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Recovery, Geopolitics and Detergents

Mar 302015

March 30, 2015 Posted by Raúl Ilargi Meijer at 1:38 am Finance Tagged with: detergents, geopolitics, Greece, living standards, power, propaganda, QE, recovery, Ukraine 8 Responses »

Gottscho-Schleisner Fulton Market pier, view to Manhattan over East River, NY 1934

Increasingly over the past year or so, when people ask me what I do, and that happens a lot on a trip like the one I’m currently on in the world of down under, I find myself not just stating the usual ‘I write about finance and energy’, but adding: ‘it seems to become more and more about geopolitics too’. And it’s by no means just me: a large part of the ‘alternative finance blogosphere’, or whatever you wish to call it, is shifting towards that same orientation.

Not that no-one ever wrote about geopolitics before, but it used to be far less prevalent. Much of that, I think, has to do with a growing feeling of discontent with the manner in which a number of topics are handled by the major media and the political world. Moreover, as would seem obvious, certain topics lay bare in very transparent ways how finance and geopolitics are intertwined.

In the past year, we’ve seen the crash of the oil price, which will have – financial and political – effects in the future that dwarf what we’ve seen thus far. We’ve seen Europe and its banks stepping up their efforts to wrestle Greece into – financial and political – submission. And then there’s the nigh unparalleled propaganda machine that envelops the Ukraine-Crimea-Russia issue, which has bankrupted the economy of the first and imposed heavy economic sanctions on the latter, for political reasons.

And while there are plenty people out there all across the west who may feel convinced that Greece had it coming, that waging wars in far away lands is the only way to keep the west safe, and that Putin is the biggest and meanest bogeyman this side of Stalin, if not worse, many also have come to question the official version(s) of events. Something that, if you ask me, is always good, even if it doesn’t mean the conclusions arrived at are always top notch.

For that matter, even Société Générale does geopolitical commentary, as evidenced in a note published by Tyler Durden:

Western sanctions have exerted a broad-based negative impact on Russian businesses. The cost of borrowing has climbed considerably not just for sanctioned institutions, but also for other Russian entities. Risk management departments across global enterprises are likely to continue erring on the side of caution, continually assessing the risk of sanctions materializing for counterparties in Russia. Normalization of business practices may only reemerge long after the removal of sanctions. Although this does not mean completely avoiding interactions with Russian entities, businesses and investors are increasingly cautious and selective in their participation…

Western sanctions against Russia may persist indefinitely. Some locals believe in the likelihood of de-escalation later this year, pointing to the lack of political cohesion and unanimity among Europe’s political leaders, and increasing calls for easing of sanctions. Russian businesses believe that escalation of sanctions may be hard to implement, given that they will also hurt European counterparties.

Some local asset managers are optimistic on the performance of Russian assets later this year, based on a perceived high likelihood of improvement in geopolitics. Although locals differ in their assessment of the timeline when sanctions may be lifted, they appear united in their support and admiration of President Putin. Few care to speculate on President Putin’s ultimate game plan, or whether one exists, citing the opacity of the situation. With that said, locals broadly concur that Russia would never (again) relinquish Crimea. In this light, Western sanctions against Russia based on its annexation of Crimea may persist indefinitely…

While in my opinion the conclusions in the note leave to be desired, which may be an indication that the boys are somewhat new to the topic, the very fact that SocGen issues notes about geopolitics, and uses the term itself, is interesting and – to an extent – solidifies the link about finance and geopolitics I noted before.

Still, I’, inclined to think that when it comes to Greece, the bank’s analysts are capable of leaving their narrow finance perch behind for a broader vista that allows for a view that makes Greece a political instead of a financial issue. Because that’s what is has become, whether the parties involved wish to acknowledge it or not.

Greece, like Ukraine, is about power politics, executed at about the same level of intelligence and sophistication that you and I had when we are still playing in a sandbox. And finance, economics, is one of the very favorite weapons to try and get the side perceived as weaker to say Uncle.

And that in and of itself is still far from the worst thing. The worst is that what reaches the general public about these power games – which are far from innocent, they kill, maim, hurt real people – is a distorted and simplified precooked storyline, so hardly anyone can make up their own mind about what happens. That is why the ‘alternative finance blogosphere’ feels increasingly compelled to cover that part of the story as well.

This is also a major problem in the more domestic issue of economic recovery. Unless we would agree, which we really shouldn’t, that making a small group of the population richer while the much larger rest is made poorer, is how we define ‘recovery’, we have no recovery. But it is still accepted and proclaimed like a gospel: our economies are in recovery.

If you take a step back and watch things from a distance, it’s truly too silly to be true, but endless repetition of the same lines, be they true or not, has them accepted as being cast in stone. It’s like selling detergent. It’s exactly like that: say something often enough and people start to believe it, connect to it. Of course it doesn’t hurt that people very much want to believe a recovery is here. Just as they want to believe product X will turn them into shiny happy people dressed in ultra white shirts.

And of the best pieces I’ve seen in a while on the illusionary recovery topic comes from Scott Minerd at Guggenheim Partners, writing in the FT:

QE Will Lower Living Standards Long Term

New monetary orthodoxy is likely to permanently impair living standards for generations to come, while creating a false perception of reviving prosperity. As economic growth returns again to Europe and Japan, the prospect of a synchronous global expansion is taking hold. Or, then again, maybe not. In a recent research piece published by Bank of America Merrill Lynch, global economic growth, as measured in nominal US dollars, is projected to decline in 2015 for the first time since 2009, the height of the financial crisis.

In fact, the prospect of improvement in economic growth is largely a monetary illusion. No one needs to explain how policy makers have made painfully little progress on the structural reforms necessary to increase global productive capacity and stimulate employment and demand. Lacking the political will necessary to address the issues, central bankers have been left to paper over the global malaise with reams of fiat currency. [..]

What I decidedly do not like about Minerd’s piece is the suggestion that if only policy makers had made more progress on ‘structural reforms necessary to increase global productive capacity’, things would have been fine, or better at least. Like if someone came up with a better way towards growth, that would solve our problems.

