Thread: The strongest economy in the world

I nominate Storekeeper for the Nobel prize in economics.

The slide is continuing - backwards:

Last updated: September 12, 2012
US median income lowest since 1995
By James Politi in Washington

US median income lowest since 1995 - FT.com

Well, there is a discprepancy.

Is it 1995 or 1989 income levels?

Depends on how the study is done I suppose. Either, it ain't good news.

Incomes Fall to 1989 Levels
US incomes fall to 1989 levels. How did that happen?

A Census report signals that for much of America, the economic downturn has produced not one lost decade but two. But the data also show that federal safety-net programs helped keep people out of poverty.

By Mark Trumbull | Christian Science Monitor – 1 hr 42 mins ago

The typical US household saw its income fall last year to 1989 levels.
That news, contained in a US Census Bureau survey released Wednesday, points to difficult questions of how the US can get back on a track of job growth and rising prosperity.

Median incomes fell 1.5 percent in 2011, while the official poverty rate remained essentially unchanged at 15 percent.


A family right in the middle of the income spectrum had an income of $50,054, which is actually lower than the 1989 median level of $50,624 expressed in 2011 dollars. The implication: For much of America the economy has produced not just one lost decade but two. Stagnation has even hit wealthier and more educated households (the 95th percentile in the Census data) for the past decade.

Why the hard times? And what can be done about it?

Those questions were already urgent before this latest data release. The presidential election campaign is pivoting largely around the economy and what role the government should play in it. This year, since the time period of the Census data, conditions have improved somewhat – with about a million Americans gaining jobs and hourly wages rising about 5 cents an hour. But the unemployment rate remains high, as does economic anxiety, even among people with jobs.

Economists haven't reached a consensus about what forces have caused the middle-class stagnation, but they have pointed to some that may be involved to varying degrees:
Globalization: The rest of the world is playing catchup to the nation that came to dominate in technology and sheer productive muscle during the 20th century. In theory, the US can still prosper as emerging nations from China to Brazil rise, but recent years have seen fierce global competition. America needs to boost its skills faster to stay in the game.
Technology: As with globalization, in theory this isn't a job-destroying force, just one that causes the nature of jobs to change. But some argue that rapid technological advances are having an especially hard impact on many middle-wage jobs that can be largely automated.

Inequality: A wage premium for the educated, the decline of labor unions, and the failure of the minimum wage to keep up with inflation have been among the factors widening the income gap between the rich and the middle class or poor. Some economists say that gap makes for a less vibrant nation. "Lack of opportunity means that its most valuable asset -- its people -- is not being fully used," Joseph Stiglitz of Columbia University has argued. When the rich are able to win big tax cuts it "leads to underinvestment in infrastructure, education and technology, impeding the engines of growth."

Debt and government: Another line of reasoning, taken by some conservative economists, is that economic growth is slowing as America becomes more of a European-style welfare state, with more people receiving public services and government spending accounting for a larger share of the economy. Some say the rising level of public debt, in particular, is emerging as an obstacle to be reckoned with. Others cite high levels of regulation and "crony capitalism," in which government policies favor some industries or companies at the expense of others.


Two other factors, mentioned by Census officials as affecting the recent data, are demographic aging of the population (income typically goes down as people hit retirement age) and a skewing of new jobs in 2011 toward the lower end of the wage spectrum.

The prescriptions for the road ahead depend on the diagnoses of causes, but many economists agree on the need for stronger education, better matching of skills with job opportunities, and an effort to overhaul the nation's fiscal policy, including taxes.
Some economists also argue for policies targeted to boost the level of innovation and entrepreneurship.

"Policymakers need to recognize that the United States is engaged in a fierce race for innovation-based economic growth," write Robert Atkinson and several co-authors, in a report released Wednesday by the Information Technology and Innovation Foundation in Washington. To enhance US science and entrepreneurship, they argue that political leaders should recognize "that both parties bring good ideas to the table."

