Consumer Confidence Drops Even Among the Wealthiest

The Rich Catch Everyone Else’s Cutback Fever

By MOTOKO RICH
New York Times

The provisional economic recovery has been helped in large part by the spending of the most affluent.

Late last year those households started buying with much more confidence, while other consumers held back. Now, even the rich appear to be tightening their belts.

“One of the reasons that the recovery has lost momentum is that high-end consumers have become more jittery and more cautious,” said Mark Zandi, chief economist for Moody’s Analytics.

Federal Reserve policy makers see that the recovery is losing steam and have indicated that should conditions worsen, additional stimulus may be needed, according to minutes of their last meeting, released on Wednesday.

Especially at this stage of a recovery, businesses and economists want to see people of all incomes spending more, because the demand for goods and services would in turn encourage companies to hire workers. The American consumer accounts for an estimated 60 percent of the country’s economic activity.

But the Top 5 percent in income earners — those households earning $210,000 or more — account for about one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts, according to an analysis of Federal Reserve data by Moody’s Analytics. That means the purchasing decisions of the rich have an outsize effect on economic data.

Retail sales reports and surveys indicate that high earners have grown more cautious, partly in response to the volatility of the stock market and concerns over Europe’s stability and the global economy. They are not alone. The Thomson Reuters/University of Michigan index released Friday showed that consumer confidence slumped in July to the lowest point since August 2009.

According to Gallup, spending by upper-income consumers — defined as those earning $90,000 or more — surged to an average of $145 a day in May, up 33 percent from a year earlier.

Then in June, that daily average slid to $119.

“I think a lot of that feeling that the worst was over has sort of abated,” said Dennis J. Jacobe, Gallup’s chief economist.

Luxury hotel chains like the Four Seasons and Ritz Carlton said bookings were much stronger earlier this year but had recently slowed. And at upscale retailers including Saks and Neiman Marcus, where sales increased late last year and into early this year, the pace of growth eased in June.

Real estate brokers in Manhattan and the Hamptons report that buyers at the high end have returned to the market, and Mercedes sales in the United States are up 26 percent this year.

Still, retail sales at luxury stores slid 3.9 percent in June from a year earlier — after rising 9.7 percent in May — according to data collected by MasterCard Advisors SpendingPulse, which estimates retail sales in the United States made by cash, check and credit cards. Total retail sales slid in June from May, the government reported this week.

To the extent that the wariness of the affluent is driven mainly by nerves and sentiment, economists hope that it will be temporary. “If growth is actually solid, those fears will dissipate,” said Dean Maki, chief United States economist at Barclays Capital and a former senior economist at the Federal Reserve Board.

The worry, of course, is that consumers will stop spending because of their concerns about a slowdown, and that economic growth will slow further because consumers have stopped spending.

After virtually shutting down during the financial collapse in late 2008, the wealthy began to open their wallets wider last year, in part because a stock market rally helped them feel better off financially.

By spring of last year, the savings rate — which represents the percentage of after-tax income not spent — of the top 5 percent of income earners had turned negative, according to the analysis by Moody’s Analytics. That meant the group started spending more than it made.

Less well-off consumers remained more frugal, most likely constrained by unemployment, declines in home values and the disappearance of easy credit. So the savings rate actually rose for those in middle-income brackets as they curbed spending.

Job losses have disproportionately hit those at the lower end of the wage scale. According to the Labor Department, the unemployment rate among people in management, business or financial occupations was 4.8 percent in June, compared with 9.5 percent overall and 18.2 percent in construction and 12.1 percent in production.

As a result, the affluent generally maintained their spending power at a time when others were losing it. “High-income households drove the economy out of recession into recovery and powered the recovery through its first year,” Mr. Zandi concluded. He added that although the incomes of the richest people might have been affected by swings in dividend payments or bonuses, the changes in their savings rate was most likely because of increased spending.

Affluent spenders “began to come out of the bunker about this time last year,” Mr. Zandi said, “and part of it was related to the revival in the stock market.”

People in the highest income bracket are more influenced by movements in equity markets because they tend to have more investments and because they see the Dow as a benchmark of economic sentiment.