In my view, this is not about failing to find the right way towards more growth, it’s that more growth itself is not the right way to solve the issues. When he says policy makers and central bankers are ‘lacking the political will necessary to address the issues’, I can only hope he means the will needed to restructure the entire financial system, force bankrupt banks into bankruptcy and break up what’s left into pieces too small to ever again threaten an economy, let alone the entire financial system. But I don’t see him say it, so I’m left doubting that’s what he means.

Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order.

The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as high-yield debt and global equities should continue to perform strongly.

Despite ultra-loose monetary policies over the past several years, incomes adjusted for inflation have fallen for the median U.S. family. With the benefits of monetary expansion going to a small share of the population and wage growth stagnating, incomes have been essentially flat over the past 20 years.

That last bit is the same as saying there is no recovery. Which is a tad curious, because Minerd started out saying, in his first paragraph: ‘As economic growth returns again to Europe and Japan’. Pick one, I’d say.

In the long run, however, classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time.

In fact, although U.S. equity prices are setting record highs, real median household incomes are 9% lower than 1999 highs. The report from BoA Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output. The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

It’s by no means the first time I bring this up, but I’ll do it again until there’s no more need. The stories we are bombarded with 24/7 under the quite hilarious misnomer ‘News’ have been prepared, pre-cooked and pre-chewed for our smooth and painless digestion, and as such they contain only tiny little flakes of reality. They are designed to make us feel good, not understand the world around us.

It’s up to sites like the Automatic Earth – and there’s quite a few others – to expose these storylines and narratives for what they really are: tools to sell detergents. Their purpose is not to inform people, but to manipulate them into forming opinions about their world that serve the intentions of one or more groups of people hungry enough for power to occupy themselves with this sort of scheming.

Somewhere on the not so sharp edge between money and power, there are lots of people who devote their entire lives towards devising ways to make up your mind for you. And if you’re like most people, you like that, because it absolves you from having to think for yourself. But the price to pay doesn’t come with the commercials: if you let others think for you, you or your children may be called into war at any time of somebody else’s choosing.

And, as Scott Minerd says, the economic future for your entire families will look utterly bleak. Because that recovery they talk about? It’s not for you.

The American Story Is A Mystery Only to Economists

Mar 142015

March 14, 2015 Posted by Raúl Ilargi Meijer at 2:58 am Finance Tagged with: Bloomberg, borrowing, consumers, economists, jobs, journalists, mystery, recovery, spending 13 Responses »

DPC Launch of freighter Howard L. Shaw, Wyandotte, Michigan 1900

I think I should accept that I will never in my life cease to be amazed at the capacity of the human being to spin a story to his/her own preferences, rather than take it simply for what it is. Your run of the mill journalist is even better at this than the average person – which may be why (s)he became a journalist in the first place -, and financial journalists are by far the best spinners among their peers. That’s what I was thinking when I saw another Bloomberg headline that appealed to my more base instincts, which I blame on the fact that it shows a blatant lack of any and all brain activity (well, other than spin, that is).

Here’s what Bloomberg’s Craig Torres and Michelle Jamrisko write: “American Mystery Story: Consumers Aren’t Spending Even In a Booming Job Market”. Yes, it is a great mystery to 95% of journalists and economists. Because they have never learned to even contemplate that perhaps people can be so deep in debt that they have nothing left to spend. Instead, their knowledge base states that if people don’t spend, they must be saving. Those are the sole two options. And so if the US government reports that 863,000 underpaid new waiters have been hired, these waiters have to go out and spend all that underpayment, they must consume. And if they don’t, that becomes The American Mystery Story.

For me, the mystery lies elsewhere. I’m wondering how it ever got to this. How did the capacity for critical thinking disappear from the field of economics? And from journalism?

American Mystery Story: Consumers Aren’t Spending Even In a Booming Job Market

It’s an American mystery story: More people have jobs and extra pocket money from lower gas prices, but they aren’t buying as much as economists expected. The government’s count of how much people shelled out at retailers fell in February for a third consecutive month. Payrolls are up 863,000 over the same period. The chart below shows retail sales and payrolls generally move in the same direction, until now. The divergence could portend lower levels of economic growth if Americans’ usually reliable penchant to spend is less than what it once was.

YoY growth in U.S. retail and food services sales (red) against year-over-year change in non-farm payrolls (blue).
Sources: Bureau of Economic Analysis, Bureau of Labor Statistics

Inevitably, when faced with such a mystery, Bloomberg’s scribblers dig up a household savings graph. Et voilà, problem solved:

“The expenditures that add up to gross domestic product are coming in a lot softer than employment,” said Neil Dutta at Renaissance Macro Research. “Why would retailers be hiring if sales are falling? Why would they be boosting hours if sales are falling and why would they be paying more?” Also, take a look at the household saving rate. It’s gone up as gas prices fell:

And why are all those crazy American waiters hoarding all that cash they, as per economists, just got to have lying around somewhere? You knew it before I said it: it was cold! Crazy cold!

Ben Herzon at Macroeconomic Advisers isn’t that worried yet. As usual, the data is quirky. First, he notes, “it was crazy cold in February.” Aside from stocking up on milk in the snowstorm, staying indoors was probably a more attractive option for most shoppers.

And it gets better. How about this for a whopper?

Herzon notes that lower gas prices also depressed the count in prior months. The government is adding up dollars spent, so fewer dollars to fill a gas tank results in lower sales.

Let’s see. Gas was cheaper, so people spent less on that. And that drove down retail sales. But wasn’t it supposed to drive them up? Wasn’t that the boost the economy was predicted to get? You mean to tell me that lower gas prices actually function to drive spending down? That our newfound platoon of waiters took all that newfound money and spent it on .. nothing at all? Not to worry. March will be much better or “Our story would be wrong…” And how likely is that, right?

