Three Million Could Lose Jobless Pay in Impasse

December 22, 2011 by · Leave a Comment 

By Robert Pear, The New York Times News Service

2011-12-21T002027Z_1_BTRE7BK00YB00_RTROPTP_3_POLITICS-US-USA-CONGRESS-BOEHNER

U.S. House Speaker John Boehner (R-OH) pauses as he speaks to the media after the House vote on the Senate version of the payroll tax cut extension on Capitol Hill in Washington December 20, 2011.

REUTERS/Yuri Gripas

Washington – More than three million people stand to lose unemployment insurance benefits in the near future because of an impasse in Congress over how to extend the aid and how to offset the cost.

Jobless benefits have been overshadowed by debate on a payroll tax cut, but have become a huge sticking point in negotiations on a bill that deals with both issues.

Republicans would continue aid for some of the unemployed, but would sharply reduce the maximum duration of benefits and impose strict new requirements on people seeking or receiving aid.

Democrats said these changes made no sense at a time when 45 percent of jobless workers had been unemployed for more than half a year and the average duration of unemployment — 41 weeks — was higher than at any time in 60 years.

Jon D. Grandstaff, 50, who lives in a suburb of Tulsa, Okla., said Tuesday that he had been watching the debate in Congress with trepidation, worried that his jobless benefits would be exhausted on Jan. 9.

“This mess in Congress is so upsetting,” Mr. Grandstaff said in an interview. “I don’t know who to blame — House, Senate, Republicans, Democrats. They are toying with people’s lives. I’m getting really scared and nervous.”

Mr. Grandstaff said he was making $43,000 a year when he was laid off in March from the collections department of a major cellphone company. Now he is working at a part-time job for $8 an hour and hoping the position will lead to full-time work.

Brenda G. Crosier, 52, of Northglenn, Colo., outside Denver, is also at risk of losing extended unemployment benefits. She said she applied for five to eight jobs a week but rarely received responses, and in a telephone interview Tuesday she had this question for Congress:

“Why are you leaving for Christmas vacation? If you worked for a company and you did not have your work done, you would not be walking out the door. You have no business leaving until your work is finished.”

Major provisions of the federal unemployment insurance program begin expiring in the first week of January, and people would begin to feel the effects over the next several months. By mid-February, the Labor Department estimates, 2.2 million workers would have lost jobless benefits, and by the end of March, 3.6 million will be affected.

People in states with the highest unemployment rates would be among the hardest hit.

The cornerstone of the program, regular unemployment insurance benefits, provides up to 26 weeks of assistance financed by the states. In states with high unemployment, jobless workers may be able to get up to 73 weeks of additional benefits, financed by the federal government, for a total of 99 weeks of aid. House Republicans would reduce the maximum to 59 weeks.

“This reflects a more normal level of benefits typically available after recessions,” said Representative Dave Camp, Republican of Michigan and chairman of the Ways and Means Committee.

Senator Orrin G. Hatch of Utah, the senior Republican on the Finance Committee, said: “I don’t see why you have to go more than 59 weeks. In fact, we need some incentives for people to get back to work. A lot of these people don’t want to work unless they get really high-paying jobs, and they’re not going to get them ever. So they just stay home and watch television. I don’t mean to malign people, but far too many are doing that.”

The Senate version of the payroll tax bill, passed with bipartisan support on Saturday, would continue paying jobless benefits under current law for two months, while lawmakers tried to figure out a longer-term solution.

House Republicans said they wanted a full-year extension, with additional requirements to prevent abuse of the program. They would require most recipients of jobless benefits to search for work and to pursue G.E.D. certificates if they had not completed high school.

Representative Jim McDermott, Democrat of Washington, said the Republican proposals amounted to “the most drastic attack on the unemployment system” in 75 years.

House Republicans would also allow states to require drug testing as a condition of getting benefits. Democrats said such tests were an insult to the unemployed, because they implied that many were lazy drug abusers.

“I don’t see anyone in the Republican majority demanding drug testing for folks who receive oil and gas subsidies,” said Representative James E. Clyburn, Democrat of South Carolina.

But Representative Jack Kingston, Republican of Georgia, said, “People who are unemployed should be looking for a job and should not become voluntarily ineligible by taking illegal drugs.”

Democrats say the program has reduced poverty and helped stabilize the economy, reducing the depth of the last recession. Republicans say the benefits have led some people to reduce their efforts to find new jobs.

Representative Dennis J. Kucinich, Democrat of Ohio, said: “The problem is not a lack of effort for those seeking a job. The problem is a lack of jobs.”

House Republicans said they had borrowed ideas from the jobs bill [4] that President Obama sent Congress in September. The nonpartisan Congressional Research Service said the president’s proposal would probably reduce the maximum length of unemployment benefits to 79 weeks, from the current 99, in many states.

Republicans would allow states to get waivers from many federal standards and requirements, including one stipulating that money from state unemployment taxes must be spent on jobless benefits.
Democrats see the waivers as a threat to the fabric of the unemployment insurance system. But Republicans said that, instead of just writing benefit checks, federal and state officials must do more to help people get back to work.

“In this uncertain economy, using unemployment dollars to subsidize the training of a new employee to re-enter the work force is just good public policy,” said Representative James B. Renacci, Republican of Ohio.

This article, “Three Million Could Lose Jobless Pay in Impasse,” originally appeared at The New York Times News Service.

13-52

The Fatal Distraction

September 8, 2011 by · Leave a Comment 

By Paul Krugman

Friday brought two numbers that should have everyone in Washington saying, “My God, what have we done?”

One of these numbers was zero — the number of jobs created in August.

The other was two — the interest rate on 10-year U.S. bonds, almost as low as this rate has ever gone. Taken together, these numbers almost scream that the inside-the-Beltway crowd has been worrying about the wrong things, and inflicting grievous harm as a result.

Ever since the acute phase of the financial crisis ended, policy discussion in Washington has been dominated not by unemployment, but by the alleged dangers posed by budget deficits. Pundits and media organizations insisted that the biggest risk facing America was the threat that investors would pull the plug on U.S. debt. For example, in May 2009 The Wall Street Journal declared that the “bond vigilantes” were “returning with a vengeance,” telling readers that the Obama administration’s “epic spending spree” would send interest rates soaring.