Other economists suggest that while Mr. Zandi’s conclusions make some sense, the data is still hazy on the exact role that the rich have played in consumer spending. “We have tried to do other things like look at consumer expenditures on products mainly purchased by the rich and could never get anywhere,” said Barry P. Bosworth, a senior fellow at the Brookings Institution. “It’s never very convincing one way or another.”

On the ground, those whose sales depend on affluent buyers have seen definite patterns. Last year and early this year, when the major stock gauges were rising, “everybody seemed to be a little bit more optimistic,” said Tom Hauswirth, general manager and partner of Moritz Cadillac, BMW and Mini in Arlington, Tex., near Dallas.

“Then I think everybody was affected when they saw the stock market go below 10,000,” he said. “Even though it may not affect their ability to buy or not, it affects their thinking.”

Mr. Hauswirth said that those who had recently bought new cars were sometimes fearful of being labeled as conspicuous consumers. A few buyers, he said, insisted on purchasing new cars in the same color as their previous models.

“They didn’t want their employees to know they bought a new car,” he said. “It doesn’t look good during a wage freeze or when they’re cutting people.”

Moritz laid off about 15 percent of its sales staff last year, and Mr. Hauswirth said that he did not yet feel comfortable hiring back until sales showed more improvement.

Linda Dresner, the owner of a clothing boutique for women that carries designers like Dries van Noten and John Galliano in the upscale suburb of Birmingham, Mich., has reduced her inventory and says customers often say their husbands have asked them to rein in spending.

“They are wealthy people who live well,” Ms. Dresner said. “But their businesses have suffered some, and they are pulling back.”

The reluctance to spend often reflects psychology more than household finances. On a recent afternoon outside Stuart Weitzman, a designer shoe and handbag store at the Time Warner Center in New York City, an elementary-school teacher who would give only her first name, Esther, left without buying a $525 cream and lavender leather bag that she coveted.

Although she and her husband, who works in finance, came through the recession relatively unscathed, she said she felt nervous about spending. “Even if you have a job and you feel good about your job,” she said, “if everything around you is not good, you don’t feel good.”

Policy makers are divided on what may be needed to spur economic growth, with a current debate raging over whether to extend unemployment benefits, payments that are usually spent immediately. Even Fed policy makers seem divided, based on the minutes of their recent meeting, on whether they should shift their monetary stance to encourage economic activity.

“In the short term we need to do everything we can to raise the consumption capacity of average American households,” said Sam Pizzigati, associate fellow at the Institute for Policy Studies in Washington, a left-leaning research center. “Otherwise, we find ourselves in an ‘e values and the disappearance of easy credit. So the savings rate actually rose for those in middle-income brackets as they curbed spending.

Job losses have disproportionately hit those at the lower end of the wage scale. According to the Labor Department, the unemployment rate among people in management, business or financial occupations was 4.8 percent in June, compared with 9.5 percent overall and 18.2 percent in construction and 12.1 percent in production.

As a result, the affluent generally maintained their spending power at a time when others were losing it. “High-income households drove the economy out of recession into recovery and powered the recovery through its first year,” Mr. Zandi concluded. He added that although the incomes of the richest people might have been affected by swings in dividend payments or bonuses, the changes in their savings rate was most likely because of increased spending.

Affluent spenders “began to come out of the bunker about this time last year,” Mr. Zandi said, “and part of it was related to the revival in the stock market.”

People in the highest income bracket are more influenced by movements in equity markets because they tend to have more investments and because they see the Dow as a benchmark of economic sentiment.

Other economists suggest that while Mr. Zandi’s conclusions make some sense, the data is still hazy on the exact role that the rich have played in consumer spending. “We have tried to do other things like look at consumer expenditures on products mainly purchased by the rich and could never get anywhere,” said Barry P. Bosworth, a senior fellow at the Brookings Institution. “It’s never very convincing one way or another.”

On the ground, those whose sales depend on affluent buyers have seen definite patterns. Last year and early this year, when the major stock gauges were rising, “everybody seemed to be a little bit more optimistic,” said Tom Hauswirth, general manager and partner of Moritz Cadillac, BMW and Mini in Arlington, Tex., near Dallas.