That even bleeds into narrower measures of retail sales because grocery stores such as Safeway, Wal-Mart and Sam’s Club also sell gasoline. Herzon is counting on a March rebound. There won’t be the weather to blame anymore, and gas prices have rebounded off their lows of late January and early February. “Payroll employment has been great, and it is generating a lot of labor income that you think would be spent,” Herzon said. “March should be a rebound. Our story would be wrong if it doesn’t happen.”

Halle-bleeping-lujah. Is this creativity on the part of the writer and interviewee, or is it just a knee-jerk reaction? Don’t they understand because they don’t have the appropriate grey matter, or don’t they simply want to?

And Bloomberg takes us from mystery to surprise (I’m guessing that’s one level lower on the What? scale), The surprise is that the US has not lived up to what Bloomberg and its economists had dreamt up all by themselves.

Surprise: US Economic Data Have Been the World’s Most Disappointing

It’s not only the just-released University of Michigan consumer confidence report and February retail sales on Thursday that surprised economists and investors with another dose of underwhelming news. Overall, U.S. economic data have been falling short of prognosticators’ expectations by the most in six years. The Bloomberg ECO U.S. Surprise Index, which measures whether data beat or miss forecasts, fell to the lowest since 2009, when the nation was in the deepest recession since the Great Depression. There’s been one notable exception to the gloom, and it’s a big one: payrolls. The economy added 295,000 jobs in February and 1.3 million over four months, a reflection of a healthier labor market in which the unemployment rate has fallen to the lowest in almost seven years.

Most everything else? Blah. This month alone, personal income and spending, manufacturing as measured by the Institute for Supply Management, auto sales, factory orders, and retail sales have all come in a bit weak. Citigroup keeps economic surprise indexes for the world, and its scoreboard shows the U.S. is most disappointing relative to consensus forecasts, with Latin America and Canada next, as of March 12. Emerging markets were supposed to be hurt by falling oil prices but are now delivering positive surprises. U.S. policymakers frequently talk about weakness in Europe and China, though both are exceeding expectations.

In short, Bloomberg and its economists were once again embarrassingly off target. Though they prefer to use different terminology:

And there’s one rub. The surprise shortfall in the U.S. doesn’t necessarily mean the world’s largest economy is in dire straights. It’s just falling short of some perhaps overly elevated expectations.

Perhaps? What do you mean perhaps? US data are the biggest disappointment of all of your numbers. There’s no perhaps about it. Just admit you get it wrong all the time.

Maybe they are mystified because of data like the following, coming from the Fed, no less.

Fed: US Household Net Worth Hits Record $83 Trillion In Q4 2014

Household net worth rose by $1.5 trillion in the fourth quarter of last year to a record $83 trillion, the Federal Reserve said on Thursday. The gains were driven by a surging real estate market. Household real estate holdings rose to their highest level since 2007. Real estate equity levels also hit a 2007 high. Household stock holdings also rose with the broader markets.

Since those 683,000 waiters would only qualify for subprime loans, you can bet that only a few of them profited from this ‘surging real estate market’. Household net worth may have hit a record, but that has nothing to do with the lower rungs of society. Which we can prove by looking at the second part of the piece:

But at the same time, the central bank reported debt was on the rise. Total debt – including households, governments and corporations – rose 4.7% , the most since 2012.

No doubt that this additional debt can be made to show up somewhere as a positive thing. How about: look, consumers feel confident enough to take on more debt again.

Nomura’s Richard Koo elegantly lays bare the global – and American – economic conundrum in just a few words: “When no one is borrowing money, monetary policy is largely useless..”

Why We’re At Risk Of A QE Trap: Koo (CNBC)

The problem with central banks’ massive bond-buying programs is that if consumers and businesses fail to borrow money to stimulate economic growth, the policy is rendered mostly “useless,” one Nomura economist said Friday. The U.S. and U.K. embarked on asset-purchase, or QE programs, following the 2007-2008 global financial crisis. Japan joined the QE club in 2013 and the ECB began its €1 trillion bond-buying stimulus this week. “Both the U.S. and Europe are facing the same problem– which is that we are in a situation where the private sector in any of these economies is not borrowing money at zero interest rates or repairing balance sheets following what happened in the crisis,” Richard Koo, Chief Economist at Nomura, told CNBC on the side lines of the Ambrosetti Spring Workshop in Italy.

“When no one is borrowing money, monetary policy is largely useless,” he added. In the run-up to the launch of QE in the euro zone, loans to the private sector, which are a gauge of economic health, contracted. Data published late last month showed that the volume of loans to private firms and households fell by 0.1% on year in January, compared with a 0.5% drop in December. According to Koo, major central banks are holding reserves far in excess of levels they need because of the monetary stimulus. This has not led to a rise in private sector spending because big economies are struggling with a balance sheet recession – a situation where companies are focused on paying down debt rather than spending or investing – increasing the risk of QE trap.

“In a national economy if someone is saving money, you need someone to borrow money and this is the part that is missing. They [central banks] are pumping money but no one is borrowing, so you get negative interest rates and all sorts of distortions,” Koo said. He added that instead of looking to raise interest rates, the U.S. Federal Reserve should first focus on reducing its balance sheet which stands at over $4 trillion. The Fed, which meets next week, is widely expected to raise rates this year against a backdrop of improving economic data. “They [Fed policy makers] should not rush into a rate rise; they should reduce the balance sheet when people are not worried about inflation,” Koo said.

That’s all you need to know, really. Americans don’t spend, and they don’t borrow. That makes all QE measures useless for the larger economy, and a huge windfall for the upper echelons of society.

You could also say QE is a criminal racket, but I’m pretty sure journalists, economists, central bankers and politicians alike will only admit to stupidity, not to being accomplices in such a racket. Or perhaps not even stupidity; they’ll just claim nobody could have foreseen this, like they always do when they run into room size elephants.

