Seeing the Forest: Economics Archives

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 - NYTimes.com

"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.

Conclusion: THE STIMULUS WORKED BUT WAS NOT ENOUGH!

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

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:

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.

Sobotka

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.

OK, That was bold and italicized. Maybe if I make it ALL CAPS the geniuses will see it? Let's see: 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.

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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.

Abandoned?

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.)

EmploymentPercentLossesAlignDec2010

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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Posted by Dave Johnson at 5:19 PM | Comments (0) | Link Cosmos

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.

Posted by Dave Johnson at 5:53 PM | Comments (0) | Link Cosmos

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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Posted by Dave Johnson at 2:19 PM | Comments (0) | Link Cosmos

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.

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

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 538.com, 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.

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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:

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?

Hmmm...

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

Interesting

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

WWRD?

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

Unemployment

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 FinancialStability.gov | 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 OnTheCommons.org 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 - NYTimes.com,

. . . 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.

WHAT "INSOLVENT" MEANS,

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
Firefighters
Transportation Security Administration
Coast Guard
Prisons
Police
Violence Against Women
NASA
National Science Foundation
Western Area Power Administration
CDC
Food Stamps

REDUCED money for:

Public Transit $3.4 billion
School Construction $60 billion

INCREASED money for:

Defense operations and procurement
STAG Grants
Brownfields
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.
See: http://www.jobwatch.org/creating/bkg/cea_on_bush_tax_cuts_20030204_macro_effects.pdf

EPI tracked the initiative’s effectiveness through a website, www.jobwatch.org, 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.

Big Box Mart | Funny Jokes at JibJab

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

Have a read: A DIFFERENT KIND OF AUTO 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)
n.

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.

http://business.timesonline.co.uk/tol/business/economics/article5014463.ece

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 golfballs.com 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 Townhall.com,

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.

Discuss.

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 http://www.fdic.gov/deposit/deposits/insured/yid.pdf.

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 - washingtonpost.com,

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.

WTF?

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 Money.com 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 YEAR – but 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
O.k.
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
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 (http://www.economicindicators.gov) 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.

But,

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 Briefing.com.

. . . 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"

Headline at Drudge: US TRIPLE-A CREDIT RATING UNDER THREAT FROM SOARING WELFARE COSTS...

It links to: FT.com / 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.

OK:

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

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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!

Sorry.

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.

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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

Stuff

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?

Indeed.

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:

Snl_dontbuystuff
Uploaded by shosterman

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

Greenspan

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

Recession?

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.

Maybe...

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?

Sucker.

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.

Ripples.

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!

THE "WHAT'S THE ECONOMY FOR, ANYWAY? CONFERENCE!!!

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

Bloomberg.com: 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

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.”

Continues...

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.

http://www.forbes.com/feeds/ap/2007/07/30/ap3967119.htmlSector 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|Reuters.com

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 Economy.com.

The company predicts that 2.5 million first mortgages will default this year, with little chance for improvement soon - Economy.com 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.

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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.

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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.

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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.

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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.

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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.

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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!

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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.

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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.

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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.
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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.

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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?

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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.

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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.

Everything.

[. . .] 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."

Ouch.

Yes, ouch. Watch your backs. And, maybe buy some gold.

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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 Briefing.com 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

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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."

And,

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."

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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

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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?

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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."

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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.

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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.

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March 15, 2007

Today's Housing Bubble Post - "Woes Could Spread"

Greenspan warns subprime woes could spread,

Former Federal Reserve Chairman Alan Greenspan said on Thursday there was a risk that rising defaults in subprime mortgage markets could spill over into other economic sectors.

Speaking to the Futures Industry Association, Greenspan conceded it was "hard to find any such evidence" about spillover from housing yet, but added: "You can't take 10 percent out of mortgage originations without some impact."

Duh! You take away a big percentage of buyers by tightening the rules about who can get a mortgage at the very same time as inventory is rising, and OF COURSE prices have to fall. DUH!

Meanwhile,

He said that subprime woes were "not a small issue" and seemed to result primarily from buyers coming into lofty housing markets late after big price run-ups that had left them vulnerable to hikes in adjustable mortgage rates.

Default rates in the subprime segment of the U.S. mortgage market have jumped in recent months as the housing industry slowed and prices fell.

At least 20 lenders in the subprime mortgage sector, which serves borrowers with poor credit histories at high interest rates, have gone out of business as a result.

The crisis has triggered broader concerns that the fallout may spread to mainstream lenders and damage the economy.

And the good news?

He also noted the problem would be quickly resolved if the housing sector regained its footing and prices moved up by 10 percent.

Right. Prices at the highest ever, fewer buyers, high inventory, and things will be fine IF prices go up. OF COURSE they'll be fine if prices go up. But at the top of a bubble it's ALWAYS fine if prices go up. But they won't.

The situation in Iraq would be fine if Shiites and Sunnis gave each other a big hug, too. But they won't.

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March 13, 2007

Today's Housing Bubble Post - "A Big Damn Mess" - UPDATED

"Subprime" is a name given to loans that are riskier than regular loans, so they carry a higher interest rate. They are called "subprime" because they are less than ("sub") prime. People who would not normally qualify for a big mortgage receive these special loans. They were marketed as "affordability" instruments, meaning they "enabled" people to buy houses that cost more than they could afford. These loans had "teaser" low initial rates, also called "qualifier" rates, which would go up after a period of time, most even rising beyond the point that the borrow can "afford." Some of these loans even allowed borrowers to qualify for the loan using "stated income," meaning they would use whatever the borrower SAID their income was to see if they could afford the loan. (For some reason, these became known as "liar loans.")

Why is "more than they can afford" a consideration in giving a loan? It is possible that this term is used because the payments on such loans are "more" than the borrower can "afford" - meaning that the borrower will not be able to make the payments after the initial low-interest-rate period ends. When a borrower can't make the payments, it is called "defaulting" which means they "default." Which also means they can't pay back the loan, lose the house, and face financial ruin for the rest of their lives. And the lender is stuck with a "bad loan" meaning they are not going to be paid back.

When a lending company has enough "bad loans" on their books, THEY are also in trouble and can go bankrupt, which is happening. After enough of these go bankrupt the companies that loaned money to them also start to go bankrupt. This ripples through the economy. (Hint - if you have any money in "money market funds" see if the account can "lose principal" which means if it turns out the money-market "instruments" that generate the income are from companies with mortgage-based loans out there, or loans to companies with mortgage-based loans, these "instruments" can go bad your money enters a highly technical state known as "going away.")

ONE way this ripples through the economy is that lenders are forced to "tighten up" their requirements - meaning they STOP giving loans to people who cannot "afford" the loans. This reduces the number of people who are looking to buy a house (demand) at exactly the same time as the market is flooded with homes for sale because the owners cannot make the payments on their loans (supply). So there is a combination of high supply and low demand, which must force prices to drop. A lot.

And here we are today, as it turns out that the borrowers who could not "afford" the loans actually could not "afford" the loans - they can't make the payments, which in plain English means they "can't make the payments." And the lenders are starting to go bankrupt, one by one. And it will ripple through the economy.

See The Bonddad Blog: Anatomy of a Subprime Default,

Short version of all this -- it's a big damn mess.

Update - This story JUST hit the wires:
New foreclosures at record high
Mortgage delinquencies rise across the board in fourth quarter,

Many more U.S. homeowners were unable to keep up with their mortgage payments in the fourth quarter, the Mortgage Bankers Association said Tuesday, with the rate of homes entering the foreclosure process hitting a record 0.54% and the delinquency rate on U.S. home loans leaping to 4.95% from 4.67% three months earlier.

... The rise was led by subprime mortgages, where delinquencies increased to a seasonally adjusted 13.33% from 12.56%, and FHA loans, which saw a record-high delinquency rate of 13.46%. Trouble in subprime mortgages, made to borrowers with the riskiest credit, has roiled lenders and the stock market in recent days.

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March 4, 2007

Today's Housing Bubble Post - Subprime Loans "Coming Home to Roost"

At the Drum Major Institute's blog: Sub-Prime Mortgages Come Home to Roost,

"During the housing boom that ended in 2005," the Times reported, "money was poured with abandon into exotic home loans that let people buy homes with little down or without verifying their incomes. Now, lenders, financiers and buyers of mortgages are pulling back...The move comes as default rates are rising, smaller lenders are starting to fail and investors are shunning bonds backed by mortgages."

Duh! Where have they been? For more years now advocates have been denouncing sub-prime loans and "exotic" mortgages - adjustable rate loans, "no doc" loans, interest only loans, etc. - as often abusive and predatory, and a leading contributor to mortgage defaults and financial instability among working and middle class people. Meanwhile sub-prime lenders have been losing profits, downsizing and going out of business because their loan porfolios are crumbling under the poor or non existent underwriting criteria.

[. . .] The question remains: When will law makers and regulators finally step in and clean up the sub-prime market?

Also take a look at Homeownership: The Fast Path to Poverty?,

This single-minded promotion of homeownership is now proving to have disastrous consequences for many moderate income families that bought homes at the peak of the bubble. Many of these families will end up losing their homes and whatever savings they had used to buy a home. Their credit record may be permanently damaged and possibly their aspirations as well.

Posted by Dave Johnson at 6:51 PM | Comments (0) | TrackBack | Link Cosmos

February 21, 2007

Bush Cutting Medicaid To Pay For ONE FAMILY's Tax Cut

Who is our economy FOR? Bush is cutting Medicaid by $28 billion. Bush is giving the Walton family (Wal-Mart heirs) a $32.7 billion tax cut. You do the math.

Go see who else wins and loses: Maybe We Deserve to Be Ripped Off By Bush's Billionaires,

If the Estate Tax were to be repealed completely, the estimated savings to just one family -- the Walton family, the heirs to the Wal-Mart fortune -- would be about $32.7 billion dollars over the next ten years.

The proposed reductions to Medicaid over the same time frame? $28 billion.

[. . .] That's not only bad government, it's bad capitalism. It makes legalized bribery and political connections more important factors than performance and competition in the corporate marketplace. Beyond that, it's just plain fucking offensive to ordinary people. It's one thing to complain about paying taxes when those taxes are buying a bag of groceries once a month for some struggling single mom in eastern Kentucky. But when your taxes are buying a yacht for some asshole who hires African eight year-olds to pick cocoa beans for two cents an hour ... I sure don't remember reading an excuse for that anywhere in the Federalist Papers.

More information you will not see in your local newspaper or on the news...

Posted by Dave Johnson at 8:46 AM | Comments (0) | TrackBack | Link Cosmos

February 20, 2007

Today's Housing Bubble Post - Roof Falling?

Is the Roof Falling on Housing?,

It was not particularly surprising to most housing market observers that January starts fell from their December levels. But what did have the market abuzz was the magnitude of the drop. With a 14.3% decline to a seasonally adjusted rate of just 1.408 million units -- versus December's revision to 1.643 million units -- the housing activity level for the first month of 2007 was the lowest in nearly a decade.

Not since August 1997 has construction been begun on fewer haciendas in the United States. Indeed, the magnitude of the drop-off has more than a few observers questioning whether the nation's current housing slump actually will last longer than recently has been anticipated.

Other news:

Home Depot profit falls on housing slowdown,

Blake cautioned, however, that the company does not expect a dramatic turnaround in the housing market this year and said the company would give its financial outlook at next week's analyst meeting.
[. . .] Existing U.S. home sales fell 8 percent in 2006, their biggest drop since 1989. Housing starts fell 13 percent last year, their biggest tumble in 15 years. Home sales and construction are key drivers of home improvement sales.

New-home sales dipped 29 percent in California in 2006

(Hartford) Sagging home sales leads to good times for apartment landlords,

A booming market in rentals as home sales sag is leading to rent increases throughout most of the Hartford area in 2007.

(Buffalo) Area home sales hit 7-year low in January,

The local housing market got off to a slow start in January, with home sales sliding to a 7-year low for the month, while the median sale prices of those homes dropped by 4.6 percent, a local real estate group reported.

Posted by Dave Johnson at 2:57 PM | Comments (1) | TrackBack | Link Cosmos

February 8, 2007

Today's Housing Bubble Post - Still Falling

Housing still falling, midyear bottom in sight, economists say,

The U.S. housing market has not reached bottom and will likely not begin to recover until the middle of this year, three housing economists said this week.

The weakness will extend to existing-home and new-home sales and housing starts as well as to home prices, which are likely to show their first full-year decline nationally since records have been kept, the economists told home builders at their annual convention here.

"I don't think we've seen the bottom," said David Berson, chief economist for Fannie Mae. "We're going to see a much bigger drop in investor demand this year. But by the second half of the year the market will stabilize, if investors pull out quickly."

Yep, good times are "just around the corner." Unless, of course, you look at the long-term median prices, run-up charts, affordability, default rates, foreclosures, etc.

In other news, HSBC warns over US mortgage bad debt,

HSBC, Europe’s biggest bank, last night gave warning that bad debts in its troubled US mortgage lending business would be 20 per cent higher than forecast.
The bank blamed the impact of slowing house price growth, which it said is being reflected in accelerated delinquency trends across the US sub-prime mortgage market. It said that the level of loan impairment provisions for 2006 for its mortgage services operations will be higher than is reflected in current market estimates.

And more bad news, see Home Lenders Plunge as More Subprime Mortgages Sour and Subprime meltdown ...

Posted by Dave Johnson at 11:33 AM | Comments (1) | TrackBack | Link Cosmos

February 1, 2007

Today's Housing Bubble Post - Monster Beneath the Surface

Housing Threatened by Defaults in Sub-Prime Mortgage Market,

In the year since Ben Bernanke became chairman of the Federal Reserve, the nation's central bank has led a push by regulators, including the Comptroller of the Currency and the Office of Thrift Supervision, to raise mortgage lending standards, making it tougher for borrowers ... to get a loan. Reducing the number of people who can secure a mortgage also may threaten the recovery of the U.S. housing market that the National Association of Realtors is predicting for the end of 2007.

[. . .] U.S. foreclosures begun on sub-prime adjustable-rate mortgages, or ARMs, rose to a four-year high of 2.19 percent in the third quarter as borrowers struggled to pay mortgage bills while interest rates increased, the Mortgage Bankers Association reported. During the five-year boom in housing prices, homeowners who fell behind on mortgage payments could sell their homes and pay off their loans or get better refinancing terms based on the higher value of their property.

[. . .]``There's a monster beneath the surface of the financial markets,'' Shaughnessy said. ``No one knows when or where the credit crisis is going to rear its ugly head.'' [emphasis added]

Other news:

Survey: Half of consumers say housing price collapse possible,

Nearly half of all consumers (47 percent) say they think a housing bubble and collapse of housing prices is very likely (16 percent) or somewhat likely (31 percent) in their local residential real-estate market within the next three years, according to an Experian-Gallup survey.
... Fears of a potential housing price collapse are greatest in the West (52 percent) and the East (49 percent) but lower in the Midwest (41 percent) and the South (44 percent).

... "Housing market conditions may not have reached bottom at this point, with 57 percent of renters thinking there is the potential for a price collapse in their local areas over the next few years and 18 percent of all Americans expecting prices to decline during the year ahead," says Ty Taylor, president of Experian Consumer Direct.

Risky mortgage lending practices bring backlash,

California lawmakers are considering new restrictions on unorthodox mortgage lending.

The loans have let hundreds of thousands of residents with shaky credit or lower incomes snap up homes using features like no money down, variable interest rates and interest-only loans.

About half of all new loans in California are nontraditional. They offer riskier borrowers low introductory payments in exchange for higher monthly bills that in many cases will begin kicking in this year.

Posted by Dave Johnson at 10:34 AM | Comments (0) | TrackBack | Link Cosmos

Start Challenging The Conventional Wisdom

Conservatives have spent literally billions of dollars on a propaganda campaign since the 1970s to convince Americans that corporatism and greed are better for them than democracy and community.

So take a look at AlterNet: Note to Progressives: Challenge Market Fundamentalism asks us to,

...challenge Market Fundamentalism, the exaggerated and quite irrational belief in the ability of markets to solve all problems, an economic fundamentalism that has dominated our national political debate for a generation.

How is Market Fundamentalism a "conventional wisdom?"

Market fundamentalism has become like the air we breathe; we hardly notice it. Every time George W. Bush argues for more tax cuts, he relies on the unquestioned assumption that we all embrace Market Fundamentalism. Like religious fundamentalism, it is based more on faith than on reason. Through constant repetition, however, the American public has been bullied into believing that private spending is rational and efficient while public spending is always wasteful and unproductive. (Tell that to people in New Orleans.)

Posted by Dave Johnson at 9:27 AM | Comments (0) | TrackBack | Link Cosmos

January 27, 2007

Oil Price Manipulation?

This is very interesting: TomPaine.com - Manipulating The Oil Reserve,

... It turns out there is good reason to believe that record oil prices may be due to our own strategic oil reserve, which the Bush administration may have been manipulating to drive up prices for the benefit of its clients. This is something Congress must investigate, and here is some preliminary evidence.

... The last three years have seen rapidly rising oil prices, and a tight oil market has meant that even small increases in demand have had large price impacts. During this period the Bush administration purposely expanded inventories of the strategic oil reserve, which rose from 600 million barrels in May 2003 to 700 million barrels in August 2005. The administration therefore increased demand by 125,000 barrels per day, and oil prices rose from 30 dollars per barrel to 70 dollars.

Some time ago I wrote about Koch Supply and Trading getting the contract to supply oil to the Strategic Petroleum Reserve.

This company isn't JUST a "major GOP Donor." David H Koch is one of the prime funders of the whole right-wing movement. ... Koch played a role in founding the Cato Institute, which pumps out anti-government Libertarian propaganda. The Koch family had given Cato $21 million as of 1999. He was also involved in founding Citizens for a Sound Economy, another anti-government propaganda outlet. Contributions, again as of 1999, totaled $10 million. Koch also is a major funder of the Reason Foundation, yet another outlet for right-wing anti-government propaganda.

... This isn't just a quid pro quo. This government money will be pumped straight back into the Republican machine.

One more thing the Congress needs to look into.

Posted by Dave Johnson at 12:09 AM | Comments (1) | TrackBack | Link Cosmos

January 23, 2007

SOTU - Defunding Social Security

Bush wants to cut Social Security taxes - that is what is meant where he talked about a new tax deduction for health insurance that would come from "payroll taxes." That means from Social Security taxes.

Social Security is currently solvent, and projected to remain solvent. But not if Bush gets his way with this tax cut. Then it really WOULD be in trouble.

It's a trick. It is yet another scheme to get rid of Social Security.

Update - American Prospect picks up on this

But, there is a flip side to this tax break. If workers pay less money into Social Security, they would also get less back. To take an extreme case, imagine a worker whose pay averages $20,000 a year. Currently, this would salary would get this worker $11,000 if she started collecting benefits at the normal retirement age. Under President Bush’s proposal, the worker would only be credited with $5,000 a year towards her Social Security benefits, getting her $4,500 a year when she retires. This is a big difference.

Also Atrios.

Posted by Dave Johnson at 10:11 PM | Comments (0) | TrackBack | Link Cosmos

January 13, 2007

Interest Rates Inverted

Here is today's CD rate schedule from E-Trade. Shorter terms are paying higher interest rates. Raise your hand if you know what this means.

6 Month 5.35%
1 Year 5.05%
15 Month 5.00%
1.5 Year 5.00%
2 Year 4.80%
2.5 Year 4.80%
3 Year 4.80%
4 Year 4.80%
5 Year 4.80%

Posted by Dave Johnson at 11:58 AM | Comments (0) | TrackBack | Link Cosmos

January 10, 2007

Today's Housing Bubble Post - Still Not Affordable

Americans struggle to afford housing,

An annual income of about $85,000 is needed to afford median-priced homes; salaries have not seen modest gains, according to a study.

U.S. home prices may have dipped over the past year, but many American workers would still struggle to afford a median-priced home in major cities, a new study said Wednesday.

"American workers are really not gaining ground and they're so far behind in the first place," said Barbara Lipman, research director for the nonprofit Center for Housing Policy, which conducted the study.

While the median home price in the 202 largest metropolitan areas declined 2 percent from a year ago to $248,000 in the third quarter of 2006, mortgage rates rose enough over the year that homes actually became less affordable as pay did not keep pace.

And other news:

Phoenix: Economists say housing correction could push into 2008

Foreclosures Continue to Rise Across the Nation

Missouri foreclosures increase 96.5%

2007 Year of Alarm for Adjustable Mortgages and Sacramento Foreclosures

Posted by Dave Johnson at 8:37 AM | Comments (1) | TrackBack | Link Cosmos

January 9, 2007

Today's Housing Bubble Post - Coastal Real Estate Prices

People still buy real estate that will be underwater in a few decades. Think about that.

The reason we don't take global warming seriously in America is because ExxonMobil has been spending millions and millions of dollars funding a PR campaign designed to shift our attention away from the problem. This has been very good for business for them, but it has caused each and every one of us to behave in ways that are counter to our OWN and society's interests.

One day this will change. One day the consequences of global warming will become too serious to ignore. One day ExxonMobil will stop paying the Competitive Enterprise Institute and the Center for Defense of Free Enterprise and Citizens for a Sound Economy and the American Enterprise Institute and the Frontiers of Freedom Institute and the Heritage Foundation and the Hoover Institution and the National Center for Policy Analysis and the hundreds of other right-wing "think tanks" they pay to tell us global warming is a hoax (read the report), and then the fog will start to lift and we will start to see the world as it is -- the "reality-based" world we live in rather than the one we see on TV.

How is this a "Today's Housing Bubble Post?" Think about what will happen to real estate prices in coastal areas when we do start taking global warming seriously. How much will people pay for real estate that is going to be under water in a few decades?

Posted by Dave Johnson at 9:06 AM | Comments (1) | TrackBack | Link Cosmos

January 8, 2007

Today's Housing Bubble Post - Weaker Than The Data

A Phantom Rebound in the Housing Market,

But those who think that the worst may be over for the housing market should take another look at the data, economists say. For the figures on new-home sales have a strange wrinkle that, in the current environment, may lead the government to overstate sales (and to understate inventory) by up to 20 percent. “The market is weaker than the data say,” said Mark Zandi, chief economist at Moody’s/Economy.com.

... But here’s the rub: If a contract to buy a home, signed in November, is canceled in December, the Census Bureau does not subtract the failed transaction from the number of sales, or add the house back to its inventory total. In the last year, as the housing market has cooled, the volume of cancellations has risen to epidemic proportions. [emphasis added]

... Just as the rising tide of cancellations leads the Census Bureau to overreport sales in the short term, it leads the government to underreport inventories. New homes on which contracts are not consummated are not added back into the inventory figure.

Other news:

Potential mortgage foreclosures are worse than thought,

T wo weeks ago, I wrote that many Americans might lose their homes because they would not be able to make the mortgage payments.

It is worse than I expected. On Dec. 16, the Center for Responsible Lending held a telephone press conference to announce the finding of a new CRL study of sub-prime mortgages.

According to the study, 2.2 million American families with sub-prime mortgages could lose their homes. The problem is escalating and 1 in 5 of this year's sub-prime mortgages may fail. Foreclosures may cost $164 billion.

You can download the study from Responsible Lending's Web site, www.responsiblelending. org. Foreclosure rates were estimated using housing appreciation forecasts developed by Moody's www.economy.com.

Foreclosures Peak in 2006 in Some States, Continued Growth Expected for 2007

Several factors contributed to the year's increasingly high foreclosure rates. Most prominent was the especially high number of subprime mortgages granted over the last several years as well as the sudden increase in energy costs. Also contributing were slowing home sales and rate adjustments.

Maine: Foreclosures expected to surge

North Carolina: N.C. foreclosure rates soar in '06

Gauging where housing market is headed,

Rosen sees home prices dropping by about 8 percent in the San Francisco Bay Area and 11 percent in Miami over the next few years. NAR predicts increases in home prices next year. Some think we've already hit bottom; others think we haven't hit bottom yet.

That's not much help. Heh.

Here's a great headline: HIGH PRICES BLAMED FOR HOUSING SLUMP. D'ya THINK?

Posted by Dave Johnson at 6:45 AM | Comments (1) | TrackBack | Link Cosmos

January 5, 2007

167,000 Jobs - Updated

167,000 Jobs Added in December, Employers Step Up Hiring in December, End 2006 on Strong Note

I seem to remember that the economy needs to add 350,000 jobs a month just to keep up with new people entering the job market. Is that right? Am I missing something? Discuss.

Update - OK I was wrong (do NOT tell my wife I said that!) and I think I found where that number stuck in my head.

According to this 2004 Economic Policy Institute snapshot 137,000 new jobs a month is required to break even with population growth and is therefore "required to keep the jobs gap from widening."

At least back in the 90's "357,000 is the weekly initial unemployment insurance claims number below which the unemployment rate is falling rather than rising" according to this 2003 Brad DeLong post. (Brad was speculating that it may be closer to 400,000 now.)

Posted by Dave Johnson at 1:48 PM | Comments (4) | TrackBack | Link Cosmos

January 2, 2007

"Economic Treason"

A great diary about the history of labor vs capital and where we go from here. Daily Kos: The Pillaging of America.

"Never tell a Frenchman to eat cake."

"Economic treason" is a term from the comments. Read this in combination with this diary: Euro Officially Surpasses Dollar
-- especially look at the charts to see what Bush has done to us.

A song for the new year.

Jess Jackson used to say "Get the money from - where the money went."

Posted by Dave Johnson at 8:27 AM | Comments (0) | TrackBack | Link Cosmos

December 23, 2006

Who Is Our Economy For?

Here is a "Who Is Our Economy For?" question. What responsibilities do / should American companies have to America and Americans?

Posted by Dave Johnson at 3:39 PM | Comments (0) | TrackBack | Link Cosmos

December 19, 2006

Today's Dollar-Falling Post - Doomed?

Is the dollar doomed?

There are plenty of big economic questions that will be answered in 2007. Will there be a global trade deal? Can the German economy shrug off the impact of higher taxes? Can China continue to grow at 10% a year? Will oil prices stay high or come crashing down? But they are all sideshows to the main event. The really crucial question for 2007 is whether it is the year when there is a run on the dollar. There are plenty of people out there - me included - who think the US currency is going to take a beating over the next 12 months.

... A high dollar meant exports into the US were cheap, and that kept both inflation and interest rates low. Easy credit terms meant that the US has had not one but two speculative booms over the past decade, the first in dot com shares, the second in the housing market. Growth has been artificially boosted and the trade deficit has exploded.

Now, though, things have started to change.

Go read

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December 18, 2006

Today's Housing Bubble Post - Builder Confidence Falls

Home builders' confidence falls in December,

U.S. home builders were a bit more pessimistic about the housing market in December, but they're growing more hopeful that home sales could perk up in six months, the National Association of Home Builders reported Monday.
... Economists had expected the index, which measures builder sentiment, to improve to 34 in December, according to a poll conducted by MarketWatch.
A reading of 50 shows that half the builders surveyed think the market is good and half think it's poor.
The index had fallen to a decade-low of 30 in September, the sharpest decline in the index's 20-year history. The index stood at 57 a year ago and peaked at 72 in June 2005.

It has been affecting Home Depot: Weathering The Housing Storm,

The recent slowdown in the housing market shouldn't scare off investors in Home Depot.
...While the tough environment is projected to slow Home Depot's sales growth to 2.8% this year, following a five-year run that saw the company average 11% growth, Trott points to a growing supply business and promising opportunities in China as big reasons for optimism.

Opportunities in China?

Posted by Dave Johnson at 11:02 AM | Comments (0) | TrackBack | Link Cosmos

December 17, 2006

Vacation Days Off - Who Is Our Economy FOR, Anyway?

In the United States there is no legal minimum number of vacation days for workers. I guess we're all supposed to be thankful to the rich for "giving us jobs."

The rest of the world? Different. (As you read this, remember that 20 days means minimum four weeks vacation by law, not three.)

Here are a few examples:
Austria: 5 weeks, for elderly employees 6 weeks
Belgium: 20 days, premium pay
Brazil: 30 consecutive days, of which 10 can be sold back to the employer
Bulgaria: 20 business days
Croatia: 18 working days
European Union: 4 weeks, more in some countries
France: 7 weeks
Tunisia: 30 work days
Saudi Arabia: 15 days

Who else gets none? China...

So a question: Who is our economy FOR?

Posted by Dave Johnson at 8:43 AM | Comments (8) | TrackBack | Link Cosmos

December 14, 2006

Today's Housing Bubble Post - Rules Don't Apply?

Remember the stock market bubble and all the talk of a "new economy" that meant stocks would just keep going higher? With that in mind, read this: Housing, auto slumps may defy usual role as recession harbingers,

New home construction is plummeting. Car sales are weakening. Investors have driven long-term interest rates well below the short-term rates set by the Federal Reserve. All these factors are present today, and all have been precursors of past recessions.

But the U.S. central bank and much of Wall Street are now betting that the old rules don't apply, and that a recession next year, while possible, is unlikely.

Ah, the stock market bubble? And what happened to the "new economy?" What happened to stocks? What always happens to speculative financial bubbles?

Whenever you start hearing that "the old rules don't apply" that's the signal to sell while you still can. Another warning sign is when you hear that "this time" things will be different.

"This time will be different," Ed Leamer, who heads the forecasting center at the University of California at Los Angeles's Anderson School of Management, predicts in a report. "This time the problems in housing will stay in housing." It's a prediction, he admits, that "keeps us up at night."
Many Fed officials and private economists believe home builders and auto makers are curbing production to trim excess inventories as a temporary response to a drop-off in demand that was unsustainable -- not because climbing interest rates are eroding affordability. If the optimists are right, the industries' troubles wouldn't be signs of broader forces tipping the entire economy into recession. Meanwhile, U.S. exports are benefiting from strong growth among U.S. trading partners, especially in Europe.

So, will it be different this time? We'll see.

Posted by Dave Johnson at 2:04 PM | Comments (0) | TrackBack | Link Cosmos

December 10, 2006

Today's Housing Bubble Post - Mortgage Market Problems Increasing

This post also welcomes the new Bonddad Blog.

Housing Update: Mortgage Market Problems Increasing,

Tuesday, Ownit Mortgage Solutions of California shut down, citing "the unfavorable conditions of the mortgage industry." That's a euphemism for subprime home borrowers getting into trouble and defaulting on loans at unprecedented speed. ...
Here’s a brief overview of the mortgage market. When you get a home loan from a bank, the bank doesn’t keep the loan on its books. Instead, it sells the loan to a larger institution. These mortgages usually end up with Fannie Mae or Freddie Mac. Freddie and Fannie take similar mortgages (mortgages that have the same interest rate, maturity etc…) and “pool them”, or puts them together in one giant mortgage bond. Then, these institutions sell the mortgages to pension funds, mutual funds and other investment companies. When people state that Fannie and Freddie have added liquidity to the mortgage market, the above-mentioned process is what they are talking about.

There's much more over at Bondad Blog so go read. In summary, we're seeing some very bad indicators that major financial trouble is on the horizon. The old saying, "If something is unsustainable it can't be sustained" is starting to come true.

Posted by Dave Johnson at 10:57 AM | Comments (0) | TrackBack | Link Cosmos

December 6, 2006

We The People, Through Our Government

In the post Conservative Capitalism Vs. Liberal Socialism, John Hawkins responds to my earlier post about sick pay. He writes,

It is not the job of a company to provide benefits for society or health care or sick days or anything else. It's the job of a company to make a profit for its owners and in the process of doing so, it will create things like jobs, taxes, health care for workers, value for its customers, and other such things that are beneficial to society.

