getting people off of government assistance.

Imagine an economy with a fully modernized infrastructure providing the nourishing soil for new and existing businesses. Imagine our economy with energy efficiency freeing up resources to apply to other areas. Imagine our economy with everyone working. Imagine our economy with companies able to compete in world markets with the very latest and most efficient foundation undergirding their efforts.

Deficit Emergency?

They say we can't invest in modernizing our infrastructure or in energy efficiency because this would be "government spending." They say we can't afford to do this kind of work. They say we instead need to cut back and pay off the deficit instead. As if laying off teachers helps the economy!

Where did all of this "deficit emergency" nonsense come from? We had a huge budget surplus when Bush took office. The debt was projected to be paid off entirely in ten years. So Bush gets elected, Greenspan says we're paying off the debt "too fast" and they gave the rich a huge tax cut, and doubled military spending! It's not hard to see where the deficit came from. (No, seriously, click through and see the charts, it's not hard.)

So we shifted to a huge deficit instead and Bush said this was "incredibly positive news" because it will force the country into a debt crisis that they can propagandize to force cuts in things government does for We, the People.

Hey people, figure it out, we do not have a debt emergency, we have a manufactured crisis that is being used to scare people into giving up the benefits of democracy.

Has To Be Done Anyway

This is work that has to be done anyway! Once again, our infrastructure is falling apart, our companies are not competitive, our energy inefficiency is costing us dearly. This work has been put off for a long time. Every day we wait, it just becomes a more expensive problem. Funny how this is the way conservatives describe the debt, when in reality is the problem with delaying investment in modernization.

So why not do it now, when people really need the work? We have been deferring the maintenance of our infrastructure since the big Reagan tax cuts for the rich. The roads, bridges, dams, airports, rail, energy grid and the rest are in bad shape. This is slowing our economy. This is hurting people and costing money and time. This is costing our businesses in their international competitiveness.

Your Homework Assignment

OK, here is your homework: Big Ideas To Get America Working: Rebuild Our Infrastructure.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 11:15 AM | Comments (0) | Link Cosmos

March 19, 2012

There Is Consensus On How To Fix Economy

“There was clearly something wrong with the U.S. economy long before the crash.”


Consensus. Again and again, people who examine what went wrong with our economy leading up to the great recession come to the same conclusions! Study after study, book after book, statement after statement, op-ed after op-ed, organization after organization, expert after expert, all weighing in, all coming to the same conclusions. One after another voices speak up (click through for just a sampling), voicing their understanding of what happened to the economy, what caused the crash and what we have to do to fix things. One after another they voice the same conclusions: our economy was damaged by,

  • tax cuts for the rich combined with huge military budget increases (and wars) that led to budget deficits and increased inequality;

  • trade deals that damaged vital industries and led to trade deficits, layoffs and wage cuts;

  • deregulation of rules that protected working people, unions, vital economic sectors and the commons of public wealth;

  • and cuts in crucial areas of investment in our people and our economic future, including education & job training, infrastructure, energy, manufacturing, transportation and R&D into new technologies.

All of these betrayals of the social contract were enabled by the influence of big money on our political system, including huge sums spent on an infrastructure of corporate/conservative organizations designed to propagandize the public into accepting these changes - or at least keeping the victims from rebelling.

This Time, The AFL-CIO

This time the AFL-CIO offers their analysis, Fixing What Is Wrong With Our Economy. Here are a few excerpts - but if you have been paying attention you have heard all of this again and again from all directions:

The crash was the end-result of policy changes brought in with the "Reagan Revolution:"

The crash of 2008 and the Great Recession were inevitable consequences of three decades of economic policies designed by and for Wall Street and the wealthiest Americans. At the heart of the problem was the hollowing out of American manufacturing, the growing dysfunction of our financial sector and a rapid increase in economic inequality, all of which crippled the growth engine of the U.S. economy.

Trade deals and policy choices that sent jobs, factories and industries out of the country:

[. . .] The deindustrialization of America and the substitution of speculation for productive investment were not accidents, they were not inevitable, and they were not the outcome of natural forces. They were the predictable results of mistaken policy choices made by politicians of both parties for more than a generation. These policy choices had victims with first and last names: millions of displaced workers, shuttered factories and hollowed-out communities across the country hobbled by shrinking tax bases that no longer could support vital public services.

In The Way

The corporate/conservative propaganda apparatus (and its candidates for office) continue to demand even more tax cuts for the wealthy and cuts in the things our government does for We, the People:

[. . .] The Republican candidates pretend that tax cuts for corporations and the wealthy are the answer to wage stagnation and the economic crisis, but the Bush years taught us that these obscenely wasteful tax cuts only make the problem worse. They are the equivalent of eating our seed corn, because they starve the kind of public investment in education, infrastructure and innovation that is indispensable for long-term economic growth.

The Fix

Again and again experts tell us how to fix the problems we face in our economy and society: restore democracy's (the 99%'s) controls over corporations (the 1%) and especially re-regulate the financial sector, reverse the taxation policies that led to budget deficits and extreme inequality, fix the trade deals and other policies that led to trade deficits and allow the wealthy to pit working people against each other, and invest heavily in our country and people again. That's a start, anyway -- get the influence of big money and big money's propaganda machine out of our politics and maybe after a while We, the People can start addressing the rest of our problems again.

The AFL-CIO's conclusions, from a summary of the analysis:

The statement outlines several significant steps that need to be taken to build an economy that can compete with world economic powers like Germany and China and that works for all, including:
  • Significant investment over the next decade in education and apprenticeship programs for young people, infrastructure, energy, manufacturing, transportation, skills training and new technologies;
  • A fair share from Wall Street and the wealthiest Americans, who have benefited most from the economic policies of the past 30 years—pass a financial speculation tax, let the Bush tax cuts for the wealthy expire and tax capital gains at the same rate as ordinary income;
  • Tackling the problems of wage stagnation and economic inequality by reforming labor laws so that all workers who want to form a union and bargain collectively have a fair opportunity to do so, making full employment the highest priority of our economic policy, increasing and indexing the minimum wage, shrinking the trade deficit and eliminating incentives for offshoring;
  • Reviving U.S. manufacturing by bringing the trade deficit under control, enhancing Buy America safeguards, aggressively enforcing trade laws and ending incentives for offshoring;
  • Once again regulating Wall Street, eliminating tax advantages for leveraged buyouts and finding other ways to favor strategic investment over short-term speculation;
  • And working toward a global New Deal that establishes minimum standards for the global economy, prevents a race to the bottom, creates vibrant consumer markets in the global South and creates new markets for advanced U.S. manufacturing.

The American people aren’t stupid. Majorities are also coming to the same conclusions. The American Majority in poll after poll show agreement with these conclusions.

We have to reverse the corporate/conservative, anti-government, pro-1% policies that started about 35 years ago. All the charts show the changes, when the changes happened, and how those changes have worn away at our economy and our people -- click through and see for yourself the story that the numbers tell: tax cuts, deregulation and outsourcing our jobs, factories and industries has not helped our economy or our people. Since then all the gains from the efforts of all of us have gone to fewer and fewer of us. Since then our infrastructure has fallen into disrepair. Since then our trade deficit has gotten worse and worse. Since then regular people -- the 99% -- have been falling further and further behind, democracy has eroded to the breaking point, with plutocracy -- rule of, by and for the 1% -- taking its place.

Our wealth is being extracted for the benefit of a few. We, the People must reassert control, or face further decline.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 7:25 AM | Comments (0) | Link Cosmos

March 12, 2012

You Want To Bring The Old Economy Back? Really?

There are small signs that real recovery might finally be kicking in. (Republicans have been able to obstruct it for only so long.) But we have not rewired the economic paradigm to work for the 99%, so any recovery will only bring back the imbalances that caused the problems in the first place. This means recovery may not have the electoral effects Democrats hope for, because any growth means the beneficiaries of the old economy are the beneficiaries of this recovery.

Green Shoots Taking Root?

The economy is not collapsing - today. There is at least some growth in most sectors, and this certainly beats continuing decline. The layoffs have slowed to a less gut-wrenching level and there is even hiring occurring. The overhanging inventory of unsold houses has pulled back from record levels. Car companies are doing well and you can't turn on the TV without seeing car commercials everywhere. Yes there are signs that "green shoots" might be taking root this time - maybe.

But at the same time, to what end?

Here We Go Again

Right on the tail of any green shoots we see signs of the old ways returning, the old imbalances resurfacing. People are running up credit cards again. Trade deficits with China are rising to extreme levels again. Banks and other giants are finding ways to soak scam fees out of customers again. Unrestrained financial-casino speculators are helping drive the price of gasoline to highest-ever levels. And here we go again: the top 1% captured 93% of the income gains in the first year of recovery.

This all shows an economy wired for the 1% will only benefit the 1% as it recovers. The gains are not trickling down.

THIS is what you call recovery?

Won't Help Election

Democrats and the President are hoping, hoping, hoping that signs of recovery will continue, and people will look more favorably at the President and his party. But any recovery that just goes back to the old economy will not help, because it will not help regular people. An economy wired for the 1% only helps the 1% during any recovery. Today's poll demonstrates this: Washington Post: Gas prices sink Obama's ratings on economy, bring parity to race for White House,

Disapproval of President Obama’s handling of the economy is heading higher — alongside gasoline prices — as a record number of Americans now give the president “strongly” negative reviews on the 2012 presidential campaign’s most important issue, according to a new Washington Post-ABC News poll.

"Recovery" only helps the President and Democrats if the recovery actually helps the 99%. Mere words won't do it.

Mere Words Won't Do It -- We Need An Actual Agenda For The 99%

Mere words won't do it. We need an agenda bigger than what we are doing now, otherwise we just "recover" an economy that didn’t work for working people or for the planet. We need actual change that people actually feel. This means a serious, meaningful attack on inequality and its effects. This means changing the wiring of the economy so We, the People again are in control.

Democrats have to be perceived as actually fighting for the interests of the 99%. The way to be perceived as doing this is to actually do it. This means bringing in people to the Treasury Department and economic advisors who don't actually work for the interests of Wall Street and the big banks and the 1%. This means actually fighting to raise taxes on the 1% back up to actually meaningful pre-Reagan levels. This means actually doing something about the trade agreements that pit the 99% against exploited workers who have no say, while creating massive trade deficits that drain our economy. This means actually providing good schools and college education that everyone can afford. This means an actual national industrial policy that helps us actually compete in the world's economy. This means actually fighting climate change. This means actually empowering workers to form unions so they can actually confront concentrated wealth and power with some actual leverage. This means actually hiring millions of people to actually modernize our infrastructure and retrofit our buildings to be energy efficient. This means an actual Medicare-for-All health care plan instead of just reinforcing the 1%er insurance giants. This means actually doing those things that need to be done.

Mere words won't do it. Actually rewriting the economic paradigm is what is actually required here.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 1:16 PM | Comments (0) | Link Cosmos

March 9, 2012

Cuts and Consequences - How Budget Cuts Hurt The Economy

Is smaller government really better for the economy? Conservatives chant that taxes and government "take money out of the economy" and we need to "cut and grow," meaning if government spending is cut way back the economy will grow as a result. Europe's conservatives are also forcing cuts in the things their governments do for regular people, claiming "austerity" will bring "confidence" that grows their economies. How is this experiment working out? What are we learning about the effect on the larger economy when government is cut?

What Does Government Do?

Almost everything the government does is because it needs to be done. We need roads, bridges, schools & colleges, dams, courts, police & fire departments, water management, etc. (We can discuss the need for military spending another time.)

These are all needed and contribute to the functioning of the economy. So if government is cut back and doesn’t do something that is needed, then how does it get done? Or does it just not get done? Either way, the real question we should be asking is what is the effect on the larger economy when our government cuts back on or stops doing needed things? If you save the “government” a bit of money but cost the economy a lot of money, are you saving money? Or are cuts in government really just shifting and even increasing the costs in the larger economy of doing these things?

Who Is Our Government For?

In the United States, our Constitution says that government is supposed to be of, by and for We, the People. The country was established after the colonists rebelled against the aristocracy of England -- a few people who had all of the wealth and power and would not let the colonists have a say in how things were run and who would benefit. So they fought the Revolutionary War and established a country where "We, the People" all have an equal say, and to "promote the general welfare." In other words, a country that aspires to be of, by and for the good of all of us.

So cutting back on government means cutting back on We, the People doing things for the good of all of us. It means cutting back on the things we have a say over. It means relinquishing the wealth and power that we hold in common to ... well, just where does our common wealth and power go if our government is cut back?

Medicare, For Example

Republicans say we need to cut back on what the government spends on Medicare. But if you cut Medicare the health problems of elderly people and the larger problem of fast-rising health care costs in the larger economy don’t disappear. In fact, both problems just get worse.

The "Ryan Budget" that Congressional Republicans voted to approve actually converts Medicare into a program that gives seniors a voucher that pays for part of a private medical insurance policy that seniors have to shop for. The Center for Economic and Policy Research (CEPR), in Cost of Medicare Equivalent Insurance Skyrockets under Ryan Plan, took a look at that plan and explains what happens to the cost of health care. Summary: it shifts the costs to us, except each of us ends up paying as much as seven times as much as the same care costs under Medicare. From the CEPR explanation:

[The Republican] plan to revamp Medicare has been described as shifting costs from the government to beneficiaries. A new report from the Center for Economic and Policy Research (CEPR), however, shows that the [Republican] proposal will increase health care costs for seniors by more than seven dollars for every dollar it saves the government, a point missing from much of the debate over the plan.

... In addition to comparing the costs of Medicare to the government under the current system and under the [Republican] plan, the authors also show the effects of raising the age of Medicare eligibility. The paper also demonstrates that while [the Republican plan] shifts $4.9 trillion in health care costs from the government to Medicare beneficiaries, this number is dwarfed by a $34 trillion increase in overall costs to beneficiaries that is projected ...

Repeat, the Republican plan to cut Medicare would cost the larger economy seven times as much as it cuts government spending.

Social Security, For Example

Conservatives have been trying to cut or gut Social Security for decades. While this might mean government has to pay out less of what is owed to seniors, such cuts would have a negative effect on the larger economy.

Social Security allows working people to retire with at least a minimal income. If this is cut many could not retire for many more years (if ever), which would increase the unemployment rate because their jobs would not open up. The same is true as the retirement age is increased - fewer job openings. If it is cut, the spending (on cat food) at local grocery stores and other necessities is reduced by the same amount. And the effect on children of retirees is increased, if they contribute to make up the difference.

This is why cutting Social Security or raising the retirement age only shifts costs onto the larger economy, dragging it down (and cruelly hurting our elderly).

Cutting Disease Control, For Example

One of the clearest examples of the way government helps us all, rich and poor, is the government's Center for Disease Control (CDC). One of the jobs of the CDC is to help prevent the spread of infectious diseases. If an epidemic is spreading and killing people it doesn't matter if those people are rich or poor. And if a serious outbreak spreads this can damage the economy as people are too sick to, or decide not to show up for work. So of course cutting back the budget of the CDC could cause damage to the economy in any given year and is certain to cause damage eventually. (The CDC budget was cut back 11% last year.)

Budget Cuts Hurt The Economy

The above are only a few examples.

A government budget cut is like a huge tax increase on regular people because it increases what each of us pays for the things government does -- or forces us to go without. This is because cuts in government spending don’t actually cut the cost or the need for those things, they just shift those costs onto the larger economy. But because these shifts attack the economy-of-scale, transparency, integrity and public-good management that government provides, they almost always increase the costs and harms to the larger economy.

  • As government health care is cut (or not provided in the first place) each of us must take on those costs on our own, and as demonstrated, pay up to seven times what the same care would/could have cost.
  • As infrastructure maintenance and modernization is cut, our economy becomes less competitive, unemployment increases and our wages and spending power fall.
  • As spending on education is cut, our costs of educating ourselves and our kids increase. College costs soar. And the overall education level of our people will decrease, making our country less competitive in the world.
  • As environmental regulation and enforcement is cut the costs of the resulting health problems and cleanups increase and our quality-of-life will decrease.
  • As enforcement of labor laws is cut, our wages and protections fall.
  • As etc. is cut, the costs of etc. are shifted to the larger economy, and the total costs of accomplishing etc. actually increase.

As budgets are cut, the costs are increased and shifted to the larger economy.

Austerity In Europe

Several countries in Europe are severely cutting budgets. The result is that the economies in those countries are slowing. Reuters: Euro zone's slump in late 2011 points to recession.

A collapse in household spending, exports and manufacturing sucked the life out of the euro zone's economy in the final months of 2011, the EU said on Tuesday, showing the scope of the downturn that looks set to become a fully fledged recession.

... The European Commission forecasts a recession of the same magnitude this year. That would be the euro zone's second contraction in just three years as the bloc's debt crisis drags on a region that generates around 16 percent of the world's economic output.

[. . .] The battle between austerity and growth was already evident in the fourth quarter. Euro zone government expenditure fell 0.2 percent, while industry contracted 2 percent and imports were down 1.2 percent, making for some of the worst readings since the world was dragged into the 2008/2009 financial crisis.

The austerity experiment is making the case: cutting government budgets just shifts costs and hurts the larger economy.

Who Benefits From Cuts?

Governments dance with the ones that brung 'em. Whoever controls government is naturally going to direct government to benefit them – and only them. We-the-People democracies do things for We, the People; plutocracies do things for plutocrats. So when, as now, plutocrats are running government, you will get a government that only does things that benefit plutocrats. And when We, the People were running government, we did things that benefit We, the People -- all of us.

The plutocrats now demanding government budget cuts obviously understand that this will result in slowing economies, but don't care -- they are already fabulously wealthy. What they want is reduced taxes and increased power. They say that cuts will bring growth, in order to persuade people to accept cuts. Blocking governments from providing things that don't directly benefit them and only them is a means to that end. And cutting government cuts government's ability to reign them in.

What We, the People Want

When We, the People are running government we insist that government increases overall prosperity. We demand laws and regulations that bring us good wages, benefits and safe working conditions. We demand good public schools & colleges, parks, safety and opportunities for our smaller businesses to fairly compete. We insist on a clean environment, consumer protections, regulations on business behavior, rules against monopolies and (after learning the hard way) rules that keep banks from taking risks that threaten the economy. And we want controls and limits on the use of wealth and power by the 1%ers.

Plutocrats -- the 1%ers -- of course see all of these protections of regular people as hindering their power and ability to make as much for themselves as they can grab. Plutocrats just don’t see how public parks benefit them. They just don’t see why they should have to pay for public schools. What good do public schools do them, today? Plutocrats don’t see why it should be anyone else's problem if old people don’t have health care -- health care for seniors certainly isn't their problem.

They explain that things for anyone other than themselves and their interests just “wastes money.” Things for regular people are not their problem. And when plutocrats run government, it isn't their problem.

The fact is a public park “costs money.” Schools and infrastructure are just more “government spending.” Things like that just "redistribute income" because taxes on the income of plutocrats is used to build that park or school that anyone can use. The basic message of the plutocrat is, "Why should I pay for anything that benefits you?"

You and I might argue that this kind of austerity, cutting schools, Medicare, infrastructure, etc. slows the larger economy, hurting the plutocrats, too. But that doesn’t hurt the ones who are already rich, which is the definition of plutocrat. It puts more in their pockets, today, by lowering their taxes. They want out of taxes and they don't want government (We, the People) interfering with their power.

What We, The People Need

Democracies where We, the People make decisions demand things that are good for regular people and their small businesses: pensions, health care, modernized infrastructure, good schools & colleges, child care, regulations on the behavior of giant corporations... This is why strong democracies have proven to be more prosperous for regular people and for longer than other forms of government that leave people on their own against the wealthy and powerful and drive all of the income and wealth to a few at the top. This is why so many regular working people in our country were so much more prosperous in the decades before the plutocratic 1%-favoring policies of Reagan steered us toward plutocracy.

Understand what is going on here. Demands for budget cuts and austerity are really about shifting from democracy to a system where regular people -- the 99% -- are on their own, up against the wealthy and powerful. This is about shifting from a system where regular people can be prosperous together, to a system where a few -- the 1% -- have all the wealth and power.

We, the People need democracy restored. We need to be in charge again, before the economy can improve.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 7:51 AM | Comments (0) | Link Cosmos

February 12, 2012

What Happened To Our Economy?

These six charts clearly show what happened to the middle class and to our economy as the result of Reagan's policies: Reagan Revolution Home To Roost -- In Charts |

Posted by Dave Johnson at 3:56 PM | Comments (0) | Link Cosmos

February 8, 2012

Manufacturing On Planet Economus

Economist Christina Romer had an op-ed in the NY Times this weekend, Do Manufacturers Need Special Treatment? The question that keep coming back to me is why did she feel the need to write an op-ed to diss manufacturing? Is it just an economist thing? Or is she, like so many economists, from another planet?

In her op-ed Romer claims those of us who argue for a national manufacturing policy do so out of “the feeling that it’s better to produce “real things” than services.” But, she says,

American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada.

Here is the difference: We can't just keep servicing each other. This "service economy" thing hasn't worked out so well here on Earth, and now we have a huge trade deficit. It is "better to produce real things" because that is what you sell to others to get the money to pay each other for haircuts (and scissors).

Once You've Got It It's Hard To Lose It, Once You Lose It It's Hard To Get It Back

Manufacturing brings so much along with it that entire economies have been, are and will be supported. China isn't making its living by cutting each others' hair. Neither is Germany, or other countries that have realized the importance of manufacturing and manufacturing policy to an economy.

Manufacturing brings with it all the businesses in a supply chain, it brings the research and innovation that manufacturing requires, and it brings a lasting real infrastructure that requires enormous investment to duplicate elsewhere before competition is enabled. Today we have a tremendous current account imbalance that resulted from the terrible trade deficits suffered since we were invaded by this crowd from planet Economus, who told us we don't need manufacturing - that we should transform ourselves into a "service economy." And it will require enormous investment to restore the ecosystem that we allowed to escape to other countries in that period.

Once you've got it, it's hard to lose it, and once you lose it, it's hard to get it back. Not so much with services.

Romer's Three Straw Arguments

Romer sets up three arguments made of straw for helping manufacturing, only to knock them down:

One: Market Failure. Romer says "government intervention" is only justified when you can demonstrate "market failure." In essence she says markets must make our decisions, not We, the People. “For example, when competition in a market is limited, antitrust laws that prevent monopoly can be helpful.”

Romer writes that another “market failure” comes when it can be shown that there is a benefit to having clusters of businesses. When benefits leak beyond where a company is putting their money then tax breaks and other government help may be due.

Romer knocks down this justification for government “intervention” with two arguments. She says, “large clustering effects have been hard to find.”

Perhaps cluster effects don’t have benefits on planet Economus, where Romer apparently resides, but on earth all you have to do is look from the development of the auto industry in Detroit to the development of the semiconductor industry in Silicon Valley to understand that yes, clustering effects matter.

Romer also says if clustering does brings benefits why single out manufacturing for government benefits when other sectors also benefit from clustering? Well, of course we shouldn't just help our manufacturing if it can be shown that government involvement boosts the businesses of We, the People in other sectors.

Romer also says there is market failure if a learning period means that future companies benefit form work done by early companies. Romer says, “ a study of the semiconductor industry found that although learning by doing was substantial, most of the rewards went to companies doing the early investing.”

The Silicon Valley Romer talks about is located on that planet Economus. The Terran Silicon Valley I live in has seen many, many startups fail, only to see later companies take up their ideas and succeed.

Romer concedes that we might need manufacturing to make things with which to defend the country, justifying government intervention in markets. The argument that we need a strong manufacturing base here in case of war must be taken seriously. But she says it still doesn’t follow that all manufacturing deserves special treatment. Which industries are truly essential in a war effort, she asks? I guess she asks this is because on planet Economus service industries are essential to a war effort. On Economus you apparently win wars by cutting each others’ hair.

Two: Romer’s second case-of-straw for “government intervention” is to create jobs and reduce unemployment. Romer says, “Unfortunately, those effects are probably small.”

In the 2000-2009 "service economy" decade we lost 5 million manufacturing jobs, more than 50,000 factories, and the hope to capture several industries of the future. Those are not small effects. And the effects on the surrounding communities are severe.

Romer rightly says that the current problem with the economy is lack of demand. She prescribes tax cuts for households, help for state and local governments and investment in infrastructure. (The old "taxes take money out of the economy" argument?)

But then she says that a tax break to encourage insourcing of jobs in manufacturing won’t create demand so we shouldn't do it. It might make our goods cheaper to export, but challenging China’s currency manipulation would do more, so we shouldn’t do this. This is the old "don't do anything if it doesn't fix everything." We need to do all of these things, and more.

Three: Romer’s third straw argument is income redistribution. Because manufacturing jobs “are seen as” better-paying “for less educated workers” then manufacturing is a way to distribute more income to people with less education. But no, she says, “Increased international competition has forced American manufacturers to reduce costs. As a result, the pay premium for low-skilled workers in manufacturing is smaller than it once was.”

Romer says government should help people get a better education instead of helping create jobs for people who do not go to college. Perhaps on planet Economus all the IQs are above average, but on Earth the average IQ is 100, and not everyone can or should get a college degree. If we send more people to college without bringing back manufacturing, we'll just have more unemployed people with college degrees than we do now.

Romer also says, "If increasing income equality is the goal, it might be wiser to put money into infrastructure than to subsidize manufacturing. Construction also pays good wages, but with lower educational requirements. And America’s infrastructure needs are enormous." Well, yes. But again this is the old "don't do anything if it doesn't fix everything." Do those things. And revive American manufacturing.

Why is "the pay premium for low-skilled workers in manufacturing ... smaller than it once was"? Here is why: Before we became a plutocracy we were a democracy. When We, the People had a say we demanded good wages, benefits, good working conditions, a clean environment and dignity on the job. But workers in China have no say. They are stuffed 6 to a room in dormitories, rousted in the middle of the night to work extra shifts …

"Free trade" agreements made democracy a competitive disadvantage. To people from planet Economus, these conditions in places like China are just “lower costs” that the rest of us need to learn to compete with.

Are All The Other Countries Wrong?

The countries that are successful in today's economy have national industrial/economic policies. We do not. They work to capture parts or all of key strategic industries, and line up the infrastructure, finance, education, supply chains, power grid, tax policies and everything else needed to compete in the world economy. We do not.

We send our companies out against these national systems, and even our largest companies cannot compete with national systems. So we lose.

Are China, Germany and so many other countries just wrong, putting so much into these efforts to capture parts or all of strategic industries? Or are they being smart? Look at who has a trade surplus and who has a trade deficit, and see if you can guess the answer.

The Fix

1) Romer says we should not have special treatment to help manufacturing. Well, let’s start by removing the special treatments that are hurting manufacturing. After that we can begin to talk about "special treatment" to help manufacturing. Out tax policies encourage outsourcing and make it economically beneficial to close a factory rather than maintain it.

2) Countries like China offer subsidies to strategic companies and industries. They manipulate their currency to keep their prices lower in world markets. Let’s enforce trade rules against that, and if we can’t then let’s get out of these "free trade" agreements that are killing us and put tariffs on their goods so they are not unfairly competing with goods made here. And start matching subsidies on exports so they compete in world markets.

3) Other countries have national industrial policies, lining up everything needed to capture part of all of strategic industries. We don't so we send our companies out alone against countries. We have to change this, or ultimately our companies have to lose.

4) Planet Economus is a place far from Earth. On planet Economus they apparently have free markets, and free trade. But on Earth free markets and free trade never existed anywhere at any time, and never worked when they were tried. So on Earth we have to have policies that reflect what happens on Earth, not on planet Economus.

This Time Isn't Different

Romer concludes,

AS an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class.

Right, and it still is. This time it isn't different.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 12:20 PM | Comments (1) | Link Cosmos

January 23, 2012

To Get Our Economy Back Hold Cheaters, Fraudsters And Exploiters Accountable

The spiral-to-the-bottom and inequality we are suffering is not an inevitable result of globalization, it is what happens when we don't hold cheaters and exploiters accountable and stop them. This is not just about Wall Street, it is the story of what has happened to our wages and benefits, jobs, factories, companies, industries, economy and democracy in the last 30-or-so years.

Cheaters, Fraudsters and Exploiters

If cheaters and exploiters are not held accountable and fraudsters are not prosecuted, then the advantages this brings them forces honest players out. We're all waiting to see if there is a deal in the works that lets big banksters off the hook for mortgage fraud and other (uninvestigated) crimes, making their shareholders pay fines for them instead. But that story of the 1%'s fraud and cheating and the consequences to the 99% are not what I am writing about here. This post is about how letting 1%er cheaters, fraudsters and exploiters off the hook has hurt America's manufacturing and trade.

Apple Can't Make It Here

Recent news stories about Apple hilight how we allowed our thriving, high-paying manufacturing sector to erode, with the result that our middle class is in decline. Apple used to proudly make their computers in the United States, but now everything is made in Asia. The NY Times' Charles Duhigg and Keith Bradsher, in How the U.S. Lost Out on iPhone Work describe how China's massive government subsidies and exploitation of workers mean “Those jobs aren’t coming back.”

The Entire Supply Chain Is Over There

China has done what it needs to do to bring factories, which bring supply chains, which bring industries. The NYT story describes what it means to have an entire supply chain located where the factories are,

When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.

The Chinese plant got the job.

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

Subsidies are often a violation of trade rules. Even so, as the article says, "The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory." So, of course, "the Chinese plant got the job." Meanwhile, our own country has resisted having an "industrial policy" to keep our industries and foster new ones. This is finally changing, but good efforts like "Buy American" and President Obama's green energy policies are fought tooth-and-nail.

Exploited Workers

Another key part of China's advantage is the ability to exploit workers and get away with it -- which lets Apple get away with it, too. And when Apple sees violations, it doesn't stop them.

One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Later in the story,

The first truckloads of cut glass arrived at Foxconn City in the dead of night, according to the former Apple executive. That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones.

... The company disputed some details of the former Apple executive’s account, and wrote that a midnight shift, such as the one described, was impossible “because we have strict regulations regarding the working hours of our employees based on their designated shifts, and every employee has computerized timecards that would bar them from working at any facility at a time outside of their approved shift.” The company said that all shifts began at either 7 a.m. or 7 p.m., and that employees receive at least 12 hours’ notice of any schedule changes.

Foxconn employees, in interviews, have challenged those assertions.

Apple Audits Its Suppliers, Finds Many Violations

Earlier this month Apple released a report describing the practices of its suppliers. NY Times: Apple Lists Its Suppliers for 1st Time,

Apple said audits revealed that 93 supplier facilities had records indicating that over half of workers exceeded a 60-hour weekly working limit. Apple said 108 facilities did not pay proper overtime as required by law. In 15 facilities, Apple found foreign contract workers who had paid excessive recruitment fees to labor agencies.

And though Apple said it mandated changes at those suppliers, and some showed improvements, in aggregate, many types of lapses remained at general levels that have persisted for years.

William K Black, writing in Apple's Foreign Suppliers Demonstrate Widespread Scamming and Horrific Abuse of Employees at AlterNet, looked at Apple's report. Black writes that the audit of suppliers, "shows that anti-employee control fraud is the norm."

Black says that two things stand out in the report,

First, Apple rarely terminates suppliers for defrauding their employees – even when the frauds endanger the lives and health of the workers and the community – and even where Apple knows that the supplier repeatedly lies to Apple about these fraudulent and lethal practices. Second, it appears unlikely in the extreme that Apple makes criminal referrals on its suppliers even when they commit anti-employee control frauds as a routine practice, even when the frauds endanger the worker’s and the public’s health, and even when the supplier repeatedly lies to Apple about the frauds. Apple’s report, therefore, understates substantially the actual incidence of fraud by the 156 suppliers (accounting for 97% of its payments to suppliers).

As Black wrote, "Apple knows that the supplier repeatedly lies to Apple about these fraudulent and lethal practices" and " appears unlikely in the extreme that Apple makes criminal referrals on its suppliers" Apple doesn't stop these violations. They get too much of a competitive advantage out of it.

This Is Fraud

When you buy a product you assume that it is on the shelf at the cost you are asked to pay because laws and regulations were followed and standards were met. So you buy the one that has the right quality at the right price. But what if a product has a low cost as the result of cheating, exploitation and violations of environmental, labor and trade laws? What if there is a lie at the root of the transaction you are engaged in?

China's massive investment in capturing entire industries -- a violation of trade laws -- means that many of the components of the high-tech manufacturing supply chain have migrated out of the US to that country. And China's non-democracy political system means that workers have few, if any rights, and often the rights they have are not enforced. Black says American companies taking advantage of this are engaging in "a form of control fraud (fraud in which the head of a company subverts it for personal gain)."

Anti-employee control frauds most commonly fall into four broad, but not mutually exclusive, categories – illegal work conditions due to violation of safety rules, violation of child labor laws, failure to pay employees’ wages and benefits, and frauds based on goods and loans provided by the employer to the employee that lock the employee into quasi-slavery.

Allowing Fraud Drives Legitimate Businesses Out Of Existence

The key point Black makes is that allowing cheating, fraud and exploitation to continue brings them advantages that drive legitimate businesses out,

George Akerlof, in his famous article on markets for “lemons” (largely describing anti-customer control fraud), explained the perverse “Gresham’s” dynamic in 1970: "[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”

A Criminogenic Environment

Specifically, what this means to companies that try to compete with companies like Apple,

Anti-employee control fraud creates real economic profits for the firm and can massively increase the controlling officers’ wealth. Honest firm normally cannot compete with anti-employee control frauds, so bad ethics drives good ethics out of the markets. Companies like Apple and its counterparts create this criminogenic environment by selecting least-cost – criminal – suppliers who offer components at prices that honest firms cannot match. Effectively, they hang out a sign – only the fraudulent need apply to be suppliers

When we let companies get away with building products in places that violate trade rules, allow environmental degradation, exploit workers, cut corners on safety, use cheap components and ingredients, these companies get cost advantages that force honest companies out of business. This is the story of our economy. This is why our middle class is engaged in a race to the bottom.

Should Companies Like This Exist In The US?

Robwert Cruickshank puts two and two together, in a must-read post, Thinking Differently About Apple and 21st Century Society. He writes,

In the last year or two, it’s become increasingly clear that the way Apple makes its products is deeply flawed. Working conditions at the factory which makes most of their products – Foxconn in Shenzhen, China – are so appalling that workers engaged in a rash of suicides in 2010 to ameliorate their own suffering. Earlier this year workers threatened mass suicide over pay and working conditions. And of course, there’s the fact that Apple makes these products overseas rather than in the United States, where unemployment remains at some of the highest levels we’ve seen since the Great Depression.

Cruickshank asks if companies with this attitude should be allowed to continue to do business? He writes that Apple has,

...a narrow focus on their products and their profits, and disdain wider concerns for the good of society. When an unnamed Apple executive was asked about their role in addressing America’s economic problems, their response was revealing:
They say Apple’s success has benefited the economy by empowering entrepreneurs and creating jobs at companies like cellular providers and businesses shipping Apple products. And, ultimately, they say curing unemployment is not their job.

“We sell iPhones in over a hundred countries,” a current Apple executive said. “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”

That quote is perhaps the best encapsulation of the pathologies of the modern American corporation. In fact, Apple does have an obligation to solve America’s problems. Everyone who lives in this country has that obligation. And corporations have that obligation too. If they don’t want to help make things better, then they shouldn’t exist.

Then he gets to the wider point,

The notion that companies exist only to generate profit or build a specific few set of products is corrosive. Those profits and products serve the rest of society. And as a part of that society, companies and their executives exist to make that society a better place. If they are engaged in a set of practices that make society worse off, then those actions are indefensible and need to be changed.

For the last 30 years, American businesses have been devoted to a single-minded pursuit of maximizing short-term profits. Unsurprisingly, this has had profound ripple effects throughout the rest of society. The economy became focused on those profits, and so with it followed politics, culture, and our values as a civilization.

By now it should be clear to everybody that while this works well for the small elite that has hoarded all these profits – the so-called “1%” – it has utterly failed to provide a happy and fulfilled life for everyone else.

Here I quote Cruickshank quoting Black, who is looking at Apple's report of its suppliers, with "overwork and other forms of employment fraud being rampant."

As William K. Black explains at Alternet, this is a good example of what may be a widespread tolerance for fraud in the global economy:
These frauds take place abroad, but they harm employees at home. Mitt Romney explains that Bain had to slash wages and pensions to save firms located in the U.S. who had to meet competition from foreign anti-employee control frauds. The damage from foreign anti-employee control frauds drives the domestic attack on U.S. manufacturing wages. Bad ethics increasingly drive good ethics out of the markets and manufacturing jobs out of the U.S. and into more fraud-friendly nations.

"These Frauds Take Place Abroad But They Harm Employees At Home"

Once again, for emphasis, "these frauds take place abroad, but they harm employees at home."

If we want the downward slide to stop we have to decide to hold the cheaters, exploiters and fraudsters accountable for their actions. At home the efforts by the giant corporations to keep the National Labor Relations Board (NLRB) and the Consumer Financial Protection Bureau (CFPB) from doing their jobs, enforcing the rules and holding them accountable further show how this is affecting us all. Abroad we have to demand enforcement of labor and trade rules so companies like Apple can not gain advantages that put more ethical and honest companies out of business. We certainly should not be letting products made there have cost advantages here and stiff tariffs can fix that. Letting companies get away with this makes democracy a competitive disadvantage.

We have to get mad and hold the cheaters, fraudsters and exploiters accountable.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 2:43 PM | Comments (0) | Link Cosmos

January 19, 2012

Why Keep The Capital Gains Tax Break?

Mitt Romney's ultra-low tax rate on his ultra-high income is reviving questions about the breaks and perks that the wealthiest of the 1% receive from the rest of us. One of these is a special low tax rate for investments -- as if anyone needed special tax incentives to induce them to make a bundle.

High Incomes At The Top

How much does Romney make? We won't know until we get a chance to see his tax returns -- if we do -- but Romney described his $374,328 income from speaking fees last year as "not very much." If $374K is "not very much" of his income ... well ... at least we can understand why he feels he can casually make $10,000 bets as if he was just pulling a dime from his pocket.

In his post What Mitt's Taxes Could've Paid For (If Not For Those Cushy Tax Breaks), Richard Eskow writes,

1,470 households made more than a million dollars and yet paid nothing -- zero, zip, nada -- in Federal income tax in 2009.

[. . .] The top 25 hedge fund managers in the US made $22 billion in 2010.

Low Taxes At The Top

Mitt Romney's admission that he probably pays a 15% tax rate shows us what is going on. For you or me, when our taxable income passes about $35,000, we start paying a 25% rate, much higher than Mitt pays on his millions on income. (That doesn't mean we pay 25% on money up to $35K, which is what most people think. It means any additional money we make after the $35K is taxed at that higher rate rate. If we make $35,001 we only pay an increase of ten cents. That's how tax brackets work.)

Lots Of Money To Use To Attack The Deficits

This special low tax rate on capital gains is sucking a lot of money out of We, the People's ability to pay for our schools, military, infrastructure, etc, which is part of why we are borrowing so much. How much? Continuing to steal from Richard Eskow's post,

As we wrote earlier, eliminating these tax breaks would add as much as $44 billion to our bottom line in the next ten years. Or to put it another way:

Ending cushy breaks for these 25 billionaires could also reduce the deficit by as much as $44 billion. Paging all deficit hawks!

In 2008 the taxable income of everyone earning above $100,000 was $3.4 trillion. If we concentrate our tax reform on the upper end of that spectrum -- the Romneys, not the folks in the $100-$400 thousand range -- we know that every percentage point in increased collection comes out to another $34 billion per year. That ain't chicken feed.

Why The Low Capital Gains Tax Rate?

The justification for a special tax rate for gains from investing capital is supposed to be to provide an incentive to invest. But there is already a really good incentive to invest: to make a bundle of cash. Piling a special "incentive" on top of making a bundle of cash creates market distortions - moving investors away from deciding where to put their money based on the value and merits of the investment and toward tax-reduction schemes.

The necessary precondition for investing capital is having capital. So a tax break on the return from investing capital is by definition a break for the well-off. Here is the reality: capital gains are taxed at a lower rate because most of the income of the 1% is from capital gains, and most of the income of the 1% is from capital gains because the tax rate is lower. The "incentive to invest" should be making a good investment, period.

I'll bet you $10,000 that getting rid of this tax break helps fix the deficit, and leads to a saner investment climate. (Of course, I'm kidding, I think that is a lot of money.)

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 9:35 AM | Comments (0) | Link Cosmos

January 14, 2012


Read how working people in Europe are treated. No wonder Republicans dread "European-style" government! Human rights, dignity, decent working conditions, health care... Daily Kos: Musings of a housekeeper in Belgium

Posted by Dave Johnson at 8:53 AM | Comments (0) | Link Cosmos

January 12, 2012

MUST Watch: When Mitt Romney Came To Town

This is the story of what has happened to America since the 80s:

Outsourcing jobs to places where people don't have a say so they can't demand good wages, firing people and making them reapply for their jobs but at half the pay, gutting people's benefits, stripping companies, treating employees like throwaway Kleenex, closing factories, stealing pensions, borrowing and pocketing... Locust capitalism. Chop shops.


And keep this in mind if people try to tell you that doing what it take to increase the stock price helps everyone:


Also see post above, When Mitt Romney Came To Town -- Who Benefits?

Posted by Dave Johnson at 12:26 PM | Comments (0) | Link Cosmos

December 2, 2011

DeLong: Top Tax Rate Should Be 70%

Brad DeLong says the "right" top tax rate is 70%. I think it should be much higher, at 70% someone making a billion still ends up with $300 million so the incentive to bad action is still too high. The 70% Solution - J. Bradford DeLong - Project Syndicate

Posted by Dave Johnson at 11:06 AM | Comments (0) | Link Cosmos

October 28, 2011

Austerity Didn't Work

Krugman, in The Path Not Taken -

"Now, however, the results are in, and the picture isn’t pretty."

Posted by Dave Johnson at 7:43 AM | Comments (0) | Link Cosmos

October 11, 2011

Robert Reich And 7 Big GOP Lies

MoveOn: What If Everyone Saw This Clip Of Robert Reich Exposing 7 GOP Lies?

Posted by Dave Johnson at 12:07 PM | Comments (0) | Link Cosmos

September 19, 2011

The Golden Laws of Prosperity

These are very, very good: The Golden Laws of Prosperity | Ian Welsh

Posted by Dave Johnson at 7:17 PM | Comments (0) | Link Cosmos

August 26, 2011

Roubini's Solution

In Is capitalism doomed? Nouriel Roubini writes,

The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial system run amok; breaking up too-big-to-fail banks and oligopolistic trusts.

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalised economy. The alternative is - like in the 1930s - unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

I think we also need to start an international effort to reduce population growth. And we need to change the GDP metrics to account for externalization -- harm to environment, health, etc. and add metrics for goding things people want and need, not just growth for its own sake.

Posted by Dave Johnson at 9:26 AM | Comments (0) | Link Cosmos

August 15, 2011

Everything You Need To Know About Fixing Deficits & Jobs

Here is everything you need to know about how to fix the deficits and jobs problems. This is a chart of job creation over the last few years:


There is a report in Saturday's New York Times, "White House Debates Fight on Economy," saying the Obama administration is choosing between doing very little about jobs, or doing nothing.

Mr. Obama’s senior adviser, David Plouffe, and his chief of staff, William M. Daley, want him to maintain a pragmatic strategy of appealing to independent voters by advocating ideas that can pass Congress, even if they may not have much economic impact. ... But others, including Gene Sperling, Mr. Obama’s chief economic adviser, say public anger over the debt ceiling debate has weakened Republicans and created an opening for bigger ideas like tax incentives for businesses that hire more workers, according to Congressional Democrats who share that view.

So according to the Times the choices being debated are a) do nothing, because the mean Republicans will block it anyway, or b) offer even more tax cuts for businesses. Yikes!

Meanwhile, out in the Real World...

The ailing economy, barely growing at the same pace as the population, has swept all other political issues to the sidelines. Twenty-five million Americans could not find full-time jobs last month. Millions of families cannot afford to live in their homes. ... [. . .] A wide range of economists say the administration should call for a new round of stimulus spending, as prescribed by mainstream economic theory, to create jobs and promote growth.

But, back in the White House?

Mr. Plouffe and Mr. Daley share the view that a focus on deficit reduction is an economic and political imperative, according to people who have spoken with them. Voters believe that paying down the debt will help the economy, and the White House agrees, although it wants to avoid cutting too much spending while the economy remains weak.

They think that taking money out of the economy will put more money into the economy. Great. As I wrote the other day, this is austeridiocy. As England, France and every other country that ever tried to grow an economy by cutting the economy has learned, taking money out of the economy takes money out of the economy.

What Works In The Real World

Here is everything you need to know about how to fix the deficits and jobs problems:


This is a chart of the monthly job losses that were occurring before and after the "stimulus" package.

Before The Stimulus

In this chart, the RED lines on the left side -- the ones that keep doing DOWN -- show what happened to jobs under the policies of Bush and the Republicans. We were losing lots and lots of jobs every month, and it was getting worse and worse.

During The Stimulus

The BLUE lines -- the ones that just go UP -- show what happened to jobs when the stimulus was in effect. We stopped losing jobs and started gaining jobs, and it was getting better and better.

The Stimulus Winds Down

The TAIL -- the leveling off on the right side of the chart -- show what happened as the stimulus started to wind down. Job creation leveled off.

It looks a lot like the stimulus reversed what was going on before the stimulus.


Jobs Fix Deficits

When people are working they are paying taxes and are not collecting unemployment. And they are buying things, which means there is demand in the economy again, so businesses will hire people.

Customers Create Jobs

Actually, the rich don't create jobs, we do. Lots of regular people having money to spend is what creates jobs and businesses. That is the basic idea of demand-side economics and it works. In a consumer-driven economy designed to serve people, regular people with money in their pockets is what keeps everything going. And the equal opportunity of democracy with its reinvestment in infrastructure and education and the other fruits of democracy is fundamental to keeping a demand-side economy functioning.

When all the money goes to a few at the top everything breaks down. Taxing the people at the top and reinvesting the money into the democratic society is fundamental to keeping things going. Cutting taxes at the top steals from democracy's ability to continue this reinvestment.

It doesn't matter how much more money you give to business owners, businesses are not going to hire any more employees until they have a REASON to -- and that reason is customers coming in the door.

Businesses Do Not Create Jobs

Businesses do not create jobs. In fact, the way our economy is structured the incentive is for businesses to get rid of as many jobs as they can. It costs money to pay employees, so businesses want to trim down to the minimum number required to get the needed work done.

Many people wrongly think that businesses create jobs. They see that a job is usually at a business, so they think that therefore the business "created" the job. This thinking leads to wrongheaded ideas like the current one that giving tax cuts to businesses will create jobs, because the businesses will have more money. But an efficiently-run business will already have the right number of employees. When a business sees that more people are coming in the door (demand) than there are employees to serve them, they hire people to serve the customers. When a business sees that not enough people are coming in the door and employees are sitting around reading the newspaper, they lay people off. Businesses want customers, not tax cuts.

A job is created when demand for goods or services is greater than the existing ability to provide them. When there is a demand, people will see the need and fill it. Either someone will start filling the demand alone, or form a new business to fill it or an existing provider of the good or service will add employees as needed.

Once again:


This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 2:54 PM | Comments (0) | Link Cosmos

August 12, 2011

Austeridiocy: Budget Cuts Take Money Out Of The Economy

"The patient is sicker so we have to apply more leeches." Countries that are trying to fix deficits with spending cuts are finding out that taking money out of their economies by cutting government is slowing their economies. Duh! Imagine that! So instead of cutting deficits the resulting slowdowns are making their deficits worse as tax revenues drop and joblessness goes up. So what are they proposing? More "austerity" spending cuts. I call them "austeridiots."

It Didn't Work So Do It More

See if you can find the logical flaw in this AP news report: French growth sputters to a halt in 2nd quarter,

The French government was put under further pressure to cut deeper into spending after figures Friday showed growth in Europe's second biggest economy ground to a halt in the spring, in another sign that the global economy is facing rising recessionary threats.

With the worse-than-expected French growth figures suggesting a possible budget shortfall this year, government ministers may have to find additional savings...

Right, the cuts are slowing the economy, which means the deficits are worse, so they "have to find additional savings." Cutting government - taking money out of the economy - slowed their economy, so they think they'll solve the problem by taking more money out of their economy. Austeridiocy.

Austeridiocy Here, Too

Our leaders, in their austeridiot geniosity, "solved" the made-up "debt-ceiling crisis" with a two-step process. First they will take about $1 trillion out of the economy right away. Then a 12-member "Super Congress" will try to come up with another $1.2 - 1.5 trillion to take out of the economy. If they can't come up with a deal, then there will be across-the-board cuts to take that money out of the economy.

The idea is that by taking that money out of the economy, there will be more money in the economy. And with less money in the economy, the resulting increases of money in the economy will bring more tax revenue. This strategery was thought up by the crowd that claims cutting taxes increases tax revenues. (It is important to notice that the ideas that come from this crowd always, always, always, always, always, always, always end up making the rich richer and the biggest corporations bigger at the expense of the rest of us. So maybe they're smarter than their ideas make them appear.)

Cuts Only Shift Costs, They Don't Cut Costs

The things government does have to be done, and cutting government doesn't get rid of the need, it just shifts the costs. Cutting government budgets only shifts the cost away from the wealthier taxpayers who were asked to pitch in and give back to the system that enabled their wealth. It removes the "take care of and watch out for each other" concept of democracy and puts the costs on the backs of vulnerable individuals. Cutting government doesn't remove the costs from the larger economy, and often increases the costs to the larger economy.

Example: Health care for old people is provided by government because they need the health care. If you cut or phase out Medicare the health problems of the elderly don't go away. And the cost to the economy is still there. In fact, by shifting these costs from government onto the back of the elderly themselves it increases the cost to the overall economy because it gets rid of the economy-of-scale government offers. Individuals do not have government's ability to buy in bulk for millions and negotiate for lower costs. And by pitting individuals against the giant predatory insurance corporations, the individuals end up paying even more, which further increases the costs to the overall economy. Finally, pushing these costs onto vulnerable individuals drains what's left of their money, which lowers their participation in the rest of the economy, further cutting consumer demand.

That Trick Never Works

See if you can find any examples in history of government budget cuts increasing economic growth. But there are examples in history of government cuts slowing growth. This is because taking money out of the economy slows the economy's growth.

An Alternative That Will Work

What if, instead of doing things that have always failed, we addressed our economic slowdown in a way that has always worked in the past? What if we took this opportunity to invest in repairing our aging, crumbling infrastructure, bringing it up to 21st-century standards? The long-term result of this would be an economy that is more efficient and competitive in world markets, which would of course help our businesses. But more important right now this would mean hiring millions of people to do the work. These people would then be paying taxes and would not be receiving unemployment, food stamps, etc. So of course this would help lower deficits. Also they would be participating in the economy again, making their mortgage payments, buying clothes, even cars. So of course this would help the economy.

The Contract For The American Dream And The Emergency Jobs Bill

The Contract For The American Dream And The Emergency Jobs Bill both call for investment in repairing and modernizing our infrastructure, to improve our economy and to create millions of jobs. So does The People's Budget from the Congressional Progressive Caucus.

The first step in the Contract For The American Dream (please, please click through) is:

Invest in America's Infrastructure

Rebuild our crumbling bridges, dams, levees, ports, water and sewer lines, railways, roads, and public transit. We must invest in high-speed Internet and a modern, energy-saving electric grid. These investments will create good jobs and rebuild America. To help finance these projects, we need national and state infrastructure banks.

The Fact Sheet about this idea begins,

For decades America has deferred maintenance of our public infrastructure – our roads, bridges, airports, ports, rail, levees, schools, broadband, wastewater and sewage systems, energy systems, and waterways. This infrastructure serves the public’s safety and welfare needs and supports the nation’s economic growth and competitiveness. This is a core function of government and we aren’t doing it.

This is work that has to be done. This is millions of jobs that need doing, while millions of our people are looking for work. Instead of taking money out of our economy, let's invest in our economy and our people, and live off the dividend.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 1:40 PM | Comments (0) | Link Cosmos

June 24, 2011

How Free Trade Made Democracy A Disadvantage

This is my presentation from last week's Netroots Nation panel session: Revitalizing Manufacturing: The Road to Renewed Job Growth. Click through for panel details and other panelists, here for a pdf of slides, including Jared Bernstein's. See below for video -- and be sure to watch Beri Fox!!!

Four Stories

I want to share four quick stories:

1. Democracy

The story of America

We fought a wealthy powerful few who had all the say and didn’t let us have a say, and made a country where We, the People made the decisions and share the benefits.

