Economic Stories of Relevance in Today's World -- April 1, 2012

Amidst the Deepest Slump since the Great Depression, Obama is Touting an "Economic Recovery" - Global Research.ca - Barry Grey - March 28, 2012 -         The overall result of the Obama recovery, besides the impoverishment of ever wider layers of the working class, is a further staggering growth of social inequality. One stark metric of the decline in the social position of the American working class is the fact that in the third quarter of 2011, the share of the US gross domestic product going to corporate profits was at its highest (10.3 percent) since the 1960s, and the share going to wages was at its lowest (45.3 percent) on record.           In officially announcing the AFL-CIO’s support for Obama’s reelection earlier this month, the union federation president, Richard Trumka, denounced the frontrunner for the Republican nomination, Mitt Romney, declaring, “Everything he’s done helps the 1 percent.”               A Reuters article published March 15 provides statistical proof that when it comes to helping the top 1 percent at the expense of everyone else, Obama takes a back seat to no one. The article notes that the movement of US incomes during the Obama “recovery” contrasts sharply with that which occurred in 1934, during the Great Depression.

The 1934 rebound saw strong income gains for the bottom 90 percent of earners and a decline for the super-rich (the top 0.01 percent). The year 2010, saw the opposite. The income of the super-rich ($23.8 million on average) rose by 21.5 percent over the previous year, while that of the bottom 90 percent fell by 0.4 percent.              National income rose overall in 2010, but all of the gains went to the top 10 percent. Just 15,600 super-rich households pocketed an astonishing 37 percent of the entire national gain.                 The article further reports that the top 1 percent’s share of real income growth has increased with each economic expansion, regardless of whether a Democrat or Republican was in the White House. The top 1 percent captured 45 percent of Clinton-era income growth, 65 percent of Bush-era growth, and 93 percent of Obama-era growth, through 2010.           

These facts demonstrate the existence in the US of a plutocracy that controls the Democrats and Republicans and the entire political system. Its deadly grip can be broken only by an independent political movement of the working class, fighting for workers’ power and socialism.

Home prices fall to 2002 levels - CNN Money - Les Christie - March 27, 2012 - The housing market started the new year with a thud. Home prices dropped for the fifth consecutive month in January, reaching their lowest point since the end of 2002. The average home sold in that month lost 0.8% of its value, compared with a month earlier, and prices were down 3.8% from 12 months earlier, according to the S&P/Case-Shiller home price index of 20 major markets. Home prices have fallen a whopping 34.4% from the peak set in July 2006. The housing market started the new year with a thud. Home prices dropped for the fifth consecutive month in January, reaching their lowest point since the end of 2002. The average home sold in that month lost 0.8% of its value, compared with a month earlier, and prices were down 3.8% from 12 months earlier, according to the S&P/Case-Shiller home price index of 20 major markets. Home prices have fallen a whopping 34.4% from the peak set in July 2006.

Don’t be fooled by the money illusion - Commentary: Many economic numbers don’t account for inflation - MarketWatch - Irwin Kellner - March 20, 2012 - Now that inflation is beginning to pick up, it is vital to distinguish between what is real and what is just an illusion caused by inflation. If one does not, one might very well come away with the impression that the economy is shifting into higher gear when, in fact, it is not.                  Take retail sales, for example. On the surface they are encouraging, since February’s sales gain was the most in five months. And since retail sales are one-half of consumers’ spending, which in turn makes up two-thirds of overall economic activity, one might be tempted to conclude that the worst is over.           One would be wrong. First of all, these are dollar figures, adjusted for the time of year but not for inflation. Second, most of the rise reflected a 6% surge in gasoline prices.              Excluding gasoline, retail sales went up at a much more subdued pace. And if you factor in higher prices for such other items as heat, food and health care, retail sales were virtually unchanged in the month — if not for the past few.            It is always important to strip away the effects of inflation and look at actual units purchased. After all, real spending determines real output which in turn provides real jobs. And when day is done, jobs are of paramount importance to this economy.             To be sure, certain stats are real — that is, they are expressed in unit terms, free from the influence of rising prices. These include employment, unemployment and the unemployment rate.