The interest rate when that editorial was published was 3.7 percent. As of Friday, as I’ve already mentioned, it was only 2 percent.

I don’t mean to dismiss concerns about the long-run U.S. budget picture. If you look at fiscal prospects over, say, the next 20 years, they are indeed deeply worrying, largely because of rising health-care costs. But the experience of the past two years has overwhelmingly confirmed what some of us tried to argue from the beginning: The deficits we’re running right now — deficits we should be running, because deficit spending helps support a depressed economy — are no threat at all.

And by obsessing over a nonexistent threat, Washington has been making the real problem — mass unemployment, which is eating away at the foundations of our nation — much worse.

Although you’d never know it listening to the ranters, the past year has actually been a pretty good test of the theory that slashing government spending actually creates jobs. The deficit obsession has blocked a much-needed second round of federal stimulus, and with stimulus spending, such as it was, fading out, we’re experiencing de facto fiscal austerity. State and local governments, in particular, faced with the loss of federal aid, have been sharply cutting many programs and have been laying off a lot of workers, mostly schoolteachers.

And somehow the private sector hasn’t responded to these layoffs by rejoicing at the sight of a shrinking government and embarking on a hiring spree.

O.K., I know what the usual suspects will say — namely, that fears of regulation and higher taxes are holding businesses back. But this is just a right-wing fantasy. Multiple surveys have shown that lack of demand — a lack that is being exacerbated by government cutbacks — is the overwhelming problem businesses face, with regulation and taxes barely even in the picture.

For example, when McClatchy Newspapers recently canvassed a random selection of small-business owners to find out what was hurting them, not a single one complained about regulation of his or her industry, and few complained much about taxes. And did I mention that profits after taxes, as a share of national income, are at record levels?

So short-run deficits aren’t a problem; lack of demand is, and spending cuts are making things much worse. Maybe it’s time to change course?

Which brings me to President Obama’s planned speech on the economy.

I find it useful to think in terms of three questions: What should we be doing to create jobs? What will Republicans in Congress agree to?

And given that political reality, what should the president propose?

The answer to the first question is that we should have a lot of job-creating spending on the part of the federal government, largely in the form of much-needed spending to repair and upgrade the nation’s infrastructure. Oh, and we need more aid to state and local governments, so that they can stop laying off schoolteachers.

But what will Republicans agree to? That’s easy: nothing. They will oppose anything Mr. Obama proposes, even if it would clearly help the economy — or maybe I should say, especially if it would help the economy, since high unemployment helps them politically.

This reality makes the third question — what the president should propose — hard to answer, since nothing he proposes will actually happen anytime soon. So I’m personally prepared to cut Mr. Obama a lot of slack on the specifics of his proposal, as long as it’s big and bold. For what he mostly needs to do now is to change the conversation — to get Washington talking again about jobs and how the government can help create them.

For the sake of the nation, and especially for millions of unemployed Americans who see little prospect of finding another job, I hope he pulls it off.

13-37

The Texas Unmiracle

August 18, 2011 by · Leave a Comment 

By Paul Krugman

As expected, Rick Perry, the governor of Texas, has announced that he is running for president. And we already know what his campaign will be about: faith in miracles.

Some of these miracles will involve things that you’re liable to read in the Bible. But if he wins the Republican nomination, his campaign will probably center on a more secular theme: the alleged economic miracle in Texas, which, it’s often asserted, sailed through the Great Recession almost unscathed thanks to conservative economic policies.

And Mr. Perry will claim that he can restore prosperity to America by applying the same policies at a national level.

So what you need to know is that the Texas miracle is a myth, and more broadly that Texan experience offers no useful lessons on how to restore national full employment.

It’s true that Texas entered recession a bit later than the rest of America, mainly because the state’s still energy-heavy economy was buoyed by high oil prices through the first half of 2008. Also, Texas was spared the worst of the housing crisis, partly because it turns out to have surprisingly strict regulation of mortgage lending.

Despite all that, however, from mid-2008 onward unemployment soared in Texas, just as it did almost everywhere else.

In June 2011, the Texas unemployment rate was 8.2 percent. That was less than unemployment in collapsed-bubble states like California and Florida, but it was slightly higher than the unemployment rate in New York, and significantly higher than the rate in Massachusetts. By the way, one in four Texans lacks health insurance, the highest proportion in the nation, thanks largely to the state’s small-government approach.

Meanwhile, Massachusetts has near-universal coverage thanks to health reform very similar to the “job-killing” Affordable Care Act.

So where does the notion of a Texas miracle come from? Mainly from widespread misunderstanding of the economic effects of population growth.

For this much is true about Texas: It has, for many decades, had much faster population growth than the rest of America — about twice as fast since 1990. Several factors underlie this rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states, who are attracted to Texas by its warm weather and low cost of living, low housing costs in particular.

And just to be clear, there’s nothing wrong with a low cost of living.

In particular, there’s a good case to be made that zoning policies in many states unnecessarily restrict the supply of housing, and that this is one area where Texas does in fact do something right.

But what does population growth have to do with job growth? Well, the high rate of population growth translates into above-average job growth through a couple of channels. Many of the people moving to Texas — retirees in search of warm winters, middle-class Mexicans in search of a safer life — bring purchasing power that leads to greater local employment. At the same time, the rapid growth in the Texas work force keeps wages low — almost 10 percent of Texan workers earn the minimum wage or less, well above the national average — and these low wages give corporations an incentive to move production to the Lone Star State.

So Texas tends, in good years and bad, to have higher job growth than the rest of America. But it needs lots of new jobs just to keep up with its rising population — and as those unemployment comparisons show, recent employment growth has fallen well short of what’s needed.

If this picture doesn’t look very much like the glowing portrait Texas boosters like to paint, there’s a reason: the glowing portrait is false.

Still, does Texas job growth point the way to faster job growth in the nation as a whole? No.

What Texas shows is that a state offering cheap labor and, less important, weak regulation can attract jobs from other states.       

I believe that the appropriate response to this insight is “Well, duh.”

The point is that arguing from this experience that depressing wages and dismantling regulation in America as a whole would create more jobs — which is, whatever Mr. Perry may say, what Perrynomics amounts to in practice — involves a fallacy of composition: every state can’t lure jobs away from every other state.