"We do need to keep [government] debt from rising faster than the economy grows," Robert Greenstein, president of the liberal Center on Budget and Policy Priorities in Washington, said in a conference call about Wednesday's Census numbers.

The challenge, he said, is to set a long-term course away from huge deficits, while also avoiding the "fiscal cliff" – a $560 billion package of mandatory spending cuts and tax hikes that take effect at year's end, including the expiration of the Bush tax cuts, that could cause a recession unless Congress takes countermeasures to prevent a big drop in consumption.

Mr. Greenstein argues that, given that high-earning Americans have seen their share of national income grow, there is a "need for those at the top to share in the sacrifices that lie ahead." His viewpoint stands in contrast to Republican presidential candidate Mitt Romney, who emphasizes low taxes for everyone as a key to reviving job creation.

While the Census data won't settle the debate over the proper size of government, it did provide some evidence that federal safety-net and social-insurance programs have helped to keep poverty lower than it would otherwise be.
Some 21.4 million Americans would be in poverty were it not for Social Security income, including 14.5 million people over age 65 and others who are on disability insurance, the report said.

Meanwhile, the Census report showed that the share of Americans who don't have health insurance declined in 2011, in part because of rising enrollment in Medicaid, the federal-and-state program for the poor.

Programs including food stamps (now known as the SNAP program) and the Earned Income Tax Credit have a significant impact. Although two Census gauges show similar levels of overall poverty in the US, the inclusion of SNAP and the EITC in a "supplemental poverty rate" suggest the more widely watched official poverty rate overstates the share of children in poverty.

By both measures, however, children in the US have a higher poverty rate than adults.

Link: http://www.csmonitor.com/USA/2012/09...id-that-happen

Here is Trump's take on QE3. With so many people agreeing with him and saying the same thing, I will consider this an accurate assessment.

Trump: QE3 ‘Artificial,’ but Rich Will Love It
Published: Tuesday, 18 Sep 2012
By: Javier E. David

The Federal Reserve’s latest gambit to spark U.S. economic growth with more bond buying is little more than “artificial” support for key asset markets, billionaire real estate entrepreneur Donald Trump told CNBC Tuesday.

Echoing comments made by Dallas Fed President Richard Fisher that an open-ended quantitative easing, or QE3, would do little to help revive the economy, Trump said only stocks, real estate, and the investors who owned them would benefit from the move.

“Everything is artificial, there’s nothing that’s real,” the mogul said on CNBC’s “Squawk Box.” Stock markets — which recently surged to multi-year peaks — are on the rise less because of fundamentals, and more because of the expected liquidity from the Fed that will filter into asset markets. (Read more: Pimco’s Gross: Central Banks ‘Where Bad Bonds Go to Die.’)

Trump warned that the Fed’s $40 billion a month mortgage-backed security buying program would lead to inflation. He also suggested wealthy asset owners would be the biggest beneficiaries of a potential surge in prices.

“I should be very happy about [inflation] in theory … but I’m not happy because ultimately it will come home to roost, and it’s going to be very, very unfortunate in the form of [higher] interest rates and some very severe things happening later on with the economy,” said Trump.

Entire: Trump: QE3

^His views are echoed by many other financial commentators.

Originally Posted by barbaro

Here is Trump's take on QE3. With so many people agreeing with him and saying the same thing, I will consider this an accurate assessment.

Trump: QE3 ‘Artificial,’ but Rich Will Love It
Published: Tuesday, 18 Sep 2012
By: Javier E. David

The Federal Reserve’s latest gambit to spark U.S. economic growth with more bond buying is little more than “artificial” support for key asset markets, billionaire real estate entrepreneur Donald Trump told CNBC Tuesday.

Echoing comments made by Dallas Fed President Richard Fisher that an open-ended quantitative easing, or QE3, would do little to help revive the economy, Trump said only stocks, real estate, and the investors who owned them would benefit from the move.