Choosing the Road to Prosperity - Why We Must End Too Big to Fail—Now - 2011 ANNUAL REPORT - FEDERAL RESERVE BANK OF DALLAS - The too-big-to-fail institutions that amplified and prolonged the recent financial crisis remain a hindrance to full economic recovery and to the very ideal of American capitalism. It is imperative that we end TBTF.              As a nation, we face a distinct choice. We can perpetuate too big to fail, with its inequities and dangers, or we can end it. Eliminating TBTF won’t be easy, but the vitality of our capitalist system and the long-term prosperity it produces hang in the balance.                    When competition declines, incentives often turn perverse, and self-interest can turn malevolent. That’s what happened in the years before the financial crisis.

The term TBTF disguised the fact that commercial banks holding roughly one-third of the assets in the banking system did essentially fail, surviving only with extraordinary government assistance.                 Psychological side effects of TBTF can’t be measured, but they’re too important to ignore because they affect economic behavior.                   The verdict on Dodd–Frank will depend on what the final rules look like. So far, the new law hasn’t helped revive the economy and may have inadvertently undermined growth.               Higher capital requirements across the board could burden smaller banks and probably further crimp lending.               These institutions shouldn’t face the same regulatory burdens as the big banks that follow risky business models.            A financial system composed of more banks—numerous enough to ensure competition but none of them big enough to put the overall economy in jeopardy—will give the United States a better chance of navigating through future financial potholes, restoring our nation’s faith in market capitalism.              The road to prosperity requires recapitalizing the financial system as quickly as possible. Achieving an economy relatively free from financial crises requires us to have the fortitude to break up the giant banks.




Massive $17 Trillion Hole Found In Obamacare - ZeroHedge - Tyler Durden - March 30, 2012 - Two years ago, when introducing then promptly enacting Obamacare, the president stated that healthcare law reform would not cost a penny over $1 trillion ($900 billion to be precise), and that it would not add ‘one dime’ to the debt. It appears that this estimate may have been slightly optimistic… by a factor of 1700%. Because coincident with the recent Supreme Court debacle, in which a constitutional law president may be about to find that his magnum opus law is, in fact, unconstitutional, someone actually read the whole thing cover to cover, instead of merely relying on the CBO’s, pardon Morgan Stanley and Goldman Sachs’, funding estimates. That someone is Republican Jeff Sessions who after actually running the numbers has uncovered that the true long-term funding gap is a mind-boggling $17 trillion, just a tad more than the original sub $1 trillion forecast. This latest revelation means that total underfunded US welfare liabilities: Medicare, Medicaid and social security now amount to $99 trillion! Add to this total US debt which in 2 months will be $16 trillion, and one can see why Japan, which is about to breach 1 quadrillion in total debt (yen, but who's counting), may want to start looking in the rearview mirror for up and comer competitors. And while Obama may have been taking creative license with a number that is greater than total US GDP, he was most certainly correct when saying that Obamacare would not add a penny to US debt. Because the second the US government comes to market to fund a true total debt/GDP ratio of 750%, it is game over, and the Fed will have its hands full selling Treasury puts every waking nanosecond to have any time left for the daily 3pm stock market ramp.


Charles Biderman: The Problem with Rigged Markets - "Even Wile E. Coyote had to come back down to earth sooner or later", says Charles Biderman, founder of TrimTabs Investment Research. In his opinion, the prices of stocks and bonds - enabled by excessive financialization of our economy and central bank money printing - have been defying gravity for a dangerously long time.             If we continue to do all we can to preserve the status quo -- to maintain "phoney" asset price levels as Charles calls them -- at best we will restrict overall growth and handicap the economy.                 The problem isn't so much the unfairness and malinvestment evident in a rigged market. As Charles shrewdly asks: what happens when the market becomes un-rigged?                We've never experienced the unwinding of an entirely manipulated financial system, so we can't predict for sure. But at this point, a painful collapse of our markets and loss of the US dollar as the world's reserve currency seem entirely plausible.