Still, you have to love a piece like the following by Thad Beversdorf:

The Fed Gives A Giant F##k You to Working Class Americans

I was shocked today by the absolute gaul of the Fed releasing a statement about Net Worth in America reaching record levels. Now I get that they are under extreme pressure to sell the story that everything is rainbows and butterflies. But surely they understand that working class Americans are going along with the story because they really don’t have any say in our nation’s policies anymore. That doesn’t mean they want it thrown in their faces that the Fed has spent 6 years now inflating the wealth of the top 10% so much that it actually lifts the total wealth of the nation’s citizens to record highs. The ugly reality is that the bottom 80% of Americans experienced none of that gain. That’s right: a big ole goose egg.

And so when the Fed via its ass pamper boy, Steve Liesman, start banging on about the fact that some sliver of society is being handed extraordinary wealth while the working class has lost 40% of their net worth since 2007, well a big fuck you right back at ya bub! The Fed is very aware that the bottom 80% of Americans own less than 5% of US equity markets. And so the Fed is very aware that its manipulation of stock prices such that it creates immense unearned wealth to those in the markets doesn’t reach the bottom 80%. So why celebrate the results of the stock market price manipulation?? It is embarrassing that our policymakers are either that inconsiderate or that stupid to celebrate such a brutal dislocation between the haves and have nots.

I don’t know what one can even say about the Fed making a celebratory statement like that today. It is somewhat beyond words. And really paints the picture as to how little thought goes into the lives and well being of the bottom 80%. Just to give you something to compare and contrast the situation of the bottom 80% here in the US to counter the Fed’s celebration today. I want you to think about how lucky we are not being in one of the PIIGS nations of Europe. These are the nations that are essentially bankrupt and just hanging on by the kindness of the Troika.

So there it is. While the average net worth of Americans is 4th in the world pulled up by the top 10%, the median net worth of Americans comes in the 19th spot. Yep, behind Spain, Italy and Ireland so 3 of the 5 PIIGS nations. Meaning the bottom 80% in these broke ass barely hanging on nations have more wealth than the bottom 80% of us here in America. So I’d like to ask the Fed, is it that you just hate the working class here in America and thus like to torment them or are you truly that stuck up your own asses that you just cannot see the light?

Rest assured, Thad, the Fed has seen the light. And they don’t actually hate working class America, they just don’t give a flying f#ck about them.

Imagine the founding fathers looking down on all of this. Hell imagine those who fought on the beaches of Normandy looking down at what America has become. Knowing that they sacrificed everything just to hand the nation over to a group of foreign sociopaths. Imagine those men having to see that Americans no longer have any sense of dignity other than to yell loudly that “we are still great”[..]. How incredibly disheartening it would be for those WWII soldiers to see us now.

Plenty of those guys are still alive. So we could ask them. But the gist is clear, and all those who died on those beaches can no longer speak for themselves, so we need to do it for them. Is this the world they died for? Is this the freedom they gave their lives for, the freedom to turn America into a nation of debt slaves?

There is no mystery anywhere to be found in the fact that US retail sales don’t follow the jobs trend. Not if you look at what kind of jobs they are, let alone at all the other made up and manipulated numbers that are being thrown around about the US economy.

The only mystery is why everyone persists in talking about a recovery. That recovery will never come, simply because all 90% of Americans do is pay for the other 10% to get richer. There are many other factors, but that all by itself makes a recovery a mathematical mirage.

Stuck In Reverse And Descending Into Trauma

Nov 252014

November 25, 2014 Posted by Raúl Ilargi Meijer at 9:49 pm Finance Tagged with: backwards, clowns, confidence, downscale, Kunstler, recovery, reverse, trauma, unemployment 8 Responses »

John Vachon Rain. Pittsburgh, Pennsylvania Jun 1941

US Q3 GDP was revised up by the BEA to 3.89%, but that’s no longer what financial markets react to. They sit and wait for more QE somewhere on the planet to be doled out. Will Americans, if they see this at all, take those numbers, add them to the sweet drop in prices at the pump and spend what they save on more holiday purchases? I’m not saying I know, but I do see that US consumer confidence is down, as is global business confidence – the latter at a five year low.

The Case/Shiller index reports a “broad-based slowdown” for US home prices, and that in the rear view mirror that looks at Q3. So that’s not where those 3.89% came from, it wasn’t housing (wonder what it was). The Gallup Christmas survey lost 8% of exuberance in one month. What this adds up to is that Americans may not spend all of that saved gas money, and that means there’s a real danger of deflation coming to America too – as if Japanese and European attempts to export their own were not enough yet.

While the media continue to just about exclusively paint a picture of recovery and an improving economy, certainly in the US – Europe and Japan it’s harder to get away with that rosy image -, in ordinary people’s reality a completely different picture is being painted in sweat, blood, agony and despair. Whatever part of the recovery mirage may have a grain of reality in it, it is paid for by something being taken away from people leading real lives. US unemployment numbers are being massages three ways to Sunday, as is common knowledge, or should be; the amounts of working age people not working, and not being counted as unemployed either, is staggering.

But there’s a very large, and growing, number of people who do work, but find it impossible to sustain either themselves or their families on their wages. That’s how the recovery, fake as it even is, is paid for. And this will have grave consequences for many years, if not decades, to come.

If a government would come clean with its citizens, explain the overwhelming debt situation a nation is in, that everyone will have to do with less at least for a while, and then openly start restructuring the debts, those consequences would be much less damaging. But all governments choose to talk about only recovery and growth, and to let their people suffer the consequences of the policies enacted to achieve these goals, even if after 6-7 years of crisis and dozens of trillions in stimulus, we’re no closer to either. Quite the contrary. We’re not in ‘drive’, we’re stuck in ‘reverse’. We’re backing up. We’re moving backwards.

Lance Roberts at StreetTalkLive provides stats on how many Americans have been made dependent on some sort of handout:

The Dismal Economy: 148 Million Government Beneficiaries

.. the Federal Reserve has stopped their latest rounds of bond buying and are now starting to discuss the immediacy of increasing interest rates. This, of course, is based on the “hopes” that the economy has started to grow organically as headline unemployment rates have fallen to just 5.9%. If such activity were real then both inflation and wage pressures should be rising – they are not. According to the Congressional Budget Office study that was just released, approximately 60% of all U.S. households get more in transfer payments from the government than they pay in taxes.