So because we had a say we built up a country with good schools, good infrastructure, good courts, and we made rules that said workers had to be safe, get a minimum wage… we protect the environment, we give out social security. We take care of each other.

And we used to protect that. We used to put a tariff on goods coming in if they were made by people who didn’t have the ability to speak up and better their condition. It was called the American System. Look it up. We’d let the goods in but we would use a tariff to strengthen our country, our infrastructure, our schools – our democracy.

But that changed. Superman left and we stopped protecting the American Way. We started letting goods in made by people who had no say, so the goods were cheap and they undercut us.

We have made democracy a disadvantage. We made it a disadvantage instead of an advantage.

Make no mistake, people who say they want things more “business friendly” they mean they want America to be less of a democracy, with fewer of the protections we fought to build for ourselves.

2. Trade

Once upon a time some areas made some things well, and other areas made other things well, and they would trade, and both areas could have the things they made AND the things made somewhere else, and everyone benefitted. And both areas increased the customers they had.

And so to most people “trade” means we buy things made somewhere else, and they buy things we make. In what world does “trade” mean closing a factory that is located here, moving it there where they don’t already make something, laying off all the people, and then bringing back here the same things that used to be made here and selling them in the same stores?

And the result is a lot of people have lost jobs, devastating our communities.

And then they tell workers who still have jobs that the same can happen to them, we can just close this factory, so shut up and don’t expect raises or benefits or safety or dignity.

What we see happening when a company moves production out of the country is not trade, it is getting around the borders of the democracy we built, and the things we fought and sacrificed to build.

Letting companies move factories away was giving up our ability to make a living. Sure a few people might get really rich from it, but look around you the rest of us, and our communities, and our economy have been sent sliding down a hill into the sewer.

3. The Deal

There once was a company. The company made a deal with a company in the next county, they make something you don’t, and you make something they don’t. So the deal is you’ll buy things from them if they buy from you. And you start buying from them, but they aren’t buying from you. And this goes on, and they still aren’t buying from you, but you are starting to owe them a lot of money. And they you’re borrowing from them to buy from them, and they still aren’t buying. And then they show up in your county selling the things you already made and sold, buy they used the money they got selling to you to set up to make what you made.

And by the way they say you have to pay them what you owe them.

That is how our deal with China is working out. We bought from them, they didn’t buy form us, and now they have accumulated $1.5 trillion which they were supposed to have been buying American-made goods with.

And they cheated. Or I would say they were smart and watched out for their own interests excessively, and we didn’t at all.

$1.5 trillion! So imagine what would happen if we said we're going to default on the debt but these bonds are redeemable in the next 3 months for American made good. Can you imagine what $1.5 trillion of orders would do for our economy right now? $1.5 trillion in orders? Factories humming...

Well the picture of what that would do FOR our economy is a way of understanding what that has done TO our economy.

4. The Cost

I like to tell you a story about the cost of our free-trade deals and tax policies.

I took a road trip last fall, through four industrial states, MI, OH, WV, PA to visit some of the Manufacturing Town Hall meetings that Scott’s group put on. [Note - see posts about this tour here.]

They call it the "rust belt" because so many factories are closed and rusting.

From town to town you see downtowns devastated, because the way you make a living is gone and the cheap imported goods at wal mart competing with local businesses. Michael Moore wrote about Flint after the auto plants closed. That kept happening, town after town, year after year, and got worse.

You have to see to first hand. [Note - there are pics in this post.]

But I’ll tell you, we’re even seeing it now in Silicon Valley, seeing downtowns with lots of empty storefronts. Empty office and manufacturing buildings everywhere. That wave that hit the Midwest has reached the tech areas now.

So the moral of the four stories is that We the People have to protect the things we fought for and won. And we have to remember that We, the People have to take care of and watch out for each other because the wealthy and powerful won’t do that for us. And markets aren’t about that, either.

When we relax our eternal vigilance they will come back with a vengeance.

Progressive Solutions

    a. Industrial Policy

    We don’t believe in having the government help. We think the markets will fix everything. But other countries don’t see it that way.
    We are pitting our companies on their own against the national resources of governments. We can live in an ideological dream world and say we shouldn’t, but our competitors in the rest of the world DO.

    b. Protect Democracy

    Tariffs. Call it a democracy tariff. Or a thugocracy tax. Use this to help lift others out of their exploitation. By making democracy a disadvantage we are only encouraging the worst, and encouraging it here, too. “Business friendly” is a code word that means get rid of all the protections We, the People have built for ourselves.

    They can protect the environment, etc, or charge a tariff to bring those goods in.

    c. Renegotiate Trade Deals

    Trade can mean something different. We still have a huge market. We can require goods to either be made by people who are not exploited and who have a say so

    d. Enforce Trade Laws

    China cheats in so many ways, and we all know it. Currency rates. Indigenous innovation . Forcing companies to turn over proprietary IP…

We can do these things. Because of the strong prosperity that democracy brought us others really want to sell into our markets.

And my own favorite:

    e. Top tax rates

    With high top rates it takes time to build a fortune. You have to have long-term plans, sustainable businesses that are surrounded by healthy communities, good schools, good infrastructure.

    Lower rates, you can make a fortune in a few days. Business models changed, became short term, cash in, quick-buck schemes. Harvest infrastructure, close factories, no need for healthy communities, etc.

Video Of The Panel

Scott Paul opens
Jared Bernstein at 6:02
Rep. Jim McGovern at 17:00
Beri Fox at 31:29
Dave Johnson at 48:13

IF the video below doesn't show up, click to see it here.


As always, Frank Sobotka explains what's wrong:

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 10:16 AM | Comments (0) | Link Cosmos

June 9, 2011

Businesses Hire When Customers Are Coming In The Door

Another bad jobless claims report... and this time Washington seems to have finally noticed that there are some unemployed people out here in the sticks. But instead of jobs programs the geniuses are proposing ... what else? ... even more tax cuts. (And after a few hours they'll go back to complaining about deficits but blame "spending.") And of course, they are once again trying to "appeal to Republican lawmakers" without getting it that Republican lawmakers are doing everything they can to slow job growth so they can win the next election.

Bloomberg: Payroll-Tax Break Said to Be Discussed by Obama Aides Amid Slowing Economy,

President Barack Obama’s advisers have discussed seeking a temporary cut in the payroll taxes businesses pay on wages as they debate ways to spur hiring amid signs that the recovery is slowing, according to people familiar with the matter.

. . . The talks reflect the political constraints the White House is operating under with the Republican majority in the U.S. House pushing to cut federal spending. A hiring stimulus based on a tax break for employers may appeal to Republican lawmakers, many of whom have called for measures to help businesses.

Companies Only Hire When Customers Are Coming In The Door

Here is something the geniuses haven't noticed, in all their geniosity: It doesn’t matter how much more money you give to business owners, businesses are not going to hire any more employees until they have a REASON to – and that reason is customers coming in the door.


Businesses are not going to hire people just to sit around and listen to iPods or read the paper, waiting for a customer.

Terrance Heath, in America's Unhappy Anniversary: Ten Years Of The Bush Tax Cuts For The Wealthy,

Republicans claim that preserving the Bush tax cuts for the wealthy is in the interest of small businesses, but small business owners are starting to demand a repeal of the Bush tax cuts.
"We are fed by our consumers, not by our tax breaks," says Rick Poore, owner of Designwear, Inc., a screen-printing business based in Lincoln, Neb. "If you drive more people to my business, I will hire more people. It's as simple as that. If you give me a tax break, I'll just take the wife to the Bahamas."

Businesses are fed by their customers, not by tax cuts. Tax cuts only feed deficits. Customers coming in the door is what causes businesses to hire. In case you missed that: Customers coming in the door is what causes businesses to hire.

Direct Job Creation Is Needed

Until there are more customers businesses are not going to hire. Why should they? So it is up to us (government: We, the People...) to create some customers. The way to do that is to hire people to do some of the things that it is government's job to do anyway, but government has been putting off because of so many tax cuts.

Fix the infrastructure: Our infrastructure is crumbling. In Obama Should Call Chamber’s Infrastructure Bluff I linked to an Urban Land Institute report on the country's infrastructure, showing how we are falling behind countries like Brazil, China and India, and to the American Society of Civil Engineers (ASCE) Infrastructure Report Card, that says a $2.2 trillion investment is needed just to bring the country's infrastructure back up to current standards.

This infrastructure work has to be done no matter what. The longer we delay it the more our country falls behind. It is millions of jobs that need doing at a time when millions need jobs! (And by the way the government can borrow at nearly zero interest rates right now -- one more reason to do it now.)

Green jobs: And then there are the green jobs you should be creating. You should be hiring people to retrofit every home and building in the country to be more energy efficient. This pays for itself because we stop sending so much money to the oil-producing countries, stop putting so much carbon in the air, and our economy becomes more efficient. And put more money into alternative energy, too. I mean, jeeze, geniuses, what part of this is hard to get?

Jobs fix deficits: Hiring people to fix up the infrastructure takes them off the unemployment rolls and off the other assistance programs, lowering government spending on those programs. Having those jobs means they are paying taxes again, raising government revenue. And fixing up the infrastructure makes our businesses more competitive again, growing the economy. It's a no-brainer which should mean even the DC geniuses can figure it out.

Fix Trade

Because of bad trade deals, much of any revival of our economy just means that we send more money out of the country. The trade deficits, especially with China, are also economy deficits. We are not just sending jobs and money out of the country, we are sending our chances of coming out of this economic slump out of the country as well.

And these trade deals pit exploited, underpaid workers in non- or weak democracies against our workers who had been benefiting from the good wages, workers protections and other non-"business friendly" things that democracy brings along with it.

Our trade deals have made our democracy and the resulting high standard of living into a disadvantage. Who were the geniuses that let that happen?

Restore Long-Term Incentives

Tax cuts have cut the incentive for long-term business models. It used to take time to build a fortune, so businesses had to place themselves within healthy communities with good schools, well-maintained infrastructure and solid, well-funded public structures like the court system. Cutting top tax rates changed business models to make more sense "harvesting" those things in a hurry and moving on to the next community with resources to plunder. Low top tax rates encourage quick-buck schemes.

Propose The Right Thing

Propose the right thing and do it publicly, instead of trying to appease a political ideology bent on destroying government. Doing the right thing is also the right thing politically. If the job situation doesn't get better you're going to be thrown out of office. So come one, geniuses, get smart and start hiring people to fix up the infrastructure and make the economy more energy efficient.

10 years of Bush tax cuts is enough! Click here to demand your representative supports the Fairness in Taxation Act so the rich contribute their fair share.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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Posted by Dave Johnson at 12:17 PM | Comments (0) | Link Cosmos

April 10, 2011

$58 To Fill An Accord

I just paid $58 to fill up my 2000 Honda Accord.

Times are getting tougher...

Posted by Dave Johnson at 7:18 PM | Comments (0) | Link Cosmos

February 16, 2011

It's A Really Bad Time to Be Middle Class

It’s a really bad time to even be middle class in this country, and forget about being poor. The only way to be protected is to be very wealthy: then you are guaranteed that your house is safe, your medical care is covered, and your children will have a future. It’s that bad, and not one bit of this is subtle.

There is a class war underway in this country. The rich, or those that represent their interests, and corporations want control. Dave Johnson, blogger for the Campaign for America’s Future, nailed it when he wrote that: “This budget fight is about a stark choice: jobs and growth for We, the People, or going down the road of plutocracy -- rule by the super-rich and big corporations -- with little or nothing left over for the rest of us.”

This is the power grab of our generation playing out in Obama’s budget. It reflects true entitlement for the super wealthy. The government revitalization of the “too big to fail” banks was only the tipping point. Of course, the bankers deserved their bonuses. Remember that you heard it here. The battleground is not about the so-called entitlement programs espoused by the Democrats. Social Security, and other such programs are not the culprits; they are the scapegoat for the real agenda.

Obama is being forced to rip open the social fabric of this country to reduce the Bush generated debts. In the President’s proposed budget, most social programs will be ravaged left and right (no pun intended). Yes admittedly, this budget is a massive jobs creation machine. But watch out – don’t get sick folks or have an on-the-job accident because there will little if any safety net. Certainly, we all know about health care reform, yet if Speaker Boehner and his boys have their way -- that too will be reduced to a hill of beans and severely compromised. The fight for survival of the middle class and the poor has been ratcheted up a notch. Strap in folks, this is class warfare.

Note, this will also appear in the Huffington Post.

Posted by Michelle at 12:07 PM | Comments (0) | Link Cosmos

February 3, 2011

Jobs Crisis In Real World ... Just Not In DC

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Who is our economy for? Who is our government for? For 30 years we have been undergoing a transition from "We, the People" democratic government to a plutocracy run by and for the wealthy. One indicator of this transition is the way the DC Elite respond to unemployment. 9-10% unemployment used to be a national emergency. Now it's a yawn.

What The Washington Paper Says

The Washington Post has a front-page story, Why does Fresno have thousands of job openings - and high unemployment? that says the problem is really "structural," a skills gap, and there is little we can do. This is significant because so many people who make policy read the Washington Post while sitting in their nice, expensive restaurants. Stories like this risk that they will think that there really are plenty of jobs out there, but the serfs just aren’t up to taking them, or are too spoiled, but in any event there is no problem that needs solving, and call the lobbyist because this month’s check is late.

Meanwhile, anyone in the real world outside of Washington or Wall Street, reading about “thousands” of job openings going unfilled immediately knows something is fishy. In fact, if this story ran on the front page outside of DC or Wall Street we might even need to worry about Egypt-style riots. Anyone on the same side of the continent as Fresno knows that there are not “thousands’ of unfilled job openings. There might be thousands of foreclosures, or thousands of people in food lines, or thousands of people whose unemployment has run out but there are not thousands of unfilled job openings.

What The Local Paper Says

The Fresno Bee has a different story to tell, EDITORIAL: President should come see impact of joblessness in Valley:

The economy may be improving, but it would be difficult to persuade the thousands of out-of-work Valley residents that things are looking up.

The six Valley communities cited in a U.S. Labor Department report have unemployment rates that run from 16.4% in Hanford-Corcoran to 18.6% in Merced. The other Valley cities on the list are Fresno (16.9%), Visalia-Porterville (16.8%), Modesto (17.2%) and Stockton (17.5%).

. . . The nation's economic recovery will not be complete until Americans go back to work. At every level of government, the goal should be to implement policies that improve consumer confidence and encourage businesses to hire workers.

The Fresno Want Ads

The Fresno Bee help-wanted ads tell the story.

There are 963 “Sales” jobs listed, but the first 519 of those are at the same "company," called “Work At Home Jobs, Inc.” and are mostly the same "job," if you can call it that. The next 136 are a different "company" and the "jobs" are calling people from home to sell them wireless cell service – on commission. The next 52 are the same deal but a different "company," selling internet from home, on commission. The next 46, same story. Etc.

The next category after Sales is “Business development”, with 691 jobs, 466 are “work at home” and many of the rest are the same jobs at the same companies as the “sales” jobs. The next two categories are "General Business" and "Other" and, again, list the same "jobs" at the same "companies." The next category is "Business Opportunity." I challenge you to guess what "companies" and "jobs" are listed. (Hint: it's the same ones again.)

Supply And Demand

Among the few specifics in the story is the example of "Jain Irrigation, which cannot find all the workers it wants for $15-an-hour jobs running expensive machinery that spins out precision irrigation tubing at 600 feet a minute, 24 hours a day, seven days a week."

$15-an-hour is just above the poverty level for a family of four, at about 130%.

Dean Baker, writing in, The Problem of Structrual Unemployment: Really Incompetent Managers, makes the point that a company complaining they can’t find skilled workers at $15 an hour needs to think about raising their offer. Baker writes,

It presents comments from one employer who complains that he can't find workers for jobs that pay $15 an hour. This is not a very good wage. It would be difficult for someone to support themselves and their children on a job paying $15 an hour ($30,000 a year). If the company president understand economics, then he would raise wages enough so that the jobs were attractive to workers who have the necessary skills.

If they can't get workers, they should know that they need to bump up the wage offered until they can. That is about as basic as it gets in the supply/demand equation.

Can't Sell The House And Move

Part of this problem is the housing market. If Fresno really doesn’t have the skilled workers businesses need, Silicon Valley and Las Vegas certainly do, and have very high unemployment rates, but the people there can’t sell their houses and move! And even if they could sell they are "underwater," will come out of the sale owing a ton of money that they can't make up by taking a $15-per-hour job!

Externalizing Training Costs

Companies expect workers to already be trained, “externalizing” one more cost onto local communities, while shopping for the lowest tax areas to locate.

California has a budget crisis and is cutting back on funding for the community colleges and other programs where people are trained for jobs. One reason for the budget crisis is businesses demanding ever-lower taxes, or playing communities and states against each other for tax incentives to relocate, using property tax avoidance schemes and so many other ways to get out of paying something back to the public for the public investment that enabled them to prosper.

The Real Problem

Out here in the real world the real problem is not "structural," it is that there just are not enough jobs, they don't pay enough, "free trade" deals have lowered wages and undermined our manufacturing base, there is not enough demand in the economy and the government is not doing its job of picking up the slack and after 30 years of tax-cutting the infrastructure is crumbling and not supporting competitiveness for our businesses.

There are millions of unemployed and millions of infrastructure jobs that need doing. There is a new green energy and manufacturing revolution going on in the world and we do not have an economic/industrial policy to capture our share. There is problem after problem that is not being addressed by a government captured by interests.

DC Avoids Dealing With The Problem

It seems that the DC Elite will do anything to avoid just seeing what is in front of their faces.

Clearly we have lost jobs from trade deals, Wall Street financialization and domination, lack of investment in infrastructure and education, etc. But the DC Elite come up with a thousand reasons not to fix these because the interests that benefit from those deals have influence over them. Our budget deficit is obviously from tax cuts and military spending – but you will never, ever, ever, ever hear that. Instead we hear job-killing "austerity" solutions that avoid asking the wealthy few to pitch in.

On one issue after another, the DC Elite provide cover for the wealthy elite interests who now control DC. The transition from We, the People democracy to a plutocracy of, by and for the wealthy few is nearly complete.

The real problem is not a breakdown of the structure of the job market and is not a mismatch between the jobs and the skills, it is a lack of jobs because of lack of demand, and a mismatch between who our government and economy are supposed to work for, and the interests that have brought this about.

March 10 Summit on Jobs and America's Future

On March 10, 2011, the Summit on Jobs and America’s Future will bring together leaders and activists who understand that America faces a jobs crisis – and who are committed to building a political movement for sustainable economic growth, dynamic job creation, and a revival of the American economy.

It's free, $15 if you want lunch. Beat that.

Sign up here for the CAF daily summary.

Posted by Dave Johnson at 7:33 AM | Comments (0) | Link Cosmos

January 16, 2011

A Public Bank!

This is a really good idea: Eschaton: Public Banking Option

Yes there should be one though probably the best we could hope for is a "if you want to make money providing the financial services to run our food stamp debit cards then you must offer accounts on these terms." Not holding my breath for that one, but "paying someone lots of money to do what the government could do more cheaply" seems to be the only acceptable way to do anything decent these days.

Posted by Dave Johnson at 9:13 AM | Comments (0) | Link Cosmos

January 7, 2011

Unemployment Rate Dropped Because So Many People Gave Up

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Unemployment Rate Dropped BecausThe new monthly job numbers are out. They are a little bit better than they have been, but they are not very good. We added very few jobs but the unemployment rate went down. This is a function of a really bad economy in which people are so discouraged they aren't even bothering to look. So many people have given up that the labor force is actually smaller now than before the recession. We must make sure that these people are not just discarded, abandoned and marked up as a loss. They are people.

Any increase in jobs is good news. In December the economy created a net of 103,000 new jobs. Also the prior two months' numbers were revised up by 70,000. But there are real problems behind these numbers. We are more than two years into this recession, and we still are not seeing job growth that will bring the unemployment levels down anywhere near where they need to be. The stimulus worked but was not enough, and it is winding down. The new Congress has no intention whatsoever of new job-creation or infrastructure programs. And it is ending help for state and local governments that are increasingly shedding jobs.

The official unemployment rate dropped, but only because 260,000 people "left the labor force." That means they gave up looking for work. There are so many discouraged workers who are not in the labor market that any truly good news will bring a flood back into the labor force. And that will keep the unemployment number high.

Dean Baker of the Center for Economic and Policy Research writes,

The 0.4 percentage-point drop in the unemployment rate was the largest since April of 1998, but this decline may just be an aberration. The 290,000 reported gain in employment reported in the Bureau of Labor Statistic's household survey is healthy, but inconsistent with so many people leaving the labor force. It is also worth noting that average weekly unemployment claims are still averaging more than 400,000. The economy did not start generating jobs at all following the last recession until weekly claims fell below 400,000 in 2003.

[. . .] On the whole, this report does not suggest a very positive picture of the labor market going into 2011. The decline in the unemployment rate is certainly positive, but with EPOPs hovering near their low point for the downturn, the main story appears to be people giving up looking for work. Furthermore, there is no sector that appears to be experiencing robust job growth at the moment, nor any likely candidates for the near future.

Lower Pay

Many of the new jobs come with lower pay than the jobs lost. Isaiah Poole writes about this in Where Are The Breadwinning Jobs?

There isn't much cause for gloating in today's unemployment report, with the number of jobs created during December—103,000—being lower than most analysts expected. But, more critically, we're not even treading water on creating a sufficient number of "breadwinning jobs" needed to grow and sustain America's middle class.

. . . "We are now America, the downwardly mobile," wrote Harold Meyerson this week when he offered his own analysis of what has happened in the job market in recent years. The shortage of breadwinner jobs exacerbates the middle-class economic decay that began with the economic policies of the Bush administration and the conservatives in Congress. As Meyerson points out, median household income (in 2007 dollars) went from $50,557 in 2000 to $50,233 in 2007 and $49,777 in 2009.

Stocks & Profits Are Up, Nothing Else Matters

The stock market is up and corporate profits are soaring, so as far as the people who make decisions are concerned, things are better than ever. They refuse to see the problems faced by the rest of the people of the country. While waves of people are hitting the "99er" limit for receiving unemployment checks, our leadership will not do anything about it. Plutocracy has replaced democracy.


According to the Economic Policy Institute, we are 7.2 million payroll jobs below the start of the recession, and that does not take into account 3.7 million more jobs that were needed just to keep up with population growth.

We face a serious risk that a plutocratic leadership will just abandon the unemployed. Corporate profits and stock prices are up, even with this level of unemployment. So the plight of so many millions of Americans is of little concern.

There is so much work that needs doing. The country's infrastructure is deteriorating, dragging down our economy's competitiveness. This represents millions of jobs that need doing -- while millions of people need jobs. But the nation's leadership instead passes tax cuts for the rich, borrowing hundreds of billions for that purpose instead of for putting people to work and maintaining the infrastructure. And in the midst of the borrow for tax cuts instead of jobs, creates deficit commissions in stead of jobs commissions.

The Charts

Here is The Chart (from Calculated Risk.)


The following two charts are from this analysis.

Unemployed over 26 weeks:


Part time for economic reasons (underemployed):


The President and Congress should recognize that stock prices and corporate profits have become separated from what the rest of the country is experiencing. "Main Street" is not recovering. People are not finding jobs. It is still a crisis. We need a jobs first economic plan.e So Many People Gave Up

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December 29, 2010

A Chart Everyone Should See

Top Marginal Income Tax Rates & Real Economic Growth, a Bar Chart | Angry Bear.

This chart shows how well the economy grew at different top tax rates. It shows that higher top tax rates coincided with higher GDP growth until passing a top rate of 92.5%.

Also see The top marginal income tax rate should be about 65%... where he explains why, but how it could go as high as 75% before any drop-opp in growth.

However, growth does not drop much at all as you go higher, so it makes sense when you have a lot of debt to go to the highest, not the optimal, until the debt is paid down. So we really could go to 85-90% for a while.

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December 10, 2010

It's (Still) The Economic Paradigm, Stupid!

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Yesterday I wrote that the President may have sacrificed his long-term vision on trade and economic/industrial policy to day-to-day concerns and politics. The tax-cut deal is another indicator that a big-picture vision has been sacrificed. But however much smoke gets thrown up to mask the real problem it's still all about the economic paradigm.

There is still a lot of forward-thinking work to do on our economy. The big picture is, of course, jobs. It is balance of trade, a coherent and especially comprehensive economic/industrial policy, education, infrastructure. But even more than those, fixing the real economic mess is about finding a sustainable and equitable formula, and changing the equations of who gets what for what. It is a bigger picture.

But now we are totally caught in the day-to-day fights over tax cuts for the rich, giving forever more and more to the big financial institutions, letting the big corporations get away with more and more while delivering less and less and making us work harder and harder. It seems that all we do now is just react to corporate/conservative assaults. We are trying to fight off attacks on everything, everything and on every, every front.

Instead of job-creation programs we are fighting over just giving unemployed people the same unemployment benefits that American workers have always gotten. Instead of doing something about climate change we are fighting to keep the big oil companies from killing rail projects and green energy initiatives.

The corporate/conservatives are using their "Overton Window" tactics to push the discourse ever further to the right and away from addressing the real problems. (I don't mean Glenn Beck's book. More info here and here.) And we are now living the result.

Step back, remember how we got here. Thirty years ago the corporate conservatives launched their assault on We, the People. They elected Ronald Reagan, who declared that "We, the People are the problem," and that decision-making by We the People (government) had gotten too big. Now the Reagan Revolution has come home to roost and we are living in the conservative dream. The rich ever richer with more and more power, the rest of us are "the help," just trying to get by, and our minds are under continual assault from a sophisticated propaganda barrage designed to keep us from doing something about it.

The basics have not changed. The fundamental changes we need are still needed. The corporate conservatives have all the money in the world and are so well organized but they can't fight off reality forever. The planet really is warming and the climate really is changing and it really is because of carbon. The conservative economic model really does not work and is draining the people and the planet for the benefit of just a few.

In my first post for the Campaign for America's Future, It's The Economic Paradigm, Stupid!, I wrote,

It is not just the economy out of whack. The business practices that brought us here -- overextraction, overextension, overleveraging, overconsumption -- have also whacked the planet’s resources. The fisheries are increasingly depleted. The aquifers are increasingly drained. The forests are increasingly logged. The landfills are increasingly full. And, of course, the planet is increasingly hotter.

Our economic system has also taken a toll on the people. Too many hours at a stressful workplace with too little sleep have burned many of us out. Our thinking and identity are about our jobs, not our spirit and character. Our values are devoted to markets with many of us placing making money over loving and caring for families and others. And there's no time for that stuff anyway. We have become consumers instead of citizens and humans. Decades of falling wages, decreasing savings and increasing debt have tapped us out. Consumption has used us up. And we’re fed up.

The problems are still the problems, only more so. And we're still fed up, only more so.

(*Please click the links)

(*Please click the links)

Previous: It's The Economic Paradigm, Stupid!
Overton Windows links: Here, here and here.

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October 10, 2010

The Great American Credit Catastrophe

The 911 of the Middle Class is the consumer credit debacle. It is the gift that keeps on giving. The reality is that the housing crisis is just one piece of this really big, ugly mess. It seems to me that our President MUST call for immediate reform and take action through executive order. Call me politically naïve, but we need action. Unemployment continues to hover close to 10%, and higher in badly hit areas. Interest paid by the banks on savings ranges from less than 1% to maybe 2.5% on a good day. The consumer credit card companies, though regulated now sort of, ran naked through the streets jacking up everyone's interest rates to over 15 to 30%. Yes they have to notify the poor, irresponsible slobs now before they do things, but the banks still get to burn kerosene in the town square with no permits. And we haven't even gotten to the health insurance yahoos that have four more years for their trickery. Oh Nelly, bar the door! It's the Wild West again as the cattle are corralled - only this time it's the American people being herded to ruin by the giddy-up bankers and health insurance companies, not just the mortgage guys.

People are getting sick from worry. Their backs hurt, their necks are out, and they are grinding their pearly whites. Few sleep well at night. Pharmaceutical sales are up. The banks we saved are savaging us. They are bulldozing the Middle Class under mountains of debt. People are losing their homes, divorces are up, businesses are closing, and unemployment is rampant. The consumer credit world and their FICO scores are broken. They are based on a world that no longer exists. In two short years, many consumers have watched their scores collapse under an avalanche of debt. The FICO scores were calibrated for a different time when consumer credit cards were not the only source of money available, mortgages were not under water, and unemployment was not soaring. If we are ever to unwind this situation, these algorithms must be reset. Otherwise the banks will never lend again. The Middle Class needs a do-over, just like the banks got.

Yes sir, Obama stood up against the broad sweeping foreclosure legislation, and Bank of America seized the moment halting foreclosures nationwide. But we're all holding our breath waiting for the other shoe to fall as even Progressive strategist Mike Lux gens up the netroots to re-engage with the President and Congress. It is inconceivable that people have not taken to streets in protest over their lost pensions, and the absence of any kind of interest bearing bank account -- except on consumer credit cards. In fact, this week Robert Sheer wrote brilliantly about Obama's "No Banker Left Behind" -- while every normal person has been thrown under the bank bus. How did we allow the bail-out of every financial institution, while abandoning the common folk? Why are Democrats -- whether conservative, moderate or netroots - not able to channel this collective anger, rage and disappointment other than to take aim at one another? Given the data, there is no way out for the once resilient Middle Class without a do-over. Instead of "No Banker Left Behind" let us heal the Middle Class by fixing the credit industry; restricting the health care industry now, not in four years; and making those banks lend the money we gave them and not hide behind FICO scores. All of the Democrats are writing, but no one is demanding change now. The Tea Party has successfully harnessed the anger and rage, but has no plan. Frankly, they are just another distraction taking our attention away from the gravity of the problems.

Mr. President, come back to us as Mike Lux laments. We need you. We, in the Middle Class, are living this nightmare everyday of our lives. Figure it out, and get the Middle Class out from under. The numbers do not lie. This is our emergency, our call to action, our 911. Friends and neighbors are collapsing from the stress when they can ill afford it. Unemployment is not going away. Consumer debt is skyrocketing. Mr. Obama, Americans are not being frivolous and irresponsible as Dr. Summers would like you to believe. They are boxed in with no escape hatch. Consider enacting a nationwide job core like the WPA, putting the banks on real notice, corralling those nasty health insurance folks, redoing the credit industry, and loosening up cash. No one is sleeping at night. People are nervous and cannot see a future.

Please, inspire us again, show emotion, get messy, and let the wrinkles show. Mr. President raise your voice in outrage. Give us voice. Come back to us. The time is now.

This was originally published on the Huffington Post earlier today.

See the pearltree below for the references for this article.

US Economy

Posted by Michelle at 2:22 PM | Comments (0) | Link Cosmos

September 20, 2010

Recession Over?

So the recession ended a year ago June? Gosh, I wonder what happens when they raise interest rates above zero.

Posted by Dave Johnson at 9:56 PM | Comments (0) | Link Cosmos

September 9, 2010

To Fix The Economy Raise Wages

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

To fix the economy we have to fix wages. Increased wages will restore demand. The changes that will increase wages will help restore democracy.

The social contract used to be that citizens in our democracy share the benefits of our economy through increased wages that come from increases in productivity. This broke down and working people's incomes have been stagnant since the Reagan Revolution. (Yes, I'm telling the same story again. It needs to be told, over and over so people can understand what is happening to us. We are feeling the effects of the Reagan Revolution coming home to roost.)

Reagan and the conservatives weakened the government and broke the unions. Government and organized labor were the forces in our society that had stood up for the interests of regular people against the "moneyed interests" and weakening them fundamentally changed the fairness equation of our economy. After the Reagan Revolution working people's share of the benefits from increased productivity turned down:

All of the benefits of improvements in our economy now flow to a few at the top. This results in intense concentration of wealth:

With more and more of the income and wealth going to a top few, We, the People are thought of less and less as citizens and more and more as "the help." But who is our economy for, anyway? Our economy can operate for the benefit of We, the People, or it can operate for the benefit of a wealthy few at the expense of the rest of us. This is the ongoing battle. And history has shown over and over that when economies operate for the few, they don't work.

This is not just about sharing the economy, it is about sharing the decision-making power. In our form of government We, the People are supposed to make the decisions. When Reagan said, "Government is the problem" he was really saying that decision-making by We, the People is a bad thing. When conservatives complain about "big government" they are complaining about We, the People having a big share in decision-making. When they call for "less government" they are calling for less of a share of the decisions-making by us. This means the wealthy and powerful have more of a share -- of everything.

With the income, wealth and benefits of the economy increasingly flowing to a top few, working families tried to compensate for the loss in various ways. Women entered the workforce. Former Labor Secretary Robert Reich explains, "By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did)." (Please read his whole post if you have time.)

Then, still not getting by on stagnant wages with rising prices, people worked more hours or added second jobs. Then they started using up their savings.

Finally they resorted to adding debt.

This all finally broke down, demand slowed, and the economy has slowed to a crawl. The 90s financialization and "dot com" bubbles obscured the way things were headed, and then the housing bubble of the 2000s continued the illusion. But debt just kept rising people kept working longer and harder to get by, while the richest few kept getting richer. Finally it all crashed and current attempts to prop it up by helping the wealthy and big businesses are not succeeding. Bailing out big banks and their executives and shareholders and not holding anyone accountable, while letting predatory corporations continue their economy-draining practices has not only kept the worst parts of the "share of the wealth" problem in place, it has undermined people's faith in government and demcoracy. Changes need to be made.

Most people pay for things with income from jobs. If we want demand to rise, then we need to raise incomes. But things are still going in the wrong direction. As CAF's Robert Borosage writes today,

"Over the last decade, we lost one in three manufacturing jobs. Inequality reached Gilded Age extremes. CEOs and bankers pocketed million dollar bonuses while cooking the books and gambling on exotic securities, inflating the housing bubble until it burst. Health insurance companies kept a strangle hold on a health care system that costs twice as much as those in other industrial countries, leaves millions uninsured and provides worse health care."

Who Gets What For What?

This bad economy situation is going to drag on until we make real changes in the structure of who gets what for what in this country. Every incentive in the economy is to try to reduce wages, cut benefits and eliminate jobs. Think about that. People get bonuses and raises and owners get richer if they eliminate YOUR job or at least cut back your pay and benefits. For example, by replacing a worker with a machine, the owner of the machine gets more money, the worker gets nothing. But in the larger economy each time this happens it means there are fewer people in a position to buy whatever goods or services the same companies that eliminated the jobs are in business to provide. And it means that a few wealthy people become more wealthy and powerful.

This is where government comes in. Government is supposed to be the force that speaks for and protects the interests of the people, empowers people through education and rules, set conditions to keep wages high, lay down the infrastructure in which businesses thrive, and coordinates the international competition for industries and jobs. But the Reagan Revolution broke that. We need to restore it.

There are so many things that government could be doing to get the economy working again for working people, small and medium businesses and big corporations that want to make an honest living. Boost the minimum wage, modernize the infrastructure, provide health care, provide free education through graduate level, increase Social Security, help unions organize, impose a democracy tariff so imports don't get around the protections provided by our democracy, and return to taxing the rich who reap the dividends and payout of all the past investment that We, the People made to make business thrive.

And there are larger structural changes we can make. Just brainstorming but what if workers replaced by machines directly got some of the income generated by the machine. Workers laid off this way several times might then have enough income to get by without working! Or what if we cut the workweek from 40 hours to, say, 35 before overtime kicks in. Maybe that would increase hiring, while giving regular people more leisure time. (And keep cutting the workweek as machines and computers do more of the work.)

And, of course, to have wages at all people have to have jobs. One would think this would go without saying but these days it seems there is a need to point out that people are hurting for jobs, because the DC elite seem to have moved on from that. We badly need government programs to directly hire people to do things that help the people of the country. We would have all of this if the Reagan Revolution hadn't weakened government of, by and for We, the People.

Other posts in the Reagan Revolution Home To Roost series:

Tax Cuts Are Theft
Reagan Revolution Home To Roost -- In Charts
Reagan Revolution Home To Roost: America Drowning In Debt
Reagan Revolution Home To Roost: America Is Crumbling
Finance, Mine, Oil & Debt Disasters: THIS Is Deregulation

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Posted by Dave Johnson at 11:52 AM | Comments (0) | Link Cosmos

September 3, 2010

Labor Day: Labor Got It Right -- Who Could Have Known?

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

"Who could have known?" That's the cry from the big-corporate and DC elite as the economy and the environment and so many imporant things crash around us. (Around us, not them, they're doing just fine and taking good care of each other.)

Who could have known that 25%-per-year house price increases was a bubble?
Who could have known that a housing bubble could burst?
Who could have known that deregulating the financial industry could lead to a financial meltdown?
Who could have known that concentration of wealth could cause consumer demand to dry up?
Who could have known that huge tax cuts for the rich combined with huge military spending increases could cause massive budget deficits?
Who could have known that the Social Security trust fund needed a "lockbox" so it wouldn't be given away as tax cuts?
Who could have known a deregulated deep-water well could cause a massive, destructive, uncontrolled underwater gusher?
Who could have known that continuing to put carbon into the air would cause problems for the climate?
Who could have known that moving our factories out of the country would lead to high unemployment and structural trade deficits?
Who could have known that invading Iraq was wrong and a deadly, disastrous, costly, long-term mistake?
Who could have known that a too-small stimulus that focused on tax cuts wouldn't turn the economy completely around and then conservatives would claim that the stimulus "killed the recovery?"

(List continues into infinity...)

Add organized labor to the list of those who got it right, time after time.

Organized labor was right about the 40-hour workweek.
They were right about the middle class.
They were right about the weekend.
They were right about paid vacations.
They were right about paid holidays.
They were right about paid sick leave.
They were right about providing good, secure retirement plans for everyone.
They were right about providing unemployment benefits to tide people over.
They were right about providing maternity leave, child care and family leave for families.
They were right that trade agreements like NAFTA and letting China into the WTO would lead to massive trade deficits and job losses.
They were right about workplace and consumer safety.
They were right about keeping manufacturing in America.
They were right about fighting discrimination in the workplace.
They were right about raising the minimum wage and the effect that low-wage policies would have on the economy.
They were right about the effect of excessive CEO pay on the economy.
They were right about the devastating effect of the Bush tax cuts.
They were right about the need to maintain and modernize our country's infrastructure.
They were right about going green.
They were right ab out the dangers of Wall Street's financialization of the economy.
They were right about providing good health care to everyone.
They were right about strengthening, not cutting Social Security.
They were right about democratizing corporate governance.
They were right about fighting privatization.
They were right about fighting deregulation.
They were right about providing good education opportunities to everyone.
They were and are right that we need a national jobs agenda
Labor was right about people joining together instead of being on our own.

(List continues into infinity...) They were right and they continue to be right.

And unions have been fighting for these things for all of us, not just for their members.

Please add to these lists in the comments! What other things could nobody have known, and what other things did labor get right?

Enjoy Labor Day. In fact, for those of you that still have jobs after the decades of conservative policies, enjoy having weekends off, the 40-hour week, paid vacations, sick pay, health care, etc. And if you have a job but don't have those things ... JOIN A UNION!

P.S. Here's an example of being right:

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July 30, 2010

Even Wall Street Agrees: Govt Should Borrow To Invest

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Our current economic model depends on ever-increasing consumption. This model worked during the early industrial revolution worked because it filled existing needs: Farmers depending on horses needed tractors. Kitchens needed gas stoves and refrigerators, etc. Eventually the majority of needs were filled, and we invented demand creation: marketing and advertising made us want to buy things we don't really need. All the while population growth helped push demand along at a steady pace.

When the limits of demand creation joined up with declines in population growth consumption would slow, the economies would stagnate, and governments would prime the pump. This ended up creating bigger and bigger bubbles, and bubbles pop.

And never mind the whole chewing up the planet thing where we are fishing out all the seas, removing all the mountaintops, cutting all the trees, drilling and mining deeper and deeper holes, putting more and more carbon into the air.

Bill Gross of PIMCO, says government stimulus plans should borrow to invest, not to push consumption. Writing about "New Normal" in Privates Eye at Real Clear Markets, worries that declining population growth is a warning flag for capitalism itself,

Production depends upon people, not only in the actual process, but because of the final demand that justifies its existence. The more and more consumers, the more and more need for things to be produced. I will go so far as to say that not only growth but capitalism itself may be in part dependent on a growing population.

WIth a growing population, the growth model of capitalism continues for a while,

Currently, the globe is adding over 77 million people a year at a pace of 1.15% annually, but slowing. Still, that’s 77 million more mouths to feed, 77 million more pairs of shoes to make, 77 million more little economic units of demand – houses, furniture, cars, roads, oil – more, more, more.

Gross speculates that this is at the root of the wobbly economies we have seen in recent decades,

The lack of population growth was likely a significant factor in the leveraging of the developed world’s financial systems and the ballooning of total government and private debt ... Lacking an accelerating population base, all developed countries promoted the financing of more and more consumption per capita ... Finally ... there was nowhere to go but down.

Gross writes that continually borrowing to push consumption is not the right way to spend that money. You should borrow to invest, not to consume. Other countries are pe\ursuing policies of investment not consumption:

Far better to create and mimic other government industrial policies aimed at infrastructure, clean energy, more relevant education and less costly healthcare services.

If our government "stimulus" continues to push consumption -- i.e. tax cuts -- instead of spending that invests in infrastructure, education and health care, things can only get worse.

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Posted by Dave Johnson at 10:26 AM | Comments (0) | Link Cosmos

July 27, 2010

Shouldn't High Unemployment = Less Work To Do?

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Simple question: have we reached a point where machines and computers leave us with less work to do? If so it can mean a lot of people are left without jobs and incomes, losing their homes and health, while the rest have our wages dragged ever downward. Or we can make some changes in who gets what for what, and every one of us ends up better off.

Cake or death? Which will it be? (*explained below)

Somewhere around one in five of us is un- or under-employed while at the same time so many of the rest of us, still employed are stressed, tired, doing the work of those laid off. With too few employed many stores, restaurants, hotels and many other businesses are falling behind. As Bob Herbert puts it today, "Simply stated, more and more families are facing utter economic devastation: completely out of money, with their jobs, savings and retirement funds gone, and nowhere to turn for the next dollar." The government has stepped in with stimulus to pick up some of the slack in demand but that can’t go on forever and we need to find long-term solutions.

Is it structural?

There are signs that the jobs crisis may now be structural, or built into the system. This means that the usual solutions are not going to "restart the engine" and trigger a return to an economy that had where almost everyone can find a job, (even if it is a menial, boring time-suck).

Our unemployment emergency may really be about less work to do. Hale "Bonddad" Stewart writing at, Labor Force Realignment and Jobless Recoveries concludes, (click through for gazillions of charts and full explanation)

The "jobless recovery" is in fact a realignment of the US labor force. Fewer and fewer employees are needed to produce durable goods. As this situation has progressed, the durable goods workforce has decreased as well. This does not mean the US manufacturing base is in decline. If this were the case, we would see a drop in both manufacturing output and productivity. Instead both of those metrics have increased smartly over the last two decades, indicating that instead of being in decline, US manufacturing is simply doing more with less.

So it may be that machines and computers are doing more of the work that people used to have to do.

Robert Reich sees signs of structural unemployment as well, writing in The Great Decoupling of Corporate Profits From Jobs,

... big U.S. businesses are investing their cash in labor-saving technologies. This boosts their productivity, but not their payrolls. [. . .] The reality is this: Big American companies may never rehire large numbers of workers. And they won’t even begin to think about hiring until they know American consumers will buy their products. The problem is, American consumers won’t start buying against until they know they have reliable paychecks.

So what do we do?

Maybe we need some changes in who gets what for what. Right now we have an economy that is structured to send most of its benefits to a few at the top, while the rest of us -- the help -- sink ever downward into less and less security. People with power and wealth benefit when they figure out how to cause other people to receive lower pay -- or just lose their jobs. Eliminating jobs brings bonuses to the eliminators -- a perverse incentive if ever there was one. If someone can figure out how to cut your pay and benefits or just get rid of you (“eliminate your position”) they get to pocket what you were making, and you get nothing (and conservatives say you're lazy). If you don't own the company you're out of luck.

In the past this perverse incentive was mitigated by people banding together in governments and/or unions and forcing the wealthy and powerful to share. But modern marketing science has been successful at making people believe that government and unions are bad for them. This was also mitigated by the ongoing need to find people to do the jobs that needed to get done. But with continual improvements in technology this need is reduced. We're living the result.

Also, this perverse incentive structure assumes an infinite pool of customers to sell to, ignoring that the transaction of benefiting from eliminating a job also eliminates a customer. But modern business has become so efficient at job elimination that this comes into play. Who will be able to buy theTVs that the employee-eliminating factory makes, if all the employees are eliminated and have no income?

These are structural problems that we can change. Let me just brainstorm a few possibilities for structural changes into the mix here:

  • Today when they replace a worker with a machine, the few at the top get another chunk of income, the worker gets nothing. But suppose a worker got to keep some of the economic benefit from getting laid off! Suppose that if your company replaces you with with a machine you get, say, 15% of the cost-savings as ongoing income. Heck, getting laid off would be a good thing, like winning a prize. After you get laid off a few times you only have to work part time. Get laid off enough times, you can retire.

  • Suppose we just shorten the workweek? What if we change from a 40-hour workweek to a 30-hour workweek? Economist Dean Baker has been offering ideas for workweek reductions for some time:

    The other obvious way to provide a quick boost to the economy is by giving employers tax incentives for shortening their standard workweek or work year. This can take different forms. An employer who currently provides no paid vacation can offer all her workers three weeks a year of paid vacation, approximately a 6% reduction in work time.

  • Suppose the corporations and wealthy were taxed at the rate they were taxed before all the deficits and income inequality started, and the government just sent everyone a check, which served as a base income? Then everyone's wages would be higher because desperate people wouldn't be fighting over the few jobs. So then the better those at the top do, the better all of us do.

    These are just a few ideas for restructuring the economy in ways the help all of us instead of just a few at the top. Please add your ideas in the comments.

    We have a choice. We can continue with the system we have, and most of us -- the help -- will just get poorer and poorer while a few at the top take home more and more. Or we can change who gets what for what, and everyone comes out ahead.

    *So which will it be, cake or death?

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    Posted by Dave Johnson at 1:52 PM | Comments (3) | Link Cosmos

    June 29, 2010

    The Real Deficit Is Jobs!

    This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

    The real deficit is jobs. That is one more of those things that everyone can see in front of their faces, but we're told it isn't what it is. There aren't enough jobs, and we're being told this is our fault because we wanted pensions and good wages and vacations and respect and dignity and please, sir, just a little slice of the pie.

    In case you haven't noticed, the world's economy is suddenly undergoing a classic "Shock Doctrine"-style, coordinated propaganda attack. The wealthy and powerful, having insisted that countries cut their taxes and run up debt, now insist that the middle class and poor must work harder, have their pensions reduced, sell off (to them) their publicly-held resources, and take other "austerity" steps to pay off the debt that these lazy, parasitic peasants dared to run up.

    The excuse is that "the markets" will “lose confidence” in us. Apparently we aren't working the salt mines hard enough. "The markets" -- that's the crowd who got in trouble and insisted that the world would end unless we immediately handed over to them all the rest of the money in the world -- will "lose confidence" in our ability to work the mines hard enough, and will cut us off, unless we cut our pensions, sell off (to them) our resources, and promise never to be lazy and make demands for better wages, pensions, workplace safety, and do it now.

    The real deficit is jobs.

    History teaches that the way out of an economic slowdown is to invest in infrastructure, education and modernizing manufacturing.

    Slactivist said it best the other day,

    This calls to mind an old story:
    But knowing their hypocrisy, he said unto them, "Why are you putting me to the test? Bring me a dime and let me see it."

    And they brought one. Then he said to them, "Whose head is this -- FDR's or Herbert Hoover's?"

    They answered, "Roosevelt's."

    And he said unto them, "Right. So shut up. Have you morons already forgotten the 20th Century? When the choice is between imitating what worked and what really, really didn't work, why are you pretending it's terribly complicated?"

    And after that, no one dared to ask him any question.

    I'm not an economist, but we've got five applicants for every single job opening. If you tell me that the best response to that situation is to lay off hundreds of thousands of teachers, I will not accept that this means that you're smarter and more expert than I am. I will instead conclude -- regardless of your prestige or position or years of study -- that you're a moral imbecile.

    According to the Labor Department,
    By the end of 2009, the jobless rate stood at 10.0 percent and the number of unemployed persons at 15.3 million. Among the unemployed, 4 in 10 (6.1 million) had been jobless for 27 weeks or more, by far the highest proportion of long-term unemployment on record, with data back to 1948.

    That's right, it was the policies of austerity that created a depression, and the policies of job-creation, infrastructure investment and taxing the wealthy to pay for it that got us out. But that was back when We, the People were still in charge.

    In other news:

    Number Of Millionaires Grew Amid Recession.

    The rich grew richer last year, even as the world endured the worst recession in decades.

    Top 1 Percent of Americans Reaped Two-Thirds of Income Gains in Last Economic Expansion, Income Concentration in 2007 Was at Highest Level Since 1928, New Analysis Shows,

    Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.

    During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households.

    Top 1% Increased Their Share of Wealth in Financial Crisis,

    According to his analysis, the top 1% held 34.6% of all national wealth in 2007. By Dec. 31, 2009, they held 35.6%.

    Meanwhile, share of national wealth held by the bottom 90% fell to 25% from 27%.

    Corporate Wealth Share Rises for Top-Income Americans

    In 2003 the top 1 percent of households owned 57.5 percent of corporate wealth, up from 53.4 percent the year before, according to a Congressional Budget Office analysis of the latest income tax data.

    . . . For every group below the top 1 percent, shares of corporate wealth have declined since 1991.

    . . . Long-term capital gains were taxed at 28 percent until 1997, and at 20 percent until 2003, when rates were cut to 15 percent. The top rate on dividends was cut to 15 percent from 35 percent that year.

    See if you can make the connection. They want us to cut back our pensions, cut our wages, sell off our resources and work harder, to pay back the money that was borrowed and handed to them.

    Sign up here for the CAF daily summary.

    Posted by Dave Johnson at 11:14 AM | Comments (1) | Link Cosmos

    April 20, 2010

    What About the People Who DIDN'T Wreck the Economy?

    Please visit Campaign for America's Future's Virtual Summit On Fiscal & Economic Responsibility By People Who Did Not Wreck the Economy.

    The Peterson Foundation is holding a summit on how to cut the deficit, and then comes the Obama Deficit Commission. But military spending is off the table, they aren't going to raise taxes on the rich and the direct target is Social Security. So Campaign for America's Future is holding an online counter-summit.

    Start here: Lectured On Fiscal Responsibility By The Irresponsible By Dean Baker,

    To kick off his deficit commission, President Obama is planning a big show on April 27 that will include a number of experts talking about the need to reduce the deficit. Not one person among this group saw the housing bubble and the risks that it posed to the economy.

    The next day, billionaire Wall Street investment banker Peter Peterson is sponsoring a day-long deficit-fest. Peterson not only excluded all of the economists who had warned of the bubble, but his show actually features the leading villains in this story. Peterson has invited former Federal Reserve Board Chairman Alan Greenspan and former Treasury Secretary and Citigroup top honcho Robert Rubin to lecture the country on the need to tighten our belts.

    Then take a look at Top 5 Things Deficit Hawks Don't Want You To Know About Social Security -- click through for video.

    Also, Bill Scher's "Deficit Reduction Blindness" Syndrome Plaguing New York Times,

    There's a strange affliction impairing several New York Times reporters, Deficit Reduction Blindness. The syndrome blocks your ability to see a government reduce a budget deficit without also seeing massive pain inflicted upon its people.

    Reporters with DRB can easily spot deficit reduction when it involves shredding Social Security and slashing Medicare.

    And, finally, reprinted here in full is my own Dear Deficit Commission, It's Not Hard:

    Dear Deficit Commission,

    It's not hard to figure out why we have a huge deficit. It's so easy I don't have to use words. Here are some pictures:


    Bill Clinton raised taxes on the rich. Bush cut them.

    Now, about that huge national debt...


    The second chart kind of explains itself. The third chart can help you find a place to get some money:


    (Note: There is no more Soviet Union.)

    In case that isn't clear enough, try this:

    Defense Spending and Debt chart

    Let me know if you still have any questions.

    So go take a look. Any questions?

    Posted by Dave Johnson at 12:12 PM | Comments (1) | Link Cosmos

    April 13, 2010

    Important Conference On Economy

    An important conference took place this week: Institute for New Economic Thinking. Go explore the website.