“Then I think everybody was affected when they saw the stock market go below 10,000,” he said. “Even though it may not affect their ability to buy or not, it affects their thinking.”

Mr. Hauswirth said that those who had recently bought new cars were sometimes fearful of being labeled as conspicuous consumers. A few buyers, he said, insisted on purchasing new cars in the same color as their previous models.

“They didn’t want their employees to know they bought a new car,” he said. “It doesn’t look good during a wage freeze or when they’re cutting people.”

Moritz laid off about 15 percent of its sales staff last year, and Mr. Hauswirth said that he did not yet feel comfortable hiring back until sales showed more improvement.

Linda Dresner, the owner of a clothing boutique for women that carries designers like Dries van Noten and John Galliano in the upscale suburb of Birmingham, Mich., has reduced her inventory and says customers often say their husbands have asked them to rein in spending.

“They are wealthy people who live well,” Ms. Dresner said. “But their businesses have suffered some, and they are pulling back.”

The reluctance to spend often reflects psychology more than household finances. On a recent afternoon outside Stuart Weitzman, a designer shoe and handbag store at the Time Warner Center in New York City, an elementary-school teacher who would give only her first name, Esther, left without buying a $525 cream and lavender leather bag that she coveted.

Although she and her husband, who works in finance, came through the recession relatively unscathed, she said she felt nervous about spending. “Even if you have a job and you feel good about your job,” she said, “if everything around you is not good, you don’t feel good.”

Policy makers are divided on what may be needed to spur economic growth, with a current debate raging over whether to extend unemployment benefits, payments that are usually spent immediately. Even Fed policy makers seem divided, based on the minutes of their recent meeting, on whether they should shift their monetary stance to encourage economic activity.

“In the short term we need to do everything we can to raise the consumption capacity of average American households,” said Sam Pizzigati, associate fellow at the Institute for Policy Studies in Washington, a left-leaning research center. “Otherwise, we find ourselves in an ‘sappearance of easy credit. So the savings rate actually rose for those in middle-income brackets as they curbed spending.

Job losses have disproportionately hit those at the lower end of the wage scale. According to the Labor Department, the unemployment rate among people in management, business or financial occupations was 4.8 percent in June, compared with 9.5 percent overall and 18.2 percent in construction and 12.1 percent in production.

As a result, the affluent generally maintained their spending power at a time when others were losing it. “High-income households drove the economy out of recession into recovery and powered the recovery through its first year,” Mr. Zandi concluded. He added that although the incomes of the richest people might have been affected by swings in dividend payments or bonuses, the changes in their savings rate was most likely because of increased spending.

Affluent spenders “began to come out of the bunker about this time last year,” Mr. Zandi said, “and part of it was related to the revival in the stock market.”

People in the highest income bracket are more influenced by movements in equity markets because they tend to have more investments and because they see the Dow as a benchmark of economic sentiment.

Other economists suggest that while Mr. Zandi’s conclusions make some sense, the data is still hazy on the exact role that the rich have played in consumer spending. “We have tried to do other things like look at consumer expenditures on products mainly purchased by the rich and could never get anywhere,” said Barry P. Bosworth, a senior fellow at the Brookings Institution. “It’s never very convincing one way or another.”

On the ground, those whose sales depend on affluent buyers have seen definite patterns. Last year and early this year, when the major stock gauges were rising, “everybody seemed to be a little bit more optimistic,” said Tom Hauswirth, general manager and partner of Moritz Cadillac, BMW and Mini in Arlington, Tex., near Dallas.

“Then I think everybody was affected when they saw the stock market go below 10,000,” he said. “Even though it may not affect their ability to buy or not, it affects their thinking.”

Mr. Hauswirth said that those who had recently bought new cars were sometimes fearful of being labeled as conspicuous consumers. A few buyers, he said, insisted on purchasing new cars in the same color as their previous models.

“They didn’t want their employees to know they bought a new car,” he said. “It doesn’t look good during a wage freeze or when they’re cutting people.”

Moritz laid off about 15 percent of its sales staff last year, and Mr. Hauswirth said that he did not yet feel comfortable hiring back until sales showed more improvement.