Roughly 70% of all government spending now goes toward dependence-creating programs. From 2009 through 2013, the U.S. government spent an astounding 3.7 trillion dollars on welfare programs. In fact, today, the percentage of the U.S. population that gets money from the federal government grew by an astounding 62% between 1988 and 2011. Recent analysis of U.S. government numbers conducted by Terrence P. Jeffrey, shows that there are 86 million full-time private sector workers in the United States paying taxes to support the government, and nearly 148 million Americans that are receiving benefits from the government each month.

Yet Janet Yellen, and most other mainstream economists suggests that employment is booming in the U.S. Okay, if we assume that this is indeed the case then why, according to the Survey of Income and Program Participation conducted by the U.S. Census, are well over 100 million Americans are enrolled in at least one welfare program run by the federal government. Importantly, that figure does not even include Social Security or Medicare. (Here are the numbers for Social Security, Medicaid and Medicare: More than 64 million are receiving Social Security benefits, more than 54 million Americans are enrolled in Medicare and more than 70 million Americans are enrolled in Medicaid.) Furthermore, how do you explain the chart below? With roughly 45% of the working age population sitting outside the labor force, it should not be surprising that the ratio of social welfare as a percentage of real, inflation-adjusted, disposable personal income is at the highest level EVER on record.

Tyler Durden addresses deteriorating wages in America with a great metaphor:

The Mystery Of America’s “Schrodinger” Middle Class, Which Is Either Thriving Or About To Go Extinct

On one hand, the US middle class has rarely if ever had it worse. At least, if one actually dares to venture into this thing called the real world, and/or believes the NYT’s report: “Falling Wages at Factories Squeeze the Middle Class.” Some excerpts:

For nearly 20 years, Darrell Eberhardt worked in an Ohio factory putting together wheelchairs, earning $18.50 an hour, enough to gain a toehold in the middle class and feel respected at work. He is still working with his hands, assembling seats for Chevrolet Cruze cars at the Camaco auto parts factory in Lorain, Ohio, but now he makes $10.50 an hour and is barely hanging on. “I’d like to earn more,” said Mr. Eberhardt, who is 49 and went back to school a few years ago to earn an associate’s degree. “But the chances of finding something like I used to have are slim to none.” Even as the White House and leaders on Capitol Hill and in Fortune 500 boardrooms all agree that expanding the country’s manufacturing base is a key to prosperity, evidence is growing that the pay of many blue-collar jobs is shrinking to the point where they can no longer support a middle-class life.

In short: America’s manufacturing sector is being obliterated: “A new study by the National Employment Law Project, to be released on Friday, reveals that many factory jobs nowadays pay far less than what workers in almost identical positions earned in the past.

Perhaps even more significant, while the typical production job in the manufacturing sector paid more than the private sector average in the 1980s, 1990s and early 2000s, that relationship flipped in 2007, and line work in factories now pays less than the typical private sector job. That gap has been widening — in 2013, production jobs paid an average of $19.29 an hour, compared with $20.13 for all private sector positions. Pressured by temporary hiring practices and a sharp decrease in salaries in the auto parts sector, real wages for manufacturing workers fell by 4.4% from 2003 to 2013, NELP researchers found, nearly three times the decline for workers as a whole.

How is this possible: aren’t post-bankruptcy GM, and Ford, now widely touted as a symbol of the New Normal American manufacturing renaissance? Well yes. But there is a problem: recall what we wrote in December 2010: ‘Charting America’s Transformation To A Part-Time Worker Society:”

.. one of the most important reasons for lower pay is the increased use of temporary workers. Some manufacturers have turned to staffing agencies for hiring rather than employing workers directly on their own payroll. For the first half of 2014, these agencies supplied one out of seven workers employed by auto parts manufacturers. The increased use of these lower-paid workers, particularly on the assembly line, not only eats into the number of industry jobs available, but also has a ripple effect on full-time, regular workers. Even veteran full-time auto parts workers who have managed to work their way up the assembly-line chain of command have eked out only modest gains.

And that’s not some isolated incident, as the Guardian makes clear, it’s the same thing in Britain.:

Record Numbers Of UK Working Families In Poverty Due To Low-Paid Jobs

Insecure, low-paid jobs are leaving record numbers of working families in poverty, with two-thirds of people who found work in the past year taking jobs for less than the living wage, according to the latest annual report from the Joseph Rowntree Foundation. The research shows that over the last decade, increasing numbers of pensioners have become comfortable, but at the same time incomes among the worst-off have dropped almost 10% in real terms. Painting a picture of huge numbers trapped on low wages, the foundation said during the decade only a fifth of low-paid workers managed to move to better paid jobs. The living wage is calculated at £7.85 an hour nationally, or £9.15 in London – much higher than the legally enforceable £6.50 minimum wage.

As many people from working families are now in poverty as from workless ones, partly due to a vast increase in insecure work on zero-hours contracts, or in part-time or low-paid self-employment. Nearly 1.4 million people are on the controversial contracts that do not guarantee minimum hours, most of them in catering, accommodation, retail and administrative jobs. Meanwhile, the self-employed earn on average 13% less than they did five years ago, the foundation said. Average wages for men working full time have dropped from £13.90 to £12.90 an hour in real terms between 2008 and 2013 and for women from £10.80 to £10.30.

Poverty wages have been exacerbated by the number of people reliant on private rented accommodation and unable to get social housing, the report said. Evictions of tenants by private landlords outstrip mortgage repossessions and are the most common cause of homelessness. The report noted that price rises for food, energy and transport have far outstripped the accepted CPI inflation of 30% in the last decade. Julia Unwin, chief executive of the foundation, said the report showed a real change in UK society over a relatively short period of time. “We are concerned that the economic recovery we face will still have so many people living in poverty. It is a risk, waste and cost we cannot afford: we will never reach our full economic potential with so many people struggling to make ends meet.