    Posted by Dave Johnson at 7:53 AM | Comments (0) | Link Cosmos

    April 2, 2010

    Economy Still Getting Worse More Slowly

    Job Market Brightened in March

    Employers added 162,000 jobs last month, and employment numbers in the previous two months were revised upward. Nationwide, the unemployment rate held steady at 9.7 percent.

    . . .Nearly a third of the gains came from temporary hiring for the 2010 Census, which will continue over the next couple of months. The report was also complicated by a rebound from weather-related work stoppages in February.

    . . . Because so many of the jobs created were part-time jobs for people who really wanted full-time work, the broader measure of unemployment and underemployment ticked up, to 16.9 percent, from 16.8 percent the previous month. And the number of people out of work for at least 27 weeks increased by 414,000 last month, to 6.5 million.

    The economy needs to add somewhere between 200,000 and 300,000 just to stay even with the number of new people entering the labor force.

    Posted by Dave Johnson at 9:39 AM | Comments (0) | Link Cosmos

    March 21, 2010

    Today's Must-Read

    Long, and worth the time: What's It Going to Take to Make the Bastards in Finance Pay? Excerpt:

    There is no arguing that there is no greater method of creating economic growth than capitalism. Even Marx had no qualm with that. But growth is like crack cocaine for bankers and economists, both of which see the world purely in terms if wealth accumulation and production. For we who do the producing (or once did the producing back when workers were still considered a necessary evil)the truth is that American capitalism is like a wine press. It squeezes the masses for the money representing their productivity, in a process otherwise known as the virtual economy. A few people in the virtual economy become multi-millionaires. The rest of us pay the freight financially, socially and ecologically.

    Posted by Dave Johnson at 7:41 AM | Comments (0) | Link Cosmos

    March 10, 2010

    It Is Time To Put Our Foot Down: Ten Steps We Can Take To Stop Closing Factories And Eliminating Jobs

    This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

    The economy is still getting worse more slowly. We lost "only" 36,000 jobs last month. We need to create 11 million new jobs just to get back to where we were before "free-market" conservatives took over our government and dismanted the protections and regulations that had protected us from this.

    Jobs lost, communities devastated, lives destroyed. Over and over again. Yet with all of this going on companies like Whirlpool and Toyota are still closing factories, laying of American workers, and moving manufacturing out of the country! Toyota is closing the NUMMI plant in Fremont, California, which could lose up to 50,000 jobs across California. Whirlpool -- recipient of stimulus dollars from the government -- is closing a factory in Evansville, Indiana and moving the jobs to Mexico where people will be paid $70 a week and certainly won't be buying anything made in America.

    It's the system. While the executives collect bonuses and tax breaks for their destructive actions We, the People have to pick up the tab. We pay the unemployment, the stimulus, etc. Our communities pay the cost of losing the jobs and the tax base, our economy pays the cost of losing the manufacturing capability. And the executives and private equity firms and Wall Street get rich. So of course they do more of it.

    How crazy is this? In the middle of this terrible jobs crisis companies are still closing factories here and shipping the jobs out of the country. Why do we allow this?

    Whirlpool and Toyota (and Wall Street's $140 billion bonus pool this year) ought to be the last straw. It is time for We, the People to put our foot down and say not one more factory closed, not one more job sent out of the country! In fact, it is time to start bringing jobs BACK.

    It is time to stop letting goods into the country that are made by exploited workers in areas with no environmental protections without a tariff to take away the price advantage gained from going around the protections that We, the People have fought so hard for.

    There is only one way the country can earn the money to pay back what we borrowed from China, Japan and others. That is to make and sell things to others!!! THAT is what "trade" means. "Trade" does not mean allowing greedy executives to sidestep the laws and regulations and protections that We, the People fought so hard to get.

    Look around us. Jobs lost, communities devastated, homes foreclosed, lives destroyed, governments going broke. All because of a runaway system that encourages the destruction of our economy. Our system actually encourages executives to close factories and lay people off! Executives make profits and get bonuses (that benefit from tax cuts) if they can figure out how to eliminate YOUR job or close a factory or cheapen a product or keep you from talking to customer support or make you pay an extra fee, etc.

    Wall Street and executives benefit from this -- and get tax cuts, tax breaks and subsidies for doing it. But the economy-at-large is destroyed by these same actions when they are widespread. On top of that, we know that when we lose the factories we have to borrow money to buy the things we used to make. But we give tax breaks instead of penalties to companies that do this.

    Here are just some steps that We, the People can take to start turning this around:

    - A border tariff on imports to remove the price advantage of goods produced by exploited, underpaid workers.

    - A border tariff to remove the price advantage of goods produced in ways that harm the environment.

    - A border tariff on goods from countries that are not democracies, to remove any pricing advantage gained from not allowing people to vote and set rules that benefit themselves.

    - A border tariff on goods from countries that restrict workers from organizing to improve their wages and working conditions, to remove any pricing advantage gained from not allowing workers to bargain. (America currently doesn't meet this standard.)

    - Remove tax benefits and instead impose tax penalties and fines on companies that close factories here. Don't let it be profitable to do this!

    - Increase taxes on the big monopolistic companies to remove the advantages that help them destroy America's smaller, regional and local businesses -- the very job creators we need.

    - Increase income taxes on high incomes to reduce the incentive to pursue short-term windfalls instead of long-term interests. Make it take a long time to accumulate a fortune. Making a fortune is great but it should be a reward for helping our economy and society, not destroying them.

    - Break up the "too big to fail" Wall Street firms that wrecked the economy. And get the money back -- all of it.

    - Explore the use of Eminent Domain to keep factories in communities and workers in the factories.

    - Formulate and follow a national economic/industrial strategy to build a new green manufacturing economy

    Please add some ideas in the comments. I will have more to say on all of this.

    Posted by Dave Johnson at 12:20 PM | Comments (1) | Link Cosmos

    March 5, 2010

    Economy Still Getting Worse More Slowly

    Total unemployment increased to nearly 17 percent

    The US total unemployment, including all unemployed workers, even those who have stopped looking for work, increased to nearly 17 percent in February.

    Posted by Dave Johnson at 4:07 PM | Comments (0) | Link Cosmos

    February 21, 2010

    Create Real Jobs That Pay Off: Update Our 1970'S Infrastructure

    This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

    One legacy of the Reagan tax cuts is that we stopped maintaining - and never mind modernizing - our infrastructure. As a result there is a LOT of work that needs doing. And there are a very, very large number of unemployed people. Hmmm...

    There are so many more ways our economy suffers as the consequences of Reagan-era choices come home to roost. The current economic doldrums are in great part the result of Reagan-era choices:

    * The deferred infrastructure maintenance and modernization that resulted from the tax cuts mean that our economy is no longer world-class. Bob Herbert has been writing about this problem for a while. From his most recent,

    Schools, highways, the electric grid, water systems, ports, dams, levees — the list can seem endless — have to be maintained, upgraded, rebuilt or replaced if the U.S. is to remain a first-class nation with a first-class economy over the next several decades. And some entirely new infrastructure systems will have to be developed.
    So here we are with a massive infrastructure deficit that is harming our ability to compete economically in the world. Just one example: China has 42 high-speed rail lines coming into operation connecting their major cities, and we are just starting our first one connecting ... Tampa to Orlando?

    * The education cutbacks then are really hurting now.

    * Energy. Cancelling all of Carter's efforts to solve our energy problems has left the economy dependent on last century's expensive and polluting energy sources and the monopolistic giants that control them.

    * Debt. Tax cuts creating "structural deficits" have built up tremendous debt and the accompanying burden of paying interest on that debt and dependence on those who fund our borrowing habit.

    * Militarization. We spend more on military than every other country on earth combined. The big defense corporations keep us from doing anything about it. Historically this kind of military spending and the resulting debt has ruined empires and kingdoms, and here we are.

    * Government. Outsourcing/cutting/destroying/hating government and the commons has left us ill-equipped to catch up with China and others, and deal with monopolistic multinational corporate giants.

    Schools, highways, power grid, ... everything. And all this work needs to be done on top of the need to retrofit all of our country's buildings to be energy efficient. Or we will just continue to fall forther behind. There is so much work that needs to be done. I wonder how the cost compares to the amounts that have been transferred to the very rich since the tax cuts started.

    Hmmm... Let's see ... high unemployment ... lots of work that needs doing ... massive wealth accumulated at the very top ... hmmm... dot. dot. dot. And on top of that, there is all that evidence that past investment in infrastructure leads to great prosperity in the years following the investment ... dot. dot. dot. hmmm... Ideas are forming... connections are being made...

    I can hear the shrieking from the "free market" conservative bunch now, just for thinking such thoughts: "But ... but .. that would be just WRONG to just ... give people jobs doing what needs to be done!!! and taxing the RICH -- the very beneficiaries of past infrastructure investment -- to pay for it? How can you even dare suggest such a thing???!!!"

    Public works projects -- infrastructure. Example: In the 1950s, with top tax rates at 90%, we started the massive public works project that is the Interstate Highway System. How did that investment work out for our economy? How many companies benefitted from the ability to deliver trucked goods across the country in a short time? How did those top taxpayers do economically as a result of such investments?


    Posted by Dave Johnson at 12:12 PM | Comments (0) | Link Cosmos

    February 8, 2010

    Tax Cuts HURT Small And Medium Businesses

    This post originally appeared at Campaign for America's Future (CAF). I am a Fellow with CAF.

    Much of the public believes that tax cuts "create jobs." A recent Rasmussen poll found that 59% of voters believe cutting taxes is better than increasing government spending as a job-creation tool. This proves that repeating a slogan over and over can effect what people believe.

    But here is some news: Corporate taxes are on profits. So a tax cut means that the more profitable companies -- the Wal-Marts, Exxons, and other giants -- benefit. They pay back less to the government for their use of the roads, schools, courts, police, fire & military protection and all the other services that helped them get so big and powerful. So the giant monopolistic corporations that are chewing up small businesses, destroying local and regional retailers, take those tax cuts and use them to turn themselves into even better small-business-destroying machines.

    For example, giants like Wal-Mart are destroying local and regional retailers. But it is the Wal-Marts, not the local and regional retailers that are the beneficiaries of tax cuts. They already have every advantage in the world and tax cuts are just more ammunition helping them destroy the small and medium businesses that are the job engine of our economy. This is why the "usual suspects," the politicians who get their campaign funds from the giant companies and work with lobbyists for the largest corporations and the right-wing talk show hosts who always advocate what the largest companies want are the ones who always advocate corporate tax cuts as the solution to everything.

    Meanwhile, since smaller businesses that are struggling don't pay taxes, the tax cuts do nothing for them. They're already being walloped by these giants, then walloped by the government giving their competitors even more advantage with these tax cuts, and then they get the infrastructure they depend on cut out from under them. When taxes are cut the infrastructure that supports building new businesses is weakened. The services these companies need are cut back. The schools get worse, the government services are cut back.

    If you ask the managers of a small or medium business, they will tell you they want customers, not tax cuts. Customers cause companies to hire people, not tax cuts. All the tax cuts in the world won't "create" a job, if there aren't enough customers coming through the door or ordering products because there is nothing for the new employee to do. And if there are more customers and orders the company will hire people whether they get a tax cut or not. (A job-creating tax credit for small businesses like President Obama is proposing is a different story, and will incentivize hiring.)

    So remember, businesses need customers not tax cuts.

    Posted by Dave Johnson at 3:52 PM | Comments (0) | Link Cosmos

    January 6, 2010

    Science Describes, RW Economics Prescribes

    Science DEscribes what happens. Right-wing "free market" economics is about "if only people would do so-and-so, then such-and-such will happen." These are very different things. Right-wing economics doesn't work because people don't do what the wingers want them to do.

    The Big Picture: Letter from Chicago: F,

    The math/science majors meant that I was obligated to take humanities and other (non-science) course work. So I signed up for (amongst other courses) Economics 101.

    It took all of ten minutes into the first class for me to recoil in horror. I asked the prof: “What do you meant that humans are rational? That is obviously not true. How important is this idea to economics?”

    The response was, in hindsight, not a surprise: “It is the fundamental building block for all of economics. If you fight that underlying concept, if you do not provisionally accept that premise, you will not be able to understand what comes later.”

    So I made what turned out to be one of my very best academic decisions: I gathered my books and walked out the door, and dropped the class.

    Posted by Dave Johnson at 9:54 PM | Comments (0) | Link Cosmos

    January 4, 2010

    Why Things Are The Way They Are

    This post by Ian Welsh is one of the best articulations of what is going on with the economy and the Democratic Party, that I have come across: Open Left:: Why Democrats Are Trying to Commit Electoral Suicide. I encourage you to read it.

    Moreover they understand that with a few exceptions, the financial economy is the American economy. It's what the US sold to the rest of the world: pieces of paper in exchange for real money which could be used to import real goods, so Americans could live beyond their means.

    Shut that down and what's going to replace it? How are you going to avoid an immediate meltdown of the US standard of living? How are you going to avoid a large part of the elite being wiped out? You or I may have answers to that, except to wiping out a large chunk of the elite, which is something which needs to be done, but those who grew up under the system, who believe in the system, and who ran the system don't. What they've done all their lives is what they understand. And more to the point the system has been good to them. The last 35 years may have been a bad time to be an ordinary American, but the elite has seen their wealth and income soar to levels even greater than the gilded age. The rich, in America, have never, ever, been as rich as they are now.

    And if you're a member of the elite, your friends, your family, your colleagues—everyone you really care about, is a member of the elite or attached to it as a valued and very well paid retainer. For you, for everyone you care about, the system has worked. Perhaps, intellectually, you know it hasn't worked for ordinary people, but you aren't one of them, you aren't friends with them, and however much you care in theory about them, it's a bloodless intellectual empathy, not one born of shared experience, sacrifice and the bonds of friendship or love.

    There is much more, so go read.

    Posted by Dave Johnson at 8:35 AM | Comments (0) | Link Cosmos

    November 11, 2009

    Do Taxes Slow The Economy?

    On the NewsHour the moderator just said "new taxes slows down the economy at a time when people are hurting." This is in a discussion of how to fix state budgets. The panelist responds, "That's exactly right."

    This is just absolute nonsense. This shows what happens when something is repeated over and over and over and becomes "conventional wisdom." This is the old "taxes take money out of the economy" argument.

    There is no historical data that shows this. In fact history shows exactly the opposite. The periods of high growth are the periods when we tax at the top and use them money to build and maintain infrastructure, educate people, provide jobs, raise wages. And that is intuitively obvious. The idea that taxes "take money out" is just nonsense because the money doesn't just go away, it gets used for productive purposes. The only economy that taxes "take money out of is the economy of the Cayman Islands" and they're doing just fine.

    We have a situation where income and wealth are concentrated at the very top as never before. States are laying off tens of thousands of people. And to make things worse, the national government is not applying enough stimulus to create jobs because people are worried that the deficit is too high - because taxes are too low.

    Obviously the solution to this problem is to impose a very high tax rate on the top few who have been enjoying all of the benefits of the economy since Reagan cut the taxes and started the cycle that led to the collapse we are in.

    Posted by Dave Johnson at 5:23 PM | Comments (3) | Link Cosmos

    October 21, 2009

    Dollar Weak? Not Against Yuan!

    This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

    Conservatives are blasting President Obama, saying he is causing a "weak" dollar. The Drudge Report has a headline or a story pretty much every day blasting this message out. Republican e-mails warn that the dollar is "collapsing" under Obama. Blogs and talk show hosts declare that civilization will cease, urging listeners to buy as much gold as they can.

    But conservatives should know that the dollar is steady where it counts - against the Chinese Yuan. Yesterday, October 20, the exchange rate was 6.82653. On May 6 it reached a low of 6.82157 and on June 17 a high of 6.83743.

    Conservatives react intensely to words like "strong" and "weak" without understanding the meaning. Here is what it means: Things made in America cost less when the dollar is lower, or "weak." A lower dollar creates an incentive for others to purchase things made in America, which means factories are busy, new factories can open, and jobs are created.

    But while the dollar drops against every other currency the Chinese Yuan remains the same, and Chinese goods don't get more expensive - at least here. So our factories are not busier, the import/export imbalance stays the same and American jobs are not created.

    One might ask, "How is this possible in a free market?" Indeed.


    Take a look at the agenda for the Building the New Economy conference, Thursday, October 29, 2009 — 9:30 a.m.-3:30 p.m. at the Washington Court Hotel in Washington, D.C.
    This conference sounds the call for the new economy we must build out of the ruins of the old. It focuses on the need for a new agenda to revive manufacturing in America.
    -- Oh, it's free. But you have to RSVP.

    Posted by Dave Johnson at 10:04 AM | Comments (0) | Link Cosmos

    October 4, 2009

    Economy Question

    The experts say that we are starting a recovery, and economic signs are pretty strong.

    Why, then, are short term interest rates at approx. zero?

    Posted by Dave Johnson at 7:52 AM | Comments (1) | Link Cosmos

    September 14, 2009

    Confusing Capitalism With Markets

    Why do so many people confuse capitalism and markets? Capitalism is the system where a few people control the resources, etc., and the rest have to pay those people to use them. That's it, Period.

    Markets are just systems where people trade things.

    Posted by Dave Johnson at 6:12 PM | Comments (3) | Link Cosmos

    September 12, 2009


    Study Says World's Stocks Controlled by Select Few
    Companies from US, UK and Australia have the most concentrated financial power.

    A recent analysis of the 2007 financial markets of 48 countries has revealed that the world's finances are in the hands of just a few mutual funds, banks, and corporations. This is the first clear picture of the global concentration of financial power, and point out the worldwide financial system's vulnerability as it stood on the brink of the current economic crisis.
    Here is the report itself.

    Posted by Dave Johnson at 11:06 AM | Comments (0) | Link Cosmos

    September 10, 2009

    Today's "Recession Ending" Story

    There was a surge in imports because of dealers buying for the "Cash-for-Clunkers" program, and there were "only" 550,000 new jobless claims.

    Trade, jobless claims figures show recession fades.

    Also "good news" -- except that the reason was people have been unemployed so long that their benefits are running out:

    The U.S. trade deficit in July hit the highest level in six months as a record rise in imports outpaced a third straight increase in foreign demand for American products...

    A rebound in the American labor market has yet to take hold, but first-time claims for jobless benefits did fall more than expected last week.

    Companies are laying off fewer workers as the U.S. economy shows consistent signs that the recession is over.

    For perspective, in the 2000-2001 recession the number of new jobless never got as high as 500,000 in any single week.

    The number of people continuing to receive benefits fell by 159,000 to nearly 6.1 million, the lowest level since early April.

    Posted by Dave Johnson at 9:29 AM | Comments (0) | Link Cosmos

    September 3, 2009

    Still Getting Worse Less Slowly

    New weekly unemployment claims "fell" to 570,000.

    For reference, in the recession following the stock market bubble and 9/11 weekly claims never got as high as 500,000.

    Posted by Dave Johnson at 4:46 PM | Comments (0) | Link Cosmos

    August 23, 2009

    The Recession Is Probably Ending

    I think that the recession is probably ending. This is a technical term, and people will not feel a change. But the "cliff diving" has ended. We have probably hit a "bottom."

    This is due to a few things. First, you can't fall forever at such a fast rate. Second, you can only fall so far. Third, there are still millions upon millions of people with jobs who have to eat, buy some clothes, use phones, etc.

    And, finally, the "stimulus" is starting to work, making up for a lot of the lost demand in the economy.

    What next? Well that depends on a lot of things. There is no reason to think things will start getting better. And things will probably not get worse until the stimulus ends. But the restructuring of the economy didn't happen, bank regulations didn't change, concentration of wealth to the top still is occurring, trade laws still sap our jobs, and Wall Street still dominates with their incentives to sell every factory in the country at fire sale prices.

    My prediction is that we will coast along for a while, the Fed will try to inflate another bubble in something, and then after a while the collapse will start again, from where it left off.

    Posted by Dave Johnson at 9:39 AM | Comments (1) | Link Cosmos

    August 7, 2009

    Economy Getting Worse More Slowly

    Behind the "good" news:

    Employment Situation Summary:

    * Nonfarm payroll employment continued to decline in July (-247,000)

    * The unemployment rate was little changed at 9.4 percent (because 400,000 more people gave up looking for work)

    * In July, the number of unemployed persons was 14.5 million.

    * The number of long-term unemployed (those jobless for 27 weeks or more) rose by 584,000 over the month to 5.0 million.

    * The civilian labor force participation rate declined by 0.2 percentage point in July to 65.5 percent. The employment-population ratio, at 59.4 percent, was little changed over the month but has declined by 3.3 percentage points since the recession began in December 2007.

    * The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in July at 8.8 million.

    * About 2.3 million persons were marginally attached to the labor force in July, 709,000 more than a year earlier. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

    * U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.. 16.3%

    Posted by Dave Johnson at 7:25 AM | Comments (0) | Link Cosmos

    August 6, 2009

    Demand Or Anticipation vs Real Demand

    Quick question - are we seeing demand or anticipation of demand?

    I am hearing the it is mostly speculators buying up the foreclosures, because they think they "see a bottom." So they are anticipating that regular people will start buying again and "things will get back to normal." And by normal they mean housing bubble, where you get rich buying real estate and sitting on it a few years.

    This is anticipation of demand, not demand. It's also why you see a "dead cat bounce" when prices drop in any bubble. People are used to the bubble, and when prices drop they think things will "get back to normal" and start up again.

    I wrote about this psychology in April, in Today's Housing Bubble Post -- A New Wave Of Foreclosures and Price Drops Coming,

    A story:
    In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.

    Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

    It seemed cheap at $12 but too expensive when it got down to $0.50. Think about the psychology of that. 'Cause we all know how well the speculators have been doing, right?

    By the way, prices have only gone down since I wrote that in April.

    So, is there any reason to believe that regular people will start buying up real estate again, and prices will start back up?

    Posted by Dave Johnson at 9:53 AM | Comments (0) | Link Cosmos

    When Is A 550K New Jobless Report Good News?

    A 550K New Jobless weekly report is good news when it is lower than it has been. In normal times, though, a 550K report would be described as falling over a cliff.

    The 2001 recession PEAKED at under 500K new unemployed a week.

    Posted by Dave Johnson at 8:36 AM | Comments (0) | Link Cosmos

    July 31, 2009

    Free-Market Conservatives Are Just Wrong

    This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

    There are things you can see in front of your face, and then there are things that conservative “free market” ideologues tell you.

    One example is when they talk about the minimum wage. (An increase in the national minimum wage goes into effect today.) Conservative “free market” ideologues tell you that raising the minimum wage “costs jobs.” They say that if employers have to pay a few cents more per hour they won’t employ as many people.

    But then there is something you can see in front of your face: whenever the minimum wage is raised, things get better. Things obviously get a little better for the people who work at the minimum wage, and for their families. As this works its way up the food chain things get a little better for the people and stores these workers rent and buy from. But also, studies looking into the effect of what actually happens after the minimum wage is raised show that the net effect is no loss of jobs.

    Here is why. Employers hire the number of people they need to get done what needs to get done, according to demand. Ideally they employ the correct number of people to fill orders, run checkouts, stock shelves, etc. They don’t just have extra people sitting around for the heck of it. Of course there are some tasks where a calculation of a few cents in wages can make someone “not worth it,” but in the aggregate any jobs lost from this are offset by the new people hired to meet the increased demand created by people spending the higher wages. More people with more money to spend increases demand, which is good for business. Profits for some employers may be reduced a bit by the increase in labor cost, but these are also offset by increased profits for others due to increased demand.

    Even so, conservative free-market conservative ideologues continue to make the claim that increasing the minimum wage “costs jobs” anyway. It’s what they do. They make a bad thing out of paying American workers good wages and benefits. They complain about workers getting pensions and health care. They just don’t seem to like it when regular people are better off. But here is a warning: never, ever dare suggest to a free-market conservative that a CEO or a trust fund child should pay some taxes – you’ll get an earful about how this would just ruin the economy.

    The free-market conservatives are just wrong.

    A second thing a free-market conservative ideologue wills tell you is that it is good for more and more of the things that used to be made here to be made in other countries instead. They say that by moving factories to other countries we all benefit because “we pay lower prices.” They say we benefit because “foreign competition encourages greater productivity” (even though we are talking about moving our factories from here to there.) They say that moving factories to other countries, “unites people in peaceful cooperation and mutual prosperity.”*

    They say that moving factories to other countries, to make the same things that the factories were making here, should be called “trade.”

    But we can all see right in front of our faces that none of this is so. Moving jobs out of the country to make the same things that were made here is not "trade" and it certainly hasn't brought us prosperity. It is just moving our jobs out of the country to make the same things that were made here, so a few people can pocket what was being paid to the American workers, while they stick the taxpayers with their unemployment pay and the costs of trying to keep their devastated communities alive.

    Free-market conservative ideologues seem to believe that society works better when a few people get paid a lot, while the rest of us have very little, and advocate policies that bring that about. They have been the dominant force in our country's policymaking for many years, and we can see in front of our faces that the result is that a few people are getting paid more and more and the rest of us less and less. (Bailed-out Citigroup is paying one person a $100 million bonus, 738 others bonuses of $1 million or more, and Merril Lynch paid 696 people bonuses of $1 million or more.) They have put in place policies that stick the taxpayers with the costs and the wealthy few with the benefits.

    We can all see that moving factories out of the country has destroyed lives, torn apart communities, created massive debt, created a very few massively rich people at the expense of the rest of us ... oh, and ruined the economy. That, too.

    It is time for us to realize that these free-market conservatives are just wrong. They get paid to say that stuff, but it is just wrong. Moving a factory out of the country to make the same things it made here is not “trade.” It does not benefit anyone except a few, and when the purchasing power inevitably dries up it doesn’t even benefit those few either. They made a short-term profit and now we all suffer a long-term loss.

    it is time for us to come up with new policies, new plans, new strategies and new rules of the game.

    *Actual claims at Cato Institute’s Center for Trade Policy Studies

    Posted by Dave Johnson at 7:22 AM | Comments (1) | Link Cosmos

    July 20, 2009

    It's The Economic Paradigm, Stupid!

    I am happy to announce that beginning today I will be working as a Fellow and blogger with Campaign for America's Future. This post introduces the areas I will be pursuing.

    The economy is terrible. There aren't enough jobs. Most of the jobs that are still there are not paying enough for people to keep up, and people are afraid they could lose them tomorrow. So we all have too much debt. We have too little health care. We have too much stress. And in the bigger picture we have too little power to do anything about it.

    They say we're reaching a "bottom" and that there are "green shoots." But I am afraid that this isn’t your father’s recession. I'm afraid this economy isn’t a pendulum that has swing too far in one direction, ready to be pulled by natural forces back to the other side. I am afraid that this isn't a "business cycle" pattern with a fall, then a bottom, then a recovery where all the shoppers return to the stores, all the jobs come back and growth picks up where it left off. Even "green shoot" optimists admit there will be few new jobs if there is any recovery.

    It may be that we are not in a period of waiting for things to "get back to normal." Many people think that this economic collapse IS the return to normal.

    For decades concerned observers have warned about problems with the "sustainability" of our economic paradigm. If you look at charts describing changes in the economy, environment, population - all kinds of things - you see that in recent decades they all change and start to move, often exponentially, in directions that obviously cannot be sustained. They look like this:

    A wise man once said that when something is unsustainable it can’t be sustained. And here we are. A very good explanation of the problem of unsustainability of our economic paradigm is The Story Of Stuff. "It's a linear system and we live on a finite planet."

    It is not just the economy out of whack. The business practices that brought us here -- overextraction, overextension, overleveraging, overconsumption -- have also whacked the planet’s resources. The fisheries are increasingly depleted. The aquifers are increasingly drained. The forests are increasingly logged. The landfills are increasingly full. And, of course, the planet is increasingly hotter.

    Our economic system has also taken a toll on the people. Too many hours at a stressful workplace with too little sleep have burned many of us out. Our thinking and identity are about our jobs, not our spirit and character. Our values are devoted to markets with many of us placing making money over loving and caring for families and others. And there's no time for that stuff anyway. We have become consumers instead of citizens and humans. Decades of falling wages, decreasing savings and increasing debt have tapped us out. Consumption has used us up. And we’re fed up.

    So things reached a breaking point and broke down. This has been coming at us for decades. And here we are.

    If this economic collapse was the consequence of decades of an unsustainable economic model, then what do we do?

    The government, of course, has been working to fix this problem within the context of the current failed economic system. And in that context they have been doing a good job. They lowered interest rates to encourage even more borrowing. The stimulus pumped borrowed money into the economy to cover the loss of demand from people and business. They raised the FDIC protection levels so we're not all wiped out if banks fail. They bailed out overleveraged financial institutions so they could again provide credit.

    Of course the stimulus is better than none. We need unemployment benefits and infrastructure investment. And investment has a longer-term payoff.

    But what happens after the stimulus? What do they think will drive our economy back to what they think of as normal? Will it be renewed manufacturing of cars? If we don't bring back the good-paying jobs, who will buy them? Same for houses. Same for TVs and appliances and furniture and jewelery and expensive shoes and all the rest.

    In a June interview on the Lehrer News Hour, Treasury Secretary Geithner said that they are doing what they need to do to "get growth back on track."

    Back on track? Does he mean we will fish out the remaining fish? Cut the rest of the trees? Drain the rest of the aquifers? Take the tops off the rest of the mountains? Does he mean that we will run up the rest of the credit cards? Will we cover the rest of the land with even bigger houses and subdivisions and strip malls? Will we export all the rest of the jobs? Will we hand the rest of the nation's income and wealth over to an elite few?

    I don't think they are going to get things back "on track" by applying more of the same "solutions" that got us to where we are today. Will they bail out more companies, making them even too bigger to fail? None of the fixes will work if the problem is that we have reached the limits of sustainability of the economic model we have been following for decades.

    So what can we do to change the system itself? How do we restructure the model - the economic paradigm - in ways that let We, The People enjoy and share the benefits of our economy? There are a number of clues that I will be writing about in my work with Campaign for America's Future. Maybe we can follow the clues and find answers.

    One obvious part of problem is that we have an economic system in which we tolerate a few people controlling –- and thereby getting most of the benefits from –- things that should belong to and be controlled by all of us. Aren't We, The People supposed to be making the decisions here? And shouldn't we make decisions that benefit all of us instead of just a wealthy few?

    At the center of this problem is the role of the corporation in our society. Corporations have amassed immense power and that power is used to control the country's decision-making processes, always to the benefit of the wealthy few. Getting a grip on this problem requires us to regain understanding of why we have corporations in the first place. We, The People enacted the laws that allow corporations to exist because we felt that it would be to our benefit to do so. And to the extent that they are now benefiting a few at the expense of the rest of us, we can change the laws. Let that sink in.

    Another thing we have to get control over is the concept of externalization. Why do we allow companies to externalize their costs while internalizing the profits? In other words, companies are allowed to push costs onto the rest of us, but are not asked to share the resulting profits with the rest of us. We even let them see and treat people (us) as "costs" -- a layoff pushes the responsibility to support a worker onto the community while the company keeps the wages they were paid.

    When a company replaces a worker with a machine, the company pockets the wages that would have gone to the worker and the worker is discarded. But now we are learning that eventually enough workers are discarded that there is no one to purchase what those workers replaced by machines were making. So the company and the economy lose, too. This just doesn't work.

    Here is a big one: We need to understand that actually making things is what drives an economy. America became an economic powerhouse because we made things here. China is an economic powerhouse because they make things there. I'll be writing about that a lot.

    These are just a few of the things that I will be exploring in the coming months. Let's see where it goes.

    *About the title.

    Posted by Dave Johnson at 8:49 AM | Comments (3) | Link Cosmos

    July 9, 2009


    What Would Republicans Do? The Republicans criticize ... well, everything. Currently they criticize the stimulus because it is "spending."

    So a quick question. Can anyone tell me what the Republican plan for fixing the economy is? I mean, of course, cut taxes, especially taxes on the rich and corporations. That goes without saying. That was their solution to the terrorists attacks, Katrina, health care, and caribou migration.

    But seriously, can someone leave a comment and let me and the readers here know what it is the Republicans think should be done about the economy? Everything I have heard amounts to firing people (government workers), paying people less, getting rid of pensions, and, well, cutting taxes on the rich and corporations.

    Posted by Dave Johnson at 9:46 AM | Comments (11) | Link Cosmos

    Not Getting Worse As Fast As It Was Getting Worse

    The economy is not getting worse as fast as it was getting worse.

    It's still getting worse, but, you know, things are better because they aren't getting worse quite as fast. Which means that although people are still losing jobs at an incredible rate, not as many people are losing jobs each week as was happening a few months ago.

    So even though things are really, really bad, and getting worse, they aren't getting worse as fast.

    Therefore ... Well I'm not sure what the point is. If a job loss of 565,000 in a week had been reported at almost any other time in the last 50 years, it would be considered horrific. But today it is good news because although things are still getting worse -- much worse -- they are not getting worse as fast as they were getting worse.

    Posted by Dave Johnson at 9:40 AM | Comments (2) | Link Cosmos

    July 6, 2009

    There Aren't And Won't Be Jobs

    There aren't jobs, and they aren't coming back. We need to figure out another business model for the economy. Jobs were about putting parts into a gizmo as it went past you on the line. Machines do that now. Jobs were about adding up the numbers in a column. Computers do that now. Jobs were about pumping gas or checking out items in the supermarket. Self-serve does that now.

    The problem with our model was that a few people at the top got the profits from finding ways to disemploy people, but not the disemployed people. They just got thrown overboard. But this economy depends on people having income from jobs.

    We became very efficient at disemploying people, but all we did was throw those people away and pass everything to a few at the top. So now the base of "consumers' has shrunk below the point where the economic model works anymore.

    So now what?

    Posted by Dave Johnson at 9:24 AM | Comments (1) | Link Cosmos

    July 2, 2009

    Capitalism's Dirty Little Secret

    A good read: Debt is capitalism’s dirty little secret

    Summary: Lightly-regulated capitalism pushes all the gains to a very few at the top.

    "So why has there been no revolution? Because there was a solution: debt. If you couldn’t earn it, you could borrow it. Cheap financing was made widely available."
    Well those days are over. All the benefits still flow to a very few at the top - sometimes without any masks over what is happening, as with the bailouts. But the rest of us no longer even get to borrow a lifestyle.

    What comes next?

    Posted by Dave Johnson at 11:51 AM | Comments (3) | Link Cosmos

    July 1, 2009

    Did Free Trade Cause The Recession?

    For many years the world has suffered under a “free trade” regime that eliminates good paying jobs in every country, sending the work to countries that keep wages low and restrict workers' ability to organize for a better life. The profits went to an already-wealthy few and the inequities increased, wealth concentrating massively at the very top.

    And now consumers around the world have run out of money. This is not a surprise.

    Did these trade policies cause the recession?

    Imagine a company in South Carolina that makes 20,000 pairs of shoes a week and distributes them to stores. Now, imagine that the company closes its South Carolina plant, opens a plant in a low-wage country, ships all the machines and raw materials there, ships back 20,000 pairs of shoes each week and distributes them to the same stores. Is that “trade?” Are the raw materials sent out of the country an “export?” Are the shoes brought back into the country an “import?”

    The only thing that has been “traded” in this scenario is American jobs traded for huge executive bonuses. The workers in the low-wage country are not paid enough to buy any remaining American-made products. And, as the economic collapses as a result of shenanigans like this, American workers are no longer able to buy shoes so the executives won’t be getting bonuses next year.

    I submit that nothing in this example is “traded” except that our standard of living has been traded away. And this exchange brings little benefit to the workers in the low-wage country. This is exploitative trade, not free trade, and we need to protect our workers, the workers in other countries and the world's economy by demanding that our trade partners provide living wages and benefits. We can enforce this demand by attaching import tariffs at a level that makes our own goods competitive. This removes the advantage gained by exploiting workers - and the revenue reduces our own tax burden to maintain our competitive infrastructure. It is an incentive to pay their workers enough so they can reciprocate and buy the things we make here. Instead of the race to the bottom that led to this recession such tariffs create an incentive to raise standards of living around the world.

    We should have national policies that prevent exploitation of workers and the environment and that share prosperity. This is a choice between lifting each other up or continuing a spiral to the bottom.

    Posted by Dave Johnson at 3:09 PM | Comments (1) | Link Cosmos

    June 30, 2009

    Who Is Our Economy FOR, Anyway?

    The Seeing the Forest question: Who is our economy FOR, anyway?

    If the government provides good, low-cost health care to citizens it reduces the profits of the big insurance and drug companies. This health care battle lays down a clear choice of who benefits: citizens or a wealthy few?

    Republican Senator Snowe of Maine announces her choice. See Open Left:: The Problem With The Public Option Is That It Lowers The Cost Of Health Insurance,

    In an Associated Press interview in Portland, Snowe said it would be unfair to include a government-run health insurance option that would take effect immediately.

    "If you establish a public option at the forefront that goes head-to-head and competes with the private health insurance market ... the public option will have significant price advantages," she said.

    Well, duh. That is the whole point. You can't lower the price of health insurance unless you start offering lower-priced health insurance. It's a tautology.

    So, naturally, during the fight to lower the price of health insurance, so-called moderate Senators think that the problem with the public option is that it would... lower the price of health insurance. While it may be news to so-called moderate Senators, protecting the crappy products of large corporations is not their job description.

    Yes, this health care battle is stripping some of the camouflage from the real fight: do the people benefit from our government, or do a wealthy few benefit?

    Who is our economy for, anyway? I first asked that question here just about seven years ago, and it became the blog's tag line. I think the financial crisis and now this health care battle allow people to clearly see and understand which choice their Washington representatives make. And I think the way these twin crises are unfolding helps people to understanding the choice their own elected representatives make. I think will make a big difference come election time.

    Posted by Dave Johnson at 11:10 AM | Comments (0) | Link Cosmos

    June 18, 2009

    Unemployment Number Dropped Because Benefits Ran Out

    The "good" news in today's unemployment report was that the number of "continuing claims" dropped. The bad news is that the reason this number dropped because so many people's unemployment benefits are running out.

    In the coming months you will hear more and more "good" news like this - and it will be sold as good news. But this number really means more and more people are getting into ever worse conditions because the economy is not providing jobs and the government is no longer helping. After all, regular people are not "too big to fail."

    Mish's Global Economic Trend Analysis: Continuing Claims Drop First Time In 21 Weeks. Is This Worth Getting Excited Over?

    . . . Government figures, in fact, show the proportion of recipients who used up their jobless benefits in May topped 49 percent, a monthly record.
    [. . .] The drop in continuing claims means more home foreclosures and credit card defaults are coming because 49% of those who were receiving benefits now have no money coming in at all.
    Yes,more people using up their unemployment benefits means more people who can't pay their mortgages, rent, car payments, credit card bills, or go shopping, etc. On top of this several states are running out of money and will start laying people off.

    But the "recession" is over, right? I don't think so. I think we have to go through some hard times to break the "stock market always goes up" kind of thinking that is keeping people from finding real solutions to real problems.

    Posted by Dave Johnson at 5:56 PM | Comments (1) | Link Cosmos

    June 2, 2009

    American Manufacturing

    I am at the America's Future Now conference in DC (formerly Take Back America). I had a conversation today with people from the Alliance for American Manufacturing. This is an alliance of companies that make things in America, and the United steelworkers union. They have an interest in making things in America, and I'll likely be writing about this more and more.

    The owner of a company that makes wind turbines for generating electricity talked about a wind farm his company is helping build. They need a special transformer -- and we don't make them in America anymore. So they have to go on a 52-week waiting list to get the transformer. This is just one example of the cost to us of giving away our manufacturing capabilities.

    This loss of manufacturing capabilities comes from the increasing dominance of our economy by financial firms. They buy companies, strip things that have "costs," like pensions, and outsource what they can, then sell the company to the next financial firm.

    More coming.

    Posted by Dave Johnson at 1:20 PM | Comments (0) | Link Cosmos

    May 29, 2009

    Today's Housing Bubble Post - Recovery Myth

    Go read James Boyce: The Recovery Myth: Caveat America and take a look at the chart.

    While you're at it, look at this chart as well.

    I think we need to go through a period of disappointment for the "always goes up" crowd before they realize that this isn't a pendulum swinging, a natural part of the cycle, a temporary setback, etc. We went through fundamental changes in the economy in the early 1980s, and since then household debt has been increasing, wages have been stagnant, and predatory capitalism has sucked the consumer dry. The consumer is tapped out and until the nature of our economic system changes, and the people start to benefit from their own work again, things can only get worse. Top-down economics doesn't work. Democracy is the only economics that works.

    Posted by Dave Johnson at 8:58 AM | Comments (0) | Link Cosmos

    May 14, 2009

    Unemployment Stats

    I'm wondering about the effect of contractors on the statistics. They have become a larger portion of the labor force in the recent decade. They are usually the first laid off. But contractors can't claim unemployment. If the stats are missing this, it affects the ability to forecast and leads to faulty decisions.

    Posted by Dave Johnson at 10:58 PM | Comments (0) | Link Cosmos

    May 9, 2009


    Hey people, the government hired a bunch of people last month -- just about the same number as the "huge drop in the number of jobs lost."

    The economy still isn't functioning -- the government is stepping in and helping.

    And even with that losing over 500,000 jobs in a single month is a disaster. It just isn't as bad as all those months as have been losing over 600,000. That's all.

    Posted by Dave Johnson at 12:30 PM | Comments (2) | Link Cosmos

    May 4, 2009

    Today's Housing Bubble Post - The Next Housing Bust

    I came across this at the Wall Street Journal, of all places: The Next Housing Bust

    The bill that passed last summer more than doubled the maximum loan amount that FHA can insure -- to $719,000 from $362,500 in high-priced markets. Congress evidently believes that a moderate-income buyer can afford a $700,000 house.
    Go read

    Posted by Dave Johnson at 11:31 AM | Comments (0) | Link Cosmos

    May 2, 2009

    Today's Housing Bubble Post - Back To Issuing Warnings

    Oddly enough I find myself back in the position of warning that the housing market may be heading to a terrible crash in the near-future. The bubble mentality has not changed at all and appears to be restarting in the very places where the bubbles were the worst. This is probably because people got used to unaffordable prices and think that a drop from unaffordable to just really, really expensive is a buying opportunity. Meanwhile government and the real estate industry are trying to "reignite" the market -- hoping that starting another bubble will put off the reckoning.

    People still think that what we are going through a temporary "correction" and that real estate prices are going to "go back up," that houses are "cheap" now, that they should "snap them up" before they are "priced out." They still think real estate is the path to wealth, instead of somewhat of a burden that should only be undertaken under certain circumstances. Namely, when you plan to live there for a long, long time, and you'll pay less (including closing costs, taxes, insurance, maintenance, possible price depreciation, etc.) than rent.

    Here's what I am talking about. Combine this,

    As of March 1, investors can now buy 10 homes (up from four) with Fannie Mae-backed mortgages. That’s also stimulating demand.
    With this, Some of Us Still Think They Can Get Rich Quick from the Real Estate Bubble,
    ... the ad offered a mouthwatering menu of claims on "How to cash in on the biggest real estate liquidation sale in our entire United States history" and "how to maximize your profit with lucrative foreclosures."

    And this:

    Option ARM rates are going to be recasting soon and in increasing numbers. That's the magic moment when people can no longer make minimum payments, when they can longer make interest-only or neg-amortization payments.

    When that magic moment comes, all of those people are going to look at how high their now unaffordable mortgage payments are. Then they'll look at how much their house is actually worth relative to how much though owe. Then, maybe, they'll try one of the various initiatives to modify their mortgage terms. And then, quite likely, they'll jut walk away. [. . .] as the chart tells us, hasn't even really started yet.

    What that chart shows is that the foreclosure problem is about to get a lot worse. Two more huge waves of "resets" are coming. Many, many, many more homes are about to reach a point of unaffordability for a lot of their owners, one way or another those homes will also be for sale, on top of the huge inventory that already sits unsold, and this will drive prices down even further, which will trigger even more problems.

    Here is what I am saying: As long as a house is considered an "investment" instead of a place to live for a long time we will continue to be in a world of hurt. Real estate does not always go up.

    Here is why prices can't go up any time soon: There is a huge inventory of unsold houses. The houses that were built in the last decade are too big for regular people to be able to afford to heat and cool -- and energy prices are going up. The water for the lawns will cost more and more. The gas to get to the malls and any jobs that might exist (good luck) will cost more and more. The "boomers" are retiring and selling their houses. The median price in many areas is still way above affordability by a medium-income family. You won't get sufficient "positive cash flow" over your payments from the rent you'll receive if you are renting the house.

    The psychology of this is just like the stock market bubble. Things won't get better until the bubble mentality of "it always goes up" is shaken out of people. Like I said the other day

    In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.

    Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

    Unemployment in my area is 11.2% and people are "snapping up" houses that are "cheap" at $580,000 because they were at $850,000 a year or two ago. But the median income here can't support that. It couldn't even support $350,000 before unemployment went up.

    Here's the thing. After the stock market crash the Fed intentionally created the housing bubble to prop up the economy for a few more years. Now the consequences have arrived. If you are thinking of buying a house as an "investment" ask yourself who is going to buy it from you at a higher price, and how they are going to get that money. Will that housing demand come from a healthy job market in which people are getting raises?

    Don't bet on it.

    Posted by Dave Johnson at 2:35 PM | Comments (3) | Link Cosmos

    April 19, 2009

    America Was Created To Fight Corporate Power

    Americans should all understand the reasons behind the formation of this country. We formed this country because a wealthy elite, called royalty, controlled the economy and set up legal monopoly operations for the benefit of their cronies, called corporations, and then set up the laws and tax structure to benefit those corporations and their owners at the expense of the rest of us.

    We fought a revolution to change this. We set up a governement and economy that is supposed to be controlled by We, the People. Think about the meaning of that the next time you hear corporate-funded voices complain about "big government." They are complaining that the people make the decisions instead of the corporate elite -- once known as royalty.

    PLEASE read The Real Boston Tea Party was Against the Wal-Mart of the 1770s

    The real Boston Tea Party was a protest against huge corporate tax cuts for the British East India Company, the largest trans-national corporation then in existence. This corporate tax cut threatened to decimate small Colonial businesses by helping the BEIC pull a Wal-Mart against small entrepreneurial tea shops, and individuals began a revolt that kicked-off a series of events that ended in the creation of The United States of America.

    They covered their faces, massed in the streets, and destroyed the property of a giant global corporation. Declaring an end to global trade run by the East India Company that was destroying local economies, this small, masked minority started a revolution with an act of rebellion later called the Boston Tea Party.

    Later in the piece,
    The citizens of the colonies were preparing to throw off one of the corporations that for almost 200 years had determined nearly every aspect of their lives through its economic and political power. They were planning to destroy the goods of the world’s largest multinational corporation, intimidate its employees, and face down the guns of the government that supported it.

    A link to this was posted at Atrios' blog, by Avedon of The sideshow.

    Posted by Dave Johnson at 7:51 AM | Comments (1) | Link Cosmos

    April 17, 2009

    Today's Housing Bubble Post -- A New Wave Of Foreclosures and Price Drops Coming

    This is my prediction: there is a new wave of housing price drops and foreclosures coming as holdouts stop holding out. Only when reality intrudes on people's belief that owning a home is supposed to be an "investment" will things be able to start to stabilize. You are supposed to buy a house to live in.

    The current "green shoots" euphoria will subside, and then people who have been holding out because "real estate always goes up" will stop holding out. Only then will expectations and behavior start to change in ways that begin to make a difference for the long term.

    1) Unemployment is still rising, and rising fast. Unemployed people can't pay mortgages forever.

    2) Houses still cost more to buy than to rent in most areas so it is still a bubble. House prices have not fallen to the level they were before the bubble, so it is still a bubble. And the average house price in most areas is still higher than the average-wage person can buy so this is still a bubble. Meanwhile there has been an increase in the number of houses (supply is up), while the boomers are starting to retire and want to sell their large house (demand is down). And unemployment is also reducing the demand side. The increase sales and price drops we are seeing is from people who are being forced to sell, not from people realizing house prices are too high.

    3) Distressed people have been holding out since the recession started, but can't hold on forever and savings are running out. This includes renters so rents will have to start dropping as they run out of money for rent (feedback to #2 above) and some of the houses that aren't selling become rentals. Compare California to Michigan, and you'll understand what I am saying. Michigan stopped holding out a while back and rents and house prices have adjusted accordingly and are affordable. California still thinks things are temporary and will get back to "normal" and people are "snapping up" houses that are as "low" as $400,000 for a 3br/2ba.

    4) I'm including everyone whose house is "under water" in #2, and this is an increasing number of people. Everyone thinks "housing will go back up" so they aren't walking away yet. But if it turns out that housing doesn't "always go up" they will stop holding out and go buy something based on what they can afford with no expectation that it will go up.

    5) There is a HUGE inventory of houses being held off the market. Banks are holding houses off the market. People who would have sold are waiting to sell (holding out), and there are still just a record number of houses on the market now that haven't sold yet. This inventory is going to overwhelm any current increase in sales that is based on people believing we are "at a bottom." There just are many many more houses for sale or waiting to be sold than there are buyers. This is not a "crisis of confidence" where people just aren't buying because they are scared, it is a crisis of too many people not having money, just debt.

    6) People buying now (those who aren't yet broke from buying real estate) will lose their shirts, too, because they are expecting that "this is a bottom" and it isn't.

    What it comes down to is that expectations and behavior haven't changed yet. Real estate doesn't "always go up." Real estate is not the path to wealth, except as a bubble is developing. Real estate is not a sure thing otherwise. You would think that so many people being wiped out by thinking these things right in front of everyone's eyes would be a clue, but not yet. This is because the bubble developed over a long period, and people got used to real estate "always" going up. When people start to come down to earth and see reality and realize that owning a house can be a costly burden, then things will get to the point where stabilization is possible. As long as owning a house is seen as a path to riches things cannot stabilize.

    A story:
    In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.

    Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

    Posted by Dave Johnson at 9:07 PM | Comments (0) | Link Cosmos

    April 16, 2009

    In The Real World

    Have you heard this one? Powerful.

    My daddy taught me that in this country everyone’s the same
    You work hard for your dollar and you never pass the blame
    When it don’t go your way
    Now I see all these big shots whinin’ on my evening news
    About how they’re losin’ billions and how it’s up to me and you
    To come running to the rescue
    Well pardon me if I don’t shed a tear ‘cause they’re selling make believe
    And we don’t buy that here

    Cause in the real world there shutting Detroit down
    While the boss man takes his bonus pay and jets out of town/

    And DC’s bailing out the bankers as the farmers auction ground,
    Yeah while they’re living it up on Wall Street in that New York City town,
    Here in the real world there shuttin’ Detroit down.
    They’re shuttin’ Detroit down.”

    Well that old man’s been workin’ in that plant most all of his life
    Now his pension plan’s been cut in half and he can’t afford to die
    And it’s a crying shame, ‘cause he ain’t the one to blame
    When I look down and see his caloused hands,
    Let me tell you friend it gets me fightin’ mad

    Cause in the real world there shutting Detroit down
    While the boss man takes his bonus pay and jets out of town/
    And DC’s bailing out the bankers as the farmers auction ground,
    Yeah while they’re living it up on Wall Street in that New York City town,
    Here in the real world there shuttin’ Detroit down.
    They’re shuttin’ Detroit down.”

    Instrumental solo

    Yeah while there’ living it up on Wall Street in that New York City town
    Here in the real world there shuttin’ Detroit down
    Here in the real world there shuttin’ Detroit down

    In the real world they’re shuttin Detroit down, they’re shuttin’ Detroit down.

    Posted by Dave Johnson at 9:06 PM | Comments (0) | Link Cosmos

    April 7, 2009

    Stocks vs Economy

    All the stock market types are looking for signs and yelling "Yes! Yes!" and saying that we have "hit bottom" and this is a "buying opportunity." The same thing is happening with real estate types.

    They still live in a world where the economy goes on in cycles, same as it ever was, and prices always go up. Actually that started for both stocks and real estate in the early 80s -- when the economy decoupled from the people. That's when things changed and everyone started running up debt -- people running up debt just to get by because wages had stopped rising, companies running up debt because "leverage" was the path to riches.

    Meanwhile the economists are seeing the signs and running around yelling "OH MY GOD!" because they ahve never seen anything like this before, and it just keeps getting worse, and they don't see how we're going to get out.

    How many times and how badly do people need to be burned before they learn a lesson?

    It reminds me of something I saw some years ago. I used to commute "over the hill" from Santa Cruz to Silicon Valley. This was a winding highway over a mountain, with very steep curves. In the winter it would get very slippery and there were lots of bad accidents because people would go just too fast. I eventually learned to just drive the speed limit and relax, but others just wouldn't.