And I agree with him 100%. I'll go even further. Wal-Mart is not "bad" because it pays low wages or skimps on providing health care. If they did that, Target could charge lower prices and customer might go to Target instead. They're just doing their job, as WE, the people, through our government, define it through our laws.

So whose job IS it to provide for higher wages and health care? It is OUR job - the people - through OUR laws and regulations. WE are the ones who have dropped the ball on higher wages and health care. WE tell companies what to do - or the system doesn't work. If WE, through our government, require ALL companies to pay higher wages and provide health care that levels the playing field for Wal-Mart's competition with Target.

Here is where I differ with Hawkins. Hawkins writes,

...the government shouldn't get involved with things like what sort of health care a company is providing, sick days, or the minimum wage...

This is the standard Libertarian view - keep the people (government) out of the decisions. But I say that is exactly where the people, through our government SHOULD get involved! We need to keep that playing field level. Companies MUST work to provide the highest profits. Therefore WE must set a playing field that provides the greatest benefit to US from this system. WE must level that playing field on which the companies compete. We MUST tell them to pay higher wages or the system doesn't benefit us. WE have fallen down on the job, not the companies, by not doing OUR part, through our government, which is to set the minimum wages and benefits at a level that is high enough. And that is why wealth is concentrating at the top and the rest of us are working longer hours for fewer benefits.

Hawkins writes that people can always quit and get a better job elsewhere. But there is a problem with that approach, and we have seen the problem play itself out over and over throughout history. There are more people in the world than jobs, so without our intervention wages would necessarily sink to the lowest level to sustain the necessary employees - and the rest starve. Of course, in a consumer economy the companies would be drying up long before that because the consumers won't have money to spend. We have learned from history that if we, acting through our government, "stay out of it," it is a formula for worldwide poverty - a race to the bottom. Historically it is the periods of greatest involvement that have been the periods of greatest economic growth. This is because in a consumer economy policies that provide greater disposable income to the consumers grow the economy. Duh!

The system that Hawkins admires is ENTIRELY a creation of government - of us. We defined what a corporation IS. We give the owners limited liability so they can take risks without losing everything. (Imagine if buying a share of stock meant that you could become a defendant in a lawsuit.) We set up the infrastructure of the internet, and the roads, etc. upon which the companies conduct commerce... And now we need to give ourselves a raise and health care, and maybe longer vacations and shorter workweeks.

Posted by Dave Johnson at 6:34 AM | Comments (4) | TrackBack | Link Cosmos

December 5, 2006

Paid Sick Days

There is a move to require companies to pay for sick days. Conservatives say this is "Socialism."

If basic human rights is "Socialism" then I guess I'm a Socialist! How about you?

In Europe people get several weeks paid vacation each year - by law. They get generous pensions and fully-paid health care for everyone.

What sorts of things should we, the people, require of the companies we, through the laws we pass, allow to operate? Who is our economy FOR? Discuss.

Posted by Dave Johnson at 8:04 PM | Comments (6) | TrackBack | Link Cosmos

The Rich ARE Richer

Richest 2% hold half the world’s assets,

Personal wealth is distributed so unevenly across the world that the richest two per cent of adults own more than 50 per cent of the world’s assets while the poorest half hold only 1 per cent of wealth.

You often hear that it wouldn't matter if the wealth of the rich were divided up - there would still be poor people. That's not the case:

So much of the world’s wealth is concentrated in few hands that if all the world’s wealth was distributed evenly, each person would have $20,500 of assets to use.

We're talking everyone IN THE WORLD here. Every single poor, starving African, Indian and everyone else would be relatively rich if only the top few percent would settle for only millions.

Should the people of the world do something about this? Discuss.

Posted by Dave Johnson at 7:25 PM | Comments (3) | TrackBack | Link Cosmos

November 28, 2006

Today's Dollar-Falling Post - New 20-Month Low

Dollar hits fresh 20-month euro low after mixed U.S. data,

The dollar tumbled to a fresh 20-month low against the euro Tuesday after a government report showed demand for U.S.-made durable goods declined much more than forecast last month.
But the U.S. currency edged slightly higher versus the yen after data showed an unexpected increase in sales of existing U.S. homes in October and a solid reading from the Richmond Fed's manufacturing index.
Analysts say sentiment toward the dollar remains negative.

Posted by Dave Johnson at 3:49 PM | Comments (0) | TrackBack | Link Cosmos

Today's Housing Bubble Post - Prices Tumble

Existing home prices tumble despite sales uptick,

Nationwide existing home sales rebounded last month but the median sales price took its biggest year-over-year decline in nearly four decades, according to real estate figures released today.

\... The modest rebound in sales may indicate that the nationwide housing slow down might be bottoming out — but any noticeable relief for sellers probably won't come until next year, according to some housing observers.

... But other economists say a turnaround is still far away, with many signs pointing to a buyer's market for some time to come. For example, the inventory of unsold homes, increased 1.9% in October to 3.85 million existing homes.

Posted by Dave Johnson at 3:48 PM | Comments (0) | TrackBack | Link Cosmos

November 27, 2006

Today's Dollar-Falling Post -- 20-Month Low

Dollar hits 20-month low against the euro - MarketWatch,

The dollar extended its sharp losses against the euro Monday, touching a 20-month low, but steadied against the yen, as traders awaited U.S. economic data this week.

Stock markets are reacting, Stocks sharply lower on dollar, Wal-Mart and FTSE 100 ends down, hit by weak U.S. dollar,

The FTSE 100 index .FTSE of Britain's largest shares fell to its lowest close in seven weeks on Monday as the sliding dollar continued to weigh on stocks with U.S. exposure.

And metals, Gold, silver hit highs on dollar weakness,

Gold steadied on Monday after an earlier climb to its highest level in more than three months as a weaker dollar and firm oil prices prompted investors to buy the precious metal.

Posted by Dave Johnson at 9:38 AM | Comments (0) | TrackBack | Link Cosmos

November 26, 2006

Today's Dollar-Falling Post - Dollar 40% Too High?

Over at Brad DeLong's Semi-Daily Journal: Fair and Balanced Almost Every Day: The Dollar Looks 40% too High, and Long Treasury Yields Look 200 Basis Points too Low,

...Menzie Chinn worries about the possibility of a dollar crash:
One of the enduring oddities of the international economy is the willingness of foreign investors -- both private, official, and quasi-state -- to hold dollar assets despite the very low returns on such assets, even when comparing in common currency terms. It is this anomaly that Krugman disucusses in an academic paper asessening the possibility of a dollar crisis.
Concerns about a dollar crisis can be divided into two questions: Will there be a plunge in the dollar? Will this plunge have nasty macroeconomic consequences?
The message appears to be that the dollar's value is out-of-whack--too high--because nobody expects it to decline by a lot in the near future, and that expectation means that demand for dollar-denominated securities is high because U.S. interest rates are higher than interest rates in Japan and Europe. One again, it looks like there may well be lots of money left on the table.

OK, that was a complicated series of quoting someone who is quoting someone who is quoting someone, so go sort it out at the original... the point being that the dollar is still WAYYYY too high, and that there is the possibility of a recession coming (see 'Housing Bubble' posts). He's quoting from, Econobrowser, Will the Dollar Plunge? Would that Be So Bad?

Angry Bear on all this,

In other words, we can avoid a recession even as we move to fiscal restraint if we allow currencies to float.

When the dollar falls, it means that everything from other countries costs much more. This supposedly is great for American manufacturers because our goods will cost much less to others, and we can start exporting (and hiring) again. Possibly even heading off a recesion. But my question is, how much has our manufacturing infrastructure eroded? CAN WE start manufacturing for domestic and export to pick up the opportunity of a plunging dollar?

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

November 24, 2006

Today's Dollar-Falling Post

Yes, a new Seeing the Forest series: the falling dollar. We're likely to be hearing a lot of news along this front in coming months. So I'll be tracking it.

Dollar plunges to 19-month low against euro,

Growing pessimism over the dollar facilitated a sell-off Friday that plunged the greenback to a 19-month low versus the euro and a nearly two-year low against the U.K. pound.

[. . .] There is also mounting concerns that central banks around the globe might begin to aggressively diversify their foreign reserves into euros and away from dollars, the long-standing reserve currency of choice.

On Friday, China warned other countries that holding excessive dollar reserves may not be a good idea.

Wu Xiaoling, a senior People's Bank of China official, said Friday that continued weakness in the U.S. dollar poses a risk for East Asia's foreign-exchange reserves, Market News International reported.

U.S. Stocks Fall on Higher Oil, Weak Dollar; Retailers Decline,

U.S. stocks fell, snapping the Dow Jones Industrial Average's two-week winning streak, after higher oil prices and a weaker dollar sparked concerns that holiday sales and economic growth may falter.

The U.S. Dollar is the Week’s Biggest Turkey,

While Americans were busy digesting their Thanksgiving feasts, the rest of the world was barfing up dollars. As a result of our massive trade deficits, foreigners certainly have their bellies full of them. This week’s action in the Forex markets indicates that they may have finally eaten their fill. Unfortunately, the bad taste will likely linger as the dollar’s rout has only just begun.

And, U.S. stocks end down after dollar tumble

Posted by Dave Johnson at 4:58 PM | Comments (2) | TrackBack | Link Cosmos

November 20, 2006

Today's Housing Bubble Post - Flipper Nation

Episode 1: The First Flip

At Flipper Nation

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November 17, 2006

Today's Housing Bubble Post - Plunge and Plummet

U.S. stocks lower after housing starts plunge

Housing woes worry Wall Street

Housing Construction Plummets in October - Forbes.com,

Housing construction plunged to the lowest level in more than six years in October as the nation's once-booming housing market slowed further.

The Commerce Department reported on Friday that construction of new single-family homes and apartments dropped to an annual rate of 1.486 million units last month, down a sharp 14.6 percent from the September level.

The decline, bigger than had been expected, was the largest percentage decline in 19 months and pushed total activity down to the lowest level since July 2000.

Dollar falls after talk of hedge fund trouble

Housing Construction Plunges in October,

The report signaled that the months ahead could be equally bleak: The number of building permits that were issued fell for the ninth straight month, reaching its lowest level since 1997. Those figures, too, are seasonally adjusted.

Posted by Dave Johnson at 9:12 AM | Comments (1) | TrackBack | Link Cosmos

November 16, 2006

Capitalism 3.0 - A New Way To Think About What We Own

I’ve just finished a very interesting book, Capitalism 3.0, A Guide To Reclaiming The Commons, by Peter Barnes. The book talks about ways we can restructure our laws and rules of ownership to cover who should pay for polluting and other harmful things -- costs that our current system ignores and even encourages. The change is based on our realizing that we all own certain things in common.

Here’s a quick way to understand the ideas in this book:

Suppose you live next door to a sawmill operation. The owner makes lots of money, but aa waste product, sawdust, is building up on his lot. This big pile of sawdust is getting bigger and bigger, and it's getting to the point that he’s going to have to shut down his profitable operation if he can’t find some place to dump some sawdust. So one day he comes to you and asks if he can dump some sawdust in your back yard. You answer, “If you give me $25,000 a year, each year you can dump 5 truckloads, but no more, in my yard.” You are $25,000 richer, you limited the sawdust to a level you could tolerate, and the sawmill can continue to operate and make money.

This happened because you “own” that property and have the “right” to refuse to let others make money by dumping their waste in it – or to negotiate for some of the resulting profits. This sounds so basic – but there is a reason I put quotes around the words “own” and “right.” The concepts of ownership and rights only exist because they are granted to us by law, and laws are nothing more than creations of government. It didn’t used to be that way, that regular people could "own" things and have "property rights," but people thought it would be a good idea, and made it happen. And in America it is set up that we can do things like that because, guess what, WE're the government. (It says that in our Constitution.) More on this later.

Now, suppose that you live in a condo, and there are 25 units that share the property, and the condos have a condo association. So the sawmill owner comes to the condo association, and the same transaction occurs. Everyone benefits. Each condo owner gets $1,000 a year, and the sawmill keeps operating and making money.

Suppose the sawmill owner wanted to just dump that waste on that lot next door – the one you live on? That would be great for him if he could do that. He would save, or “externalize,” that $25,000 cost. It wouldn’t even show up on anyone’s books! And he could charge less for his product! But he can’t and the reason he can’t is because you understand that you own that property, which gives you the right to refuse or to ask for payment.

Here is what I am getting at: Oil and auto companies currently dump CO2 (and other stuff) into the air. This is an “externalized” cost. They don’t pay anyone and it doesn’t show up on anyone’s books. They make tremendous profits from this arrangement but the rest of us suffer the consequences.

But what would happen if we started to realize that this is OUR air? You know, “the people” and all that, like it says in our Constitution. Democracy and community. And what would happen if we decided to set up our laws so that we have “ownership” and “rights” to refuse to let them do that – or to charge them and limit how much they can dump?

Is this a far-fetched concept? Maybe not – it is already happening in some places. For example, did you know that everyone in Alaska receives a check because they – the people of Alaska – decided that the oil under the ground there belonged to them? So they passed a law that said they have the right to charge oil companies for that oil and that the money would go into a fund that would pay a dividend to all the citizens of Alaska, as well as put money into a fund that will continue to pay a dividend, forever, even after the oil is gone?

They decided to do that with their oil. They enacted laws to make it so. Now they all benefit. The oil companies benefit, and the people of Alaska benefit from now on. Because they realized that it was their oil, and did something about it.

It’s called the Alaska Permanent Fund Corporation. Here’s the story of how they made it happen.

Go look it up. And then start thinking about how much we should charge to let oil companies dump CO2 into OUR air.

This might help your thinking: this year Exxon was the most profitable company ever in the history of commerce, and we didn’t get a dime for letting them dump their wastes into and onto our common property. The way things are set up now, instead of collecting from Exxon and others for letting them pollute, the resuting global warming, health effects and other results of this mean we and our children will instead have to pay the price in coming years. We can decide to do it a better way.

Peter Barnes has a blog post about his ideas at the OnTheCommons.org site.

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November 15, 2006

Who Is Our Economy FOR?

It's the Seeing the Forest question. In Class Struggle Senator-elect Jim Webb writes,

America's top tier has grown infinitely richer and more removed over the past 25 years. It is not unfair to say that they are literally living in a different country. Few among them send their children to public schools; fewer still send their loved ones to fight our wars. They own most of our stocks, making the stock market an unreliable indicator of the economic health of working people. The top 1% now takes in an astounding 16% of national income, up from 8% in 1980. The tax codes protect them, just as they protect corporate America, through a vast system of loopholes.

... Trickle-down economics didn't happen. Despite the vaunted all-time highs of the stock market, wages and salaries are at all-time lows as a percentage of the national wealth. At the same time, medical costs have risen 73% in the last six years alone. Half of that increase comes from wage-earners' pockets rather than from insurance, and 47 million Americans have no medical insurance at all.

Manufacturing jobs are disappearing. Many earned pension programs have collapsed in the wake of corporate "reorganization." And workers' ability to negotiate their futures has been eviscerated by the twin threats of modern corporate America: If they complain too loudly, their jobs might either be outsourced overseas or given to illegal immigrants.
... A troubling arrogance is in the air among the nation's most fortunate. Some shrug off large-scale economic and social dislocations as the inevitable byproducts of the "rough road of capitalism." Others claim that it's the fault of the worker or the public education system, that the average American is simply not up to the international challenge, that our education system fails us, or that our workers have become spoiled by old notions of corporate paternalism.

Still others have gone so far as to argue that these divisions are the natural results of a competitive society.... With this new Congress, and heading into an important presidential election in 2008, American workers have a chance to be heard in ways that have eluded them for more than a decade. ...

It is OUR economy. Does it work for US? Corporations are ENTIRELY a creation of OUR laws, so why do we let them operate the way they do? Of course the answer is because the very rich use the corporations to their own benefit and pay the legislators to keep it that way.

In Europe workers average six weeks paid vacation. They get health care. The get generous pensions. ...

Posted by Dave Johnson at 2:21 PM | Comments (4) | TrackBack | Link Cosmos

Today's Housing Bubble Post - "Slide May Deepen"

Newsweek: The Worrying Housing Bust,

With fewer buyers, home construction, sales and prices have weakened. In August, housing starts were 20 percent lower than a year earlier. Last year, sales of new and existing homes totaled almost 8.4 million; next year the NAR expects 7.4 million. Construction workers, real estate agents and mortgage bankers will lose jobs. Consumer spending (computers, cars, vacations) will also suffer, as the borrowing and buying against rising real-estate values subsides. Indeed, the end of the cheap credit that fed the boom means that many borrowers will face higher monthly payments.

Housing slide may deepen - The Boston Globe,

The housing downturn in Massachusetts will last longer, and prices will fall further than first projected, according to an economic forecast released yesterday.
Housing prices will slide by as much as 10 percent from their 2005 peak before hitting bottom in early 2008, according to the forecast by the New England Economic Partnership. They should stay flat through 2009, before beginning to climb gradually.

A year ago the nonprofit research group forecast prices would decline less than 3 percent, bottom at the end of 2006, and regain their peaks in early 2008.

And others:

U.S. housing slump deepens, spreads,

First, Americans quit buying homes. Now, they may have stopped fixing and furnishing them too.

Home Depot Inc. reported a 3-per-cent drop in profit in the three months that ended in October, amid mounting evidence that the U.S. housing slump is getting worse.

“I don't think we've seen the bottom yet, and I don't see anything that says it's going to get significantly better in 2007,” said Bob Nardelli, Home Depot's chairman and chief executive officer.

... Problems in the housing sector have also begun to affect how consumers spend their money. In October, U.S. retail sales fell at an annual rate of 0.2 per cent — the third consecutive monthly decline, according to a U.S. Commerce Department report Tuesday.

The decline was heavily influenced by lower gasoline prices, which resulted in less revenue for gas stations.

But there were also sharp declines in building materials (down 0.3 per cent), furniture (down 0.7 per cent) and department store sales (down 0.7 per cent). Over the past three months, sales of building materials have plunged at an annual rate of 10.6 per cent.

“The housing slowdown left its grimy fingerprints all over this report,” BMO Nesbitt Burns economist Douglas Porter said in a note to clients.

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November 14, 2006

Today's Housing Bubble Post - Now Home Depot

Home Depot warns over housing slowdown,

Home Depot on Tuesday warned that the US do-it-yourself market had entered a sharp slowdown because of weakening in the housing market and broader economy.

But wait, there's more!

Countrywide CEO says housing slump has a year to go,

The slowdown of the U.S. housing market will last through 2007 as inventories are pared enough to prompt a change in consumer psychology, the chief executive officer of the nation's biggest mortgage lender said on Tuesday.
Mortgage lending has slowed as rising inventories in the housing market led to a "hard landing" for the industry after a decade of strong growth, Countrywide Financial Corp. CEO Angelo Mozilo said at a Merrill Lynch & Co. conference in New York.

"We have another year of adjustment, or transition" in the industry until consumers believe home prices won't decline, Mozilo said. "Various events will make the change take place and one of them is" a decline in available homes, he said.

And more: Dim housing market could prove pessimists right,

There is, of course, a reason for the gloominess and it can be summed up in one word: housing. The housing market has been severely battered. In October, housing prices were almost 10 percent lower on average than they were a year ago, the largest yearly decrease since 1970. The prices of new homes have taken the worst beating, plunging 33 percent just since April.
More people are having trouble meeting their mortgage payments. Foreclosures were up nationwide. The foreclosure rate was 43 percent higher than at this time last year. Building permits for new-home construction have tumbled about 30 percent. According to reports, a growing number of housing developments are completely empty. An economic report from a leading bank calls the housing problem "the biggest residential construction bust for fifty years."

Posted by Dave Johnson at 11:02 AM | Comments (1) | TrackBack | Link Cosmos

November 10, 2006

Centrists, Leftists, Etc.

There is a lot of talk about "the center" and "centrists." Lots of people say the blogs are on the left.

To put this in perspective, when and where is the last time you heard anyone talk about nationalizing the oil companies? That would be a "leftist" proposal.

After all, the oil companies do not "own" the oil any more than anyone can own the air or the water. They are extracting OUR resource, under license from US to operate, and as corporations are granted limited liability by US. In exchange, they are supposed to be serving the public interest. A discussion about whether they are serving the public interest might involve questions about how much they are setting aside to cover the costs of putting carbon into the air, or to pay for research into transitioning away from fossil fuels a they start to run out, how much they pay their employees, and other ways that WE might benefit from allowing them to extract OUR resource. So obviously, they are not serving the public interest.

A broader discussion would ask whether we need to reform the corporate system into something that really does serve the public interest...

The fact is, "leftist" arguments are not even part of our national discussion. Without that perspective in the discussion, it can't really be said that there even is a "center," can there? And without ALL sides contributing to the marketplace of ideas, how can society arrive at solutions that incorporate the best ideas from all the different perspectives?

(Cross-posted at the Commonweal Institute Blog.)

Posted by Dave Johnson at 2:23 PM | Comments (1) | TrackBack | Link Cosmos

November 1, 2006

Today's Housing Bubble Post - Toll On Economy

A number of stories just out:

Housing slump to take toll on economy,

The U.S. housing market's slump is taking a toll on the U.S. economy and should continue to slow economic growth well into 2007.

U.S. construction spending fell an 0.3 percent in September, with private residential building dropping for a sixth straight month, the U.S. Commerce Department said on Wednesday.

"We expect the housing market correction has a ways to go, and should continue to detract from economic growth all the way through the end of next year," said Gina Martin, financial economist at Wachovia Corp. in Charlotte, North Carolina.

U.S. Economy Wrecks Housing,

Weakness in the U.S. housing market could be turning the hoped-for soft landing for the economy into something a bit harder to deal with. Data released on Wednesday showed conditions in the housing market deteriorated in September, extending a slide that began early this year.

... The U.S. Commerce Department said housing starts fell for the sixth month in a row in September, and spending on all types of construction declined 0.3% following a flat August. Private home construction dropped 1.1% in September after falling 1.6% in August.

Can the economy survive the housing bust?,

Why is Sonders worried now? Just look at the chart. Over the past year, the NAHB housing index plummeted 54 percent. Were stocks to follow suit, the S&P; - 1400 in late October - would be trading below 700 this time next year.

Sixth decline in housing pushes overall U.S. construction down,

U.S. manufacturing expanded at the slowest pace in more than three years, and construction spending declined as housing continued to suffer through its longest stretch of weakness since 1995.

Two reports released Wednesday depicted an economy beginning to feel the impact of the sharp slump in the once-booming housing sector.

Denver: Housing market remains in a slump,

A sluggish market led to a dip in Denver metro-area housing starts during the third quarter of 2006, according to a report by Metrostudy's Denver division.

Denver area third-quarter housing starts fell 22 percent from the same period last year, from 4,889 new homes to 3,830. The year-to-date rate through the third quarter declined 3 percent, from 19,568 in 2005 to 18,908 in 2006.

Posted by Dave Johnson at 5:33 PM | Comments (0) | TrackBack | Link Cosmos

October 27, 2006

Today's Housing Bubble Post -- Hitting The Economy Now

Lots of stories in the news today:

Housing Market a Drag on Economic Growth,

Economic growth slowed to a crawl in the third quarter, advancing at a pace of just 1.6 percent, the worst in more than three years.

The latest snapshot of the economy, released by the Commerce Department on Friday, showed that the slumping housing market figured prominently in the economy's dramatic loss of momentum. Investment in homebuilding was cut by the biggest amount since early 1991.

.. "The housing bubble burst and that really knocked down growth," said Joel Naroff, president of Naroff Economic Advisors.

Bloomberg: U.S. Growth Slows to 1.6% Rate as Homebuilding Slumps,

The U.S. economy grew at a less-than- forecast 1.6 percent annual rate last quarter, the slowest pace in more than three years, as housing slumped and the trade deficit widened.

... Homebuilding declined by the most in 15 years. ... Residential housing construction fell at a 17.4 percent annual rate last quarter, the biggest decline since the first quarter of 1991, after shrinking 11.1 percent in the previous three months. The decline in homebuilding subtracted 1.12 percentage points from third-quarter growth, the most in almost 25 years.

But wait, there's more!

Signs it will get worse - much worse. Chicago Tribune: Adjustable rates may deepen housing trough,

Existing-home sales will decline 9 percent this year, drop 8 percent in 2007, and increase less than the inflation rate in 2008, Mortgage Bankers Association economist Doug Duncan said in Chicago this week.

Duncan, who has a reputation for solid predictions, notes that housing downturns take time to work their way out because of what he calls "the smarter neighbor theory." One neighbor looks at a neighbor who recently sold a home for $400,000 and thinks he's smarter and can sell his for $425,000. He puts it up for sale, but once curious neighbors trek through the house, it takes him about three months to accept that buyers aren't interested. At that point, he lowers the price. But the house sits. Several months later he decides he's getting nowhere and perhaps takes it off the market.

When many people reach that point, and start removing their homes from the market, the cycle begins to mend. But Duncan notes that so many people are listing homes, there is a hefty eight-month supply on the market; six months is considered healthier.

And how's this one? Housing prices plunge in U.S. as builders fret
Analysts fear deep discounting on homes may scare off buyers, making spiral worse,

Faced with a growing glut of unsold homes, U.S. builders are resorting to unusually deep discounts that some analysts fear could turn off potential home buyers, feeding an even steeper downward price spiral.

"Falling prices deter buyers," warned economist Ian Shepherdson of High Frequency Economics.

"When the new home market goes south, the early buyers can get hurt," agreed Walter Molony of the U.S. National Association of Realtors (NAR).

That's because buyers may be reluctant to lock in at today's prices if they believe homes will be significantly cheaper in a month or two. [emphasis added]

So the builders can't sell their homes, they lower prices, buyers realize that prices are dropping, so they wait. This is a classic crash scenario - a spiral down. Just like the stock market did. When does it stop? When prices reach the point they SHOULD be at in the first place - when you look at the VALUE of the house, not some idea of what it will be worth if prices rise! With stocks, prices had to fall until the stock was a good investment again - based on the value of the company, not some idea of making a quick buck by holding the stock for a few weeks and then selling it.

Posted by Dave Johnson at 9:51 AM | Comments (1) | TrackBack | Link Cosmos

October 26, 2006

Today's Housing Bubble Post - BIGGEST PRICE DROP IN 35 YEARS!

NOW it's starting - but only starting. This kind of news will shake up sellers and wake up buyers. Home price drop is largest in 35 years,

The median price of a new home plunged in September by the largest amount in more than 35 years, even as the pace of sales rebounded for a second month.

The Commerce Department reported that the median price for a new home sold in September was $217,100, a drop of 9.7 percent from September 2005.

... The weakness in new home prices was even sharper than a 2.5 percent fall in the price of existing homes last month, which had been the biggest drop on record. [emphasis added]

OK, think about this. You read that prices are now falling at about 10% a year nationally. Who would be dumb enough to borrow $150,000 or so to buy a house that will be worth, on average, $20,000 less a year from now? Right.

If you own a house in the SF Bay Area you just lost, on average, maybe $60,000. If you are thinking about buying a house here you are thinking about borrowing half a million dollars or more to buy in a market where you face $60,000 yearly losses. Nope, not gonna do it.

So you can see what is about to happen. Buyers are going to wait. (Well, the smarter ones are...) And sellers are going to worry that they'd better drop prices enough to sell before it gets even worse.

And then there's all the people with "creative" mortgages with payments that are about to double.

Posted by Dave Johnson at 9:25 AM | Comments (1) | TrackBack | Link Cosmos

October 17, 2006

Today's Housing Bubble Post - The Bust Arrives In SF Bay Area

Bay housing prices fall .8 percent,

Bay Area housing prices are finally falling, declining last month for the first time in more than four years.

This means that every buyer desparately trying to "get into something" before prices go up even further is going to take a new look around. It means that every seller holding out for that offer "over asking" is going to realize they need to get out.

Even more, it means that all the speculators will understand the party is over, and it's time to bail. And, finally, the landlords with "negative cash flow" but thinking they're making up for it with appreciation have to face it that they're really just losing money. Not to mention all the people who are "over their heads" with mortgage payments they can't keep up with.

Home builders get it already,

In addition, prices for new homes tend to correct more quickly than those for resales, because home builders would rather drop prices than hold onto excess inventory.

... New homes, whose sales made up 12 percent of the county's overall total, saw a median price decline last month of 9.4 percent, to $591,000.

Sales volume for all types of homes was down 30.6 percent in the county, in keeping with the trend seen throughout 2006.

But wait, there's more!

Housing slowdown creating 'ghost towns' Fed president says some effects of rate hikes still in the pipeline,

The housing slowdown has turned some parts of the Phoenix and Las Vegas metropolitan areas into "ghost towns," where many unsold homes stand empty, Janet Yellen, president of the San Francisco Federal Reserve Bank, said Monday.
Yellen said that she heard the ominous description from a "major home builder," who told her that the share of unsold homes in some subdivisions around the two Southwestern cities has topped 80%.

Empty houses means sellers holding out... That's a dam that's really going to burst...

Posted by Dave Johnson at 10:03 PM | Comments (1) | TrackBack | Link Cosmos

October 8, 2006

Today's Housing Bubble Post - Recession in 2007?

At NewsWEEK: The Worrying Housing Bust ... The danger: a 2007 recession.,

We are at the endgame for housing. Until recently, our national motto has been "in real estate we trust." Just last week, the Census Bureau reported that median home prices after inflation rose 32 percent from 2000 to 2005. In some places, the gains were huge: 127 percent in San Diego, 110 percent in Los Angeles and 79 percent in New York. But real estate—which has acted as a national piggy bank, with homeowners borrowing and spending against rising house prices—no longer looks so trustworthy. On this, more than falling oil prices or a record Dow, hangs the economy's immediate fate.

[. . .] Construction workers, real estate agents and mortgage bankers will lose jobs. Consumer spending (computers, cars, vacations) will also suffer, as the borrowing and buying against rising real-estate values subsides. Indeed, the end of the cheap credit that fed the boom means that many borrowers will face higher monthly payments.

Fox News: Real Estate: House of Cards or Dose of Reality?

Boston: Fear and anxiety in the housing market:

The Reagans are experiencing the wrenching consequences of being home sellers at the wrong time. They've had several buyers fall through, and have been forced to pull out from buying their own new dream home. They've packed and unpacked, explained to their children why they had to call off a move, and spent many a sleepless night talking about money.
[. . .] Though in a different price zone, Stephen and Dianne Greenstein can relate to Reagan's deflated spirits. The couple's four-story waterfront home, on Nahant's craggy coast, has been on the market for nearly a year. It boasts sweeping views of the Atlantic, several seaside decks, and three fireplaces. But for all of its amenities, the three-bedroom contemporary home has yet to sell -- despite a drop of $326,000 in the asking price. [ephasis added]

Why the Fed is dead wrong on US housing slump?,

The housing market slump has just begun. The market is far weaker than it feels. The builders are nervous like never before. Most importantly many people have started defaulting on their mortgage loans especially the investors.

Normally a bubble like this takes at least a 50% retracement in price before any bottom is over.

... Here is the problem. The real estate market in US in a 70 year cycle. For seventy years the market went up. Baby boomers caused it to happen. Population demographics is always behind any dramatic move in real estate market. However, the cycle down in real estate markets are normally sharp again based on demographics. Unless massive immigration reform takes place in US, the real estate market is destined to accelerate downwards for at least thirty years.