And it’s even worse in Greece and Spain and Italy, all so northern Europe and the Brussels politicos can keep alive the idea that Germany and Holland are doing well, and overall growth is almost at hand. That southern Europe must suffer for that idea has been justified away for years now, and it’s not even an issue deemed worth discussing anymore.

And that attitude will blow up in their faces, it’s inevitable that it will. Very few people understand how dangerous the games are that our governments and central banks play. And when the effects do play out, they will be blamed on other causes. Debt and propaganda rule our world supreme.

Excellent writer and great friend Jim Kunstler shows how simple the entire facade is to fathom, and how the next step away from the mess we’re in is so painfully obvious: downscale.

Buy the All Time High

Wall Street is only one of several financial roach motels in what has become a giant slum of a global economy. Notional “money” scuttles in for safety and nourishment, but may never get out alive. Tom Friedman of The New York Times really put one over on the soft-headed American public when he declared in a string of books that the global economy was a permanent installation in the human condition. What we’re seeing “out there” these days is the basic operating system of that economy trying to shake itself to pieces. The reason it has to try so hard is that the various players in the global economy game have constructed an armature of falsehood to hold it in place — for instance the pipeline of central bank “liquidity” creation that pretends to be capital propping up markets.

It would be most accurate to call it fake wealth. It is not liquid at all but rather gaseous, and that is why it tends to blow “bubbles” in the places to which it flows. When the bubbles pop, the gas will tend to escape quickly and dramatically, and the ground will be littered with the pathetic broken balloons of so many hopes and dreams. All of this mighty, tragic effort to prop up a matrix of lies might have gone into a set of activities aimed at preserving the project of remaining civilized. But that would have required the dismantling of rackets such as agri-business, big-box commerce, the medical-hostage game, the Happy Motoring channel-stuffing scam, the suburban sprawl “industry,” and the higher ed loan swindle.

All of these evil systems have to go and must be replaced by more straightforward and honest endeavors aimed at growing food, doing trade, healing people, traveling, building places worth living in, and learning useful things.

All of those endeavors have to become smaller, less complex, more local, and reality-based rather than based, as now, on overgrown and sinister intermediaries creaming off layers of value, leaving nothing behind but a thin entropic gruel of waste. All of this inescapable reform is being held up by the intransigence of a banking system that can’t admit that it has entered the stage of criticality. It sustains itself on its sheer faith in perpetual levitation. It is reasonable to believe that upsetting that faith might lead to war.

But that’s not yet where we are, though Ferguson sure looks close to that war Jim talks about. Our leading classes will not let us downscale, no matter how much sense that makes for the ‘lower’ 95% of the population, because that would risk their leading positions. And so we’ll have to deal with a lot more misery before the whole edifice finally blows up, and we’ll end up with huge swaths of traumatized people. In a great article, Lynn Stuart Parramore describes how that works:

So Many People Are Badly Traumatized by Life in America: It’s Time We Admit It

Recently Don Hazen, the executive editor of AlterNet, asked me to think about trauma in the context of America’s political system. As I sifted through my thoughts on this topic, I began to sense an enormous weight in my body and a paralysis in my brain. What could I say? What could I possibly offer to my fellow citizens? Or to myself? After six years writing about the financial crisis and its gruesome aftermath, I feel weariness and fear. When I close my eyes, I see a great ogre with gold coins spilling from his pockets and pollution spewing from his maw lurching toward me with increasing speed. I don’t know how to stop him. Do you feel this way, too?

All along the watchtower, America’s alarms are sounding loudly. Voter turnout this last go-round was the worst in 72 years, as if we needed another sign that faith in democracy is waning. Is it really any wonder? When your choices range from the corrupt to the demented, how can you not feel that citizenship is a sham? Research by Martin Gilens and Benjamin I. Page clearly shows that our lawmakers create policy based on the desires of monied elites while “mass-based interest groups and average citizens have little or no independent influence.” Our voices are not heard.

When our government does pay attention to us, the focus seems to be more on intimidation and control than addressing our needs. We are surveilled through our phones and laptops. As the New York Times recently reported, a surge in undercover operations from a bewildering array of agencies has unleashed an army of unsupervised rogues poised to spy upon and victimize ordinary people rather than challenge the real predators who pillage at will. Aggressive and militarized police seem more likely to harm us than to protect us, even to mow us down if necessary.

Our policies amplify the harm. The mentally ill are locked away in solitary confinement, and even left there to die. Pregnant women in need of medical treatment are arrested and criminalized. Young people simply trying to get an education are crippled with debt. The elderly are left to wander the country in RVs in search of temporary jobs. If you’ve seen yourself as part of the middle class, you may have noticed cries of agony ripping through your ranks in ways that once seemed to belong to worlds far away.

[..] A 2012 study of hospital patients in Atlanta’s inner-city communities showed that rates of post-traumatic stress are now on par with those of veterans returning from war zones. At least 1 out of 3 surveyed said they had experienced stress responses like flashbacks, persistent fear, a sense of alienation, and aggressive behavior. All across the country, in Detroit, New Orleans, and in what historian Louis Ferleger describes as economic “dead zones” — places where people have simply given up and sunk into “involuntary idleness” — the pain is written on slumped bodies and faces that have become masks of despair. We are starting to break down.

When our alarm systems are set off too often, they start to malfunction, and we can end up in a state of hyper-vigilance, unable to properly assess the threats. It’s easy for the powerful to manipulate this tense condition and present an array of bogeymen to distract our attention, from immigrants to the unemployed, so that we focus our energy on the wrong enemy. Guns give a false sense of control, and hatred of those who do not look like us channels our impotent rage. Meanwhile, dietary supplements and prescription painkillers lure us into thinking that if we just find the right pill, we can shut off the sound of the sirens. Popular culture brings us movies with loud explosions that deafen us to what’s crashing all around us.