    One day I was in the inevitable crawl due to an accident for maybe half an hour. Eventually coming to the accident there was a body just lying there, covered with a yellow plastic tarp. Two cars were completely smashed, obviously from driving too fast and losing control. There was only one lane open with police flagging us through, but it was moving slowly as everyone took a long look.

    Within a quarter mile people were passing me at 80mph, swerving from the slipperyness, cutting people off. It's like the lesson right in front of them just had not been seen.

    Posted by Dave Johnson at 9:15 AM | Comments (1) | Link Cosmos

    April 3, 2009

    Is The Economy Starting To Get Better?

    All the financial types are saying that the recession is bottoming. They expect housing, car sales, consumption to pick up soon. So they're buying stocks, "snapping up" houses to rent out later...

    All I can say is based on what? Someone tell me what is going to drive a recovery of the economy. The stimulus is going to help a lot for a little while, but there is nothing I can see for a very long time that is a reason to think real jobs will be created in this world. People can't put any more on their credit cards, they can't borrow any more on their houses of they still have one, and they certainly aren't going to be getitng a raise.

    I think this current fit of economic optimism is just one more instance -- of so many -- of a lot of entitled people living in insulated, well-to-do bubbles (NY, DC), looking to each other for signs of what is going on because they don't have any contact with the people who are the economy. It's hard to understand what it is like trying to get by in America when you and everyone around you gets million-dollar bonuses.

    This is how they missed the housing bubble. This is how they missed the debt bomb.

    Eventually, if it really happens, massive investment in a green economy and a national health care system will start to pick things up again. But that is a loooong way off, and the powerholders of today are going to fight tooth and nail to block it. Exxon has a lot of money and influence. So do the big insurance companies. Maybe not as much as Wall Street but they're waiting their turn.

    So, anyway, I'm not holding my breath that recovery is just around the corner. I don't see what will drive it.

    Posted by Dave Johnson at 10:38 PM | Comments (5) | Link Cosmos

    March 31, 2009

    The Government's Financial Transparency Website

    Take a look at | U.S. Department of the Treasury

    Posted by Dave Johnson at 8:04 PM | Comments (0) | Link Cosmos

    March 30, 2009

    Bank Execs Good, Auto Execs Baaad

    In Bankers Will Say It Is Bankers the other day I tried to say that people see the world through a lens shaped by what they know.

    Bankers will say the economic crisis is a banking problem. Bankers think banks are very, very important to the economy -- the most important component.

    . . .Of course, a plumber would say that the problem with the economy is that all the pipes are clogged. Keeping the pipes working is the most important component of our economy.

    And a historian will tell you that the problem is a return of the Great Depression. Not repeating the Great Depression is the most important thing to the economy.

    Today at TPM: Why Does GM's CEO Get The Boot While Wall Street's Fly Free?

    A manufacturing base is the foundation of a country's economy. During WWII the auto companies stopped making cars, and rapidly ramped up to make the planes and military vehicles that won the war. When Eisenhower became President he brought automobile executives into his cabinet and they brought in other executives to formulate and execute policies in their departments. And they did what auto executives know. They built the Interstate highway system, for example -- an investment that led to generations of return for all of us.

    But Obama brought in bankers, and we're seeing the results.

    Update - This post in no way is meant to praise the current crop of American auto execs who brought us SUVs and refused to develop hybrids and electrics. No way!

    Posted by Dave Johnson at 10:43 AM | Comments (0) | Link Cosmos

    March 29, 2009

    What Happened To The Economy

    Go read what happened. It's kind of long, but good and explains it pretty well. The Big Takeover : Rolling Stone

    People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'etat. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

    The crisis was the coup de grace: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess.

    basically, after deregulation, the big investment banks couldn't find "enough unemployed meth dealers willing to buy million-dollar homes for no money down" tokeep the mortgage racket going.

    And yes, what it comes down to is that all this means that housing prices still have a loooongggg way to fall. Every single house that sold for more than it should have, for all those years, to all those suckers, who took out all those mortgages -- they all have to go back where they should be. Bubbles unwind ALL the way down, every time, and you can't "reignite the housing market" or "stabilize" prices or anything else.

    Go look at the trend line of house prices for the last hundred years, and that is where prices have to be -- where housing is relatively cheap, never more than 25-28% of your income (and that is the UPPER limit), and a mortgage plus taxes plus insurance plus maintenance is lower than rents by enough of a margin so that people can make money buying a house and then renting it out.

    Posted by Dave Johnson at 2:40 PM | Comments (3) | Link Cosmos

    March 22, 2009

    This IS The Return To Normal.

    Take a look at No Return to Normal - James K. Galbraith.

    My thoughts -- this economic collapse IS the return to normal. We have been in a bubble since the early 80's. A reality bubble, too.

    As I wrote below, Markets Can Recover Downward, Too. And that is what we are starting to go through.

    No more using credit cards as if everything was free.

    No more living like everyone is a millionaire.

    No more buying things to use for a few days and throwing them away.

    No more chewing up the planet and thinking you can get away with it forever.

    Trust me, it's better for everyone to live within their means. It's better for the person, better for the country, better for the world.

    Posted by Dave Johnson at 2:35 PM | Comments (0) | Link Cosmos

    Hey Paul Krugman

    Posted by Dave Johnson at 8:19 AM | Comments (1) | Link Cosmos

    March 21, 2009

    Let The Economy Die

    LET IT DIE: Rushkoff on the economy

    Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor.
    Oh go read it all.

    Posted by Dave Johnson at 9:03 PM | Comments (0) | Link Cosmos

    March 13, 2009

    California's Budget: Republican Class War Against Working and Middle Class Families, Part II

    California Budget Bites has a more detailed rundown of who is most impacted by the tax increases included in the recently passed California state budget... and guess what? The less money you make, the bigger the additional piece of flesh your state government now demands of you. In fact, the bottom fifth wind up paying twice as much of their income as the top 1%. Twice as much.

    It is a crying shame that the Democratic Party permitted this farce of a budget to pass (the impact of which will weigh most heavily on those least able to deal with it), and even more of a crying shame that they permitted the tax increases to fall most heavily on those who could least afford it. Of course, the fact that the Republican Party is bound and determined to put the interests of the wealthiest Americans ahead of working and middle class folks (even at the cost of taking the state to the brink of insolvency) doesn't help.

    We need budget reform (eliminating the archaic 2/3rds majority requirement to pass a budget), and we need authentic electoral reform (aka Instant Run-Off Voting and multi-member districts with Proportional Representation).

    Posted by Thomas Leavitt at 1:11 AM | Comments (0) | Link Cosmos

    March 12, 2009

    More Work For Less Pay - In A Recession?

    How many people are being asked to work more - for less pay? Does this make sense when we have so many people who aren't working?

    Why is our economy structured like this? Who does it serve?

    Posted by Dave Johnson at 10:48 AM | Comments (0) | Link Cosmos

    March 8, 2009

    What Is Going On With Banks

    This radio show explains what is going on with the banks. It is a very good, regular-person explanation. But it will scare the crap out of you.

    Also see Bankers Will Say It Is Bankers

    Posted by Dave Johnson at 3:28 PM | Comments (0) | Link Cosmos

    Is This Really Still The 2001 Recession?

    Are we really just continuing the 2001 recession? Did it ever really end? Jobs didn't really pick up. They created the housing bubble to make it look like it was over, but...

    Posted by Dave Johnson at 10:30 AM | Comments (0) | Link Cosmos

    March 6, 2009

    Corporate Tax Trickery

    This post first appeared at Speak Out California.

    Here we go again with the "corporate taxes are passed along to the consumer" lie. Instead of telling the public about harm to the public interest from budget cuts, teacher layoffs, privatizing public resources, police cutbacks, etc., instead we hear about how taxing the rich is a terrible thing.

    What am I talking about? See The Tax Foundation - Tax Foundation TV, Radio Ads Show That Corporate Income Taxes Cost the Average American Household $3,190. They have a couple of ads their corporate funders are paying them to run.

    And of course there is the usual scholarly proof that we should all give ever more money to the corporate rich,

    "Research from the Congressional Budget Office shows that in a global economy where capital is highly mobile but workers can't easily move abroad, workers end up bearing the brunt of corporate taxes. In 2007, Economist William Randolph found that 70 percent of corporate tax burdens fall on employees through lower wages and productivity, while the remaining 30 percent fall on company shareholders."

    Taxes are not a cost that can be "passed on to the customer." Taxes are calculated as a percentage of profits, after all costs are figured in. A well-run business charges the most it can get for its product or service. If the business has competitors it has to price its product or service in some relationship to competing products or services. Were a business to add to to prices to cover taxes this would increase the price above what had been determined to be the optimal price! If a company were able to raise prices to cover taxes the it would mean the company was previously negligent in not pricing as high as the market would bear.

    And if the company was negligent, then increasing prices to cover taxes would increase profits, which would increase taxes, which would require an additional price increase, which would increase profits which would increase taxes. Etc. - you get the picture. It's a silly idea.

    In the same way, a properly-run business has as many employees as it needs. When profitability caused them to apy taxes, it means they employed the correct number of people to realize that profit, and certainly are not going to lay someone off because they made a profit that was taxed.

    But one step further on this. A corporation itself is neutral on taxes. After all, a corporation is just a bundle of contracts, and doesn't really have interests any more than a chair has interests. It is the owners who have interests and it is a good idea to think about any "passing on" involving corporate taxes is that it can lower the amount of money that is "passed on" to those people at the top of the economic ladder. Realizing this changes the way the brain understands the problem here. The fundamental question then becomes WHO is benefiting from our economy, and our legal infrastructure that creates and protects corporations. It really is about which people are getting the cash, and seen in this light, this idea of lowering or elimminating corporate taxes takes on a new meaning.

    This ad plays on public misunderstanding of taxes - a misunderstanding previously created by the same crowd. (Similar to the idea that if you earn a penny over $250K all of your earnings are taxed at the higher rate.) So it is like a further step in a strategy of creating increasing ignorance, so that you can further harvest the public... (Why can't WE think in terms of multi-stage strategies, but to instead increase public understanding and appreciation of democracy?)

    So, when will we start hearing about the harm caused to the public interest by reduced taxes on corporations and the rich causing us to lay off teachers, cut police and firefighters, defer infrastructure maintenance, etc.? When do we hear about how this hurts, instead of always about how taxes hurt the rich?
    Click through to Speak Out California

    Posted by Dave Johnson at 9:10 PM | Comments (2) | Link Cosmos

    Bankers Will Say It Is Bankers

    The people in charge of the economy are basically bankers. Not too many plumbers are involved in running the Federal Reserve or Treasury Department.

    Bankers will say the economic crisis is a banking problem. Bankers think banks are very, very important to the economy -- the most important component. They say things like "Our economy runs on credit." And they say the way to fix this mess is to prop up the banks -- give them trillions and trillions of dollars until the economy is fixed.

    And because bankers think bankers are so smart and important to the economy we can't fire them or put them in jail, or even ask for all that bonus money back.

    So they are putting all the money in the world into the banks. For some reason it isn't working.

    Of course, a plumber would say that the problem with the economy is that all the pipes are clogged. Keeping the pipes working is the most important component of our economy.

    And a historian will tell you that the problem is a return of the Great Depression. Not repeating the Great Depression is the most important thing to the economy.

    I'm a regular person. I think regular people are the most important component of the economy. I think the problem with the economy is that regular people stopped being able to share in the benefits of the economy. I think too many jobs were shipped overseas -- without the people getting those jobs being paid enough to participate in the economy themselves. I think that not providing health care caused too many bankruptcies. I think the people who still had jobs were asked to work harder and work longer hours and accept less, so that a few greedy executives could get more and more money. I think not providing sufficient vacations and day care and pensions and empowerment used everyone up. I think regular people used up their savings and then went into debt and then finally couldn't do it anymore.

    I think we should fix THAT. I think our economy might work if regular people around the world received some of the benefits from that economy. I think that the economy might work better if people did not have to get into deeper and deeper debt just to get by. I think our government (which is us, isn't it?) should make sure businesses are engaging in honest and safe and sustainable practices, provide us with human rights like health care, and make sure everyone gets good wages, and sufficient vacations, and safe & empowering workplaces and some choices and some say in things. Then maybe people would be able to participate in that economy and it would start working again.

    But I'm just a regular person. What do I know?

    Posted by Dave Johnson at 8:28 AM | Comments (0) | Link Cosmos

    California's Budget: Republican Class War Against Working and Middle Class Families

    If you want an idea of what's wrong with the budget we've just passed here in California, then head on over to the California Budget Project's "Budget Bites" blog (where they post ongoing updates on various budget related issues). Here's a sample: What’s Wrong With This Picture?

    In a nutshell, by changing the way the increase in the California income tax will be calculated, from a 5% "surtax" to a 0.25% increase, "this late night change dramatically shifted the impact of the personal income tax increase downward on to low- and middle-income taxpayers, in contrast to a previously considered proposal that would have had a flat impact across the income distribution." The accompanying graph on the posting illustrates this point quite starkly.

    You can thank "moderate" Republican Abel Maldanado for the regressiveness of this tax increase (it was part of the price the Legislature's Democrats paid to persuade him to cast the last vote required to pass the budget in the state's upper house). I can't think of anything that better illustrates the Republicans' insistence on engaging in class war against working and middle-class folks than taking a "flat tax", and making it aggressively regressive (the less money you make, the more regressive it is)!

    They also have entries that go into detail on the $1.5 billion dollar annual tax break given to multi-state/national corporations as a part of this deal, etc.

    Posted by Thomas Leavitt at 2:33 AM | Comments (0) | TrackBack | Link Cosmos

    March 5, 2009

    A Long Way To Go Still

    Stocks have fallen to where they were in 1996/7. Here is a chart that shows where stocks were in 1996/7.


    Does anyone else see the problem?

    Posted by Dave Johnson at 3:37 PM | Comments (1) | Link Cosmos

    March 3, 2009

    The Stock Market Is Not The Economy

    Take a look at Progressive Breakfast: The Stock Market Is Not The Economy, quoting Dean Baker,

    "The Washington Post told readers
    that 'Stock Sell-Off Spurs Fears That Slump Will Worsen.' Among whom did it raise such fears? Anyone who bases their expectations for the economy on the stock market has no idea what the economy will do. As should be apparent at this point, the stock market can often be driven by irrational exuberance. Remember, it was almost three times as high in 2009 dollars back in 2000 as it is today. Did that make sense? Obviously if it can be driven by irrational exuberance it can also be driven by irrational pessimism. There is no obvious reason to believe that the market has suddenly become a better judge of the economy's prospects now than it had been in times past."
    Let me add, everyone is starting to wake up from the propaganda, denial, cultism and fantasy-thinking that has been going on since about 1981. It is only starting to sink in just how much of a mess the conservatives have left us. As the denial wears off, and people start looking at what an honest corporate bottom line will look like, the stock market is going to head back to where it should be -- which is where it was before the 1980 election with improvements for productivity but not financialization and profits due to exploitation of the rest of us.

    Bill Scher has been putting together a daily roundup of economic news for progressives. You might want to bookmark it.

    Posted by Dave Johnson at 11:07 AM | Comments (0) | Link Cosmos

    March 2, 2009

    Bad Stock News -- Still Way High

    Like the housing bubble, where house prices are still way, way above where they should be, the stock market is, too. In fact, the stock market has only fallen to where Greenspan famously warned it was too high due to "irrational exuberance."

    Posted by Dave Johnson at 7:37 PM | Comments (0) | Link Cosmos

    February 24, 2009

    Who Is Our Government For?

    This post originally appeared at Speak Out California

    dday, writing in Giving Away The Tax Argument at Digby's Hullabaloo blog, asks why so many California newspapers have "tax increase calculators" but no calculators that show people how much the budget cuts affect them.

    In my life, I have never seen a "spending cut calculator," where someone could plug in, say, how many school-age children they have, or how many roads they take to work, or how many police officers and firefighters serve their community, or what social services they or their families rely on, and discover how much they stand to lose in THAT equation. Tax calculators show bias toward the gated community screamers on the right who see their money being "taken away" for nothing. A spending cut calculator would actually show the impact to a much larger cross-section of society, putting far more people at risk than a below 1% hit to their bottom line.

    [. . . The media already highlights the tax side of the equation over spending, dramatically portraying tax increases while relegating spending cuts to paragraph 27. It feeds the tax revolt and distorts the debate. And it's completely irresponsible.

    In Why Are Public Assets Being Cut Right When We Need Them Most? Jay Walljasper, of wonders why public transit, libraries and other things the government does for us are all being cut at exactly the time people need them? As the economy turns downward more people need to take the train or bus, or use the library. Jay makes the connection,

    Minnesota governor Tim Pawlenty, one of the leading contenders for the Republican presidential nomination in 2012, proposes closing the state's budget gap by reducing corporate taxes and slashing state aid to local governments. This will mean painful cuts in public assets, such as transit and libraries.

    . . . This loss of our public assets is an alarming threat to our society. The things we all own in common and depend upon--libraries, transit, parks, water systems, schools, public safety, infrastructure, cultural programs, social services--are being gradually but steadily undermined.

    For many years I have been blogging at Seeing the Forest, often coming back to a question, "Who is our economy for?" For some time now regular incomes have stagnated, while incomes at the very top just go up and up. The GDP keeps rising, productivity keeps going up, but regular people see less and less of the benefit of this increase. In fact, if you look at charts and data, the stagnation of incomes started almost exactly at the same time as President Reagan took office and started implementing the corporate agenda of anti-tax and anti-government policies. So is this a coincidence?

    Throughout human history we have seen one scheme after another wherein a few people seize power and devise a system to hold it and use it to enrich themselves at the expense of everyone else. This is human nature and through history we have seen it happen over and over.

    America formed in reaction to the British monarchy's exploitation of its people. We, the People formed our government to band together and protect each other from attempts by the powerful few to exploit us. Our Constitution was supposed to be include a system of checks and balances to account for the nature of power.

    It is time for the people to take back that power and use it to again benefit each other. And it is time for California's newspapers to do something for We, the People and include a "budget cuts calculator" as well as tax increase calculator. It is just as important, maybe more so, that we all understand how we're injuring and jeopardizing our future with the budget cuts the Republicans required in this year's budget negotiations.

    Click through to Speak Out California

    Posted by Dave Johnson at 10:31 AM | Comments (2) | Link Cosmos

    Social Security and Taxes

    Someone wrote to me the following. You have heard a thousand variations of the same thing:

    "Starting in 2012, Social Security won’t take in enough to cover the benefits it is paying. So either we cut other federal programs to pay for Social Security, or we cut Social Security benefits."

    Actually, the shortfall in 2012 has nothing to do with paying back Social Security in particular. Reagan and then Bush used the Social Security surplus to give huge tax cuts to the rich (further concentrating wealth at the top.) The government owes Social Security a lot of money, but -- and this is the thing -- it also owes all the other bond holders.

    Social Security might need to start cashing in some of its bonds in 2012 or so.

    Other bond holders need to cash in their bonds at other times. We never ask other bondholders to accept less when they ask for their money for their bonds. That would be called "defaulting."

    So why does this bondholder, Social Security, get special treatment in our thinking? Why do we think that people who get Social Security should get less?

    The answer to this and a lot of other problems is to raise taxes on the wealthiest. History shows that our economy does better when there is a VERY high tax rate on the very top incomes. It used to be 93% on money made after you hit a few hundred thousand. And that money was used to build infrastructure, educate kids, and all the things that made this a country that could compete. That is part of what got us out of the depression.

    Let me add that a very high tax rate at the top removes the incentive to go for quick-buck schemes, and makes business owners plan for the long term.

    Think of it this way -- if we had a 90% top tax rate hedge fund managers would only bring home a hundred million or so a year, but the rest of us would have health insurance and good roads and better schools.

    Posted by Dave Johnson at 8:10 AM | Comments (1) | Link Cosmos

    February 20, 2009

    Today's Economic Crisis Post -- What Do We Need More Of?

    Calculated Risk: Overcapacity Everywhere quotes Mish Shedlock of MISH'S Global Economic Trend Analysis,

    Some analysts say over-capacity is so rampant that it will stymie government efforts to unfreeze credit markets. Banks have little reason to lend not only because they still have bad debt on their books but also because businesses don't have a pressing need to expand, said Mike Shedlock, an investment analyst with Seattle-based Sitka Pacific who writes the popular blog Mish's Global Economic Trend Analysis.

    "What is it that we need more of?" Shedlock said. "Do we need more Wal-Marts, more Pizza Huts, more nail salons?" [emphasis added]

    Posted by Dave Johnson at 7:19 PM | Comments (1) | Link Cosmos

    The Crisis Explained

    In Chocolate Covered Cotton Billmon explains the extent of the financial crisis. Yikes.

    Bottom line: great big chunks of Big Shitpile aren’t "impaired," or "illiquid," or "distressed," they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored and a whole bunch of deceased LBOs can be raised from the tomb.

    So what about the proposed solutions?
    One of the things that creeps me out about the political system's response to the crisis so far --€“ the insolvency of the banking system in particular --€“ are the increasingly desperate attempts to maintain a phony façade of free markets and private enterprise, in an economy now utterly dependent on the federal safety net. I totally expected that from Hank Paulson and the Cheney Administration, but is Obama's financial team really pressed from exactly the same Wall Street mold?
    LOTS to read there. Especially read the end and follow the link.

    Posted by Dave Johnson at 7:43 AM | Comments (3) | Link Cosmos

    February 16, 2009

    5 Million New Jobs Instantly

    Dean Baker explains how to put 5 million people into jobs right away, in

    Quick, What's Wrong With a Tax Cut that Shortens Work Hours?For example, if employers of 50 million workers cut hours by 10 percent, and then seek to replace the lost hours with additional workers, they would need to hire 5 million workers. If they got a $2,500 credit per worker, this would cost the government $125 billion a year.

    There seem many benefits to going this route, and no obvious disadvantages. First, it can be put into place immediately. The day Congress passes the legislation employers can begin adjusting work schedules to benefit from the tax cut. In other words, this proposal is as shovel ready as it gets.

    Please read the whole piece -- it is for real.

    Posted by Dave Johnson at 8:36 AM | Comments (0) | Link Cosmos

    February 13, 2009

    Stimulus Passed

    It passed the Senate. Who else would spend a Friday evening watching C-SPAN 2?

    So you don't have to.

    Posted by Dave Johnson at 7:56 PM | Comments (1) | Link Cosmos

    February 12, 2009

    Stimulus Bill Summary

    While the corporate media writes about "who wins" without writing a word about matters that people care about, Chris Bowers put together a readable summary of what is in the package. Open Left:: A Readable Summary of the Stimulus / Jobs Bill

    Posted by Dave Johnson at 11:52 AM | Comments (2) | Link Cosmos

    February 11, 2009

    First Details of Stimulus Deal

    It looks like they gave up on helping the economy, to give tax breaks to people who don't need it.

    Agreement in Congress Appears Near on Stimulus -,

    . . . sharply curtailed health care subsidies for the unemployed . . . But the final bill retained a $70 billion tax cut that would spare millions of middle-class Americans from paying the alternative minimum tax in 2009, which some Democrats decried as wasting a large chunk of the bill on something that would do little to lift the economy and that Congress would have approved regardless of the recession.

    [. . .] “I am not happy with it,” said Senator Tom Harkin, Democrat of Iowa. “You are not looking at a happy camper. I mean, they took a lot of stuff out of education. They took it out of health, school construction and they put it more into tax issues.”

    Mr. Harkin said he was particularly frustrated by the money being spent on fixing the alternative minimum tax. “It’s about 9 percent of the whole bill,” he said, “which we were going to do later this year in a tax bill. Why is it in there? It has nothing to do with stimulus. It has nothing to do with recovery. This makes no sense whatsoever.”

    Posted by Dave Johnson at 12:48 PM | Comments (1) | Link Cosmos

    Understanding The Bailout Problem

    Here is what the world is going to have to face: the banks are insolvent. Thyey are going to have to be nationalized. This is what we have always done with banks that are insolvent. They just want to avoid it this time because of the word "nationalize."

    Here is what is going on. They have these "toxic assets." These assets are currently on their books at the prices they paid for them. If these assets are "marked to market" -- put on the books at their real, current value -- the banks have to show that they are insolvent. They will have to declare bankruptcy. So everything you are hearing about, all the bailouts, FED loans, "open windows" etc are all schemes to try to avoid having the government step in and take over the banks, reorganize them, and put them back out there with new owners. And they all involve giving them billions, even trillions of dollars. This is what the bloggers are referring to as "lighting a big pile of money on fire" or "burying money in a hole." That money just goes away, unless somehow magically the bad assets suddenly become worth something.


    The banks bought the bad assets at high prices. They need to sell them at low prices. But this banker is arguing that they are too financially stressed to absorb the losses that would entail. Conversely, so long as they don't sell the assets, they can pretend they haven't lost any money on them, as they can pretend that they will rebound to a better price once the mania is over. The other way of putting this is that much of the banking sector is already insolvent, it's just not prepared to admit it.

    Posted by Dave Johnson at 8:44 AM | Comments (1) | Link Cosmos

    February 10, 2009

    Do You Think One Leads To The Other?

    Remember a few years ago everyone was complaining about having to work harder and longer hours for less money? Meanwhile a very few at the top were getting vastly richer, corporations were reporting ever-increasing record profits?

    And now we have a collapse of the economy. I wonder if this is related to the situation described in the preceding paragraph?

    So how come the solution to the economic crisis is to give ever more money to Wall Street and banks?

    THIS is why the stimulus package is so important. It provides things that regular people need -- at least it did before the Republicans got their hands on it.

    I think an important but missing component of a stimulus is to raise taxes on high incomes. I'm serious -- look at history, the economy always has done better when high incomes were heavily taxed. It's just the historical record, go look it up.

    There are a lot of reasons for this. One is that high taxes at the top redistributes the money and more people having more money is good in a consumer-based economy. But another reason is that the incentive to harvest the people for the benefit of the few goes away when you have very high taxes at the top. It makes you think long term. You build a fortune by earning it over time instead of coming up with quick-money schemes.

    Posted by Dave Johnson at 8:18 AM | Comments (3) | Link Cosmos

    February 7, 2009

    Krugman: Senate Compromise Cuts Most Needed Parts Of Plan

    What the centrists have wrought - Paul Krugman Blog,

    Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.
    I wonder if it is worse to pass a plan that fails than to pass no plan at all?

    Posted by Dave Johnson at 2:48 PM | Comments (3) | Link Cosmos

    Senate Compromise Costs 1.25 Million Jobs

    Go read Firedoglake » Senate 'Moderates;€ Cut 1 1/4 Million Jobs from Stimulus Bill,

    Using the CBO ratio of one job per $140,000 GDP, that means that "compromising" Senators managed to cut 1,271,000 jobs from the Senate stimulus package. In other words, the Gang of Four would lose even more jobs than the country has lost in the last two months, two of the highest job loss months on record.

    Posted by Dave Johnson at 2:43 PM | Comments (0) | Link Cosmos

    February 6, 2009

    The Senate Stimulus Deal and Republican Priorities

    To get a few Republican votes to stop a filibuster and actually pass a bill to save the economy, here is what has changed:

    Latest Cuts To The Stim Package: Head Start, Child Nutrition, Food Stamps Public Transit | The Plum Line,

    REMOVED money for:

    Head Start
    Education for the Disadvantaged
    School improvement
    Child Nutrition
    Transportation Security Administration
    Coast Guard
    Violence Against Women
    National Science Foundation
    Western Area Power Administration
    Food Stamps

    REDUCED money for:

    Public Transit $3.4 billion
    School Construction $60 billion

    INCREASED money for:

    Defense operations and procurement
    STAG Grants
    Additional transportation funding

    Also, reduced tax cuts for lower incomes.

    Posted by Dave Johnson at 8:50 PM | Comments (0) | Link Cosmos

    February 4, 2009

    Today's Housing Bubble Post - Not Gonna Happen

    There is all this talk about "reigniting the housing market." This is a joke.

    Let me tell you what will make housing demand go up.

    One: Everyone who lost a job or now works part-time since 2001 gets a well-paying job.
    Two: Every group whose income has been flat since Reagan took office gets a raise to match the raises CEOs got.
    Three: Bring the price of houses back to earth. Where I live you need an income of $10,000 A MONTH to qualify for the lowest-priced house on the market -- AFTER 20% down.

    See Why housing is stimulative, and politically smart,

    "Unless the stimulus bill includes some fix for housing demand, it just won't be successful," says Gear, whose coalition includes homeowner and community groups and home builders.
    Oh, that reminds me, Four: Make everyone forget that housing prices actually CAN go down.

    After taking ALL these steps, including dropping housing prices back to where they should be, then you might see housing prices stop dropping. Any ideas that you can "fix housing" in the stimulus package are fantasy.

    Posted by Dave Johnson at 6:05 PM | Comments (0) | Link Cosmos

    February 3, 2009

    My BBC Radio Hour Discussing Protectionism

    "I'm not against globalization. I imported my wife from Bromley, Kent."

    I was on BBC's "World Have Your Say" show today for an hour, taking the side favoring protectionism. You can download this segment in MP3 format here by visiting BBC - Radio - Podcasts - World Have Your Say, or just click the link below.

    WHYS: 03 Feb: What's wrong with protectionism?

    As the U.S Senate votes on a measure to "buy American" and when everyone is worried about their jobs and livelihood, why shouldn't each country look after their own ?

    Duration: 52mins | File Size: 24MB

    Download Episode

    The show really starts about 3 minutes in. I'm on for the entire hour, but am introduced only as "Dave from California." I introduce myself and give out the blog URL later in the program.

    Previously, with some links.

    Posted by Dave Johnson at 2:16 PM | Comments (0) | Link Cosmos

    On BBC in 15 Min

    I am going to be on BBC's BBC World Have Your Say radio program in 15 minutes. There is a 'Listen Live' button there.

    I am arguing in favor of protectionism -- protecting our workers' wages and living standards from being undercut by low-cost goods made in non-democratic countries that exploit workers and the environment.

    This is based on my posts Bring Back Protectionism and Protectionism Means Protecting Ourselves.

    Gotta run...

    Posted by Dave Johnson at 9:46 AM | Comments (1) | Link Cosmos

    February 1, 2009

    After Stimulus -- Then What?

    Suppose the stimulus passes. In fact, imagine that triple or quadruple the stimulus passes. Fine. Then what?

    What happens after the stimulus? Isn't the stimulus just the next bubble -- the next last gasp attempt to put off the reckoning? Isn't it just borrowing another trillion or two to try to prop up an economic system that over and over again demonstrates that it just doesn't work?

    Of course we want to do this and do it right -- infrastructure investment instead of squandering on tax cuts or military. People need to have jobs, so they can eat. And investment has a longer-term payoff.

    But to what end? Suppose the stimulus magically enables things to get back to where they were. My favorite term from TV was that it is hoped it will "reignite the housing market." Heh. So if the stimulus "works" do we continue to chew up the planet, cut all the trees, remove all the mountaintops, create vast landfills of tossed junk, and all work as near slaves to make a few vastly richer?

    Posted by Dave Johnson at 10:37 AM | Comments (1) | Link Cosmos

    January 31, 2009

    Bank Bailouts - Ultimate Supply-Side Thinking

    Dean Baker: Do "Officials" Have Names? Post Conceals Obama Administration Effort to Hand Tax Dollars to Bankrupt Banks,

    If their toxic assets have really frozen lending, although not actually jeopardized their solvency, then the shareholders would have a great lawsuit against any bank executive who refused to act in the interest of the shareholders in order to preserve their own high pay. Such instances would presumably be rare, but could nonetheless provide a great source of free entertainment to a nation suffering through a severe downturn.

    In short, there is good reason to believe that the Obama administration is trying to slip hundreds of billions of dollars to bank shareholders and their top management.

    My comment on the bank bailouts: The bailouts seem to be the ultimate result of supply-side thinking. The thinking seems to be that since people and businesses are tapped out from so much borrowing and no longer credit-worthy enough to risk loaning money to we should give literally all the rest of the country's money to those at the top of the finance food chain, and maybe they'll make loans again anyway, and get the bad-loan-making system rolling again.

    They say that people who want to buy cars can't get loans. Well a credit-worthy buyer CAN get a loan. -I'LL- give a credit-worthy buyer a loan because then I can get a much higher return than I can get anywhere else. As long as I am sure I'll be paid back.

    They say people can't buy houses. Well in the SF Bay Area the lowest-priced two-bedroom, one bath house (bad meighborhood, bars on the windows) requires an income of $10K/month to get a mortgage, now that they're again requiring no more than 28% of income be spent on housing. Is the government's idea that giving bad banks literally all the rest of our money will get them to give loans to people to take on mortgages at 50% of their income again?

    And what about the GOOD banks, the ones that carefully managed their loan portfolios and didn't get into trouble? Why doesn't the government give cash to them, to help them give more good loans?

    Posted by Dave Johnson at 2:41 PM | Comments (0) | Link Cosmos

    January 29, 2009

    Why Obama Will Fail

    Obama's economic team does not see themselves as working for the PEOPLE of the country, they see themselves as defenders of the Wall Street Elite. In the words of the new Treasury Secretary, "we’d like to do our best to preserve that system."

    This is the justification for the new plan to just use government money to buy up all the bad loans made by the big Wall Street firms. They screwed up the economy. WE pay for it. They stay rich. We get ever poorer.

    From the referenced post,

    Consider this statement from Geithner, who said that Treasury is considering a “range of options” for its financial rescue plan, with the goal of preserving the private banking system. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”
    They are trying to avoid "nationallizing" the banks. But what that means is that the government takes them over, reorganizes them, and then privatizes them again -- in the process wiping out the current shareholders and selling the good parts to new shareholders.

    This is what we have always done with bad banks. This is what the FDIC does. This is what we did in the S&L crisis. But they don't want to do that this time.

    What they are doing instead is using taxpayer dollars to prop up the current shareholders. The ones who currently own insolvent banks will receive an infusion of taxpayer dollars.

    But not the people who are losing their homes, jobs, health care. God forbid THEY should get something. All they did was pay their taxes. Unlike the current Treasury Secretary.

    Posted by Dave Johnson at 9:33 AM | Comments (1) | Link Cosmos

    Our Businesses Thrive On The Infrastructure We Built

    This post originally appeared at Speak Out California

    The key to California's successful business environment are education and infrastructure. It is not an accident that our semiconductor and computer and Internet industries, and biotechnology and pharmaceutical and genetic engineering and our other world-class competitive industries developed in California instead of in "low tax" states like Mississippi and Alabama. These industries thrived here because of our well-educated people and our modern, well-maintained infrastructure.

    There has been a dramatic wealth-building return on our investment in education and infrastructure. Investors could count on California as a good place to start and grow a business, and it has paid off.

    But how much would it cost if businesses had to pay fair market value for use of the infrastructure that We, the People built? What would it cost if companies had to pay the full education cost every time they hire someone who was educated at a California public school or state college or university?

    What would it cost if companies had to pay to be provided with police and fire protection? Should companies pay a fee to have the police investigate, catch the perpetrators, and then put them through the criminal justice system?

    What would it cost if companies had to pay fair value to use our roads and air- and seaports.

    What would it cost if companies had to pay for access to the legal system that We, the People set up. We passed the laws and paid for the courts. We set up the entire legal structure.

    We, the People pay to regulate (and apparently bail out) the banking and financial system. What would it cost if businesses had to pay us for setting up this system that (used to) keeps our money sound?

    This is what government and taxes are for. We, the People built up California's comprehensive physical, legal, cultural, education and societal infrastructure. Businesses rely on that infrastructure, and we want them to thrive. This benefits us all. Many, many people became wealthy by betting on California as a great place to do business, and we are proud of that. Now it is tome to give something back.

    Building and maintaining that infrastructure does cost money, and that is where taxes come in. For several years California has been cutting taxes and cutting back on our investment in education and infrastructure. Businesses cannot continue to thrive as they have if we continue along this path. We have reached a point where the tax-cutting has brought our state's education spending to the second-lowest per-pupil of all the states! We have been and are deferring maintenance on roads and other infrastructure. We are cutting back on all essential services and we still have a $40 billion budget shortfall!

    Our companies are getting a good deal. If we charged fees that were based on the actual value of the service that the infrastructure provides businesses would have to pay much, much more than any level of increased taxes companies and wealthy individuals might be asked to pay to help California meet the budget shortfall. The businesses and individuals who thrived because of the infrastructure we built need to contribute to the future by agreeing to pay taxes to help invest in rebuilding that infrastructure.

    The payoff is clear. As I wrote above, there is a reason that Silicon Valley and genetic engineering and other wealth-creating industries developed in states like California and Massachusetts instead of "low tax" states like Mississippi and Alabama.

    Click through to Speak Out California.

    Posted by Dave Johnson at 9:04 AM | Comments (0) | Link Cosmos

    January 28, 2009

    Not One Republican Voted For Stimulus

    The stimulus bill passed the House but not one Republican voted for it.

    Repeat: every single Republican voted against the stimulus bill.

    The Democrats pre-compromised on the bill, added business tax cuts that won't stimulate the economy, threw out lots of infrastructure projects, mass transit and others, threw birth control for poor women out, got rid of health efforts to fight STDs, and lots of other nonsense, trading all of that for NOTHING.

    They threw good stuff out of the bill without first securing one single Republican vote. Shame on them.

    Update - I'm angry and I am going to rant. (It's what I do best.) So who were they were negotiating WITH when they threw out infrastructure, mass transit, birth control for poor women and other important things? It's like someone was just reacting to Drudge Report headlines. When I have been in negotiations I would say, "OK, I can give you that, but if I do, then what do I get in return?" You start with a bill that has in it more than you want or expect to get. Then you throw things out in exchange for a promise to vote for it. Otherwise what is the point of making the bill worse?

    Posted by Dave Johnson at 4:07 PM | Comments (0) | Link Cosmos

    Shorten Workweek To Reduce Unemployment

    Pass the stimulus - then help shorten the work week,

    One innovative policy that would provide a quick boost to the economy and jobs - and lasting gains in reduced unemployment - is a tax incentive for shorter workweeks or work years.
    Who is our economy FOR? Why should high unemployment mean those still working have to work harder with longer hours?

    Posted by Dave Johnson at 9:47 AM | Comments (0) | Link Cosmos

    January 27, 2009

    The Stimulus Bill - Giving To Republicans

    I'm curious to know which Republicans, specifically, said they will vote for the bill with more tax cuts added -- like the ones they took out mass transit money for. I'd also like to know which Republicans, specifically, are now promising to vote for the bill with family planning funds removed.

    The Republicans say they are being left out of the negotiations -- yet more and more real stimulus is disappearing, and more and more useless Republican-style gimmicks are being added.

    Who are they negotiating with, that they are giving more and more away to? If it is buying votes they need, that's OK I guess. If it isn't, I'd like to know more about this interesting strategy.

    Or, on the other hand, if Republicans say they aren't going to vote for the bill, will they put mass transit and family planning back in?

    Posted by Dave Johnson at 12:16 PM | Comments (2) | Link Cosmos

    Double Bubble. Double Trouble.

    Last August, we wrote about the double bubble in the housing market: a more traditional bubble, then over-inflated by a massive asset bubble that drove prices up and up and up. The bigger the bubble, the bigger the pop.

    In that post we wrote,

    In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy's effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it's the other way around: prices are about to start dropping.
    And so here we are. Yesterday's news of a mind-boggling 50,000+ jobs lost in a single day brings us now to the start of this second bubble popping. Because for all of economic talk about housing markets and prices and fancy new mortgages that were created, at its economic base, housing prices are just about the simplest thing in the world.

    When people make more money, or more people move into a market, housing prices slowly go up. When people make less money, or people move out of a market, housing prices slowly go down.

    The housing bubble popped, leading to recession, and the recession is now going to lead to a further decline in housing prices. Where will that lead?

    The problem at the root of the housing asset bubble is that over the last few decades -- since Reagan and the Republican free-market supply-side, trickle-down policies took over -- Americans have not been earning more, they've just been able to buy more thanks to a litany of mortgage and other debt-raising products that compensate for the lack of earnings.

    People used to be required to put 20% down before they could buy a house. How many people do you know, honestly, that have 20% to put down on a house now? How many do you know that actually have 20% equity accrued in the house they already own? We're betting not many.

    That 20% down payment requirement kept housing prices in check. But that became a 15% requirement, then 10%, then 5% then a negative 10% requirement, where you could actually get a mortgage for 110% of the value of your house. Well, they helped inflate the bubble.

    On top of that, loan standards used to require that people spend no more than 25-28% of their income on housing expenses. This also kept prices in check. This was also set aside, and "liar loans" further inflated the bubble. Now that all has to be undone.

    Last August, real estate experts were claiming that 2009 was to be the bottom of the market, and housing prices were going to head back up. Just like they claimed that 2008 was going to be the bottom and that 2007 was when the market would turn.

    Sadly, the chances of real estate prices turning back up, in real dollar terms, has vanished for the next decade at least. There are two coherent facts behind this.

    First, the size of the bubble means that someone who bought a house for $500,000 in 2005 is already 20-25% down in the price of the house. Factor in inflation, and it's closer to 35 - 40% down right now, four years later. Of the millions of Americans who will lose their jobs this year, many will be unable to cover their mortgages. And foreclosures, short sales, sales right before the short sales, these will continue to increase, driving prices down even further. This all means there is little demand for high-priced houses.

    Second, the bubble caused a building boom, and along with all the foreclosures there is now a huge supply of houses and condos waiting to be sold. And only then will the "shadow" market of people waiting on the sidelines for a better market in which to sell their houses kick in.

    Only after all of these factors are cleared will market conditions even start to return to normal.

    By 2010, perhaps 2011, perhaps we will see signs of a bottom of the real estate market, with prices having returned to their historical norms at a level that many suggest is 30-35% below where they are today.

    For many, this will be personal financially troubling, even disastrous. From an economic point of view, it is the fundamental principal of supply, demand, and income proving to be true again, and a return to economic reality.

    What can be done about it? The root cause of this and many other problems in our economy is the stagnation of incomes that began when Reagan was elected. Republican policies brought a massive concentration of wealth at the top with a select few reaping all of the benefits of our economic system. But this double-bubble collapsing-economy problem is costing their wealth as well. Trickle-down doesn't, and when the rest of us are tapped out by misguided policies like these it spells disaster for everyone.

    Posted by Dave and James at 11:55 AM | Comments (2) | Link Cosmos

    January 26, 2009

    Today's Layoff News

    Just today:
    Caterpillar to slash 20,000 jobs as profit falls

    GM to lay off 2,000 workers, cut production

    Sprint to eliminate 8,000 jobs

    Home Depot cutting 7,000 jobs

    Allbritton Communication Announces Massive Job Cuts

    Deere to lay off nearly 700 workers

    Harley-Davidson plans 425 local job cuts

    Thermadyne laying off 110
    Pfizer-Wyeth merger to mean job cuts: "...announced a cost-cutting initiative that will include the elimination of more than 8,000 jobs. "

    That was TODAY. Actually, it's early yet.

    And just the other day: Microsoft plans 5,000 job cuts

    Starbucks to Lay Off 1,000

    Posted by Dave Johnson at 9:12 AM | Comments (0) | Link Cosmos

    January 25, 2009

    Tax Cuts - Already Tried and Failed

    At Economists View, The 2003 "Jobs and Growth" Plan (Tax Cuts) Didn't Work, Mark Thoma looks at Tax cut approach has already been tried and failed as stimulus by Lawrence Mishel at the Economic Policy Institute,

    [. . .] Even worse were the Bush tax cuts of 2003, which the administration claimed would generate 1.4 million jobs on top of the 4.1 million jobs that were expected to be generated over the eighteen months following June 2003.

    EPI tracked the initiative’s effectiveness through a website,, and found that it fell far short of its goals. Not only did the promised 1.4 million additional jobs not appear, but the 4.1 million jobs expected with no action also failed to materialize. In all, only 2.4 million jobs were created—1.7 million short of the administration’s projection without their new policy. Thus, by the Bush administration’s own metrics the tax cut program fell short by a total of 3.1 million jobs (149,000 pr month).

    Thoma writes,
    They already screwed this up once, the initial tax cut stimulus package put into place last spring was too small and poorly targeted, it had all sorts of problems all in the name of appeasing this same group - and here they are trying to muck up the process once again, to hold jobs hostage while they try to get tax cuts in place, even though something like 40% of the package is already devoted to tax cuts. Camel, tent, nose.

    Posted by Dave Johnson at 7:45 PM | Comments (0) | Link Cosmos

    January 23, 2009

    One Of The Ways FDR Saved Us

    Republicans are trying to tell people that FDR's policies made the economy worse.

    So think about this: Where would we be today if FDR hadn't implemented federal bank deposit insurance? Would there be a single bank left in the country today?

    That is JUST ONE of the ways that FDR's policies and regulations helped us this time.

    Posted by Dave Johnson at 11:18 AM | Comments (2) | Link Cosmos

    January 19, 2009

    Sirota Goes There

    David Sirota yesterday U.S. moving toward czarism, away from democracy,

    In sum, it explains why the age-old struggle between capitalism and democracy is once again defining our politics - and why capitalism is now winning.
    Capitalism is the idea that a few people -- instead of the public -- should "own" the commons. So what do you think, is this the age-old struggle that is once again defining our politics? (And our economy I might add.)

    Posted by Dave Johnson at 2:12 PM | Comments (1) | Link Cosmos

    Are People Afraid To Spend -- Or Just Can't Spend Any More?

    Earlier I wrote that there is a problem lending to people who are not "credit-worthy." Banks are looking for people to give loans to, as long as they can be pretty sure they will be paid back.

    Today Warren Buffett said,

    “We have fear which leads to people not wanting to spend, and not wanting to make investments. And that leads to more fear.”
    OK, I can see how one of the richest people in the world thinks that people are just afraid to spend, and that's the only problem. But from where I live it looks a lot more like people are tapped out -- savings depleted, income stagnant or lost, debt up to the ceiling. And that is why they aren't spending anymore, because they can't spend anymore.

    We have to come to terms with what happened. All the money went to the few at the top, wiping everyone else out. And so the economy finally stopped.

    Trickle-down economics just doesn't work. THAT is why we are having a financial crisis. The few people who make a lot of money just can't see that. Until they do, their solutions and predictions will continue to be just wrong.

    Posted by Dave Johnson at 12:17 PM | Comments (2) | Link Cosmos

    Credit Crunch Or Just Not Credit-Worthy?

    Is there a credit crunch? Are banks just refusing to lend and "sitting on the money?"

    I don't see it. I think lenders are actually looking for people they can loan to -- that's how they make their money. I think that any "credit-worthy" borrower can get a loan.

    The problem is there are too few credit-worthy borrowers. This means businesses and people with collateral, cash flow and good credit ratings.

    The problem is that everyone took on so much debt that they are over their heads now, and are very risky loan prospects. Would YOU loan money to someone who isn't all that likely to pay you back?

    Posted by Dave Johnson at 9:24 AM | Comments (0) | Link Cosmos

    January 17, 2009

    Laid Off

    The Johnson's are very with-it and stylish. We are keeping up with the rest of the country, following all the trends. We are right on top of current events.

    My wife was laid off from her job Thursday.

    Posted by Dave Johnson at 12:02 PM | Comments (1) | Link Cosmos

    Economy Chart

    Here is a chart I made. I was looking at all the numbers and charts in the paper and thought I might make a chart too.


    Posted by Dave Johnson at 11:26 AM | Comments (2) | Link Cosmos

    January 14, 2009

    How To Get Out Of Debt

    Once again: The sure-fire way to get out of debt.

    A simple solution -- stop borrowing money. Don't buy stuff you cannot afford. Imagine life with no payments to make.

    Posted by Dave Johnson at 10:15 PM | Comments (0) | Link Cosmos

    January 12, 2009

    Infrastructure Investment Is The Way Out

    Looking at the economy, let me ask the question: What will drive a recovery? What is there in our economy that can get things moving again? Is it manufacturing? When the dollar was falling, prices of goods made in the US were becoming attractive, but with the worldwide crisis the dollar is strong again. And, even if other countries were in a position to buy (and not in recession themselves) we have fallen behind with our manufacturing infrastructure so it would be some time before we could respond to demand.

    Since Reagan's tax cuts the country has been living on borrowed money (deficits) and calling it prosperity. We have been putting off maintaining our infrastructure -- never mind investment in new infrastructure. We have been cutting education budgets. We have been cutting health care. we have been cutting everything except military budgets and now it is catching up to us.

    The road out of this is public investment. We need a long effort to build a 21st-century infrastructure. We need a national wind and solar energy grid, so we are not exporting dollars in exchange for oil. We need to build energy-efficient transportation. We need building codes across-the-board that require energy efficiency in housing and commercial buildings and we need to retrofit existing buildings. We need fiber-optic internet into every home and business. We need a massive investment in public education up to the university level. We need national health care.

    How do we pay for this? By restoring democracy. We return the top tax rate to 90+%. High taxes at the top drive our economy -- look up the numbers, it is just a fact. This also reduces the massive concentration of wealth we have today. Then restore the inheritance tax, and raise it, so people start life on a more equal footing. Cut the military budget to just above the amount spent by the next-highest budgeted competitor. (That would be a massive cut because we now spend more than all other countries combined.)

    Posted by Dave Johnson at 12:29 PM | Comments (0) | Link Cosmos

    January 11, 2009

    Today's Housing Bubble Post - Somebody Always Pays

    A very interesting Nightline from 2007, before the housing bubble burst. But who could have known/

    Posted by Dave Johnson at 5:01 PM | Comments (0) | Link Cosmos

    January 9, 2009

    Technology Taking Over Jobs

    How much of the unemployment is really coming because of technology taking over jobs? How many jobs replaced by the efficiency of computers? How many by machines? How many by robots? We have known for a long time this is a developing problem with our economic system, and instead of addressing it have been reacting by pushing the reckoning out into the future for decades.

    So maybe this is about that - one more fundamental problem of our economic system. All the attempts to delay the reckoning collapse... all the psychological manipulation of "demand creation" that tricks people into using credit cards to buy cheap junk that they don't need... all the smoke and mirrors moves aside and we see that there really are not that many "jobs."

    What is this thing, a "job?" I was on the phone with a tech support guy for Brother printers, and his "job" was to read this script to me, and I have to do everything on the script, and then the next thing on the script, and he isn't allowed to vary from the script. That is called a "job." He had a lifeless voice, and rent to pay, so he comes in in the morning and reads the script over and over.

    How many "jobs" are trained-monkey jobs,shuffling paper, doing some meaningless task someone tells us to do, making someone else rich, just to keep us occupied and paid until a machine gets sophisticated enough to do it instead, and then the worker is discarded and left with nothing and no prospects (because machines do that now).

    And what are our lives, in these "jobs"? How many of us even know what our own choices might be?

    Who is our economy FOR? Is this really an "economic system" that is doing anyone any good? When demand creation works, and the economy is "stimulated," that just means we'll start strip-mining or clear-cutting faster, and then building more mountains of landfill.

    Another perspective, if the economy was for us:

    Shouldn't a machine taking over a job be a time of rejoicing? Shouldn't a new machine or process mean one less hour of work is needed from everyone?

    But under our economic system, in which we pretend that a few people "own" what we really all own, a new machine or process means just a few people become immensely wealthy while the rest of us are discarded, or have to work even longer hours and for less pay, because the competition for the remaining jobs is even greater.

    Imagine a life where you could actually decide what you want to do with your time.

    Posted by Dave Johnson at 9:40 PM | Comments (1) | Link Cosmos

    The "Cook the Books" Financial Collapse

    Every book is cooked these days. This is a lot of what has led to the financial collapse. The banks lied about the assets they were holding. The ratings agencies lied about the assets they were rating. Appraisers lied about the value of houses they were appraising. Everybody lies these days...

    And the unemployment rate? Great Depression jobs parallel may not be far flung | U.S. | Reuters

    "... if unemployment were still tallied the way it was in the 1930s, today's jobless rate would be closer to 16.5 percent -- more than double the stated rate."

    Posted by Dave Johnson at 9:37 PM | Comments (9) | Link Cosmos

    Real Unemployment

    Today the official unemployment rate jumped to 7.2%. But the real story is likely worse than this number. There are other ways to measure unemployment, including looking at the number of people who are working part-time but want to be working full-time. There are 8 million of these. The official number is about people who are "looking" for work but there are also the "discouraged" workers, people who have largely given up looking. they are not included. And to top it off the official unemployment rate has been changed over the years, always in ways that make this 7.2% number lower than the official number would be if measured in ways it was measured decades ago.

    Another number that can be used is "U-6" which measures total unemployed. The official description is:

    Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
    U-6 is currently 13.5%

    Posted by Dave Johnson at 12:23 PM | Comments (2) | Link Cosmos

    Jobs Lost

    Jobless rate at 16-year high as payrolls plunge

    In December, U.S. employers cut payrolls by 524,000, somewhat less than analysts' prediction for a 550,000 reduction in jobs. Total job losses for 2008 were 2.6 million, the largest decline since a 2.75 million drop in 1945.