“Everything is artificial, there’s nothing that’s real,” the mogul said on CNBC’s “Squawk Box.” Stock markets — which recently surged to multi-year peaks — are on the rise less because of fundamentals, and more because of the expected liquidity from the Fed that will filter into asset markets. (Read more: Pimco’s Gross: Central Banks ‘Where Bad Bonds Go to Die.’)

Trump warned that the Fed’s $40 billion a month mortgage-backed security buying program would lead to inflation. He also suggested wealthy asset owners would be the biggest beneficiaries of a potential surge in prices.

“I should be very happy about [inflation] in theory … but I’m not happy because ultimately it will come home to roost, and it’s going to be very, very unfortunate in the form of [higher] interest rates and some very severe things happening later on with the economy,” said Trump.

Entire: Trump: QE3

Good to see a big name come out with that. No one listens to the bloggers that have been saying about the same thing. I just wonder how long all of this can go on like this.

Originally Posted by Boon Mee

And nothing is going to change until America gets new leadership

Yep, that would be great; if they could just find someone.

Originally Posted by OhOh

Originally Posted by Boon Mee

And nothing is going to change until America gets new leadership

Yep, that would be great; if they could just find someone.

"New Leadership" cannot do it - because "new leadership" will be the same.

It's the structure or 2-year, 4-year, and six-year election cycles.

Politicians give and give, but never cut or reduce.

Lobbyists, MIC, Big Pharma....all of the usual suspects. These usual suspects, are the actual leaders.

QE3...... How's that working out for yah?

Dow drops 100 after Fed official's warning - Yahoo! News

Leading Coal Company Will Lay Off 1,200 Workers – Blames Obama EPA Regulations

Obama - the one-man wreaking crew or what?




Alpha Natural Resources announced today that it plans on closing eight mines in Pennsylvania, Virginia and West Virginia. The company will lay off 1,200 employees.
The New York Times reported:

Alpha Natural Resources, one of the nation’s largest coal producers, announced on Tuesday that it planned to idle eight mines in Pennsylvania, Virginia and West Virginia, reducing its annual production by 16 million tons. The move will include laying off 1,200 of 13,000 employees. The company said that it was trying to meet the “evolving demands of a changing global coal market” and that it would continue selling coal in the United States while focusing new efforts on overseas markets.

The company blamed Obama’s EPA for the layoffs.
The Wall Street Journal reported:

The coal industry has been hit by competition from cheap natural gas, but Alpha made clear in its announcement that an equal problem is a Washington “regulatory environment that’s aggressively aimed at constraining the use of coal.” That’s a direct reference to the deluge of Obama Environmental Protection Agency regulations designed to force the closure of coal-fired power plants.

Yep! The strongest economy in the world just keeps getting stronger, eh?

They would not build that business...

“55 percent of small business owners would not start company today, blame Obama.”

Can't blame Bush at this late stage of the game, eh?

The title is misleading by using the term "Obama" but the statistics are correct. More income decline during the so-called recovery - a thing that in my opinion has not even happened. There has not been a "recovery."

The term "Obama" is used because well....this is the Weekly Standard.

Americans’ Incomes Have Fallen $3,040 During the Obama ‘Recovery’
SEP 27, 2012

• BY JEFFREY H. ANDERSON

Americans must be wondering how much more of this “recovery” they can afford. New figures from the Census Bureau’s Current Population Survey, compiled by Sentier Research, show that the typical American household’s real (inflation-adjusted) income has actually dropped 5.7 percent during the Obama “recovery.”

Using constant 2012 dollars (to adjust for inflation), the median annual income of American households was $53,718 as of June 2009, the last month of the recession. Now, after 38 months of this “recovery,” it has fallen to $50,678 — a drop of $3,040 per household.