Linda Dresner, the owner of a clothing boutique for women that carries designers like Dries van Noten and John Galliano in the upscale suburb of Birmingham, Mich., has reduced her inventory and says customers often say their husbands have asked them to rein in spending.

“They are wealthy people who live well,” Ms. Dresner said. “But their businesses have suffered some, and they are pulling back.”

The reluctance to spend often reflects psychology more than household finances. On a recent afternoon outside Stuart Weitzman, a designer shoe and handbag store at the Time Warner Center in New York City, an elementary-school teacher who would give only her first name, Esther, left without buying a $525 cream and lavender leather bag that she coveted.

Although she and her husband, who works in finance, came through the recession relatively unscathed, she said she felt nervous about spending. “Even if you have a job and you feel good about your job,” she said, “if everything around you is not good, you don’t feel good.”

Policy makers are divided on what may be needed to spur economic growth, with a current debate raging over whether to extend unemployment benefits, payments that are usually spent immediately. Even Fed policy makers seem divided, based on the minutes of their recent meeting, on whether they should shift their monetary stance to encourage economic activity.

“In the short term we need to do everything we can to raise the consumption capacity of average American households,” said Sam Pizzigati, associate fellow at the Institute for Policy Studies in Washington, a left-leaning research center. “Otherwise, we find ourselves in an ‘Alice in Wonderland’ world where average people are hurting and the solution to the hard times that the economy is going through is to help the people that are not going through hard times.”

For now, some affluent spenders are getting thrifty. Linda Stasiak, who sells high-end skin care products to retailers like Whole Foods, said that her biggest sales increase had been for a $15.95 tube wringer, made to get every last drop out of a bottle of lotion.

“During peak time, I don’t even really remember selling them,” Ms. Stasiak said.

Source: NYTimes.com

Citi and Bank of America Show Better than Expected Earnings, but . . .

Bank Of America, Citi Results Show Hurdles Ahead

REUTERS

CHARLOTTE, N.C./NEW YORK (Reuters) – Bank of America and Citigroup posted better-than-expected quarterly earnings on lower credit losses, but their shares fell as the banks highlighted the challenge of boosting revenue in a stagnant economy.

Revenue is down from a year earlier and the banks, like their rivals, are grappling with how their business will be affected by the landmark financial reform bill passed by Congress on Thursday.

Executives at Bank of America Corp and Citigroup Inc said the impact of the bill is uncertain. Like JPMorgan Chase & Co on Thursday, they were unable to quantify the possible costs for their business.

Banks will have to eke out revenue and cut costs wherever they can and try to make up elsewhere any revenue losses from financial reform, said Nancy Bush, analyst at NAB Research.

“It’s going to be this way for the next several years,” she said. “It’s an extremely tough environment.”

The prospects for banks to lend more look bleak as U.S. unemployment hovers around 10 percent and a report on Friday showed consumer sentiment has slipped from a near 2-1/2 year high.

As with JPMorgan, which reported quarterly results on Thursday, Bank of America and Citi said investment banking profits were down, a bleak sign for Goldman Sachs Group Inc and Morgan Stanley, whose results are due next week.

Shares of Bank of America, the biggest U.S. bank by assets, fell 8 percent to $14.15 in midday trading on the New York Stock Exchange. Citigroup, which is No. 3 behind JPMorgan, slumped 4 percent to $3.99. Shares of No. 4 Wells Fargo & Co, which reports results next Wednesday, fell 4.8 percent to $26.48. The KBW Banks Index was down 4.5 percent.

RESERVES

Bank of America and Citigroup said credit costs broadly eased in the second quarter, allowing them to put less money aside against future losses.

“Both reports reflect a significant improvement in credit quality but little in the way of identifying how they’re going to go from that to revenue growth,” said Marshall Front, chairman of Front Barnett Associates.

Loans at Bank of America and Citi were down compared with a year earlier, and analysts and investors expressed concern about bank executives’ comments that credit demand is still weak.