    But it's even worse that what you thought, because,
    November's job losses were revised to show a cut of 584,000, previously reported as a 533,000 loss, while October's losses were revised to 423,000 from a decline of 320,000.

    Posted by Dave Johnson at 7:58 AM | Comments (3) | Link Cosmos

    January 7, 2009

    When I Ran A Business I Didn't Want Tax Cuts

    When I ran a business I didn't want tax cuts, I wanted to pay taxes. Paying taxes meant I had made a profit, and a portion of it went to taxes.

    Given a choice between tax cuts and more revenue I would take more revenue every single time, even though it meant even more taxes to pay later. SEND ME CUSTOMERS instead of tax cuts.

    So take the money you might use to give a tax cut and instead use it on targeted programs that redistribute money to people. Instead of just giving it all back, USE IT to invest to good purpose.

    Posted by Dave Johnson at 6:09 PM | Comments (1) | Link Cosmos

    January 6, 2009

    Wage Collapse Caused Crisis

    Go look at the chart in this post: Daily Kos: Conspiracy of Silence: Wage Collapse Caused Crisis

    Posted by Dave Johnson at 5:28 PM | Comments (0) | Link Cosmos

    January 5, 2009

    Why 40 Hours Per Week?

    Question. With rising unemployment, why are we all still supposed to work 40 hours a week to be considered "full time?"

    Who is our economy FOR, anyway?

    Posted by Dave Johnson at 9:21 AM | Comments (0) | Link Cosmos

    January 4, 2009

    Big Companies Are Public Resources

    Deep Thought: When companies reach a certain size, they are public resources. They are large because they do something that is important to many of us. They have a great impact on all of our lives. We all depend on their success and are hurt by their failure.

    They are public resources. Do we usually leave public resources in the hands of a few people?

    Think of startup companies as auditioning for a job. The ones who reach a certain size are then rewarded by getting the "contract" to, say, develop oil resources or make cars...

    Update - You say this sounds radical? I never proposed that the government borrow $700 billion dollars and hand it over to giant companies. It was the "private property free market conservatives" who did that.

    Posted by Dave Johnson at 10:00 AM | Comments (1) | Link Cosmos

    The Next Debt Bomb?

    The next bomb to go off might be US Government debt -- timed perfectly to ruin Obama's entrance. The government has been able to finance Bush's massive bailouts-of-the-rich because people everywhere are scared enough to put their money in what is perceived to be the safest place. In fact the return on short-term US T-bills is actually negative right now. People are paying the US government to hold their money! And the government has been obliging them.

    But all of this short-term debt is due very soon and the government will need to find new people to lend to it. And other debt is also coming due, compounding the problem. And on top of that the Obama stimulus plan will require borrowing another $700 billion or more.

    I am not predicting this will happen. I'm saying this is another bubble and at some point it has to pop.

    Posted by Dave Johnson at 9:01 AM | Comments (0) | Link Cosmos

    January 2, 2009

    Big Box Mart

    Where your job went.

    Posted by Dave Johnson at 12:50 PM | Comments (0) | Link Cosmos

    January 1, 2009

    This Is Not The 'Business Cycle'

    A quick comment: The financial crisis we are experiencing is not business as usual, it is not the business cycle. This is not like anything that has happened before. We are not going to solve this by acting as if it was just a typical downturn in the business cycle and tweaking the way things are done. A bit of stimulus and a few regulatory changes are not going to solve this.

    This is a fundamental paradigm shift -- what we had before did not work, period. It was hurting all of us by forcing us into jobs we all hate and doing meaningless things, taking on debt, unhealthy habits, and is chewing up the very planet we live on! A new model for understanding how economies work is needed.

    We have to rethink the relationship between people and work and who gets to share in the proceeds. Until now most people work to make someone else rich, because it has been the only way we can "make a living" -- be allowed money to eat, etc. But as machines and computers and other technologies do more and more of the work for us the result is that more and more people are laid off or paid less or otherwise discarded and fewer and fewer of us are able to get by. This is because our current economic system forces us all to pretend that a few people "own" the right to benefit from our economy, and the rest of us do not.

    But doesn't this idea that a few people can "own" the right to the benefits of our economy fundamentally conflict with the idea of democracy, where we all have an equal share of America, an equal voice and equal rights?

    In Alaska, for example, the people of the state benefit from their common ownership of the oil there. Companies bid for the job of extracting the oil and pay the state a lot of money to do that. Everyone in Alaska benefits, AND a trust fund is set up to guarantee that they continue to benefit forever after the oil is all gone.

    Our entire economy should work that way. We should recognize that we own in common all of the resources, and these companies should have to apply for the job -- bid for the right to do things we want done -- with the understanding that they are common resources from which we all benefit.

    We also have to reengineer the economy to be sustainable. We have to stop this game of "demand creation" -- making people think they need things that they do not need, in order to "keep the economy going." The economy only needs to go far enough to feed and house and clothe us and take care of our health, and then we should be deciding in common what else we want to do, up to the point where it interferes with our real lives. There is a limit to what we need, and can then get on with the other things that life is about, like thinking, art, music, reading, studying... When there is less to be done, we should work fewer hours, leaving us free for the other pursuits. More on this later.

    Posted by Dave Johnson at 10:08 PM | Comments (2) | Link Cosmos

    December 24, 2008

    Today's Housing Bubble Post -- Different In India

    India is having none of it: The Left Coaster: Greenspan (U.S.) v. Anti-Greenspan (India)

    Posted by Dave Johnson at 10:41 AM | Comments (0) | Link Cosmos

    December 18, 2008

    Repubilcans Sabotaging Solutions -- Why?

    Nationally and in California Republicans are clearly trying to sabotage economic recovery efforts. Why? Do they have some strategy at work here?

    Schwarzenegger to veto Democrats' budget plan,

    But Schwarzenegger said the Democrats' package lacked deeper cuts to welfare and senior assistance programs, flexibility to reduce school spending, and the elimination of two of 14 state employee holidays.

    The governor also wanted assistance for homeowners facing foreclosure, broad authority to relax environmental regulation on public work projects and more toll roads.

    After months and months of trying to pass a budget, compromising, giving Republicans everything they wanted, they still refused to allow a budget. So the Democrats found a way around that and passed a budget. The Governor's veto means a near-immediate layoff of as many as 200,000 workers. That will have a cascading effect on California and the nation's economy.

    Why are they doing this?

    Posted by Dave Johnson at 8:28 PM | Comments (7) | Link Cosmos

    December 16, 2008

    The Economy

    This chart explains where the economy must go, and why. Sorry.

    Click to enlarge

    It wasn't just the housing bubble, it was debt in all of its forms.

    For extra credit, see if you can identify the year Reagan and the "supply-siders" took office and any changes that occurred at that time.

    P.S. I will not accept any cleaning bills.

    Posted by Dave Johnson at 3:11 PM | Comments (1) | Link Cosmos

    Economy Question

    Question: How does it help our economy for our government to borrow money from China and use it to lower interest rates in an attempt to persuade people to borrow even more money to buy even more stuff that was made in China?

    Update - What I am trying to say is, loosening credit does not help the average person. If you can't afford something, buying it on credit doesn't help you afford it. Who you need is higher wages, health care, etc. Then you can afford things.

    This is a solvency crisis, not a liquidity crisis. Predatory capitalism harvested the consumer, ate the consumer, shat out the consumer, and loose credit isn't going to revive a consumer that has been through that.

    Posted by Dave Johnson at 11:16 AM | Comments (2) | Link Cosmos

    Today's Bubble Post -- Reckoning

    James Boyce, in one of his best posts ever, says that if something is unsustainable it can't be sustained. And here we are. Go read James Boyce: The Darwin Depression: Time To Say Goodbye To How It Should Have Never Been.,

    It is very dangerous for an empire such as America's, faced with ebbing influence around the world, to amp up on cheap credit and buy out the store. At the end of the day, you have a frustrated country, swamped in debt and merchandise it doesn't really need, wondering how to pay the bills. Japan has never really recovered from its bubble, and its bubble is looking pretty small compared to the one we're popping.

    Look at this. Consider this image.

    Of course, you have to click through to see the charts.

    Posted by Dave Johnson at 9:56 AM | Comments (0) | Link Cosmos

    December 11, 2008

    The Day The Economy Died

    Auto bailout dies in Senate

    Twenty years from now people will mark today as the official end of the U.S. economy.

    Posted by Dave Johnson at 9:08 PM | Comments (0) | Link Cosmos

    December 9, 2008

    Feel The Recession With Twitter

    I just found out you can do searches to see what people are twittering about. Click here for a Twitter search on layoffs. What you read will be sad, though.

    Posted by Dave Johnson at 10:19 AM | Comments (0) | Link Cosmos

    December 8, 2008

    Economic Narratives

    Profound: Economic Growth is Political.

    Really, go read.

    Posted by Dave Johnson at 2:23 PM | Comments (0) | Link Cosmos

    December 7, 2008

    Democracy Is The Only Economics That Works

    I am reading about how we got out of the Great Depression, and I think there was a clear sense of adversarial relationship between wealth, corporate power and democracy that we don't see today, but which I believe defines what is happening to us. For example I am currently
    reading FDR's 2nd inaugural address. I know this address comes four years into The New Deal, but I think it reflects what I have read from when the New Deal began as well.

    "In fact, in these last four years, we have made the exercise of all power more democratic; for we have begun to bring private autocratic powers into their proper subordination to the public's government. The legend that they were invincible above and beyond the processes of a democracy has been shattered. They have been challenged and beaten.

    Our progress out of the depression is obvious. But that is not all that you and I mean by the new order of things. Our pledge was not merely to do a patchwork job with second-hand materials. By using the new materials of social justice we have undertaken to erect on the old foundations a more enduring structure for the better use of future generations.

    In that purpose we have been helped by achievements of mind and spirit. Old truths have been relearned; untruths have been unlearned. We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays. We are beginning to wipe out the line that divides the practical from the ideal; and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world.

    This new understanding undermines the old admiration of worldly success as such. We are beginning to abandon our tolerance of the abuse of power by those who betray for profit the elementary decencies of life."

    I think this strongly shows that FDR's believed that the depression was caused by wealth flowing to the top (as today) and would be corrected by asserting that We, the People must take back control of our common resources.

    In other words, real democracy -- We, the People controlling and making decisions about our common resources, instead of corporations and the wealthy -- is the only form of government and economics that can work for all of us.

    Posted by Dave Johnson at 4:31 PM | Comments (1) | Link Cosmos

    December 6, 2008

    Bailout - Fighting The Last War?

    To what extent is the bailout fighting the last war, instead of addressing the real issues of this crisis?

    Obama's massive infrastructure investment will do a lot of good, but how much is this just another bandaid on a failed economic paradigm?

    Posted by Dave Johnson at 8:31 PM | Comments (1) | Link Cosmos

    December 5, 2008

    Worst Jobs Report In Decades - Stocks Soar!

    Today saw the most job cuts in one month in 34 years. The stock market soared, up about 300 points.

    Who is our economy for?

    Posted by Dave Johnson at 1:02 PM | Comments (0) | Link Cosmos

    Cutting Business Taxes

    Cutting taxes on business only gives a boost to companies that are ALREADY MAKING A PROFIT after all costs -- the very ones that do not need a boost.

    All it does is drain resources that could be available to We, the People to use to solve problems. It puts even more money into the pockets of the very rich, further reducing the ability of the consumer to pay the bills and buy.

    Posted by Dave Johnson at 10:22 AM | Comments (0) | Link Cosmos

    Deep Thought

    Contractors don't get unemployment pay. A significant portion of the workforce has been called contractors instead of employees in the last several years, allowing the corps to get out of responsibilities they would have if the same people were called employees.

    This is going to have an effect on efforts to revitalize the economy. For example, extending unemployment benefits won't help them.

    Posted by Dave Johnson at 9:27 AM | Comments (0) | Link Cosmos

    December 4, 2008

    Auto Company Collapse

    I realized today that a collapse of any American auto companies also means a loss of tens of thousands of jobs in Mexico, further increasing migration pressures.

    Posted by Dave Johnson at 5:01 PM | Comments (0) | Link Cosmos

    Laid Off Contractors Don't Get Unemployment

    Before reading this, realize that people who are called contractors instead of employees -- the first to get laid off as things get worse -- do not get unemployment benefits so they don't file claims for unemployment benefits. Jobless rolls at 26-year peak, factory orders drop

    While first-time claims for benefits unexpectedly fell last week to 509,000 from 530,000, a four-week moving average of new claims, a better gauge of underlying labor trends, rose to 524,500, also a 26-year high.
    The economy has shifted much more towards contractors, who do not get unemployment benefits. So this number of new claims understates the problem and does so much more than in previous recessions.

    Also, the lack of benefits for contractors, including unemployment, means this recession will hit much harder on those unemployed than on previous unemployed. Extending unemployment benefits for 13 or 26 weeks will make no difference. What we need to do is ban this contracting scam and call an employee an employee.

    Posted by Dave Johnson at 12:09 PM | Comments (0) | Link Cosmos

    December 1, 2008

    Too Big To Fail?

    I said it before but I want to repeat it: "Too big to fail" necessarily means a company that should be under the control of the public. Our economy should not just be at the mercy of a select few. We, the People should be involved in making decisions that affect us. This is the very definition of self-governance.

    Posted by Dave Johnson at 7:37 AM | Comments (0) | Link Cosmos

    November 30, 2008

    Protectionism Means Protecting Ourselves

    Protectionism literally means protecting ourselves.

    The term is mostly used in the context of economics, where protectionism refers to policies or doctrines which "protect" businesses and "living wages" within a country by restricting or regulating trade between foreign nations.

    The idea of protectionism is that when a competing country gains a trade advantage by paying its workers too little or having poor or no worker safety protections, or by allowing pollution of the environment, then we apply a tariff to their goods, so their goods cost the same here as our own goods, and that advantage does not undermine our own wages or safety or pollution standards.

    Under conservative ideology, of course, protecting ourselves is a bad thing. Some people make a lot of money for themselves by undermining our wage, safety and pollution standards. So they tell us that protecting ourselves is wrong. The result is that conservative trade agreements that we have now that apply downward pressure on all the wages in the world.

    Imagine if the workers in China or Mexico, etc. made enough money to buy the things we make here! That would be the use of our tariffs to apply an upwards pressure on other countries.

    Posted by Dave Johnson at 10:02 AM | Comments (0) | Link Cosmos

    November 29, 2008

    Credit Crisis

    When people, companies and municipalities reach a point where they have borrowed so much that they can't pay back the loans I really don't think the solution is to make more money available to lend. But that is what all of these bailouts are aiming to accomplish.

    They say credit has "dried up" and banks "won't lend." Can you blame a bank for not wanting to lend money to someone who has no savings, huge credit card bills, and might lose their job at any moment? Can you blame a bank for not lending to a company whose customers have stopped buying and can't pay them what they already owe?

    It's just more of the same old top-down thinking: that if you just give more and more money to the few at the top things will get better.

    At what point does the obvious become obvious? When people are tapped out, they are t.a.p.p.e.d. o.u.t. That's it. No more blood can be squeezed from that stone. You can't make a person work longer hours when they are already working two jobs. You've already taken away pensions and health care and vacations and overtime, you can't take away even more.

    Posted by Dave Johnson at 11:36 AM | Comments (1) | Link Cosmos

    November 27, 2008

    One Way To Start fixing The Economy

    Executive Compensation: Tax Them Into the Ground.

    Really, really go read this.

    Posted by Dave Johnson at 6:53 PM | Comments (1) | Link Cosmos

    A Good Bailout


    We need a bottom-up, not a trickle-down bailout.

    Posted by Dave Johnson at 10:45 AM | Comments (0) | Link Cosmos

    November 26, 2008

    Bailout At $7 Trillion So Far

    So far it looks like you and I have coughed up about $7 trillion dollars to bail out Wall Street and the big banks. The executives and their bonuses and the shareholders all thank you, suckers. Of course, you and I had NO SAY in this at all!

    So $7 trillion comes to about $23,000 per person - including infants. This means that the average family of four coughed up almost $100K to bail out Wall Street and the banks and the executive bonuses and shareholders. This was the Republican approach to fixing the problem.

    They say it's all about making money available for people to borrow. This assumes that people have any credit left. I mean, if you make $5,000 a month and your payments add up to $5,000 a month, maybe you aren't going to want to borrow any more. And maybe a lender with sense won't let you. Lending to people who can't afford to pay the money back is what caused the mess! Loading everyone up with even more debt is not the solution.

    Why not make people more able to afford to buy things, and not have to borrow to get by? We could have put $7 trillion into health care, roads, bridges, schools and other things that would have created millions of jobs and provided raises to or lowered costs for regular people! I wonder what THAT would have done for the Christmas shopping season, and all the rest of the Christmas shopping seasons from now on?

    But we not only didn't have any say in how the money was used, the money is all gone.

    Meanwhile go read The Bail-Out Will Not Work at angry Bear to understand why giving all the rest of our money to the people who created the mess will not work.

    Posted by Dave Johnson at 12:00 PM | Comments (1) | Link Cosmos

    November 25, 2008

    How Much Do Auto Workers Make?

    Go read The media myth: Detroit's $70-an-hour autoworker.

    Auto workers make $28 an hour on average. No auto assembly-line worker makes $70 an hour, even if the media repeats that figure over and over. The $70 figure includes the "labor costs" of health care and pensions for retired and injured workers and the cost of management for that worker/hour, as if it was added to the number of labor hours that goes into a car today.

    Yes, GM and the others have a high cost to cover the benefits to their workers. That was the point of our laws that set up corporations -- to benefit US. Japanese and German and other car companies have many of these costs paid by the government. They did it with taxes and had the government provide the benefits, we tried to do it throught the corporations themselves, and our model hasn't worked.

    The point is that we need health care reform and decent pensions for all Americans, through We, the People -- the government. It certainly doesn't mean that we should just get rid of the last major manufacturers we have. Sheesh.

    Posted by Dave Johnson at 2:40 PM | Comments (0) | Link Cosmos

    November 22, 2008

    Sustainabilty Is The Key To The Next Economy

    There is an old saying: If something is unsustainable it can't be sustained. Our economy is starting, just starting to show us what happens when you continue unsustainable practices to their conclusion.

    The day will come when instead of habitually saying, "How can I make money off of this" as things happen, they will say, "Is this really sustainable?" Unfortunately we are only at the very beginning of the kind of pain that is going to teach us as a society that this is the correct way to evaluate what appear to be opportunities.

    Let me explain:

    We have learned that it is a good idea to store explosives in special bunkers with thick, concrete walls. Think about how we learned that it is important to require this.

    We have learned about clean, safe drinking water. Think about how we learned that this is a good practice. We have learned to build sewer systems instead of dumping bedpans into the street. Yes, we used to do that and now we don't. Think about how we learned not to. Along the same lines we have largely learned to wash our hands after we go to the bathroom and before we eat. Think about how we learned that this is a good practice.

    We have set up building codes that prevent fires and collapses from earthquakes. At least in California we have. In other parts of the country they don't require buildings to be earthquake-safe. We do, they will. Think about why we do and they don't but will. Think about why we have fire codes for buildings across the country.

    Are you getting my drift? These are things that people didn't know to do, but now they do know. But people seem to have to go through terrible, devastating, tragic shocks before they learn. And finally we learn, and routinize safe practices. We had been through severe economic shocks and then the Great Depression and there were some things we as a people thought we had learned. Think about how bad the depression was and the things that we set up to try to prevent it from happening again: regulations, oversight, a strengthened democracy with citizen control of public resources, strong unions to serve as a counterbalance to corporate power, high taxes on the rich and corporations so income would be more fairly redistributed and the benefits of our system shared widely -- only to gradually let most of that slip away. So the control of our country's decision-making had reverted back to the wealthy and predatory capitalism was reinstated. We, the People were harvested for every last dollar and hour of labor and when we were finally tapped out the economy had to collapse.

    There is every sign that this economic collapse could be worse that any before it.

    So, like I said, the day will come when people look at events and instead of saying, "How can I make money off of this" they will say, "Is this really sustainable?" But I fear that we are going to have to reach the bottom before we learn this.

    Posted by Dave Johnson at 11:43 AM | Comments (0) | Link Cosmos

    November 18, 2008

    Too Important To The System To Allow To Fail

    Over and over we are hearing about companies that are "too big to fail." The meaning is that if they fail they take everything else with it, so we must bail them out.

    Suppose that something happened to the atmosphere and air had to be manufactured. Suppose that all of our lives depended on the ongoing manufacturing of air. Would any of us, even the hardest-core Republicans, even consider allowing this function to be in the hands of a private company? Of course we would not allow this.

    Isn't "too big to fail" the very definition of an important PUBLIC resource? If something is "too big to fail" because failure risks bringing down the entire economy, how did we ever allow such functions to fall into the hands of private companies in the first place?

    Posted by Dave Johnson at 4:50 PM | Comments (0) | Link Cosmos

    November 14, 2008

    What To Ask For In A Bailout

    Someone asked me, "If we bail out the auto companies how do we make sure they don't just go off and build gas hogs, and give all the profits to their executives again?"

    The answer to this is the answer that should have been part of the Wall Street bailout: You benefit from the Public, so the Public had better start benefiting from you. You get the money and you start building cars that are lined up with the public interest. You serve the public, not harvest the public. You limit executive compensation and spread the wealth around. You pay taxes when you do well. You don't try to influence the political process in any way because We, the People tell you what to do, not the other way around. Etc.

    (Question: why aren't these the explicit rules for doing business in the U.S. anyway - bailout or not?)

    Posted by Dave Johnson at 7:41 AM | Comments (0) | Link Cosmos

    November 13, 2008

    The Money Hole

    "If you love America you throw money in its hole."

    In The Know: Should The Government Stop Dumping Money Into A Giant Hole?

    If you are a patriot you will throw money down the money hole.

    Posted by Dave Johnson at 8:48 PM | Comments (0) | Link Cosmos

    November 12, 2008

    The Consumer Spending Slowdown Is NOT Because Of Credit

    On The NewsHour today Alice Rivlin said that we need to free up the credit markets so people can buy cars. She said there are "credit-worthy" people waiting to buy cars and trucks who can't because they can't get loans.

    Then, on the NBC News tonite the reporter said, "Without access to credit, shoppers are tightening their purse-strings."

    This is just wrong, and these are people who move in in important policy and reporting circles who should know what is going on! It tells me that rest of the people in these circles also don't get it.

    The credit crunch is not the consumer spending slowdown. Big companies are having trouble getting credit. But if you go to a car dealer tomorrow to buy a car, and have an income and good credit, they will bow down and kiss your feet. If you can't find a loan (if you have an income and good credit you CAN find a loan) the manager will loan you the money out of his or her own pocket. It is PREPOSTEROUS to suggest that people with incomes and good credit can't get loans, and that this is why people are not shopping up a storm!

    The consumer spending problem is that consumers are "tapped out." Incomes have stagnated for decades, consumers have used up their savings and then resorted to second mortgages and credit cards.

    Decades of predatory capitalism have sucked the average working person dry. That is the consumer spending problem. That policymakers and reporters don't know that tells a sad story about how this has come to pass.

    Limit executive pay and use the money to hire more people for fewer hours, pay them more, give them health insurance and let people start unions if you want to see consumer spending recover. That's not rocket science.

    Posted by Dave Johnson at 6:24 PM | Comments (0) | Link Cosmos

    Blame For The Crash

    I've been thinking about something and haven't had time to write about it. The first stimulus package did nothing to help the economy, but it did put off the crash from happening for about 3 months. I mean, the worst of the crash is really just starting, just after the election.

    What I am getting at is the stimulus package, sending us all $600 checks, was one more time the Dems in the Congress fell for something that was designed only to help the Republicans in the election. It didn't help and Obama won, but that was their plan.

    And now the economy is starting to really crash. The bailout which obviously wasn't going to work didn't work -- and it used up all the money. I am starting to hear talk of the U.S. credit rating being lowered, with some expectation of default in the future.

    Things are going to get really, really bad next year. So we need to make sure the public understands blame.

    Here's how. The Congress needs to push through something popular, clearly designed to help the economy, that the Republicans filibuster, or Bush vetoes, before the end of the year. How about a whopping increase in the minimum wage? The bailout of the auto companies might be the issue. Maybe the new stimulus package, clearly aimed at creating jobs -- good UNION jobs. They would fight that.

    The point is, make it clear who is for and who is against the people. This is how the Republicans have been doing it for some time.

    AND, after Obama gets into office, we can even pass it.

    Posted by Dave Johnson at 2:51 PM | Comments (1) | Link Cosmos

    Explaining The Crash

    I think this is one of the better explanations of the Wall Street crash: The End of Wall Street's Boom. Go read.

    Posted by Dave Johnson at 12:39 PM | Comments (0) | Link Cosmos

    November 8, 2008

    Oil vs Air

    No one "owns" the air. No one gets to "profit" from air -- we don't have to "pay" anyone to be able to breath air.

    Why is oil different?

    Thinking through this question open up some very interesting ideas about our economy and who benefits and why.

    In Alaska the oil companies pay the people of the state for the oil. No one pays state taxes AND everyone in the state gets a big check every year. AND the oil companies put aside money into a fund that guarantees the people of Alaska will continue to get those checks forever, even after the oil runs out. This is because the people of Alaska understood that the oil belonged to them.

    So what about the rest of the oil in the country, and the world? Why don't the people of the US and the world benefit from their ownership of that oil? Why do a few people who own and manage oil companies get the profits for themselves and grow ever richer, while the rest of us lose our jobs and pensions and health care and houses?

    Why do we get taxed to provide these companies that benefit a few people with military protection? Why do we get taxed to build the roads that enable them to move their products to make this money, and then have to pay them for our oil so we can drive cars on those roads? Why do we pay taxes to provide the legal infrastructure of courts and laws that enables them to grow richer, while we all grow poorer from it? Why do we get taxed to provide an education system that invents machines that take our jobs, and that only trains us to be employees that can just be tossed aside?

    I'm using oil here as just one example of underlying economic assumptions. Inheritance is another underlying economic assumption. Why does someone "inherit" the right to be rich?

    Who is our economy FOR, anyway?

    There are a lot of questions here that will need to be re-thought if we are going to get out of the economic mess that the few who benefit from the current corporate and economic structure have gotten us into.

    Posted by Dave Johnson at 11:52 AM | Comments (2) | Link Cosmos

    October 26, 2008

    prescience: When this man predicted a global financial crisis more than a year ago, people laughed. Not any more...

    prescience (prĕsh'əns, -ē-əns, prē'shəns, -shē-əns)

    Knowledge of actions or events before they occur; foresight.

    Nouriel Roubini: I fear the worst is yet to come
    When this man predicted a global financial crisis more than a year ago, people laughed. Not any more...

    Dominic Rushe

    As stock markets headed off a cliff again last week, closely followed by currencies, and as meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom.

    For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis.

    My investment advisor at a major national bank wants me to invest my savings in stocks and bonds (50% - 50%). He thinks we have maybe a 2,000 downside, before we see a 10,000 point upside. The bank requires a 1.5% fee based on the value of the portfolio.

    I started my introductory face to face conversation with my advisor by letting him know that when it comes to what comes next in the economy, that was more nervous than a long tailed cat in a room full of rocking chairs.

    I still am. In fact I'm beginning to experience a palpable sense of panic.

    God help us all.

    Posted by Ron Sheridan at 11:03 PM | Comments (1) | Link Cosmos

    October 13, 2008

    Stocks Rally On Krugman Nobel Announcement

    Columnist Paul Krugman wins Nobel economics prize and stocks are up almost 600 points on the news!

    Posted by Dave Johnson at 10:10 AM | Comments (1) | Link Cosmos

    October 1, 2008

    An Alternative Plan

    Here is a good alternative plan: Recapitalise the banking system.

    Instead of the government (us) buying toxic debt we invest in those banks that are solvent, which gives them reserve capital for lending. Other investors will then step in as well. Current shareholders are diluted.

    The public ends up profiting. The banking system recovers. The bad actors lose out.

    Posted by Dave Johnson at 6:21 AM | Comments (0) | Link Cosmos

    September 30, 2008

    World Not Ending

    The stock market is way up.

    Here a "go figure": Consumer confidence unexpectedly improves in Sept.

    Can someone explain that to me? Is it ALL just about gas prices?

    Posted by Dave Johnson at 7:55 AM | Comments (0) | Link Cosmos

    September 25, 2008

    Bailout Comment

    If this story, Deal said near on big financial bailout is correct I think I feel a bit better about the bailout. Not completely better, but a bit.

    1) If executives are really limited in pay (and stock) by this deal they won't be involving their firms unless it is really necessary. They won't be in it for themselves.

    2) If we get equity in the companies that get bailout money then WE profit if they do.

    3) It is phased in, so we don't just dump all the rest of our money onto a few companies at once. Instead we can see if it is working - and a new President can change what is being done.

    If we get these things, it's a start. I think we should get rid of many of the executives responsible. I also think we need to redesign the system from scratch, insist that ALL corporate money be removed from politics immediately, impost a 90% or higher top tax rate and several other things.

    And about this meeting with McCain and Obama at the White house today... is it possible they're going to be injected with something, and then replaced by pod-people?

    Update - Through Atrios, here is an example of what we are paying to bail out:

    When we the taxpayers foot the bill for the excesses of the bubble, we are bailing out the lenders who enabled the behavior below:

    * The house was purchased on 2/6/1998 for $183,000. There was a $173,500 first mortgage and a $9,500 downpayment.
    * On 8/21/2002 they refinanced the first mortgage for $165,500. They actually paid down their debt.
    * On 3/12/2003 they opened a HELOC for $50,000, just in case... Their first taste of kool aid.
    * On 2/13/2004 they opened a HELOC for $226,000. The kool aid is flowing now.
    * On 10/22/2004 they opened an Option ARM for $492,000.
    * On 5/2/2005 they opened a HELOC for $75,100.
    * On 10/21/2005 they opened a HELOC for $126,000.
    * On 9/28/2006 they opened a HELOC for $150,000.
    * Total debt on the property, $642,000 plus accumulated negative amortization.
    * Total mortgage equity withdrawal, $468,500 including their tiny downpayment.

    Basically, these people put $9,500 into the property and made $459,000 in 8 years.

    . . . If this property sells for its asking price, and if a 6% commission is paid, the US taxpayer is going to lose $209,694.

    Note - at the asking price we ONLY lose $209K. But at the asking price the buyer has to come up with $90K AND have an income of $115K for a CONDOMINIUM.

    The bailout's success depends on housing prices not dropping any more.

    Posted by Dave Johnson at 9:46 AM | Comments (1) | Link Cosmos

    September 24, 2008

    On The Crisis

    This is a great blog post explaining what is really happening with this financial crisis.

    Posted by Dave Johnson at 11:47 AM | Comments (0) | Link Cosmos

    September 23, 2008

    This Is Important Because

    Since I am in New York I thought I would take a subway down to Wall Street this morning. Here it is, from behind the statue of George Washington, taken about 15 minutes ago. Now I am online from a Starbucks down the street.


    Thinking about this financial crisis, I have an observation. Just a week ago there really wasn't that big of a problem as far as the Financial Elite were concerned. I mean, us out there in the hinterlands were feeling pain and trying to tell the Elite to pay attention. So we were "whiners." But the "fundamentals of the economy were found."

    Now it is just ONE WEEK later and the entire world has collapsed and the Congress is working on a package to send ALL THE REST OF THE MONEY that the country can possibly borrow to Wall Street.

    What happened? I think what happened is that something affected THEM, so it became IMPORTANT. This financial crisis is important because it affects the financial elite. And so we are presented with a "shut up and pay up" oackage to bail them out. Because THEY are important and we are NOT important, so the things that make them uncomfortable MUST be solved immediately.

    But who is being asked to pay? We are. Not them, us. Have you once heard from Washington a suggestion that the rich and corporations start paying taxes again, to cover the costs of this massive bailout? Of course not.

    They say that credit is drying up. My question is, according to the law of supply and demand is credit really drying up, or is the PRICE of credit rising to meet the cost of covering the risks of loaning to these clucks who screwed up the economy.

    Posted by Dave Johnson at 8:02 AM | Comments (0) | Link Cosmos

    September 22, 2008

    Actually It's TWO Trillion Now

    The Bonddad Blog: The 1.8 Trillion Bailout

    Posted by Dave Johnson at 8:24 AM | Comments (0) | Link Cosmos

    A Better Plan

    By shocking us with their Plan the Bush administration have once against defined the terms of the debate, and set all of the conditions. It all has to be immediate with no time to think it over and has to be done exactly the way we say or YOU will be responsible for killing the economy (and this kitten).

    Krugman says,

    I’d urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. Don’t let yourself be railroaded — if this plan goes through in anything like its current form, we’ll all be very sorry in the not-too-distant future.
    Calculated Risk adds,
    A better plan would be transparent (all deals would be publicized), involve a share in ownership for the taxpayers, and have substantial oversight. We can do better.
    Democracy can work. Give it a (last) chance.

    Posted by Dave Johnson at 5:59 AM | Comments (0) | Link Cosmos

    September 21, 2008

    Wait A Minute -- Why Just U.S. Taxpayers?

    Why are only U.S. taxpayers being asked to put up $700 billion to bail out the world's financial system?

    The U.S. is $10 trillion in debt.

    Europe's economy is the same size as ours.

    China is sitting on hundreds of billions if not trillions of surplus funds.

    Middle Eastern countries are sitting on hundreds of billions in oil profits.

    So why is the AMERICAN taxpayer supposed to suddenly step in and save the world's financial system? Tell me that?

    I suspect it is because we're the ones who are currently set up for harvesting, and our Congress can be stampeded to do this with 48 hours notice.

    Posted by Dave Johnson at 10:30 AM | Comments (2) | Link Cosmos

    Root Causes

    Everyone is talking about how to modify The Plan. Don't modify it, start from a new premise. The bailout plan bails out the crooks who caused the mess so throw them out don't bail them out.

    The problem is that people can't pay their mortgages and credit card bills. The big financial firms are in trouble because they aren't getting their payments.

    So what about attacking the ROOT CAUSES of not being able to pay mortgages and credit card bills.

    Health care: People get foreclosed on when they are hit with big health care bills. This is because of our failed health care system. If we put some money into fixing our health care system we would have fewer foreclosures AND we'd all get health care.

    Concentration of wealth: People can't pay their bills because most of the money in our economy goes to a few at the top of the food chain. The rest of us are the food. What about a 90% tax rate on incomes over maybe 2 million, and the money is applied to paying off mortgages and credit cards? That would bail out the financial system in a better way than just taxing everyone and giving the money to ... well, to the few at the top.

    Energy costs: Paying energy bills is another cause of people not meeting their mortgages and credit card bills. So what about imposing a carbon tax and using the money to help people retrofit their houses to be energy efficient, maybe even buy solar panels, etc.? THIS would address a ROOT CAUSE of not just the financial mess, but out trade imbalance and climate change.

    Taking a constructive approach to this problem would bring us long-term benefits. Don't just hand over all the rest of our money to a few at the top, let's instead use that money to fix the problems that CAUSED this mess.

    ADDRESS ROOT CAUSES. Don't just give the Bush cronies authority to hand out checks to the rich.

    Posted by Dave Johnson at 8:03 AM | Comments (0) | Link Cosmos

    Why The Bailout Plan CAN'T Work

    Here is the justification for The Plan:

    If the plan works, it will attack the central cause of American economic distress: the continued plunge in housing prices. If banks resumed lending more liberally, mortgages would become more readily available. That would give more people the wherewithal to buy homes, lifting housing prices or at least preventing them from falling further. This would prevent more mortgage-linked investments from going bad, further easing the strain on banks. As a result, the current downward spiral would end and start heading up.
    Sorry, if houses are overpriced because of the bubble, then they are overpriced. This idea that people are not buying houses that cost $300, $400, $500, $600,000 because banks can't lend them the money is just preposterous! Even if a bank can lend the money, they can't lend the money because TOO FEW PEOPLE MAKE ENOUGH TO QUALIFY. The other day I showed that you have to have an income of $12,000 a month to buy a low-end house in the San Francisco Bay Area.

    The idea that you can stop housing prices from falling back to where they should be is like the idea that you could have stopped the stock of from falling after the dot com bubble. I worked at a company where the stock went up to $35 a share for no reason, and then after the crash the stock went back to WHAT IT WAS WORTH: five cents a share.

    You CAN'T prop up the price of house ABOVE WHAT THEY ARE WORTH. This is why the bailout plan can not work.

    Posted by Dave Johnson at 7:21 AM | Comments (0) | Link Cosmos

    September 20, 2008

    A Bailout Plan That Works

    Firedoglake サ How To Bail Out Ordinary Mortgage Holders And Not Just Banks. Please read it.

    Is this bailout by the American taxpayer going to be about helping the American people, or a few owners of big corporations -- the people who got us into this mess?

    Someone I read somewhere (sorry, lost the link) suggested that any firm getting any bailout money not be allowed to pay executives more than 10 times the average American wage.

    How about if any firm getting bailout money pay double tax rates on future profits for the next ten years?

    How about if in exchange for the bailout we set the top tax rate for people making more than a million dollars a year back to 90% -- to eliminate the bad-behaviour incentive and start paying off the national debt?

    Posted by Dave Johnson at 9:02 AM | Comments (0) | Link Cosmos

    September 19, 2008

    Shock Doctrine Bailout: Taxpayers To Cover Debts Of Wall Street Zillionaires

    Treasury Secretary Paulson just used the words, "A significant investment of taxpayer dollars." That's OUR dollars. And where is the money going? The plan is for U.S. taxpayers to bail out Wall Street. Not just a few firms this time, but all of it. The financial markets are, of course, soaring on the new bailout plan.

    Where did all this bad debt come from? In the last few years millions were talked into borrowing money from Wall Street using houses as collateral. Sometimes to buy those houses, other times to buy cars and ... stuff. This paid for Wall Street's multi-million-dollar salaries and bonuses for the past several years. The easy borrowing ran up the price of houses, but now the party is over and the bill comes due.

    What does this bailout plan mean to regular Americans? First: It means no money for a health care plan.

    Second: it means no money for retirement. It means no money to cover what the government borrowed from Social Security to give those tax cuts to the rich. (The corporations long ago quit providing pensions to the people who did the work. THAT scam -- 401Ks instead of pensions; money transferred from workers to shareholders -- is what started the big Wall Street runup.)

    In summary, this plan means our standard of living will drop in order to cover the mess Wall Street made while handing out those multi-million dollar bonuses.

    The plan will be presented to Congress in these last days of the Bush administration, and a climate of disaster emergency urgency will be used to get it passed before anyone has time to consider the ramifications of what is happening.

    Alternative: instead use the money to retrofit the entire country to a green economy. Make every building energy efficient. Replace the oil and coal-based electricity generation with alternatives. Build efficient power lines to the new wind generation system we will build in the Plains states. This would give every unemployed person a job, create an efficient economy, and pay dividends forever. This would probably cost much less than the bailout.

    Posted by Dave Johnson at 6:53 AM | Comments (2) | Link Cosmos

    September 17, 2008

    Will FDIC Be Able To Cover Your Accounts?

    In the Seeing the Forest: Is Your Money Safe? post a few days ago I suggested that you make sure your money is in bank accounts that are insured by the FDIC.

    Well, there is a possible hitch in that plan. As Atrios points out today, Washington Mutual is teetering and if they go under it could swamp the FDIC. Like so many other institutions FDIC doesn't have the necessary reserves to cover what is happening.

    The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.
    What does this mean to you? Well, it might be a good idea to have some cash literally under your mattress in case your bank goes under and it takes a while for Congress and the Treasury to bail out the FDIC. That contingency means it might take a while before you have access to your money.

    I wouldn't worry that you are going to lose your money -- Congress just won't allow that. But it might be a little while before you can access it. So have enough cash at home to pay for things for a little while. I'm sure that checks will still be OK for paying the rent, etc...

    Posted by Dave Johnson at 1:01 PM | Comments (0) | Link Cosmos

    The Conservative Economic Experiment

    The government just took over insurance giant AIG, at a cost of $85 billion to the taxpayers. They just finished bailing out Bear Sterns and Fannie Mae and Freddy Mac. How many hundreds of billions of dollars have gone into other financial bailout efforts?

    Since Reagan almost all of us are getting poorer, while a very few get vastly richer. Wages have largely stagnated since Reagan's election even as GDP and productivity have gone up. Pensions are a thing of the past. Health insurance is becoming a thing of the past as well.

    As a result of the Reagan and now Bush tax cuts for the rich the government's debt is just about $10 TRILLION.

    And corporations now rule us instead of democracy.

    The conservative economic experiment failed a long time ago. When are we going to admit it and get things back on track? Will we wait until the United States declare bankruptcy? We're almost there now.

    Posted by Dave Johnson at 7:29 AM | Comments (1) | Link Cosmos

    September 14, 2008

    Stuff Going On -- Wall Street -- On A Sunday

    Hey turn on CNBC. Yes, this is Sunday afternoon/evening. Stuff is happening. Lehman Brothers is probably filing for bankruptcy because the Fed is not bailing them out. This means the stock market will realize that the Fed is not going to just bail everyone out, and they aren't going to like that. The AIG insurange giant is in trouble. Washington Mutual is in serious trouble. Bank of America is buying Merrill Lynch. All this on a Sunday.

    Update - See new post: Is Your Money Safe?

    Posted by Dave Johnson at 5:44 PM | Comments (0) | Link Cosmos

    August 24, 2008

    Social Security Healthy For Decades

    EPI: Social Security — government report shows that program is healthy for decades to comet,

    The Congressional Budget Office, the agency charged with providing Congress with objective analyses of federal programs, released a new report today that shows the Social Security program is in good financial shape and will be for decades to come.
    Don't believe the lies. Social Security is fine. They borrowed all the money from the Social Security Trust Fund to pay for tax cuts for the rich -- so why is that Social Security's problem?

    The money for those tax cuts was borrowed from the Social Security Trust Tund, and America's rich people have had quite a party with that money. That means that America's rich people owe the money to the elderly. It was borrowed from the elderly and it has to be paid back to the elderly. It is wrong to ask elderly retirees to accept less because we gave the money away to rich people to have a big party with.

    Posted by Dave Johnson at 7:51 AM | Comments (0) | Link Cosmos

    August 13, 2008

    That Stimulus Package

    Earlier this year we borrowed $152 billion and sent checks to everyone, calling it a "stimulus package." The interest on that borrowing alone will add another $6.8 billion per year to our budget -- forever -- assuming rates don't rise. Great idea.

    Borrowing another $152 billion bought us a little bit of time. But last month retail sales dropped, and the economic downturn is back on track just as bad as before. And because of that borrowing the interest that we all have to pay will make it just that much harder to get out of this.

    That "stimulus package" didn't create a single job. It didn't fix a single bridge. It didn't increase the country's productivity. It didn't build light rail anywhere. It didn't make us more energy efficient. It wasn't investment. It was more consumption. Borrowing to consume.

    What if we put $152 billion into hiring people to retrofit buildings to be more energy efficient? What if we put $152 billion into hiring people to install solar onto the roofs of government buildings? What if we put $152 billion into hiring people to hold summer classes so people would qualify for better jobs? That would be investment. It would lower our future costs or increase our future ability to earn. What has happened to us that this wasn't even considered -- by the Democratic majority in the House and Senate?

    Update - Thinking some more about this. In 2001 Bush said that news of the dramatic change from budget surplus to budget deficit after his tax cuts started taking effect was "incredibly positive news."

    President Bush said today that there was a benefit to the government's fast-dwindling surplus, declaring that it will create "a fiscal straitjacket for Congress." He said that was "incredibly positive news" because it would halt the growth of the federal government.
    (He said this in August, 2001. Later, when people were upset about it the weasel tried to blame 9/11 for the deficits.)

    Now we pay almost $500 billion at year for interest on the debt and this amount is rising rapidly. That $152 billion "stimulus package" was supposed to fix the economy. Think about the terrible effect on the economy of paying $500 billion each year just on debt interest.

    Posted by Dave Johnson at 3:45 PM | Comments (0) | Link Cosmos

    August 4, 2008

    The Housing Market's Double Bubble: The Big One Still Has Yet To Pop

    Look what the Republicans have done to our economy by following their core "trickle down" economic ideology, which really means borrow and spend. They have run up a massive debt which combined with no oversight, a near total removal of regulations on corporate conduct, and watched and let Neil Bush run a savings and loan (oh, sorry, that was that other Bush presidency -- when S&L owners and Republican campaign contributors robbed us blind and bribed Senators like John McCain and then got a massive government bailout.)

    We have all been hearing a lot about housing prices falling, and about the effect housing prices have on the economy. The impact to date, while real, is actually overstated. Why? Well, housing markets and their impact are the turtle of economics, they happen very very slowly. Prices have to fall and people have to sell, when they sell they, if they get less than they expected, may not spend as much as they would have if they had reaped a huge profit.

    Of course, the lack of higher equity is hurting those home equity lines people were tapping like McCain at an open bar. But ask yourself, honestly, how many people do you actually know who have either been forced to sell or have sold and not made a profit? Not that many -- yet. People are still holding out.

    Unquestionably the economy is slowing. Consumer debt is massive, companies are cutting jobs, inflation is rising, unemployment is a full percentage point ABOVE where it was a year ago, and with a work force of 200 million plus, that's 2,000,000 newly unemployed Americans.

    Just this morning, we saw that planned July Job Cuts skyrocketed to over 100,000 meaning that unemployment will continue to climb, the economic impact of those layoffs won't be felt till mid-fall at the earliest when severance packages run out and the reality becomes apparent, new jobs are hard to come by.

    But now the time is arriving when we will start to see and feel the real impact of the slowing economy -- layoffs will pick up over the next year and the forecast is for increasing and increasing unemployment, it almost surely will be another point or more higher next year than it is now.

    Slowing economies manifest themselves in many ways. But the most prominent is in the corresponding fall in housing prices. In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy's effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it's the other way around: prices are about to start dropping.

    Even Alan Greenspan agrees with us. Greenspan Says Housing Prices Not Yet Near Bottom

    Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are "nowhere near the bottom'' and the resulting market turmoil isn't showing signs of abating.

    How can this be?

    How can prices that have fallen 25% in Los Angeles year over year be about to start falling? Well, because unlike every other real estate boom of the past century, this past boom was, in fact, a boom and a bubble. This numbers below, from the Case-Schiller Housing Index showcase that and how the first bubble may have popped, the excess speculation bubble, but the underlying bubble remains, and now will begin to deflate.

    Prices in San Francisco were set to an index of 100.00 in January of 2000.

    By January 2004 prices had jumped to 155.93, a massive jump by historical standards. This alone is a real estate bubble.

    By January 2007, they had already softened a bit but still were at 211.78. This is the second bubble.

    Now the index stands at 162.70. Still up 60% since January 2000.

    The prices have lost some of the home equity / no money down madness bubble, but have let to be impacted by the slowing economy. And they will be

    How far will they go down? Well, economics is ruled by larger trends and post bubble, prices eventually revert to the historical mean.

    For example in the ten years from January 1987 to January 1997, prices increased 22%. And, fyi, that's after inflation, meaning a house purchased for $400,000 in January 1987 was actually worth less, in real dollar terms, in 1997, ten years later.

    That's not a rant, that's a fact, all of these prices don't include inflation.

    In real dollar terms, house prices really don't escalate much. Some studies of ONE HUNDRED YEAR time frames of the US Market show, in real dollar terms, that house prices remain flat.

    How can that possibly be?

    Well, we've been inundated with ten years of powerful powerful advertising messages that tell us, "housing prices always go up."

    We borrowed money and spent it like good Republicans, because housing prices always go up.

    We just know we can buy more and more because housing prices always go up.

    But they don't.

    So how can you estimate what the actual value of a house in San Francisco really is? How far can they fall? Another 40% to historical norms of growth? More? Well, Dave recently calculated how far prices in the San Francisco Bay Area could fall using three different methods.

    The first was the rent to price ratio. With this method you take the average rent and calculate the amount of money you need to put into a decent investment to make the same amount. For example, if you are clearing about $833.33 per month ($10K oer year) from a rental property unit (remember to account for maintenance and property taxes and something for your time...) then the price of the property would be around $100,000 for a 10% return ($10K is 10% of $100K) and $200,000 for a 5% return (sufficiently higher than a CD pays right now).

    So if houses in your area are renting for about $1400-1500 per month this is a rough way to tell that similar houses might be worth around $150K at best. If you double that and they rent for $2800-3000 then house prices would be $300K. And those prices assume that rental prices are not dropping.

    James lives in a rental house in Boston which at market peak might have sold for $800,000 or $900,000 but now rents for $2,400. What does the landlord clear? Not $28,000 because he pays the taxes so more like $20,000. If you had $400,000 in the bank would you be happy with 5% return? Perhaps. But that's the highest amount you can estimate the house is worth in the market. And guess what? 10 years ago, the house was worth about $350,000. So it actually is about the right value.

    The next method involved the average person in the area's income affording an average priced property. Look around at prices in your area, and average wages. At what price can the average person (or husband-wife) (or husband-husband/wife-wife in Dave's California and James' Massachusetts) buy a house? Right: uh-oh.

    The third method is to look at the historic mean plus inflation. When prices triple in a few years, then when they correct they have to fall to 1/3 of the peak (plus inflation). It's just the way it is.

    When Dave calculated these for the Bay Area all three methods came out the same and showed that prices can still fall as much as 30-40%. We say "can" but an economist might say "should."

    If it falls 30% from that index where it is now, it only drops to 112. Can't happen? Well, remember that 1987 - 1997 DECADE, it was up 22%. Now, after 8 years, it would be up 12% on that index. That's pretty normal growth to be honest.

    And what is cumulative inflation of the past 8 years? Let's make it easy on ourselves, and we'll say an average of 3%. The 100 Index goes from 100 to 126 with the combined effect of eight years of Inflation at 3%.

    You see, housing is not the perfect "always goes up" investment. And it is clear that the housing prices in San Francisco and many more places could have 30% - 40% to go down from where they are today.

    But, you guessed it, the news is actually worse than this. First, there is a huge amount of excess housing inventory on the market. So this needs to be factored into your thinking about where prices can go. On top of the need for prices to revert to the mean, these extra houses have to find buyers before prices can stabilize. This is supply and demand, nothing more, nothing less.

    Next is the effect of gas prices. Many, many housing developments have gone up in areas that are far from city centers and far from non-automobile transportation like light rail or even buses, and buyers are going to be factoring the price of gas now. Along with this, the price to heat and cool the monster homes that developers tended to build will become a consideration and will reduce demand for these houses.

    Another factor is that the "boomers" are starting to retire, and will be selling the larger homes in which they raised their families or ended their careers, looking for apartments, condos and even senior facilities. This will also reduce demand.

    And, just as the price of energy was not considered when these houses were designed and built but has lately become a factor, one day the implications of global warming will start to sink in. In particular, is the house sufficiently above sea level? Is it located near an area that is experiencing increased fire danger? LOTS of Californians are starting to think about these issues.

    But if you think we're wrong, and the above factors are non factors. Consider the recent decline in the stock market, General Motors and their 15.5 billion dollar quarterly loss, that's the recession that's here.

    This is the big one: A falling economy always forces housing prices to fall. Even when housing prices are not in a bubble to start with a recession forces prices down. And this hasn't even started acting on housing prices yet -- the falling prices we have seen are not because the economy is slowing, they are causing the economy to slow. The slowing economy will make this worse as people are laid off around the country. The foreclosures we are seeing today are not the result of people losing their jobs, but they are causing people to lose their jobs. THEN the foreclosures that come FROM people losing their jobs will start.

    There are no, none, nada, zilch factors that we see driving any hope for a "bottom" in housing prices any time soon.

    Thanks Republicans for ignoring the country's problems for so long, refusing to regulate the financial companies, refusing to address the need to find alternative energy sources, refusing to fund mass transit alternatives and refusing to provide oversight and enforcement of our laws. Thanks for bringing us to where we are today.

    They borrowed and spent. We borrowed and spent and drove the housing prices up through a double bubble. One bubble may have popped. The next one will soon.

    Post-Script: We worked on this post last week and over the weekend. This morning, The New York Times has this article: Housing Lenders Fear Bigger Wave Of Defaults. It echoes many of our arguments in this piece.

    Posted by Dave and James at 11:55 AM | Comments (0) | TrackBack | Link Cosmos

    August 1, 2008

    DO Rich People Create Jobs?

