Political Economy category archive

One of the most telltale signs of what is happening to our economy is the University of Michigan consumer confidence survey.

It has been trending down for the past two years and has already dropped to levels that were last reached during the 90-91 recession, when unemployment was at 7%. This shows me that increases in health care, energy and food costs are taking there toll.

It is not the fact that people are unemployed that’s the problem; it’s that they have less discretionary income to spend. Less spending will result in higher unemployment in the future, making the situation worse. Where are government’s focus should be is ending runaway inflation in health care energy and food. Addressing the fact that ethanol is causing food prices to soar, health care causes us to totally lose a consumer’s whole family to even a minor illness.

A one time tax rebate is to simplistic a cure to what are fundamental problems that will last for years.

Vacancies.

Via Atrios.

It’s dangerous work.

As cash-strapped Americans fight to keep their homes, an increasing number are losing their cars.

The nation’s busting economy has been a boom for the repo man.

Nationwide, auto repossessions are at a 10-year high, according to an economist at one of the nation’s biggest wholesale auto auction houses.

I mentioned them the other day.

Eliot Spitzer:

Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers’ ability to repay, making loans with deceptive “teaser” rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.

Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.

The Republican Party. Making the rich richer and the poor poorer for 150 years.

Addendum, Not So Soon After:

Balloon Juice.

I have mentioned before how one of the most bogus arguments against national health care is that it will lead to “rationing benefits.”

My friends, it’s already rationed, not by guvmint bureaucrats, but by faceless clerks in insurance company office buildings.

She’s “exhausted her lifetime benefits.” She’s 18.

Via Susie.

I have often wondered why there is not more public outrage about are high cost of health care, and why people are not demanding change.

If prices were skyrocketing like this any where else you would be hearing about on the evening news every night.

Then it hit me, the largest sponsor of these shows are health care and drug companies. They are not there to sell product as much as to exert editorial control over the news.

Everyone knows it is not wise to bite the hand that feeds you, so it stands to reason stories that you should be seeing, like 150% longer ER waits for heart attacks and 300% ER longer waits for everything else go unreported.

You call it financial censorship or lies by omission, but it is causing a lot of pain and suffering.

Frank Salamone blames himself, mostly, for his small role in the subprime-debt crisis that has helped hobble the global economy.

With his household debt soaring from a $123,000 mortgage in 1990 to a $425,000 mortgage on the same house by 2006, Frank and his wife, Joan, are a striking example of how the housing bubble’s easy credit allowed consumers to bury themselves in debt.

Now, they are struggling to avoid the worst consequence of what Frank called “crappy decisions.” That would be the loss of their house in Bucks County’s Warwick Township. “I’m not an Oprah victim. I don’t blame anybody,” he said.

No mention, of course, of the failure to regulate the financial industry to keep the industry from selling bags of air.

A brand new worry bead for our worry bead chain has arrived (like we needed it) Stagdeflation!

Normally I would discount it, but it comes from Nouriel Roubini, the guy who seems to get everything right, with a second from George Soros, no dummy himself. They calculate that we are headed into a total financial meltdown so severe that inflation will turn into deflation. This is 1930’s stuff. And coming from Roubini, you can not brush it off.

They unveiled this term at the Davos conference in Switzerland, so it was not meant for our ears, but thanks to the Internet there are no secrets anymore. To be clear, deflation does not normally happen in a recession; it takes a world wide depression to make prices of everything to fall. Both Roubini and Soros gave it a high probability. so be careful out there!

Now I have no ideas about where to put your money.

I was watching CNBC all day as usual today, and as has been the case all year, all the news was bad. Retail sales bad, even at Walmart; first time jobless claims way too high; housing starts way to low. All this endless bad news is pointing to a consumer led recession that is going to be a long lasting bear of a problem. The most troublesome thing about it includes inflation pressures on the consumer in areas such as food, energy, and health care that could well escalate instead of moderate. Add to that we have stagnent wages , no savings, declining home values, and record credit card debt.

The tune “Brother Can You Spare a Dime” keeps playing in my head.

Conundrum defines an intricate and difficult problem. This is in regard to use of ethynol as a automobile fuel. The price of a bushel of corn doubled last year, from 2 to 4 dollars a bushel, causing food prices to rise to record levels. This sets up a painful problem: even if oil prices fall it will cause us to use more ethynol because we will drive more. Since our gas is mixed with corn oil, food prices will rise even higher causing, real hardship for families especially. Talk about being stuck between a rock and a hard place. We finally get lucky, but we don’t save a dime.