Yet it gets worse. Amazingly, incomes have dropped even more during the “recovery” than they did during the recession. In fact, they’ve dropped more than twice as much as they did during the recession. From the start to the end of the recession, the real median income of American households fell $1,413, or 2.6 percent. From the end of the recession to the present day, it has dropped $3,040, or 5.7 percent. This begs the question: What kind of “recovery” compares unfavorably with the recession from which it’s ostensibly recovering?

Americans

Indeed- the weak recovery, such as it is, consists of a bunch of low paid jobs mainly. You would think the republicans might capitalise on that, but considering their campaign platform is to slash taxes for the already rich still further, and offer absolutely nothing for the middle class, they fail to do so.

Sounds about right...

For the past several weeks, several defense contractors made it clear they would have to send out layoff notices to thousands of workers due to automatic budget cuts set to take affect in January. The cuts are triggered by the debt ceiling “deal” hatched last year. The layoff notices are required under federal law.

Understandably, the Obama Administration was panicked by this. The notices would hit in the last month of his reelection campaign and have a huge impact in the critical swing state of Virginia, home to hoards of defense contractors. What to do? Simple. Ignore the law.

Yesterday, Lockheed Martin, a massive contractor, announced it had reached a “deal” with the White House and would not send out the legally required layoff notices. The Obama Administration had “interpreted” the law and found it would be “inappropriate” to send out the layoff notices.

More amazingly, the White House promised to pay any fines or penalties that might be leveled against the company for violating federal law.

What Does Obama Care About Some Stinkin' 'Rule of Law Anyway, Huh?

This article sheds more light on the oligarchy that is running the place......

http://www.nytimes.com/2012/10/14/op...it_th_20121014

Another nice chart depicting the difference between the Obama & Reagan recoveries:



Memo To Michelle Obama: Here's What A Huge Recovery Looks Like - Investors.com

OhOh, and Boon Mee,

You do paint the accurate picture and you do call out these LIES by politicians.

"Recovery?"

That word is a minsnomer. That term should not even be used.

It's a new "model" or a "new paradigm."

I'm waiting to see what will happen to average salaries in the states when economic growth starts to pick up steam, and the consumer debt overhang starts to fade. If average/ middle class salaries fail to recover, then we have indeed witnessed a paradigm change in the USA- and not a good one, for a consumer society. I'm certainly hoping that particular virus doesn't spread to my own native countries. Then again, that same wage & employment flexibility helps make the US a relatively resilient economy, certainly compared to olde Europe. But the wealth and income differentials there have now become parlous- especially with the rich (amazingly) paying less tax on their earnings than the middle class- and it threatens the whole 'consumption society' /middle class model, if not addressed.

Your average Joe doesn't really have much of a choice if he want's to continue with the "model" accepted by society. Some have already thrown in the towel and I am amazed that the majority don't see the writing on the wall. C'est la vie.

Originally Posted by sabang

I'm waiting to see what will happen to average salaries in the states when economic growth starts to pick up steam, and the consumer debt overhang starts to fade. If average/ middle class salaries fail to recover, then we have indeed witnessed a paradigm change in the USA- and not a good one

Sabang,

There is a serious issue that none of the candidates are discussing and it specifically relates to wage growth - or decline:

inflation.

The Incredible Shrinking Pay Raise: Wages Can't Keep Up With Inflation

Published: Tuesday, 10 Jul 2012
By: Margaret Price
Christian Science Monitor

Pay raises are getting smaller, but consumer prices continue to rise. If the trend in shrinking worker pay raises continues, it could mean stalled consumer spending and a halt to economic growth.

Earlier this year, some 20,000 salaried workers of Ford, mainly in the United States and Canada, got their first hike in base pay in two years. It wasn't much: a raise of 2.7 percent, on average. But the Dearborn, Michigan, automaker threw in some bonuses in 2011 and again this year.

These days, that looks downright generous.