    "Rich people create jobs" and "Did you ever get a job from a poor person?" It's a popular line on the right-wing talk-radio circuit. They use it to argue that rich people should pay less in taxes... At right-wing,

    The amount of money you make in your lifetime is basically up to you. . . . Who creates these new jobs? Rich people create jobs. There ought to be a national day of recognition for rich people for all they have done for the country. Liberals think if someone makes the right life choices, works hard, and becomes financially independent from the government, they have to be punished with higher taxes to pay for all of the 45 year old minimum wage workers who never learned how to do anything.

    Posted by Dave Johnson at 6:42 AM | Comments (4) | TrackBack | Link Cosmos

    July 27, 2008

    Your Credit Score

    A thought: If you don't borrow, you don't care what your credit score is.

    If you don't borrow you don't get in so much trouble if you lose your job or have a medical emergency...

    If you don't borrow you don't have any payments. If you don't have any payments you have so much more to live on and enjoy.

    Posted by Dave Johnson at 2:16 PM | Comments (3) | TrackBack | Link Cosmos

    July 14, 2008

    Today's Financial Collapse Post: FULLY INSURED

    I've written over and over again that you need to make sure you only have money in INSURED bank accounts. That means federally insured. No money market funds or other accounts unless you can see that they are federally insured. Here is a simple rule: if you are getting a higher interest rate that means you are taking a greater risk, and this is NOT the time to take risks.

    Friday a big bank, IndyMac, was closed. This means that every single depositor at that bank with more than the insured limit is at risk of losing at least some of their money. What will happen now is the assets of that bank will be sold, and the money divided up among the depositors. If there is enough to cover all of the depositors, that's great. If not, the FDIC will cover all accounts up to $100,000 -- $200,000 for couples and $250,000 for IRAs. (Do I have that right?) IndyMac was the first of what could be many.

    BusinessWeek: What if my bank fails? Some questions and answers,

    The government's seizure of IndyMac Bank raises concerns for many consumers about whether their banks might be next.

    While it is unlikely the nation will see thousands of banks fail as they did during the savings and loan industry collapse in the late 1980s and early '90s, analysts predict there will be more battered financial institutions that are unable to survive in today's marketplace.

    [. . .] Q: How can I make sure my money is safe?

    A: All deposit accounts worth $100,000 and less are automatically insured by the FDIC. Many retirement accounts, such as IRAs and 401(k)s, are insured to $250,000 per person. But since it's a person's aggregate deposits, and not their individual accounts, that are insured, any amounts over $100,000 deposited at any one bank are not covered.

    In a joint account, each depositor is insured up to $100,000.

    The FDIC has information about its insurance on its Web site, at

    Posted by Dave Johnson at 9:07 PM | Comments (0) | TrackBack | Link Cosmos

    July 10, 2008

    Balancing the Budget and Paying Off the Debt

    Oh, so NOW they want budget deficit reductions!

    Here's what I think: The money for those tax cuts was borrowed from the Social Security trust fund, and America's rich people have had quite a party with that money. That means that America's rich people owe the money to the elderly. It was borrowed from the elderly and it has to be paid back to the elderly. It is wrong to ask elderly retirees to accept less because we gave the money away to rich people to have a big party with.

    And the money we owe the Chinese was borrowed and used to give tax cuts to the rich, and subsidies to oil companies, and no-bid contracts to defense contractors with Cayman Islands addresses.

    Since the borrowing began in the early 80s there has been a massive shift in wealth from regular people to a very few wealthy people. Now that the borrowing has to start being paid back they are asking regular people to be the ones who have to work harder, accept less, drive on unrepaired roads and send their kids to bad schools.

    We used to have a 90% top tax rate because we felt this kind of concentration of wealth was bad for democracy. Corporations used to foot a much greater portion of the country's tax bill, but this has also shifted onto the backs of regular people. And you know what? When we had those tax policies the economy worked better. In a consumer economy, regular people with more dollars in their pockets mean the economy does better.

    I'm an independent contractor so I have to pay 15% to social security on my first dollar to my last dollar - before income and other taxes. That is a direct subsidy to those tax cuts. It pisses me off.

    Posted by Dave Johnson at 12:05 PM | Comments (0) | TrackBack | Link Cosmos

    July 7, 2008

    Columbia Free Trade Question

    One of the main Republican talking points, repeated everywhere, is that trade with Columbia is one-way, so we need this "free trade" agreement. Bush, for example, recently said,

    "Today almost all of Colombia's exports enter the United States duty-free, while American products exported to Colombia face tariffs of up to 35 percent for non-agricultural goods, and much higher for many agricultural products.

    In other words, the current situation is one-sided. Our markets are open to Colombia products, but barriers exist to make it harder to sell American products in Colombia.

    I think it makes sense to remedy this situation.

    I think it makes sense for Americans' goods and services to be treated just like Colombia's goods and services are treated. So it's time to level the playing field. "

    OK, my question is is Columbia allowed to send stuff here with no tariffs, while we can't sell stuff there?

    Isn't the answer to impose the same tariff on Columbian goods that Columbia imposes on ours? I mean, duh? Wouldn't that bring us tax revenue, protect American jobs, and encourage Columbia to trade fairly? Duh?

    Or is it just the policy of corporate America to let other countries get away with stuff?

    Posted by Dave Johnson at 11:18 AM | Comments (1) | TrackBack | Link Cosmos

    June 26, 2008

    Economy, Stocks, Housing, Oil - How Far Can It Fall?

    Which way will the economy go next? Here's a hint: I just read that it will cost the average family in the North East U.S. an extra $2000 to heat their homes this coming winter.

    So you tell me - is the economy going to be better? Are people going to be having a grand old spendup this Christmas season?

    The public in 2000 chose to "elect" oil company executives to run the government. Immediately the Enron scandal ensued, with the obvious collusion of the recently-elected administration.

    Then the public chose to re-elect them in 2004.

    So let's not hear any complaining from anyone who voted for these clowns. OK?

    Oh, and by the way, the National Debt, which was getting paid down quite rapidly before Bush was elected, is now approaching $10 trillion. That's trillion with a 't'.

    Update - And the government run by oil company executives is refusing to allow solar power plants on government land in the Southwest. Are you surprised by that?

    Posted by Dave Johnson at 8:12 PM | Comments (5) | TrackBack | Link Cosmos

    June 18, 2008

    Written From A Desk In DC

    Here's another illustration of the reasons people are turning away from corporate media and toward blogs, YouTube, etc.

    Why We're Gloomier Than The Economy -,

    Ask Americans how the economy is doing, and their answer is stark: It is not just bad, it is run-for-the-hills terrible. Consumer confidence is at its lowest level in almost 30 years. Only 12 percent of Americans think the economy is in good shape. On the Internet, comparisons to the Great Depression are widespread.

    But the reality is different. According to most broad measures of how the economy is doing, it's not all that grim.

    . . . But so far, the economy is holding up better than it did during the last two recessions in 1990 and 2001. Employers haven't shed as many jobs, the unemployment rate is still relatively low, and gross domestic product has kept rising. Things are nowhere near as bad as they were in the Great Depression, or even during the severe recession of 1982-83. The last time consumers were this miserable, in May 1980, the jobless rate was 7.5 percent and inflation was 14.4 percent. Now those numbers are 5.5 percent and 4.2 percent respectively.

    OK. First, the jobs lost in the last recession never came back, so we're just starting from where that one left off.

    Second, if you read blogs you know that the ACTUAL inflation and jobless rates -- if measured the way they were in 1980 -- are much higher than 5.5 and 4.2 percent. MUCH higher.

    This has left economists trying to figure out why Americans' perceptions are so much more negative than the data analysts use to measure how things are going.
    So the well-paid economists and Wall Streeters and Washington Post reporters are sitting behind their desks wondering why all those people out in the real world are yelling that tings are bad. THEY just don't see it, so things must be fine, and all those people out in the real world are just making shit up.

    I mean, THEY don't get told every day to accept longer hours for less money because their jobs could be outsourced in a minute if the boss gets even slightly displeased with the amount of "Yes, Sir!" you're putting out. THEY certainly don't care if bread is approaching $5 a loaf.

    Posted by Dave Johnson at 9:44 AM | Comments (1) | TrackBack | Link Cosmos

    June 15, 2008

    Today's Housing Bubble Post -- How Far Will Prices Fall?

    I was driving this morning and clicking through the AM radio stations. On one station there was a "financial advice" show, with a guy talking about how to make a "236% return" by buying foreclosed houses and renting them out until prices go back up.

    In case you were wondering who is buying houses right now, it's the people who fall for this stuff.

    Where will housing prices fall to? Prices will revert to the mean, and the mean is where prices were before they started going way up, plus a bit for inflation. Another way is to realize that the price of the house, if rented out, should be low enough that you have positive cash flow after all expenses, and that cash flow should be a lot better than you could get from buying bonds because of the work you are putting into it. (In my area that means house prices should be about a third what they still are.)

    But before they do that they will fall a bit below the mean. Here is why. There are several factors that will pressure housing prices even when they reach the pre-bubble level.

    • Before prices can normalize people have to stop thinking that prices will go up again, and get rid of property they are "holding on to." So at the point where they reach the normal level there will be little buying interest. In fact people will understand that buying a house can be a good path to financial ruin.
    • Everyone who wanted a house really, really had a chance to buy a house. If they didn't buy a house when you could get money without even stating whether you had a job...
    • Next there is the huge buildup of inventory. There are many, many more houses out there than there were before the bubble.
    • There are all the housing developments built way outside of areas where people work, with the expectation that they would buy at as lower price there and when prices went up they could sell and make the down payment for a place closer to the job. Now that gas prices are up no one will want to buy these.
    • Then there is the coming rise in utility prices which means that the McMansions are going to cost too much to heat and cool.
    • The baby boomers are retiring, which means they will want to sell bigger houses and rent or buy smaller houses.
    People have no idea how far prices are going to fall.

    Posted by Dave Johnson at 3:12 PM | Comments (8) | TrackBack | Link Cosmos

    June 2, 2008

    SEIU Convention -- These Are PROGRESSIVE People

    I am at the SEIU convention in Puerto Rico. There are 3500 representatives here, each representing a number of workers. SEIU now has 2 million members and growth is accelerating.

    I'm in a darkened convention hall, listening and absorbing, with things coming at me from all directions. I'm talking to members and leaders. So I am not yet writing a lot. I'm just posting short posts until the larger stories appear and then I'll be writing a lot about this event and ongoing.

    This is a great thing happening here. THESE people are going to really make changes happen -- with health care the first priority. This is janitors, health care workers, and others, a real bottom-up movement of people who work hard. This is one of the most diverse crowds I have been in and these are dedicated people. And these are PROGRESSIVE people!

    The focus here is beyond the SEIU in particular and labor movement in general. The focus here is on the inequities in our current imbalanced economic system. We all know that it is working for a very few people at the top and not for the rest of us. And SEIU recognizes that they can't make the lives of just their workers better -- even if they could it wouldn't stick if other workers are still at starving wages with no benefits because employers can just use them as a wedge to pressure SEIU workers away from asking for a fair share. So they recognize that they have to work to make the economy start working for everyone.

    More to come.

    [Disclaimer: Blogger hotel and airfare paid for by the SEIU]

    Posted by Dave Johnson at 11:57 AM | Comments (0) | TrackBack | Link Cosmos

    May 29, 2008

    Gas Prices and Taxes

    The price of a gallon of gas at the pump is determined by a complicated calculation. To maintain the same profit level the companies have to balance demand with price. At a certain price point people finally begin to buy less gas. So if the price at the pump goes a bit higher they actually make less profit because people buy less gas.

    That is how the price of gas is set.

    The important thing to realize is that it is the price at the pump that rules this profit/demand equation. This is set by the demand for gas, not the price of the oil. This means that the idea of a "gas tax holiday" reducing or eliminating the taxes can't make a difference in the price of gas. If the equation shows the profit maximized at $4 per gallon, that is where the price at the pump will be. If they eliminate the tax the oil companies will say "thank you" and pocket the extra money. Because if the computers show the right amount of gas being sold at $4 at the pump, and people are buying a certain quantity of gas at $4 at the pump, then gas is going to be $4 at the pump whatever the taxes are.

    In fact, it might enable to companies to raise the price at the pump, because without the tax their profit level is higher per gallon, so they can raise the price and sell fewer gallons to maintain that profit level.

    Posted by Dave Johnson at 7:07 AM | Comments (1) | TrackBack | Link Cosmos

    May 28, 2008

    Today's Housing Bubble Post -- Where Is The Bottom?

    When will the housing market reach a "bottom? I hear this question a lot. I hear a lot of people talking about "jumping in" when they think there is a "bottom" so they can "catch the next wave" and "make money." They want to "put some money into real estate."

    The market will reach a "bottom" when you no longer hear about the market reaching a "bottom." This is because "bottom" is a term of speculation. The market will reach a bottom when all of the speculation and speculators have been squeezed out, and don't want to get back in again. And then housing prices probably won't and shouldn't go up more than the rate of inflation after that.

    A house is not an investment, it is a place to live. You buy a house to live in it, not to get rich. You buy a rental property to make an income off of the rent, not from the increase in price. Price appreciation does not have a place in these calculations.

    So here is the answer to when the bottom is reached: when the average person can afford the average house and when the rent you get from a rental unit is just right to yield a desirable rate of return on the investment, after figuring in the costs of maintenance, depreciation, property taxes and other costs.

    We are a long, long way from that point. That point will be reached when prices revert to the historical mean. When you look around YOUR neighborhood and think that the average price is just right for the average person, and no one -- repeat: no one -- is talking about making money from housing, that is when prices will have settled back to where they should be.

    Posted by Dave Johnson at 1:55 PM | Comments (0) | TrackBack | Link Cosmos

    May 27, 2008

    Today's Housing Bubble Post -- Home Prices Falling At Record Rate

    Home prices fell at record pace in first quarter,

    Prices of single-family homes plunged a record 14.1 percent in the first quarter from a year earlier, marking a pace five times faster than the last housing recession, according to the Standard & Poor's/Case Shiller national home price index reported on Tuesday.

    . . . Falling home prices have become the scourge of the housing market that is seeing its worst downturn since the 1930s. Home values since last year have been dropping below balances owed on many mortgages, leaving borrowers with no equity and more likely to succumb to foreclosure.

    And this is before the ripple effects of recession hit. They will ripple out from this to construction, automobiles, etc. And then the resulting job cuts will ripple back to the housing market. The fallout from the housing bubble's bursting is still only just beginning.

    Posted by Dave Johnson at 7:05 AM | Comments (0) | TrackBack | Link Cosmos

    May 16, 2008

    Today's Housing Bubble Post -- Here We Go Again!

    Haven't had enough of foreclosures and financial crises? Don't worry, there's more to come. This pretty much guarantees it: Fannie Mae eases down payment rules,

    Fannie Mae said Friday it is easing rules on down payments on home mortgages, replacing a policy that required higher payments in markets where home prices are declining.

    Posted by Dave Johnson at 8:13 AM | Comments (0) | TrackBack | Link Cosmos

    May 8, 2008

    The 'L' Curve

    Go see The L-Curve: A Graph of the US Income Distribution. Click Zoom Out a few times, as well.

    Posted by Dave Johnson at 3:07 PM | Comments (1) | TrackBack | Link Cosmos

    May 2, 2008

    Today's Jobs Report

    We had a GOOD jobs report today from the ever-trustable Bush administration. Employers cut fewer jobs in April, jobless rate falls,

    Employers cut far fewer jobs in April than in recent months and the unemployment rate dropped to 5 percent, a better-than-expected showing that nonetheless reveals strains in the nation's labor market.
    All I'll say is that the Labor Department uses a model that said 45,000 jobs were GAINED in construction. As homebuilding nosedives and with commercial construction starting its own nosedive, the Labor Department's model says that 45,000 jobs were GAINED in the economy. We all know that construction jobs were lost, not gained. So we simply do not know what is happening with employment and certainly cannot believe this report.

    Remember, since the 2001 recession they say we have had remarkably low unemployment. But we also know that most of the lost jobs never returned, and most new jobs pay much less. Most of the people I know who were laid off in the dot-bomb crash never found similar jobs, and are all making a lot less -- some never found ANY job. (Some work as bloggers, making $60 a month.)

    So read this, about the screwy statistics: April Jobs - Another Report From Bizarro World,

    Once again the BLS should be embarrassed to report this data. Its model suggests that there was 45,000 jobs coming from new construction businesses, 72,000 jobs coming from professional services, and a whopping 267,000 jobs in total coming from net new business creation.

    . . . Repeating what I said last month, virtually no one can possibly believe this data. The data is so bad, I doubt those at the BLS even believe it. But that is what their model says so that is what they report. Just as there is mark to model in the investment world, there is mark to model in the BLS world.

    . . . With housing falling like a rock and commercial real estate now following suit, the BLS is assuming that 45,000 new jobs were added in construction. With lenders blowing up and countless self employed real estate professional exiting the business the BLS is assuming 8,000 new jobs were added in financial activities and 72,000 jobs from professional and business services. The total number of jobs added in April by such absurd assumptions was 267,000 jobs.

    Posted by Dave Johnson at 10:11 AM | Comments (0) | TrackBack | Link Cosmos

    April 30, 2008

    Limits On Treasury Bond Purchases?????

    I just received this email:

    Dear TreasuryDirect Account Holder:

    The Savings Bond Purchase Limitation has been changed to $5,000 per series
    and TIN per calendar year. Please cancel any pending purchases that exceed
    the yearly $5,000 limit.

    This is an automatic message from TreasuryDirect.


    Posted by Dave Johnson at 12:42 PM | Comments (3) | TrackBack | Link Cosmos

    April 29, 2008

    Today's Housing Bubble Post -- How Low?

    This morning I wrote,

    We'll see a bottom when the average person can afford to buy an average house - and wants to. We are a long, long, long way from that now -- and keep in mind that we're about to see a big reduction in what the average person can afford as the recession takes hold.
    CNN's today: No brakes on housing prices8
    As housing price losses extend, he said, the fall-off in demand for homes will deepen. And Schiff expects to see a national price decline of 30% - and by as much as 50% in the worst hit markets.
    50%? In my area a 50% drop from the peak would bring houses down to maybe $400K. Will the average person around here be able to afford a $400K house a year from now, after a year of recession and after a tightening of loan standards? Not a chance. The price runup here saw a tripling to quadrupling of prices. And then they build thousands and thousands of houses in areas surrounding the SF Bay. So prices will have to fall by more than 50% - and the recession will have to end, and loans have to be available, and gas prices will have to fall a lot so commuters can drive to these houses - before houses will start selling again. Sorry for the bad news.

    Yes, I do understand the cascading implications of that. It means that pretty much everyone who bought a house (or borrowed money on their home equity) since about 2001 - at least in this area - is going to be owing more on their mortgage than the house is worth. In many cases they will owe a LOT more. And they will decide to either be "good consumers" and sacrifice to protect the bank's profits by making payments for 30 years on a house that is worth hundreds of thousands less than they owe (while their neighbors move in to the foreclosed house next door with payments that are less than half what they are paying), or they will make an economic decision to "walk away," giving the house back to the bank, and make a fresh start. What do you think most people will do?

    Posted by Dave Johnson at 4:52 PM | Comments (0) | TrackBack | Link Cosmos

    Today's Housing Bubble Post -- Prices Down 12.7% Feb. Year Over Year

    It's just getting started and home prices dropped 12.7% in February from the previous year. Home prices fall record 12.7% in past year, Case-Shiller say,

    The decline in U.S. home prices quickened in February, with prices down a record 12.7% in the past year for 20 key cities, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. "There is no sign of a bottom in the numbers," said David M. Blitzer, chairman of the index committee at Standard & Poor's. Prices in 19 of the 20 cities have fallen over the past year, with prices in all 20 cities falling month-to-month for six straight months. The biggest declines were in Las Vegas and Miami, with declines of more than 20% in the past year. Prices in Charlotte, N.C., are up 1.5%.
    Remember, this is before the impact of a recession on housing sales.

    When will we see a "bottom?" (The point where prices stop falling.) We're nowhere near a bottom. We'll see a bottom when the average person can afford to buy an average house - and wants to. We are a long, long, long way from that now -- and keep in mind that we're about to see a big reduction in what the average person can afford as the recession takes hold.

    Posted by Dave Johnson at 7:57 AM | Comments (0) | TrackBack | Link Cosmos

    April 28, 2008

    Bring Back The 90% Top Tax Rate!

    When Eisenhower was President the top income tax rate was 91%. But you had to have already made a LOT of money before you hit that rate. (Eisenhower, by the way, supported that 91% top tax rate.)

    That 91% tax rate is what got us out of the depression, and helped create a middle class (with the help of strong labor unions). It payed for fighting World War II and the GI Bill, and helped build our highway system, education system and other infrastructure that is in place today (albeit crumbling now from maintenance deferral resulting from tax cuts.) We did all that without borrowing, and the rich still got richer.

    Think about this: If tax rates at the top were 91% today, hedge fund managers would STILL be bringing in over $300 million EACH YEARbut the rest of us would be able to get health care, fix the roads, good schools, and the other benefits that were the reason we - yes, we - enabled this economic system in the first place.

    And think about this. If that top rate is 91% it reduces the incentive for corporate CEOs to bribe politicians to put policies in place that funnel all the wealth up to the top.

    Who is our economy FOR, anyway?

    Posted by Dave Johnson at 11:52 AM | Comments (3) | TrackBack | Link Cosmos

    April 25, 2008

    Inflation Is 11.6% If Calculated The Old Way

    The government changed the way it calculated inflation. If we mneasured inflation the same way we used to it would be as bad as it was during the Ford-Carter years. And we all KNOW this is true because we can see for ourselves that prices are rising so much faster than paychecks.

    The Fed's inflation gauge isn't realistic, critics say,

    John Williams, who spent more than two decades as an economic consultant to Fortune 500 companies, said the government figures understate the true rate of inflation.

    Williams, who runs Shadow Government Statistics in Oakland, which tracks changes in inflation, unemployment, the gross national product and other data, said that over the past 25 years, the government has changed the method of calculating price increases in ways that have lowered the reported inflation rate.

    The changes include measuring the cost of shelter by rental prices instead of home values, as well as giving nearly as much weight to high-ticket items such as cars and electronics as to daily necessities such as food and gasoline.

    According to Williams, if the government measured inflation based on pre-1982 methods, it would be running at 11.6 percent right now, or 7.3 percent using pre-1998 calculations.

    Click through to see a chart that will shock you.

    Posted by Dave Johnson at 9:19 AM | Comments (0) | TrackBack | Link Cosmos

    April 24, 2008

    Today's Housing Bubble Post -- Sales Drop To Lowest Level In 16 1/2 Years

    New home sales plunge to lowest level in 16 1/2 years,

    Sales of new homes plunged in March to the slowest pace in 16 1/2 years as a two-year housing downturn extended into the start of another spring sales season. The median price of a new home in March compared to a year ago fell at the fastest clip in 38 years.

    . . . The median price of a home sold in March dropped by 13.3 percent compared with March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.

    This made me laugh out loud:
    Some analysts said they believe the slide in sales may be close to ending although they said any rebound is likely to be slow and anemic with prices continuing to fall, possibly until this time next year.
    Listen, the problems we have seen so far have come about BEFORE the economic slowdown. Think about what that means. These foreclosures and people otherwise needing to sell their houses, etc., are not the result of a stressed economy. And we're just beginning to have a stressed economy. So we haven't even started to see the usual problems that come from layoffs, etc. So no, I don't think we are at a "bottom." Sheesh.

    Posted by Dave Johnson at 8:48 PM | Comments (0) | TrackBack | Link Cosmos

    April 15, 2008

    Today's Housing Bubble Post - Foreclosures Up 57%

    Foreclosures jump 57 percent in last 12 months,

    Home foreclosure filings surged 57 percent in the 12 month-period ended in March and bank repossessions soared 129 percent from a year ago, as homeowners struggled to make mortgage payments, real estate data firm RealtyTrac said on Tuesday.
    This brings up something I have been thinking about. So many people are "looking for the bottom." (Signs the bottom is behind us?) They think things are "leveling off." Well guess what, all the problems, all the foreclosures, all the credit card debt, all developed before the economic downturn began. And now we are entering a recession. No question. And a recession means that people are going to lose jobs, companies are going to go under, etc. And those people and companies are not going to be able to make their payments.

    So no, we are not looking at a "bottom." We're looking at the beginning.

    Posted by Dave Johnson at 8:43 AM | Comments (0) | TrackBack | Link Cosmos

    March 31, 2008

    Higher Interest = Higher Risk

    Anyone reading this who still has any money anywhere other than federally insured bank accounts, this is another warning: you can lose money in a money market fund. And, of course, you can lose money in stocks. And people are realizing that you can lose money in real estate.

    The REASON you get higher interest rates or other returns is because there is more RISK. This is not a time to have any money anywhere where there is any risk.

    Posted by Dave Johnson at 11:53 AM | Comments (0) | TrackBack | Link Cosmos

    March 27, 2008

    Recession the Movie

    From the people who brought you "The Iraq War"...

    ... comes a sequel unlike anything you've ever seen:

    Posted by Dave Johnson at 11:59 AM | Comments (0) | TrackBack | Link Cosmos

    March 21, 2008

    Today's Housing Bubble Post - The Fine Line

    There is a fine, fine line between a gain and a crushing decline:

    Posted by Dave Johnson at 7:02 PM | Comments (0) | TrackBack | Link Cosmos

    March 17, 2008

    From Take Back America - Monday

    This was originally posted at Speak Out California

    I am at the Take Back America conference in Washington DC.

    One common discussion here at Take Back America is that conservative economic policy chickens are coming home to roost. Another phrase I am hearing is Wild West Banking. People here are talking about the big story in the news right now: an economic and financial crisis that some economists are saying is the worst since the depression.

    For decades, as conservative economics increasingly led to lower wages, loss of pensions and health insurance, and general "you're on your own" economic insecurity many people have been using up their savings while other people turned to borrowing to make up the difference, taking out second mortgages or running up credit cards.

    Meanwhile the financial system, increasingly deregulated, cooked up riskier and riskier schemes -- like loaning money to people and companies to use to make their payments on their existing debt.

    Now we appear to be reaching the limit of people's ability to borrow. And when people and companies have been borrowing to meet their payments this can mean a collapse. When people can't pay the mortgages the financial companies aren't receiving their payments. So they can't make their payments, and the companies they aren't paying can't make their payments. Think of this as a spiral of debt extending from the overextended consumer at the bottom to the biggest financial companies at the top. Now that spiral is beginning to "unwind."

    This is happening because of so many years of conservative government focused on deregulating and on protecting the interests of the corporations and the wealthy instead of protecting the interests of the public from the moneyed interests. This is what conservatives do. A while back I wrote a very short post titled Republicans and Economics:

    ...there was a REASON that Americans were loath to elect a Republican into the government for an entire generation after the Great Depression: They remembered.
    But eventually the public forgot, and the moneyed-interests used their money to again become the dominant voice in the public discussion. They used this dominance to persuade people to dislike unions, accept 401Ks as alternatives to pensions, and all the rest of the things that have led to another economic crisis. But even many of my progressive readers didn't understand what I meant. So I had to add an update,
    Previous generations REMEMBERED. There was nothing to add. Over time people have forgotten how Republican economics caused the depression, and how they fought every single program that helped the people at the expense of the wealthiest and the powerful corporations. (And in fact led to the prosperity that the wealthiest and corporations enjoyed since.)

    But now people do not remember how concentration of wealth, corporations preying on citizens, anti-union policies, etc. LED TO the economic collapse.

    The depression was ended by pro-union policies, redistributive taxes, REGULATIONS on businesses and the fuinancial sector, and an understanding that We, the People run the government, and the reason we have corporations is for OUR benefit, not just the benefit of the few.

    Over time, as I said, people forgot. And here we are again.

    How do we help the public understand what is happening and how conservative policies are responsible?

    Click to continue

    Posted by Dave Johnson at 2:08 PM | Comments (0) | TrackBack | Link Cosmos

    Today's Financial Crisis Post - Get Out Of Money Market Funds!

    For years and years and years people have been saying that Americans are taking on too much debt. The government has been borrowing too much. People are using credit cards too much. Second mortgages used for consumption are too much debt. There is too much corporate and financial system debt.

    Debt has been fueling the growth we have been seeing for some time. It fueled the housing bubble. And now with the housing bubble bursting the debt bomb might also be exploding.

    You might be hearing about problems on Wall Street and with the big financial firms. You might be hearing about the mortgage market having problems.

    Well today you'll be hearing about big financial firms having serious trouble. Over the weekend a number of things happened. The big firm Bear Stearns basically went under and the government helped JP Morgan buy them for $2 a share. And the Federal Reserve did an emergency rate cut last night, with another expected tomorrow.

    Asian stock markets are way down, and when the markets open this morning there are fears that it will drop.

    Part of what happened with Bear Stearns is there was a "run." People were worried that the company would go under and asked for their money. And Bear Stearns didn't have it. This means that other people will be wondering if their money in other firms is also at risk, and might be asking to get it out. This might be what happened over the weekend.

    If you have any money in money-market accounts, move it into federally insured bank accounts. You can lose money if it is in these accounts. You shouldn't have any money anywhere that is not federally insured until this thing blows over. Federally. IF, if we are looking at a systemic problem the private insurance companies will also be affected.

    Have I mentioned that you shouldn't have any money anywhere that is not federally insured right now?

    Posted by Dave Johnson at 5:38 AM | Comments (0) | TrackBack | Link Cosmos

    March 15, 2008

    A Song For Wall Street: Under Pressure

    Mm ba ba de
    Um bum ba de
    Um bu bu bum da de
    Pressure pushing down on me
    Pressing down on you no man ask for
    Under pressure - that burns a building down
    Splits a family in two
    Puts people on streets
    Um ba ba be
    Um ba ba be
    De day da
    Ee day da - that's o.k.

    It's the terror of knowing
    What the world is about
    Watching some good friends
    Screaming 'Let me out'
    Pray tomorrow - gets me higher
    Pressure on people - people on streets
    Day day de mm hm
    Da da da ba ba
    Chippin' around - kick my brains around the floor
    These are the days it never rains but it pours
    Ee do ba be
    Ee da ba ba ba
    Um bo bo
    Be lap
    People on streets - ee da de da de
    People on streets - ee da de da de da de da
    It's the terror of knowing
    What this world is about
    Watching some good friends
    Screaming 'Let me out'
    Pray tomorrow - gets me higher high high
    Pressure on people - people on streets
    Turned away from it all like a blind man
    Sat on a fence but it don't work
    Keep coming up with love
    but it's so slashed and torn
    Why - why - why ?
    Love love love love love
    Insanity laughs under pressure we're cracking
    Can't we give ourselves one more chance
    Why can't we give love that one more chance
    Why can't we give love give love give love give love
    give love give love give love give love give love
    'Cause love's such an old fashioned word
    And love dares you to care for
    The people on the edge of the night
    And loves dares you to change our way of
    Caring about ourselves
    This is our last dance
    This is our last dance
    This is ourselves
    Under pressure
    Under pressure

    Posted by Dave Johnson at 7:22 PM | Comments (1) | TrackBack | Link Cosmos

    March 7, 2008

    Today's Housing Bubble Post - Nowhere Near A Bottom

    Hale "Bonddad" Stewart: The Housing Market Is Nowhere Near Bottom.

    Go see his chart of housing prices, to see how far prices have yet to fall.

    A house near us was offered at $800,000, after several months only one offer came in for $500,000, and they accepted it. But all I can think of is some sucker just spent $500K for a 3 bedroom house that is going to be worth about $300K next year. Another in our area, asking $750K, sold at $450K. Still way too high.

    Posted by Dave Johnson at 9:39 AM | Comments (0) | TrackBack | Link Cosmos

    March 4, 2008

    Today's Housing Bubble Post - "Deepest decline since the Great Depression"

    The bloggers were calling it a few years ago, talking about how this was a bubble, and that it would lead to a dramatic collapse. The professionals weren't seeing it. The lenders were acting like prices alway go up. (Remember the same thinking with the stock collapse?)

    And now here we are.

    Housing in 'deepest, most rapid' decline since Great Depression,

    "Housing is in its "deepest, most rapid downswing since the Great Depression," the chief economist for the National Association of Home Builders said Tuesday, and the downward momentum on housing prices appears to be accelerating.
    The NAHB's latest forecast calls for new-home sales to drop 22% this year, bringing sales 55% under the peak reached in late 2005. Housing starts are predicted to tumble 31% in 2008, putting starts 60% off their high of three years ago. "
    And this is just the beginning. Prices always revert to the mean, and the mean is going to be mean.

    Posted by Dave Johnson at 2:22 PM | Comments (0) | TrackBack | Link Cosmos

    February 27, 2008

    Today's Money Warning Post

    Today's money warning comes from : Mish's Global Economic Trend Analysis,

    Last Warning

    If you are over the FDIC limit at any bank, do something about it immediately.

    Posted by Dave Johnson at 10:31 PM | Comments (1) | TrackBack | Link Cosmos

    February 22, 2008

    Today's Housing Bubble Post - If Prices Fall Further

    Do Reporters Realize that House Prices Can Fall?,

    If they did realize that house prices could fall then they would be discussing this possibility in the context of the Office of Thrift Supervision's proposal to have the federal government buy up bad mortgages, paying the current market price of the homes. The plan would give the current holders of the mortgage a certificate equal to the difference between the money outstanding on the mortgage and the current value of the home. The reports then tell us that if the house price does not rise back to the amount owed on the mortgage by the time it is sold, then the mortgage holder will eat the loss.

    That's fine, but what happens if house prices fall further? I didn't hear this scenario mentioned in Market Place's discussion of the proposal on the radio this morning, or indeed in any other reporting on this proposal.

    Answer - if prices fall further, the taxpayers get to hand even more dollars to the banks. Republicans bail out big business and let the rest of us pay for it. Always. The branding is that Republicans are anti-government and fiscally responsible, but it's just words. Look at what they do, not what they say. They get into office, destroy the government, destroy small businesses, and hand all of our tax dollars to their cronies. Did I leave out the part about getting rid of all oversight (regulation and law enforcement) so the big corporations can rob us blind?

    Government buying bad mortgages? Great, just great.

    Posted by Dave Johnson at 9:49 AM | Comments (0) | TrackBack | Link Cosmos

    February 19, 2008

    Just How Bad Are The Economic Indicators?

    Just how bad are the economic indicators?

    This bad:

    Due to budgetary constraints, the Economic Indicators service ( will be discontinued effective March 1, 2008.

    Posted by Dave Johnson at 5:34 PM | Comments (1) | TrackBack | Link Cosmos

    February 18, 2008

    Get Out Of Money-Market Funds

    "Suspended Redemptions."

    Yes, I have been harping on this, but once again: if you have money in a money-market fund, transfer it to an insured bank account.

    This is not about a money-market fund, but it shows what is happening in the financial markets. This could happen to your money, too. (I actually know someone who has lost a bundle in a hedge fund.)

    Citigroup Stops Withdrawals from Hedge Fund: WSJ,

    Citigroup has barred investors in one of its hedge funds from withdrawing their money, and a new leveraged fund lost 52 percent in its first three months, the Wall Street Journal reported Friday.

    The largest U.S. bank suspended redemptions in CSO Partners, a fund specializing in corporate debt, after investors tried to pull more than 30 percent of its roughly $500 million of assets, the newspaper said. Citigroup injected $100 million to stabilize the fund, which lost 10.9 percent last year, the newspaper said.

    What does this mean? It means that people who parked money in this fund can not take money out, and are likely to lose much of it -- even after Citigroup pumped $100 million of their own money in to try and save it. This has been happening to other hedge funds as well.

    If you are getting a "good rate" on your money right now, you should be worried. There is a reason they say "risk equals return." That means that you have to take greater ricks to get a higher return. Banks are paying squat right now, but what rate of return is worth losing all of your money? This is not a low or moderate risk environment. This is a time of very high risk. People and companies are defaulting on their loans left and right. Put your money somewhere safe and insured right now. Pay off your debts. Tie down your finances because the storm approaches.

    Did I say "insured"? I mean Federally insured. And that means a bank. Period.

    If I'm wrong and you do this, what do you lose? A little bit of higher interest. If I'm right and you do this, what do you NOT lose? Everything.

    (Through Atrios)

    Posted by Dave Johnson at 11:47 AM | Comments (1) | TrackBack | Link Cosmos

    February 17, 2008

    Bring Back Protectionism

    America used to have a policy of protecting our wages against unfair competition from low-wage countries. We placed a tariff on imported goods made by workers who were paid substandard wages. We protected our national interest.

    The idea was to encourage the companies that made those goods to pay better wages. This way their countries' economies would improve and their workers would be able to buy the things that we make. Thus, the policy of protectionism was a way to improve living standards for workers everywhere, growing our own economy and improving our standard of living in the process.

    The money collected from the tariffs was used for our common good: for example, it was spent on improving our country's infrastructure and education system (including science, research and development) so we could retain and improve our competitive position, as well as retraining workers whose industries were affected by changes in trade patterns.

    Protectionism was generally our country's policy until a few decades ago. That was back when our country was OUR country -- for We, the People -- and our economy was OUR economy. And it worked. Our living standard continually improved. Then we changed to a "free trade" policy, meaning our workers work pretty much for "free" and big corporations are "free" to do anything they want. Additionally, without the revenue from tariffs, we have to tax our manufacturers more heavily, which makes them even less competitive internationally.

    Since then average wages have stagnated and our pensions and health insurance have been disappearing, as have our savings. The country's trade debt has been increasing alarmingly. And corporate control over all of us has become near-total. Corporations are able to get their way by intimidating employees with the fear of losing our jobs to outsourcing, and intimidate governments by threatening to move to lower wage countries.

    So it is time to bring back protectionism. It worked.

    Posted by Dave Johnson at 2:40 PM | Comments (1) | TrackBack | Link Cosmos

    February 8, 2008

    Taxes And Unions Got Us Out Of The Depression

    I wonder why no one has pointed out the real reason the Republicans filibustered the "Stimulus Bill" this week? They blocked an expansion of Food Stamps, an extension of unemployment benefits, assistance for disabled veterans, help for seniors and a boost for renewable energy.

    Here is the reason: Those were not about taxes.

    The Democrats caved (of course), so the public now has validation of the notion that taxes harm the economy.

    Message: Economy in trouble? Tax rebates and tax cuts will "stimulate" things.

    So will this "stimulus" help? Maybe a slight bit. The government will borrow another $150-or-so billion and pump it into the economy. The deficit will be even bigger. The world will trust the dollar even less.

    Here is something to think about. This economic problem is about debt. Since Reagan the country and the people in it have been borrowing huge amounts of money to keep things going. (Except for the years that Clinton balanced the budget and was paying back some of the debt.)

    Taxes and unions got us out of the depression. Redistribution of income. Taxes on the rich, the money used to build infrastructure and provide good jobs, and unions to force the corporations to give raises and benefits. In a consumer economy you want more money in the hands of the consumers - not the rich. DUH!

    Posted by Dave Johnson at 8:00 AM | Comments (1) | TrackBack | Link Cosmos

    February 1, 2008

    Today's Collapsing Economy Post - Jobs DROP

    Payrolls see first drop in 4-1/2 years,

    Nervous employers cut 17,000 jobs in January — the first such reduction in more than four years and a fresh sign that the economy is in danger of stalling.
    The unemployment rate declined a notch, from 5 percent in December to 4.9 percent in January. The jobless rate — calculated from a different statistical survey than the payroll figures — dipped as people, perhaps discouraged by their prospects, left the labor force for any number of reasons.
    And U.S. says construction spending dropped 1.1% in December,
    Spending on U.S. construction projects fell by 1.1% in December as outlays on private residential construction took another tumble, government data showed Friday.
    The drop was bigger than expected by economists surveyed by MarketWatch, who were looking for a decline of 0.5% in December.
    Where is all the money going?,Exxon Mobil posts record profits,
    Exxon Mobil Corp. on Friday posted the largest annual profit by a U.S. company — $40.6 billion — as the world's biggest publicly traded oil company benefited from historic crude prices at year's end.

    Exxon also set a U.S. record for the biggest quarterly profit, posting net income of $11.7 billion for the final three months of 2007, beating its own mark of $10.71 billion in the fourth quarter of 2005.

    Here we go. And remember, get your money out of money-market funds!

    Posted by Dave Johnson at 7:20 AM | Comments (0) | TrackBack | Link Cosmos

    January 31, 2008

    Today's Collapsing Economy Post - Jobs Down, Stocks Up

    Do these headlines have anything to do with each other? U.S. first-time jobless claims rocket higher in latest week, U.S. Economy: Consumer Spending Slows, and finally, U.S. Stocks Rise.

    For Wall Street everything, everything, everything is about the Federal Reserve bailing them out with interest rate cuts. So the worse the economic news, the more they expect the Fed to cut rates, and stocks go higher. Seriously, just listen to the talking heads on CNBC or the other networks - everything, everything is about what the Fed will do and about what the dealmaking companies will do and not about how well WE - you and I - are doing.

    Just who IS our economy for, anyway?

    Posted by Dave Johnson at 12:50 PM | Comments (0) | TrackBack | Link Cosmos

    January 28, 2008

    Today's Housing Bubble Post - New Home Sales Fall by Record Amount

    Yahoo: New Home Sales Fall by Record Amount:,

    Sales of new homes plunged by a record amount in 2007 while prices posted the weakest showing in 16 years, demonstrating the troubles builders are facing with a huge backlog of unsold homes.
    CNN: New home sales: Biggest drop ever,
    New home sales posted the biggest drop on record in 2007, according to the government's latest look at the battered housing market, as a year that saw a meltdown in the mortgage market and a drop in home values ended with yet more signs of weakness.

    December sales came in at an annual rate of 604,000, the Census Bureau report showed, down from 634,000 in November, which was also revised lower.

    The reading was well below the consensus forecast of 645,000, according to economists surveyed by

    . . . No bottom yet Adam York, an economist with Wachovia, said the report confirms fears that the housing market won't bounce back anytime soon.

    "We're expecting sales to decline into at least mid-2008," he said. "We think housing still has a long way to go." [emphasis added.

    What is there to add to that? I keep hearing that "we're at a bottom." I got yer bottom, right here.

    Posted by Dave Johnson at 8:57 AM | Comments (0) | TrackBack | Link Cosmos

    January 27, 2008

    Today's Housing Bubble Post - What Would A Big Corporation Do?

    There is a discussion over at Calculated Risk on whether it is "smart" to just walk away from a house that is worth less than you owe. Many states allow you to do that, without owing the difference. In those states, giving the house back pays the loan in full if it is a first mortgage. (Yes, it ruins your credit rating, but you could save hundreds of thousands of dollars.)

    What about the moral question? Aside from whether it is smart or not, is it moral? I wonder if a better question is, when dealing with a big corporation, should you ask what the corporation would do if the shoe was on the other foot? I'm thinking about corporations that use the bankruptcy laws to get rid of union contracts and pension obligations, and that always do the "smart" thing at the expense of the employees, customers, public and even shareholders...

    What do you think? Especially our conservative commenters?

    Posted by Dave Johnson at 8:22 AM | Comments (1) | TrackBack | Link Cosmos

    January 23, 2008

    Republicans and Economies

    Ladies and gentlemen, there was a REASON that Americans were loath to elect a Republican into the government for an entire generation after the Great Depression: They remembered.

    Update - I was waiting for a comment asking me to explain what I mean, because it would make my point.

    Previous generations REMEMBERED. There was nothing to add. Over time people have forgotten how Republican economics caused the depression, and how they fought every single program that helped the people at the expense of the wealthiest and the powerful corporations. (And in fact led to the prosperity that the wealthiest and corporations enjoyed since.)
    But now people do not remember how concentration of wealth, corporations preying on citizens, anti-union policies, etc. LED TO the economic collapse.

    The depression was ended by pro-union policies, redistributive taxes, REGULATIONS on businesses and the fuinancial sector, and an understanding that We, the People run the government, and the reason we have corporations is for OUR benefit, not just the benefit of the few.

    Over time, as I said, people forgot. And here we are again.

    Posted by Dave Johnson at 6:04 AM | Comments (1) | TrackBack | Link Cosmos

    January 22, 2008

    Today's Housing Bubble Post - Go Read

    Go to The Agonist to read today's housing bubble post: Most Clueless Banker of the Year Award. It is a comprehensive explanation of that happened, including a timeline.

    [. . .]Like the real estate industry in general, banks believe and tell their customers that home values never go down. Their internal models are predicated on this assumption. Everything communicated to the consumer tells them that their home is a piggy bank of ever-increasing value. Withdrawing cash from the piggy bank is made as easy as possible. Consumers are given loans allowing them not to pay any interest at all and build up a balloon balance, which will assuredly be taken care of down the road by market appreciation. These option characteristics allow the banks to charge even higher points up front and stick penalty clauses into mortgages forbidding the homeowner from paying off the loan until the bank receives all fees due them.
    Go read.

    Posted by Dave Johnson at 7:39 PM | Comments (0) | TrackBack | Link Cosmos

    Fed Drops Rates 3/4 Percent

    Update Market has been open for four minutes, Dow down 439... NASDAQ down 118.

    Update 2 Market open 15 minutes, Dow down 369 ... NASDAQ down 78.

    Update 2 Later, markets recovered for now, DOW down 50 ... NASDAQ down 23.

    People are nervously waiting for the stock market to open. So the Federal Reserve made and "emergency" 3/4 point drop in interest rates. This is a very big drop.

    The backdrop: stocks around the world plunged yesterday while our market were closed for the Martin Luther King holiday.

    Stock markets across Asia plunged even farther and faster on Tuesday than they had on Monday, as anxious sellers dumped huge numbers of shares on worries that an economic slowdown in the United States could drag down growth around the world.

    . . . The Japanese stock market dropped 5.7 percent, for the worst two-day loss in 17 years, while the Australian stock market tumbled 7.1 percent, its worst single-day loss in nearly two decades. The Shanghai market lost 7.2 percent while the Hang Seng index in Hong Kong plummeted 8.7 percent.

    Inflation is running at 4.1% and the Fed's interest rates are now 3%. The Fed will PAY banks 1.1% to borrow.

    What this means: bailing out the stock market by dropping the dollar, increasing inflation nd trying to trigger an asset bubble like the bursting housing bubble. Remember, it was ridiculously-low interest rates that caused that bubble.

    By the way, I'm not sure if I have mentioned this: Do not leave any money in "money-market funds" right now. Make sure that your money is in FEDERALLY INSURED ACCOUNTS. 'Federally' is the key word there. And learn the rules on how much you can have in any accounts and still be insured.

    Posted by Dave Johnson at 6:17 AM | Comments (0) | TrackBack | Link Cosmos

    January 21, 2008

    Today's Housing Bubble Post - Stocks Plunge Worldwide

    The problems of the housing bubble are catching up to us. The real estate crash has started, bringing big losses to the big financial firms -- over $100 BILLION in write-downs so far!

    And in the past few weeks the stock market has been catching on that things are not so great anymore. But today - with markets closed in the U.S. in honor of Martin Luther King Day - stocks have been plunging around the world. Markets in Asia down as much as 7%, even more. Europe as well. Canada down.

    Dow futures are down dramatically - 540 points, more than 4% - which could mean a very bad day tomorrow - or not.

    Stocks Plunge Worldwide on Fears of a U.S. Recession - New York Times,

    “There is indeed some panic,” said Thomas Mayer, the chief European economist at Deutsche Bank in London. “What we’re seeing, in Europe and Asia, is that the markets are pricing in a recession.”

    The sell-off was evenly distributed from West to East, with indexes plunging in London, Paris, Frankfurt, Tokyo, Hong Kong, Seoul and Bombay. The Frankfurt Stock Exchange’s Dax index plummeted 7.2 percent, its steepest one-day decline since Sept. 11, 2001. The 7.4 percent drop in Bombay’s Sensex index was the second-worst single-day tumble in its history.

    Remember what I said about money market funds. Make sure that your money is in FEDERALLY INSURED ACCOUNTS.

    Posted by Dave Johnson at 5:01 PM | Comments (0) | TrackBack | Link Cosmos

    January 20, 2008

    Today's Housing Bubble Post - Cashing In Before Crash

    Also titled "I told you so!"

    In the LA Times today, How we cashed in before the housing crash,

    Our friends said we were crazy. Relatives asked whether we were in financial trouble. But in April 2005, my wife and I bailed out of the American dream. We sold our two-bedroom Pasadena condominium and became renters again.

    We got nearly three times what we had paid for the place nine years earlier. It seemed to us like a staggering profit -- and a sign that the market had been pumped up beyond reason.

    . . .But at the time, a lot of people thought we had sold too early. To stay on course, I adopted a personal anthem. It was a Public Enemy song that hit big in 1988 during the previous real estate run-up: "Don't Believe the Hype."

    Sold too early. And now they're saying "We're at the bottom." Right.

    Posted by Dave Johnson at 1:24 PM | Comments (0) | TrackBack | Link Cosmos

    January 16, 2008

    Republican Solution To Economy

    Republicans are proposing a "stimulus proposal" for the economy: an additional 25% cut in corporate taxes. Guess who will make up the difference, one way or another?

    Think Progress captured this:

    At a press conference today unveiling the stimulus proposal, Rep. Michele Bachmann (R-MN) justified the conservative plan to give tax breaks to corporations — instead of working Americans — by arguing that people actually like working long hours:
    I am so proud to be from the state of Minnesota. We’re the workingest state in the country, and the reason why we are, we have more people that are working longer hours, we have people that are working two jobs.
    Got that? Republican economics are GOOD because people WANT TO work long hours, and two jobs.

    As for paying for corporate tax cuts? You either have to pay higher taxes to make up the difference, or the money has to be borrowed. In 2007 we paid $433 billion interest on previous Republican borrowing. But there are other, serious costs as well. The plunge of the dollar is a consequence of the borrowing. The rising cost of oil is, too. And soon we will all be experiencing more costs of the borrowing as the economy collapses.

    The question is, what are you going to do about it?

    Posted by Dave Johnson at 2:15 PM | Comments (0) | TrackBack | Link Cosmos

    January 11, 2008

    Full-Scale Attack On Social Security "Welfare"


    It links to: / Home UK / UK - US's triple-A credit rating 'under threat',

    The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody's, the credit rating agency, said yesterday.

    The warning over the future of the triple-A rating - granted to US government debt since it was first assessed in 1917 - reflects growing concerns over the country's ability to retain its financial and economic supremacy.


    1) Social Security and Medicare are not "welfare."
    2) Social Security is not the problem. The problemis that the government owe money to Social Security. Reagan and then the Bushes borrowed money from the fund to give tax cuts to the rich, and now the fund wants sime of it back. (Clinton was paying it back.)

    Update - How come the people so concerned about the financial condition of the country - namely the massive debt - never call for tax increases to start paying down that debt? It worked for Clinton and resulting economy of the 90's was good for everyone.

    Update II - Why not a call to reduce the huge, vast, unbelievable military budget?

    Posted by Dave Johnson at 9:28 AM | Comments (1) | TrackBack | Link Cosmos

    January 10, 2008

    Federal Reserve To Inflate

    Buy gold. Buy non-US currencies. The Fed is going to try to inflate us out of the mess. Dow bounces back as Bernanke signals more rate cuts

    Posted by Dave Johnson at 9:50 AM | Comments (0) | TrackBack | Link Cosmos

    January 9, 2008

    Do Taxes Drive The Economy?

    This post originally appeared at Speak Out California.

    Do taxes drive California's economy?

    The governor says California is in a budget crisis. He says we need to cut the state's spending "across-the-board," and the Republicans insist that tax increases and other alternatives are off the table. The media largely seem to be going along with taking discussion of alternatives off the table, and consequently Democrats are too intimidated to bring them up.

    But what they are missing is that taxes drive the economy.

    Tax-cut proponents say that increasing taxes on the wealthy "takes money out of the economy." I wonder where they think the money goes? Do they think it just goes up into the air and disappears?

    They don't seem to -- or pretend not to -- understand that taxes come right back into the economy. It is taxes that pay the salaries of teachers and police officers and that build and maintain our roads. Then that money circulates from those teachers and construction workers to support our stores and movie theaters and restaurants and to buy homes and cars.

    What would the effect be of a cut? In California there are approx. 308,000 teachers. The Governor is proposing a 10% "across-the-board" tax cut. Imagine the economic consequences if this cut means laying off 10% of those teachers -- 30,000 people? This is not the precise plan but it illustrates that spending cuts do not help the economy of California. In fact it is spending cuts, not tax cuts that "take money out of the economy."

    And anyway we want what our taxes buy us! We want our teachers and firefighters and roads and courts and water & sewer systems. Cuts are not what we want.