Minnesota: The housing glut

Wallkill NY: Cool housing market drives hot incentives,

Sure, the Orange County housing market is cooling down, but few would ever have thought it would come to this: a free vacation as an incentive for buying a home.

Yep, that's right, get a feww vacatin. You'll need it because you're paying $160,000 for a house that will be "worth" $100,000 next year -- but you will still OWE $160,000!

Posted by Dave Johnson at 12:23 PM | Comments (4) | TrackBack | Link Cosmos

October 4, 2006

Today's Housing Bubble Post - Prices To Drop, Ripple Effect

It hasn't even started yet, and they use the 'D'-word: Housing Prices to Drop, Report Says,

Housing prices, slumping after a five-year boom, are projected to decline in more than 100 of the nation's metropolitan areas...

... The ... firm projects that the median sales price for an existing home will decline in 2007 by 3.6%, which would be the first nationwide decline for an entire year in home prices since the Great Depression of the 1930s. [emphasis added]

This forecast is widely reported, which means that it will be seen by buyers and sellers, and will cause them to adjust their expectations.

Along those lines, a warning to UK investors: US housing market 'in danger zone',

British investors who own property in the United States should take a long-term view on the market and focus on maximising rental income as the US teeters on the brink of a housing market price reversal, says Assetz.

... Stuart Law, managing director of Assetz, said: "The U.S. is definitely in the danger zone but we are not currently certain how severe the downturn will be. Holiday home buyers who are getting regular use out of their property are unlikely to be affected in the long term, but investors who were hoping to sell their property on quickly are no longer set to gain and are likely to face losses if they sell now.

Think UK investors will be showing up to pick up some of that excess inventory and bail us out? Me, neither.

September 30, 2006

Today's Housing Bubble Post - Ripples

The slowdown in the housing market is already affecting the sales of pickup trucks. Housing slowdown brakes pickup sales | Chicago Tribune,

General Motors Corp., Toyota Motor Corp. and Ford Motor Co., the world's three largest automakers, are discovering that a housing slump can do what record fuel prices couldn't: cripple demand for pickup trucks.

From 1995-2005, sales of full-size pickups surged 46 percent as home builders bought them for work-related projects and consumers followed suit.

But sales are down 14 percent this year, hurt by a housing slowdown that caused existing-home prices to drop for the first time in 11 years last month.

Like I have been saying, we are only now BEGINNING to see the bubble pop and the ripples that will follow across the economy. Here, just from the first signs of a slowdown we see pickup truck sales way off. There are layoffs in the mortgage industry, and certainly realtors are cutting back. What sectors will be affected as sales slow further and prices drop? Home Depot comes to mind...

Remember what happened to the stock market? Like stocks, housing has a certain value that you can calculate. Housing prices MUST revert to the mean, and the mean is less than half of current prices. So I think that there is a lot more pain to come.

Posted by Dave Johnson at 4:53 PM | Comments (0) | TrackBack | Link Cosmos

September 26, 2006

Today's Housing Bubble Post - "Worst May Lie Ahead"

Glut of unsold homes pummels U.S. housing - Some economists fear worst may lie ahead,

The long-predicted correction in U.S. housing prices has apparently begun.

The median selling price fell for the first time in 11 years last month, on an annual basis, pushed lower by the largest glut of unsold homes since 1993, and some economists fear the worst may lie ahead.

The price fall comes amid concerns that the U.S. housing slump could quickly spread to other areas of the economy as consumers react to the falling value of their nest eggs. In recent years, homeowners have used the equity built up in their homes to finance their lifestyles. A U.S. downturn now could also spill over into dependent economies, including Canada's.

But wait, there's more!

Analyst says of new data: 'Pop goes housing bubble',

The year-over-year drop in median sales prices represented a dramatic turnaround in fortunes for the once high-flying housing market, which last year was posting double-digit price gains.
"Pop goes the housing bubble," said Joel Naroff, chief economist at Naroff Economic Advisors. He predicted prices will fall further as home sellers struggle with a record glut of unsold homes.

Stats show dramatic slowdown in California housing market,

Fresh evidence poured in Monday that the national and Bay Area housing markets are declining sharply.

The California Association of Realtors reported that statewide home sales year to year fell 30.1 percent in August, the greatest decline since the housing market was facing double-digit interest rates in the early 1980s.

Sometimes, just the headlines say it all - that's all most people see anyway:

Housing Market Slows Further

Home prices finally hit wall

Annual Existing Home Sales Prices Tumble

Home sales keep dropping

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September 25, 2006

Today's Housing Bubble Post - Prices Are Falling, Layoffs Beginning

Here it comes. After this news buyers will start demanding price reductions. This can only accellerate -- this bubble could "unwind" very rapidly. Where IS the bottom? Just remember what happened when the stock market bubble popped. Existing-home prices fall for 1st time in 11 years,

Median sales prices of existing homes fell from year-ago levels in August for the first time in 11 years and just the sixth time in the past 38 years, the National Association of Realtors said Monday.
Sales of existing homes fell 0.5% in August to a seasonally adjusted annual rate of 6.30 million, the industry group said.

And the ripple effects are beginning to spread with mortgage companies and realtors starting to lay off employees:

Countrywide may cut jobs by 10% - Countrywide blames housing sales slowdown,

Countrywide Financial Corp., the country's largest mortgage lender with about 5,700 workers in Simi Valley, Thousand Oaks and Westlake Village, instituted a 60-day hiring freeze and plans to reduce staffing in several areas, Dave Sambol, president and chief operating officer, said in a memo obtained by The Star.

Jump ship or pink slip for some realtors,

They are jumping ship or receiving the pink slip. America's real estate agents and mortgage lenders, that is.

Now that the glory days of the most recent U.S. housing market are over, its deterioration is taking a toll on employees who profited from its record-breaking five-year run.

With home sales slumping and loan demand diminishing, layoff announcements and resignations have become increasingly common, evidence that the sector's slump is broad.

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September 22, 2006

Another Housing Bubble Post

I recommend you look at this graphical description of what is probably coming as the housing bubble bursts. Lots of charts, including this chart:

It's over at Daily Kos: Housing: A Picture is Worth 1000 Words UPDATE

And WOW go look at the last chart in the post.

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Today's Housing Bubble Post - The House of Horrors

One economist calls the popping bubble "the house of horrors." Use caution when trying to counter housing downturn

Merrill Lynch economist David Rosenberg calls it "the House of Horrors."

He's referring to his fear that a plunging housing market could turn even uglier, taking the breath out of the economy and the stock market.

... He was fretting about foreclosures nationwide surging 53 percent year-on-year in August. He was pointing out that while many adjustable-rate mortgages have yet to move upward, already the Homeownership Preservation Foundation is receiving a record number of calls from borrowers seeking help.

Whether the housing downturn will still allow a so-called soft landing for the economy or yank the shopping instinct out of the American consumer remains to be seen.

September 20, 2006

Today's Housing Bubble Post

Housing construction falls to lowest level in three years,

Housing construction plunged in August, falling to the lowest level in more than three years as the industry showed further signs of a dramatic slowdown.

The Commerce Department reported yesterday that construction of new homes and apartments fell by 6 percent, the third consecutive decline and a much bigger setback than analysts had been forecasting.

Merrill: Housing fall could hurt economy,

Will the economy be dragged down by the slowdown in housing, or will it hum along, virtually unaffected?

Economists are split.

Housing starts have declined for six of the last seven months and August starts, reported Tuesday, dropped to the lowest level in three years. The decline in August was double what economists had expected.

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September 18, 2006

Today's Housing Bubble Post - The 'D' Word Appears

No good news in today's housing story:

Housing Slump in U.S. May Lead to First Drop Since Depression ,

The sharpest slowdown in U.S. home-price growth in three decades is trapping owners with mortgages they can't afford, pushing unsold homes to a record 4.42 million and gutting profits for builders such as Lennar Corp. and Toll Brothers Inc. The U.S. median home price next year may fall for the first time since the Great Depression, says Gabriel Stein, chief international economist with Lombard Street Research in London.

CORRECT: Home builders' confidence falls again in September - MarketWatch,

The confidence of U.S. home builders fell for the eighth straight month in September, dropping to the lowest level since February 1991, the National Association of Home Builders said Monday. The NAHB/Wells Fargo housing market index dropped by three points in September to 30 from a revised 33 in August, indicating that most builders think the housing market is poor. Economists expected the index to fall to 31. A year ago, the index was at 65. A reading of 50 would indicate builder sentiment was balanced between good and poor.

And more bad news:

Ripple effects: US consumer expectations to decline due to weakening housing market,

Analysts at ING Financial Markets say that US consumer expectations are likely to decline again on account of the weakening housing market.

Fannie Mae could be hit hard by housing bust: Berg - Mortgage giant could lose $29 bln, long-term bear argues in investor letter,

We are not sure the folks running the show fully embrace the risk of declining house prices," Berg wrote in the letter, a copy of which was obtained by MarketWatch. If the housing market continues to decline "a major portion of Fannie Mae's value could be wiped out." He declined to comment for this story.

And, knowing the Bush administration's record, possibly the worst sign of all: US treasury secretary dismisses housing dip,U

S treasury secretary Henry Paulson, making his debut at a meeting of Group of Seven (G-7) economy chiefs on Saturday, told them they need not worry about a housing-led collapse of the world’s largest economy.

With their record this means we ALL need to worry about just that.

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September 17, 2006

Today's Housing Bubble Post

This week's housing news is not expected to be good. Housing starts expected to tumble again,

The fragile U.S. housing market probably weakened further in August and early September, economists said, looking ahead to the coming week's economic data.
Home builders have turned very sour on their industry as inventories of unsold houses soar, canceled orders pile up and prices sink.
The week's calendar will offer two views of the home builders: what they do and what they say. In both cases, the story's the same: grim.

Hree's a story about a buyer who understands that prices are dropping, encountering sellers who do not yet get it. Standoff in a soft housing market: Bargain-hunters find negotiations tough as prices grudgingly fall,

"When I went to renegotiate . . . they wouldn't budge at all," Murgia said.

Indeed, only now, months into a soft market, are home sellers finally beginning to concede on prices -- but only so much.

But wait, there's more...

From the Detrot Free Press, U.S. housing slowdown could have global reach,

The slowdown in the U.S. housing market could be sharper than expected, which would hurt the U.S. economy, global growth and financial markets, an official from the International Monetary Fund said last week.

From The Housing Bubble blog, It’s Common To See Price Reduced Signs’ In California

More later...

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September 16, 2006

Today's Housing Bubble Post

There's a good summary of the week's bad housing news at Daily Kos: This Week's Housing News -- More Cause for Concern.

Foreclosure rate rises in quarter,

Adjustable rate mortgages may be beginning to indicate symptoms of rate shock. All types of ARMs had higher delinquency rates than in the first quarter of this year while fixed rate mortgage loans were either unchanged or showed a lower rate of delinquency.

This is good: US Housing Crash Continues - San Francisco Bay Area Hit Hard, "When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay."

Other headlines: National Delinquency Study Is Just A Bit Disquieting

Your house won't bite you, but your mortgage might

The brainy ones driving up house prices?

During periods of bubbly exuberance, prices can shoot up 20 percent or more a year. It's like every homeowner is a lottery winner, drunk on dumb luck. Gimmicky instruments such as interest-only loans allow speculators to feed in a frenzy. Houses get flipped as fast as In-N-Out burgers during lunch hour.

Then, just like that, the mood changes from bubbly to flat. The flippers worry they'll get caught upside down, owing more than their houses are worth. Buyers stand back, worried they'll plunge in as the market heads south.

That appears to be about where we are now. In a leery standoff between buyers and sellers.

Land investors seek fortunes in the desert - Get-rich-quick dreams spur nearly $16 million in real estate sales in Southern California's Newberry Springs

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September 14, 2006

Today's Housing Bubble Post

SignOnSanDiego.com - Housing still cooling,

San Diego County's residential real estate market continued to cool last month, with overall prices down 2.2 percent from August 2005.

It was the third straight month of year-over-year price declines, the research firm DataQuick Information Systems reported yesterday. It also was the slowest August in terms of sales volume since 1997.

An example of the ripple effect is beginning -- fewer rail cars are transporting lumber. Housing slowdown hits RailAmerica August carloads,

RailAmerica said lumber and forest products carloads were affected by the continued slowdown in the housing market.

Mortgage delinquencies ticking upward,

Faced with higher mortgage rates and deteriorating housing markets, more Americans are having trouble paying off their mortgages this year, according to the latest quarterly report on delinquencies from the Mortgage Bankers Association released Wednesday.
The report examined the delinquency rate - the proportion of borrowers at least 30 days late with a payment - for all mortgages held on residential properties of one to four units.

It revealed that though the overall rate in the second quarter ticked up only slightly, the picture was worse for adjustable rate mortgages, which constitute about 25 percent of all loans.

The delinquency rate for ARMs, climbed 0.51 percentage points compared with the second quarter of 2005, to 2.70 percent. That represents an increase of 23 percent in the number of borrowers in this category who are falling behind.

And the bulk of the ARMs don't start "hitting" - the payment increases when the "initial rate" goes away - until later this year and next year.

When will the tsunami of foreclosures hit?,

Those easy-mortgage chickens are coming home to roost.

This fall the adjustable-rate mortgages (ARMs) that millions of Americans took out during the recent housing boom will be reset, and many homeowners will see their monthly mortgage payments shoot up by as much as 20%.

A wave of housing foreclosures set for this fall,With the housing market cooling off from just about every conceivable consumer angle, so rests the hundreds of thousands of risky loans that sprang up in the last four years as housing prices crept up.

Posted by Dave Johnson at 9:02 AM | Comments (1) | TrackBack | Link Cosmos

September 12, 2006

Today's (First) Housing Bubble Post

Slowdown in US housing market the biggest threat to global growth: IMF,

The slowdown in the US housing market is a key threat to global growth.

This is according to the International Monetary Fund (IMF) in its half-yearly Global Financial Stability Report.

Housing numbers out today,

Real estate experts expect to see slowing sales and price gains and increased inventory, but nothing resembling a bursting bubble, when the Northwest Multiple Listing Service releases its August numbers today.

Heh. We'll see. More later.

Posted by Dave Johnson at 7:15 AM | Comments (0) | TrackBack | Link Cosmos

September 10, 2006

Today's Housing Bubble Post - Prices Will Drop Now

Here's the kind of headline that is starting to reach home buyers: House hunters' tip: Prices may fall, a first in 13 years. This news that people should expect falling prices is only starting to sink in out there. Changing people's expectations is a slow process. But when it does sink in -- that is when we will start seeing real drops in prices. Right now we're still in a housing bubble and buyers think they are seeing "bargains" while sellers are holding out with unrealistic expectations. Once it really sinks in that prices are falling - and falling fast - the buyers will start expecting ever lower prices, and the sellers will either take their homes off the market or dump them before prices fall further.

Prices will likely revert to the mean. This June chart from The Economist -- "The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops" -- shows where prices were in relation to the mean (100 on the chart) back in 2005, and shows what happened when Japan's smaller bubble popped.

From the Economist story,

Japan provides a nasty warning of what can happen when boom turns to bust. Japanese property prices have dropped for 14 years in a row, by 40% from their peak in 1991. [emphasis added]

And more housing bubble news: Housing slump harsher than predicted,

For years, real estate brokers and home builders promised that the soaring property market eventually would glide to a soft landing. These optimists predicted that home prices, which had more than doubled in parts of the country between 2000 and 2005, would continue to rise, but at a more normal pace of 5 percent or 6 percent a year.

It isn't working out that way. The rapid deterioration of the market over the past 12 months has caught many homeowners and builders off guard. Some are being forced to cut prices far below what their homes could have fetched a year ago.

...The market may be weaker than the Realtors' widely followed monthly reports suggest. The group's data don't reflect the latest transactions.

Builders Brace for a Housing Downturn,

The housing market is looking sicker by the day. On Sept. 7, the perpetually optimistic National Association of Realtors acknowledged for the first time that housing prices are likely to fall on a year-over-year basis, at least for a time.

Posted by Dave Johnson at 2:29 PM | Comments (0) | TrackBack | Link Cosmos

September 8, 2006

More Housing Bubble News

Calculated Risk: Housing: Difference a Year Makes, has a great chart of year-to-year changes in the housing market. Keep in mind that the real news of a downturn in housing is only recently hitting the press in a way that will penetrate to average people. These numbers are what is causing that news - and NOT from people reacting to that news. Things will really start happening when people start reacting, and start understanding that their house will be worth less next year, and start thinking about taking a profit - or just getting out - now.

Recent data quantify housing cooldown (year-over-year changes).
Builders’ sentiment down 52.2%
New-home sales down 21.6%
Purchase-mortgage applications down 20.9%
Building permits down 20.8%

Go see the whole chart.

Posted by Dave Johnson at 8:53 AM | Comments (1) | TrackBack | Link Cosmos

Today's Housing Bubble Story - San Jose Home Prices Down 6% Since June

San Jose home prices fall 6% June to August; year-to-year declines likely here, for U.S.,

National home prices are likely to fall below where they were in late 2005, the chief economist for the National Association of Realtors said Thursday.

The same trend could occur in the Bay Area, local experts said, reflecting a broad-based market shift in which homes for sale generally outnumber eager buyers.

``I wouldn't be surprised if we saw a drop in prices of 10 or 15 percent by the end of the year, from the peak,'' said Edwin Resuello, president of the Santa Clara County Association of Realtors, referring to home prices countywide.

U.S. Home Prices May Fall for First Time in 13 Years,

U.S. home prices may fall for the first time since 1993 as a record number of homes for sale gives buyers the upper hand in negotiations, the National Association of Realtors said.

Housing decline: How 'temporary'?

You know the boom is over when even the brokers start predicting lower prices. That was true of the stock-market bubble in 2001, and it's true now, as the air comes out of housing.
... Other forecasters are less sanguine than the Realtors. Global Insight, the economics firm with offices in Eddystone, found prices falling even in parts of the country where housing has been relatively tame.

In Michigan, Ohio and Indiana - some of the flattest real estate markets in the country - "modest gains have given way to losses as mortgage rates rise and economic conditions soften," the Global Insight team reported.

Posted by Dave Johnson at 8:42 AM | Comments (0) | TrackBack | Link Cosmos

September 7, 2006

Today's Housing Bubble Post - Roundup

Housing slowdown will hurt factories in '07-study,

The cooling housing market and a softening of capital spending will bring a slowdown in U.S. manufacturing activity next year, according to a study released by an industry trade group on Thursday.

... "The housing market has turned, it's going to be down this year and even down more sharply next year," Dan Meckstroth, chief economist of the Arlington, Virginia-based trade group, told Reuters.

U.S. Stocks Fall as Housing Slump Deepens,

U.S. stocks dropped for a second day after two homebuilders cut their earnings forecasts, fueling concern that the housing slump may curb economic growth.

US housing market faces prolonged slump,

A U.S. housing sector downturn may last for years because of excess supply and faltering consumer confidence stemming from worry over U.S. foreign policy and federal government competence, the head of nation's largest builder of luxury homes said on Wednesday.

... "This isn't a soft landing, it's harder than a soft landing," Toll told Reuters in an interview. But he denied the market was headed for a more dramatic decline in prices as some observers fear. "We are not crashing," he said.

NAR says housing prices will fall,

The National Association of Realtors has lowered its forecast for home sales this year, and says housing prices will probably fall below year-ago levels in the short term.

Economic Outlook: Housing market weaker still

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September 6, 2006

The housing collapse heard round the world

The housing collapse heard round the world,

...But the peak has passed, and the consequences of the deflating bubble are buffeting the housing market, in Washington and across the United States.

What sold in a weekend here last year is taking months to unload. And increasingly nervous home sellers are slashing prices to get rid of properties before their value sinks even further. One buyer recently threatened to walk away from a signed contract on a $1.6-million house unless the seller took $100,000 off the price to reflect the drop in value since the deal was struck. The seller quickly buckled, fearing the house might be worth even less if put back on the market today.

"Look how fast prices were going up. The same thing is happening on the way down," observed Ms. Gaus, who's been selling homes in Potomac for 16 years.

The U.S. housing crash may prove to be the economic equivalent of the canary in the coal mine -- a warning of impending danger in an economy that has surged too far, too fast. Many experts are now openly speculating about a possible U.S. recession next year, brought on by consumers reacting to the shrinking value of their nest egg. If they're right, the fallout could prove to be far nastier than the collapse of the technology bubble at the start of the decade.
"It could throw the economy into recession if consumers go into a shell," worried economist Peter Morici, a business professor at the University of Maryland. "I don't see anything out there to compensate."

There's more, go read. Then go read Home prices show huge slowdown and Home Prices Fall in Nearly One-Fourth of Metropolitan Regions,

Price declines are spreading to more parts of the country. The 89 areas affected in the second quarter compares to 66 metropolitan areas where prices fell in the first three months of the year. In the fourth quarter last year, only 29 areas reported such declines.

If you know anyone thinking of buying a house, suggest they offer 25% less than the asking price just to see what happens. They might find themselves owning a house -- that they still paid way too much for.

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Today's Housing Bubble Post - "Wheels Coming Off"

'The Wheels Are Coming Off' - a terrifying roundup of the problems battering housing, including a reference to Bloomberg yesterday, U.S. Home-Price Gains Slow as Housing Slump Deepens,

U.S. home-price growth slowed during the second quarter from a year earlier in the sharpest three- month plunge on record, according to a government report issued today that indicates this year's housing slump is deepening.

"The wheels are coming off the housing market,'' said Scott Anderson, an economist at Wells Fargo & Co. in Minneapolis. [emphasis added]

Keep in mind, this is only the very start of the popping of the housing bubble. It's only just hitting the news in a way that spreads out to the broad public. It is only after it becomes generally understood that housing prices are not going up anymore and people take price appreciation out of their buying calculation that we will start to see real changes. Prices have a long way to fall before things get back to normal.

Also noted:

US Housing Crash Continues

And, always, everything at The Housing Bubble blog.

Posted by Dave Johnson at 8:12 AM | Comments (0) | TrackBack | Link Cosmos

September 5, 2006

Housing Prices Weakest Increase Since 1999 - Layoffs Surge 76 Percent

U.S. home prices growing more slowly in second quater - Weakest quarterly increase in home equity since 1999,

"These data are a strong indication that the housing market is cooling in a very significant way," said James Lockhart, OFHEO director. "Indeed, the deceleration appears in almost every region of the country."
It's the fastest deceleration in the index in its three-decade history, OFHEO said.
... Prices fell in the second quarter in four states: Michigan, Massachusetts, Ohio and Indiana.
Prices in Hawaii, Maryland, Virginia, Nevada, New Jersey, the District of Columbia, and California cooled to less than 0% annualized growth in the second quarter. [emphasis added]

And in other housing news:

Hot real estate market gets chilly in Bakersfield - Housing inventory quintuples as boomtown of 2005 returns to Earth,

The housing stock nearly has quintupled and prices are virtually flat when compared to last year's levels. Home sale time-frames now are measured in months, not days.
"Yeah, we miss those times," Darrell Muhammed, a local agent, said of last year's market.
While average prices have yet to tumble, concern mounts that an ever-increasing housing inventory, coupled with coming hikes for variable rate mortgage holders, could send the market south in a hurry.

US Aug layoffs surge, housing slowdown cited,

Planned U.S. layoffs surged 76 percent in August compared with the previous month amid signs that a slowdown in housing was starting to have an impact on employment, an independent report showed on Tuesday.

... "Job-cutting in real estate this year is nearly double last year. However, we have not as yet seen a major uptick in job cuts in the sectors we might expect during a significant slowdown. The housing slowdown has not had a major impact on the job market, yet."[emphasis added]

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September 3, 2006

Today's Housing Bubble Post - This Week's Price Data Will Tell A Lot

All eyes will be looking at Tuesday's release of the Office of Housing Enterprise Oversight home price index, which will cover April-June. Home price data takes center stage this week,

Home values are critical to the economic outlook. Economists disagree about how the housing slowdown will impact consumer spending.
The rise in home prices has been an important driver of consumer spending. Many consumers have been refinancing their mortgages based on the higher home values and using the cash to finance purchases.

... On a national average basis, home sales have not fallen in any year since the late 1940s, said Berson. There have been some quarterly declines, and prices have been down annually in some regions.

Estimates are that it will show a slowing in the rise of prices.

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September 2, 2006

Who Is Our Economy For, Anyway?

Who is our economy FOR, anyway?

Posted by Dave Johnson at 4:34 PM | Comments (1) | TrackBack | Link Cosmos

Today's Housing Crash Roundup

The Great Housing Crash of '07

This month's figures prove that the so-called "housing bubble" is not only real, but that its cratering faster than anyone had realized. As the UK Guardian reported a couple of days ago, “the orderly housing slowdown predicted by the Federal Reserve will (soon) become a full-blown crash.”

Madison - Housing bubble has burst; prices will tell you why

To hear the real estate agents tell it, the housing market has "lost steam."

What they really mean, of course, is that it's hit a wall - though you won't get them to admit that publicly. And from all indications it's not going to improve any time soon.

Where next as the US housing bubble bursts?,

Five and a half years ago the equity bubble popped. Within six months, the US economy went into mild recession, and the global economy was quick to follow. Today, America’s housing bubble is finally bursting. Is the die cast for another bubble-induced downturn in the US and global economy?

Pending Home Sales Index Points To Easing Market ,

Home sales should be leveling out in the months ahead at a lower pace, according to an index based on pending home sales, a leading indicator for the housing market published by the National Association of Realtors®.

The Pending Home Sales Index,* based on contracts signed in July, is down 7.0 percent to a level of 105.6 from a downwardly revised reading of 113.5 in June, and is 16.0 percent lower than July 2005.

.... Lereah said psychological factors account for much of the decline in July home sales. “We’ve never seen a general decline in the housing market against a healthy economic backdrop where jobs are being created, the economy in growing and interest rates are favorable,” he said.

On housing front, it's beginning to get ugly,

File this under car wreck, as in, you don't really want to see it, but you cannot look away. I'm talking about the latest batch of housing numbers. They all show pretty much the same thing: sales slacking off, inventories rising.

(Those last two found through Housing Bubble and House Prices Tracker)

Housing Truth from Main Street,

If and when certain markets collapse 20% to 30%, it should not be deemed a bubble. It will happen in some markets and has happened in over-built condo markets. But these units will be absorbed in the next few years. The greatest pain will be felt by the biggest speculators and the most overzealous people participating in unorthodox loan programs.

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August 31, 2006

Today's Housing Bubble Post - Roundup

Bloomberg.com: Opinion,

Housing headlines are dominating the news these days in the same way the Nasdaq did in the late 1990s.

And no wonder. Successive years of sizzling sales and spectacular price appreciation have given way to falling sales and starts, record inventories of unsold homes (new and existing), a plunge in housing affordability and a flattening out of prices on a nationwide basis. The residential real estate market may never match the Nasdaq's vertiginous 78 percent decline from the 2000 top to the 2002 bottom, but it is captivating potential sellers, late-to-the-party speculative buyers and analysts looking to assess the impact on the overall economy.

... One area that has received next to no attention is the risk to the banking system, which, like everyone else, got caught up in the housing-market froth, extending credit seemingly without much due diligence. [emphasis added]

The Strongest and Weakest U.S. Housing Markets,

Over the next year or so, as the real estate market begins to soften, where will home prices remain highest? Potential buyers should look for more than beachfront location, nearby golf courses, or even good schools to determine whether their investment will be a smart one. The best thing to find? A strong local economy.

Don't blame interest rates for housing slowdown,

Nationwide, July's sales of new homes were down more than 21 percent from a year earlier and the inventory of unsold new homes hit an all-time high.

Residential building permits are down nearly everywhere. So far this year in the 11-county Twin Cities metro area, permits are down 18 percent. Comparing this July with July 2005, they are down 37 percent.

Sales of existing homes are slowing as well, according to the National Association of Realtors and other sources. For the nation as a whole, sales are at a 2½-year low and the inventory of unsold homes is at a record high.

So sales and construction clearly are down. Some interest rates clearly are up. The Federal Reserve started to constrict growth of the money supply two years ago, forcing its short-term target rate up by 4.25 percentage points since then. The prime lending rate is up about the same amount. Even so, mortgage rates — especially for fixed-rate loans — haven't climbed as much.

Yes, these rates were a percentage point or so lower a year ago. They currently are at the upper end of a narrow band in which they have hovered for four years. They remain very low by historic standards and in comparison to inflation.

... So if mortgage rates are not all that high when compared with long-run averages and adjusted for inflation, what is going on in housing?

... The most important factor, however, is that real estate and construction were in an unsustainable boom. Many people were building and buying houses with the primary objective of selling them for a profit.

Such booms are self-propagating for a while but must eventually die out even if interest rates do not rise. Irrational exuberance is fun while it lasts. When it abates, there is a frenzied rush for the door and someone always gets trampled.

Posted by Dave Johnson at 12:28 PM | Comments (3) | TrackBack | Link Cosmos

August 30, 2006

Today's Housing Bubble Post

The Raw Story | Slower US growth as housing starts plunge,

US economic growth slowed to an annual pace of 2.9 per cent in the second quarter as housing starts fell more than initially believed, the government said Wednesday.

House price crash could dwarf the 'dot-com' collapse

Consumer Confidence Plunges in August

US housing market and the global economy,

"Things do seem to be getting worse very quickly. Free-fall is a strong word, but I think it's the right one to use here," says Paul Ashworth, chief US economist at Capital Economics.

But most Americans look into the future, see a weakening property market, and fear not. They have been told that soft housing prices pose no problems for the rest of the economy. They have no reason to doubt that it is true; no reason to squint and try to see further. They dread neither slump nor boom, neither war nor peace. Everything will be managed by the authorities so as to do no great damage to the homeland, they believe.

But you typically don’t lose money or make it when things happen as expected. No one plans on losing his life savings. It comes as a surprise – along with sudden death, financial crashes, and other crises.

Posted by Dave Johnson at 10:08 AM | Comments (1) | TrackBack | Link Cosmos

August 28, 2006

Another Housing Crisis Post - A Very Big Deal

Just after posting below I came across this: Stephen Roach: Bursting Housing Bubble A Very Big Deal ,

If the US consumer slows, the demand expectations that typically drive capital spending will also weaken. So, too, will the growth dynamic of America’s export-led trading partners -- thereby undermining support for US exports, as well. In short, for a wealth-dependent US economy, the bursting of another major asset bubble is likely to be a very big deal.

It is also likely to be a big deal for an unbalanced global economy. In 2000, when the equity bubble burst, the gap between current account surpluses and deficits was less than 4% of world GDP. This year, as the housing bubble bursts, that same gap is likely to be around 6% of world GDP. The disparity between current account surpluses and deficits -- and the added point that the US accounts for about 70% of all the deficits in the world -- underscores the increased dependence of the rest of the world on the US. For that reason, alone, a bursting of the property bubble poses equally serious risks for America’s key trading partners and for the rest of an increasingly integrated global economy.

Posted by Dave Johnson at 4:37 PM | Comments (2) | TrackBack | Link Cosmos

Housing Bubble Bursting

Housing bubble is finally at bursting point

When the air is expanding inside a speculative balloon, stretching the film of credibility that contains it to an ever-more improbable thinness, you can always find someone to explain why this time it’s different — why technological/demographic/astrological factors justify valuations today that have always proved historically unsupportable.