The annual pay raise — something workers could once rely on — has become a lot more iffy in the aftermath of the Great Recession. Despite rising corporate profits, average wage hikes aren't keeping pace with inflation. Some new workers are being paid less than they would have been five years ago, by some estimates. Hourly earnings for production and nonsupervisory workers rose so little in the fiscal year ending in May that their growth rate tied a 47-year record low, government data show. Given the tight labor market, even those who have kept their jobs have had limited bargaining power on wages and benefit.

"It's a buyer's mar[at]ket for employers," sums up Linda Bar[at]rington, managing director of Cornell University's Institute for Compensa[at]tion Studies in New York.

If pay raises continue to shrink, the trend could crimp consumer spending and overall economic growth.

Entire article, and well worth the whole read/browse: The Incredible Shrinking Pay Raise: Wages Can't Keep Up With Inflation

Please browse this article. Do not be deterred by it's apparent length:

September 16, 2012
The Magnitude of the Mess We're In

The next Treasury secretary will confront problems so daunting that even Alexander Hamilton would have trouble preserving the full faith and credit of the United States.

By George P. Shultz, Michael J. Boskin, John F. Cogan, Allan H. Meltzer and John B. Taylor

Sometimes a few facts tell important stories. The American economy now is full of facts that tell stories that you really don't want, but need, to hear.

Where are we now?

Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.

The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.

The government has to get the money to finance its spending by taxing or borrowing. While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.

Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve? Foreign governments accounted for most of the rest, as American citizens' and institutions' purchases and sales netted to about zero. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II.

The Fed has effectively replaced the entire interbank money market and large segments of other markets with itself. It determines the interest rate by declaring what it will pay on reserve balances at the Fed without regard for the supply and demand of money. By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended economic consequences.

Did you know that the Federal Reserve is now giving money to banks, effectively circumventing the appropriations process? To pay for quantitative easing—the purchase of government debt, mortgage-backed securities, etc.—the Fed credits banks with electronic deposits that are reserve balances at the Federal Reserve. These reserve balances have exploded to $1.5 trillion from $8 billion in September 2008.

The Fed now pays 0.25% interest on reserves it holds. So the Fed is paying the banks almost $4 billion a year. If interest rates rise to 2%, and the Federal Reserve raises the rate it pays on reserves correspondingly, the payment rises to $30 billion a year. Would Congress appropriate that kind of money to give—not lend—to banks?

The Fed's policy of keeping interest rates so low for so long means that the real rate (after accounting for inflation) is negative, thereby cutting significantly the real income of those who have saved for retirement over their lifetime.

The Consumer Financial Protection Bureau is also being financed by the Federal Reserve rather than by appropriations, severing the checks and balances needed for good government. And the Fed's Operation Twist, buying long-term and selling short-term debt, is substituting for the Treasury's traditional debt management.

This large expansion of reserves creates two-sided risks. If it is not unwound, the reserves could pour into the economy, causing inflation. In that event, the Fed will have effectively turned the government debt and mortgage-backed securities it purchased into money that will have an explosive impact. If reserves are unwound too quickly, banks may find it hard to adjust and pull back on loans. Unwinding would be hard to manage now, but will become ever harder the more the balance sheet rises.

The issue is not merely how much we spend, but how wisely, how effectively. Did you know that the federal government had 46 separate job-training programs? Yet a 47th for green jobs was added, and the success rate was so poor that the Department of Labor inspector general said it should be shut down. We need to get much better results from current programs, serving a more carefully targeted set of people with more effective programs that increase their opportunities.

Did you know that funding for federal regulatory agencies and their employment levels are at all-time highs? In 2010, the number of Federal Register pages devoted to proposed new rules broke its previous all-time record for the second consecutive year. It's up by 25% compared to 2008. These regulations alone will impose large costs and create heightened uncertainty for business and especially small business.

This is all bad enough, but where we are headed is even worse.