In fact, at a national level lower wages would almost certainly lead to fewer jobs — because they would leave working Americans even less able to cope with the overhang of debt left behind by the housing bubble, an overhang that is at the heart of our economic problem.

So when Mr. Perry presents himself as the candidate who knows how to create jobs, don’t believe him. His prescriptions for job creation would work about as well in practice as his prayer-based attempt to end Texas’s crippling drought.

13-34

More War! The Road to Armageddon

August 11, 2011 by · Leave a Comment 

By Paul Craig Roberts

[Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury.  His latest book, HOW THE ECONOMY WAS LOST, was published by CounterPunch/AK Press. This article is from the Summer 2011 issue of the Trends Journal, a publication of Gerald Celente’s Trends Research Institute.]

As the second decade of the 21st century began, the US economy had not recovered from the Great Recession that began in December 2007.

The economy’s failure to recover was despite the largest fiscal and monetary stimulus in the country’s history. There was a $700 billion bank bailout, a $700 billion stimulus program, a couple of trillion in “quantitative easing,” that is, in debt monetization or the printing of money to finance the government’s expenditures. In addition the Federal Reserve’s balance sheet had expanded by trillions of dollars as the Fed purchased troubled mortgage bonds and derivatives in its effort to keep the financial system solvent and functioning. According to the Government Accountability Office’s audit of the Federal Reserve released by Senator Bernie Sanders, the Federal Reserve provided secret loans to US and foreign banks totaling $16.1 trillion, a sum larger than US Gross Domestic Product (GDP).
Despite the enormous fiscal and monetary stimulus, the economy remained dead in the water.

In 2011 the deficit in the federal government’s annual expenditures was 43 percent of the budget. In other words, the US government had to borrow, or the Fed had to monetize, 43 percent of federal expenditures during fiscal year 2011. Despite this unprecedented fiscal and monetary stimulus, the economy did not recover.

At the end of the first decade of the 21st century, the economy’s decline was temporarily halted by federal subsidies for car and home purchases. The $8,000 housing subsidy helped newlyweds purchase starter homes as the subsidy was a big chunk of the down payment in a depressed housing market. The car purchase subsidy moved future demand into the present. When these subsidies expired, the economy’s life support was turned off.

Problems with the statistical reporting of unemployment, inflation, and GDP disguised the worsening economy. Seasonal adjustments used to smooth the data over the course of the year were not designed for prolonged recession. Neither was the “birth-death” model used by the US Bureau of Labor Statistics (BLS) to estimate non-reported jobs from new start-up companies and losses from companies that have gone out of business. The birth-death model was designed for a growing economy and during downturns overestimates the number of new jobs created.

The “substitution effect” used in the consumer price index (CPI) underestimates inflation by assuming that consumers substitute cheaper foods for those that rise in price. For example, if the price of New York strip steak rises, this does not show up in the CPI, because of the assumption that people shift their purchases to a less expensive cut such as round steak.

Cooking the Books

The widely used “core inflation” measure does not include food or energy. Core inflation is a useful measure for those who want to put an optimistic spin on the outlook.

By underestimating inflation, the government can overestimate real GDP growth, thus creating a fictional rosy outlook. Similarly, by using the employment measure known as U.3, the government underestimates unemployment.

The “headline” unemployment rate, the one emphasized by the media and the financial press, stood at 9.2 percent in June, 2011. But this rate does not include any discouraged workers. A discouraged worker is a person who has ceased looking for a job, because there are no jobs to be found. A discouraged worker is not considered to be in the work force and is not counted among the U.3 unemployed. The federal government knows that this is phony and has a U.6 measure of unemployment that counts the short-term discouraged. This measure, seldom reported by the media, stood at 16.2 percent in June, 2011.

Statistician John Williams (shadowstats.com) continues to count also the long-term discouraged workers according to the way it was officially done in 1980. In June, 2011, this full measure of the US unemployment rate was 22.7 percent.

In other words, by 2011 between one-fifth and one-fourth of the US work force were without jobs.

As 2011 progressed, the United States faced three simultaneous economic crises. One crisis arose from the loss of US jobs, GDP, consumer income, and tax base caused by corporations off-shoring their production for the US market. Instead of making their products at home with American labor and providing Americans with jobs and states and localities with tax revenues, US corporations provided countries such as China, India, and Indonesia with GDP, jobs, consumer income and a tax base. This practice meant that economic stimulus was unable to revive the US economy as Americans cannot be called back to work jobs that have been moved abroad.

Another crisis was the financial crisis resulting from deregulation, fraud, and greed. Securitization of mortgages meant that issuers of mortgages no longer had any incentive to ascertain the credit worthiness of the borrower, because the issuers sold the mortgages to third parties who combined the mortgages with others and sold them to investors.

As mortgages were issued for fees, the more mortgages issued, the higher the income from fees. In order to collect fee income, some issuers faked credit reports for borrowers. With the housing market booming, many people took mortgages in order to make money on the resale of the properties. With housing prices rising rapidly, down payments and credit worthiness became concerns of the past. The financial crisis was made worse by the ability of investment banks to get around capital requirements and, thereby, leverage their equity by incurring enormous debt. When all the bubbles burst, the house of cards collapsed.

Economic Armageddon

The third crisis was the $1.5+ trillion annual federal budget deficits, which were too large to be financed without the Federal Reserve buying the Treasury’s new debt issues. Known as monetizing debt, the Federal Reserve purchased the Treasury’s bills, notes, and bonds by creating a checking account, which the Treasury would then draw upon to pay the government’s bills. The outpouring of Treasury debt raised concerns about the dollar’s exchange value and role as reserve currency, and it raised fears of inflation. Gold and silver prices rose as the dollar declined in foreign exchange markets.

Any one of these crises was serious. All together, they implied economic Armageddon.

There was no obvious way out, but even if one could be found, the government was focused elsewhere — on wars.

In addition to ongoing military operations in Iraq, Afghanistan, Pakistan, Yemen and Somalia, the US and NATO began military operations against Libya on March 19, 2011. As with the existing wars, the real purpose of the aggression against Libya was not acknowledged, but it became clear that the war’s purpose was to evict China from its oil investments in eastern Libya. Unlike the previous Arab protests, the Libyan rebellion was an armed uprising in which some saw the CIA’s hand.