    Borrowing more money is not the solution, either. One result of the conservative tax-cutting fever of recent years has been massive borrowing at the state and especially the federal level. But people have not been told that borrowing is in reality a spending increase because we have to pay interest on that debt. California is spending $4 billion this year to pay interest on bonds and that is spending that cannot be cut. That is a lot of spending, and we would not have such a serious deficit if we did not have to pay out that $4 billion.

    So the solution to the budget shortfall has to include all the tools in our toolbox. First, we have to close tax loopholes. We need to restore the vehicle license fee (which the Governor calls a tax). Then we need an oil-severance tax - we are the only state in the country that drills oil that doesn't have one! And we have to stop being a "donor state" to the federal government. We send over $50 billion to the feds that we do not get back for programs or services.

    Finally, we need tax increases on corporate profits and the wealthy. Here is why: tax money is used to build the very things that ensure our prosperity. It is used to build the economy that enables some of us to become very wealthy and stay that way. Our tax-supported legal system enables and protects businesses and investors. Our tax-supported economic infrastructure defines and regulates the financial system under which investment occurs to build these businesses. Taxes built the physical infrastructure (like schools and roads) that helps us all in ways that everyone understands. But taxes also built and support the legal and economic infrastructure that is crucial for economic growth as well. The Anderson Forecast states that the two keys to a successful economy are infrastructure and education, and that is tax dollars. Entrepreneurs and businesses look for those qualities when determining where to set up shop.

    In other words, the wealthy and businesses have benefitted the most from government investment and they have the most money as a result, so they should be contributing the most. And middle-class taxpayers are currently being hammered by a different kind of oil tax -- huge increases in gas prices at the pump while the oil companies are recording the most profits by any companies ever. And because of previous spending cuts, the middle class, and particularly our students, are experiencing increases in fees such as college tuition while the benefits of the taxes they pay are going disproportionately to the wealthy.

    Of course taxing the very wealthy and corporations might very well take some money out of the Cayman Islands' or other tax-haven economies, bringing it back to California. (One building in the Cayman Islands is the business address of more than a thousand American corporations.) And increasing taxes on the wealthiest might even cause someone to have to buy a slightly smaller yacht or private jet in order to be used to pay a few hundred teachers or firefighters.

    Click to continue

    Posted by Dave Johnson at 9:12 AM | Comments (1) | TrackBack | Link Cosmos

    December 30, 2007

    Today's Housing Bubble Post - Next Year, Not Just Subprime

    So far we have been hearing about a "problem" with "subprime" mortgages that went to people with bad credit. Then we heard about problems with "adjustable" mortgages where the payments go up after a period of time and mortgages with no down payments and mortgages where the borrower didn't have to verify how much income they really had. You can readily see where there could be problems with all of those.

    My prediction for next year is that the problem will spread to regular mortgages given to regular people with good credit. The reason I think this will happen is that I think housing prices are going to fall quite a bit. If prices go to where they should be according to historical norms, or according to the historic ratio between rents and prices,or according to what always happens when bubbles pop, then they are going to fall as much as 40-50%. Maybe even more. (And never mind that the "boomers" are starting to retire and will not need the houses many of them have further increasing inventory and decreasing demand...)

    So next year we're going to see a LOT of regular people with regular mortgages go "underwater" -- meaning they will owe a lot more than the current market price of their houses. In many states the regulations allow people to get out of their mortgages by giving the house to the lender and not have to make up the difference if the mortgage is for more than the house can sell for. And many will do exactly that. (Which will even further increase inventory and put pressure on prices.)

    So next year I predict the credit crisis is going to get a LOT worse.

    Posted by Dave Johnson at 1:19 PM | Comments (6) | TrackBack | Link Cosmos

    December 28, 2007

    Today's Housing Bubble Post - New Home Sales Fall More And Expected

    A bulletin arrived in my e-mail this morning with the headline, "U.S. new-home sales fall more significantly than forecast in November" All I could think to say was "NOT"

    No, everyone who actually learns about what is going on with housing is surprised that ANY new homes were sold, and that ANYone is stupid enough to buy ANY house until the price reverts to the mean. This is a popping bubble, people. If you buy a house now it will be worth a third less in two years. ANY house! Remember how many stocks went to zero after being "golden" for so long? This is what HAPPENS when bubbles pop. DUH!


    U.S. Nov. new-home sales fall 9% to 647,000 pace - MarketWatch

    Sales of new U.S. homes fell by a more-than-expected 9% in November to a seasonally adjusted annual rate of 647,000, the Commerce Department reported Friday. Economists surveyed by MarketWatch were expecting new home sales to drop to a seasonally adjusted annual rate of 710,000 in November. Meanwhile, October's sales rate was revised downward, to rise by 711,000, or 1.7%. They were previously estimated to have risen to a seasonally adjusted annual rate of 728,000. In the past year, sales of new U.S. homes are down 34.4% nationwide.

    Posted by Dave Johnson at 7:16 AM | Comments (0) | TrackBack | Link Cosmos

    December 26, 2007

    Today's Housing Bubble Post - Record National Housing Price Drop

    U.S. home prices drop 6.1% year over year, Case-Shiller finds - MarketWatch,

    Home prices in 20 major U.S. cities were down 6.1% on average in the past year as of October, according to the Case-Shiller price index released Wednesday by Standard & Poor's.
    Since October 2006, prices in 10 cities fell 6.7% -- a record drop. The prior largest decline was 6.3% in April 1991.

    . . . Miami sustained the largest drop over the past year, with a decline of 12.4%. Next came: Tampa, with a drop of 11.8%, Detroit with a drop of 11.2%, and San Diego with a drop of 11.1%.

    This is only the beginning.

    By the way, does this price drop take into account 4% inflation? If not the real decline was quite a bit greater.

    Posted by Dave Johnson at 7:14 AM | Comments (0) | TrackBack | Link Cosmos

    December 21, 2007

    Today's Housing Bubble Post - What's Going On?

    Here's what's going on in the financial markets:

    Part 1: Mortgages

    After the 2001 stock market crash the Federal Reserve dramatically lowered interest rates. This made the monthly payment on mortgages very low, so more people could afford to pay more for houses, or could refinance their house. This increased the demand for houses, making housing prices rise. Because housing prices were rising people started speculating, "flipping" and a number of other things that made prices rise into a bubble - with people buying houses solely because of the price increases.

    So the price increases caused prices to increase, which cause an exponential price rise curve to develop.

    Because of this, builders started flooding the market with housing developments and condos, greatly increasing the inventory of houses.

    While all this was going on people with poor credit histories were able to get mortgages without any down payments, at a very low interest rate that would "reset" after 2 or 3 years, and without even having to show how much money they made.

    Then came the day when prices stopped rising. Which caused all of those people who buy-because-prices-are-rising to stop buying. But many of them were "leveraged" -- they had huge loans that depended on rising prices for them to be able to sell to pay off the loans.

    Then for some reason more and more of the poor-credit-history people who had no down payments and never proved how much they made started to not pay their monthly payments. Go figure.

    And a lot of other things happened that caused people to stop being able to pay their mortgages. So more houses came on the market at the same times as fewer buyers wanted to buy and prices started to drop. As prices dropped people who had bought or refinanced their houses started finding that they owed more than the house is worth.

    So lots of people will be foreclosed on and lose their houses, etc. and the lenders who loaned out those mortgages will eat the losses. Except,

    Part 2: Credit markets

    The lenders borrowed the money to make those loans. Or they "sold" the loans to "investors" looking for monthly payments at a higher interest rate than banks pay. And those investors borrowed the money to buy the loans. And because many people are defaulting on their mortgages, the people who made or bought them aren't getting paid, so they soon won't be able to make their payments.

    So the companies that loaned the money to them won't be paid. And they borrowed the money to make those loans, and because they might not be paid back, they might not be able to pay the companies that loaned THEM the money.

    To understand where this vicious cycle ends go to the beginning of the previous paragraph and read it again. Each time you finish, go back and start again. Keep doing that until you get the point. In other words, anyone who has made any loans is - or at least should be - wondering if they will be paid back.

    (By the way, deposits in a bank, brokerage, etc. are part of that loop. Make sure that your money is moved to federally insured banks. If you have money in a money market fund you are somewhere in that loop and your money has been loaned out and you are not insured. That money has been loaned out to someone who doesn't know if they can pay it back. That's what a money market fund is. That's why it pays higher interest -- because risk = return.)

    So that in a nutshell is what is going on. Until everyone "comes clean" and lets everyone else know how much "exposure" they have to bad loans, there is no reason to trust that they will be able to keep making their own payments on their own debt. And coming clean, or "unwinding" this might involve playing things out until everyone who is going to go bankrupt actually does so until we see who is still standing. Anyone who made loans or borrowed money is facing some level of risk right now. Anyone.

    Posted by Dave Johnson at 2:24 PM | Comments (0) | TrackBack | Link Cosmos

    December 20, 2007


    Go watch The Story of Stuff. I'm not asking, I'm telling.

    What is the Story of Stuff?

    From its extraction through sale, use and disposal, all the stuff in our lives affects communities at home and abroad, yet most of this is hidden from view. The Story of Stuff is a 20-minute, fast-paced, fact-filled look at the underside of our production and consumption patterns. The Story of Stuff exposes the connections between a huge number of environmental and social issues, and calls us together to create a more sustainable and just world. It'll teach you something, it'll make you laugh, and it just may change the way you look at all the stuff in your life forever.

    Posted by Dave Johnson at 4:19 PM | Comments (0) | TrackBack | Link Cosmos

    December 17, 2007

    Real People Missing From The National Discussion

    From Booman Tribune ~ Who's Missing from NY Times Op-Ed Pages?,

    Yesterday, The New York Times (Sunday edition) devoted almost a full page of its Op-Ed section to a number of short essays written by economists, Wall Street analysts, scholars and fellows at various "think tanks" (both liberal and conservative) government advisers (past or present) and prominent business people (many of these folks fit into more than one category, by the way). The question they were all asked to address: Are We in a Recession?

    [. . .] Oddly enough (well, not really, I just like to use the word odd in all its varieties when discussing serious purveyors of news and public opinion such as, for example, The New York Times) there was one significant group of individuals who apparently were not asked to contribute to this discussion by answering the question posed by the Times' editors, as to whether "we" are in a recession (and I'm using we here in the same sense as that term is used in the phrase "We the People" in the Preamble to the Constitution of the United States of America, rather than limiting it to any "subset" of said "we" such as financial institutions, economists, investors, fellows at well known non-profit educational and policy foundations or highly compensated, highly educated, and highly intelligent people offered the chance to present their opinions on the Op-Ed pages of The New York Times). Can you guess who those people might be, the ones whose opinions were deemed unsuitable for inclusion alongside all of these well spoken and well informed worthies the Times chose to answer this question of serious concern to all Americans?

    Go read.

    And what do you think, are "we" in a recession now? Leave a comment.

    Posted by Dave Johnson at 11:05 AM | Comments (0) | TrackBack | Link Cosmos

    Wages Falling Further And Further Behind

    Regular people's wages are stagnant and falling behind. On top of that there are debates over whether inflation is back, or maybe we're heading into a period of deflation.

    Here's what I know. I work free-lance so my pay varies. But my wife works in a 9-to-five job and gets a raise every year. And every year the amount taken out of her paycheck to cover her health insurance co-pay goes up more than her raise. The result is that every year my wife's take-home is lower.

    And this cut in take-home pay happens before we pay for the medicine co-pay increases, the rent increases, car insurance increases, food price increases, gas price increases, home electric and heating increases, cable TV increases, etc. Whether there is "core inflation" or not this is what is happening in OUR house. And I am sure this is what is happening in a lot of other people's family budget as well.

    Posted by Dave Johnson at 10:29 AM | Comments (0) | TrackBack | Link Cosmos

    December 16, 2007

    Today's Economy Collapse Post - "Ominous"

    Rising gas, food,health care and other prices, falling housing prices and savings rates, stagnant wages and all the rest are taking their toll: Retailers Face an Ominous Holiday Sign - New York Times,

    Sales of women’s clothing, a traditional pillar of the holiday shopping season, are unusually weak so far this year, according to a major credit card company, an ominous sign for the retail industry.

    From high-end dresses to bargain coats, spending on women’s apparel dropped nearly 6 percent during the first half of the Christmas season, compared with the same period last year, according to MasterCard Advisors, a division of the credit card company.

    But all is not yet lost, SOME are doing just fine, thank you,
    Spending on luxury items is up 10.8 percent, “which isn’t bad at all,” Mr. McNamara said.
    Yes, at the top things are great.

    A certain commenter might want to leave a message about heads on pikes, torches and pitchforks right about now...

    Posted by Dave Johnson at 2:16 PM | Comments (0) | TrackBack | Link Cosmos

    December 14, 2007

    Today's Housing Bubble Post - All Those Buyers...

    In for a Surprise... Go read it, but I just had to reproduce the chart here:


    In August, 2006, I wrote a post Today's Housing Bubble Post - How Far Can Prices Fall?

    Suppose rents are $2000 a month for a 3-bedroom house. Subtract from that repairs, maintenance, etc., and let's say you are clearing $1800. Instead of trying to calculate property taxes let's just say $400 per month - which is lower than what they would be ($650) if purchased now but you'll get my point in a minute.

    So you're clearing about $16,800 a year from your investment. Let's say you are shooting for a 7% return. That means the house SHOULD be priced at about $240K, approx 1/3 of current pricing.

    That's SF Bay Area pricing, by the way. And prices tripled here in the bubble, so that sounds about right.

    But I'm not going that far in my prediction. You have to account for ten years of inflation - which is higher than reported. Also the dollar drop means people from other countries will find higher prices cheap and the Bay Area is a premium place to live. And other demographic factors. But I don't rule out a 50% drop. Prices here really shouldn't be much higher than maybe $400K

    Posted by Dave Johnson at 8:48 AM | Comments (0) | TrackBack | Link Cosmos

    December 13, 2007

    Inflation, Retail Sales Up

    I have a question. If I go to the store and spend $10, and the next month the same thing costs $11, is that a 10% jump in retail sales?

    Wholesale prices, retail sales jump - Yahoo! News,

    Wholesale prices and retail sales jumped in November and jobless claims fell last week.

    Wholesale prices shot up 3.2 percent, the biggest jump in 34 years, propelled by a record rise in gasoline prices. Meanwhile, consumers put aside worries about the weak economy in November to storm into the shopping malls, pushing up retail sales by the largest amount in six months.

    Posted by Dave Johnson at 6:21 AM | Comments (0) | TrackBack | Link Cosmos

    December 9, 2007

    Today's Housing Bubble Post - The Bailout: Just Another Fraud

    From today's SF Chronicle, MORTGAGE MELTDOWN / Interest rate 'freeze' - the real story is fraud / Bankers pay lip service to families while scurrying to avert suits, prison,

    It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.

    But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.

    The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

    The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

    It's widespread:
    The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.
    So why the "freeze?" What does that really accomplish?
    The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing. If the investors agreed to loan modifications with the "real" wage and asset information from refinancing borrowers, mortgage originators and bundlers would have an excuse once the foreclosure occurred. They could say, "Fraud? What fraud?! You knew the borrower's real income and asset information later when he refinanced!"
    Cuomo in New York is going after some of the fraud - the inflated appraisals, for example. If I had money in these mortgage-backed investments rated AAA I would be demanding MY money back - and if you are in a money-market fund, you just might be who I am talking about.

    But you wouldn't have any money in a money-market fund NOW, would you? You're smarter than that.

    Update - Mish's Global Economic Trend Analysis says the fraud / lawsuit avoidance theory from the above article is "preposterous."

    The goal of the freeze is not to "stop bond investors from suing". The goal of the freeze is to Peddle a Sucker Trap Disguised as Hope.

    However, so few people will qualify for the program (see Little Hope For Hope Now Alliance) that no one can possibly claim it will stop much of anything, including lawsuits or foreclosures.

    Go read.

    Posted by Dave Johnson at 3:49 PM | Comments (0) | TrackBack | Link Cosmos

    December 8, 2007

    What The Reagan/Bush Debt Means To You

    As I write this, the US national debt is about $9.17 TRILLION dollars. This debt is the amount we have borrowed to pay for our government since the Reagan tax cuts - compounded by the Bush tax cuts. This is because of a choice we made - yes I say WE, because this government is US - to borrow and pay later instead of pay now.

    Don't for a minute think that you do not owe that money. It comes to about $30,000 for each American, including infants. If you are a family of four you now owe about $120,000 thanks to those tax cuts. YOU owe this money, even though the tax cuts have primarily gone to the very rich. You WILL be paying it, one way or another. Don't think that debt like that just goes away.

    PLUS now each year we pay about $433 billion for interest on that debt. That amount, of course, rises every year. So in addition to owing all that money we have to service the debt by paying $433 billion every year. That amount is larger than the current federal deficit - which means if we had not cut those taxes and borrowed all that money in the past we would have $433 billion more each year to spend or save AND we would not owe $9 trillion.

    I do not understand how we tolerate this situation. Yes, it happened because we listened to lies, but how many of our candidates are seriously talking about the changes that need to be made to fix this?

    The Gross National Debt

    Posted by Dave Johnson at 12:37 PM | Comments (2) | TrackBack | Link Cosmos

    December 3, 2007

    Is Oil Expensive?

    Some people think oil is expensive. Think about this. Companies pump water (pump energy usually comes from burning oil) out of the ground and put it into plastic bottles (made from oil) and truck it (trucks burn refined oil) to a port where they ship it (ships burn refined oil) across oceans to stores that people drive to (cars use refined oil). The cost of this water product is low enough that people drink it instead of tap water. (In fact, some of the companies actually put tap water into the plastic bottles, truck it and ship it, and sell that and people buy it instead of using their own tap water.)

    Think about all the other uses of energy that we take for granted. That tap water is piped to your house, using huge pumps. Your hot water is heated with energy...

    So think it through before you say that oil is expensive. It is extremely expensive to the environment (and foreign policy) but it is not expensive economically, or none of the above would be occurring.

    Posted by Dave Johnson at 9:29 AM | Comments (3) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - "Spooked," "Crisis"

    Paul Krugman : Innovating Our Way to Financial Crisis,

    The financial crisis that began late last summer, then took a brief vacation in September and October, is back with a vengeance.

    How bad is it? Well, I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.

    This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.

    Don't feel too badif the underpinnings of this crisis are more complex than you have time to grasp. Partly it is happening because things became so complex.

    For just one illustration of the complexity, here is what happens when a "CDO' is "unwound." A CDO is a big batch of mortgages and other debt, backed by collateral. That's the C in CDO: Collatoralized Debt Obligation. To find out what is really in your CDO you should examine each one of the mortgages (car loans, etc.) to see if the mortgage-holder really does have all the income that is on the application, and whether the house was appraised properly or is really worth less than what is still owed on the mortgage, etc. And that is just one level of the complexity.

    You might ask, why didn't the buyers of these CDOs check these things before they bought them?


    Posted by Dave Johnson at 9:00 AM | Comments (0) | TrackBack | Link Cosmos

    December 1, 2007

    Today's Housing Bubble Post - Is Your Money Safe?

    Fallout from the bursting of the housing bubble is rippling further and further out. In the last few days three state government funds have realized they are in big trouble and are experiencing "runs." And as a result, in the next few days we are likely to hear about the same thing happening in many other states. These are funds that cities put their cash into until it is needed to pay city employees, teachers, etc. The cities have people who understand finance watching the money, and they understood this so they started getting their money out. And because the fund had lost some of the money in mortgage-backed securities, it couldn't give money back to all of the cities, and had to say "no more withdrawals until this gets sorted out." The ones who asked for their cash first are OK, the ones who didn't will lose out.

    This is exactly what could happen to money markets and banks as people realize this is their money everyone is talking about in the news. YOUR money. Find out where your money is, your parents' money, etc..

    Florida moves to stop run on fund

    The crisis underscores how the upheaval in credit markets could spread to affect mainstream investors, institutions and their employees. In recent weeks, local authorities in regions as disparate as Australia and Norway have reported similar problems.

    [. . .] Most of the securities were short-term debt backed by mortgages and other assets, and issued by off-balance sheet investment vehicles, many of which have run aground in the credit squeeze. Lehman Brothers sold most of the distressed assets to the Florida fund, people familiar with the sales said.

    and Florida freezes $15 billion fund as subprime crisis hits,
    Florida halted withdrawals from a $15 billion local-government fund Thursday after concerns over losses related to subprime mortgages prompted investors to pull roughly $10 billion out of the fund in recent weeks.
    . . . The decision shows how far this year's subprime-fueled credit crisis has spread. Florida's Local Government Investment Pool, which had more than $27 billion in assets at the end of September, is like a money-market fund that's supposed to invest in ultrasafe assets to provide participants with a secure place to stash spare cash. But even these types of funds have been hit by the widening crunch.
    "It's spreading into areas that people didn't expect and this is a good example," Richard Larkin, a municipal bond expert at JB Hanauer & Co., said.

    Maine Treasurer Criticizes Merrill for Subprime Bet,

    Controversy is heating up in the state over who is at fault for having put $20 million, about 3 percent, of the state's roughly $725 million cash pool this summer into an investment fund called Mainsail II -- two weeks before its sterling ratings crumbled to junk.

    The investment met all of the state's investment criteria, but exposed the state to the mortgage market-related losses that have roiled credit markets for a few months.

    And Run on Montana Fund,
    Montana school districts, cities and counties withdrew $247 million from the state’s $2.4 billion investment fund over the past three days after officials said the rating on one of the pool’s holdings was lowered to default.
    But don't think for even a minute this is limited to state government funds. It's just that the municipalities that had cash in those funds understood what was happening. MANY holders of money, especially money-market funds are in exactly the same situation, except the depositors in money-market funds are not necessarily as sophisticated as municipal finance officers, and don't yet realize what all of this means.

    But it is starting to hit the news.

    How safe is your money market fund?,

    The billions of dollars in subprime losses are now tainting a mainstay investment vehicle whose safety consumers take for granted: the money market mutual fund. Bank of America, SunTrust, Wachovia and Legg Mason are among the institutions reportedly taking steps to prop up money market funds that contained worrisome securities. . . .

    [. . .] Many money market funds have sought higher-yielding investments such as subprime mortgage-backed securities. High-yield funds don't get those yields by investing in government securities. For instance, according to Money Fund Intelligence, the average yield for the top-yielding prime individual money market funds is 5 percent, while the average yield for the top-yielding Treasury individual money funds is 4.39 percent.

    Is your money market fund safe?,
    . . . if you have money in a fund that's exposed to subprime mortgages, consider finding one that has no commercial paper and shift your money to that.
    In search of a security blanket,
    Meet money manager Axel Merk... Recently, Merk took more than $100,000 of his personal savings out of money market funds. These funds take your cash and put it into highly rated -- and therefore, supposedly safe -- investments, giving you a set interest rate.

    Problem is, some of them got entangled in the subprime mess. That's why Merk dumped his money market funds.

    [. . .] You can't assume that all money market funds are safe. Remember, they're not insured by the FDIC. Now, banks do offer something called money market accounts. Just like savings accounts, they are protected by the FDIC, but they have a lower return.

    That's right, this is a time to know where your money is. If you are not sophisticated enough to be reading a money-market prospectus - and you aren't - put your money in a bank up to the limits of FDIC insurance, or into treasury bills. Period. When everyone else is worried it will be too late to get your own money out. What do you have to lose by doing that? Why keep it where it is instead of getting it into a FEDERALLY insured back account, until all of this gets sorted out?

    The question is, when do people realize that their own money might be at risk, and start asking for it? That is when it hits the fan, like it has with the Florida and Montana state funds. No one knows where all this mortgage risk is right now, and you don't want to be the one who asks for your cash just after the cash runs out.

    Posted by Dave Johnson at 12:16 PM | Comments (4) | TrackBack | Link Cosmos

    November 29, 2007

    Very Bad Economy = Soaring Stock Market

    What he said.

    Fed vice-chairman says

    that the Fed "will act as needed" to address the volatility of the current economic situation.
    So the stock market goes up over 300 points.

    Right. As Kevin said,

    "Uncertainties about the economic outlook are unusually high right now," he said. "In my view, these uncertainties require flexible and pragmatic policy making."
    Now see, if it were me I'd be running for the hills at this news.

    Posted by Dave Johnson at 7:22 AM | Comments (0) | TrackBack | Link Cosmos

    November 28, 2007

    Today's Housing Bubble Post - Sales Drop, Inventories At Record

    Existing-home sales fall 1.2% to 4.97 million pace in Oct - MarketWatch,

    Sales of existing homes fell further in October even as more homes came on the market, driving the supply of homes to the highest level in 22 years, the National Association of Realtors reported Wednesday. Sales dropped 1.2% to a 4.97 million seasonally adjusted annualized pace in October, the real estate advocacy group said. The sales pace is the lowest since 1999. The inventory of unsold homes rose by 1.9% to 4.45 million, representing a 10.8 month supply, the highest since 1999. For single-family homes alone, the inventory of 10.5 months is the highest since July 1985.

    Posted by Dave Johnson at 7:51 AM | Comments (0) | TrackBack | Link Cosmos

    November 27, 2007

    Today's Housing Bubble Post - How Far The Fall?

    Calculated Risk: LA Times: How Far Will House Prices Fall?

    If SoCal prices fall 25%, then prices in other areas - like Miami and Las Vegas - will probably decline a similar amount.
    Keep in mind my own observation that houses near here are not selling even after a price cut of almost a third.

    OTHER bubbles, like the "dot com" bubble, have seen prices fall right back to where they would have been without the bubble. In fact, haven't ALL other bubble fallen like that? Why will this one be different? And that means you're looking at 50% or more.

    Posted by Dave Johnson at 11:53 AM | Comments (0) | TrackBack | Link Cosmos

    The End Of The Dollar As We Know It

    The End of the Dollar as We Know It

    Posted by Dave Johnson at 11:42 AM | Comments (0) | TrackBack | Link Cosmos

    November 24, 2007

    Today's Housing Bubble Post - Marked Down From $725K To $495K, Still Not Selling

    A for-sale house around the corner from us (SF Bay peninsula) has gone through all the stages, and now even the "price reduced" sign is gone. The house is empty. The flyers are still there, however. Walking the dog the other day I picked one up to see what they're offering.

    The house, a modest three-bedroom in a modest neighborhood, was originally listed at $725,000. Now that is crossed off by hand on every flyer and $495,000 is written in.

    So, marked down from $725,000 to $495,000 it still isn't selling. No one is looking at it. It is still priced higher than the average person can or will pay for a house like this to live in this neighborhood. House prices around here still have a long way to fall, but you can't expect other houses around here to sell for a lot more than $495,000 now - not with that one sitting there. But most of them are still priced in the $600-700,000 range.

    That leaves a long way left to fall.

    Posted by Dave Johnson at 7:54 PM | Comments (2) | TrackBack | Link Cosmos

    November 21, 2007

    Do Tax Cuts Really Help The Economy?

    At the weblog Angry Bear last week, they presented some graphs in a post titled, Tax Rates and Growth Rates, Some Graphs. Go take a look.

    The first graphs shows marginal income tax rates over time, and the third shows real GDP per capita, both starting in the 1950s.

    As you look at these graphs, it seems that the periods of higher real per-capita growth coincide with the higher tax rates. Both graphs appear to have higher numbers on the left side, and the numbers drop as you move over to the right side. In other words, as the tax rates dropped since the 50's, so did economic growth.

    This is the opposite of the "conventional wisdom" that people have come to believe. But it's just plain what happened - no way around it. And, to top it off, remember that FDR raised taxes on the rich, and then we started coming out of the depression. You can look those charts up as well.

    For some recent validation of this observation -- that higher taxes coincide with higher economic growth -- remember what happened after the notorious 1993 tax increases on the very rich. After those tax increases we all shared an incredible decade of economic growth and shared prosperity. (Even the rich who paid more taxes.) The national budget was balanced and we reven started paying off the huge debt that had accumulated. Then, following the 2001 tax cuts which primarily went to the very rich growth rates have not been so hot, and regular people actually feel more pinched, not less. And the country has had to borrow an incredible amount of money - which will have serious consequences in the future.

    So what could be happening here? Conservatives like to say that taxes hurt the economy. That they "take money out of the economy." But is this really what happens?

    If the money is "taken out"of the economy, where does it go? Isn't this a perverse view of what government is, to think it is so separate from the people that it isn't even part of the economy? Perhaps this is wishful thinking on the part of anti-government conservatives, but in reality the government puts the tax money back into the economy by paying teachers, building roads, etc.

    Conservatives say that taxes are a "cost" to businesses, forcing them to raise prices. But taxes are on profits, which are calculated after costs. And if a company is doing well enough to be profitable enough to be paying taxes, why would they want to raise prices and discourage customers?

    Please click to continue

    Posted by Dave Johnson at 5:50 PM | Comments (0) | TrackBack | Link Cosmos

    November 19, 2007

    Why You Don't Have Health Insurance, Raises

    Wall Street Plans $38 Billion of Bonuses as Shareholders Lose ,

    Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won't prevent Wall Street from paying record bonuses, totaling almost $38 billion.

    That money, split among about 186,000 workers at Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest U.S. securities firms paid $36 billion to employees last year.

    Posted by Dave Johnson at 5:48 PM | Comments (2) | TrackBack | Link Cosmos

    November 14, 2007

    Money Market Funds

    I guess I'm just ahead of my time... I've been warning about money market funds, and now it's really hitting the news:

    Mounting concern about money-market funds,

    Millions of U.S. investors with cash in these mainstream vehicles are asking that question as some leading banks, investment managers and mutual-fund companies take steps to shield money funds from potential losses on troubled debt in their portfolios.
    Do you want your money in a place where managers are "taking steps"?

    So what can you do?

    ... if you are concerned about your money fund, experts say there are some ways to investigate.

    The first -- calling the company to ask about the fund's holdings -- might seem daunting given the complexities of many of these portfolios. But in fact the request can test a company's responsiveness to its customers, observes Bruce Bent, who created the money fund 37 years ago.
    "A number of funds will say 'we don't give that out,'" said Bent, whose New York-based firm, The Reserve, has about $80 billion in money-fund assets, none of which, he adds, is exposed to subprime loans or SIVs.
    If the fund company isn't forthcoming, he says, "take your money out and say goodbye."

    No shit.

    And there's always what I have been recommending:

    The ultimate safe move would be to put your cash in a bank money-market or savings account - they're insured up to $100,000 and sport comparable yields to money funds, which recently averaged about 4.6% for taxable investors.
    Meanwhile, Advisers aren't ready to dump money-market funds yet - MarketWatch
    ,With money-market mutual funds scrambling to cover their costs as credit meltdowns spread, some advisers say they're seeing more interest from high net-worth clients in short-term, bond exchange-traded funds.
    One of those is Jerry Slusiewicz. But the president of Pacific Financial Planners in Newport Beach, Calif., doesn't recommend investors pull out of their money-market funds just yet.
    Not just yet?
    Several major financial services firms have moved to protect money-market assets in recent months. The latest is Bank of America Corp., which on Tuesday said that it plans to use a $600 million reserve to shore up a group of its money-market funds. Another big financial-services firm, Legg Mason Inc. has made public plans to establish credit lines of roughly $238 million to keep intact credit ratings of two money-market funds.
    Did I read that right? They're putting hundreds of millions in to cover their money market funds so people don't lose money? So if you have money in one of those funds the only reason you aren't losing money is because the fund managers are pumping their own money in to shore it up? So what happens if the parent companies are in trouble - which they certainly will be if they'reputting in hundreds of millions to cover the money market funds!

    Remember, the money you have in a money-market fund can drop - you can lose principal.

    And Atrios has found a General Electric managed fund that is already in such trouble it is paying its depositors only 96 cents on the dollar.

    Posted by Dave Johnson at 4:11 PM | Comments (0) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - Foreclosures Double

    Ypu'll be seeing this headline every month for a while, I expect: Foreclosures nearly double from year ago: report,

    Cities in California, Florida and Ohio dominated the 25 U.S. metro areas with the highest home foreclosure rates, though rates jumped in most of the top regions during the third quarter, RealtyTrac said on Wednesday.

    . . . A broad credit and liquidity crisis during the third quarter exacerbated U.S. housing industry troubles, pushing sales sharply lower and unsold inventory to record highs.

    Overall, residential foreclosure filings nearly doubled in the third quarter from a year earlier, RealtyTrac reported earlier this month.

    HOW many foreclosures?
    Stockton's rate of one foreclosure filing for every 31 households, the highest of the metro areas, was a surge of more than 30 percent from the prior quarter. A total of 7,116 filings on 4,409 properties were reported in the metro area during the quarter.

    In Detroit, the foreclosure rate of one filing for every 33 households ranked second and was more than double the number of filings reported in the previous quarter, RealtyTrac said. A total of 25,708 filings on 16,079 properties were reported.

    Posted by Dave Johnson at 7:19 AM | Comments (0) | TrackBack | Link Cosmos

    November 8, 2007

    Again - Get Out Of Money Markets And Into Insured Bank Accounts

    I'm not going to tell you again. (Maybe I will...) Get your money out of money market funds(and brokerages) and into federally insured accounts at banks.

    Fast summary – as far as I can figure out what is going on: mortgages (and other debts) were grouped together and sold as investment “instruments.” These instruments were called “collateralized debt obligations” (CDOs) – or collections of obligations to pay back loans, backed by collateral. The grouping contained levels of good, medium and subprime mortgages and other debt. These levels of quality in each of the instruments are called “tranches.” So there is a good tranche, a medium tranche, etc. (Lots of tranches in a CDO)

    The instruments were very complicated so buyers depended on rating agencies instead of looking into each loan (and the documentation backing up the loan) that was in them. The rating agencies rated them as high-grade. (Rating agencies made their money from the companies who were selling the instruments, and possibly rated them up for that reason.)

    The investment value came from the idea that these CDOs would provide a regular cash income for a certain number of years as the debtors made their payments.

    There were well over a trillion dollars worth of these sold. Maybe a few trillion. But they are very thinly “traded” so one knows what they are worth now. (Something that is traded can be “marked to market,” meaning you can find a mark or price by looking at what the last one sold for.) No one is sure what is in these, they are not sold after the initial sale, and as foreclosures rise they are looking worse and worse. But no one knows. And of course no one will buy one now. So no one knows, and no one is going to know until every single loan in each of these instruments is evaluated. (Does Tom Whitmore really make $90,000 a year? And was the appraiser accurate when he said the 2br 1ba was worth $860,000?)

    So now the bigger problem is that with so many companies, etc. owning these CDOs, no one knows who will be able to pay their bills, and they certainly can’t use the CDOs as collateral now, so no one is willing to extend credit. Hence, the “credit crunch.” And hence all the uncertainty about who is solvent or not.

    Finally, go read this entire post: The Agonist: The Wile E. Coyote Economy.

    It all started coming apart with the subprime mortgage crisis. It should be emphasized that problems extend far, far beyond subprime, but it's there that they first showed up, where they first became undeniable. It's then that Wile, scanning the horizon, though to himself, “Gee, I don't see any ground. Maybe I should look down.” As people realized there was no "there," there; that many of these mortgage backed securities were worth cents on the dollar, they stopped being willing to buy them. The defaults started occurring and as people kept looking more and more they began to be forced to actually consider “How much is this worth?” And they didn't stop at subprime mortgages.

    Now the reason this mattered is that most Wall Street firms (and many banks) have a ton of this paper, and they are also heavily leveraged with loans. Those loans are loaned against the value of their portfolios. So when other firms and various banks started realizing the paper was worthless they stopped wanting to continue to extend loans. When the loans came due (and most loans these days are short term, from days to months) they didn't just roll them over.

    Without the loans firms began to face the possibility that to meet their obligations, to pay back the non-rolled-over loans, they might have to actually come up with cash. Which means they might actually have to sell some of this paper. And if they sold it, they'd know what it was worth. And if they knew what it was worth, they'd have to mark down all of it in their portfolio And if it's really worth cents on the dollar, well that could wipe out billions. In fact, it could wipe out the entire capital of firms.

    Posted by Dave Johnson at 9:45 AM | Comments (0) | TrackBack | Link Cosmos

    November 7, 2007

    Debt Slavery

    The phrase debt slavery has been coming up more and more often in articles, posts and other things I have been reading.

    I wonder why?

    Posted by Dave Johnson at 10:52 AM | Comments (0) | TrackBack | Link Cosmos

    November 5, 2007

    Today's Housing Bubble Post - Model Refuses Dollars

    This is actually a very big story. The world's richest model (earned $30 million in 6 months this year) is now refusing to take her pay in dollars. She is insisting on Euros. This is huge because it will penetrate past the financial pages and cause people to start understanding what is going on - possibly starting a stampede from the dollar.


    Supermodel 'rejects dollar pay':

    The world's richest model has reportedly reacted in her own way to the sliding value of the US dollar - by refusing to be paid in the currency.

    Gisele Bündchen is said to be keen to avoid the US currency because of uncertainty over its strength.

    The Brazilian, thought to have earned about $30m in the year to June, prefers to be paid in euros, her sister and manager told the Bloomberg news agency.


    Posted by Dave Johnson at 8:56 PM | Comments (1) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - Who Bails Out The Smart Ones Who Did The Right Thing?

    Smrat people got 7% fixed-rate loans because ARMs were obviously trouble. Their defaulting neighbors had 1% "teaser" rates and now get 5% loans as a bailout. The smart ones lose out all the way around.

    Homeowners who actually pay their mortgage on time are getting ticked of at talk about bail-outs - AMERICAblog:

    Right, because in a free market, capitalist economy it would be wrong for home prices to drop and for me to have to spend less on the condo I'm looking to buy. Since when was it anybody's job to artificially drive up the prices of homes in my or any other neighborhood? Since when is it wrong for someone else to have their home value decrease because of a market adjustment, but it's right for me to have my future home cost increase because of an artificial intervention? They lose money, it's wrong - I lose money, it's right. Uh huh. I am just increasingly sick and tired of every bail out of the rich and the poor, from the right and the left, coming at the expense of those of us in the middle who never seem to get anything, except an increasingly large bill for helping everyone else at our own expense. I'm not opposed to helping others. I am opposed to never being on the receiving end of such help. The Republicans help one side, the Dems the other, and no one thinks of the middle.
    People who did the RIGHT thing is losing out now. On Wall Street people who took depositor and stockholder money, gambled it away, and got rich in the process are getting sweet bailout deals. Fairness should become an issue in this.

    Posted by Dave Johnson at 6:02 PM | Comments (0) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - Citigroup

    In the continuing story of the bursting of the housing bubble, this weekend at an emergency Board meeting Citigroup President Charles Prince "resigned" and the company announced it will write down up to $11 billion more for mortgage losses. But guess what? Citigroup problems grow,

    Citigroup Inc's (C.N) problems deepened on Monday as it was unable to assure investors a potential $11 billion write-down for subprime mortgages won't grow, and its nearly pristine credit rating was downgraded.

    The largest U.S. bank also reduced previously reported third-quarter profit because of credit market problems that it said could reduce future cash flow.

    Also, Citigroup is sitting on $134.8 billion in questionable assets. A lot of that could go, too.

    In my opinion it is urgent that everyone understand how FDIC limits work. This is a time when you need to know that your own money is safe. The limit is $100,000 per bank, $200,000 per couple, and $250,000 for retirement accounts. If you are lucky enough to have more than that in one bank, split it up. Ad I did say bank - not brokerage. And tell your friends and relatives to do the same.

    Posted by Dave Johnson at 8:21 AM | Comments (0) | TrackBack | Link Cosmos

    November 2, 2007

    Job Growth Up / Down

    October job growth strongest since May,

    Shaking off fears about weakness in housing and credit, the U.S. economy created 166,000 net jobs in October, the best job growth since May, the Labor Department reported Friday.

    ... However, a separate survey of 60,000 households showed a loss of 250,000 workers, the third decline in the past four months. Economists say the payroll survey is more accurate, while acknowledging that it may not work as well when the economy is at a turning point.

    We have to wait a month to know more... But the last two month's reports were revised down:
    Payroll growth in August and September was revised down by a total of 10,000. The economy created 96,000 jobs in September.

    Posted by Dave Johnson at 6:00 AM | Comments (1) | TrackBack | Link Cosmos

    November 1, 2007

    Today's Housing Bubble Post -Foreclosures Double

    UPDATE 1-US Q3 foreclosures almost doubled from '06 -report,

    U.S. residential foreclosure filings nearly doubled last quarter from a year earlier, and appear set to increase into 2008, a report said on Thursday.

    Foreclosure filings for July-September rose to 635,159, representing one in every 196 households and a 30 percent jump from the second quarter, according to RealtyTrac, a marketer of foreclosure properties based in Irvine, California.

    One results: soon there will be many more homes on the market. And remember, MOST of the "ARM resets" - loans with low "teaser" or "qualifying" initial rates that reset to high interest rates - happen into next year. So expect the foreclosures to continue to increase for at least a year. The housing market is nowhere near a "bottom."

    Posted by Dave Johnson at 8:28 AM | Comments (0) | TrackBack | Link Cosmos

    October 31, 2007

    Today's Housing Bubble Post - The Fuse Is Now Lit

    This is really a housing bubble consequences post, but really they all are... With a 3.9% GDP report, the dollar at a record low, oil pushing $95 and various "regular people" costs rising at double-digit rates our Fed cut interest rates today. They are trying to put off the inevitable reckoning.

    Mish's Global Economic Trend Analysis: Which Comes First: The Cart or the Horse?

    The fuse is now lit. The structural imbalances worldwide have never been greater and the fuel at the end of the fuse is enormous. In addition, amount at risk increases every day.

    The interesting thing is that no one knows how long the fuse is. For some inexplicable reason everyone acts as if they can get out before the stick ignites. It's simply not possible.

    My wife is British, so we look at exchange rates. And we look at the price of oil. And food. We're losing a percent or so of our buying power each week.

    Posted by Dave Johnson at 11:14 AM | Comments (0) | TrackBack | Link Cosmos

    October 30, 2007

    Today's Housing Bubble Post - Home Prices Fall At Record Pace

    Home prices falling at record pace in August: Case-Shiller - MarketWatch

    The 13-month-long decline in home prices in 20 major U.S. cities accelerated in August, with prices dropping a record 0.7% in the month, according to the Case-Shiller price index released Tuesday by Standard & Poor's Corp.

    Prices were down 4.4% in the past year, the fastest decline in the seven-year history of the 20-city index. In the original 10-city index, prices have fallen 5% in the past year, the biggest decline since 1991.
    "The fall in home prices is showing no real signs of a slowdown or turnaround," said Robert Shiller, co-creator of the index and chief economist for MacroMarkets, in a release.

    ... Millions of homeowners who took out adjustable-rate loans in 2005 and 2006 face sharply higher mortgage payments this year and next, with foreclosures having already soared as the result of payment resets.

    ... Prices could fall much further. In a separate report, analysts at Goldman Sachs figured that prices in California are about 35% to 40% overvalued, compared with past relationships between home prices and income growth. The median sales price of a home in California was $589,000 in August, Goldman said, but should be around $375,000, they said.

    Key line: "Prices could fall much further."

    Posted by Dave Johnson at 8:45 AM | Comments (0) | TrackBack | Link Cosmos

    October 25, 2007

    Today's Housing Bubble Post - New Home Sales Up - From Revision

    New-home sales are report as up. But they are only up because last month's sales were revised way down. Sales are down from the previously-reported figure.

    New-home sales rise after big downward revisions,

    Sales of new homes rebounded in September from summer sales levels that were much weaker than previously reported, the Commerce Department reported Thursday.
    Sales increased 4.8% to a seasonally adjusted annual rate of 770,000 from a revised 735,000 in August. Previously, August's sales had been reported at a 795,000 pace.
    September's sales were slightly higher than the 758,000 pace expected by economists surveyed by MarketWatch.
    The three previous months were revised sharply lower, which means the housing market was much weaker in the middle of the year than previous believed, and no one believed it was strong.
    Got that? The previous three months were actually much worse than reported.

    Posted by Dave Johnson at 7:23 AM | Comments (0) | TrackBack | Link Cosmos

    October 24, 2007

    Today's Housing Bubble Post - Home Sales Crater

    Existing-home sales crater in September on credit squeeze,

    Sales of existing homes and condos fell 8% in September to the lowest level in at least eight years, further evidence that the credit squeeze in mortgage markets is hurting home sales, the National Association of Realtors reported Wednesday.

    Sales of existing homes and condos fell to a seasonally adjusted annual rate of 5.04 million, the lowest since 1999, when the real estate group began tracking combined single-family and condo sales. The 8% drop was the largest monthly percentage decline in that period.

    Nationwide, sales of existing homes were down 19.1% in September compared with September 2006.

    Posted by Dave Johnson at 7:51 AM | Comments (0) | TrackBack | Link Cosmos

    October 20, 2007

    Where Does All The Borrowing Lead?

    For some time the US has been borrowing tremendous amounts of money. Not just the government with that massive Reagan and Bush debt from cutting taxes and borrowing instead, but also the huge, vast, massive trade imbalance - that trade deficit where we borrow the money to buy stuff from China.

    And the public has been "withdrawing equity" for years - taking out second mortgages to buy nice cars and stuff.

    All that borrowing has to lead somewhere. No?

    The Daily Reckoning: Welcome to Captivity,

    What did you expect? "The borrower is slave to the lender," it says in the Bible. Welcome to captivity.

    Posted by Dave Johnson at 4:37 PM | Comments (0) | TrackBack | Link Cosmos

    October 18, 2007

    Today's Housing Bubble Post - OUCH

    Housing crisis in California:

    Posted by Dave Johnson at 1:36 PM | Comments (0) | TrackBack | Link Cosmos

    October 11, 2007

    Today's Housing Bubble Post - Foreclosure Filings Double

    It gets worse and worse. Foreclosure filings nearly double,

    Foreclosure filings across the U.S. nearly doubled last month compared with September 2006, as financially strapped homeowners already behind on mortgage payments defaulted on their loans or came closer to losing their homes to foreclosure, a real estate information company said Thursday.
    And remember, the real wave of ARM resets is yet to come. (ARM resets are adjustable rate mortgages resetting out of their initial, low "teaser" rates to the real interest rate. When this happens mortgage payments can as much as double.) Figure maybe five months after an ARM reset until the homeowner is in such trouble that a foreclosure occurs.

    So this is just the beginning of the beginning. And as more and more foreclosed properties come up for auction, prices WILL fall, and fall... until houses are again selling for what they are worth.

    Posted by Dave Johnson at 11:46 AM | Comments (0) | TrackBack | Link Cosmos

    October 8, 2007

    Today's Housing Bubble Post - From $630,000 to $285,000

    San Jose Mercury News - 'Betrayed by our builder'.

    A homebuilder is marking homes down from $630,000 to $285,000. The front-page story includes a large graphic: "$630,000 - current residents -- $285,000 prospective residents"

    A San Francisco Bay Area homebuilder can't sell all the houses it built in a development in Manteca. Current residents paid up to $630,000 for a 3-hour round-trip commute. But now they're auctioning the remaining homes, starting at a more realistic price of $285,000.

    This headline is going to have a huge impact because it means every homeowner in the SF Bay Area who thinks they have a $630,000 property now will begin to realize that in the end, if they want - or need - to sell that house, they are going to be competing with $285,000 prices.

    Let that sink in a while...

    Posted by Dave Johnson at 11:23 AM | Comments (3) | TrackBack | Link Cosmos

    October 5, 2007

    Today's Housing Bubble Post - Homebuilders Forced To Build MORE Inventory

    This one takes some explaining. The big homebuilders borrowed money and bought up a lot of land. Now they are in trouble, running out of cash to run their businesses and pay down the debt - and the only way they can hope to surive is to build MORE houses to sell at a steep discount, because this brings in at least SOME cash.

    Of course, the effect on the rest of the economy will be terrible: MORE houses dumped on an already-saturated market, at even lower prices. This will force prices to drop further, and more people to be in trouble.

    Calculated Risk: Homebuilders Struggle to Survive,

    We could make fun of the analysts that claimed the homebuilders would have strong cash flow during a downturn (due to less investment in land and improvements) and that the homebuilders were "land banks". Those investment ideas were Dumb and Dumber!

    But the more important point is that the homebuilders struggle to survive shows why the builders are still overbuilding. Building homes, and selling at a deep discount, is the only way they can liquidate land to raise cash and pay down their debts in the current environment. This is why housing starts are still too high and will likely fall further over the next few quarters.

    Posted by Dave Johnson at 11:59 AM | Comments (0) | TrackBack | Link Cosmos

    October 3, 2007

    How To Get Out Of Debt

    A very simple solution:

    Posted by Dave Johnson at 11:04 AM | Comments (0) | TrackBack | Link Cosmos

    October 1, 2007

    Today's Housing Bubble Post - Homebuilder Stocks -- Suckers

    Home-builder stocks rise on Citigroup upgrade,

    Home-builder stocks rose Monday after a Citigroup analyst raised his stock ratings on several of the sector's largest companies on signs the worst may be behind the embattled industry.
    Worst may be OVER?

    Let's see, highest housing inventory ever, difficult to get credit, mortgage rates rising in response to Fed bailout attempt, prices far, far, far above what an average person can afford, a huge wave of ARM resets coming next year... and some probably-23-year-old analyst sees a price bottom?

    Oh yes, go buy stocks based on a bottom - suckers.

    Posted by Dave Johnson at 10:02 AM | Comments (0) | TrackBack | Link Cosmos

    AP Prints Tobacco Company Press Release As News

    In today's paper - San Jose Mercury News - Cigarette tax would hurt poor. This is an AP story. It begins,

    Congressional Democrats have chosen an unlikely source to pay for the bulk of their proposed $35 billion increase in children's health coverage: people with relatively little money and education.

    ... The program expansion passed by the House and Senate last week would be financed with a 156 percent increase in the federal cigarette tax, taking it to $1 per pack from the current 39 cents. Low-income people smoke more heavily than wealthier people in the United States, making cigarette taxes a regressive form of revenue.

    Democrats, who wrote the legislation and provided most of its votes, generally portray themselves as champions of the poor.

    This is what is considered "news" in corporate America.

    I'll have more on the idea that taxes "hurt" peoplelater...

    Posted by Dave Johnson at 9:01 AM | Comments (0) | TrackBack | Link Cosmos

    September 27, 2007

    Today's Housing Bubble Post - New-Home Sales And Prices Plunge (Again)

    New-home sales plunge 8.3% to seven-year low,

    Median sales price down 7.5% in past year, biggest drop in 37 years

    Sales of new homes dropped 8.3% in August to a seasonally adjusted annual rate of 795,000, the slowest sales pace since June 2000, the Commerce Department estimated Thursday.
    Sales are now down 21.2% in the past year, with no sign of a bottom in the crippled housing market.

    ... The median sales price fell 7.5% to $225,700 compared with a year earlier, the largest year-over-year decline in 37 years.

    The worst is yet to come. Maybe a year from now is the time to start thinking about loking for a bottom.

    Posted by Dave Johnson at 9:26 AM | Comments (2) | TrackBack | Link Cosmos

    September 26, 2007

    Today's Housing Bubble Post - Biggest Price Drop in 16 Years

    Imissed this yesterday because I was traveling... S&P: US Home Price Decline Accelerates,

    U.S. Homes Post Steepest Price Drop in 16 Years

    The decline in U.S. home prices accelerated nationwide in July, posting the steepest drop in 16 years, according to the S&P/Case-Shiller home price index released Tuesday.

    So the situation: a huge wave of "ARM resets" - steep rises in monthly payments for holders of adjustable mortgages - is only beginning. Then it takes several months before they get into enough trouble to be forced into foreclosure. At the same time, it is hard to get a mortgage now, the largest number of homes for sale in history, and everyone aware that prices are falling and it is just stupid to buy a house now. So prices are going to be dropping, maybe a lot, for some time. There is no way around it.

    (Feel free to add other "doom and gloom" factors in the comments.)

    Posted by Dave Johnson at 5:22 AM | Comments (4) | TrackBack | Link Cosmos

    September 19, 2007


    A great post by Susie, Suburban Guerrilla: Greenspan Shrugged in which she points out that Greenspan was a nut case libertarian who believed things like the following,

    "In an article published in 1963 as part of Ayn Rand’s book Capitalism: The Unknown Ideal, Greenspan declared that protection of the consumer against “dishonest and unscrupulous business was the cardinal ingredient of welfare statism.”

    “Regulation which is based on force and fear undermines the moral base of business dealings,” he wrote. “Protection of the consumer by regulation … is illusory.”

    Got that? Protecting consumers from "dishonest and unscrupulous business" is a bad thing.

    Go read.