*
Until the bubble actually starts to deflate or burst, there’s just enough doubt about whether prices really will revert to their historical mean to keep us all guessing. Even the most convinced sceptic can never say with any certainty when a bubble will collapse, and so the science of identifying bubbles is an inherently retrospective activity.

But it looks now as though we can say with some confidence that the long American housing bubble is over.

So what might happen next?

In previous periods of weakness in property markets there have been huge institutional collapses. The savings and loans debacle of the early 1990s is the most recent example. Today, again thanks to increased financial efficiency, the risk of such a massacre seems smaller. The securitisation of the nation’s mortgage market has spread the geographical and sectoral risks to the broader economy.
But there will still be many financial institutions with significantly impaired balance sheets as the value of their mortgage-backed securities declines sharply over the next year. All in all, even on the most optimistic assumptions, post-bubble conditions in the housing market would be highly uncomfortable for America and could seriously sap demand in the world.

And another from the UK, through Taiwan, US housing slump feeds fears of crash,

The downturn in the US housing market will force businesses to slash 73,000 jobs a month in the new year and could be more damaging to the world economy than the dotcom crash, economists have warned.

After official figures last week showed that the number of new homes sold last month was 22 percent lower than a year earlier, while prices were almost flat, fears are mounting that the "orderly" housing slowdown predicted by the US Federal Reserve will become a full-blown crash.

"Things do seem to be getting worse very quickly. Freefall is a strong word, but I think it's the right one to use here," said Paul Ashworth, chief US economist at Capital Economics.

From Canada, Downturn leads to higher risk of U.S. recession,

Mounting evidence of a slowdown in the U.S. housing market has led some forecasters to increase the chances that the world's largest economy will be limping into a recession next year.

"We have decided to raise the odds of a U.S. hard landing to 40 per cent from 25 per cent," National Bank Financial economists Clément Gignac and Stéfane Marion said in a note yesterday.

Posted by Dave Johnson at 4:15 PM | Comments (3) | TrackBack | Link Cosmos

August 27, 2006

Today's Housing Bubble Post - HARD Landing

All of a sudden, lots of bad news. Except that some of us have been talking about what's coming for some time now. The signs were all there.

How much of the seeming prosperity of recent years was based on borrowed money? People were refinancing their houses as prices rose, and using the money to buy SUVs, etc. But now we have the opposite situation - these people now owe that money yet prices are falling. And with prices falling few new people will be refinancing. Meanwhile the government has borrowed massive amounts of money and pumped it into the economy - something usually done only to get us out of downturns - so if there is a downturn they won't be able to borrow money to pump into the economy. Bush has used up that trick during the good times when we should have been paying off debt. (Clinton paid off debt, which is what allowed Bush to borrow so much...)

Here are a few of today's stories:

How a Housing Slowdown Will Cause a Recession

The news has been universally bad: inventories are rising to 10-year high levels, buyers are already saddled with massive amounts of debt, homebuilders are cutting profit projections and overall investment is negative. And here is more from Nouriel Roubini: housing is already in free fall and will cause a recession by the summer of 2007.

Housing Ponders a Hard Landing,

...last week was one big series of uh-ohs.

[. . .]So where is the market headed? Nobody can be certain; much depends on whether the number of unsold homes continues to rise. Last week, doom-and-gloomers, emboldened by the new data, were citing reasons to believe that the latest bulge in inventories is just a taste of things to come. Plenty of new homes remain under construction. Speculators who haven't yet unloaded their properties will do so for fear that things will get even worse. And then there are the hordes of recent buyers who, having assumed adjustable-rate mortgages that are becoming increasingly unaffordable as interest rates rise, may be forced to sell.

Housing Numbers Dampen Investors’ Outlook,

Stocks declined last week as investors worried that rising energy costs and a slowdown in the housing market could send the economy into a slump.

And the theme is sinking in around the country -- Heartland Housing Market in Buyers Favor,

It can be a nightmare...as you wait and wait and wait for that house to sell. The bad news, it seems the housing boom is over.

Posted by Dave Johnson at 12:17 PM | Comments (2) | TrackBack | Link Cosmos

August 26, 2006

Today's Housing Bubble Post - More News Stories

When the Bubble Bursts - Los Angeles Times,

It's too early to say whether the slowdown will turn into a crash presaging a recession, as happened in the late 1970s and '80s, although the economy's other fundamentals remain healthier now than then. But it's worth bearing in mind which homeowners are most likely to be affected by a possible downturn and which ones can lay off the antacids.

... A separate point of anxiety is the prospect of higher interest rates for buyers with adjustable-rate mortgages. The Federal Reserve recently took a break from its prolonged increasing of short-term rates, but lingering risks of inflation could push borrowing costs, and therefore adjustable mortgages, back up. Owners who can't afford the higher payments might be forced to sell their homes at a loss.

The AP story is in most newspapers, Housing, fuel strain shoppers,

Fresh evidence shows high energy prices and sagging home values are pinching the main driver of the U.S. economy: Average Joe's wallet.

Retailers and economists say many Americans are waiting to buy big-ticket items and cutting back on frills.

Homeowners are shelving plans to remodel kitchens. Families are dining out less and tightening their budgets.

OK, look. There are a huge number of interest-ony and adjustable rate mortgages out there. The negative effects of most of these do not hit until next year, when people's monthly payments will suddenly go way up - forcing many to sell. So this thing hasn't even started yet. Combine this with the number of people who bought for speculation and never had any intention of holding on to the property for very long. Then combine those factors with the higher fuel costs that are straining everyone's budgets. And finally add in the federal government's massive borrowing that is pushing up interest rates AND rising inflation rising which also puts pressure on interest rates. This has all the makings of something much worse than a recession.

Posted by Dave Johnson at 2:24 PM | Comments (0) | TrackBack | Link Cosmos

August 25, 2006

Today's Housing Bubble Post - It Is Hitting the News

It's becomming "the story." This has to go on for a while, for the news to filter out to "the masses." In a few weeks it will be generally understaood that housing prices are heading down. Next will be stories about how fast prices are dropping, and then about people being hurt by this. Each will feed the next phase.

Selling In Slowing Housing Market, Expert Offers Uncommon Tips To Help - CBS News

How do you know how to price your house? Fletcher says, "Look at what other similar houses in the neighborhood are selling for and then set your price at 10 percent under the market.

If you want the house to sell, price it lower than the last one that sold. This is necessary - if you want to or have to sell - but feeds the drop.

Washington Post: New-Home Numbers Add to Housing Woes

New-home sales fell more steeply in July than economists forecast, and the number of unsold houses climbed to a record, deepening a slump in an industry that fueled economic growth for five years.

New York Times: Housing Reports Reveal a Slowing Market

A backlog of unsold new homes continues to pile up. Last month there were 568,000 new homes on the market — enough that it would take 6.5 months to sell them all at the current sales rate. That is the most in more than a decade.

Business Week: Housing: The Roof Won't Collapse On The U.S. Economy,

All of this is not to downplay what is essentially a recession in housing. Housing starts sank further in July. Permits to begin new construction plunged close to a four-year low, and an industry measure of builders' sentiment sank to a 15-year low. Forward-looking indicators from declining mortgage applications to depressed attitudes of potential home buyers to moribund buyer traffic in model homes indicate more weakness to come.

Chicago: Midwest July new home sales drop 21%,

Sales of new homes dropped in July while the inventory of unsold homes climbed to a record high.

US News & World Report: New-home sales swoon,

Economists said the market for new homes may be in worse shape than the government's figures show because they don't take into account rising cancellations reported by many home builders in recent weeks. "This was probably an even weaker month than it looks," says Michael Carliner, an economist with the National Association of Home Builders.

Richmond: Home sales are cooling further

Krugman - all you need is the headline: Housing Gets Ugly, but I'll quote just a bit:

Why the sudden crackup? When prices were rising rapidly, some people bought houses purely as investments, betting that prices would keep going up. Other people rushed to buy houses, or stretched themselves to buy houses they couldn't really afford, because they feared that prices would rise out of reach if they waited. And all this speculative demand pushed prices even higher. In other words, there was a market bubble.

But eventually prices reached a level beyond what even optimistic potential buyers were willing to pay, especially after interest rates rose a bit. (They're still low by historical standards.) As demand fell short of supply, double-digit price increases declined into the low single digits, then went negative everywhere except in the South.

And with prices falling in many areas, the speculative demand for houses has gone into reverse, as people try to get out with a profit while they still can. There's now a rapidly growing glut of unsold houses. This is a recipe for a major bust, not a soft landing.

Posted by Dave Johnson at 1:43 PM | Comments (1) | TrackBack | Link Cosmos

August 24, 2006

Today's Housing Bubble Post - PRICES Are Starting To Fall

The price drop begins. Sales have been slowing down and inventory has been building up, but prices were not dropping yet. Now we're starting to see the first signs that "real estate always goes up" isn't a law of physics. Home prices in Mass. fall 3.5 percent in July - The Boston Globe,

Home prices in Massachusetts fell 3.5 percent in July, the largest decline in 13 years, as the slowdown in the real estate market finally led sellers to cut their prices.

... Sales of single-family homes began dropping last fall, but prices were slow to respond to the weakening demand.

... Massachusetts is not alone, though the sales slowdown began here before spreading to the rest of the country.

What does this mean? Yesterday I talked about how news of dropping prices will change everything.

Here's the thing. Sales slowing and rising inventories necessarily mean that prices will start to drop soon. And just wait until THAT starts hitting the news. That's the tipping point. That's when people's expectations change. Once people stop seeing house prices rising, everything will change. And when they realize that prices are dropping, everything will really change.

So as of now people understand that this is a market to get out or stay out of or you will lose money. From the article,

But Newton agent Rona Fischman said many are ``still in denial." The steep drop in July sales ``tells me we're in the first year of the price declines," said Fischman, who is with Buyer Brokerage Realty. ``Sellers who really have to sell are waking up and smelling the coffee. There's more coffee coming."

... ``It's possible we're standing at the edge of a cliff, and if we wait the bottom will drop out" of the market, Wagner said about predictions prices will fall further. [emphasis added]

Posted by Dave Johnson at 5:33 PM | Comments (5) | TrackBack | Link Cosmos

August 23, 2006

Today's Housing Bubble Post

This is the beginning of the housing crash. It is JUST starting to hit the mailstream news that sales are slowing. Sure, it's old news to you and me but "regular people" are only now going to start hearing about it.

Since it's early in the cycle, we're still hearing that buyers are "waiting on the sidelines to jump in." These are people who still think that "real estate always goes up." (Remember the people who believed that stocks always go up?) When those last few "always goes up" people are shaken out of the market things will really start happening.

And, since it's just the beginning of the downturn, we're now hearing comforting, calm words about a "soft landing" and that "this is a healthy thing," etc.

Here's the thing. Sales slowing and rising inventories necessarily mean that prices will start to drop soon. And just wait until THAT starts hitting the news. That's the tipping point. That's when people's expectations change. Once people stop seeing house prices rising, everything will change. And when they realize that prices are dropping, everything will really change.

Right now, people are willing to pay these high prices because they believe that prices will be even higher next year. They see housing as an investment, rather than just as a place to live. People are willing to pay mortgage payments that are much, much higher than rents because they believe that prices will be higher next year. But what will happen when people start realizing that prices will be lower next year? Everything changes.

First, people who are overextended will start being forced to sell. When people have to sell, they will drop the price until the house sells. And as each month's housing price report tells people that prices are dropping, people who have to sell will be willing to lower the price even more.

After that starts, people will wait to buy. And with people waiting to buy, prices will have to start dropping even faster.

As with all bubbles, the unwinding of unrealistically high prices will accelerate.

So how low will prices fall? They will fall to the place they should be, which is the place where demand and supply meet, and return on investment makes sense, without the unrealistic expectation that "prices always go up" involved in the equation. In other words, prices will not reflect an expectation of future price appreciation. There has been a lot of new housing build, reducing demand, and prices are incredibly high, so they could fall QUITE a lot. It is possible that this bubble could unwind as seriously as the stock market bubble did.

Update - Mary has more at The Left Coaster.

Atrios, too, linking to Is a Housing Crisis Approaching?

Posted by Dave Johnson at 7:00 PM | Comments (1) | TrackBack | Link Cosmos

August 16, 2006

Today's Housing Bubble Post - How Far Can Prices Fall?

Kevin Drum says he thinks housing prices in Southern California will drop 10-20%, bottoming out in 2008.

Here in Northern California housing prices have more than tripled during the housing bubble. They average around $750K for a 3BR in my area. So how much might we expect them to fall now that the bubble is popping? Let me try a calculation based on getting a return on investment for a rental property.

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. (Except that those property taxes are now too high for this purchase price, but you're starting to get my point.) This happens to be about what prices were before the bubble, plus a bit for inflation. EXCEPT for a few things -- the bubble provided incentive for a LOT of new homes to be built, so demand will be weaker. AND a lot of people are going to be wiped out financially so overall ability to purchase will be lower. AND, with all those houses on the market, rents are likely to fall. So these are some of the factors that could contribute to prices going lower than about $240K around here. But you get my point.

Prices have a LONG way to fall, and when they do there are a lot of factors which could make them take much longer than usual to recover.

Posted by Dave Johnson at 11:25 AM | Comments (2) | TrackBack | Link Cosmos

August 13, 2006

Just Get Rid Of Government?

Today my local newspaper' subjects me to this right-wing propaganda comic strip (click to enlarge):

Today the cartoon's message is: Get rid of public schools, then we don't have to pay property taxes, and everyone can pick out for themselves what education their kids get. At least today we get to see the pure, honest message of the Right without the usual disguises -- today's cartoon is not even offering the usual pretense of vouchers.

The larger exchange offered is clear: just get rid of government and the taxes it requires, and leave everyone to fend for themselves.

This exchange extends beyond just schools -- it's about parks, water systems, sewer systems, roads, bridges, highways, public transportation, public health systems, hospitals, Social Security, Medicare and everything else that we as a people, a community, have decided to gather together and provide for the people of this country. The Right dismisses all of this as "collectivism."

I'll just make a couple of points here. If you get rid of schools only the richest will be able to get any education at all. This is the way things used to be. But in America every town got together to build a school and hire a teacher, and this is how public education grew. Everyone understood (learned the hard way) that more education for everyone ends up being better for everyone. If the kids in poor neighborhoods are provided with an education, the community is a better, safer and more prosperous place.

And, likewise, if you get rid of public health systems, the rich are still just as susceptible to catching diseases as everyone else. If we as a collective group don't work to keep the poorest among us from catching TB, then we ALL are at risk of catching TB.

Democracy is about one-person-one-vote and not about one-dollar-one-vote. History has proven that systems based on the Right's dream of one-dollar-one-vote just do not work. But we don't hear this side - the pro-democracy side - of the argument anymore. The increasing concentration of our sources of information into just a few corporate hands means that we even have to be subjected to this kind of far-right propaganda in our Sunday comics. (And when was the last time you saw someone on TV advocating that workers form unions?)

But the reason we are constantly subjected to far-right propaganda like this without hearing counter-messaging is not just because of this concentration of media. It is also because the counter-messaging just isn't being produced and distributed. The Right has a vast messaging machine pumping out propaganda designed to systematically attack the institutions of democracy. But Progressives -- the forces of democracy and community -- aren't doing much to counter it.

We need to build organizations designed to reach the general public with messages that explain and reinforce the values of democracy and community, to counter the Right's incessant messaging.

Posted by Dave Johnson at 12:35 PM | Comments (2) | TrackBack | Link Cosmos

July 29, 2006

Today's Housing Bubble Post

Calculated Risk: New Home Sales and Recessions. Look at the chart, showing the correlation between drops in new home sales and recessions, and see where we are now.

or consumer led recessions (all but the most recent recession in 2001), New Home Sales were falling prior to the onset of the recession. It appears that New Home Sales peaked last year.

This doesn't imply a cause and effect relationship, but it is something to watch. If New Home Sales can stay above 1.1 million or so that probably increases the probabilities of a soft landing (just slower growth), as opposed to a hard landing (a recession).

Then go look at this post and its charts to see the likelihood of people being able to sustain a good rate of new home sales.

I report, you decide.

Posted by Dave Johnson at 12:06 PM | Comments (0) | TrackBack | Link Cosmos

July 23, 2006

Over the Cliff

Read this and look at the pretty charts.

We're over the cliff.

Posted by Dave Johnson at 1:37 PM | Comments (0) | TrackBack | Link Cosmos

July 22, 2006

Today's Housing Bubble Post

‘It Was Naive To Say, This Will Go On Forever’,

“Such a sharp decline in home sales has sellers in the area frustrated, and the number of additional homes coming on the market is only making matters worse. In June, another 19,300 homes received for sale signs in their front yards. With less than 9,000 homes selling last month, you can see what sellers are up against.”

... “‘I’m not buying your overpriced place on some silly discount. I’m buying at 2002 or earlier prices. If not from you, then from your bank when you forclose.’ Maryann Haggerty: ‘Who is sounding a little, well, smug and condescending now’?'

[. . .] ‘Things were tooling along beautifully for like the last 10, 15 years. Then all of a sudden, business dried up.”

“This is the kind of lull that often follows a boom, Waukesha developer Bryce Styza said. ‘We had a terrific 3, 4 years,’ Styza said. ‘It was naïve to say, ‘This will go on forever.’” [emphasis added]

Posted by Dave Johnson at 1:46 PM | Comments (0) | TrackBack | Link Cosmos

July 20, 2006

Economic Talking Points for Democrats

Go read (and recommend) Bondad's Economic Talking Points For Democratic Leaders,

So there you go - three great things to say over and over and over and over and over and over and over and over and again. And when you think you have said it enough, say it one more time just to make sure. In case you forget them - here they are:

THE WORST RATE OF JOB CREATION IN 40 YEARS

BUSH'S NEW JOBS PAY $9000 LESS PER YEAR.

WORKING PEOPLE HAVEN'T HAD A RAISE IN 5 YEARS.

I expect to hear these soon. And I expect to keep hearing them, over and over and over and over and over and over and over and over and over and again.

Posted by Dave Johnson at 9:19 AM | Comments (5) | TrackBack | Link Cosmos

July 14, 2006

Free Markets and Capitalism

And e-mail I received:

I have never understood why free markets and capitalism are universally conflated. Are they the same thing? Or even part of the same thing?

Free markets as self-regulating systems for pricing and resource allocation can be (with appropriate regulation) very useful. Claims against generated wealth based on "ownership" are almost always just simple theft of labor or common resources.

That's my theory, and I'm sticking to it.

Discuss.

Posted by Dave Johnson at 7:09 PM | Comments (2) | TrackBack | Link Cosmos

July 11, 2006

Bush Admits Tax Cuts Responsible For $296 BILLION Budget Deficit!

When Bush took office the United States had a projected budget surplus of $305 billion. After Bush's 2001 tax cuts that surplus disappeared and the budget went into deficit. At that time Bush said this 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.

Today Bush said,

"The tax cuts we passed worked," Bush told a White House audience of aides and Republican members of Congress.

Posted by Dave Johnson at 7:26 PM | Comments (0) | TrackBack | Link Cosmos

June 22, 2006

Looting Pensions and Eating Seed Corn

One more thing Bush will be remembered for: getting rid of pensions.

And by the way, where do you think the money went? When Reagan started the process, tricking people into thinking that a 401K - you put your money in - was somehow better than a corporate pension - they put money in FOR you - corporate profits started the big rise. That was the beginning of a huge transfer from future retirements to the very rich. But that wasn't enough, so the corporations also started underfunding their pension plans. Knowing they had a coming obligation they did not put the necessary money into the pension funds, instead sending the money to the top. And now, under Bush - who is still working to get rid of Social Security - corporations like United Airlines are cancelling pensions.

This is about OUR retirement savings, gone into the pockets of the Bush cronies. And what do the people who stole the pensions get? Tax cuts.

But wait, there's more.

It's not JUST our retirement savings that Bush is handing over to his cronies. You know that there is a huge budget deficit, but what do you think the budget deficit IS, anyway? Is it magic money from nowhere to pay for tax cuts for the rich, and the Iraq war? Of course not! Bush is borrowing trillions of dollars, handing it out to cronies (sometimes literally in duffel bags), and borrowed money has to be paid back with interest. Who do you think will have to pay that money back?

But wait, there's more.

Our tax dollars built America's infrastructure. Infrastructure is roads and bridges and water lines and schools and bank account insurance and regulations and all the things that support our economy. Every time a truck makes a delivery (sending profits upward) that truck drove on roads WE built. But are you and I - the public - sharing in the profits that come from the infrastructure we built? Who is our economy FOR, anyway? The corporations and rich are now largely excluded from paying taxes to maintain those roads, and America's infrastructure is crumbling. By not investing in infrastructure, Bush and his cronies are "eating our seed corn." So when we want to start rebuilding the infrastructure, who do you think will be paying?

We've all got a LOT to thank Bush and the Republicans for. And you're going to have some long, impoverished years to think about it.

Posted by Dave Johnson at 9:25 AM | Comments (0) | TrackBack | Link Cosmos

May 5, 2006

Tax Cuts - Don't Believe Your Lying Eyes

When something is right there in front of your face, right-wingers say ignore it. Right Wing News writes,

after the Bush and Reagan tax cuts, the amount of revenue coming into the treasury didn't go down, it went up

Actually, Reagan cut taxes then INCREASED TAXES MASSIVELY. I skipped breakfast yesterday but gained weight. (Because I ate a big lunch and a huge dinner.)

Never mind that both Reagan and Bush created massive, massive, massive deficits. Ignore that! Bush came into office with a huge government SURPLUS and now we have a massive, massive, massive DEFICIT! But the right-wingers say it just isn't there in front of your eyes.

We now pay over $300 billion a year - to the rich - just for interest on the massive, massive, massive Reagan and Bush debt.

Posted by Dave Johnson at 2:04 PM | Comments (5) | TrackBack | Link Cosmos

May 4, 2006

Cutting Taxes Brings MORE Government

The so-called "conservatives" have been cutting taxes in an effort to, as they call it, "starve the beast." Ronald Reagan explained the "starve the beast" argument as "cutting the government's allowance." The idea is that by bankrupting the government (us, you and me), we're forced to stop spending money on ... well, on negroes is the historical root of their underlying argument. They call it "welfare" and "entitlements" (even though entitlements means Social Security...) and affirmative action. That's what "big government" means to conservatives. (Never mind that most government spending goes to military and interest on the massive Republican debt...)

But what about this idea that bankrupting the government (us, you and me) through tax cuts forces spending cuts? Political Animal links today to a very interesting counter-argument, Stoking the Beast. Basically, that by cutting the cost what they have actually done is increased demand. The public is not feeling the effects of the massive Republican borrowing, so the public perception is that government just costs less. They're getting government services and not paying as much in taxes as it really all costs, so why not get them some more of that?

One more thing these assclowns turned out to be incompetent at.

Posted by Dave Johnson at 1:27 PM | Comments (3) | TrackBack | Link Cosmos

May 3, 2006

Buck Fush!

The photos say it all. I just bought a (very) used Mitsubishi pickup for my business (after spending a month looking for the right combination of price, automatic transmission, fuel efficiency and mechanical soundness), and not compromising on fuel miilage looks like a smarter and smarter decision every day. I only wish there were more light pickups available, with even better gas milage... why hasn't anyone made a hybrid light pickup yet?!?

Are you pissed off? Email me your gas station pump price pics and I'll post 'em. pumprice@thomasleavitt.org ... or better yet: post 'em on your own blog!

P.S. I saw regular selling for $3.43/gallon in South San Francisco just yesterday. Wanna take bets on when you'll see it at $4.00/gallon?

P.P.S. If any of you have been wondering where I've been... think family crisis, personal hell, lots of playing catchup. :(

Posted by Thomas Leavitt at 5:14 PM | Comments (2) | TrackBack | Link Cosmos

May 2, 2006

Dollar Dropping

The US Dollar has started falling. Dollar Declines On Trade Deficit,

The dollar has suffered sharp losses against other currencies the past two weeks, and yesterday it hit a fresh, seven-month low against the Japanese yen. Although it rallied yesterday afternoon against the euro, it fell to an 11-month low against the European currency earlier in the day and is down nearly 6 percent against the euro since late February.

There is a LOT of room to fall further. If you are able, move money into Euros, Canadian dollars, wherever. You'll get a very, very nice return as the dollar falls.

Will the falling dollar bring business and jobs to the US? Two problems. First, China keeps its currency pegged to the dollar, so as much as things purchased from us might cost less as the dollar falls, they continue to cost even less from China. Along with that, we have been sending our manufacturing infrastructure away, so it will take some time to ramp up to make things here again, not matter HOW much of a currency advantage we might gain.

Posted by Dave Johnson at 11:34 AM | Comments (2) | TrackBack | Link Cosmos

April 29, 2006

The Revolution Starts . . . Now

I’m Calling Bullshit On Homelessness. I have never lost a flame war yet, and I’m not about to start with this one. In two recent diaries over at MyDD, Tax Welfare For Billionaires and Tax Welfare For Billionaires II I pointed out that tax cuts for billionaires were nothing more than thinly disguised welfare programs for the ultra rich. Since homeless Americans and working Americans have a greater need for economic assistance in these perilous economic times, I decided to take over Birch Park just south of downtown Santa Ana (page 829 in your Thomas Guide at E3) as a statement of my discontent with the current economic conventional wisdom that providing welfare to billionaires will eventually trickle down to the rest of us.

I'm in the process of wrapping up a few loose ends before I file a series of lawsuits that will bring landlord/tenant law in Orange County, Calfornia into conformity with California law. The current rule of law in Orange County can be simply stated as "the landlord wins." Regardless of the law, the equity or the specific facts of any particular situation, "the landlord wins."

That is about to change. Trust me. I will be adding more details as I get situated in my new residence and my economic situation returns to the norm. For now you can take my word for it that landlord/tenant law in Orange County is going to experience a radical transformation.

Posted by Gary Boatwright at 6:02 AM | Comments (4) | TrackBack | Link Cosmos

April 14, 2006

Treasury Sec. Snow Denounces Fiscal Discipline

The Treasury Secratery of the United States says,

...achieving fiscal discipline, can only lead to one thing: higher taxes. And higher taxes always mean a larger role for government and a smaller role for the private sector. Is that the way we want to go? I don't think so.

(Never mind having to pay interest on borrowing...)

On a likely related note,

Yields have risen sharply by 0.6 percentage points so far this year, reaching 5.036pc in New York last night.

... Analysts said the spike in yields is chiefly caused by an exodus of Asian investors, who hold a huge chunk of the US national debt.

"We've started seeing a lot of money being repatriated into the Japanese equities market," said Matthew Smith, a manager at Smith Affiliated Capital. Japanese holdings of foreign bonds has fallen by $70bn so far this year, according to data from Japan's finance ministry.

Dumping out of US funds? They probably heard that our Treasury Secretary thinks fiscal discipline is a bad thing.

Posted by Dave Johnson at 10:39 PM | Comments (2) | TrackBack | Link Cosmos

April 8, 2006

Today's Housing Bubble Post

A Liberal is a Conservative Who Got a Foreclosure Notice,

At least one conservative business analyst is warning his political compatriots that their middle class base may melt away when homeowners begin to experience the coming housing crash. Andrew LaPerriere sounds the alarm in the most recent Weekly Standard...

. . . Has the housing crash started? And will it bring down the whole economy? LaPerriere travels ground we covered here last summer—skyrocketing home prices that make purchases unaffordable for a growing number of families, the staggering differential between rental prices and purchase prices that signal over-heated speculation, and what happens when $2 trillion of adjustable-rate and interest-only mortgages (one quarter of all mortgages in the US) are reset in the next two years. But he adds a political analysis that is amazingly candid. Calling his fellow conservatives “strangely silent” on the problem and consequently vulnerable to the political fallout when conservatives across the country discover that no one in Washington was watching out for them.

Posted by Dave Johnson at 5:21 PM | Comments (0) | TrackBack | Link Cosmos

April 5, 2006

So-Called "Free Trade" Isn't Trade At All

If we have "free trade" with partners in a "free market" why do we have a massive trade deficit? If it really was a "free market" wouldn't our trade "partners" use the dollars we give them when we buy things from them to buy things from us?

The idea of "free trade" is that things are supposed to balance out. We buy things made there, at a cost of jobs for people who had been making things here. But the whole idea is that they get dollars from that exchange, and then can buy things made here, bringing different jobs to the people who are not longer making the things made in China. That's why it's called TRADE -- we TRADE things made there for things made here.

But that is not what is happening. We are not TRADING. We buy goods manufactured in China. China accumulates dollars. But those dollars are not buying things made here. If they were, there would not be a trade deficit with China. So it is not balanced. And there is more than a trade deficit, there is a huge job deficit. The only thing we are TRADING is our jobs for their things. And we are borrowing the money to do that.

But it's worse than that. There is also depreciation of our manufacturing infrastructure. I mean investment in new manufacturing is occurring in China and not here. So not only are we sending jobs to China, we are sending our ability to make things away to China as well. We couldn't just start making things now because we have closed our factories, not bought the latest equipment, etc. We would have to invest in new, modern equipment and train workers in new techniques.

Free trade requires that both trade partners play the same game following the same rules. That is obviously not what is happening today. We are losing our jobs, our pensions, our health insurance , wages are dropping, those with jobs are working longer hours and taking fewer vacations. And we are borrowing massive amounts of money to accomplish that. We have been sold out - literally.

Posted by Dave Johnson at 8:17 AM | Comments (2) | TrackBack | Link Cosmos

March 22, 2006

All Good Jobs Going Away? Who Is Our Economy FOR?

In Will Your Job Survive? Harold Meyerson writes,

In the new global order, Blinder writes, not just manufacturing jobs but a large number of service jobs will be performed in cheaper climes. Indeed, only hands-on or face-to-face services look safe.

... the grand total of American jobs that could be bound for Bangalore or Bangladesh is somewhere between 42 million and 56 million. That doesn't mean all those jobs are going to be exported. It does mean that the Americans performing them will be in competition with people who will do the same work for a whole lot less.

Meyerson quotes an economist who recommends that people specialize "in the delivery of services where personal presence is either imperative or highly beneficial. Thus, the U.S. workforce of the future will likely have more divorce lawyers and fewer attorneys who write routine contracts."

Here's the problem with "service sector" jobs: they require people with money to service. We won't all be able to service the top few who are winding up with all of the money and property in the country.

Meyerson agrees, writing,

Every other advanced economy -- certainly, those of the Europeans and the Japanese -- has a conscious strategy to keep its most highly skilled jobs at home. We have none; American capitalism, dominated by our financial sector, is uniquely wedded to disaggregating companies, thwarting unionization campaigns and offshoring work in a ceaseless campaign to impress investors that it has found the cheapest labor imaginable.

His proposals (go read them) are much more modest than what I would recommend. I think we need to completely redefine the concept of "ownership."

Who "owns" a corporation? The government - you and me - grant corporations certain protections, including limitations of liability. In other words, stockholders in a company are not liable for the debts of the company. When a company goes bankrupt the shareholders don't have to cough up the money to cover what the company owed. So what is happening here is that for the benefit OF ALL OF US, we allow companies to operate in certain ways. It isn't about letting a few people get really rich while stealing our pensions and cancelling our health insurance. It's supposed to be about ALL OF US ending up better off.

A society shares resources. Does an oil company "own" the oil, or water, or air? Or does society grant them a license to profit from the extraction and development of that commonly-shared resource, FOR THE BENEFIT OF ALL OF US?