The Libyan war upped the risk, because although hiding behind the veil of Arab protest, the US was actually confronting China. Similarly, in the US-supported armed rebellion in Syria, Washington’s target was the Russian naval base at Tartus. Overthrowing the Assad government in Syria and installing a US friendly regime would put paid to Russia’s naval presence in the Mediterranean.

By hiding its purposes behind Arab protests in Libya and Syria that it might have initiated, Washington avoided face-to-face conflicts with China and Russia, but nevertheless the two powers understood that Washington was striking at their interests. This elevated the recklessness of Washington’s aggressive policies by initiating confrontation with two nuclear powers, one of which held financial power over the US as America’s largest foreign creditor.

China’s oil investments in Angola and Nigeria were another target. To counter China’s economic penetration of Africa, the US created the American African Command in the closing years of the first decade of the 21st century. Disturbed by China’s rise, the US undertook to prevent China from having independent sources of energy. The great game that in the past has always led to war is being played out once again.

September 11, 2001, provided Washington with a new “threat” to replace the Soviet threat, which had expired in 1991. Despite the absence of the Soviet threat, the military/security budget had been kept alive for a decade. September 11, 2001, injected rapid growth into the military/security budget. A decade later the budget stood at approximately $1.1 trillion annually, or approximately 70 percent of the federal deficit which was crippling the dollar and threatening the US Treasury’s credit rating.

Focused on Middle Eastern wars, Washington was losing the war for the US economy.

As the expectation of economic recovery evaporated over the course of 2011, the need for war became more imperative.

13-33

Getting Past the Paralysis on Jobs

June 16, 2011 by · Leave a Comment 

By Fareed Zakaria

TV CNN ZakariaEvery week brings fresh evidence that America’s unemployment crisis is much deeper and more systemic than predicted — yet Washington seems unwilling or unable to do anything about it. Fears of the budget deficit and a dysfunctional political climate have paralyzed people on both sides of the political aisle. The result is that America is “sleepwalking” through its biggest crisis, writes Mohamed El-Erian, the low-key co-CEO of PIMCO.

Around 24 million Americans are unemployed or underemployed (the latter in part-time jobs that average $19,000, half the median wage). If these people don’t find jobs soon, they will lose skills and work habits and become permanently unemployable, with grim consequences for their families, communities and the country. And if employment growth does not pick up significantly, tax revenue will stay depressed, unemployment costs will rise and the deficit will balloon well beyond current projections.

We still seem to be hoping that somehow this problem will resolve itself, but it won’t. Federal Reserve Chairman Ben Bernanke explained this week that the economy has gone through the worst financial crisis and the deepest housing collapse since the Great Depression. In fact, the problem is even worse. Employment growth has been stalled since 2000. If not for the housing and credit bubble, this jobs crisis would have revealed itself much earlier.

We’re in a new world for the American worker. Technological change and globalization allow companies to get more output with fewer workers. Emerging markets provide millions of skilled workers who can produce the same products at a fraction of the price that Americans can. The Bureau of Labor Statistics notes that from 1947 till 2000, productivity growth was correlated with employment growth. Since 2000, they have diverged. Productivity has risen while employment has fallen. The Nobel Prize-winning economist Michael Spence has concluded that in America, growth and employment will diverge in the future.

Does this mean that we are stuck in a low-growth, low-employment future? No, but the crisis is structural, and we have to recognize its scope and urgency. “Shutting off the alarm and pulling the blanket over one’s head is not a solution,” says El-Erian.

Republican concerns about government spending over the long term are understandable, but cutting spending in the short run will result in more unemployment and slower growth. President Obama talks about jobs but seems too paralyzed to do something ambitious to help create them. Even Bernanke said this week that there isn’t much he could do about the slow-growth, high-unemployment trajectory we are on. Have we all become fatalists?

In fact, we could enact some measures that would spur job creation, many with a limited effect on the deficit. Most immediately, Washington needs to find ways to employ the millions of workers whose jobs disappeared with the housing bust. The simplest way to help them, and the country, would be to create a national infrastructure bank to repair and rebuild America’s infrastructure — which is in a shambles and ranks 23rd globally, according to the World Economic Forum — down from sixth only a decade ago.

House Majority Leader Eric Cantor has played down this proposal as just more stimulus, but if Republicans set aside ideology they would see it is actually an opportunity to push for two of their favorite ideas: privatization and the elimination of earmarks.

The United States builds infrastructure in a remarkably socialist manner; the government funds, builds and operates almost all American infrastructure. In many countries in Europe and Asia, the private sector plays a large role in financing and operation of roads, highways, railroads and airports, as well as other public resources. An infrastructure bank would create a mechanism by which such private-sector participation would become possible here as well. Yes, some public money would be involved, mostly through issuing bonds, but with interest rates at historic lows, this is the time to rebuild. Such projects, with huge long-term payoffs, could genuinely be called investments, not expenditures.

A national infrastructure bank would also address a legitimate complaint of the Tea Party — earmarks. One of the reasons federal spending has been inefficient is that Congress wants to spread money around in ways that make political sense but are economically inefficient. An infrastructure bank would make these decisions using cost-benefit analysis, in a meritocratic system, rather than basing decisions on patronage and whimsy.

The country needs much more: a revival of manufacturing, emphasizing technical training and apprenticeship programs; aggressive measures to promote those industries that are booming, such as entertainment and tourism; an expansion of retraining; streamlining the patent process; more visas for skilled immigrants to stay and create companies and jobs in America. These should be part of a national plan for jobs that President Obama must lay out soon. But start with something that would have an immediate impact and put people back to work — the rebuilding of America.

comments@fareedzakaria.com

13-25

The Most Dangerous Cities In America

May 26, 2011 by · Leave a Comment 

5. Memphis, Tennessee

> Population: 673,650
> Violent Crime Per 1,000: 15.4
> 2010 Murders: 89
> Median Income: $34,203 (31.8% below national average)
> Unemployment Rate: 9.9% (0.9% above national average)
Memphis has high rates for all the violent crimes considered for 24/7 Wall St.’s rankings. It has the sixth highest rate in the country. Incidents of violent crime in the city dropped slightly less than 15% between 2009 and 2010 though. Memphis Mayor A C Wharton attributes this decrease to Operation Safe Community, a citywide plan developed in 2005. The plan consists of a number of strategies meant to increase crime prevention, through toughening punishments for criminals, and the effectiveness of the city’s legal system, through changes such as expanding court programs so that they operate consistently and at full capacity.