“Everyone’s sitting on the sidelines,” said Citigroup Chief Financial Officer John Gerspach, commenting on loan demand on a call with reporters. “I don’t see a great deal of demand in the near term, at least until this uncertainty is removed.”

To boost earnings without relying on reducing loss reserves, banks are likely to increase cost-cutting, Bush said.

Bank of America Chief Executive Brian Moynihan told analysts on a conference call, “Over the next several years, costs are going to be an issue for our industry, especially on the consumer side.”

Costs related to delinquent loans and foreclosures have been rising, he said.

INVESTMENT BANKS

In recent quarters, banks have depended on their investment banking units to perform well, while their consumer business was hit by rising losses. Now, as consumer loan losses are less of a worry, trading revenue has suffered as stock markets were hit by a “flash crash” in the United States and sovereign debt worries in Europe.

Revenue at Bank of America’s investment bank slumped to $6 billion in the second quarter from $9.8 billion in the first quarter. Citigroup also said its securities and banking revenue fell, down 26 percent from the first quarter to $6 billion.

These units were also hurt by a tax the banks paid on UK bankers’ bonuses. The tax looks set to cost the five major U.S. banks with businesses in London about $2.5 billion in all.

Bank of America reported net income of $3.1 billion, or 27 cents a share, down from $3.2 billion, or 33 cents a share, a year earlier. Analysts had expected 22 cents a share, according to Thomson Reuters I/B/E/S.

Citigroup reported its second consecutive profitable quarter, posting net income of $2.7 billion, or 9 cents a share, down from $4.3 billion, or 49 cents per share, a year earlier. Analysts had expected 5 cents a share, according to Thomson Reuters I/B/E/S.

JPMorgan on Thursday reported a higher-than-expected second-quarter profit of $4.8 billion, up 76 percent from a year earlier.

Reporting by Joe Rauch and Maria Aspan; additional reporting by Elinor Comlay and Dan Wilchins; editing by John Wallace

Source: Reuters

5 places to look for the next financial crisis

By Ezra Klein
Washington Post

Financial reform has passed. The sprawling legislation is meant to be an air bag protecting us from the next major crash, which of course raises the question: Will it work?

“We would have loved to have something like this for Lehman Brothers,” said Hank Paulson, who served as Treasury secretary when the financial system melted down in 2008. “There’s no doubt about it.”

And he’s right: The next time there’s a financial crisis, regulators will say a quick prayer of thanks to Barney Frank and Chris Dodd for giving them the power and information to quickly figure out what’s happened and how to respond.

The legislation ushers derivatives out of the darkness and onto exchanges and clearinghouses, gives regulators the power to oversee shadow banks and dismantle failing firms, convenes a council of super-regulators to watch the mega-firms that pose a risk to the financial system, and much more.

That’s not the same, however, as averting crises in the first place. It might make them less likely, but think of the difference between public health and medicine: The bill is medicine — it’s primarily about helping the doctors who figure out when you’re sick and how to make you better. It doesn’t dramatically change the conditions that made you sick in the first place.

Many of the weaknesses and imbalances that led to the financial crisis escaped this regulatory response. The most glaring omission: Fannie Mae, Freddie Mac and the crazed housing market that led to the crash. That issue is slated to come before Congress next year, but here are five that aren’t:

— “The global glut of savings.” “One of the leading indicators of a financial crisis is when you have a sustained surge in money flowing into the country, which makes borrowing cheaper and easier,” says Harvard economist Kenneth Rogoff. This crisis was no different: Between 1987 and 1999, our current account deficit, the measure of how much money is coming in vs. how much is going out, fluctuated between 1 and 2 percent of the gross domestic product. By 2006, it hit 6 percent.

Ben Bernanke — a man not known for his vivid turns of phrase — called the hundreds of billions of dollars that emerging economies were plowing into our financial system every year “the global glut of savings.” It was driven by emerging economies with lots of growth and few investment opportunities — think China — funneling their money to developed economies with less growth and lots of investment opportunities. Think, well, us. The result was cheap money and fast growth that made our economy seem healthy when it really wasn’t.