President Obama's budget will raise the federal debt-to-GDP ratio to 80.4% in two years, about double its level at the end of 2008, and a larger percentage point increase than Greece from the end of 2008 to the beginning of this year.

Under the president's budget, for example, the debt expands rapidly to $18.8 trillion from $10.8 trillion in 10 years. The interest costs alone will reach $743 billion a year, more than we are currently spending on Social Security, Medicare or national defense, even under the benign assumption of no inflationary increase or adverse bond-market reaction. For every one percentage point increase in interest rates above this projection, interest costs rise by more than $100 billion, more than current spending on veterans' health and the National Institutes of Health combined.

Worse, the unfunded long-run liabilities of Social Security, Medicare and Medicaid add tens of trillions of dollars to the debt, mostly due to rising real benefits per beneficiary. Before long, all the government will be able to do is finance the debt and pay pension and medical benefits. This spending will crowd out all other necessary government functions.

What does this spending and debt mean in the long run if it is not controlled? One result will be ever-higher income and payroll taxes on all taxpayers that will reach over 80% at the top and 70% for many middle-income working couples.

Did you know that the federal government used the bankruptcy of two auto companies to transfer money that belonged to debt holders such as pension funds and paid it to friendly labor unions? This greatly increased uncertainty about creditor rights under bankruptcy law.

The Fed is adding to the uncertainty of current policy. Quantitative easing as a policy tool is very hard to manage. Traders speculate whether and when the Fed will intervene next. The Fed can intervene without limit in any credit market—not only mortgage-backed securities but also securities backed by automobile loans or student loans. This raises questions about why an independent agency of government should have this power.

When businesses and households confront large-scale uncertainty, they tend to wait for more clarity to emerge before making major commitments to spend, invest and hire. Right now, they confront a mountain of regulatory uncertainty and a fiscal cliff that, if unattended, means a sharp increase in taxes and a sharp decline in spending bound to have adverse effect on the economy. Are you surprised that so much cash is waiting on the sidelines?

What's at stake?

We cannot count on problems elsewhere in the world to make Treasury securities a safe haven forever. We risk eventually losing the privilege and great benefit of lower interest rates from the dollar's role as the global reserve currency. In short, we risk passing an economic, fiscal and financial point of no return.

Suppose you were offered the job of Treasury secretary a few months from now. Would you accept? You would confront problems that are so daunting even Alexander Hamilton would have trouble preserving the full faith and credit of the United States. Our first Treasury secretary famously argued that one of a nation's greatest assets is its ability to issue debt, especially in a crisis. We needed to honor our Revolutionary War debt, he said, because the debt "foreign and domestic, was the price of liberty."

History has reconfirmed Hamilton's wisdom. As historian John Steele Gordon has written, our nation's ability to issue debt helped preserve the Union in the 1860s and defeat totalitarian governments in the 1940s. Today, government officials are issuing debt to finance pet projects and payoffs to interest groups, not some vital, let alone existential, national purpose.

The problems are close to being unmanageable now. If we stay on the current path, they will wind up being completely unmanageable, culminating in an unwelcome explosion and crisis.

The fixes are blindingly obvious. Economic theory, empirical studies and historical experience teach that the solutions are the lowest possible tax rates on the broadest base, sufficient to fund the necessary functions of government on balance over the business cycle; sound monetary policy; trade liberalization; spending control and entitlement reform; and regulatory, litigation and education reform. The need is clear. Why wait for disaster? The future is now.

The authors are senior fellows at Stanford University's Hoover Institution. They have served in various federal government policy positions in the Treasury Department, the Office of Management and Budget and the Council of Economic Advisers.

A version of this article appeared September 17, 2012, on page A19 in the U.S. edition of The Wall Street Journal, with the headline: The Magnitude of the Mess We're In.

Copyright 2012 Dow Jones & Company, Inc. All Rights Reserved

Shultz, Boskin, Cogan, Meltzer and Taylor: The Magnitude of the Mess We're In - WSJ.com