4. New Haven, Connecticut

> Population: 124,856
> Violent Crime Per 1,000: 15.8
> 2010 Murders: 22
> Median Income: $38,279 (23.8% below national average)
> Unemployment Rate: 9.6% (0.6% above national average)
New Haven has historically had the highest rate of violent crime on the east coast. The impoverished, crime-ridden parts of the city stand in stark contrast to affluent Fairfield county to the West, and elite Yale University, which is located within the city itself. The number of murders in the city doubled last year. New Haven has the eighth highest rate of robbery and the fourth highest rate of assault in the U.S. The New Haven Police Department is considering adding cameras at every intersection in one of the neighborhoods where shootings are the most common.

3. St. Louis, Missouri

> Population: 355,151
> Violent Crime Per 1,000: 17.5
> 2010 Murders: 144
> Median Income: $34,801 (30.7% below national average)
> Unemployment Rate: 9.3% (0.3% above national average)
Violent crime in St. Louis fell dramatically between 2009 and 2010, and has decreased since 2007. Despite this, crime rates remain extremely high compared with other cities. In 2010, the city’s murder rate and rate of aggravated assault were each the third worst in the country. With regards to both violent and nonviolent crime, St. Louis was rated the most dangerous city based on FBI data released six months ago. As of December 2010, the murder rate in St. Louis was 6.3 times that of the state of Missouri. The city’s gunshot murder rate for residents between 10 to 19 years old is also the second highest in the country, behind only New Orleans, according to the US Centers for Disease Control and Prevention.

2. Detroit, Michigan

> Population: 899,447
> Violent Crime Per 1,000: 18.9
> 2010 Murders: 310
> Median Income: $26,098 (48% below national average)
> Unemployment Rate: 12.7% (3.7% above national average)
The city crippled the most in America’s post-industrial era is almost certainly Detroit. The Motor City has suffered from high rates of unemployment, homelessness, and crime. The city has one of the ten highest rates for three of the four types of violent crime identified by the FBI. Detroit has the sixth highest murder rate, the fifth highest robbery rate, and the second highest rate of aggravated assault. In 2005, a major reorganization of the city’s police department took place after a federal investigation identified inefficiencies within the system. According to an article in The United Press, opponents of Detroit Mayor David Bing called for further intervention by the Justice Department in several shootings that occurred last year.

1. Flint, Michigan

> Population: 109,245
> Violent Crime Per 1,000: 22
> 2010 Murders: 53
> Median Income: $27,049 (46.1% below national average)
> Unemployment Rate: 11.8% (2.8% above national average)
The number of violent crimes committed in Flint, MI, increased for all categories considered for this list between 2009 and 2010. Perhaps most notably, the number of murders in the city increased from 36 to 53. This moves the city from having the seventh highest rate of homicide to the second highest. The number of aggravated assaults increased from 1,529 to 1,579, a rate of 14.6 assaults per 1,000 residents, placing the city in the number one rank for rate of assaults. Flint police chief Alvern Lock stated late last year that he believed the city’s violence stemmed from drugs and gangs. Flint has a relatively small median income of about $27,000 per household. The city also has a poverty rate of 36.2%.
Douglas A. McIntyre, Michael B. Sauter, Charles B. Stockdale

13-22

America After the Quiet Coup

March 11, 2010 by · Leave a Comment 

By Edward L. Palmer, Robert N. Rhodes and Alice J. Palmer

“There has been a quiet coup in the US in which a financial oligarchy has gained hegemony over the government structure.” That seizure of power has resulted in devastation for Black America, where “48% of the children of middle class Black Americans border on poverty.” Among the general public, “70% of last year’s college graduates in the US did not receive job offers.”

“A financial oligarchy has gained hegemony over the government structure.”

America is on a path toward a savage capitalism that is already decimating the middle class and working people and swelling the ranks of the poor. Adam Smith never intended this.

The U.S. government has spent more than one trillion dollars of taxpayer money to resuscitate the financial services economy and restore the status quo while unemployment has grown by millions since January 2009, and all without developing the real economy: production, sustainable development, infrastructure, and social networks.

Unlike Germany, for example, where, faced with a similar economic downturn, Chancellor Angela Merkel, a conservative, chose to increase public spending on production, infrastructure and human capital. Or, as in Sweden, which took measures to reverse unemployment and the contracting gross domestic product by isolating bad debts, stabilizing their currency, and allowing some banks to fail.

Or, for that matter, the win-win strategy the Chinese favor, which pursues their national economic interests without seeming to threaten the national interests of other countries.

Americans should ask themselves the fundamental questions that Bob Herbert is asking over and over in his New York Times columns: How do you put together a consumer economy that works when the consumers are out of work, and when poverty, particularly among Black Americans, is alarmingly high.

“At least 30% of America’s children are poor; tent cities are now housing displaced and desperate families.”

The statistics about Main Street are distressing. At least 30% of America’s children are poor; tent cities are now housing displaced and desperate families. According to a recent Harper’s magazine monthly index, 70% of last year’s college graduates in the US did not receive job offers. Some 16% of the daughters and sons of White Americans are not as financially stable as their parents. Most disturbing is that 48% of the children of middle class Black Americans border on poverty as they earn little more than $23,000 a year. Their parents, whose incomes average $55,000, came of age in the 1960’s.

For decades, from the late 1940’s through the end of the 1980’s, Black men expected to find work in the plants that dominated industrial centers such as Detroit, Chicago, and Pittsburgh. Steady work, no matter how initially back-breaking and low-level, afforded Black families adequate incomes to purchase homes and send their children to college from which a solid, often politically active, Black middle class emerged.

There is a “silent Black depression” in the United States, according to a 2008 report issued by the Institute of Policy Studies, in which 29.4% of Black households have zero or negative net worth as of 2004 compared with 15% of Whites; and Black males aged 16-19 have a 32.8% unemployment rate. People of color, in general, are more likely to be poor in the United States; yet, poverty is rarely discussed as an element of the country’s economic crisis.

“29.4% of Black households have zero or negative net worth.”