The 21st century, forged in the images of flames and bodies falling from the Twin Towers, has sputtered on with wars, financial ruin and crushing public policies that have left us ever more shaken, angry and afraid. At each crisis, people at the top have seized the opportunity to secure their positions and push the rest of us further down. They are not finished, not by a long shot.

Trauma is not just about experiencing wars and sexual violence, though there is plenty of that. Psychology researchers have discussed trauma as something intense that happens in your life that you can’t adequately respond to, and which causes you long-lasting negative effects. [..] trauma comes with a very high rate of interest. The children of traumatized people carry the legacy of pain forward in their brains and bodies, becoming more vulnerable to disease, mental breakdown, addiction, and violence. Psychiatrist Bessel van der Kolk, an expert on trauma, emphasizes that it’s not just personal.

Trauma occupies a space much bigger than our individual neurons: it’s political. If your parents lost their jobs, their home or their sense of security in the wake of the financial crisis, you will carry those wounds with you, even if conditions improve. Budget cuts to education and the social safety net produce trauma. Falling income produces trauma. Job insecurity produces trauma.

There’s much more at the link, and every word is worth reading. The mental consequences of the gutting of our societies by governments and the financial industry does not get nearly enough scrutiny. We act, or politicians and media do, as if millions of people losing their jobs, and over half of young people in certain nations never having had a chance of a job, is just a matter of numbers, of mere statistics.

And then all sorts of ‘experts’ claim it’s all just the price to pay for technological progress, that will make everything so much better for everyone some sunny day soon. But that sunny say will never come, the techno happy ideal version of the future has already died with the debt incurred to facilitate it. We need to take a step backwards, or we’ll continue to drive backwards. Or be driven, to be more precise, since we’ve handed over the steering wheel to people who have no intention of taking us where we want to, and should, go. They are only intent on taking us where they can squeeze us most.

Thing is, there’s precious little left to squeeze. And they know that much better than most of us do. That’s why it’s imperative that we should get rid of these clowns, or there’ll be a whole lot more trauma. We can organize our societies, and we can even organize ways to downscale them peacefully . But not with those at the helm who see us only as mere entities to draw blood from.

We need to be a whole lot more assertive about this; we shouldn’t want to be surrounded by traumatized friends and family members and neighbors There’s nothing good for us in that. It’ll be used against us in increased surveillance and clampdowns and all that comes with it.

We can have good jobs for everyone, all it takes is to have what we need, produced in our own communities and societies, instead of having it shipped over from China. It’s not rocket science. It’s just that there’s a certain segment in society, which unfortunately happens to be the most powerful one, that doesn’t want us to do that. They want more and bigger, not smaller and better.

Until we solve that issue, things will keep getting worse. And not just a little bit. We need to find leaders that actually represent us, our needs and desires and ideas, and we need to find ways to elect them. If we don’t, we face a very bleak future in which there won’t be much left for us to choose. Or enjoy. We live in a pivotal moment in time, but we don’t recognize it for what it is. We seem to think it’s all some minor hiccup. We are dead wrong.

Debt Rattle Jul 28 2014: Washington Thinks Americans Are Fools

Jul 282014

July 28, 2014 Posted by Raúl Ilargi Meijer at 7:07 pm Finance Tagged with: EU, evidence, recovery, Ukraine, US 21 Responses »

Arthur Rothstein Cow at Wabash Farms cooperative, Indiana May 1938

At this point, you may want to consider making it personal. Your government, wherever you are in the west, but especially in the US, takes you for a bunch of fools they can feed anything at all and fully expect you to believe all of it. As for the media who convey government messages, it’s up in the air whether they too take you for a flock of dimwits, or are just plain fools themselves. As for your families, friends and neighbors, you decide.

After failing to present a single shred of evidence in 10 days to substantiate their claims that either the rebels, Russia or all of the above were involved in the downing of MH17, they still haven’t. They did, however, come with something that is as devoid of shame as it is full of disgrace. And the media, surprise, present it as the real deal once again. Which goes to prove that nothing has to be real or true, Washington only has to claim it is.

The latest ‘release’ allegedly proves that Russia is firing missiles into Ukraine across the border. But the country with by far the best satellites and other spy equipment (or should we from now on just say the most expensive?), with which it, on a daily basis, traces every move of millions of people worldwide, in particular its own citizens both home and abroad, hasn’t been able so far to locate one single incriminating piece of ‘evidence’ on its own multi-multi-billion dollar spy networks.

For its first ‘real’ proof it turns to a company called Digital Globe, which apparently has produced a number of satellite pics that the US now uses to show the world that the Russians indeed fire those missiles. Remember the precision bombing footage on CNN in the Gulf War? Think 50 years before that in technology. Think grainy pics you couldn’t make out anything on without the help of ‘useful’ US provided arrows and descriptions of what you see.

If you were a religious person, and one of those helpful arrows and partial blow-ups said “that’s Jesus walking on water there”, you’d probably believe it too. And if you’re of the anti-Putin conviction, you’ll be inclined to take these pics for gospel. But that still does not come anywhere near to constituting evidence.

Now if the US would really want to present these things as evidence to the whole world, in a serious way, they would do one of two things: either have Colin Powell take them to the UN and do a show and tell for the General Assembly (worked like a charm before), or at the least do a multi-hour State Dept. and/or Pentagon press-op, simulcast across all major networks, in which various experts can point long sticks at large blowups of the pics and tell us what we see (Thar walketh the Lord … ).

But that’s not what happened. Instead, the Digital Globe pics were released through, of all places, the Twitter account of Geoffrey Pyatt, the infamous US ambassador in Kiev who rose to fame when word got out that he and Assistant Secretary of State Victoria Nuland had handpicked the next Ukraine government even before the last – and elected – one had gone, after spending $5 billion to make sure the change happened.

Look, I don’t want to keep getting wound up about all this. What use is it? Suffice it to say that if Washington had solid proof of any of the accusations it has made against any of the parties it has made such accusations against, the ‘evidence’ wouldn’t be presented this way. That’s not the MO, and no, the government hasn’t all of a sudden gone all modern; things presented this way are simply much easier to dismiss when push comes to shove. That’s why they are.