    Posted by Dave Johnson at 6:13 PM | Comments (0) | TrackBack | Link Cosmos

    September 18, 2007

    Today's Housing Bubble Post - Foreclosures Soar

    U.S. home foreclosures soar in August,

    The number of foreclosure filings reported in the U.S. last month more than doubled versus August 2006 and jumped 36 percent from July, a trend that signals many homeowners are increasingly unable to make timely payments on their mortgages or sell their homes amid a national housing slump.

    ... The national foreclosure rate last month was one filing for every 510 households, the company said.

    The BIG ARM Reset jump - increasing numbers of people with adjustable mortgages that adjust to much higher monthly payments - hasn't happened yet. And then it takes several months for them to fall behind on payments and eventually face foreclosure. So this is just the start of a wave - a tsunami.

    Nevada reported one foreclosure filing for every 165 households — more than three times the national average. The state had 6,197 filings in August, an increase of 21 percent from July and more than triple the year-ago figure.

    California's foreclosure rate was one filing for every 224 households. The state reported the most foreclosure filings of any single state with 57,875, up 48 percent from July and an increase of more than 300 percent from August 2006.

    Florida had one foreclosure filing for every 243 households. In all, the state reported 33,932 foreclosure filings, up 77 percent from July's total and more than twice the year-ago total.

    Georgia, Ohio, Michigan, Arizona, Colorado, Texas and Indiana rounded out the 10 states with the highest foreclosure rates.

    Posted by Dave Johnson at 6:20 AM | Comments (0) | TrackBack | Link Cosmos

    September 11, 2007


    The stock market plunged Friday afer the terrible jobs report for August. Sometimes the market goes up on bad news , this time it went down. It turns out this might be an indicator of recession.

    Reaction to jobs report suggests we're in a recession,

    The researchers found that when the economy was in recession - as later determined by the National Bureau of Economic Research, the unofficial arbiter of when recessions begin and end - the stock market typically fell when the unemployment news was unexpectedly bad. But when the economy was in an NBER-declared expansion, more often than not the market rallied.
    The reason the market reacts differently during recessions than during expansions, according to the researchers: When the economy is growing, the positive effect of a strong jobs report is more than outweighed by the negative effect of the interest-rate increases that such a report makes more probable.
    Just the reverse is the case following a weaker-than-expected jobs report. Now the bad news of the jobs report is more than outweighed by the good news that the Fed will have less pressure on it to raise rates.
    During recessions, in contrast, interest rate hikes are less of a threat. So a strong jobs report is taken at face value as good news, and a weaker-than-expected report is considered to be bad news.

    ... The market's plunge Friday in the face of unexpectedly bad job news is yet another straw in the wind that the economy may be a lot weaker than previously had been thought.


    Posted by Dave Johnson at 9:41 PM | Comments (0) | TrackBack | Link Cosmos

    September 8, 2007

    Today's Housing Bubble Post - Big Houses Cost More To Heat And Cool, Bad For Environment

    Here is one more problem from the housing bubble - all those big houses they built cost much more to heat and cool than regular houses. As utility costs rise this will compound the monthly-payment problem. Then, on top of that there's the maintenance costs like eventually re-roofing them, watering the lawns, etc.

    And then there is the terrible environmental impact. Very few were built withing walking distance of stores and public transportation so cars are required. How many of the world's trees were cut down to build them?

    And, if the public somehow manages to regain their senses, these house monstrosities - like the huge, pre-oil-embargo land-barge cars of the 1970s - will become even harder to sell.

    AlterNet: Environment: Big Houses Are Not Green: America's McMansion Problem,

    The just-popped housing bubble has left behind a couple of million families in danger of losing their homes to foreclosure. It has also spawned a new generation of big, deluxe, under-occupied houses bulked up on low-interest steroids.

    The National Association of Home Builders (NAHB) estimates that 42 percent of newly built houses now have more than 2,400 square feet of floorspace, compared with only 10 percent in 1970. In 1970 there were so few three-bathroom houses that they didn't even to show up in NAHB statistics. By 2005, one out of every four new houses had at least three bathrooms.

    ...the manufacture and transportation of concrete to build a typical 2,500-square-foot house generates the equivalent of 36 metric tons of carbon dioxide.

    ... To make outsized suburban manors more interesting, builders tend to avoid boxy forms, loading up their product with multiple rooflines and gables, dormers, bay windows, and other protuberances. Such houses have more surface area than does a squared-off house of the same size, thus requiring more fossil-fuel to cool and heat them. Additional energy is wasted by the longer heating/cooling ducts and hot-water pipes in a big house.

    ... Square-footage fever emerges in a doubly wasteful form in cities where normal-sized, sound, comfortable houses are being demolished to make way for bigger, more luxurious ones.

    The whole article is worth reading.

    Posted by Dave Johnson at 1:11 PM | Comments (2) | TrackBack | Link Cosmos

    September 7, 2007

    Recession Now? Soon?

    Very bad news on jobs. The economy is shedding jobs. August jobs cut by 4,000, first drop in 4yrs

    U.S. employers cut 4,000 jobs in August, the first time in four years that monthly hiring contracted, the government said on Friday in a report certain to boost pressure on Federal Reserve policy makers to cut interest rates.

    ... In addition to the August job losses, the Labor Department revised down its estimates for hiring in June and July by a total of 81,000. It said 68,000 jobs were added in July rather than 92,000 and 69,000 in June instead of 126,000.

    Posted by Dave Johnson at 6:27 AM | Comments (0) | TrackBack | Link Cosmos

    September 6, 2007

    Today's Housing Bubble Post - Foreclosures Set record

    New Mortgage Foreclosures Set Record,

    The number of homeowners receiving foreclosure notices hit a record high in the spring, driven up by problems with subprime mortgages.

    The Mortgage Bankers Association reported Thursday that mortgage-holders starting the foreclosure process in the April-June quarter reached 0.65 percent, marking the third consecutive quarter that this figure has set an all-time high.

    The delinquency rate, which tracks the number of people who are behind in their payments but have not yet entered the foreclosure process, was also up sharply during the spring, rising to 5.12 percent of all loans, up nearly three-fourths of a percentage point from the same period a year ago.

    And don't forget, NEXT year is when MOST adjustable mortgages reset upwards, greatly increasing monthly payments. This is just the very tip of what is coming.

    Posted by Dave Johnson at 9:09 AM | Comments (1) | TrackBack | Link Cosmos

    August 31, 2007

    Today's Housing Bubble Post - Bailout With Taxpayer Dollars

    Have you been responsibly managing your debt? Have you been sacrificing so you don't get in over your head? Saving instead of borrowing? Accepting lower returns on your money rather than getting greedy and taking on high risk for higher yields?


    Bush announced "home loan relief" today. What does this mean?

    In short, a huge taxpayer transfer to the rich. Partly by moving more mortgages to federal insurance - meaning the government pays the investors when the mortgage fails. Also getting the housing agencies to raise the limits on "conforming" loans, in other words,a higher threshold before a loan becomes a "jumbo." Which means taxpayer involvement in the higher-priced housing, too.

    Bush said the government will work toward, "lowering down payment requirements, by increasing loan limits, and providing more flexibility in pricing." Also to, "change its federal mortgage insurance program in a way that would let an additional 80,000 homeowners with spotty credit records sign up." In other words, MORE bad mortgages.

    Jill at Brilliant at Breakfast on the housing bailout,

    Don't kid yourself for one minute that this is about helping low-income Americans stay in their homes. If helping low-income Americans stay in their homes were the goal, the 9th Ward of New Orleans wouldn't still be in ruins two years after Hurricane Katrina, its citizens dispersed elsewhere, the better to turn Louisiana into a Republican state and a cash cow for Bush's corporate cronies. This Administration has dragged its heels on helping the most high-profile poor people in the country, but when the wealthy start to feel the effects, suddenly this president rushes into action.

    Posted by Dave Johnson at 9:52 AM | Comments (0) | TrackBack | Link Cosmos

    August 30, 2007

    Will The Fed Bail Out The Fat Cats Yet Again?

    As I observe the professional reaction to the "mortgage crisis" and the credit crunch - coming from the bursting housing bubble - I am struck by the degree to which everyone is looking entirely to the Fed to bail out the big players. It is an expectation. It is the understanding of the financial class that they will be bailed out by the government - at the expense of the taxpayers. Again.

    The stock market swings violently up or down depending on what they think the Fed might do. Everything depends entirely, entirely, entirely on the Fed -- and not on the supposedly "free market." Everyone is so used to the government stepping in and bailing out the fat cats. It happened after the S&L crisis. (In fact, it was a feast for the Republican-connected.) It happened when the Long Term Capital Management hedge fund got into trouble. So they are sure it will always happen. And they continue the financialization and securitization foolishness.

    For decades massive debt has been building up - both on the government and the consumers' books. In fact, Democrats keep reducing the borrowing when they are in office -- Johnson balanced the budget, Carter submitted balanced budgets and Clinton was actually paying down the debt. But then Republicans get in and cut taxes on the rich, and the borrowing just SOARS! No one denies that we are in an unsustainable situation that has to lead to crisis eventually. But every time a reckoning comes near the Fed bails out the fat cats, and a new and bigger wave of financial foolishness commences.

    Imagine if you were sitting at a blackjack table, and every time you ran out of money the manager of the casino said, "It's OK, we'll cover it for you." What kind of blackjack player would you be? Would you be a careful player, managing your money, ready to step away from the table when you lost your limit? Or would you just bet more and more and more, until the casino manager came over against to tell you not to worry, he'll cover it for you? You wold act exactly like the financial professionals are acting.

    The Fed will bail out the fat cats again, which means that when the reckoning finally does come it will be a tsunami that realigns the entire world order.

    Posted by Dave Johnson at 4:25 PM | Comments (2) | TrackBack | Link Cosmos

    August 28, 2007

    Today's Housing Bubble Post - The Tip - JUST the Tip of the Iceberg

    An "ARM Reset" occurs when an adjustable loan (ARM) changes (resets) from its initial "qualifying" rate, and goes up to its real interest rate. This reset can cause the monthly payments on the mortgage to as much as double.

    Much of the trouble we are seeing now in the mortgage markets now is coming from people not being able to meet their payments. But the problem of this rise in payments has only just barely started! Many, many more mortgages reset through the rest of this year -- and then the number really takes off next year.

    How many more mortgages reset next year than this year? Go look at the chart of upcoming ARM resets: Calculated Risk: ARM Reset Charts. This is huge. We have only seen the smallest beginning of the problem. This is going to be really, really big next year. A really bad problem.

    And the reason there was a "qualifying" rate? The buyer couldn't afford to buy the house and needed something to get around this limit. So they used a "qualifying rate" to accomplish this - to make it look like the buyer could afford the payments. In other words, after an ARM reset, people can't afford to make their monthly payments. Se can talk about the reasons loans were given to people who can't afford to make the payment in another post.

    Update - Bonddad shows the same graph with some explanation, in this post.

    Posted by Dave Johnson at 2:22 PM | Comments (1) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - Record Price Drop

    Home prices fall record 3.2% nationally, Case-Shiller says,

    U.S. home prices fell 3.2% in the second quarter compared with a year earlier, Standard & Poor's reported Tuesday.

    It's the largest decline ever in the 20-year history of the Case-Shiller home price index.

    A year ago, home prices were rising at a 7.5% pace nationally.

    ... Meanwhile, prices fell 3.5% in the past year in 20 major cities and 4.1% in 10 major cities.

    It's only the beginning. The psychology hasn't set in yet. What happens next is sellers hear this news and start to realize that the game is up. So they'll start to accept that they have to lower prices if they are going to sell. And this doesn't even take into account that foreclosures are going to start serious price drops soon.

    I'mnot trying to be doom and gloom here, I'm just describing what has to happen when we have seen the kind of price bubble we have seen. Prices have to revert to the mean.

    Posted by Dave Johnson at 6:43 AM | Comments (0) | TrackBack | Link Cosmos

    August 27, 2007

    Today's Housing Bubble Post - Credit Cards Now

    Credit-card defaults on rise in US

    US consumers are defaulting on credit-card payments at a significantly higher rate than last year, raising the prospect of problems in the stricken US subprime mortgage market spreading to other types of consumer debt.

    Credit-card companies were forced to write off 4.58 per cent of payments as uncollectable in the first half of 2007, almost 30 per cent higher year-on-year. Late payments also rose, and the quarterly payment rate – a measure of cardholders’ willingness and ability to repay their debt – fell for the first time in more than four years.


    Posted by Dave Johnson at 7:14 PM | Comments (1) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - Existing Sales Fall Again

    Home sales hit slowest pace in 5 years,

    Sales of existing homes dropped for a fifth straight month in July, falling to the slowest pace in nearly five years, while home prices fell for a record 12th consecutive month.
    Listen, people, this is only just starting. Where I live in California it hasn't even started - owners don't understand yet that the "price" of their house isn't what they think. And MOST of the adjustable loan payments haven't even started ratcheting up yet.

    Oh no, this is barely just starting. Prices have to fall a tirid to a half of where they are to get back to normal, and to where regular people can afford to buy a regular house again.

    Posted by Dave Johnson at 7:36 AM | Comments (0) | TrackBack | Link Cosmos

    August 26, 2007

    Today's Housing Bubble Post - Spreads to Jumbo Loans

    The effect of the "credit crunch" are starting to ripple out.

    You've probably been reading the houses "at the top" are still selling. Expensive houses require big mortgages - called "Jumbo" loans. And getting a jumbo loan has gotten much harder, which means there will be fewer buyers for the houses at the top, which means they are going to sell fewer of them, which means prices there will also have to start dropping. Growing mortgage crisis spreads to jumbo loans,

    The evening before their home purchase was to close, Gary Becker and his wife, Amy Dacus, learned their mortgage to buy a Woodinville home had evaporated.

    Unlike subprime borrowers defaulting on loans, the couple had a stellar credit score, a 20 percent down payment, strong employment history and had effortlessly purchased three prior homes.

    But their new home's $670,000 sales price was large enough to require a "jumbo" loan, so named because it was for more than $417,000, the limit the nation's largest mortgage backers will fund.

    Why is this happening?
    The credit crunch isn't universal.

    Borrowers with good credit scores, good jobs and a down payment still have ready access to 30-year "conforming" loans — those funded through banks and mortgage brokerages by Fannie Mae and Freddie Mac, the giant federally chartered companies that fund the bulk of the nation's mortgages.

    But Fannie and Freddie cap their loans at $417,000, which means that banks and mortgage companies must tap other sources, such as mortgage-backed securities, for jumbo funds.

    In recent weeks a skittish Wall Street has loudly signaled its unwillingness to invest in these securities.

    Update - I just have to add this. Maybe we need a version of the Darwin Awards for people who just refuse to keep up with the news and try to buy a house in this market. The people who are not getting the jumbo loans are dodging a huge bullet. What kind of idiot is trying to buy an expensive house in a market where every single news story talks about how no one can sell a house, no one can make their payments, and prices are going to drop dramatically in the next few years?

    I mean, if you can get a seller to accept an offer for 1/3 less than they want for the house - well maybe then, but you still might lose your shirt of prices fall to where they should be, which is about half where they are.

    Posted by Dave Johnson at 7:58 AM | Comments (2) | TrackBack | Link Cosmos

    Who Is Our Economy FOR, Anyway?

    THIS looks interesting!


    What’s the economy for, anyway? Is it just about having the biggest GDP or the highest Dow Jones Average? Or is it about providing for a healthy, happy, fair and sustainable society? If you think quality of life matters, and wonder how the United States compares to other countries when it comes to providing for its people, then the WHAT’S THE ECONOMY FOR, ANYWAY? conference is for you!

    Dozens of prominent experts and activists will offers parts of the answer to the big question and offer out-of-the-box ideas about what we can do to make our economy serve us instead of vice-versa. Three tracks include FINDING HAPPINESS, SEEKING JUSTICE and SECURING SUSTAINABILITY.

    SOMEONE has been reading Seeing the Forest, no?

    Posted by Dave Johnson at 7:25 AM | Comments (1) | TrackBack | Link Cosmos

    August 22, 2007

    Today's Housing Bubble Post - Another Another Another One U.S.,Lehman Brothers Holdings Inc., the biggest underwriter of U.S. bonds backed by mortgages, became the first firm on Wall Street to close its subprime-lending unit and said 1,200 employees will lose their jobs.

    Posted by Dave Johnson at 2:55 PM | Comments (0) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - Foreclosures Rise 58%

    U.S. foreclosures rise 58 percent in first half of 2007,

    The number of U.S. homes facing foreclosure surged 58 percent in the first six months of the year, the latest sign of mounting problems in the mortgage industry, a data firm said Monday.

    ... "We could easily surpass 2 million foreclosure filings by the end of the year, which would represent a year-over-year increase of over 65 percent," said RealtyTrac CEO James J. Saccacio.

    California, Florida, Texas and Ohio were among the states with the highest number of homes receiving foreclosure-related notices, the firm said.

    Posted by Dave Johnson at 2:53 PM | Comments (1) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - Another Another One

    Accredited Home Fires 1,600, Shuts Most Operations,

    Accredited Home Lenders Holding Co., reeling from the collapse of its planned sale to Lone Star Funds, will shut more than half of its mortgage operations and fire about 1,600 people.

    The subprime lender expects to close its 60 retail branches and five support centers within two weeks and halted for now U.S. wholesale mortgage applications from brokers, San Diego-based Accredited said in a statement today. The cuts will shrink Accredited's workforce to 1,000 from 2,600.

    And another Capital One to shutter mortgage-banking unit, cut 1,900 jobs,
    The battered residential mortgage market and slumping housing sector are claiming victims left and right these days, and the Washington area is feeling some of that pain.

    The latest news comes from McLean-based Capital One Financial Corp., which is ceasing operations at its wholesale mortgage-banking unit, GreenPoint Mortgage Funding Inc., resulting in the elimination of 1,900 positions.

    Capital One will close GreenPoint's Novato, Calif., headquarters along with 31 locations across 19 states.

    Update -- Sorry - I had Capital One yesterday. Substitute this: HSBC to close Indiana mortgage office,
    The U.S. mortgage unit of HSBC Holdings PLC said on Wednesday it will close an office in Indiana, a move that will affect about 600 workers, amid a severe downturn in U.S. credit and housing markets.
    And this: Ariz.-based finance firm to lay off 541, shut mortgage unit,
    The widening mortgage slump hit the Valley again Tuesday as one of Arizona's largest financial firms announced the layoffs of 541 people.

    Scottsdale-based 1st National Bank Holding Co. said it will discontinue its national wholesale-mortgage unit and close mortgage centers in Virginia, North Carolina and Nevada, keeping open just one operations facility, in Tempe.

    Posted by Dave Johnson at 7:31 AM | Comments (1) | TrackBack | Link Cosmos

    August 21, 2007

    Today's Housing Bubble Post - Companies Folding, Workers Laid Off

    We're seeing the tip of the tip of the iceberg of the debt bomb. The "subprimes" were the first to surface, and we're seeing the ripples of that spreading.

    Mortgage Mess Toll Rises,

    First National Bank of Arizona has become the latest casualty in the mortgage collapse that is gripping U.S. lenders.

    The privately held bank has shuttered its wholesale mortgage lending division, according to mortgage brokers who have spoken with the lender.

    And more, More Mortgage Firms Fire Workers,
    Trouble in the mortgage market spread Monday as Capital One cof said it will shut its GreenPoint Mortgage unit and fire 1,900 employees because it expects tighter credit to squeeze both lenders and home buyers out of the market.

    SunTrust Banks sti also said Monday it expects to lay off about 7% of its workforce to cut costs...

    The news follows an announcement Friday that First Magnus Financial was closing down and had let go its nearly 6,000 employees. And Countrywide Financial, cfc the nation's largest mortgage lender, told employees it would cut an unspecified number of jobs in its unit that specializes in loans for those with good credit but often undocumented income or assets, The Wall Street Journal reported.

    More and more bad news as the ripples spread, Thornburg Loses $930M Selling Mostly AAA Mortgage Securities,
    Thornburg Mortgage Inc. said on Monday that it lost roughly $930 million selling billions of dollars worth of AAA rated mortgage securities, while reducing borrowing and unwinding interest-rate hedges.
    Later this year and throughout next year many, many adjustable mortgages reset to current rates from their initial "qualifying" rates, and many mortgage-holders will find themselves with whopping payment increases. And even THAT is only the first wave of the debt bomb.

    Posted by Dave Johnson at 5:18 PM | Comments (1) | TrackBack | Link Cosmos

    August 20, 2007

    Today's Housing Bubble Post - The Wall Street Debt Mess

    I strongly recommend reading The Rise and Collapse of Wall Street's House of Debt | The Agonist,

    To understand the accelerating financial crisis that is afflicting various global markets you have to realize there are two credit creation processes at work in the world today. The first is the traditional one run by the central banks through the commercial banking system. This process has increasingly been shunt aside in the past ten years by a new credit creation mechanism run by the Wall Street investment banks. It is this new lending machine which is now imploding, and which threatens to impose severe economic pain.

    The unwinding of the housing bubble takes us way beyond mortgages and into the financial markets of Wall Street. That's why I titled this Today's Housing Bubble Post. (By the way, it's a generic title. We can have several Today's Housing Bubble Posts on a given day.)

    Reading this, iIt strikes me that it is describing a situation in which investors are borrowing to purchase these instruments, and to some extent the instruments are a repackaging of the loans that went to the investors tp purchase them.

    Posted by Dave Johnson at 5:12 PM | Comments (0) | TrackBack | Link Cosmos

    You Can Lose Money From A Money-Market Fund

    Money-market funds pay higher interest rates than bank savings accounts pay. Why is that? Have you ever heard that risk equals return? This means that the higher the risk, the higher the return. Money markets pay a higher return than banks. Yes, money-market funds are a riskier investment than a bank or a treasury bill.

    If you have never thought about that, then this might come as a shock to you: You can lose principal in a money-market fund.

    What does this mean? If you put $1000 into a money-market fund, and that fund is holding onto mortgage-backed securities, and those securities turn out to be worth less or worthless, you will not be able to get your $1000 back out of that fund. You might get less back, or you might get nothing.

    This is a good time to have your money in places that are not very risky.

    Update And speaking of risk, here is an article about money-market funds investing in the riskiest of all: subprime loans: Subprime Infects $300 Billion of Money Market Funds, Hikes Risk

    Posted by Dave Johnson at 10:55 AM | Comments (3) | TrackBack | Link Cosmos

    August 16, 2007


    Redemption has a different meaning to stock traders. Redemption is when people ask for their money out of a mutual or money-market fund. The fund managers have to pay with cash.

    So the question is, do they have the cash to pay the people who are asking for their money?

    If they do not have enough cash on hand, and the "credit crunch" makes it difficult to borrow to pay off redemption requests, they need to get the cash by selling something. Today they are selling stocks, gold, any asset they can. This causes prices to drop.

    Suddenly everyone wants their money. People are taking their money out of mutual funds. Stockbrokers are issuing margin calls. Lenders of all types are worried and are starting to take a close look at the ability of their borrowers to make their payments. And few are willing to make new loans, because the value of the assets that are used as collateral is suddenly not what everyone thought it was.

    Posted by Dave Johnson at 10:42 AM | Comments (1) | TrackBack | Link Cosmos

    August 14, 2007

    Today's Housing Bubble Post - Another One

    More and more...

    Trading Is Halted in Shares of Mortgage Lender,

    Trading was halted yesterday in shares of the lender Thornburg Mortgage Asset after they plunged 47 percent, the most since their 1993 initial public offering. Earlier, five brokerage firms downgraded the stock and Moody’s Investors Service cut its debt rating amid turmoil in the home loan market.

    The company announced later that it would delay payment of its quarterly dividend, 68 cents a share.

    Brokerage firms cited concerns that Thornburg, which specializes in high-quality, prime jumbo mortgages, might need to sell assets or reduce its dividend because of a liquidity squeeze.

    ... The nation’s biggest lenders face a worsening cash shortage because investors who buy their loans are not bidding, and bankers have cut off credit lines. The fallout has toppled at least 70 mortgage companies.

    Not just sub-primes...

    Posted by Dave Johnson at 8:29 PM | Comments (0) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - Is Your Money Safe?

    Do you have money in "money-market funds?" If so, you need to read this.

    You have been hearing about a "mortgage meltdown" and a "credit crunch." You might have been wondering how this could affect you. Well, the mortgage and credit markets are part of what is sometimes broadly referred to as the "money market." Your money-market funds buy various types of "instruments" that generally offer higher yields than bank savings accounts. These instruments can include mortgage-backed securities.

    Well, one money-market fund just asked for permission to stop redemptions. This means that the people who have money in that money-market fund will not be able to get their money out - at least for a while. From this news report, Sentinel management seeks to halt redemptions: report,

    Sentinel, a money market mutual fund firm for commodities, has asked the U.S. Commodities Futures Trading Commission to allow it to halt client redemptions until it can conduct them in an orderly fashion, CNBC television reported on Tuesday.

    "We had previously thought the market would return to some semblance of order and that our clients would not join in the panic," Sentinel wrote in a letter to clients CNBC said it had obtained. "Unfortunately this has not been the case."

    Until things sort themselves out I suggest that you get at least a portion of your money into a safe, FDIC-backed account. If things melt down further you won't be able to get at it for a while, but eventually the government insurance will cover it. If it is not government insured you might just lose it -- because the insurance companies also have their money in these instruments.

    Posted by Dave Johnson at 8:11 AM | Comments (0) | TrackBack | Link Cosmos

    August 13, 2007

    Today's Housing Bubble Post - 'Downward Spiral'

    Mortgage problems are causing a tightening of credit, which means fewer people can purchase houses, even as inventories are already at an all-time high. In other words, no one can sell their houses, which causes more foreclosures which means more credit tightening and higher interest rates which means prices drop which means buyers stop buying which means no one can sell their houses which means more foreclosures which means...

    U.S. mortgage, housing markets seen caught in 'vicious cycle',

    Problems in the nation's mortgage and housing markets are feeding off each other and creating a "vicious cycle," analysts at Stifel Nicolaus & Co. said Monday.

    "The rapidly increasing scope and depth of the problems in the mortgage market suggest that the entire sector has plunged into a downward spiral similar to the subprime woes whereby each negative development feeds further deterioration," wrote analysts Chris Brendler and Michael Widner in a research note.

    [. . .] Underscoring the shaky conditions in housing, Stifel Nicolaus said its earlier forecast calling for home-price deprecation between 10% and 15% may prove optimistic.

    The analysts see a worsening tailspin as housing prices fall harder, leading to more credit deterioration.

    Posted by Dave Johnson at 8:43 AM | Comments (0) | TrackBack | Link Cosmos

    August 9, 2007

    Today's Housing Bubble Post - For Sale Signs Everywhere

    I am on vacation, driving around Michigan. There are For Sale signs everywhere. Three per block in many areas. It is very unusual to pass two blocks without seeing a For Sale sign. And the real problem hasn't even started to hit yet. The "resetting" of adjustable mortgages has only just started, and the credit crunch - making it harder to get a mortgage - is only a few weeks old. And, of course, prices have not even barely started to fall to where the average person can afford to buy an average house. They will, because they have to. The next couple of years will be very hard for many people.

    Some of the stories in the news: Slowdown Restricts Access to Home Loans,

    The dream of owning a home is fading away for many Americans with less than stellar credit.
    Mortgage seekers caught in squeeze,
    A growing credit crisis is prompting lenders across Massachusetts to cut back suddenly on new loans, making it difficult for even creditworthy borrowers to get mortgages and causing some home sales to fall through at a time when the housing market is already slumping.
    Major bank stops approving home equity loans, credit lines
    Ripples from the subprime mortgage meltdown are spreading, affecting even borrowers with stellar credit and making popular home equity loans tougher to find.

    The latest example: A major national lender stopped approving new home equity loans Monday.

    More and more lenders are yanking away loan programs and changing borrowing guidelines as they struggle to please bond market investors, who indirectly provide financing for the nation's mortgages.

    Posted by Dave Johnson at 6:25 AM | Comments (5) | TrackBack | Link Cosmos

    July 30, 2007

    Today's Housing Bubble Post - Woes Spreading; Coming Soon' Is Now 'Price Reduced'

    Early in June I wrote about a house down the street marked as 'Coming Soon'. I just thought I would mention that the house now has a "Price Reduced" sign on it.

    And in other housing-bubble news, Signs of contagion in the U.S. housing downturn

    By the end of last week, any lingering hope that the housing downturn in the United States would be contained had vanished. As this week begins, signs of contagion seem to be everywhere.

    Unnerved by mounting losses in mortgage-related investments, investors have started to shun tens of billions of dollars in corporate debt offers as well - and seem likely to go on doing so for months to come. That would stanch the flow of easy money that has fueled the leveraged buyout boom, which would, in turn, expose the extent to which stocks have also come to depend on cheap credit.

    Stocks took a dive last week because debt-driven buyouts had long boosted the share prices of targeted companies. Stocks have also benefited directly from easy money because public companies have borrowed heavily to buy back their own stock, a ploy to drive up earnings per share.

    American Home Mortgage tumbles on liquidity issues,
    American Home Mortgage Investment Corp shares fell sharply Monday after the company delayed its quarterly dividend, announced “major” write-downs, and said lenders were demanding it put up more cash.

    ... American Home specializes in prime and near-prime loans. It has, however, made many loans that allow borrowers to produce little documentation of income or assets. American Home, organized as a real estate investment trust, recently commanded a roughly 2.5 percent share of the U.S. mortgage market.

    “Bankruptcy is not out of the question,” said Matt Howlett, an analyst at Fox-Pitt Kelton Inc. in New York. “It needs to find a partner with alternative funding and hope the market turns around. It's going to be tough.”

    He added, “It's clear now we're in a liquidity crisis. Any loans that aren't pure prime are falling in value.”


    GMAC 2Q Profit Tumbles on Mortgage Unit,

    GMAC Financial Services, the finance company formerly controlled by General Motors Corp., said Monday continued losses from its home lending operations caused second-quarter profit to fall sharply. Snap: Mortgage REITs Dive
    Shares of mortgage real estate investment trusts plummeted Monday after the New York Stock Exchange halted trading of shares of American Home Mortgage Investment Corp. pending an announcement from the troubled mortgage lender.

    The move spooked already jittery investors, deepening worries that the subprime mortgage market fallout is far from over.

    U.S. mortgage woes claim first German victim,
    The U.S. sub-prime mortgage crisis claimed lender IKB as a first victim in Germany on Monday, triggering sharp falls in other German bank shares on fears that they, too, could face sudden problems.

    ... But IKB's exposure to complicated U.S. mortgage investments was the first time the sub-prime spectre had loomed in Europe's biggest economy. It scared investors, fuelling worries that other German banks could be affected in the same way.

    Posted by Dave Johnson at 11:48 AM | Comments (0) | TrackBack | Link Cosmos

    July 26, 2007

    Today's Housing Bubble Post (II) - Mortgage-Backed Chaos

    Following today's terrible stock market, more mortgage-backed news:

    Bear Sterns seizes assets of its High-Grade hedge fund,

    Bear Stearns Cos. said late Thursday that it seized assets from its High-Grade Structured Credit Strategies Fund after the hedge fund suffered huge losses in mortgage-backed securities and structured-finance markets.

    UPDATE 2-Wells Fargo shuts subprime mortgage unit,cuts jobs|Funds News|
    Wells Fargo & Co., the second-largest U.S. mortgage lender, said on Thursday it will close its subprime wholesale lending business, which processes and funds loans for third-party brokers, citing turmoil in the market for riskier home loans.

    The company will shut operations in Baton Rouge, Louisiana, causing a loss of 170 jobs, and in Des Moines, Iowa, where it will seek other jobs for 67 workers. Wells Fargo also cut 444 subprime jobs last winter.

    Foreclosure rates could soar,
    The already poor performance of many mortgage loans will worsen substantially through the rest of the year, according to an analysis released Thursday by Moody's

    The company predicts that 2.5 million first mortgages will default this year, with little chance for improvement soon - expects delinquencies to peak in the summer of 2008 at 3.6 percent of all outstanding mortgage debt, up from 2.9 percent during the first three months of 2007.

    Analysts Say Mortgage Woes May Worsen

    The next and biggest wave of problem loans could come as monthly payments soar for both prime and subprime borrowers who took out adjustable-rate loans with little or no documentation, or who used so-called piggyback loans on top of their first mortgages to make up for small down payments, analysts said.

    Posted by Dave Johnson at 3:03 PM | Comments (0) | TrackBack | Link Cosmos

    Stock Market Tanking

    Down about 312 as I write this. Now 320... Now a minute later 333... 349... 345... 362... 383... 396... 405... better just go see for yourself. 443...

    Go look at details: ^DJI: Summary for DOW JONES INDUSTRIAL AVERAGE IN

    "The market is correcting because of uncertainty about how bad the subprime credit problem is going to be. We're in a period of fear and uncertainty right now, and these things can take a while to sort out," said Sam Rahman, portfolio manager at Baring Asset Management Inc.

    Posted by Dave Johnson at 11:03 AM | Comments (0) | TrackBack | Link Cosmos

    Today's Housing Bubble Post - New Home Sales Plunge - Prices Update Added

    New Home Sales Down Substantially,

    Sales of new homes fell in June by the largest amount in five months as the housing industry continued to struggle with its worst downturn in 16 years. The median home price also fell.

    ... Sales are now 22.3 percent below the level of a year ago.

    The median price of a new home sold last month dropped to $237,900, down by 2.2 percent from a year ago.

    An important note about that median price - we have a bifurcated economy where the rich are richer. So houses at the top of the market are selling well. This means that the median price reflects that high price point at the top. REGULAR housing prices are falling much more than this indicates.

    Prices Update - I want to emphasize what I said about prices. If the only houses selling at all are at the top, this will raise the median price.

    Another factor that distorts prices is "incentives." If a homebuilder is selling a house for $400K but throws in a new $60,000 Mercedes as and "incentive" to buy the house, the sales is reported as a $400K sale. And all across the country homebuilders are offering these incentives.

    Prices are falling, it's just that the reporting methods do not reflect what is happening. We are just coming out of a bubble -- just like stocks did. Do not think about the price of a house in relation to where it was priced during the bubble. If you did that with Enron stock, you thought you were getting a bargain. Think about where the price will be, not where it was.

    Look at it this way. We have house prices way higher than anyone can afford. We have the highest inventory of unsold houses in a long time - ever? We have the lenders tightening credit so fewer people can buy houses. We know prices are falling. We have a huge number of people falling behind on their payments and huge numbers of houses going into foreclosure. And it is just starting.

    Anyone buying a house right now is an idiot. Prices are probably about double where they should be. Like I said earlier, remember Enron stock and think about where the price will be, not where it was.

    Posted by Dave Johnson at 9:12 AM | Comments (0) | TrackBack | Link Cosmos

    July 24, 2007

    Today's Housing Bubble Post - PRIME Loans Failing

    Countrywide feels pain of ailing mortgage market,

    Countrywide said payments were at least 30 days late at the end of second quarter on 4.56% of prime home-equity loans serviced by the company, up from 1.77% a year earlier.

    Payments were late on 23.71% of sub-prime mortgage loans, up from 15.33% at the end of the same period in 2006, the company said.

    A huge jump from 1.77% to 4.56% of prime mortgages with late payments, and from 15.33% to 23.71% of sub-prime. And housing prices haven't even really started falling yet.

    But they will.

    Posted by Dave Johnson at 4:53 PM | Comments (0) | TrackBack | Link Cosmos

    July 12, 2007

    Today's Housing Bubble Post - Foreclosures Jump

    U.S. Foreclosure Filings Jump to Record in First Half,

    Mortgage foreclosures in the U.S. jumped to a record in the first half as rising interest rates and falling home prices battered homeowners.
    [. . .] In June, defaults surged 87 percent to 164,644 from a year ago, said RealtyTrac, a seller of foreclosure data, in the statement today. Last month's total was 7 percent lower than in May. California, Florida, Ohio and Michigan accounted for half the national total in June.
    [. . .] California had the second-highest rate, with one filing per 315 households, and the most filings overall, 38,801, for the sixth month in a row. Foreclosures in California, the most populous state, increased almost three-fold over a year ago.

    Posted by Dave Johnson at 3:32 PM | Comments (0) | TrackBack | Link Cosmos

    June 25, 2007

    Today's Housing Bubble Post - Slowwwww!

    Slow sales, prices keep dropping.

    Home Sales Hit Slowest Pace in 4 Years: Financial News,

    Reflecting further housing troubles, sales of existing homes fell in May to the lowest level in four years while the median home price dropped for a record 10th consecutive month.

    ... The median price of a home sold last month dropped to $223,700, down 2.1 percent from a year ago. It marked the 10th straight price decline compared with a year ago, the longest stretch of weakness on record.

    I noticed this weekend that MANY more "For Sale" signs are out in the Bay Area than before.

    Update - My observation is confirmed: Housing inventory piling up: Inventory of homes for sale hits 15-year high,

    The inventory of previously owned homes up for sale in May rose to the highest level in relation to sales in 15 years, a real-estate trade group said Monday.

    ... Inventories of homes on the market rose by 5% to a record 4.43 million, representing an 8.9-month supply at the May sales pace. That's the biggest overhang of inventory since June 1992, at the tail end of the last housing bust.
    The inventory figure compared with 8.4 months in April and 7.4 months in March.

    Posted by Dave Johnson at 9:06 AM | Comments (0) | TrackBack | Link Cosmos

    June 21, 2007

    Today's Housing Bubble Post - Bad Day?

    Will today be a really bad day for the stock market? (Or worse?) There are signs that the ripples from the housing bubble's pop are starting to spread.

    Bear Stearns Fund Collapse Sends Shockwave Through CDO Market,

    Merrill Lynch & Co.'s threat to sell $800 million of mortgage securities seized from Bear Stearns Cos. hedge funds is sending shudders across Wall Street.

    A sale would give banks, brokerages and investors the one thing they want to avoid: a real price on the bonds in the fund that could serve as a benchmark. The securities are known as collateralized debt obligations, which exceed $1 trillion and comprise the fastest-growing part of the bond market.

    The REAL value of these instruments? Who knows? And who owns them?

    Bondad has an explanation.

    Here's the thing - this is the money market. This is YOUR money-market fund. Find out if YOUR money-market funds are FDIC insured!

    Posted by Dave Johnson at 5:43 AM | Comments (0) | TrackBack | Link Cosmos

    June 14, 2007

    Today's Housing Bubble Post - Record Foreclosure Pace

    U.S. Mortgages Enter Foreclosure at Record Pace,

    The number of Americans who may lose their homes because of late mortgage payments rose to a record in the first quarter, led by subprime borrowers pinched by an economy that grew at the slowest pace in four years.

    ... Falling home prices hurt homeowners who fall behind on their payments, as they find it more difficult to sell the property or refinance into another loan, said Doug Duncan, chief economist for the Washington-based bankers' group.

    Also, "More pain" - the "subprime" problems are rippling out:

    Subprime woes weigh on Goldman, Bear results,

    Goldman Chief Financial Officer David Viniar said in a conference call Thursday that the subprime sector's woes are not over and to expect "more pain" before the problem is purged.

    Posted by Dave Johnson at 11:26 AM | Comments (0) | TrackBack | Link Cosmos

    June 7, 2007

    Today's Housing Bubble Post - "Coming Soon"

    Something new in my area: There are a lot of houses for sale but recently many of the "For Sale" signs have "Coming Soon" written across the top. Coming soon, like not for sale yet? One house a few doors down the street has had a "Coming Soon" banner for about a month now. But it isn't for sale yet, I guess.

    Is this a scam to avoid having to list a high number of days that the house has sat without being sold?

    Other news, no bailouts soon for people with mortgage troubles: Mortgage Reform Unlikely This Year, Lawmakers And Regulators Say Market Is Showing Signs Of Self-Correcting,

    Homeowners unable to pay monthly mortgage bills and facing foreclosure shouldn't count on help from Washington this year.

    Regulators and lawmakers seem to be taking a wait-and-see approach as they confront the fallout from several years of lenders making too many home loans to people with inadequate credit.

    ... The National Association of Realtors said Wednesday it expects sales of existing homes to drop 4.6 percent this year to 6.2 million while the median home price is expected to fall 1.3 percent to $219,000. It would be the first annual drop since the trade group began keeping records in the 1960s.

    The foreclosure rate nationwide is rising at an annual rate double that of two years ago. Nearly 2 million adjustable-rate mortgages are forecast to reset at higher rates over the next two years, suggesting the foreclosure rate has not peaked.

    Posted by Dave Johnson at 6:35 PM | Comments (3) | TrackBack | Link Cosmos

    May 25, 2007

    Today's Housing Bubble Post - Prices Down

    Yesterday's bad news was about new homes. Today's bad news is about existing homes. Home prices fall for 9th straight month,

    Sales of existing homes fell by a larger-than-expected amount in April while the median price of a home sold during the month fell for a ninth straight month as the troubles in the subprime mortgage market acted as a further drag on housing.

    The National Association of Realtors reported Friday that sales of existing homes fell by 2.6 percent last month to a seasonally adjusted annual rate of 5.99 million units. That was the slowest sales pace since June 2003.

    ... Sales were weak in all parts of the country. The Northeast experienced the biggest decline, a fall of 8.8 percent in April from the March sales pace.

    And the news is only going to get worse:
    The drop in sales was accompanied by a big jump in the number of unsold homes left on the market.

    Posted by Dave Johnson at 8:32 AM | Comments (0) | TrackBack | Link Cosmos

    May 16, 2007

    Economists and Trade

    Science describes what actually happens. Economists say, "If only people would do so-and-so, such-and-such would happen."

    If only trade were free. If only all countries would watch out for the interests of others instead of their own... If only the really rich would share the wealth...

    Economist's View: You Economists Don't Get It, Do You?

    Posted by Dave Johnson at 6:20 AM | Comments (0) | TrackBack | Link Cosmos

    May 7, 2007

    Today's Housing Bubble Post

    I haven't done a housing bubble post for a while, so here is a roundup.

    Lenders have "tightened up" on their requirements to qualify for a loan, so fewer buyers are qualifying: As mortgage lending tightens, house hunters with weak credit get shut out,

    Rising interest rates and dropping home prices have squeezed a market that had been propped up by risky loans and easy credit during the housing boom. As mortgage bills came due, foreclosures rose, and the easy credit dried up for families like the Shields.

    [. . .] This year, the volume of subprime mortgages is expected to drop by about 30 percent, said...

    So there are fewer buyers.

    Meanwhile, foreclosures are up, which means more houses for sale with special deals. So just as there are fewer buyers, there are more sellers.

    Stories like these, around the country: National: Brace for wave of foreclosures,

    More than 1.1 million homeowners will lose their homes to foreclosure by 2014 because they can't afford the rising payments on their adjustable-rate mortgages, according to a researcher.
    Kansas: Foreclosures up as loan rates adjust,
    "We're just in the first wave of anniversaries now," Hermes said. "There will be a second, third and maybe a fourth wave of foreclosures. Then, all the people who are getting subprime loans now -- they'll start to kick in."
    Sacramento: Foreclosures Hurting Local Property Values: Many Homeowners Forced To Take Loss

    West Michigan: Foreclosures on a sharp rise

    Florida: Foreclosures through the roof in Manatee

    Minneapolis: Foreclosures take a toll on North Minneapolis

    Here's one that will make us all weep - maybe even send a donation. Second home sales plunge,

    The National Association of Realtors said Monday that sales of second homes for investment fell by 28.9 percent in 2006 to 1.65 million. That was down from an all-time high of 2.32 million investment homes sold in 2005, at the peak of the five-year housing boom.
    But don't cry too hard, because Vacation home sales set record.

    Where will this lead? There are too many houses for sale, at the highest prices ever, with fewer buyers. So prices will fall. Especially as the foreclosures come up for sale, because those sellers aren't holding out, thinking there is still a huge inflated bubble - they are being sold by banks that just want enough cash to cover what they are owed...

    The only question is how far will prices fall? And how any people will be wiped out?

    Remember - check if you have funds in a :money market account" and whether it is government insured, because these "mortgage instruments" are all over the place now, and might no tbe worth the paper they are printed on.

    Posted by Dave Johnson at 10:56 AM | Comments (0) | TrackBack | Link Cosmos

    April 27, 2007

    Today's Housing Bubble Post - "Worldwide Bubble"

    A warning, and not just on housing: All the World's a Bubble,

    Grantham says we are now seeing the first worldwide bubble in history covering all asset classes.

    Everything is in bubble territory, he says.


    [. . .] And it becomes self-sustaining. "The more leverage you take, the better you do; the better you do, the more leverage you take. A critical part of a bubble is the reinforcement you get for your very optimistic view from those around you."

    [. . .] "The bursting of [this] bubble will be across all countries and all assets, with the probable exception of high-grade bonds," Grantham warned. "Since no similar global event has occurred before, the stresses to the system are likely to be unexpected. All of this is likely to depress confidence and lower economic activity."


    Yes, ouch. Watch your backs. And, maybe buy some gold.

    Posted by Dave Johnson at 11:23 AM | Comments (0) | TrackBack | Link Cosmos

    April 24, 2007

    Today's Housing Bubble Post - Worst Drop In 18 Years

    The tightening of mortgage lending standards is beginning - just beginning - to have an effect.

    Existing home sales pace, prices fall again in March - Apr. 24, 2007,

    Home sales posted their sharpest drop in 18 years in March, a real estate group said Tuesday, as problems in the subprime mortgage sector pushed sales well below what economists had forecast.

    Sales of existing homes fell 8.4 percent to an annual rate of 6.12 million in March from February's 6.68 million rate, the National Association of Realtors said. It was the biggest one-month drop since January 1989. Economists surveyed by had forecast sales would fall to an annual rate of 6.45 million in March.

    It's also beginning - just beginning - to affect prices,
    At the same time, prices also dropped. The median price of an existing single-family home decreased 0.9 percent last month, to $215,300, compared with a year earlier.
    And it will get worse,
    The realtors’ association report reflected a housing market that is becoming increasingly unfriendly to anyone looking to sell their home. While the number of unsold existing homes for sale fell 1.6 percent in March, to 3,745,000, the time it took to sell a home increased. There was a 7.3-month supply of unsold properties on the market last month, up from a 6.8-month supply in February.

    Economists said that if home prices continued to fall, potential buyers would be discouraged from acting while they waited for the bottom of the market to hit.

    All of this could add up : Poor housing data raise fears for US economy

    Posted by Dave Johnson at 11:44 AM | Comments (0) | TrackBack | Link Cosmos

    April 21, 2007

    Our Trade Deals Harm America

    The Establishment Rethinks Globalization.

    Short version: Our trade deals are transferring "wealth-generating productive capacity" to other countries, which weakens America.

    It's not just that we no longer make stuff, it's that we're transferring the capacity to make stuff, along with the higher-paying jobs that tend to be located where the stuff is made. Shoes are one thing, and you can start making shoes again in a relatively short time if you have to. But LCD screens and computer chips are another thing entirely. The technology advances rapidly. When you transfer that it's gone and very hard to get back.

    "The question is where do you put your technology and knowledge and investment? These other countries understand that. They have understood the following divergence: What countries want and what companies want are different."
    Americans can choose to blame China or disloyal multinationals, but the problem is grounded in US politics. The solution can be found only in Washington. China and other developing nations are pursuing national self-interest and doing what the system allows. In a way, so are the US multinationals. "I want to stress it's a system problem," Gomory says. "The directors are doing the job they're sworn to do. It's a system that says the companies have to have a sole focus on maximizing profit."
    And the best part:

    He [Gomory] wants to re-create an understanding of the corporation's obligations to society, the social perspective that flourished for a time in the last century but is now nearly extinct. The old idea was that the corporation is a trust, not only for shareholders but for the benefit of the country, the employees and the people who use the product. "That attitude was the attitude I grew up on in IBM," Gomory explains. "That's the way we thought--good for the country, good for the people, good for the shareholders--and I hope we will get back to it.... We should measure corporations by their impact on all their constituencies.

    "So in my utopian dream, we decide what we want from the corporations and that's how they make a profit--by doing those things. Failing that, I would settle for the general realization of this divergence and let people argue it out."

    Posted by Dave Johnson at 8:49 AM | Comments (2) | TrackBack | Link Cosmos

    April 12, 2007

    For Kurt Vonnegut

    "How to love people who have no use?"

    This is the end of a 2003 Who Is Our Economy For? post. It's a post worth reading, by the way.

    "... a problem whose queasy horrors will eventually be made world-wide by the sophistication of machines. The problem is this: How to love people who have no use?

    In time, almost all men and women will become worthless as producers of goods, food, services, and more machines, as sources of practical ideas in the areas of economics, engineering and probably medicine too. So, if we can't find reasons and methods for treasuring human beings because they are human beings, then we might as well, as so often has been suggested, rub them out."

    - Kilgore Trout, in Kurt Vonnegut's God Bless You, Mr. Rosewater

    Posted by Dave Johnson at 8:32 AM | Comments (0) | TrackBack | Link Cosmos

    April 6, 2007

    White-Collar Jobs, Too

    "Fast-tracking" your job out the door. When is the last time you saw something "Made in the USA"?

    When was the last time you saw someone on TV or read in your local newspaper about the benefits of joining a union?

    Posted by Dave Johnson at 8:12 AM | Comments (0) | TrackBack | Link Cosmos

    March 29, 2007

    Today's Housing Bubble Post - Not Just Subprimes

    It's not just "subprimes" that are in trouble. See Mortgage crisis hits million-dollar homes, page 2

    "Everyone's looking at subprime. The rock they aren't looking under are the adjustable rate mortgages and teaser rates and low money-down loans," said Mark Kiesel, a portfolio manager for Pacific Investment Management Co., the world's biggest bond manager. "It's going to affect prime as well."
    In fact, it's everywhere. Subprimes are the tip -- now the iceberg is coming into view.
    Josh Rosner, managing director at investment research firm Graham Fisher & Co., says the growing numbers of foreclosures outside the subprime market is just the start.

    "To define the problem as a subprime problem is short-sighted," Rosner said. "It's really seeing the tip of the iceberg as the iceberg."

    Posted by Dave Johnson at 8:57 PM | Comments (0) | TrackBack | Link Cosmos

    March 26, 2007

    Today's Housing Bubble Post - Sales Lower, Inventories Higher

    New home sales dropped again - 3.9% to lowest level in 7 years. Inventories up again to the highest level in 17 years. Go see The Bonddad Blog: More on New Home Sales and New Home Sales Drop 3.9%.

    Here's the thing. Last week lenders tightened requirements for getting a loan. This means that fewer people can get loans now for buying houses. So demand for houses is about to drop -- a lot. The drop in sales reflects the month before this tightening so things can only get worse.

    We have an increase in supply and a big decrease in demand. That can only -- ONLY -- mean a drop in housing prices is coming. BUT WAIT, THERE'S MORE!

    Remember that we're also in a subprime mortgage crisis -- people who could not afford to buy a house were given loans they could not afford, and now it's turning out that they can't afford them and they are losing their houses to foreclosure. (And the lenders are going bankrupt.) But with today's news about lower sales and higher inventories, this will push even more into foreclosure because they won't be able to sell their houses before it is too late. And THAT puts even MORE houses on the market.

    This could turn into an accelerating downward spiral. This could get really bad - worse than the "S&L Crisis" of the 1980s and early 90s.

    Here's the (next) thing -- as I said above, lenders are going bankrupt. If you are lucky enough to have savings instead of debt you should check whether you have money in any "money market" accounts, and whether those accounts are FDIC insured. If they are NOT FDIC insured you can lose some or all of your money.

    Posted by Dave Johnson at 2:38 PM | Comments (0) | TrackBack | Link Cosmos

    March 23, 2007

    Today's Housing Bubble Post - Bad News Spun Good

    Headline sounds great, no? Home Sales Rise Unexpectedly in Feb. But what about the story?

    The increase pushed sales up to a seasonally adjusted annual rate of 6.69 million units, still 3.6 percent lower than a year ago. Sales fell by 8.5 percent for all of last year as housing hit a sharp slowdown after setting sales records for five straight years.
    ... "Sales cannot be sustained at this level, which is way above the pace implied by mortgage applications," said Ian Shepherdson, chief economist at High Frequency Economics.

    The price of a median home sold last month dropped to $212,800, down by 1.3 percent from the same month in 2006. It marked a record seven straight months that the median home prime has fallen compared to the same period a year ago.

    ... "Our view is that the tightening in the subprime market will have a negative impact on home sales," Lereah said. "It probably won't postpone the recovery (in housing) but it will slow it." [emphasis added]

    So the real story is year-over-year sales are down 3.6 percent and EVERYONE expects things to get worse.

    Nice headline, though.

    Posted by Dave Johnson at 9:37 AM | Comments (0) | TrackBack | Link Cosmos