To gauge the consequences to America’s eroding consumer and family income economies we must look beyond spurious US unemployment and employment figures that do not adequately tell us how many new jobs are part time and how many workers are discouraged or under-utilized. Most European countries count the number of adults who are employed, which is a more realistic measure of consumer and family-economic well-being.

What does happen to a dream deferred? Job loss can also mean pension loss – a loss of family sustainability – which could cause a social crisis for decades to come, warns the Organization for Economic Co-operation and Development in its yearly report. During the vaunted 1990’s, employers, looking for savings to their companies, encouraged working Americans to choose market-driven defined contribution pension packages that hinted at easy-living wealth at retirement instead of the traditional defined benefit pensions that assured steady retirement incomes. In 2008, private pension funds lost more than 25% in returns; so thousands of retirees cannot make ends meet, and thousands of younger workers must start anew to build their nest eggs.

Yet corporate chief executives and their circle earn an almost unbelievable 400 times what the average employee earns; and, as we have seen recently, garner enormous bonuses in spite of failing companies.

If we say in this country that we believe in family values, then we should value the family with adequate and equitable work, education, pensions and health care policies that matter to their well-being.

The US is not just experiencing an economic crisis, this is a crisis of our social being; and there are no quick fixes. Simon Johnson, a former Chief Economist for the International Monetary Fund, pointed out that there has been a quiet coup in the US in which a financial oligarchy has gained hegemony over the government structure.

“In 2008, private pension funds lost more than 25% in returns.”

During the 19th century through c1929, it was common to experience economic panics roughly every 20 years, e.g., in 1819, 1837, and 1873. Since World War II, we have not had feast or famine years. Why? Perhaps because Keynesian principles were in practice that fostered the judicious use of government interventions to fine tune the economy to avoid crises that imperiled people and businesses alike.

At the start of the 1980’s, the size of the financial service sector, i.e., traditional banks, was 4% of gross domestic product; and the number of financial corporations on the stock exchange was 0%. It was against the law for the financial service sector to be listed on the stock exchange. The Glass-Steagall Banking Act of 1933, passed after the Great Depression, which prevented banks from underwriting stocks and bonds for companies, was annulled in practice during the 1980’s, and the practice became law in 1999. The financial sector, especially banks, became one-stop centers for selling insurance, questionable mortgages and other risky undertakings to an uninformed public.

What is the significance of this change? A recent Bank of International Settlement report from Switzerland shows that world GDP (the real economy of the world’s people) is about a tenth the size of the financial services sector alone, and the gap continues to widen.

Many respected economists are alarmed by such economic indicators, the direction the US is taking, and the toll on people’s standard of living. Joseph Stieglitz calls the present-day economy ersatz capitalism; Paul Krugman calls it crony capitalism. John Monks, Secretary General of the European Confederation of Trade Unions, calls the economy casino capitalism. By any name, ponzi schemes are proliferating.

“World GDP (the real economy of the world’s people) is about a tenth the size of the financial services sector alone.”

Of course America’s financial sector should be kept viable; but in the long run, its salvation depends upon the ability of Americans to participate in and benefit from the economy. Real capital uses money to buy raw materials and machinery, hire workers, and produce products that can be sold for more than the cost of their production. Moreover, investment in research and development should be ongoing as new technologies and new ideas lead to innovations and new productivity. Real capital does not hollow out the lives of the average American.

It is in the interest of the United States, its people, and its place in the world to promote a sustainable development model, which is comprised of a labor policy, deliverable industrial and infrastructural advancement strategies, and social policies that ensure human well-being in health, education, and the post-work and sunset years. Since these policies and practices are not self-generating, it is necessary for common-sense minded people to undertake decisive, principled, actions to forge the path to our well-being.

Edward L. Palmer is Senior Research Associate, retired, Institute of Government and Public Affairs, University of Illinois, palmeredward@ymail.com; Robert N. Rhodes is Political Science Professor, retired, University of Ohio; Alice J. Palmer, PhD, is a former Illinois State Senator and current Associate Research Professor, University of Illinois aapalmur@yahoo.com.

12-11

The Dark Years Are Here

August 6, 2009 by · Leave a Comment 

By Egon von Greyerz – Matterhorn Asset Management, www.mamag.org.

In this newsletter we will outline what is likely to be the devastating effect of the credit bubbles, government money printing and of the disastrous actions that governments are taking. Starting in the next 6 months and culminating in 2011-12 the world will experience a series of tumultuous events which will be life changing for most people in the world.  But 2011-12 will not be the beginning of an upturn in the world economy but instead the start of a long period of economic, political and social upheaval that could last for a couple of decades.

We will discuss the three areas that we for some time have argued will determine the fate of the world for the foreseeable future, namely the coming unemployment explosion, the next and much more serious phase in the credit markets and finally the likely hyperinflationary or just inflationary effect this will have on the world economy and investments.

Let us first go back in history and analyze what creates an empire and the prosperity that comes with it.

The British Empire started in the 17th century and reached its peak in the 19th century during Queen Victoria’s reign. By the end of the 19th century The British Empire included nearly 20% of the land surface of the world and 25% of the world’s population. So Britain which is less than 0.5% of the world’s land surface area controlled an empire which was more than 50 times greater. So by using slave labour and by stealing the resources of 20% of the world, it is no wonder that Britain was the wealthiest nation for several centuries. But like all empires, Britain carried the seeds of its own destruction. All empires – e.g. Mongolian, Roman, Ottoman or British etc. – eventually overstretch their resources both militarily and financially. This combined with decadence and illusions of grandeur eventually leads to the collapse of an empire.

The US empire was slightly different from the point of view that it never conquered the world although the US was itself a colony conquered from its original inhabitants. But the US has intervened in many areas (e.g. Korea, Vietnam, Afghanistan, Iraq etc.). Also, there are US military bases in 120 countries. Initially the US was an economic superpower based on an entrepreneurial spirit and a very strong production machine backed by fierce military power. But after the Vietnam war the US had overstretched its resources and by 1971 Richard Nixon abolished the gold standard in order to be able to start money printing in earnest. The money printing phase is normally the last stage of an empire before it collapses and this is where the US is now. The US dollar became the reserve currency of the world when the US was strong economically. But as the US economy started to weaken in the 1960-70’s the US government found a much better method for maintaining a strong economy. It started to print paper that it sold to other nations or exchanged for goods and services. For almost 50 years this has been the most clever way ever devised of maintaining the living standards of an economically deteriorating nation without even having to spend any resources on building an empire. It is a Ponzi scheme which has worked for several decades but slowly the world is now waking up to the fact that they are holding worthless paper printed by the US Government. (We realise this is a much simplified version of empire building and destruction but it is nevertheless an accurate analysis).