But we’ve gotten out of the crisis without fixing it. China is still roaring forward, accelerating exports and pouring money into the U.S. economy. And we’re happily taking it. With our economy weak and our deficits high, we need it. So after falling to 3 percent after the crisis, our current account deficit is back to 4 percent and rising.

Rogoff thinks that’s a problem.

“One or 2 percent would be more sustainable,” he says.

— The indebted American. The fact that money is available to borrow doesn’t explain why Americans borrowed so damn much of it. Household debt (mortgages, credit card balances, etc.) as a percentage of GDP soared from a bit less than 60 percent in the early 1990s to a bit less than 100 percent in 2006.

“This is where I come to income inequality,” says Raghuram Rajan, an economist at the University of Chicago. “A large part of the population saw relatively stagnant incomes over the ’80s and ’90s. Credit was so welcome because it kept people who were falling behind reasonably happy. You were keeping up, even if your income wasn’t.”

Incomes, of course, are even more stagnant now that unemployment is bumping up against 10 percent (and underemployment is nearer to 15 percent). And that pain isn’t being shared equally. Inequality has actually grown since before the recession — joblessness is proving sticky among the poor, but recovery has been swift for the rich. Household borrowing is still above 90 percent of GDP, and the conditions that drove it up there are, if anything, worse.

— The shadow banking market. The Great Depression was visually arresting: long lines of desperate families trying to get their money in hand before the bank collapsed. The financial crisis started out similarly severe, but aside from some despondent-looking traders, there was little to look at. That’s because this bank run wasn’t started by families. It was started by banks.

Regular folks didn’t pull their money out of the banks, because our deposits are insured. But large investors — pension funds, banks, corporations and others — aren’t insured. They use the “repo market,” a short-term lending market in which they park their money with other big institutions in exchange for collateral, such as mortgage-backed securities. This is the “shadow banking system” — it’s a real banking system, but it’s young, and until now largely unregulated. As such, it’s been vulnerable to the sort of problems we ironed out of the traditional banking system decades ago.

When institutional investors hear that their deposits are endangered, they run to get their money back. And when everyone panics at once, it’s like an old-fashioned bank run: The banks can’t pay off everyone immediately, so they unload all their assets to get capital. The assets become worthless because everyone is trying to sell them at the same time, and the banks collapse.

“This is an inherent problem of privately created money,” says Gary Gorton, an economist at Princeton University. “It is vulnerable to these kinds of runs. It took us from 1857, which was the first panic really about deposits, to 1934 to come up with deposit insurance.”

This year, we’re bringing this shadow banking system under the control of regulators and giving them all sorts of information on it and power over it, but we’re not creating anything like deposit insurance, where we simply made the deposits safe so that runs became a thing of the past.

— The “It’s so little money!” problem. In the 1980s, the financial sector’s share of total corporate profit ranged from 10 to 20 percent. By 2004, it was about 35 percent. That’s a lot of money in a few hands.

Simon Johnson, an economist at MIT, recalls a conversation he had with a hedge fund manager. “The guy said to me, ‘Simon, it’s so little money! You can sway senators for $10 million?’ ” Johnson laughs ruefully. “These guys don’t even think in millions. They think in billions.”

This financial crisis will stick in our minds for a while, but not forever. When it fades, the finance guys will begin nudging. They’ll hold fundraisers for politicians, make friends, explain how the regulations they’re under are onerous and unfair. And slowly, surely, those regulations will come undone.

And they’ll have plenty of money with which to do it. After briefly dropping to less than 15 percent of corporate profits, the financial sector has rebounded to more than 30 percent.

— Can regulation fix, well, regulation? The most troubling prospect is the chance that this bill, if it had passed in 2000, would not have prevented this financial crisis. That’s not to undersell it: It would’ve given regulators more information with which to predict the crisis. It would have created a consumer financial protection agency that might have intercepted the subprime boom. But plenty of regulators had enough information, and they did not act.

Bubbles always fool the regulators with the powers to pop them; otherwise they would have been popped.

In 2005, with housing prices running far, far ahead of the historical trend, Bernanke said a housing bubble was “a pretty unlikely possibility.” In 2007, he said Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.”