Companies are granted charters to operate by the community-at-large. Does a drug company have the right to refuse to develop new antibiotics? Shouldn't we instead yank their licence to be a drug company and give that license to a different company that agrees to develop needed drugs? I mean, they were chartered as a corporation to serve the public by developing drugs! And what about vaccine companies that reduce costs by shutting down or otherwise reduce their vaccine-making capacity?

So why are we letting corporations export our jobs in order to enrich a very few people? Why aren't WE sharing in the proceeds? Why is it COSTING us our pensions and health insurance and wages? WHO IS OUR ECONOMY FOR, ANYWAY?

This throws a few ideas into the air. Discuss - let's see where they land.

Posted by Dave Johnson at 1:28 PM | Comments (3) | TrackBack | Link Cosmos

March 8, 2006

Fishing vs Logging vs Farming

Some say that Bush favors large corporate interests. But what happens when industries have conflicting needs?

From this news item today, Salmon fishing ban advised,

Federal fish managers told the Pacific Fishery Management Council on Tuesday that salmon fishing from California to Oregon must not be allowed this season.

... Klamath River chinook populations have fallen well below required limits for the last several years, said NMFS spokesman Peter Dygert -- the main factor driving the closing recommendation.

... Fishermen, whose livelihoods are at risk, said the problem in the Klamath isn't fishing harvests. It's a sick river.
Jim Anderson, spokesman for the California Salmon Council, said lower river levels and warmer river temperatures cause parasites that kill the fish.

May, 2003, Conservation Groups Challenge Old Growth Logging in Federal Court, Klamath Plan Would Damage Wild and Scenic Salmon River,

The Wild and Scenic Salmon River, one of the crown jewels of California, supports some of the last remaining wild summer steelhead, spring Chinook, and coho salmon runs in the state, provides world-class whitewater recreational opportunities, and is a critical source of much-needed cold, clear water to the Klamath River. The Knob timber sale would destroy almost 600 acres of ancient forest that provides critical habitat for a diverse array of plant and animal species, including the northern spotted owl, northern goshawk, fishers, martens, wild orchids, and rare salamanders.

... "The Knob timber sale, along with several other recent and proposed timber sales in the watershed, will remove much of the remaining low elevation old-growth in the area, including the last remaining critical spotted owl habitat outside of Reserves. The proposed logging plans threaten to significantly impact all of the species that depend on these ancient forests for their survival."

From July, 2003, Oregon Water Saga Illuminates Rove's Methods With Agencies,

In a darkened conference room, White House political strategist Karl Rove was making an unusual address to 50 top managers at the U.S. Interior Department. Flashing color slides, he spoke of poll results, critical constituencies -- and water levels in the Klamath River basin.

At the time of the meeting, in January 2002, Mr. Rove had just returned from accompanying President Bush on a trip to Oregon, where they visited with a Republican senator facing re-election. Republican leaders there wanted to support their agricultural base by diverting water from the river basin to nearby farms, and Mr. Rove signaled that the administration did, too.

Three months later, Interior Secretary Gale Norton stood with Sen. Gordon Smith in Klamath Falls and opened the irrigation-system head gates that increased the water supply to 220,000 acres of farmland -- a policy shift that continues to stir bitter criticism from environmentalists and Indian tribes.

... His remarks weren't entirely welcome -- especially by officials grappling with the competing arguments made by environmentalists, who wanted river levels high to protect endangered salmon, and Indian tribes, who depend on the salmon for their livelihoods.

... Environmentalists blame the change in water levels for the subsequent death of more than 30,000 salmon, calling it the largest fish kill in the history of the West.

Posted by Dave Johnson at 11:21 AM | Comments (1) | TrackBack | Link Cosmos

Price and Cost

The price of something should reflect the cost. Right? If something costs very little, its price should be low. If something costs a lot, its price should be high.

Have you ever encountered something where the price had an inverse relationship to the cost?

What is the cost of burning oil? First, there is the extraction cost. Then there is the cost of refining the oil into products. Then there is the transport and storage cost.

But there are other, higher costs associated with oil. Oddly, as these costs rise the price of oil drops. The simplest illustration of what I mean is that at times when we pump more oil out of the ground the current supply is greater so the price drops. But what is the cost of pumping more oil out of the ground?

What is the cost of opening up the Arctic wilderness to drilling? More oil is available today, so the price drops.

What is the cost of using up more of the remaining oil? We pump more oil so the price drops, but think about the cost to a future world running out of oil.

As we burn oil we pollute the air. What is the cost? What is the cost in health consequences? What is the cost in CO2 effects like the current melting of the Greenland ice? Scientists say the strength of hurricane Katrina and the record number of hurricanes last year are the result of global warming. That is a cost that was not reflected at the gas station.

What is the political cost? When we buy oil we are financing the Right's network of propaganda organizations. We fund Middle-Eastern dictatorships.

The COSTS of oil seem to have an inverse relationship to the PRICE we pay at the gas station.

Posted by Dave Johnson at 8:58 AM | Comments (6) | TrackBack | Link Cosmos

March 5, 2006

Today's Housing Bubble Post

If you are thinking this is a good time to buy a house, think again. Here is a preview of what happens: Shanghai's housing bubble bursts, causing some panic,

American homeowners wondering what follows a housing bubble can look to China's largest city.

Once one of the hottest markets in the world, sales of homes have virtually halted in some areas of Shanghai, prompting developers to slash prices and real estate brokerages to shutter thousands of offices.

For the first time, homeowners here are learning what it means to have an upside-down mortgage — when the value of a home falls below the amount of debt on the property. Recent home buyers are suing to get their money back. Banks are fretting about a wave of defaults on loans.

Now, to the situation in America:

Central Valley Housing Bubble Ready to Burst?,

Local housing prices have come tumbling down over the last two months, erasing months of drastic increases.

Just two months ago, the median sale price for homes in Clovis' 93611 zip code was $439,000. But in just 60 days, those homes plummeted $51,000, to $388,000.

Housing under pressure

That housing bubble has definitely sprung a leak.

This morning, the National Association of Realtors reported that sales of existing homes fell 2.8 percent in January to a seasonally adjusted annual rate of 6.56 million new units. Existing condominium and co-op sales were even worse, falling 10.6 percent last month.

... oday's bad news comes on the heels of a separate report issued Monday by the Commerce Department that showed that sales of newly constructed homes also fell in January – by 5 percent.

Maybe this is a good time to wait a bit before making an offer on a house. Why not wait a month or two and pay a lot less? Or wait 6 months and pay half as much? There is a LOT of room for prices to fall this time.

Posted by Dave Johnson at 3:56 PM | Comments (2) | TrackBack | Link Cosmos

March 4, 2006

Store Wars - May The Farm Be With You

Was just forwarded this in my email... utterly brilliant. Join the Rebellion!

Posted by Thomas Leavitt at 12:04 AM | Comments (2) | TrackBack | Link Cosmos

March 3, 2006

Who owns America?

Not Americans... at least not any more. The list below the fold is from an article by Thom Hartmann, entitled, When Americans No Longer Own America
. The figures are rather startling...

As www.economyincrisis.com, US Government statistics indicate the following percentages of foreign ownership of American industry:

· Sound recording industries - 97%
· Commodity contracts dealing and brokerage - 79%
· Motion picture and sound recording industries - 75%
· Metal ore mining - 65%
· Motion picture and video industries - 64%
· Wineries and distilleries - 64%
· Database, directory, and other publishers - 63%
· Book publishers - 63%
· Cement, concrete, lime, and gypsum product - 62%
· Engine, turbine and power transmission equipment - 57%
· Rubber product - 53%
· Nonmetallic mineral product manufacturing - 53%
· Plastics and rubber products manufacturing - 52%
· Plastics product - 51%
· Other insurance related activities - 51%
· Boiler, tank, and shipping container - 50%
· Glass and glass product - 48%
· Coal mining - 48%
· Sugar and confectionery product - 48%
· Nonmetallic mineral mining and quarrying - 47%
· Advertising and related services - 41%
· Pharmaceutical and medicine - 40%
· Clay, refractory, and other nonmetallic mineral products - 40%
· Securities brokerage - 38%
· Other general purpose machinery - 37%
· Audio and video equipment mfg and reproducing magnetic and optical media -
36%
· Support activities for mining - 36%
· Soap, cleaning compound, and toilet preparation - 32%
· Chemical manufacturing - 30%
· Industrial machinery - 30%
· Securities, commodity contracts, and other financial investments and
related activities - 30%
· Other food - 29%
· Motor vehicles and parts - 29%
· Machinery manufacturing - 28%
· Other electrical equipment and component - 28%
· Securities and commodity exchanges and other financial investment
activities - 27%
· Architectural, engineering, and related services - 26%
· Credit card issuing and other consumer credit - 26%
· Petroleum refineries (including integrated) - 25%
· Navigational, measuring, electromedical, and control instruments - 25%
· Petroleum and coal products manufacturing - 25%
· Transportation equipment manufacturing - 25%
· Commercial and service industry machinery - 25%
· Basic chemical - 24%
· Investment banking and securities dealing - 24%
· Semiconductor and other electronic component - 23%
· Paint, coating, and adhesive - 22%
· Printing and related support activities - 21%
· Chemical product and preparation - 20%
· Iron, steel mills, and steel products - 20%
· Agriculture, construction, and mining machinery - 20%
· Publishing industries - 20%
· Medical equipment and supplies - 20%

Posted by Thomas Leavitt at 11:48 PM | Comments (2) | TrackBack | Link Cosmos

February 28, 2006

Free Markets and Ponies

In science you study what happens. In ideology you talk about what you wish would happen. One DEscribes, the other PREscribes.

The Wrath of the Free Market God takes a look at what actually happens when right-wing economic ideology is implemented. Enron, concentration of wealth, corporatization and the Dubai Ports deal.

Make no mistake what is happening. The Globalists are attempting to replace the nation/state with corporate hegemony. In many respects they have already succeeded. Our democracy has been subverted not by dictatorial government takeover, but by the stealth usurpation through a shadowy pay to play scheme. Instead of the traditional coup by military means, an army of corporate lobbyists has descended upon Washington with decidedly similar results.

Now, to be fair, I will grant that what we have with countries like China certainly is not free trade. China "pegs" its currency - and Bush lets them. This means that everything made in China costs about half as much as it should, and everything we make costs Chinese consuers about twice what it should. And our trade with most other countries is certainly not "free" because they by-and-large subsidize industries, don't allow unions or environmental laws, or so many other non-free-trade violations that you can't keep up And Republicans let them all get away with it in the name of free-market ideology.

But, of course, that's the real world, and that's the point. REAL people take advantage when you let them. That's where DEscribing what people actually do interferes with right-wing ideological dreams of what people should do. People SHOULD get ponies. But what really happens is we get poorer, lose our health insurance, lose our pensions, lose our manufacturing infrastructure and lose our democracy.

Posted by Dave Johnson at 12:36 PM | Comments (4) | TrackBack | Link Cosmos

February 27, 2006

Today's Housing Bubble Post

It's here.

Number of unsold homes hits record high,

The backlog of unsold new homes reached a record level last month, as sales slipped despite the warmest January in more than 100 years.

The Commerce Department reported Monday that sales of new single-family homes dropped by 5 percent to a seasonally adjusted annual rate of 1.233 million units last month.

That was the slowest pace since January 2005 and left the number of unsold homes at a record high of 528,000.

Posted by Dave Johnson at 6:49 PM | Comments (11) | TrackBack | Link Cosmos

February 22, 2006

Today's Housing Bubble Post

‘Buyers Market Of 2006 Has Begun’ In California

Santa Cruz housing prices have already fallen from $785,000 to $729,500 since June!

Posted by Dave Johnson at 5:09 PM | Comments (4) | TrackBack | Link Cosmos

February 13, 2006

Today's Housing Bubble Post

Today's housing bubble post is over at Angry Bear,

And that is the question: will the debt binge end with a "bang" or a "whimper". Will the US economy see slower growth or will it slide into a recession? Or will some new engine of economic growth emerge to replace the debt fueled growth of recent years.

Posted by Dave Johnson at 8:41 AM | Comments (0) | TrackBack | Link Cosmos

February 5, 2006

Basic Work Rights

In Trouble in Cubicle Nation, "with soaring workweeks, declining wages, and health, pension and vacation benefits vanishing faster than you can say job security," Joe Robinson has some suggestions for improving the workplace, including:

Restore the 40-hour workweek. Almost 40 percent of us are working more than 50 hours a week, not exactly what the Fair Labor Standards Act intended when it set the 40-hour workweek in 1938. ...

Legalize vacations. Almost a third of American women and a quarter of men don't get vacation leave anymore because, unlike 96 other countries, the U.S. has no paid-leave law. ...

Provide guaranteed sick leave. No one should have to lose a job because they get ill. But across this land, hardworking people are getting fired simply because their company offers no sick days and they got sick. ...
Support a living wage. With the skyrocketing costs of gas, food and rent, an increase in the minimum wage is long overdue. Consumers need to support companies that pay a living wage, such as Costco, and shun ones that don't.

Go read.

Posted by Dave Johnson at 2:47 PM | Comments (3) | TrackBack | Link Cosmos

February 1, 2006

Attack On Pensions

Tackling the Social Security Mess,

I came away believing that a consensus exists among economists across the ideological spectrum on at least one important issue: America's entitlement spending -- mostly Social Security and Medicare -- is not sustainable.

It's the TAX CUTS FOR THE RICH that are not sustainable. THAT is why we will have trouble providing for our people as we get older.

United Aitlines was supposed to fund its pensions. Instead, it paid that money out as dividends, increased share prices, bonuses or otherwise enriching what we might call the owner class. Same with all the other companies that were supposed to be funding their pension obligations. They handed the money out to the rich instead, and now say "too bad, ain't gonna pay you" to the people who did the actual work.

America was supposed to fund its Social Security. Instead it paid that money out as tax cuts, corporate subsidies, no-bid contracts, whatever, to the owner class. They handed the money out to the rich instead, and now says "too bad, ain't gonna pay you" to the people who did the actual work.

But I've been going on about this for years.

Posted by Dave Johnson at 11:42 AM | Comments (2) | TrackBack | Link Cosmos

January 29, 2006

Where the Pension Money Went

Almost every conversation I have with someone over a certain age turns to how they have either lost or afraid they will lose their health insurance and pension.

In the Reagan days, they sold people on the idea that 401Ks were somehow a good thing, and started moving everyone off of pensions. But a pension means your company puts the money away for you, on top of your pay. A 401K means it is entirely on the worker to fund retirement out of a shrinking paycheck. And people just can't do that - take home pay goes almost entirely to the bills.

Meanwhile corporate profits are WAY up since pensions were replaced by 401Ks. Part of that if from the money that had been used for worker retirements and gave it out as profits instead.

Don't be fooled - the sharehlders are not "all of us" they are primarily the top one percent of with the rest in the hands of the next couple of percent.

Corporate Wealth Share Rises for Top-Income Americans

New government data indicate that the concentration of corporate wealth among the highest-income Americans grew significantly in 2003, as a trend that began in 1991 accelerated in the first year that President Bush and Congress cut taxes on capital.

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. The top group's share of corporate wealth has grown by half since 1991, when it was 38.7 percent.

So now the scam is not just shifting people away from pensions but taking pensions away from people who have already earned them, like what happened at United Airlines. What happened is that those pensions were supposed to be funded, with the companies putting money into the accounts each year. But the corporations didn't fund them, instead handed the money over to the shareholders as profits. And now, having handed the pension money out to their shareholders they're saying "hey, we can't afford to meet these obligtions."

Well, where DID the money go? It went out to the shareholders (the top few percent) as profits - the very same capital gains and dividends that Bush has arranged will not be taxed at all, not even to help the government pay part of the pensions that the corporations stole.

Anyone recognize this song?

Efficiency and progress is ours once more
Now that we have the Neutron bomb
It's nice and quick and clean and gets things done
Away with excess enemy
But no less value to property
No sense in war but perfect sense at home:

The sun beams down on a brand new day
No more welfare tax to pay
Unsightly slums gone up in flashing light
Jobless millions whisked away
At last we have more room to play
All systems go to kill the poor tonight

Gonna
Kill kill kill kill Kill the poor:Tonight

Behold the sparkle of champagne
The crime rate's gone
Feel free again
O' life's a dream with you, Miss Lily White
Jane Fonda on the screen today
Convinced the liberals it's okay
So let's get dressed and dance away the night

While they:
Kill kill kill kill Kill the poor:Tonight

-- Kill the Poor by The Dead Kennedys

Posted by Dave Johnson at 6:23 PM | Comments (1) | TrackBack | Link Cosmos

Housing Bubble - we all know it is real.

Housing Bubble Burst Coming Soon, Say PollingPoint Respondents

80% of us Pacific Coast residents think there's a housing bubble. Almost as many of us expect it to burst within a year, or sooner. Around 50% of us would advise a young person to "rent until the market slows or drops".

... I wonder: who is still buying, and why?

Posted by Thomas Leavitt at 6:20 PM | Comments (3) | TrackBack | Link Cosmos

January 27, 2006

Bushonomics

MaxSpeak, You Listen!: is talking about the state of the economy, in THE EPI BOOK ON BUSHONOMICS

Posted by Dave Johnson at 8:39 PM | Comments (3) | TrackBack | Link Cosmos

January 26, 2006

Today's Housing Bubble Post

Home sales drop for 3rd month in row,

The five-year housing boom is showing increased signs of cooling, and that's likely to mean slower growth for the entire national economy. The big question now is whether home prices will come crashing to earth with even more severe consequences.

Posted by Dave Johnson at 12:46 PM | Comments (1) | TrackBack | Link Cosmos

January 9, 2006

Yet another Bush Administration deficit: job creation (and funny numbers)

Barry Ritholtz, a contributor to RealMoney.com, has a free article on TheStreet.com entitled: Rethinking the 'Strong Jobs Recovery' Scenario in which he discusses how the Bush Administration has been playing games with job creation numbers.

More analysis and details below the fold, but the ultimate upshot is this: at best, the job creation rate under the Bush Administration has fallen 1.6 million jobs short of what is needed to simply keep up with population growth (1 million new jobs a year)... at worst, fully half of the 3.4 million "jobs" created during the Bush Administration's term of office are simply "vapor", a best guess estimate / fudge factor that many economists find suspect. Which, if heavily but not altogether discounted, would put the Bush Administration's job creation numbers at 50% of what is necessary to simply keep running in place, a "deficit" of 2.5 million. That's pretty substantial, I'd say.

While the Bush Administration says that 4.4 million jobs have been created, this count is made from a low point that occured in March of 2003... Ritholtz says that:

you typically don't get to pick your time periods when measuring performance. You especially don't get to base it on trough-to-peak numbers. In most any series, there are more natural time periods, e.g., year to date, one, three and five years. As opposed to cherry-picking the most favorable-looking time periods, job creation historically has been measured from the end of the recession, which the National Bureau of Economic Research puts at March 2001.

Running the numbers this way, you get 3.4 million "jobs" created (of course, that says nothing about the quality of said jobs, which is another thing entirely - and generally presumed to be lower than the ones replaced, as he mentioned). Or maybe not... as Ritholtz points out, the numbers provided by the Bureau of Labor Statistics include a pretty significant "fudge factor", designed to account for newly created jobs not otherwise measured; it is a legitimate tactic, but in this case, Ritholtz finds the numbers to be a bit suspect:

Of the 4.4 million new jobs from the March 2003 low until present, the birth/death estimate accounts for 1,639,000. That is an extremely significant 36.7% of new jobs.

By any measure, that's a hefty estimated adjustment to an actual data-based number. It is not particularly credible to me to have a statistical projection be more than a third of a measured data series. To be blunt, it is a game-changing "adjustment."

Or, put another way: almost half of the "jobs" created since the end of the recession, under the Bush Administration, are the product of what is essentially a guesstimate.

Ritholtz concludes this by saying that "the macro environment is far worse than most people believe" and leads him to have "bearish expectations for 2006".

Posted by Thomas Leavitt at 10:29 PM | Comments (6) | TrackBack | Link Cosmos

Future Beyond Bleak

It is hard to figure out which is more alarming...

this: Diabetes and Its Awful Toll Quietly Emerge as a Crisis

One in three children born in the United States five years ago are expected to become diabetic in their lifetimes, according to a projection by the Centers for Disease Control and Prevention. The forecast is even bleaker for Latinos: one in every two. [Emphasis mine, TL]

or this: FEDERAL DEFICIT REALITY: AN UPDATE

When the U.S. Treasury reported the official 2004 federal budget deficit at a record $413 billion last October, the hisses and boos in the financial media were unrelenting. Two months later, the Treasury reported the actual 2004 deficit -- using generally accepted accounting principles (GAAP) -- was really an incredible $11.1 trillion [1], up from $3.7 trillion in 2003, yet nary a word was heard in the financial media, from Wall Street or from any political denizen of that former malarial swamp on the Potomac. [Emphasis mine, TL]

or this: The utter and complete failure of our political class to come to grips with the cumulative long term crises facing our nation.

Now, it is fair to say that Republicans bear a large portion of the blame for the latest and greatest manifestations of these problems - but it is undeniable that Democrats and Republicans alike bear collective responsibility for the overall systemic crisis. This is beyond partisan bickering, and involves a total and systemic failure of will by our governing class. What kind of future are my children going to inherit (or I, myself)? A very very very bleak one, if I look at the situation objectively.

These are just two examples of completely and totally unsustainable social and economic situations. Here's another: Americans saving less than nothing: Spending could outstrip income in 2005, which hasn't happened since the Depression. I could easily point to a half-dozen others, environmental, economic and social, many of which I've raised in previous postings to Seeing The Forest.

Yet, serious discussion of these issues is absent from our political dialogue. Why is this, when, no matter how politically untenable to our current elected leaders, and no matter how discomforting it may be to the public, the pain involved in addressing these issues now would be only a fraction of what we, inevitably, will have to confront later on. Are we so blind and irresponsible as a people, as to leave our children with an inheritance this bleak... or, our let this be our own future, just twenty or thirty years down the line? I simply cannot accept that.

We have to demand more from our elected officials... ask them what they think the answers to these problems are in letters to the editor, in "town hall" meetings, in interviews with the media, in endorsement forums, in personal conversations. Hold them accountable, individually, and collectively. ... and we have to demand more of ourselves, be willing to sacrifice short term gain and benefit, for long term sustainability.

More on diabetes:

Within a generation or so, doctors fear, a huge wave of new cases could overwhelm the public health system and engulf growing numbers of the young, creating a city where hospitals are swamped by the disease's handiwork, schools scramble for resources as they accommodate diabetic children, and the work force abounds with the blind and the halt.

The prospect is frightening, but it has gone largely unnoticed outside public health circles. As epidemics go, diabetes has been a quiet one, provoking little of the fear or the prevention efforts inspired by AIDS or lung cancer

More on the deficit:

With less than one tenth of the actual deficit being reported each year, a cumulative negative net worth for the U.S. government has built up in stealth to a level that now tops $45 trillion, with total obligations of $47.3 trillion (more than four times annual GDP). The problem has moved beyond crisis to an uncontrollable disaster that threatens the existence of the U.S. dollar and global financial stability. [Note: see editorial footnote at bottom of this posting, TL.]

More on personal savings:

... in the 1980s the personal savings rate in the United States averaged 9 percent. Put another way, back then Americans spent 91 cents of every after-tax dollar they earned, which left a 9 cent surplus for savings or investment. During the 1990s, Americans spent about 95 cents per dollar earned and had a nickel left. The nation ended 2004 with an annual savings rate of 1.8 percent. The rate has continued down through 2005 ...

... the Federal Reserve's debt service ratio, which compares consumer debt payments to disposable income, hit records in each of the three quarters of 2005 for which data are available.

This is wrapped around a lot of blather about increasing net worth via stocks, bonds, and home equity, all of which are extremely volatile and subject to rapid and sudden devaluations if demand dries up or economic growth slackens. The fundamental economic truth is that the nation as a whole cannot expect to indefinitely substitute capital gains, especially in the housing market, for real world gains in income and productivity. Capital assets have zero value, when there is zero demand for them. That is a fundamental economic fact. All you have to do to verify that is walk through downtown Detroit.

These is not a case of Chicken Little chanting "the sky is falling", or the boy who cried "wolf!" - these are undeniable, factually verifiable and statistically defensible projections of what the future will bring. These problems make even the war in Iraq, and all the costs associated with it ($2 trillion?) look like chicken feed compared to the real problem ($47 trillion?!?).

We, as a society, collectively resemble Wile E. Coyote - we've gone flying off the cliff (or are about to, being optomistic), but have yet to realize it... the situation is flat out terrifying, if you let the full scope of it hit you. It is almost to the point where storming Congress with pitchforks and torches seems like a reasonable collective response.

Footnote: I always take anyone who portends financial doom, and advocates a return to the gold standard, with a grain of salt. That said, the figures cited, not the solution advocated, are what is of concern here. We, as a nation, can no more ignore our pension and health insurance / care liabilities than can GM and Ford... and, unlike them, we can't shed these liabilities and force someone else (aka the general public) to assume them.

Posted by Thomas Leavitt at 8:51 AM | Comments (5) | TrackBack | Link Cosmos

November 28, 2005

Today's Housing Bubble Post

Sales of Existing Homes Drop in October

Sales of existing homes fell a bigger-than-expected 2.7 percent in October, a fresh sign that the red-hot housing market is cooling. The decline would have been worse without increased demand from displaced hurricane victims.

Posted by Dave Johnson at 2:39 PM | Comments (6) | TrackBack | Link Cosmos

Who The Bush Administration Works For

China is not a currency manipulator, U.S. says

In a blow to American manufacturers and other firms feeling competition from Chinese exports, the U.S. Treasury Department said Monday that China is not a currency manipulator.

Another source, White House: China not manipulating money

"The administration's lack of action today hurts all Americans by refusing to acknowledge the obvious - that China manipulates its currency," said Sen. Chuck Schumer.

[ . . . ] American manufacturers believe that China has purposely kept its currency undervalued by as much as 40 percent, making Chinese goods cheaper for U.S. consumers and making American products more expensive in China.

Posted by Dave Johnson at 2:22 PM | Comments (0) | TrackBack | Link Cosmos

European-Style

In GOP Bloggers: Why Is GOP Committing Suicide on Economy? they lament that "the nation as a whole is destined for a poor, European-style economy."

OK, let's see.. Europe: 35-hour workweek. Minimum of five weeks paid vacation. Health care for everyone. Paid child care and maternity for everyone. Good public schools. Generous pensions beginning at age 57. 45% percent of single women in poverty in America vs 5-13% in Europe. Outstanding public transportation systems. Etc.

U.S.: none of the above.

Posted by Dave Johnson at 10:06 AM | Comments (2) | TrackBack | Link Cosmos

November 26, 2005

The Dysfunctional Nature of Capitalism and "Free Trade"

[Is this crazy or what? -Thomas]

Forests Paying the Price for Biofuels
By Fred Pearce
NewScientist.com

Tuesday 22 November 2005

The drive for "green energy" in the developed world is having the perverse effect of encouraging the destruction of tropical rainforests. From the orangutan reserves of Borneo to the Brazilian Amazon, virgin forest is being razed to grow palm oil and soybeans to fuel cars and power stations in Europe and North America. And surging prices are likely to accelerate the destruction.

Posted by Thomas Leavitt at 9:03 PM | Comments (1) | TrackBack | Link Cosmos

November 10, 2005

Who Is Our Economy For, Anyway?

Regular Seeing the Forest readers know that we regularly ask the question, "Who is our economy for, anyway?" Today several bloggers are asking this question in different ways. In an earlier post here, John Emerson wrote,

DeLong said once that the Clinton free trade policy was Part One of a two part policy. Part Two would have been compensation and retraining for displaced workers, but it never happened. ... Basically Clinton tried to get his bipartisan program through with Republican votes while defying the Democrats in Congress, and then was shocked to find that the Republicans refused to support the Democratic part of the package.

Kevin Drum at Washington Monthly and Atrios are talking about trade. Keven wrote,

... [read the post] puts a different spin on the standard thesis that free trade agreements are good for growth, doesn't it? If "growth" mean GDP growth, it's probably true. But if "growth" means growth in median wages, as I think it should, then it might not be.

and later,

I didn't intend the previous post to imply that trade agreements are bad things. I don't think they are.
Rather, I just wanted to point out that they have their downsides as well as their upsides.

[. . .] The point isn't that trade is bad per se, the point is that politicians frequently make promises to help out those who are hurt by trade agreements, but then quickly lose interest in those promises once the agreement passes.

and even later,

...not only do workers who lose their jobs to a plant closure suffer a permanent income decline, but 20 years later the children of these families suffered lower incomes too. Surely those of us who benefit from free trade and an information age economy ought to be willing to forego a small part of that benefit in order to avoid the kind of multi-generational poverty that's caused by the things that benefit us in the first place?

Atrios wrote,

Now we're in this world where people just scream "free trade good!" Well, it isn't good for everyone. There are winners and losers, and all basic trade theory says is that enough extra income is created so that the winners could, in theory, more than compensate the losers for what they lost. But that's "class warfare" and "socialist redistribution" so we don't do that.

It's completely in the self-interest of a nontrivial part of the population to oppose basic free trade legislation. Economists are often loathe to embrace a particular social welfare function, but too many fall prey to embracing GDP as somehow being a metric which is value neutral. In fact all it does is obscure all the things about which we could make a value judgment. A useful measure of something, but certainly not a value-free measure of the nation's economic wellbeing. The income distribution is still there, even if we close our eyes and pretend it isn't.

Then, later he gets to what I think is the most important point,

Is a policy which makes 1% of the population better off but 99% worse off a better one strictly because it raises the average? What about 20/80? What about 50/50, when it's the less well off people being made worse off and the more well off people being made better off? People can certainly have different opinions about these things, but what people shouldn't do is think that by focusing solely on real per capita GDP they're not making a subjective judgment. A policy change which impacts GDP also is likely to have an impact on the income distribution and just because you manage to avoid the latter issue doesn't mean that the issue isn't there. All you're doing is saying "GDP trumps all other considerations." If that's what you believe, fine, but it's a rather odd thing to believe. [emphasis added]

At TPM Cafe there are lots of posts on the subject of trade. Jeff Faux writes,

The opening up of the US economy to unregulated markets has allowed the corporate investor class to escape the restrictions of the New Deal social contract. The threat and reality of off-shoring production is relentlessly undercutting the bargaining position of labor (not just labor unions but most people who must work for a living). The effect is similar for rich countries and poor ones. A dozen years after NAFTA, for example, wages have dramatically fallen behind productivity in Mexico as well as Canada and the US.

[. . .] But even if you accept all of the conventional theoretical arguments for unregulated trade, the benefits are exceedingly modest.

Some of the posts there try to say that cheaper goods from China balances our loss of jobs. But I think the lower price is actually from a form of deferred maintenance. I mean, if we export manufacturing we're exporting our future ability to manufacture because our manufacturing infrastructure deteriorates while China's modernizes, and we lose our ability to compete in the world. I think our trade deficit reflects this.