The US is haemorrhaging financially and economically. It has lent or committed almost $13 trillion in the last 18 months to prop up the financial system.  The estimated government deficit in the current year is almost $2 trillion or 50% of the budget. All the money committed so far has only achieved two things: Firstly it has created some short term hope which together with totally illusionary sightings of green shoots have generated a small stock market correction (which we forecast in our January Newsletter) and some belief that the crisis is ending. Secondly, all the funds printed so far to save the system have gone to Wall Street but has done nothing whatsoever for the real economy. Every single sector of the real economy is deteriorating whether it is production, unemployment, corporate profits, real estate, credit defaults, construction, federal deficits, local government and state deficits etc.

And what is the government doing about it. They are doing the only thing they know which is to print more money.

This is total lunacy! How can any intelligent person believe that printed pieces of paper can solve an economic catastrophe?

If that were the case we could all go home and write out pieces of paper or use Monopoly money to spend in the shops or repay our debts.

How can the US government, the UK government and most other governments not understand that the only way to run an economy is to cut your coat according to your cloth. This is why the emperor had no clothes because the country had run out of gold thread to make the cloth. Until now the US as well as other countries have been able to buy the cloth because the world has been foolish enough to accept worthless pieces of paper as payment. But this is coming to an end very soon and many countries will be without both coats and cloth.

What governments are doing with people’s money is to totally destroy its value. Purchasing power in the US and many other countries has declined more than 95% in the last 100 years. While it might buy votes short term it will only generate massive misery long term. And this is what many countries are starting to experience now. But sadly it will get a lot worse. We are still only in the first phase of this tragic saga. The second phase is likely to start in the next 6 months.

The real unemployment in the US is 20% or 30 million. These are the real unadjusted figures calculated on the same basis as the official figures before the method of the calculation was changed in the 1990’s. Reported government figures, especially in the US, are continually manipulated in order to suit the political aims of the government. Therefore, one should not give any credence to the published figures. Most governments mislead the people most of the time.

With 20% unemployment in the US we are already approaching the levels in the 1930’s when peak total unemployment reached 25%. The 20% current level is the non-farm unemployed and is still a lot lower than the non-farm peak figure in the 1930’s which was 35% unemployed.

Since we are still in the early stages of this crisis, it is our firm opinion that non-farm unemployment levels will reach 35% at least in the US in the next few years.
But even the current figure of 30 million unemployed is a catastrophe. Adding dependants to every unemployed person there are currently 100 million people affected by unemployment in the US. In the next three months 3 million unemployed will fall out of the social security safety-net. These are the people who were laid off in the second half of 2008. Including their families this means that around 10 million people will become destitute between now and September with no social security and no savings. If we then add the 4 million that were made redundant in the first half of 2009 that will result in an additional 13 million people including families will become destitute around Christmas. This is a disaster of unimaginable consequences that will affect the whole fabric of American society.

The consequences will be social, political, financial and the effects on the US economy will be of a magnitude which is substantially greater than during the Depression of the 1930’s. We must remember that none of the problems in the financial system have been resolved but only put on a very temporary hold. The rise in unemployment combined with the reduction in consumption will lead to the next and much more severe banking crisis.

Unemployment in Europe is also rising fast and shows no signs of abatement. Many countries are reaching 10% with for example Spain at 19% and Latvia at 16%. But as we have said for quite some time, of the larger European nations, the country with the biggest problems is the UK. Unemployment in the UK is currently “only” 2.5 million or 7% but it is estimated to reach over 3 million by the end of 2009. The combination of government deficits, a banking system which is extremely fragile and too big for the country, very high personal credit that will not be repaid and a housing bubble which still has a long way to fall makes the UK very vulnerable to a major financial shock.

During the next 6-9 months unemployment will severely affect most parts of the world including China, Asia and Africa. Never before has there been a global unemployment crisis affecting the world simultaneously. This will not only mean a massive decline in consumption and world trade leading to a recession or depression worldwide but also poverty, famine and social unrest.

The masters of the financial circus are the bankers. Not only did they reap the benefits from manufacturing toxic financial products to the extent of receiving bonuses and stocks in the $trillions during the last 15-20 years. But they are also the only beneficiaries of the trillions of dollars that have been printed by governments to rescue the financial system. Why are the bankers benefiting from the rescue of their own banks? Because they are the ones controlling the government, advising the government and making major contributions to the politicians.

Bonuses are back–Yes, many banks are paying higher bonuses in 2009 than 2008. Goldman Sachs is on course to pay bonuses of $20 billion or $700,00 per employee and Morgan Stanley a 30% increase from average per employee of $262,000 last year to $340,000 this year. JP Morgan’s bonus pool for the first quarter of 2009 is up 175% to $3.3 billion and the new chief executive of RBS, the nationalized UK bank is getting an incentive package worth £10 million! Similar bonuses are being paid by many other banks. Barclays Capital for example is on a massive spending spree recruiting executives with golden hellos and guaranteed bonuses of millions per employee.

Central banks and governments worldwide have spent trillions of dollars temporarily propping up a totally bankrupt financial system and now a few months later the bankers are back earning absurd money within a banking system which hasn’t been mended and is still bankrupt. This is scandalous.

Toxic Structures are back–But not only that, they are also back to creating new securitisation programmes in order to reduce capital requirements and increase leverage. Goldman Sachs, and Barclays Capital are doing this already and many other banks will follow. It is exactly these types of programmes that created the financial crisis in the first place and now the bankers are back at it again. This is totally disgraceful and irresponsible behaviour by bankers who have learnt nothing from their disastrous freewheeling actions except how to milk the system to the maximum again.

As we have pointed out before, none of the problems in the banking system have been resolved. The system still has a leverage of 25-50 times, it is still full of toxic debt and derivatives, loan books are deteriorating daily, it still has worthless paper assets valued at fantasy prices and most banks are run by the same bankers who created the problems in the first place. For a typical bank, a 4% drop in asset value wipes out the equity. This is what we call a recipe for disaster.