While listening to the morning news on a station that I will not humiliate by naming it, I actually heard a reporter refer to Republicans as “fiscal conservatives.”

Yeah.

Right.

Theeeyyyyy’rrrreeee back . . .

The automated spam phone calls trying to sell me loans I don’t need from outfits I never heard of.

Six calls made it through the Caller ID check and the outgoing answering machine message and onto the answering machine in the past two days.

Lord knows how many of the other dozen or so calls that failed the Caller ID check in that time were more of the same.

Dammit, I’m old fashioned (in addition to being old)

If I need a loan, I’ll do it the traditional way.

I’ll just overextent my credit card.

I certainly wouldn’t take a loan from some unknown bozo who calls me up on the tellyphone.

I’ll get it from a known bozo.

AKA Reaganomics voodoo economics.

The Big Lie of Republican economic policy.

From Fact Check dot org. Follow the link for a more nuanced explanation, including very a description of the very limited circumstances in which there may be a soucon of truth hidden in the Big Lie:

Q: Have tax cuts always resulted in higher tax revenues and more economic growth as many tax cut proponents claim?

A: No. In fact, economists say tax cuts do not spark enough growth to pay for themselves.

But it is without doubt that Republican tax cuts make the rich richer and the poor poorer.

That’s why Republicans have to lie about them.

If this isn’t a recession, it’s looking an awful lot like one.

The unemployment rate has taken the biggest jump since the 2001 terrorist attacks, a key gauge of manufacturing activity has fallen to a five-year low, and now consumer spending, which had been a standout performer, is starting to sag.

The Commerce Department reported yesterday that retail sales fell a sharp 0.4 percent in December, handing retailers their worst Christmas in five years.

It seems that consumers, who account for two-thirds of total economic activity, have slowed their spending in the face of an array of problems. And the worry is that they may cut back further.

Already, consumer confidence has slipped significantly amid the spiral of oil prices, the sagging of home prices, the rising of mortgage defaults, and the increasing of unemployment.

Of course, this is what happens when the ruling party believes the wealth is an indiator of virtue and that selling the country to the highest bidder is wise public policy.

BBC:

The feared recession in the US economy has already arrived, according to a report from Merrill Lynch.

It said that Friday’s employment report, which sent shares tumbling worldwide, confirmed that the US is in the first month of a recession.

Its view is controversial, with banks such as Lehman Brothers disagreeing.

But a reserve member of the committee that sets US rates warned that it could do little about the below-trend growth expected in the next six months.

“I am concerned that developments on the inflation front will make the Fed’s policy decisions more difficult in 2008,” Charles Plosser, president of the Federal Reserve Bank of Philadelphia said.

Via Raw Story.

Addendum, the Next Morning:

An opposing view, using a somewhat unorthodox economic indicator:

Robert McLellan has his own leading economic indicator, and it’s not pointing toward a recession.

McLellan, the chief operating officer of Accurate Lift Truck Inc., of West Berlin, said he watched the company’s fleet of forklifts available for short-term rentals.

If Accurate’s customers – warehouses, trucking companies and others – are busy moving goods, the economy is perking right along and his short-term rental fleet of forklifts “is flying out the door,” McLellan said.

And how is business now? “We’re probably 95 percent rented,” he said. That is actually more than he would like.

“The rule of thumb is, you should never be more than 85 percent rented,” to ensure smooth operations, he said.

It’s just gonna get worse.

More dramatic is the economic consulting firm’s prediction for the number of houses that will be repossessed in the foreclosure process. That number will jump 42 percent this year, to 1.24 million from 869,557, Moody’s said.

That’s bad news for house prices.

“Foreclosures are adding to the inventory of unsold homes, and are worsening the housing outlook,” said Patrick Newport, an economist with Global Insight Inc., an economic research firm in Waltham, Mass.

Foreclosures are concentrated in California, Arizona, Nevada, Arizona, Florida, Michigan and Ohio. Those states are going to face the most severe downturn in house prices – 20 percent to 30 percent in some areas.

And get ready for the solution from the Current Federal Administration: More tax cuts for the rich (via Susie):

. . . for 30 years American politics has been dominated by a political movement practicing Robin-Hood-in-reverse, giving unto those that hath while taking from those who don’t. And one secret of that long domination has been a remarkable flexibility in economic debate. The policies never change — but the arguments for these policies turn on a dime.