Most accusations against Russia, Putin and the east Ukraine rebels since MH17 crashed 10 days ago have been made – and then easily refuted -through social media accounts located somewhere in Kiev, many through Kiev government accounts, and now Geoffrey Pyatt. This whole set-up stinks five ways into Tuesday.

One more thing: there is another implication of the release of the Digital Globe pics, namely that they make it even less probable that we’ll ever see any evidence that the rebels downed the plane. Unless Digital Globe has pictures of that too. The US government does not, or it would have already made it public. Then again, it has no need to: whatever it says is swallowed up whole by the faithful regardless of how likely its ‘reports’ are to be true.

The Dutch, Australian and Malaysian forensic experts who have been sent in to work on the crash site to save what is left of the bodies and dignity of the victims whose remains haven’t yet been found, cannot enter the area, because the Ukraine army happened to have elected the past weekend to start a new offensive against the rebels. Ostensibly to clear the crash site for the experts, but they would have had full access already without the offensive.

Rebel leader Borodai says the army went in to ‘evade exposure’ (i.e. hide evidence) of its culpability in the crash, and I’m wondering how far off he could possibly be.

And that brings up yet another question: who commands the Ukraine army? The latest offensive began after former PM Yatsenyuk resigned, and just yesterday Ukraine president Poroshenko told journalists – again – that he had ordered to stop combat operations in a 40-kilometer zone around the crash site (the latest attacks take place much closer than that). If it’s not the government or the president ordering the latest attacks, the ones that make truth finding impossible, then who is it?

Does Poroshenko lie through his teeth or is something else going on? The country’s bankrupt. It has used large swaths of its IMF loans to fund its army, it has proposed conscription for all men under 50 years old, soldiers are fleeing to Russia because they don‘t want to shoot their own countrymen, but attacks with bombers and tanks on cities filled with civilians are intensified.

I still haven’t seen one single western leader call for an immediate cessation of all attacks on both sides, so the dead can be properly and respectfully buried. Not one. Not even the Dutch PM. And I think that should tell you all you need to know about what the true priorities are that ‘we’ have. Respect is a fleeting term.

Not that it’s only in matters related to Ukraine that Washington fully and arrogantly expects you to take for granted anything it says. Libya is going down the drain as we speak, and weren’t we just there recently? Israel is once again shooting fish in a barrel in the Gaza strip (and I know it’s not black and white), and “we” are not just outside observers there either. The blood-smeared ISIS campaign in Iraq can’t even make the headlines anymore, but “we” obviously have something to explain about our recent involvement there too.

“America” and “peace initiative” are two terms that are getting ever harder to fit into one sentence. And somehow, no matter how naive it may sound, that still feels like a giant betrayal of what the nation once stood for.

America doesn’t want peace, because peace doesn’t rhyme with power.

Meanwhile, at home, whenever you see someone anyone talk about ‘recovery’, you now know they’re full of it. The Russell Sage Foundation issued a 2-page report that makes clear ‘recovery’ is about the worst possible and least applicable term to use to describe what is happening in the US economy.

Households at the “median point in the wealth distribution – the level at which there are an equal number of households whose worth is higher and lower”, saw their wealth plummet -36% from 2003 to 2013. From the highest point, in 2007, to 2013 the number is -43%.

Five years after 2008 and Lehman, five years into the alleged recovery, which raised US federal, Federal Reserve, and hence taxpayer, obligations by $10-$15 trillion or more, US median household wealth was down -36% from 2003. And that’s by no means the worst of it:

If you look at the 5th and 25th percentile ‘wealth’ numbers (much of it negative), you see that they went down from 2003 to 2007, while the median was still rising. For both, wealth in the 2003-2013 timeframe deteriorated by some -200% (or two-thirds, if you will). -$9,479 to -$27,416 for the poorest 5%, $10.219 to $3,2000 for the lowest 25%.

This is how Washington defines recovery. Just in case you were wondering.

But they’re going to talk about it again, you just wait for it, just like they’re going to continue to blame Putin and the rebels for everything that goes wrong in Ukraine. They’re not going to stop until they have control over Russia’s resources, no matter what the body count, and they’re not going to stop until most Americans are de facto debt slaves.

And Uncle Sam counts on you! To swallow it all hook line and sinker. It works like a charm to date.

Hussman is solid.

• This Equity Bubble Has Already Surpassed 1929 And 2007 (Hussman)

Make no mistake – this is an equity bubble, and a highly advanced one. On the most historically reliable measures, it is easily beyond 1972 and 1987, beyond 1929 and 2007, and is now within about 15% of the 2000 extreme. The main difference between the current episode and that of 2000 is that the 2000 bubble was strikingly obvious in technology, whereas the present one is diffused across all sectors in a way that makes valuations for most stocks actually worse than in 2000. The median price/revenue ratio of S&P 500 components is already far above the 2000 level, and the average across S&P 500 components is nearly the same as in 2000. The extent of this bubble is also partially obscured by record high profit margins that make P/E ratios on single-year measures seem less extreme (though the forward operating P/E of the S&P 500 is already beyond its 2007 peak even without accounting for margins).

Recall also that the ratio of nonfinancial market capitalization to GDP is presently about 1.35, versus a pre-bubble historical norm of about 0.55 and an extreme at the 2000 peak of 1.54. This measure is better correlated with actual subsequent market returns than nearly any alternative, as Warren Buffett also observed in a 2001 Fortune interview. So if one wishes to use the 2000 bubble peak as an objective, we suggest that it would take another 15% market advance to match that highest valuation extreme in history – a point that was predictably followed by a decade of negative returns for the S&P 500, averaging a nominal total return, including dividends, of just 3.7% annually in the more than 14 years since that peak, and even then only because valuations have again approached those previous bubble extremes. The blue line on the chart below shows market cap/GDP on an inverted left (log) scale, the red line shows the actual subsequent 10-year annual nominal total return of the S&P 500.