In the meantime governments are making feeble attempts at preventing a future crisis by planning new regulations. But these regulations will only deal with known  and historic problems. The bankers will again run rings around the authorities in creating new structures to circumvent the new rules.

The next phase of this tragic saga will soon start.

Compared to the of the 1930’s we are already in a worse position today than at the same stage of the Great Depression. Industrial production is worse in many countries. World trade is worse and the stock market fall is greater than at the same stage in the corresponding period of the Depression and both government and private debt is a lot worse.

So what is likely to happen next?

* Unemployment will increase government deficits

First unemployment will rise substantially as outlined above and the effects of the unemployed masses will have major repercussions on the economy. This will lead to government deficits growing substantially. Tax revenue is already falling at alarming rates in the US and UK and most other countries but it will get a lot worse. Government expenditure will rise rapidly due to the mass unemployment. Taxes will rise but this will be like getting water out of a stone – there won’t be much revenue to tax. And if Vat or sales taxes are increased this will kill consumption even more. In addition governments will have to implement more programmes to help the poor, hungry and homeless. This will lead to more money printing.

* Next phase of bank problems

Secondly the next phase of problems in the financial system will start by the autumn of 2009 at the latest. Since this will come as a total shock to everyone the effect will be much worse than in 2008. So far US banks have taken losses of $1.1 trillion. Conservative estimates put total losses at $2.2 trillion but realistic estimates are around $4 trillion and this excludes any problems in the $600 trillion to $1 quadrillion derivatives market a big part of which is worthless. In the next round of capital raising for banks there will only be one investor – the government. Thus there will be more money printing.

* Government paper will collapse – first in the US and UK

With the escalation of money printing markets will be flooded with government paper which nobody wants, leaving governments to buy its own junk. The two countries with the worst problems are the UK and the US and their precarious situation will emerge first. Within the next few months rating agencies are likely to downgrade both countries’ debt. This will lead to the value of the treasury bonds and gilts collapsing and interest rates quickly moving up into the teens. The higher rates will make the financing costs of the debt to up exponentially leading to more money printing and higher interest rates. This is the “perfect” vicious circle that will end in a hyperinflationary depression.

* Hyperinflation is a currency driven event

For many years we have been saying that this crisis will by hyperinflationary. The issuing of unlimited government paper will lead to the rest of the world selling their holdings of US/UK treasuries as well as selling the dollar and the pound. Most so called financial experts have been predicting a deflationary recession/depression since they don’t see the demand pull that they think is the cause of hyperinflation. We have been one of the very few (together with the very wise Jim Sinclair) to understand that hyperinflation is a currency driven event. The issuing of unlimited government paper outlined above will lead to the US dollar as well as the pound collapsing. It is the collapse of the currency which leads to hyperinflation. Without fail in history every hyperinflationary event has been caused by a collapsing currency not by demand pull.

Many other nations will also experience hyperinflation such as the Baltic States, certain Eastern European and Asian Countries. Many more countries will have high inflation.

In the next few months we will see the start of the Dark Years. For the first time in the history of the world there will be a synchronised downturn affecting all nations (although some a lot worse than others).This is the culmination of the world and especially the Western world, living above its means for decades in a mania of credit bubbles, asset bubbles, real estate bubbles as well as excesses leading to decadence and a society with very weak moral and ethical values. (Of course no society recognises this as it is happening but only afterwards). Governments have fuelled this process by printing unlimited amounts of paper thus destroying the money and purchasing power of most nations.

The Dark Years will be extremely severe for most countries both financially and socially. In many countries in the Western world there will be a severe depression and it will be the end of the welfare state. Most private and state pension schemes are also  likely to collapse.  It will be a worldwide depression but some countries may only have a deep recession. There will be famine, homelessness and misery resulting in social as well as political unrest.  Different type of government leaders and regimes are likely to result from this.

How long will the Dark Years last?  There is a book called The Fourth Turning written by Neil Howe. He has identified a pattern that repeats itself every 80 years. The pattern has been extremely accurate in the Anglophile world. We have recently entered the Fourth Turning which is the final 20 years of the cycle. According to Howe we are in the early stages of a 20 year period of economic and institutional upheaval. This is a period of Crisis when the fabric of society will change dramatically. Previous Fourth Turnings have been the American Revolution, Great Depression and World War II. According to Howe the Crisis will be substantially worse before it is over and it will last for another circa 20 years.

All of this is not good news and we hope that we and Howe are wrong regarding the severity and length of this crisis. But we fear that we are both right. We must stress again that never previously has the the whole world entered a downturn simultaneously in such a fragile state both financially and economically which is why the Dark Years are likely to be so devastating and long lasting.

The correction up in stockmarkets has probably finished but there is a possibility that it will continue for another couple of months.

Matterhorn Asset Management AG based in Zurich Switzerland specialises in wealth management and wealth preservation with particular emphasis on gold and silver bullion stored safely outside the banking system.

What is important is that it is a correction (we predicted it already back in January) and it will soon lead to a strong resumption of the downtrend.  In the Dow Jones, a break of the trend line at 6400 would lead to a projected decline of at least 90% from the top. Almost all major world markets point to similar declines. This sounds incredible but bearing in mind that the Dow Jones fell 90% in the 1930’s and bearing in mind our discussion in the Dark Years paragraph above, this kind of target is not impossible.

Some commodity stocks as well as gold and silver mining shares will be major beneficiaries from the Crisis.

Dow Jones H & S 13.7.09

Bonds

We forecast at the beginning of the year that US long rates would go up and they have almost doubled since. But this is only the beginning since we expect US and UK long rates to reach at least the mid teens in the next 2-3 years. Interest rates in all countries will go up substantially in the next few years.

Currencies

The dollar and the pound will have very substantial falls in the autumn of 2009. At some later stage the Euro will also weaken as a result of certain countries breaking away from the Euro area.

Gold

The currency which will be the major beneficiary from the Crisis is Gold. We have invested in gold since 2002 when we saw the Crisis coming. Gold has trebled since then. But this is just the beginning. The next major move will take place in the coming 4-5 months and it will be major. Gold for wealth preservation purposes should be held directly by the investor and stored outside the banking system in his name. Holding gold in ETF form, futures or owning part of gold bars that you don’t have personal access to is not wealth preservation.

There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Ludwig von Mises