David Sirota sees another problem with the "lower prices" arguments,

As Robert Greenwald highlights in his new movie "Wal-Mart: The High Cost of Low Price" - there are all sorts of hidden costs in those great low-prices that we venerate as the rationale for corporate-written free trade policy. For instance, as I note in my upcoming book, the best way to see that those low prices aren't all that they seem is to look at whether wages under free trade policies are actually outstripping those supposedly "low" prices. As Gene's colleagues at the Center for American Progress pointed out in 2004, wages are, in fact, not keeping up with inflation. And that trend has continued into 2005. In other words, the supposed gains from "low" prices are outstripped by the losses this trade policy incurs to workers' wages.

... Put another way, the low prices Wal-Mart is able to provide on goods under free trade policies are not enough to offset the low wages workers are now making under these free trade policies.

MaxSpeak says,

Trade, on the other hand, is fully predictable in its impacts on the US: it leads to losses for the worst-positioned and benefits for the already well-off.

Nathan Newman writes,

...what's striking is that advocates for trade deals accuse critics of being against "free trade"-- yet the deals they advocate are all about accepting child slavery and denial of freedom by workers to form unions as acceptable parts of the global economy.

It the critics of these deals -- who support trade but demand that basic standards of freedom for workers be incorporated into the trade regime -- who truly support "free trade." It is actually Orwellian that advocates for unrestricted trade with China-- where workers are thrown in prison if they advocate unionizations -- can appropriate the use of the term "freedom" for their position.

What exactly is wrong with demanding that if China wants to sell goods to the US, they must extend accepted ILO labor rights, such as the freedom to form a union, to their workers?

In The Corporate Ethic, Ian Welsh at BOPNews approaches the same question from the direction of corporate responsibility:

Plain Dave [a commenter previously quoted in the post] is basically asserting that businesses operate like psychopaths who will do whatever is in their material interest no matter what the ethical implications.

Now, if you know a person is a psychopath, you wait for them to commit a crime, then you lock them up so they can't hurt anyone else ever again.

If Plain Dave is right, businesses are psychopaths and the moral code of executives is one that requires them to operate as psychopaths. Let's assume Dave is right.

. . . As a citizen you have a right to demand that companies that operate unethically are either shut down or brought to heel. Corporations are created by government and a government can dissolve any company it wants simply by revoking its charter - the right is in every incorporation bill.

But I'm willing to suggest something else - not everyone in ost companies is a psychopath, so let's just arrest and try those who act like psychopaths. The executives who made this decision or other ethically dubious ones (like the executives who make cost benefit analyses that the suits from the relatives of people killed by known defects cost less than the cost of fixing the defects.)

. . .I'm real tired of people who seem to think that companies should act unethically if it will make them more money. Real, real tired. [emphasis added]

I was going to write something on this, but came across one of my older Who is our economy for, anyway? posts, and want to just repost most of it here as my own contribution to the discussion:

It's not just that we're shipping more and more of our jobs to other countries, and we are, but it looks as though the world really may be reaching the point where we need fewer people working to get done the things we need to get done. You hear about "high productivity." Well, that is what "high productivity" MEANS. Even China is losing manufacturing jobs.

And the answer isn't retraining people to move into higher-level jobs. When I moved to Silicon Valley in 1980, everyone was talking about retraining auto workers for tech jobs. Well, now in Silicon Valley almost the only jobs in the paper are for auto mechanics.

Wealth is concentrating as never before. The rich aren't just getting richer and richer anymore -- the concentration is way beyond that. And the opportunity avenues the rest of us expect from the social contract that tolerates such wealth are not expanding. If you look around at all the supposed prosperity -- the big houses, the SUVs, the electronic toys, nice clothes, etc. -- you should also understand what is supporting it: Massive debt. Massive, massive debt on a scale never before seen. Everyone thinks they are rich now, and are doing what it takes to live that way. It is the cultural expectation now, and I think this illusion is a way of avoiding accepting the concentration that is occurring and accepting that we are working harder, but receiving less and less of the benefits. The only way for most of us to achieve that lifestyle is to refinance our houses, run up our credit cards, and elect leaders who encourage all of that while running the country the same way. Massive, massive debt. Everywhere. A bankrupt philosophy surely expressing itself one day with real-world bankruptcy.

If something is unsustainable, it won't be sustained. We are all frantically trying to find new ways to buy time. Perhaps if we can sustain things another month we will turn the corner. Perhaps we'll get a raise in time. Perhaps tax revenue will increase in time. Perhaps the stock market will go back to where it was and our pensions will be there for us. Perhaps we'll win the lottery. But what is happening is that the money is draining upwards. As we work longer hours, and more members of our families enter the job market just to cover the house payments, the insurance payments, the childcare and the increasing cable-TV and credit card bills, the banker who collects our interest payments, and the owners and executives of the insurance companies are gobbling up more and more of the world's resources to "own" for themselves. Our government is even preparing to sell off our national parks -- another transfer of "ownership" of OUR resources to the priviledged FEW.

In the end, a very basic question will need to be addressed. Who is our economy FOR, anyway? This is a very dangerous question, and just asking it leads to places that many of us have not gone in our thinking, and many of us certainly don't want the rest of us to go. And, of course, the corollary question: Who is our GOVERNMENT for? Is it US, after all, or not?

You learned in grade school that "we" decide the laws and policies of OUR government. WE are our government -- that's what our government IS: US, grouping together to decide things. "Of the people, by the people and FOR the people." We even decide who "owns" what, and we do so because it supposedly benefits all of us. For example, no one "owns" the air or the oceans or the state capital building or the right to cut off your arm.

In many other countries now, (and in America until just a few years ago), there are some limits on how much of the public resources (money) one person can acquire. High taxes are imposed after a person has brought in some large amount for him or herself. Then, much of the rest is put to use for the benefit of the overall public. If a person has hit the jackpot and is bringing in, say, $10 million a year, anything beyond that is taxed at a high rate. Everyone benefits from this. The jackpot winner is bringing in a huge sum, but the public is also benefiting from having made the collective decisions that set up the system. In Europe the workday is shorter, they get 6 weeks average vacation per year, their health care is covered, AND they get generous pensions when they retire. This is because they have set up a system that works for THEM. But in America, we are degenerating into a form of feudalism, where the super-rich rule over the rest of us, to their benefit.

"Ownership" is only a concept. It is nothing more than a right that is granted by government -- US -- and only for the benefit of US. Corporations are not entities created by nature, they are structures created and defined by laws, and defined by law, and supposedly for the benefit of the public. Why else would we have passed the laws that set them up?

Remember, feudal lords "owned" the right to sleep with any bride on her wedding night.
"... 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 3:32 PM | Comments (3) | TrackBack | Link Cosmos

The Democrats and Free Trade

Atrios and Maxspeak have a couple of good posts up about free trade (responding partly to this Kevin Drum post). On Maxspeak, L Josh Blivens writes:

There was a big debate about this in the economics profession in the early 1990s. Not one single economist argued about the direction of trade's effect -- it was universally agreed that it was negative for [workers without college degrees]. Some said that trade's effect was small, even very small. Some said it was large. But again, there was absolute unanimity that the net effect of trade on these workers was negative, and that trade had exacerbated inequality.

This is an edited version of my response on Maxspeak:

I have tried and tried to tell the DeLong people about this, but I don't have the economic vocabulary. It turned out that they DID have the vocabulary, but refused to share it with me.

For a high proportion of the up-and-coming young Ivy League Democrats (Yglesias was the first I noticed), free trade has been an absolute value. What a bunch of ignorant fucks.

I have tried to point out that to these people the particular populations suffering from free trade are an essential part of the core Democratic constituency (labor, organized or not, including a hefty proportion of the "minority" vote), and that free trade is thus a perilous issue for Democrats. Their usual response is to make snarky remarks about "pandering to the core constituency", often using the Republican code word for unions -- "special interest group".

Alan Blinder (recently at Talking Points Cafe) is a scholar of note, if I'm not mistaken, but when he writes about politics, he, like a lot of economists, swiftly starts cranking out unscientific cliches and slogans.

DeLong said once that the Clinton free trade policy was Part One of a two part plan. Part Two would have been compensation and retraining for displaced workers, but it never happened. DeLong did not seem nearly as embarassed as he should have. Basically Clinton tried to get his bipartisan program through with Republican votes while defying the Democrats in Congress, and then was shocked to find that the Republicans refused to support the Democratic part of the package.

Economists are really blind to politics, and as economists they have to be anti-labor. (Labor is a cost to be minimized). Krugman does amazingly well, but on free trade he's the same as the rest. (It's possible that his recent experiences have changed his thinking a little, as happened with Stiglitz.)

The supposedly-practical DLC business Democrats did a number of things which harmed the party in the long run. Their anti-labor bias was one part of it; their obliviousness to media concentration was another part of it; and their indifference to party-building was another part of it.

For what it's worth, I'm convinced that all of them are much more comfortable with moderately conservative Republicans than with old-fashioned liberal Democrats. The Democratic Party has been weakened, but the DLC didn't fail. For them, the goal was the destruction of the liberal Democrats, and they were successful in that.

Posted by John Emerson at 8:33 AM | Comments (9) | TrackBack | Link Cosmos

November 6, 2005

Today's Housing Bubble Post

Here's a list of Housing Bubble blogs:

The Housing Bubble Blog

Housing.com
The Boy in the Big Housing Bubble

Patrick.net

Housing Bubble

Prudent Bear

Bloggers Blog: Housing Bubble Blogs and Resources (lists regional housing bubble blogs, too)

Posted by Dave Johnson at 8:55 PM | Comments (1) | TrackBack | Link Cosmos

Who Is Our Economy For, Anyway?

The Left Coaster: Working Harder - For Less

Posted by Dave Johnson at 8:22 PM | Comments (1) | TrackBack | Link Cosmos

The economic bell tolls. Does it toll for thee?

Very likely, unless you are among America's richest 1% (Annual income over $870,000). Is the economic glass half full, or half empty? Two recent stories in the L.A. Times help answer that question.

Economic Data Lift Stocks: Productivity and retail sales figures cheer investors. But a rise in oil prices eats into some of the market's gains

"That's a lot of good news that's driving the market today," said Hugh Johnson, chief investment officer at Johnson Illington Advisers. "But … who knows what the market will tell us tomorrow? It's been an on-again, off-again market. Today it's on again."
The Dow Jones industrial average rose 49.86 points, or 0.5%, to 10,522.59

Bush and his supply side economic policies have not been good to the stock market.

Update: 10:30 a.m. PST. Added link about income inequality.

Bush's economic policies have helped a few folks. Productivity Costs Up, Labor Costs Drop : Third-quarter data beat expectations, but the fact that wages trail inflation may be making workers uneasy.

For the 90% of Americans who work for a living the economic growth under Bush's leadership has been a complete bust:

For many companies, boosting productivity while managing labor costs — often through better technology, workplace changes or outsourcing — is a necessity to compete against lower-cost foreign and U.S. rivals. It's not just a mantra for high-cost, old-line industries such as airlines or automakers. In Silicon Valley, state-of-the-art technology companies are producing more to meet increasing orders, but employment growth in the region has been anemic.
Strong productivity gains normally could support higher wages. But although growth in overall compensation — wages and benefits together — has surpassed inflation, wage boosts alone have not. That could help explain why surveys show that many workers are unsettled about the economy, even though it is growing at an above-average pace, analysts say.

Bush's tax cuts and Bush's economic policies work very well for the people on this list. Not so well for the rest of us.

Posted by Gary Boatwright at 8:53 AM | Comments (2) | TrackBack | Link Cosmos

November 4, 2005

Job Growth???

Economic Report: U.S. nonfarm payrolls rise 56,000 in Oct.,

U.S. nonfarm payrolls rose by 56,000 in October after a revised 8,000 loss in September, the agency said. The unemployment rate fell to 5% in October from 5.1% in September.

But just a few days ago, Hurricane Job Losses Top 500,000,

The number of people who lost their jobs because of hurricanes Katrina and Rita has now climbed above the half-million mark with further increases expected in coming weeks from Hurricane Wilma.

. . . In a separate report, the Labor Department said that orders to U.S. factories for big-ticket durable goods fell by 2.1 percent in September, a bigger drop than the 1.5 percent decline economists had been expecting.

OK, I'm just a stupid blogger. I don't understand. Someone explain to me.

Posted by Dave Johnson at 8:57 AM | Comments (5) | TrackBack | Link Cosmos

November 2, 2005

Today's Housing Bubble Post

There are several good posts on blogs today about the housing market slowing down.
BERJAYA
BOPNews has Housing Slowdown Continues,

Housing is the engine of the current US economy. A conservative reading of the last 4 years of job gains indicates it is responsible for roughly 40% of job creation.
[. . .] In summation,

1.) Sales of existing and new homes are slowing

2.) Inventories available for sale are increasing,

3.) Rental vacancies are high,

4.) The median and average home prices dropped last month,

5.) Consumer’s confidence is lower and their debt level is high, and

6.) The Federal Reserve is raising interest rates.

It appears all the pieces are now in place for a continued slowdown in housing.

Calculated Risk has MBA: Mortgage Activity Continues to Fall,

First we saw rising inventories, now it appears we are seeing more signs of falling activity. Next I would expect to see prices flatten out or even start to decline.

And USA Today: Overheated housing market is cooling off.

Posted by Dave Johnson at 11:45 AM | Comments (0) | TrackBack | Link Cosmos

October 29, 2005

Never Forget

Never forget that the massive government budget deficits were intentional. When the Clinton surplus started to shrink, Bush called it "incredibly positive news."

PRESIDENT ASSERTS SHRUNKEN SURPLUS MAY CURB CONGRESS,

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.

And then the Republicans, controlling Congress, started spending like there was no tomorrow. See The Republican Spending Explosion, from the far-right-wing Cato Institute,

Total federal outlays will rise 29 percent between fiscal years 2001 and 2005 according to the president's fiscal year 2005 budget released in February. Real discretionary spending increases in fiscal years 2002, 2003, and 2004 are three of the five biggest annual increases in the last 40 years.
. . . Congress has failed to contain the administration's overspending and has added new spending of its own. Republicans have clearly forfeited any claim of being the fiscally responsible party in Washington.

Massive tax cuts for the rich, massive spending increases on "pork" and military. Massive borrowing from China and Japan...

Bush has never vetoed a spending bill - or any other bill, for that matter. And as far as I know he has never fired anyone. No oversight, no accountability, no standards, no restraint.

Posted by Dave Johnson at 4:31 PM | Comments (2) | TrackBack | Link Cosmos

October 20, 2005

Demographic Math: Why Your Standard of Living Will Fall

GeoHive is a web site that aggregates and charts geopolitical data and statistics (primarily population and economic factors). I used the information there to construct this spreadsheet (Excel format), that attempts to model what the world would look like if the standard of living of China and India's populations were equalized with those of the industrialized world in a semi-reasonable fashion (modeled as the former's per capita GDP set to 50% of that of the latter's, and the latter's halved - note: the result requires a 20% increase in world GDP) - and adjusted to recognize that we are already overshooting a sustainable level of resource extraction (I use GDP as a proxy for resource consumption).

The results match what my intuition has told me all along:

a) more or less, the standard of living for the folks in China and India is at or near a sustainable level already (with China's possibly even exceeding it, worst case scenario) - when I mentioned that the $3/hr Chinese Delphi employee is never going to earn $27/hr., I wasn't kidding. He or she will be lucky to earn twice what they are now

b) our standard of living is going to have to drop - depending on whether you think a sustainable level of resource extraction approximates 60% of today's resource consumption, or 40%, you're looking at Americans and Canadians living on 1/5th or 1/8th of what we do today (a per capita income of ~$7100 or ~$4700, vs ~$40,000 today) - so today's $27/hr Delphi workers can look forward to having thair $10-12/hr wages slashed in half (or close to it)

Pretty frightening, eh? And we're talking less than a generation before this happens. Yet, this is totally off the radar of today's political discussion (outside of the Green Party, that is). Our children are going to confront a radically changed world (and so are we), and we are doing nothing as a society to prepare them for this. The result is going to be tragic, if we don't wake up and collectively smell the coffee ASAP.

Note: China and India (in terms of population and economic growth potential) and the world's industrialized nations (in terms of economic output) more or less render the rest of the world statistically irrelevant, which is why I limit the numbers this way.

Another note: the resulting figures are using today's population numbers, not 2030's (which anticipate 200 million more Chinese and 400 million more Indians and 60 million more Americans).

Caveats: yes, economics is not a zero sum game, GDP is only a very gross approximation of resource consumption, substitution effects are real, the economy is shifting so that non-resource intensive elements of the economy are more prominent, etc. Nevertheless, as China's current resource demands demonstrate: it still takes tangible raw materials to drive an economy.

Folks - let me be blunt: this is NOT "gloom and doom", this is inescapable reality - the world's resources are finite - while economics and growth are not a zero-sum game, resource constraints are. There is only so much arable land, so many pounds of fish that can be taken out of the ocean, so many tons of ore that can be extracted, so much oil that can be drilled, etc. The 2.5 billion Chinese and Indians entering the world economy are not going to willingly forgo the benefits of economic growth - nor can we prevent them from doing so. When Billy Joe Chinese person goes to buy a car, he's competing against Billy Joe European and Billy Joe American and Billy Joe Indian - the resources used to construct that car are going to go to the highest bidder (whether that be in cash, or in willingness to work for wages).

This isn't just an issue for the industrialized world, either - 2.5 billion Chinese and Indians are in for a major disappointment when their expectations for an increased standard of living wind up not being met.

Here's the positive side: if we act now, the adjustments don't have to be so wrenching. Modern industrial society is incredibly wasteful (bad economic design that doesn't properly take into account externalities or depletion of natural capital). Look at your trash can: can you visualize over 80% not being there? If so, you're on your way towards adjusting to tomorrow's reality.

Posted by Thomas Leavitt at 11:04 AM | Comments (4) | TrackBack | Link Cosmos

Radical Economic Restructuring: Less Than A Generation Away

As a recent article in the UK Independent, China Crisis: Threat to the Global Environment, points out, the demands that China's economic growth can be anticipated to put on world markets, less than a generation from now, exceed the entire world's current and anticipated production capacity. There is simply literally no possible way that they can be fulfilled. Hell, we know that, right now, TODAY, if everything froze, the world's current levels of resource consumption are simply not sustainable.

China "has now overtaken the United States as the world's leading consumer of four out of the five basic food, energy and industrial commodities - grain, meat, oil, coal and steel. China now lags behind the US only in consumption of oil - and it is rapidly catching up."

What does this mean? Simple: we are living on borrowed time. I've been searching for a polite way to say this, but there really isn't one... the blunt and awful truth is this: if you are reading this, the odds are quite strong that, twenty years from now, you will be significantly less well off, in terms of the material resources (energy, food, raw materials) available to sustain your standard of living, than you are now. We are talking RADICAL lifestyle adjustments, folks - Americans and Europenas are going to have to learn how to "share", in a MAJOR fashion - right now, there are roughly 1 billion of us consuming at an unsustainable rate - and 2.5 billion Chinese and Indians working feverishly to catch up.

The catching up process is, necessarily, going to involve us moving backwards even faster than they move forwards... the Delphi workers whose $27/hr. wages are unsustainable in the face of $3/hr Chinese workers, are only the most obvious example. Crank down their wages to $10-12/hr., and suddenly the gap between the two isn't that big... in fact, Ii'd say that, a generation from now, your typical Chinese manufacturing worker is going to be making roughly equivalent to what the U.S. worker makes. There will be no labor cost advantage to manufacturing in China.

Here's an obvious collary: the CHINESE WORKER is NEVER going to make $27/hr. In fact, he's never going to make even $15/hr. The $10-12/hr the post-bankruptcy Delphi workers are going to get pretty clearly puts a cap on what the Chinese worker can expect to earn in the future.

Here's the tough part, for those of us who are parents: we are going to have to watch our children grow up, and walk out into the world on their own in the middle of this. More specifically, we are going to have to watch as our children see the implicit promises being made to them today, by our wildly materialistic and conspicuous consumption happy media culture, broken, hell, not just broken, but shattered,.

Posted by Thomas Leavitt at 2:08 AM | Comments (7) | TrackBack | Link Cosmos

October 10, 2005

Angry Workers In The Streets

BRIAN DICKERSON: Them that's got shall get:

To compete with stingy auto suppliers overseas, Delphi needs to pay its hourly workers less.

To compete with corporations at home, Michigan's fourth-largest company needs to pay its top managers more.

Got it? It's all about competition.

That's why Delphi wants its hourly workers to absorb a 63% pay cut, and why it filed for bankruptcy when they refused to swallow wage concessions on the company's tight schedule.

And that's why, on the eve of its bankruptcy filing, Delphi sweetened severance packages for 21 top executives, who'll now get 18 months' salary, plus part of their regular bonuses, if their jobs are eliminated.

[. . .] I think we in Michigan are about to find out exactly how angry workers can get.

... But I believe we are very near the point where the frustration of the working poor and newly unemployed may erupt in acts of violence the likes of which haven't been seen in this country since the earliest days of the labor movement.

And the way things are going, it's only a matter of time before top executives at Michigan's largest public companies are unable to walk through their factories or walk their dogs beyond the perimeters policed by their invisible security fences without protection.

October 5, 2005

Inflation

It looks like inflation is arriving. BOPNews post here; Blog search here; Articles here, here, here, and lots more here.

Here's a couple of good essays that will help you understand what causes inflation. What Causes Inflation? Not Those Pushy Costs and What Is Inflation?.

Simplified: Suppose the entire economy is you and me and a dollar and a car. You have one dollar, I have the car and I want to sell it. The most that car can cost is $1 because that is all you have. Now, suppose that somehow you have $2 instead of $1. Now the car can cost $2. That is inflation: the "supply of money" increased while the amount of things to sell did not.

Posted by Dave Johnson at 11:30 AM | Comments (3) | TrackBack | Link Cosmos

October 3, 2005

Today's Housing Bubble Post

Through Calculated Risk, Empty houses, falling prices: A boom dies,

The Alonsos' story is about just one family in one property development, singling out one homebuilder and one abusive financial scheme. There are undoubtedly many, many variations on this theme, and the full story won't be written until the housing bubble really unwinds -- much as we didn't find out about Enron, WorldCom, and those assorted problems until the tide went out on the stock mania.

Posted by Dave Johnson at 8:26 AM | Comments (0) | TrackBack | Link Cosmos

September 26, 2005

Operation Offset - the Republican jihad against government continues

The Republican Party appears to be run by ideological nitwits bent on using any excuse possible to push their agenda of eliminating federal programs and services that serve anyone other than rich people and business (or function as political pork). The vast majority of Americans support programs like Medicare, federal assistance for college, the CDC, AIDS prevention, etc. etc. These twits need to be send packing, they need to be shown up for the fringe nutcakes they are - every last one of them, just about. Note the "war" language, too - these guys clearly don't get it. The era of a "war on government" (hell, a "war" on anything, at this point) is over. The American people want effective government that serves the interest of the broad mass of the people.

Via MoveOn.Org:

The Republican proposal, titled "Operation Offset," was authored by the Republican Study Committee, a group of over 100 influential members of Congress, including powerful committee chairs and members of the Republican leadership.

http://www.political.moveon.org/images/operation_offset/operation_offset.htm?id=6042-2958449-IPtfToge64.qfdnbe37e2g&t;=4

Here are just some of the most egregious cuts:

* $225 billion cut from Medicaid, the last-resort health insurance program for the very poor.
* $200 billion cut from Medicare, the health care safety net for the elderly and the disabled.
* $25 billion cut from the Centers for Disease Control
* $6.7 billion cut from school lunches for poor children
* $7.5 billion cut from programs to fight global AIDS
* $5.5 billion to eliminate all funding for the Corporation for Public Broadcasting
* $3.6 billion cut to eliminate the National Endowments for the Arts and Humanities
* $8.5 billion cut to eliminate all subsidized loans to graduate students.
* $2.5 billion cut from Amtrak
* $2.5 billion to eliminate the Hydrogen Fuel Initiative
* $417 million cut to eliminate the Minority Business Development Agency
* $4.8 billion cut to eliminate all funding for the Safe and Drug-Free schools program

The Democrats need to pound the (bleep!) out of the Republicans with this, in 2006 and 2008.

Again, I see TV commercials, so many of them that viewers can recite them by heart, inescapable...

Images of Katrina disaster victims, white and black, in New Orleans and Mississippi - esp. folks on the highway overpass. Images of Houston evacues, stalled on the highway. Portentous music, like that on CSI.

"In the face of national disaster, what was the Republican Party's response? Budget cuts."

Flash a picture of the collapsed N.O. leevee.

"Over 100 Republican leaders in Congress proposed cutting or completely eliminating funding for Medicare, student loans for college, the Center for Disease Control, even drug use prevention programs for schools."

***

Hmm... not sure how exactly to put it over, but you get the idea...

Posted by Thomas Leavitt at 1:24 PM | Comments (1) | TrackBack | Link Cosmos

September 17, 2005

Opportunity Zone?

Bush's Gulf Coast Band-Aid:

To jump-start the recovery, the president said the federal government will create a "Gulf Opportunity Zone," encompassing the region damaged by Hurricane Katrina in Louisiana, Mississippi and Alabama. Within the zone, small businesses, including minority-owned businesses, will get tax relief and be guaranteed loans, and companies that create jobs will be eligible for tax incentives.

Now hold on a minute. He's going to encourage employers all around the country to fire their employees and move to the Gulf Coast where they won't have to pay taxes and can pay peanuts? And I want to support that because ... ?

Posted by Dave Johnson at 2:34 PM | Comments (2) | TrackBack | Link Cosmos

September 16, 2005

Democrat Big Spenders

Part of the narrative about Democrats is that they overspend taxpayer money. So let's take a look. Here is a chart of federal spending increases under Reagan, Bush I, Clinton and Bush II. Clinton budget years are in yellow. (Remember that Republicans complained that the 1993 budget was retroactive.) Also, note Clinton spending before and after Republicans took control of the Congress.

(Click for larger image)

Data obtained from the spreadsheet SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS(−) ... IN CONSTANT (FY 2000) DOLLARS available at Budget of the United States Government: Historical Tables Fiscal Year 2005.

(This post inspired in reaction to comments at this Political Animal post.)

Posted by Dave Johnson at 11:59 AM | Comments (0) | TrackBack | Link Cosmos

September 14, 2005

Groundhog Day

Hastert Says U.S. House to Seek $70 Billion Tax Cuts,

More than two dozen expiring tax cuts are competing for inclusion in the $70 billion package, including extension of the dividend tax break that was created in 2003. Other tax cuts include a research credit worth $5 billion annually for companies such as Microsoft Corp. and Boeing Co. and a temporary measure limiting the reach of the alternative minimum tax.

Posted by Dave Johnson at 1:36 PM | Comments (1) | TrackBack | Link Cosmos

September 10, 2005

Today's Housing Bubble Post

"As I like to say, these days Americans make a living by selling each other houses, paid for with money borrowed from China." -- Paul Krugman (NY Times, login may be required)

Posted by Thomas Leavitt at 2:30 PM | Comments (2) | TrackBack | Link Cosmos

August 26, 2005

Today's Housing Bubble Post

is at Calculated Risk: Dr. Leamer: Housing Has Peaked, Recession in '06.

Posted by Dave Johnson at 7:36 PM | Comments (2) | TrackBack | Link Cosmos

August 23, 2005

Today's Housing Bubble Post

Any minute now:

U.S. housing sector shows signs of slowing ahead
The boom may be cooling
Is The Housing Market About to Bubble Over?
Wall St. Waits to See What Will Be Repaid
Homebuilders' Shares Hit by Home-Sales Drop
Housing bubble ready to burst
Economist Predicts Housing Bubble Bust
Housing bubble within popping distance
What if housing bubble bursts?
Preparing For A Housing Bubble Burst

The conservative press:

There is No Housing Bubble!!
What Housing Bubble?
Real Estate Bubble Blather

Posted by Dave Johnson at 9:15 PM | Comments (0) | TrackBack | Link Cosmos

Capitalism at work: Profits up, learning down

Over at Left I on the News. Go read. Discuss.

Posted by Dave Johnson at 11:38 AM | Comments (0) | TrackBack | Link Cosmos

Read Wal*merica!!

Everybody has to go read Wal*merica.

Posted by Dave Johnson at 10:05 AM | Comments (0) | TrackBack | Link Cosmos

Today's Housing Bubble Post: Risky Business

Caught this article the other day, discussing a new study released by the Public Policy Institute of California, entitled: California's Newest Homeowners: Affording the Unaffordable.

News article pull quote: "Californians are increasingly affording the unaffordable by sinking more than half their incomes into mortgage payments, taking on enormous debt, forgoing downpayments and signing interest-only or adjustable-rate mortgages".

Executive summary pull quote: "The share of income spent on housing is higher for homeowners in California than in any other state."

Posted by Thomas Leavitt at 3:27 AM | Comments (0) | TrackBack | Link Cosmos

August 15, 2005

The Trade Problem

View of San Francisco from Sausalito.

See how this ship is riding high off the water? This ship is loaded with empty containers, bound for China.

Ships come into the port loaded with goods that we buy from China. But China doesn't buy very much from us. So we have to send ships back loaded with empty containers. (Well almost empty, they're actually filled with dollars, and jobs, and the future.)

Posted by Dave Johnson at 6:10 PM | Comments (5) | TrackBack | Link Cosmos

Today's Housing Bubble Post

Calculated Risk: The "Rising tide of abandoned residential properties",

Real estate investors are just walking away from residential property and lenders are getting stuck. Some lenders do not want to take title to the worthless property and the city has started a campaign called the "shaming sign" - placing signs on abandoned property with the names of the lenders' executives. This has induced some lenders to take title and either fix up or demolish the abandoned homes.

This is a story from the Great Depression ... except it is happening right now in Dayton, Ohio.

It's starting, folks. And I predict it will be worse this time than it has been in the past.

Suppose you borrowed $500,000 with no down payment, and pay only interest, and your payments are higher than you can really afford, and you see that prices are not going up and maybe even starting down, what reason do you have to stay in that house? Why not just walk away, give the keys to the bank, and move somewhere you can afford? You really have very little to lose.

But the bank, that's another story. The bank now has a house instead of a %500,000 loan on their books. So they have to turn that house into cash. They understand that they aren't going to get $500,000 for the house and they're going to put it on the market and take what they can get. So prices are now $450,000 in your neighborhood.

Meanwhile your neighbors have a $500,000 mortgage with no down payment and the monthly payment is more they they can afford. Some walk away and give the house to the bank, others just sell. Soon one of every five houses is for sale, but the buyers see prices going down so they're holding out.

There is another element here -- the speculators. People who purchased houses or condos intending to "flip" them for a higher price in a short time. They're really on the spot here and really have to "unload" fast. And they keep a close eye on the market. So they'll "dump" and soon. Now even more properties are on the market.

Desperate sellers lower prices. They need that money, and they are afraid prices will go even lower in a hurry. So they'll make deals to sell their property. Others will see that the ones holding out for any decent price are losing their shirts, and lower their prices even faster.

Do you see where this goes? It's called a "panic."

Prices will get down to where they should be, probably in a hurry. Borrowers and lenders will be hurting. And most of the jobs created in the country in the last few years depended on mortgage lending and home construction. Do you see where this goes?

Start reading about the Savings and Loan Crisis. The amounts involved (and the corruption) will be much greater this time.

You and I will pay for it.

Posted by Dave Johnson at 9:45 AM | Comments (4) | TrackBack | Link Cosmos

August 13, 2005

Spreading the wealth...