When the economy is doing reasonably well, the debate is dominated by hype — by the claim that America’s prosperity is truly wondrous, and that conservative economic policies deserve all the credit.

But when things turn down, there is a seamless transition from “It’s morning in America! Hurray for tax cuts!” to “The economy is slumping! Raising taxes would be a disaster!”

Addendum, 1/8/2008:

The insincerity of President Bush’s sudden concern about the economy and the plight of working Americans was plain for all to see yesterday in Chicago, where he acknowledged the existence of “economic challenges,” but cited them as a reason to — of all things — make his tax cuts permanent.

Those would be the tax cuts, heavily skewed to the rich, that don’t even expire for three more years.

But wait!

There’s more!

How it was done:

The author was interviewed on Fresh Air last week. From the website:

Investigative reporter David Cay Johnston explores in his new book how in recent years, government subsidies and new regulations have quietly funneled money from the poor and the middle class to the rich and politically connected.

Cay Johnston covers tax policy for The New York Times, where he won a Pulitzer Prize for his reporting on that beat. His previous book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich — and Cheat Everybody Else, was a best seller.

His description of how the Current Federal Administrator got his fortune by spinning the Texas Rangers for taxpayers’ money and a tax increase is well worth the 45 minutes of the interview. (If you want to go right to it, it’s approximately–and I do mean approximately, as I was in the dental chair when I listened to it–it’s about 20 minutes in.)

Follow the link to the website; it’s well worth a listen.

’nuff said:

In a sign of how the once mighty U.S. dollar has fallen, India’s tourism minister said yesterday that U.S. dollars would no longer be accepted at the country’s heritage tourist sites, such as the famed Taj Mahal.

More from Atrios.

Circuit City, the nation’s No. 2 electronics retailer, approved millions in cash incentives to retain its top talent after the departure of several key executives over the last year – and the layoffs of thousands of salespeople.

Executive vice presidents could claim retention awards of $1 million each, and senior vice presidents could get $600,000, provided they stay with the company until 2011, according to a filing late Wednesday with the U.S. Securities and Exchange Commission.

“The purpose of the award is to ensure the stability of the company’s leadership team,” the company said.

In March, the company said it would lay off 3,400 store workers and replace them with lower-paid new hires to try to fend off larger competitors.

Meanwhile, back on the bread line:

The line outside the Catholic Social Services food pantry in Norristown yesterday was longer than usual – 62 people when there are normally 40.

“I usually come early and it’s not like this,” said Willie Smith, a 47-year-old regular client at the pantry.

By 11 a.m., the official closing time, there were still 12 people awaiting food. No one got turned away, but food-bank clients were surprised by just how many hungry people there are these days.

“We are struggling right now,” said Joanne Lelli, 39, a laid-off Wal-Mart worker and single mother of a 10-year-old girl with cystic fibrosis. She says she often has to choose between food and heating oil.

The country is filled with people making just that choice. And food banks are feeling pressure to get people through.

The Republican Party, now and always the Party of Privilege.

Well over a year ago, I discussed the possibility that there was a housing bubble.

Today’s local rag had a story about a business analyst who got it right:

Throughout 2006, T. Rowe Price analyst Susan Troll watched in horror as one risky mortgage deal after another came to market. She became alarmed by a widening trend: mortgage lenders issuing home loans of poor quality – that is, subprime – that were then packaged and sold by Wall Street investment banks to investors worldwide.

Finally, in e-mails and meetings with her firm’s money managers, Troll urged T. Rowe Price to sell its portfolio of subprime-mortgage securities.

“I just was amazed at how quickly these deals were getting done when you see constant deterioration in credit quality,” she said. “It just didn’t make sense.”

Based on her warnings, the Baltimore investment firm sold some of its subprime assets in December 2006 and cleared its books of them by early February – well before the summer’s credit crisis erased the market for these types of securities.

Ya know, this stuff ain’t rocket science. That doesn’t mean it can be done as a sideline either–it takes time to do the homework.

But what it boils down to is verifying that the investments reflect real value, rather than hopes and wishful thinking.

It’s like the sign on the Antique Shop: “We buy junk. We sell antiques.”

Unfortunately, changing the label does not change the product.