[Interesting op-ed piece in the San Jose Mercury News. Small start ups are the growth engine of the economy... what happens when most of the money flowing through them is routed overseas, instead of being used to buy locally manufactured goods or hire people here in Silicon Valley?

The other end of this is, as he commented, outsourcing isn't the only factor... technological improvements and the growth of the Internet as a marketing vehicle enable customer acquisition and rapid growth without large technical or sales/support staffing.

This is a good thing, from the standpoint of efficiency... however, if you have a persistent surplus of labor, the result is a rapid depreciation in wages... maybe even with effectively no bottom.

Classic economics doesn't permit this, supply and demand must always revert to an equilibrium - but it doesn't account for non-market factors and human behavior. I can point you to many areas around the planet with umemployment rates at or above 40-50-60%.

-Thomas]

Posted on Sun, Aug. 07, 2005

THE NEW NEW ECONOMY

There is an abundance of ideas in the valley.

BLAME START-UPS: THEY'RE NOT SPREADING WEALTH OR JOBS -- AND THEY MAY NEVER AGAIN

By Miguel Helft

Posted by Thomas Leavitt at 3:02 PM | Comments (0) | TrackBack | Link Cosmos

August 12, 2005

Today's Housing Bubble Post

The Housing Bubble 2: 'How Far Is Down'?

"So now we can see exactly 'How Far Is Down' for any particular rental property. In this case I should expect to see my current rental house drop in value from $550,000 to $220,000 based on historical mean reversion characteristics."

"The real problem lies not in the fact that the rental house I live in will only be valued at $220,000 but rather how fast it falls and what happens when the landlord decides to sell."

Posted by Dave Johnson at 2:52 PM | Comments (0) | TrackBack | Link Cosmos

July 30, 2005

Roberts a multi-millionaire

Henry Blodget has a column on Slate, entitled How To Invest Like a Supreme Court Justice: What John Roberts' portfolio reveals about his character.

While Blodget's analysis is somewhat interesting, if highly speculative, what I think is more important to draw attention to is the fact that Roberts is not just well off... he appears to be extremely well off... as in being worth between $3 and $7 million in 2003, according to his financial disclosure records. Blodget suggests that the top end of that figure could exceed $10 million, given the how the stock market has performed since then.

This may even be a low estimate, since according to his 2003 financial disclosure records, he owned "a chunk of XM Satellite Radio worth between $100,000 and $250,000" and the stock has increased in value ten fold since then... making that one investment now worth between $1 million and $2.5 million (assuming he hasn't sold, which reading Blodget's analysis would appear to be probable).

Why is this relevant? Simple: class interests, and life experience. Roberts, by virtue of his wealth, is among the elite of the American elite, and that is bound to affect:

a) how he thinks, who he associates with, how he lives... virtually every aspect of his life is going to be colored by his wealth

b) his ability to empathize with the plight of the average American...no matter how "objective" he attempts to be, it is going to be flat out impossible for Roberts to really grasp, at a gut level, what the average middle, working class, or poor/destitute/homeless American encounters every day in their struggle to get buy, or just plain survive the night

This is a fundamental problem of American democracy, and another reason why on so many issues (especially outside of "social issues", like gay rights and abortion) Democratic and Republican positions are often practically indistinguishable.

Congress is filled with millionaires (the wealthiest of which are Democrats--10 of the top 12 in the U.S. Senate in 2003). Now, I'm not suggesting that these folks are acting with malice aforethought to enrich themselves (the "top 40" members of the U.S. were worth, collectively, $626 million, they're hardly hurting for money) - instead, I'm suggesting that the environment these folks live in - where and how they live, who they associate with, what motivates them to get out of bed in the morning - all of these things are inevitably influenced by the fact that they are vastly more comfortable than your average American.

The quote below, from a Democrat no less, suggesting that that success in business might be viewed as a core qualification for holding public office, demonstrates this mentality:

Incoming Rep. C.A. Dutch Ruppersberger, D-Md., said talents that make people successful in business also can make them a good lawmaker.
"They bring a lot to the table, especially in our difficult times," said Ruppersberger, whose holdings are valued at $700,000 to $1.58 million. "You want people who have good judgment and have the courage to stand up for what they believe in. If people have done well, that means they're successful. Maybe that's part of leadership." (quote from A Richer Congress, by Jonathan D. Salant)

... success in life, and demonstrated leadership potential, is most easily defined by your level of economic well being.

America is literally run by a wealthy elite, people who, no matter what side of the aisle they sit on, move in the same social and economic circles, and have the same set of expectations about how "life" works. Are these people going to have more sympathy for the plight of a businessman than your average working class American will? You betcha.

Bush's choice of another member of that elite to fill a seat on the Supreme Court tighens the grip of this class of folks on the American polity. What are Robert's natural sympathies? No one can know for sure, but you can bet that, one way or another, his wealth, and how he acquired it, is going to influence his judgement.

Posted by Thomas Leavitt at 5:52 AM | Comments (2) | TrackBack | Link Cosmos

July 11, 2005

Bush's America

The items below are an extract from the latest article in Jay Shaft's series on the growth of hunger, poverty and homelessness in America, Concrete Is Cold And Hard At Night: The Children’s Voices.

Homeless families are the fastest growing segment of the homeless population and account for almost 40 percent of all newly reported cases of homelessness. Homeless children are hungry more than twice as often as other children, and two-thirds worry that they won’t have enough to eat. Nationally, one in four people in a soup kitchen line is a child. In 2003 60 percent of all newly reported cases of homeless were single mothers with children. (National Coalition for the Homeless, America’s Second Harvest)

For most of the 1990’s the number of children in poverty was declining. Then between 2000 and 2002, there were an additional 546,000 children who slipped into poverty. In 2003 at least 500,000 more children plummeted into poverty, and additional 300,000-400,000 children were listed as being at the borderline of poverty. In 2004 it is estimated that 550,000-600,000 children slipped into poverty, and at least 400,000-500,000 more were at the boarderline.

That's 1.5 million more children in poverty than when George W. Bush, Jr. took office. Message: Democrats pull children out of poverty, Republicans put them into it.

Here's a quote from one of the children Jay interviewed, Sara (a 12 year old who has been homeless for a year):

When asked if she has gone hungry she just got an exasperated look, like it was the stupidest question she had ever heard.

“Duh! What do you think?” she asks with some irritation. “I am hungry all the time, even when there is enough food. I am afraid to eat till I’m really full because we might run out of food if we’re little pigs. I ate as much as I could on Thanksgiving but that was the only time this year I’ve been really full. I ate six pieces of pie and had three plates of turkey. I wish we had that much food all the time.”

“I stopped believing in Santa a long time ago, but I wish he was real. I all want is to be able to sleep in my own bed and have mom cook our favorite foods,” she says with a wistful expression. “I want to eat until I explode, then I’d eat more. I want my family to be safe and warm in a house, that’s my Christmas wish. I don’t want anything else, just that.”

I can't read this without feeling an overwhelming sense of outrage, sadness, and anger. No child should be put through this.

You want message? You want frameworks? You want talking points? Here you go: the Republicans/right-wing can't win if Sara's needs are put front and center in the discussion, and the Democrats/progressives can't win until they do. Period. End of story.

I want to see Sara's concerns at the top of the Democratic Party's agenda, I want to see Sara's image on election posters everywhere, I want to hear Sara's voice on every radio, and her plight be the subject of an unending barrage of commercials that pin her hunger directly on the cruelty and indifference of the Republican Party and the right-wing ideologues that dominate it.

Politics, everything we discuss on this and other blogs, boils down to putting food in Sara's mouth, and giving her the physical and mental security she needs to do well in a properly funded public school, so that she has the best possible chance to become a productive, contributing member of society. The right-wing doesn't have an answer for this, we do. That's the message we need to be pounding home, every day, that's the message we need to be blogswarming, and shoving to the top of the American media and political establishment's agenda.

Posted by Thomas Leavitt at 1:08 PM | Comments (0) | TrackBack | Link Cosmos

What's missing from this appeal by John Kerry re: Supreme Court?

The entire appeal, which arrived in my inbox this morning, is enclosed below for reference, but I'm just going to highlight the portion relevant to my commentary...

Kerry opens thusly:

Let's make our principles crystal clear right out of the box.

We will never support a Supreme Court nominee intent on reversing Roe v. Wade and undoing critical civil rights protections

Later on, he says:

From the range of choices the White House is currently considering, America and the Constitution would be best served if President Bush chooses a nominee in the mold of Sandra Day O'Connor, who was named to the Court by no less of a conservative than Ronald Reagan and approved unanimously by the United States Senate.

But President Bush's most extreme supporters are demanding a nominee who doesn't think or act anything like Justice O'Connor. They want a rigid ideologue who will reverse what President Bush has called the "settled law" of Roe v. Wade, one who will support their efforts to use the Supreme Court as a battering ram to undo decades of progress on civil rights, Roe v. Wade, and privacy. [Bolding mine, TL]

What's missing here?

In a word: economics. Meat and potatoes (apologies to vegetarians like myself). The entire issue of what the scope and function of government's intervention in the private sector/free market should be. Listen for discussion on these issues, and all you hear is a vast, echoing silence.

The agenda Kerry outlines is the narrow one of the religious right... but the ambitions of the Federalist Society and the neo-conservative ultra right, the conservative think tanks and the foundations that fund them, the "movement" right, are far, far broader. They want to wipe out any and all government functions, services and activities that they perceived as interfering with the operation of the private sector/free market and "restore" the government to some panceanic pre-Rooseveltian utopia.

It is totally possible that the Bush Administration and the Democrats will wind up "compromising" on someone whose position on the issues Kerry mentions is "moderate", but who is a a flaming Borkian ultra right wing ideologue on everything else. This is not acceptable!

Kerry's appeal demonstrates everything that is wrong with the Democratic Party - they've conceded the field on the fundamental issues of redistributive economics, government intervention in the economy, and private sector regulation... and why is this?

I'll tell you why: because the Democratic and Republican Party are, in essence, two sides of the same free market coin. The intellectual underpinnings of the average elected Democrat's ideological perspective*, share, at a fundamental level, the same set of assumptions that underpin the arguments put forth by their right wing opponents. Their disagreements with their Republican opponents are a matter of degree, not kind.

* (Kucinich and a few renegade progressives aside)

Here's why Kerry's appeal is so flawed:

Most women want to reserve the right to have an abortion, if the circumstances demand it... but most women would also much prefer to not have to make that decision. They'd prefer to have the ability to choose to have the kid... but to make that decision, they need not just a social safety net, but the social infrastructure in place to make raising a kid and earning a living feasible: daycare facilities (subsidized, in most cases), affordable healthcare (for their kids, AND them) that is free if they can't pay, functional public transportation, good jobs, a strong economy, a strong and effective public education system, the ability to save for retirement (pensions, social security, hell... just not having to spend every penny earned to survive). The list goes on and on and on.

The same thing goes for minorities protected by civil rights - queer, African-American, Latino... protection from job discrimination doesn't do you a damn bit of good if there are no jobs, or the jobs don't pay enough to support you and a family (however defined).

Let's talk turkey: minimum wage, EPA, OSHA/workplace safety, financial regulation and reporting, Pension Guaranty Benefit fund, Social Security, Medicare, Medicaid, welfare, HUD, environmental protections/regulations/endangered species, election finance regulation and reporting requirements, campaign finance limits, on and on and on... all these, the ultra-right would like to see wiped out. On all of these, at best, the Democrats are in a defensive posture, and incapable of articulating an effective argument for anything but preservation of the status quo. The best defense is a good offense, and the Democrats don't have one... and refuse to make the draft picks necessary to build one.

This is why I'm a member of the Green Party of the United States. Until the Democratic Party, as a whole, and through their Presidential nominee, put forth a strong and convincing argument that articulates a vision for society that I agree with, they won't earn my vote or my loyalty.

Entire appeal, enclosed for reference

Dear Thomas,

Let's make our principles crystal clear right out of the box.

We will never support a Supreme Court nominee intent on reversing Roe v. Wade and undoing critical civil rights protections. And we will never accept a double standard that says, on a decision vital to America's future, President Bush's most extreme supporters can campaign all-out while you and I are urged to be silent.

I am asking you to endorse and help pay for a powerful message that will appear in the days ahead in newspapers across the country. Show the President and the Senate just how strongly you feel about protecting our fundamental freedoms:

http://contribute.johnkerry.com/

[Add referred to is located at http://savethecourt.johnkerry.com/ ]

From the range of choices the White House is currently considering, America and the Constitution would be best served if President Bush chooses a nominee in the mold of Sandra Day O'Connor, who was named to the Court by no less of a conservative than Ronald Reagan and approved unanimously by the United States Senate.

But President Bush's most extreme supporters are demanding a nominee who doesn't think or act anything like Justice O'Connor. They want a rigid ideologue who will reverse what President Bush has called the "settled law" of Roe v. Wade, one who will support their efforts to use the Supreme Court as a battering ram to undo decades of progress on civil rights, Roe v. Wade, and privacy.

They want something else as well.

They want you and me to participate in this momentous debate about fundamental freedoms with one hand tied behind our back. They actually expect us to step aside while they roll over our rights. Let's prove that we will never let that happen.

http://contribute.johnkerry.com/

While they unleash a multi-million dollar advertising campaign on behalf of President Bush's choice in close coordination with the White House, you and I are supposed to remain silent -- lest we be charged with "rushing to judgment."

While they conduct a no-holds-barred effort to brush aside any and all questions about the nominee's record and his or her commitment to protecting individual freedom, you and I are supposed to be silenced for fear of being called "obstructionists" and cowered by their threat to revive the "nuclear option."

That's worse than unacceptable. It's un-American, and it's not how we carry on public debate in the greatest democracy on earth. Show them that, with the future of the Supreme Court on the line, we won't stand on the sidelines:

http://contribute.johnkerry.com/

I know I can count on your support in making the following commitment: I will insist on a complete and full examination of the record of President Bush's nominee. And, if that nominee is intent on reversing Roe v. Wade and essential Supreme Court protections for civil rights, I will use every option I have as a United States Senator to keep that nominee off the Court.

Sincerely,

John Kerry

P.S. Don't let them silence our voices. Go out in your community and spread the word along to everyone you know by passing on this message. We must all commit ourselves to standing up for Roe V. Wade and our civil rights.

Posted by Thomas Leavitt at 11:48 AM | Comments (7) | TrackBack | Link Cosmos

July 10, 2005

Unemployment Stats Roundup

Brad Lily at the Center for American Progress

The Angry Bear helps explain with charts, James Hamilton on the Decline in the Employment-Population Ratio

From Brad DeLong The Big Picture: Drilling beneath the BLS Headlines :

Among other things:

Household survey shows another 240,000 people left the Labor Force last month.... We still see unemployment going down because more people are dropping out of the labor than obtaining new jobs. That's hardly cause for celebration.

Posted by Gary Boatwright at 1:44 PM | Comments (0) | TrackBack | Link Cosmos

July 3, 2005

Economics -- Science vs Ideology

In the post Are you experienced? Dare to use what you know, Liberal Street Fighter's shirah writes about the gap between right-wing economic theory, and what people actually do.

The econ-talk reigns supreme despite the fact that we now have an abundance of evidence that fundamental parts of the theory do not work out in reality. The laboratory that has tested some economic experiments has been whole countries. Others are being tested at the most minute levels. Al Roth at Harvard has been a leader in testing economic theory.

Many of these experiments show that a basic tenet of economics - selfishness - does not explain behavior and choices, even economic ones. They find that humans - and some primates (our relatives) - act based on kindness, fairness, reciprocity, and community needs.

Finding that people are motivated by fairness, reciprocity, and communal needs is not surprising. We see people behave altruistically all the time - the fire fighers who rushed into the Twin Towers on 9-11 are not an aberration. So in this case our experience should at least push us to challenge what econ-talk tells us.

(Those paragraphs were full of links and you have to go to shirah's post to click them.)

I like to say that science is supposed to DEscribe what happens, while ideology says, "if only people would do so-and-so, such-and-such would happen." Some of my favorite examples are the idea that lowering taxes causes the economy to grow. But history shows the opposite! Clinton, for example, raised taxes and the economy soared. Reagan cut taxes and the economy plunged into recession. Then, when taxes were increased because of the increasing deficits, the economy picked back up.

Which reminds me. Did you see what Doonesury had to say about bloggers today? Apparently "If the market really valued what you have to say, wouldn't someone pay you for it?" Well, I hope "the market" doesn't like what I have to say, because I don't have good things to say about reducing humanity, personality, intellect, spirituality, culture and values to "markets" -- one-dollar-one-vote systems that reduce people to economic cogs and values them according to what goods they produce or consume, and how much they can do to make a few rich fucks richer.

Posted by Dave Johnson at 3:30 PM | Comments (5) | TrackBack | Link Cosmos

June 26, 2005

Up Up Up

In Real Inflation Rate, Left Coaster explains something I have wondered about. How can inflation be "under control" when the price of a house is rising more than 20% a year? When health insurance is rising just as fast? When the eletric bill, cable TV bill, phone bill and food bill are going up, up up?

Posted by Dave Johnson at 8:11 AM | Comments (3) | TrackBack | Link Cosmos

June 24, 2005

New wrinkle on China induced shortages: whiskey

[America no longer has a monopoly on the world's resources be it oil... or whiskey. Are we shifting from an age of abundance (at least from the perspective of Americans) to an age of scarcity? -Thomas]

On the rocks
Single-malt scotch shortage is double trouble for distillers, consumers

[...]

Another factor contributing to the shortage of single malts is their recent discovery by the under-40 crowd in China. Forget the fact that young Chinese might mix it with green tea; it is common for groups at karaoke bars to go through a bottle of scotch in an hour. Even though they may be sipping blends, it taps into the shrinking supply of single malts.

[...]

Posted by Thomas Leavitt at 1:19 AM | Comments (0) | TrackBack | Link Cosmos

June 22, 2005

Oil Tax

Oil is at $60 per barrel, predicted to go to $70. At $60 someone is getting $40 more per barrel than they were at $20. At $70 someone will be getting $10 more per barrel than now.

Suppose we today imposed a $10 per barrel tax on imported oil? Then WE would be getting that $10. Suppose we used the money to invest in alternative energy? (Or to secure our ports? Sort of the opposite of what some of that $10 WILL be used for...)

Suppose WE had imposed a tax on imported oil back when it was at $20 and invested in energy efficiency - things like retrofitting buildings and fuel economy - or investment in alternative energy sources?

Republicans prefer eating the seed corn.

Posted by Dave Johnson at 7:58 AM | Comments (11) | TrackBack | Link Cosmos

June 21, 2005

The L.A. County and Global Housing Bubble

The L.A. Times linked to an interesting site Sunday. I've read DQ News on occasion, but never noticed their Zip Code Housing Charts on the left side of the page. The Times carried the May Sales for Los Angeles County.

I've taken out the Sales Count and Condo Prices. These are the median prices, percentage increase from May 2004 and price per square foot of the top and bottom of the L.A. Housing Market:

Beverly Hills 90210 $2,550 30.8% $744
Beverly Hills 90211 $1,450 35.5% $852
Beverly Hills 90212 $2,000 83.3% $943
Pacific Palisades 90272 $1,757 33.6% $825

Compton 90220 $310 41.6% $263
Compton 90221 $327 48.6% $299
Compton 90222 $290 41.1% $280

And why some people in L.A. Commute 3-4 hours in each direction to and from work:

Lancaster 93534 $246 31.6% $184
Lancaster 93535 $265 40.7% $181
Lancaster 93536 $320 22.1% $186

Mark Hitlzak had an interesting article Giving In to Bubble Pressure: To paraphrase Mark Twain, everybody talks about the housing bubble, but nobody does anything about it. Well, Mark A.R. Kleiman did something about it. Read about a UCLA professor who cashed out and moved to the sidelines.

Kleiman was looking at the dilemma facing a lot of folks. How do you cope with the housing bubble and where do you find a safe investment for the lurking economic disaster? He didn't have the problem facing many readers of Seeing the Forest, who are married to women with irrational emotional attachments to their home, children and husbands.

It's worth noting that Kleiman has more flexibility to convert his home into liquid capital than many Southland families. He's unmarried and childless, so he didn't have to replace his Mulholland home with one of commensurate size in a suitable school district.
That said, he knows he's making a sacrifice. "I love this house. I went through a lot of heartache getting it redone." He'll miss the quiet, and his new apartment won't have the space for his extensive collection of African art and sculpture.

Before deciding to sell, he investigated a few conventional hedging possibilities, including HedgeStreet, a website that allows individuals to speculate on economic events, and another venture that has brought together Yale University economist Robert Shiller and the Chicago Mercantile Exchange to develop derivatives in housing and other asset classes. But the trading market at HedgeStreet is still thin, and the CME project hasn't yet gotten off the ground.

Last, and certainly not least, the cover story from the Economist, After The Fall: Soaring house prices have given a huge boost to the world economy. What happens when they drop?

Excellent related articles and a reminder that this is a global economic problem:

This boom is unprecedented in terms of both the number of countries involved and the record size of house-price gains. Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history (see article). The bigger the boom, the bigger the eventual bust.
Throughout history, financial bubbles—whether in houses, equities or tulip bulbs—have continued to inflate for longer than rational folk believed possible. In many countries around the globe, house prices are already at record levels in relation to rents and incomes. But, as demonstrated by dotcom shares at the end of the 1990s, some prices could yet rise even higher. It is impossible to predict when prices will turn. Yet turn they will. Prices are already sliding in Australia and Britain. America's housing market may be a year or so behind.

Posted by Gary Boatwright at 7:31 AM | Comments (2) | TrackBack | Link Cosmos

June 14, 2005

Today's Housing Bubble Post

Upside down on SFR in Vegas...running out of $$$

Help! Any ideas, comments welcome.

My partner and I are in a mess with a brand new house in Las Vegas. Here are the details.

1. AUG 2004, we paid $445,000 for a Pulte model in the community of Aliante, North Las Vegas.
2. 100% financed and still owe roughly the same.
2. Payment is $3000/month.
3. Currently could only sell for about $360,000.
4. Finally found tenants to lease out for $1100/month in APR to reduce neg cash flow to $1900/month.

We are running out of cash quickly. We desperately need some ideas on how to get out of this house immediately.

Thanks!

My answer? Sell now, take the $85,000 loss, before things get worse. (Update - Oops, they're out the $85,000 PLUS the closing costs from buying PLUS the costs of selling, which can be quite high -- realtor commissions, appraisals, inspections, repairs, etc.)

(From a comment at The Housing Bubble - a great blog for scaring yourself.)

Posted by Dave Johnson at 5:41 PM | Comments (7) | TrackBack | Link Cosmos

Tax Revenue Doubled in 80's?

Angry Bear is writing about Kevin Drum writing about Republicans writing that Reagan's tax cuts "doubled revenue." (Spotting a trend, I'm going to write about it, too.)

Kevin knocks it down, which you should read. His knockdown refers back to something he wrote a while ago,

The answer, of course, is that Reagan didn't grow his way out of the deficits caused by his 1981 tax cut. As the chart on the right shows (adapted from this Treasury report), he raised taxes twice in 1982, and then raised them again in 1983, 1984, 1985, 1986, and 1987.

Angry Bear points out that the Republicans know these things, too, yet they continue to claim that tax revenue "doubled after Reagan's tax cuts." (Limbaugh must say it once or twce a week.) What's it called when you know something is not true, but you say it anyway, over and over?

I want to add a point to this. In July 2002, I wrote that,

...In 1981 the on-budget (not from Social Security) tax receipts were $469 billion which was a 16% increase over the prior year. Then the Reagan tax cuts started. 1982 tax receipts were $474.3 billion, 1.1% over 1981, and the on-budget deficit shot up to $120 billion, an increase of 62% in a single year!. 1983 receipts were $453.2 billion, a DROP of 4.4% ...

... the 1984 Deficit Reduction Act, the largest tax increase in our history. Tax receipts climbed to $500.3 billion, a 10.4% increase, and the deficit shrank almost 11% to $185.6 billion.

In 1985 Congress passed the Gramm-Rudmann-Hollings Anti-Deficit Act. In 1985 tax receipts were $548 billion, a 9.5% increase. But now the huge military spending increases AND the debt interest were kicking in and the deficit rose to $221 billion, an increase of 19%.

[. . .] Also during this time Congress passed the huge Social Security tax increase, dramatically increasing a tax ONLY paid by poor and middle class working people. This is the largest tax item in most people's paychecks and is not counted when we're told that the rich pay a large share of taxes. In 1984 and 1985 Social Security tax receipts jumped 12%!, and continued to increase through the 80’s, generating huge surpluses which were used to make the huge deficits look lower. This money collected from the poor and middle class workers went out to pay for Reagans's tax cuts for the rich. (And now it is being used to pay for Bush's huge tax cuts for the rich.) [emphasisadded today]

The increase in the Social Security tax went back out to the rich. And now they say the government doesn't have the money to pay back what was borrowed from Social Security!

I say we should get the money FROM where the money WENT!

Posted by Dave Johnson at 4:56 PM | Comments (5) | TrackBack | Link Cosmos

June 13, 2005

For Whom the Rent Tolls

The rigged casino,

On the other hand, many of the people who are losing their jobs voted for someone's job to get thrown of the island.

How did they do this? By voting for a lower tax, lower capital growth America, by voting, and continuing to vote, for rent, rather than labor or capital, being the favored sector of the economy. Simple test: until you are willing to repeal the massive deductions for buying or selling a home, don't bitch about your job going to India. You are voting for rent, and have to expect that employers will seek to use convenience (trade) to avoid paying for ground rent (the wages needed to buy said expensive home).

The collision course is this: if people want a society where there can be lucky big winners - that is people who bought in the right place at the right time - then they have to accept there will be unlucky big losers. That's what the egalitarian question means: if you want the right to screw someone else over and be lots richer than they are, then you have to give that right to others. Statisically speaking, you're gonna get screwed.

Posted by Dave Johnson at 8:32 AM | Comments (1) | TrackBack | Link Cosmos

June 10, 2005

"Free" Trade

A comment I left, at the post Brad DeLong's Semi-Daily Journal: Free Trade, which referred to this post by Max:

It strikes me that the "free traders" are describing some kind of idealized system THAT DOESN'T EXIST! They're like the Ayn Randians - brains malfunctioning, fixated on a simplified utopian description.
Is is the words used? "Free" sounds so nice.

Science is supposed to DEscribe. Ideology is "if only people would do so-and-so". I suggest that even the use of the words "free trade" is a drift into ideology.

Is it "free" trade when China pegs its currency? Is it "free" trade when other countries MURDER people who try to form unions? Is it "free" trade when workers live in barracks surrounded by barbed wire, paid not even enough to have a place to live? Is it "free" trade when costs are externalized by dumping chemicals in the water and the air?

I say we require "market development" tarrifs on imported goods. The tarrif would reflect the wages paid by the exporting country: the more they pay, the lower the tarrif. This DEVELOPS A MARKET for our own goods, instead of just sending our jobs away with nothing in return.

Posted by Dave Johnson at 9:35 AM | Comments (6) | TrackBack | Link Cosmos

June 7, 2005

Today's Housing Bubble Post

It occurs to me that risky loans make other loans more risky. Here's what I mean. When a bank gives a loan to someone who is on the borderline of making the payments, they take the risk of ending up with a default. And right now, at least around here, housing loans are no-down-payment, interest-only, adjustable-rate mortgages made to 21-year-olds who have been employed for three months on their first job. So there is a very, very high risk of defaults. Very.

Foreclosures often sell for a lower price. And housing prices are determined by the price of neighboring houses. Because so MANY mortgages are this kind of loan now, the lower price on the foreclosed house likely as not means that the house next door is now "underwater" -- worth less than the amount still owed on the loan that bought it.

At some point, seeing what's coming, that homeowner puts the house up for sale and takes what they can get. Now the whole neighborhood is panicking and prices are cascading down. ALL the houses are underwater. So ALL the risky loans are even riskier.

This is what I mean by risky loans making other loans even riskier. They almost guarantee a certain number of foreclosures, which means distress sales, which puts the other risky loans underwater. So these banks making these loans are blowing it for all the other lenders. This is a situation crying out for the government to do something, and soon.

It is just so sad
when good loans go bad.

Posted by Dave Johnson at 6:29 PM | Comments (3) | TrackBack | Link Cosmos

June 5, 2005

Informal poll: how many minutes away from work do you live?

Or alternatively: if your car died, would you still be able to get to work (somehow - by foot, bicycle, bus, etc.)?

Dave sent me a link to a Stirling Newberry essay on BOP News. Very interesting structural analysis of the nature of the conflict we're immersed in.

His comments on the need to placate and ensure the financial security of a important "conservative" segment of society (homeowners) in order to recruit them to the progressive side in the fight against the forces of monopoly/incumbent rent and to overturn the status quo prompted this train of thought:

We all know that the whole "red state"/"blue state" dichotomy is a gross, gross, gross oversimplification which obscures how the country is actually split along the lines of ideology and geopraphy... when you break down the electoral result in a more finely granulated fashion (feel free to suggest a better source of graphs - I just picked the first one I could find), you see that the split is really more of an urban vs. suburban/rural one... the less urbanized a county is, the more "red" it is, and vice versa. Gore and Kerry won many urban areas by overwhelming majorities (and Bush many rural areas by similar margins).

Stirling's analysis has many elements, but the one I want to zero in on is his point that the biggest asset that most Americans have is the equity in their house, and that the value of that equity is very much dependent on the fact that cheap oil makes long distance single occupancy vehicle commutes and the infrastructure that supports them economically viable. His theory is that somehow, despite the progressive community's distaste for urban sprawl, we need to develop some alternative mechanism that maintains it's economic viability, in order to win these forces over to our side.

O.K. There's the set up... now here's the punch line, the thought that was inspired by the Newberry article:

Perhaps the real conflict here isn't between "red state" and "blue state" voters, or even "urban" vs. "suburban/rural" voters (these being co-related factors), but between those with a stake in the status quo, whose livelihood and equity is dependent on cheap oil vs. those who don't. "Sprawlites" ("oilers?") vs. "sustainables" (need a catchier name for our side).

Thus the question in the subject line: where do you live, relative to your place of work?

I'll start off by saying that the office that my wife and I maintain for our small business is within walking distance of our home, and even closer (midway between) to the two schools (elementary and middle) that our daughters attend, and is also located directly across from a super-market and drug store (most of our shopping is done on foot).

This is not to say that we don't have two cars (we do), or that having only one car functioning (as is the case at the moment) is not inconvenient, or that having no car is a realistic option (boy would I love to cut that expense out of our budget)... while there are reasons other than economic for our dependency on ownership of an automobile, it would unquestionably be difficult to operate our business and earn a living without a car. The public transit system in this county is very limited (due to the general lack of population density) and difficult to use for general transportation purposes. Nevertheless, if somehow we had to abandon the use of automobiles, I believe it could be managed.

It should also be said that, at the moment, we are renters, so we have no equity stake in our home, and aren't tied down by a mortgage.

Perhaps not coincidentally, my wife and I fit the theory outlined above (we both could be termed radical progressives). I'm curious as to how many readers of this blog do so as well (or don't).

Posted by Thomas Leavitt at 12:40 AM | Comments (28) | TrackBack | Link Cosmos

June 3, 2005

Develop Markets

The trouble with crap like this is that the "moneyed interests" make sure that you hear it everywhere, without hearing the other side.

French voters are trying to preserve a 35-hour work week in a world where Indian engineers are ready to work a 35-hour day. Good luck.

Voters in "old Europe" - France, Germany, the Netherlands and Italy - seem to be saying to their leaders: stop the world, we want to get off; while voters in India have been telling their leaders: stop the world and build us a stepstool, we want to get on. I feel sorry for Western European blue collar workers. A world of benefits they have known for 50 years is coming apart, and their governments don't seem to have a strategy for coping.

OK, here is a strategy for coping: America has a very large market and the world wants to sell things to us. I say that's a good thing. And it gives us power. Suppose we (government, we, you and me) said to importers that the people who MAKE what they import HAVE TO BE PAID ENOUGH TO BUY THE THINGS WE MAKE HERE!!!!! And if they don't agree, we slap a big fat tax on those imports so they cost the same as goods made by workers here, which removes the incentive to export jobs.

Choice to corporations: either you make it here and pay American workers, or you pay enough THERE to DEVELOP MARKETS for the things our workers make.

It's the same argument as the minimum wage. Henry Ford famously said he wanted to pay his workers enough to be able to buy cars from his company. That develops a market. Requiring importers to pay the workers there enough to buy American-made goods is just plain common sense. Especially compared to the alternative -- laying people off here so they can't buy things made here, and not paying people there enough to buy them either.

Posted by Dave Johnson at 11:26 AM | Comments (8) | TrackBack | Link Cosmos

June 1, 2005

Today's Housing Bubble Post: Graphic Evidence

Eric Janszen, has a great (and scary) post on the housing bubble.

Dancing, Booze, and Overpriced Houses
The housing bubble is reaching absurd, bacchanalian heights, which can only mean one thing: it's getting ready to collapse.

There are times when I write this column that I feel like a Bible-thumping Evangelist of Doom, tromping back and forth across the blogosphere with an "End Is Near" placard strapped to my virtual ass. Never thought I'd see the day that I'd preach the evils of alcohol, dancing, and music to round out the role, but in the current instance, parties for condo sales are getting my attention. They signal that something is ready to happen, and it's not the Second Coming. Seven years of bubble-watching and research suggest that boozy condo celebrations mark the beginning of the end of the housing bubble.

Go look at the graphs he posts... he says (and I can't help but agree with him) "If you're not feeling at least a little queasy after looking at these pictures, then maybe you're numb from the booze and the dancing." The numbers are moving in a hugely anomalous way compared to historical trends -- scary stuff. Makes me glad I'm a renter (although that won't help me when the economy is taken out along with the housing market).

Posted by Thomas Leavitt at 7:40 AM | Comments (0) | TrackBack | Link Cosmos

May 28, 2005

What If We Did?

Sean Paul at the Agonist wants to know. "What do you believe would be some of the real world effects of a US default on its debt?"

Go leave a comment, or leave one here.

Posted by Dave Johnson at 6:14 PM | Comments (2) | TrackBack | Link Cosmos

May 25, 2005

Understanding economic "growth" in the U.S.

The latest edition of The Acamar Journal contains a revealing (perhaps frightening, even?) analysis of how, quite possibly, basic governmental statistics on growth and inflation have been deliberately over and understated to ensure the flow of foreign capital propping up the U.S. economy doesn't dry up (according to the author, the U.S. consumes 80% of world savings).

The author's analysis is based on, and highlights comments by Dr. Kurt Richebacher, a former Chief Economist at Dresdner Bank--Germany’s third largest bank, and Bill Gross, the Managing Director of PIMCO, the largest bond fund management company in the world.

Items that struck me as particularly interesting are the discussion of how the housing price component of the CPI is calculated (vastly understates increases in the actual cost of owner-occupied housing in today's market) and "hedonic pricing" (the Bureau of Statistics' method of accounting for quality improvements not reflected in price decreases).

Read on for some stunning quotes, or read the entire article at the link above.

In 1983 the Bureau of Labor Statistics abandoned the ‘asset price method’ which measured price changes in owner-occupied housing, replacing it with “owners’ equivalent rent of primary residence”. This is an arbitrary assessment of the rent an owner would pay for occupying his own home, rather than the increase in the value of the home itself! 28.4% of the CPI comes from the actual rent that tenants pay and from ‘assessed’ owner’s rent (owner occupied houses account for 82% of all properties). As national rental vacancy rates have climbed from 7.8% in 2000 to 10.2% in 2004, rental rates are low. Thus, the entire housing sector accounted for only a 2.2% contribution to CPI (even while prices for homes rose at an average of 11% in 2004). [my emphasis, --TL]

Is that a stunner, or what? But it gets better--read on to learn about how "hedonic pricing" (artificial price reductions based on perceived quality improvements) artificially inflates growth in the GDP.

Here's an example of how this works:

Used in the 1980s for computers, when massive gains in computing power were the norm, hedonic adjustments to business spending on computers (less than 1% of nominal GDP then) translated, at times, into accounting for up to 40% of real GDP growth! [my emphasis, --TL] Since 2000, business investment in computers has risen by 9.3%, but with hedonic adjustments, its contribution to GDP growth has been an increase of 113.4%.

... and of course, taking the BLS' methods into account, even if we've all "substituted" plastic lawn furniture for now price prohibitive quality hardwood furniture, and we're reduced to eating "mystery meat steak" instead of grade "AAA" beef (yes, even a vegetarian gets the difference), we're no worse off.

Note: The author's home page only includes links to the first ten editions, but the last twelve, including the one quoted above, are accessible by clicking on the link above, and then substitute 21, 20, 19, etc. for the 22 in the URL displayed. They're all well worth reading, very revealing. The author is a graduate of the London School of Economics and a Canadian Certified General Accountant. That said, in case it isn't obvious, read him critically - a "resource equity" specialist is going to have a more conservative/skeptical perspective than most.

Posted by Thomas Leavitt at 4:27 PM | Comments (1) | TrackBack | Link Cosmos

May 24, 2005

Today's Housing Bubble Post

Just go read everything here. Terrifying.

Posted by Dave Johnson at 1:52 PM | Comments (0) | TrackBack | Link Cosmos

Conversations

A couple weeks ago:

Wife, "They keep adding more work that I have to do."

Me, "Are you getting a raise, too?"

Wife, "Nope."

This morning:

Roommate, "It sounds like my workload is going to get a lot heavier."

ME, "Are they gonna pay you more?"

Roommate, "Nope."

Posted by Dave Johnson at 8:18 AM | Comments (7) | TrackBack | Link Cosmos

May 16, 2005

Hanging

Pessimist thinks we're selling them the rope.

Posted by Dave Johnson at 9:50 PM | Comments (0) | TrackBack | Link Cosmos

Today's Housing Bubble Post

Fester's Place: Property Tax Backlash

The bubble is having another effect. Many people are finding their property taxes astronically high.

Posted by Dave Johnson at 9:19 AM | Comments (1) | TrackBack | Link Cosmos

May 15, 2005

Interest-ing

I was searching for something I wrote a few years back, because someone referred to it in a comment on another blog. While searching I came acros an old post, Stimulate This. Excerpt,

The resulting reduction in government revenue forces spending cuts -- which means laying people off or cutting back what is spent on goods which results in laying people off. And the tax cuts cause government borrowing, which increases our debt, which means we all must pay higher taxes to cover the interest on that debt forever or pay extra taxes to pay down that debt. And THAT spending does NOT increase jobs in any way. Worse, what we're doing is borrowing money to give money to rich people, who use the money to buy government bonds -- loaning the money back to the government! Think about the circular logic of this. We're borrowing money from rich people to GIVE THE MONEY WE BORROW FROM THE RICH BACK TO THE RICH! And forever after paying them interest on the money we borrowed from them! It's like giving your house to someone, then borrowing the money from them to pay for the house you gave them! Since Reagan this tax cut process has shifted our economy to an economy where most of us work harder and harder just to pay taxes that go out as interest payments to the rich! (And don't forget that the money we're giving to the rich is OUR SOCIAL SECURITY MONEY! Jeeze, don't even get me started on that!)

Jeeze.

Posted by Dave Johnson at 1:27 PM | Comments (2) | TrackBack | Link Cosmos

May 11, 2005

Drop In Demand Good?

Trade Deficit Fell Unexpectedly in March, to $55 Billion,

An unexpected retreat in the United States' demand for imports trimmed the trade deficit in March to a six-month low, the government reported today, creating a far brighter picture of the economy than previous data suggested.

A big drop in demand is a GOOD thing? OK, what am I missing?

Posted by Dave Johnson at 9:42 AM | Comments (3) | TrackBack | Link Cosmos

May 10, 2005

Economists

The Economists and Andrew Jackson,

A group of economists are walking to the faculty meeting, they see a 20 dollar bill lying on the sidewalk in the quad.

The efficient market economist says "there can't be a 20 dollar bill there, otherwise it would have been picked up."

The monetarist says "Don't pick up that 20 dollar bill, if you do, that increases the velocity of money, which is inflationary."

The Keynesian economist says "Don't pick it up, someone who really needs it will."

Go read the rest.

Me, I be pickin up the money. Screw economists. By the way, how come the price of gas and housing has more than doubled in the last few years, but economists say "inflation is under control?"

Posted by Dave Johnson at 9:25 AM | Comments (2) | TrackBack | Link Cosmos

May 9, 2005

Debt

The Perfect Storm That Could Drown the Economy

"Personal expenditures in the past 15 months have been largely financed by borrowing," said Wynne Godley, a Cambridge University economist who is affiliated with the Levy Institute at Bard College. "And even a reduction in the pace of debt creation will force people to start spending less, on a big scale."

The government is borrowing massive amounts. The public is borrowing massive amounts. At this point we are so dependent on debt that even a reduction in the rate of new borrowing will smash the economy, but how long can the borrowing go on?

Update - Way more here.

Posted by Dave Johnson at 11:22 AM | Comments (2) | TrackBack | Link Cosmos

May 4, 2005

Today's Housing Bubble Post II

Jeeze!

Posted by Dave Johnson at 9:10 PM | Comments (9) | TrackBack | Link Cosmos

Today's Housing Bubble Post

Just look. What else is there to say? (And it's right near Santa Cruz, too...) (P.S. the specifics translate to no power, no water, no sewer...)

Thanks to The Housing Bubble blog.

Posted by Dave Johnson at 4:04 PM | Comments (3) | TrackBack | Link Cosmos

May 3, 2005

Today's Housing Bubble Post

Oh Man,

And when the dollar bubble finally bursts . . oh man. If you’ve ever heard the joke about the pig, the monkey and the cork, you have some idea what to expect. Which is why hopeful talk about a “soft landing” or a “smooth adjustment” makes me laugh. By now it should be obvious: We’re not going to stop until somebody or something makes us stop – just as a jumbo jet in vertical descent doesn’t stop until the ground makes it stop.

Oh, the joke? Well, it's the kind of joke Laura Bush might tell at a correspondent's dinner, but certainly not appropriate for Seeing the Forest.

Posted by Dave Johnson at 9:52 PM | Comments (1) | TrackBack | Link Cosmos

Today's Housing Bubble Post

Can we call it a Bubble now?

Posted by Dave Johnson at 12:18 PM | Comments (2) | TrackBack | Link Cosmos

May 2, 2005

Who IS Our Economy For, Anyway?

Angry Bear compares the pensions given in different countries. In Luxembourg workers get 102% of their average pay. In Austria, Hungary, Spain and Turkey you get 75%.

We get 36-38%.

In parts of Europe the workweek is 35 hours. ("In 2001, France’s national planning agency found “indisputable” evidence that work-time reduction was creating vast numbers of new jobs, helping to bring unemployment down from 12.5 percent in 1997 to an eighteen-year low of 8.6 percent.")

And what about vacations?

Many Americans, who have no legally-mandated right to paid vacations, suffer from “vacation deficit disorder.” A typical U.S. worker earns only 13.8 vacation days per year, while 22.5 million private sector workers have no paid vacation at all.

Across the Atlantic, the European Union (EU) Working Time Directive requires a minimum of four weeks paid leave each year for all employees, and several EU countries have five weeks (25 working days) of vacation by law. Dutch, German, and Italian workers have gained roughly 30 vacation days, on average, through collective bargaining.
In 1998, a national strike shut down Denmark over the demand for a sixth week of vacation, later phased-in through five additional paid leave days.

Now figure in free health care for everyone, paid parental leave, better working conditions and America's increasing concentration of wealth and you just have to ask, Who is our economy FOR, anyway?

No wonder Republicans hate Europe. Europe is setting an example. All we have to do is see it.

Posted by Dave Johnson at 8:49 AM | Comments (12) | TrackBack | Link Cosmos

April 30, 2005

Cut Wut?

I like to start arguments by asking right-wingers just WHAT government spending they think should be cut. (And what the hell does "big government" even MEAN?)

Any right-wingers reading this, please leave a comment -- what would you cut and how much money would that really save?

And remember, if you think it saves money to cut from repairing highways, for example, please include in your comment why you think this won't be offset by other costs. Like state taxes going up to cover necessary repairs, or the cost of lawsuits for damaged vehicles and accidents. Also, the cost in unemployment and welfare, etc. for laid-off workers. (Not to mention the ripple effect because those workers aren't spending at corner stores, etc.)

Another thought on this subject. Bush's $400 billion yearly deficits require NEW SPENDING of $20 billion for every year after or so to pay the interest...

Posted by Dave Johnson at 4:59 PM | Comments (5) | TrackBack | Link Cosmos

April 28, 2005

Today's Housing Bubble Post

The Housing Bubble: Media, Congress Need To Wake Up

The warning signs are everywhere that a mortgage/housing fiasco is unfolding and the silence is deafening. Except for newcomers like Cramer, the media isn't covering this debacle or the Doral matter. The home builders having their head handed to them after record existing and new sales, plus record earnings, should put the media on notice that we have a problem.

Perhaps asking the media to quit cheerleading and look at the housing crisis objectively is too much. What of our representatives in Washington? The congress had better be meeting to figure out what the heck they are going to do instead of debating who is more responsible for Fannie.

Posted by Dave Johnson at 2:49 PM | Comments (1) | TrackBack | Link Cosmos

Social Security for Tiny Brain Journalists

Love Brother Bush’s Traveling Social Security Salvation Show has mercifully come to an end. Because Love Brother Bush has been saying a lot of confusing things about Social Security, a lot of tiny brain journalists are . . . well, confused. Let's take a fresh look at how Social Security works just for them.

Programs that are financed through dedicated taxes are considered to be off-budget. Social Security with its FICA tax and Trust Fund is the largest off-budget program in the United States budget. In exchange for the privilege of using the excess FICA payments for general operating expenses, the Treasury Department issues special Social Security bonds to the Social Security trust fund.

In a nutshell, Love Brother Bush is stealing your FICA payments and giving them to Bill Gates in the form of tax cuts. Since Bill Gates needs lots of government welfare to keep Microsoft afloat, Bush is giving him not just your FICA payments, but the FICA payments of millions of other people as well.

The last couple of years FICA payments have been about $160 billion per year greater than the benefits due to retirees. FICA payments have been going into the general fund and the U.S. Treasury has been placing special non-tradeable Social Security "IOU" treasury bonds in the Social Security trust fund. That means Bush's actual deficit last year was actually close to $600 billion, but through this creative accounting gimmick, the budget deficit went on the books at a little over $400 billion.

The reason Love Brother Bush is so upset about this great arrangement, is that according to trust fund rules, someday the loans will have to be paid back to retirees in the form of benefit checks. The bad news is that because of Love Brother Bush’s tax cuts, the government will not have any money to pay retirement benefits, so Bush wants to divert some of the FICA payments going into the Trust Fund into private accounts. That means the Trust Fund will run out of money sooner. Why that is an advantage, not even the evil geniuses at the Heritage Foundation and CATO Institute have been able to explain.

Because Love Brother Bush cannot support Bill Gates in the manner to which he has become accustomed with surplus FICA payments alone, Bush must also give Brother Gates additional welfare in the form of tax cuts from revenue surpluses we don’t have. We are currently paying a little over $300 billion per year in interest on the national debt. Following the lead of supply siders at CATO and Heritage, Love Brother Bush wants to double that number with massive tax cuts for billionaires. In thirty years, nobody has been able to explain how tax cuts reduce budget deficits, but the theory makes Lawrence Kudlow giddy, and that seems to suffice for conservative economic policy wonks.

Astute readers are asking themselves why I am talking about the budget deficit. Let’s take a look at the future deficit chart from EPI. The teeny green box represents Love Brother Bush’s Social Security crisis. The tall blue column represents Bush’s tax cut deficits. To solve the teeny green crisis, Love Brother Bush wants to make the tall blue column about three times higher by extending his tax cuts.

To summarize, the fundamental flaw with Bush's stealth privatization plan is that it makes Social Security’s unfunded liability worse. His tax cuts make the budget deficit worse. To fix Medicare’s unfunded liability Love Brother Bush made it worse by giving a couple hundred billion dollars to Big Pharma. Does anybody detect a pattern here? In the private sector people get fired for fixing problems by making them worse.

Before we leave the subject of the national debt, let's take a look at our
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National Debt clock.

The singular goal of all of Love Brother Bush’s economic plans and programs is to make our national debt clock spin like crazy. The faster the clock spins the better. Noted psychologists suspect it isn’ts massive government deficits themselves, but the frenetic spinning of the national debt clock that makes Lawrence Kudlow giddy. There are persistent rumors that Lawrence has been observed chortling madly at his desk while watching the national debt clock hecticly keep pace with Love Brother Bush’s deficit spending programs. Making Lawrence Kudlow giddy seems to suffce as a rationale for national economic policy.

We've covered an awful lot of ground today. One thing to remember about the economic reports you see on television and read in the newspaper, is that tiny journalist brains like Chip Reed and Dick Gregory are not capable of grasping complex mathematical concepts like pluses and minuses. Tiny brain journalists are almost as good as President Bush is at making the simplest economic issues completely unintelligible. Many of them are aspirijng to the exalted and dizzying heights of journalistic and economic malpractice achieved by Joe Scarborough and Chris Matthews.

If you would like to become more economically informed, I suggest your spend thirty minutes a day, for ninety days reading the three best economic blogs on the web:

Brad DeLong

Max Speak, You Listen!

The Angry Bear

After reading those three blogs for ninety days, you will have a better understanding of economic issues than any of our tiny brain journalists.

Posted by Gary Boatwright at 8:04 AM | Comments (2) | TrackBack | Link Cosmos

April 26, 2005

Today's Housing Bubble Post

You probably saw the news today, New Home Sales Hit Record High in March. But did you see this, buried in the story?

The median price of a new home sold in March actually declined to $212,300, a 9.3 percent drop from the February level of $234,000.

The Housing Bubble blog asks the important question,

Here is the question of the day; if new home prices fell 9% in March, does that mean those who bought in February are already underwater?

"Underwater" means the house is already worth less than they paid for it. Remember, everyone is depending on the price of houses continually rising to justify the enormous payments they are making on the loans they are taking out.

Posted by Dave Johnson at 9:31 PM | Comments (3) | TrackBack | Link Cosmos

April 24, 2005

The Flight of the Creative Class

From http://www.salon.com/books/int/2005/04/21/florida/index.html

[Salon.com, of course, requires a subscription and/or sitting through a multi-media equivalent of a commercial, in order for you to read the full article... but it's worth doing. The review contains an in depth interview with Richard Florida where he discusses the collateral damage inflicted on our ability to attract the world's best and brightest by the culture war and the war on terrorism. Relevant to readers of this blog, he also discusses the failure of the left to effectively articulate a vision for how those left out of the "creative" economy can be integrated into it and their fears addressed. Florida goes into great depth about how BushCo/etc. is taking advantage of this to manipulate the electorate. Really good stuff. -Thomas]

"The gay/hipster index"

Richard Florida argues that unless America turns its cities into gay-friendly, hip creativity hubs like San Francisco, the best and brightest will opt for foreign climes.

- - - - - - - - - - - -

By Christopher Dreher

April 21, 2005 | "The United States of America is on the verge of losing its competitive advantage," economist Richard Florida wrote last fall in a Harvard Business Review article based on his new book, "The Flight of the Creative Class: The New Global Competition for Talent." "It is facing perhaps its greatest economic challenge since the dawn of the industrial revolution." Even more provocatively, he later declared that "Terrorism is less a threat to the U.S. than the possibility that creative and talented people will stop wanting to live within its borders."

A couple of excerpts:

[Florida:] The failure is on the left because they're the people who are supposed to be making a case for a proactively inclusive future. And why can't our left today -- instead of saying we're going to appeal to blue-collar voters by saying, "Well, what we're going to do is scale back women's rights and we don't even want to talk about gay rights" -- why can't the left do what you're supposed to do? Which is what Franklin Roosevelt did.

[Salon:] The idea of promoting "socially inclusive innovation" might fly in Australia and Scandinavia, but I can't think of any politician out there who could weather the fury of rote partisan criticism supporting that sort of change would bring out.

[Florida:] Yes, what scares me is that that force is absent from present-day America. Instead of bemoaning low-wage service jobs and then just talking about restoring manufacturing and dealing with outsourcing, someone somewhere has to say that the real key to the future is to make these service jobs good jobs. I mean that's the real policy point -- the service economy, which represents 40 to 45 percent of the lowest paying jobs in our economy with the least protection, has to become part of the creative economy. We have to change those jobs in the way industrial jobs were once changed from being terrible jobs to being good jobs. We're in deep trouble if we can't focus on and address the externalities of the creative age -- income inequality, the class divide, housing unaffordability, traffic congestion, and the one also talked about in the book, the incredible amount of mental stress, which is the occupational health and safety issue of the 21st century.

Posted by Thomas Leavitt at 11:25 PM | Comments (2) | TrackBack | Link Cosmos

April 19, 2005

Today's Housing Bubble Post

U.S. housing starts fall sharply in March: Decline by 17.6%, largest since Jan. 1991

Posted by Dave Johnson at 8:41 AM | Comments (3) | TrackBack | Link Cosmos

April 18, 2005

Global housing bubble? $20 trillion value increase in 4 years.

Opened up the copy of Parade Magazine packed in with my Sunday paper... this little gem caught my eye:

Housing prices aren't just skyrocketing in the U.S. In the years 2001-2004, they've risen by $20 trillion in developed countries worldwide.

Here's the full article - their source is The Economist, in a report published near the end of 2004 (so it doesn't take this year's craziness into account).

Here's what the Economist has to say in an article dated March 3rd, 2005, entitled "Still want to buy?".

[...]if rents continue to rise at their current annual pace of 2.5%, house prices would need to remain flat for over ten years to bring America's ratio of house prices to rents back to its long-term norm. There is a clear risk prices might fall. [My emphasis. -TL]

Here's how that article ends (talking about SF Bay Area real estate valuations):

To expect them to rise faster from their current dizzy heights smacks of irrational exuberance, to say the least.

Want to see something frightening? Type "economist housing prices" into Google. What comes up? How about an economics column in the Christian Science Monitor with this lead:

Economist Dean Baker was so worried about a housing bubble that he sold his Washington, D.C., condominium, at three times the price he paid for it, and rented an apartment instead.

Note: this same economist declared that there was a stock market bubble in 1997. Three years early. He sold his condo two years ago.

A year ago, the Washington Monthly ran an article entitled "There Goes the Neighborhood: Why home prices are about to plummet--and take the recovery with them." Here's a quote from it:

Virtually every housing economist is concerned that prices may be unstable, and growing numbers are becoming outright alarmed.

I lived through the dot.com bubble... all I have to say is that, if I owned a house today, I'd sell it. Unfortunately, I'm now a renter (sold my house a year ago), so I can't capitalize on this bubble... at least not yet. :/

On the other hand, long long term, I have to be bullish - California is going to have to pack in millions more people over the next few decades, and given that there is a fixed supply of land in the state, the laws of economics make the ultimate result pretty obvious: price increases. That said, it can take quite a while for prices to recover after a crash (as the NASDAQ and the SF Bay Area tech job market demonstrate).

Posted by Thomas Leavitt at 10:11 PM | Comments (0) | TrackBack | Link Cosmos

April 17, 2005

Today's Housing Bubble Post

In Real Estate Fever, More Signs of Sickness,

But now the question comes up more and more: How long can this last?

"It feels like we're on the tip of the razor blade right now," said real estate agent Eric Stewart at Llewellyn Realtors in Rockville. "And we can't remain at the edge of this blade very long."

It will be a hard fall -- when it happens.

Posted by Dave Johnson at 2:56 PM | Comments (4) | TrackBack | Link Cosmos

April 15, 2005

Today's Housing Bubble Post

What Will You Do About The Housing Bubble?

Also, how about that stock market?

Posted by Dave Johnson at 2:30 PM | Comments (3) | TrackBack | Link Cosmos

April 13, 2005

No More Income Taxes On Richest

House Votes to End Federal Estate Taxes

Your government just voted to eliminate income taxes on the children of the really, really rich. They now don't have to pay taxes on THEIR incomes -- namely, inheritances. But the rest of us have to pay taxes on OUR incomes.

Posted by Dave Johnson at 8:51 PM | Comments (4) | TrackBack | Link Cosmos

Prices II

What Steve says: The Left Coaster: The Lunacy Of Wall Street And The Fed's Current Game Plan.

Who is our economy FOR, anyway?

Posted by Dave Johnson at 8:53 AM | Comments (2) | TrackBack | Link Cosmos

April 12, 2005

Prices

The stock market suddenly reversed course and shot up 140 points from its low today, so I thought I'd see if I could find out why. Apparently there was a paragraph in a Federal Reserve document in which they said they didn't think they would need to "accelerate" interest rate increases.

In that paragraph members of the committee noted that even though "the required amount of cumulative tightening may have increased, an accelerated pace of tightening did not appear necessary at this time, as a degree of economic slack apparently remained, productivity growth would probably continue to damp increases in unit labor costs and prices, and inflation would most likely continue to be contained."

For Michael Sheldon, chief market strategist, at Spencer Clarke LLC, the phrasing shows "that while the FOMC is aware that inflationary pressures are moving to the upside, excess slack in the economy combined with still solid productivity growth and contained inflation expectations should allow the Fed to continue raising rates at a measured pace over the next several meetings."

Productivity growth - meaning fewer people working more hours for the same money - will "damp increases" in labor costs.

OK, I filled up two gas tanks yesterday for a combined $70. SEVENTY DOLLARS. I just came from the supermarket where cereal is now over $6. Housing costs are increasing 20% a year here, and 20% a MONTH in places like Reno.

But LABOR COSTS (namely: you) are under control so everything is copacetic. Watch your backs.

Posted by Dave Johnson at 12:45 PM | Comments (6) | TrackBack | Link Cosmos

Today's Housing Bubble post

Everyone should read James Wolcott: We Can't Say We Weren't Warned even though it doesn't mention housing.

There's a pattern here. As with Peak Oil, global warming, the real estate bubble, and the various US deficits, there's a general awareness of Trouble Coming and yet no sense of urgency or battle plan. It isn't that the media, the political class, and the media are paralyzed by fear or overwhelmed by alternative solutions, it's as if everyone is assuming that we can sleepwalk through the next crisis and muddle through as we always have with only minor hiccups, if any, in our lifestyles.

Posted by Dave Johnson at 9:44 AM | Comments (1) | TrackBack | Link Cosmos

April 5, 2005

Today's Housing Bubble Post

Bush to Back Curbs on Fannie, Freddie. This could have a dramatic effect on housing prices. Here's why. Much of the reason for the frenzy in home-buying is that banks are making incredibly risky loans. A no-down-payment, interest-only, adjustable loan enables people who don't make a lot of money to qualify for the monthly payment on a very expensive house. No down payment means that buyers have very little incentive to stay in the house (and keep making those monthly payments) if something goes wrong - they have literally nothing invested. Paying only the interest for the first five years means that their payments will go up dramatically in year six when principal payments are added. Adjustable means that if interest rates rise (and they will) the monthly payments will go up. Meanwhile the whole point of these loans is they make the house purchase possible for people who can't afford higher payments. The bet is that the price of the house will go up dramatically, so the buyer can sell the house before the end of the five year low-payment period. These are loans that are guaranteed to fail. The only question is when.

So why do the banks and other lenders make such loans? Because they can turn around and sell the loans to "Freddie Mac" and "Fannie Mae." From There Goes the Neighborhood: Why home prices are about to plummet--and take the recovery with them, in April's Washington Monthly,

Getting a home loan used to be a particularly nerve-wracking and unpleasant process. A stern loan officer behind a big mahogany desk would pore over your income and credit, suspiciously probing your portfolio for weaknesses. And sensibly enough: The bank that lent you the money would have to collect on the mortgage for the next 30 years and had to make sure you were really good for it. It hired independent appraisers to make sure the price was in line. [. . .] The one exception to this general process was mortgages sold on the secondary market. In the 1930s, Congress created the Federal National Mortgage Corporation (Fannie Mae) to encourage banks to make loans to low-income Americans by agreeing to purchase those mortgages from the banks. In 1970, Congress created a second agency, the Federal Home Loan Mortgage Corporation (Freddie Mac), to do much the same thing. By the late 1980s, these two entities, which belong to the category known as Government Sponsored Entities (GSEs), were buying up and reselling 30 percent of new mortgages and packaging the mortgages to be sold as securities.

Fannie and Freddie's market share was limited by their ability to attract investment capital. But in 1989, Congress instituted some modest-seeming technical changes that made Freddie and Fannie much more attractive to investors, and able to draw much more capital. Under the new rules, for instance, they were allowed to customize securities at different levels of risk and return to meet more precisely the demands of different sectors of the capital market. Then, too, bank regulators let pension funds and mutual funds class Fannie's debt as low-risk. As a consequence, during the 1990s, investors practically threw money at Fannie Mae and Freddie Mac, which became enormously, steadily profitable. The GSEs used the new capital to buy up every mortgage they could, and banks were only too happy to sell off the mortgage paper. The price cap on the mortgages Fannie and Freddie could insure was raised. As a result of all these changes, Fannie and Freddie went from buying mostly mortgages for low-end homes to those of the middle- and upper-middle class. And the share of the nation's conventional mortgage debt which they insure has swelled, to more than 70 percent today, double its share in 1990.

So the risk is off the banks and on these "GSEs." They used to buy 30% of mortgages, but now they buy 70%.

Once banks knew they could automatically hand off the mortgages they wrote to Fannie and Freddie with basically no risk, the old incentive system dissolved. "Banks and other mortgage lenders are not watching home prices carefully because they rarely hold onto the mortgage paper they create--they just sell it upstream to mortgage investors," John R. Talbott, a housing researcher at UCLA's Anderson School of Business, has argued. "It is a dangerous situation indeed when neither home buyers nor the institutions that finance them are concerned with the ultimate price being paid for the housing asset."

With the risk off the banks, why should they care if these loans fail? See if you can guess who the risk is on now - who will pay if these loans can't be paid off by the house buyers?

Those who understand that the entire financial system now rests on these loans supporting housing prices are trying to make behind-the-scenes changes to shore up the problem. But this would make loans harder to get, which would pop the housing bubble.

And, of course, Realtors oppose new test in GSE reform bill:

"The 'bright-line' test could inhibit innovations associated with Fannie Mae's and Freddie Mac's automated underwriting systems and result in higher loan costs and decreased access to mortgage credit that would make it more difficult to buy a home," said NAR [National Association of Realtors] President Al Mansell.

Requiring reasonable credit checks before making $700,000 loans? No, realtors don't like that at all!

Posted by Dave Johnson at 10:16 AM | Comments (2) | TrackBack | Link Cosmos

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