Alan Greenspan, looking back at the financial crisis, admitted that regulators “have had a woeful record of chronic failure. History tells us they cannot identify the timing of a crisis, or anticipate exactly where it will be located or how large the losses and spillovers will be.”

But this bill leans heavily on regulators: According to the U.S. Chamber of Commerce, the bill includes 533 rules and calls for 60 studies and 94 reports. Regulators will be in charge of all of them.

Greenspan, in that same speech, expressed a preference for rules that “kick in automatically, without relying on the ability of a fallible human regulator to predict a coming crisis.” The bill contains precious few of those, at least for now.

“In history,” Princeton’s Gorton says, “it always takes us a long time to get financial regulation right, and I expect it will this time, too. Maybe we’re done for this year, or the next couple. But we can’t possibly be done.”

Source: Washington Post

Presenting The Wall Of Worry: The 50 Ugliest Facts About The US eCONomy

By Tyler Durden
Zero Hedge

As we close on another week replete with ugly economic data and the usual bizarro counterintuitive market, here is a summary of the 50 most underreported facts about the state of the US economy, courtesy of the Coto report [1]. After reading these it almost makes sense that the market has become completely desensitized to the sad reality now pervasive in this country. Readers are encouraged to add their own observations to this list. Surely if the list is doubled, the market will go up to 72,000 instead of just 36,000.

#50) In 2010 the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined [2].

#49) It is being projected that the U.S. government will have a budget deficit of approximately 1.6 trillion dollars [3] in 2010.

#48) If you went out and spent one dollar every single second, it would take you more than 31,000 years [4] to spend a trillion dollars.

#47) In fact, if you spent one million dollars every single day since the birth of Christ, you still would not have spent one trillion dollars [3] by now.

#46) Total U.S. government debt is now up to 90 percent [5] of gross domestic product.

#45) Total credit market debt in the United States, including government, corporate and personal debt, has reached 360 percent of GDP [6].

#44) U.S. corporate income tax receipts were down 55% [2] (to $138 billion) for the year ending September 30th, 2009.

#43) There are now 8 counties in the state of California that have unemployment rates of over 20 percent [7].

#42) In the area around Sacramento, California there is one closed business for every six that are still open [8].

#41) In February, there were 5.5 unemployed Americans for every job opening [9].

#40) According to a Pew Research Center study [10], approximately 37% of all Americans between the ages of 18 and 29 have either been unemployed or underemployed at some point during the recession.

#39) More than 40% [11] of those employed in the United States are now working in low-wage service jobs.

#38) According to one new survey, 24% of American workers say that they have postponed their planned retirement age [12] in the past year.

#37) Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008 [13]. Not only that, more Americans filed for bankruptcy in March 2010 [14] than during any month since U.S. bankruptcy law was tightened in October 2005.

#36) Mortgage purchase applications in the United States are down nearly 40 percent [15] from a month ago to their lowest level since April of 1997.

#35) RealtyTrac has announced that foreclosure filings in the U.S. established an all time record for the second consecutive year [16] in 2009.

#34) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in March 2010 [17], an increase of nearly 19 percent from February, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005.

#33) In Pinellas and Pasco counties, which include St. Petersburg, Florida and the suburbs to the north, there are 34,000 open foreclosure cases [18]. Ten years ago, there were only about 4,000.

#32) In California’s Central Valley, 1 out of every 16 homes is in some phase of foreclosure [19].

#31) The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period. That was a record high [20] and up from 9.1 percent a year ago.

#30) U.S. banks repossessed nearly 258,000 homes nationwide [21] in the first quarter of 2010, a 35 percent jump from the first quarter of 2009.

#29) For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States [22] than all individual Americans put together.

#28) More than 24% of all homes with mortgages in the United States were underwater as of the end of 2009 [23].

#27) U.S. commercial property values are down approximately 40 percent [24] since 2007 and currently 18 percent of all office space in the United States is sitting vacant.

#26) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent [25] in the first quarter of 2010. That was almost twice the level of a year earlier.

#25) In 2009, U.S. banks posted their sharpest decline in private lending since 1942 [26].

#24) New York state has delayed paying bills totalling $2.5 billion [27] as a short-term way of staying solvent but officials are warning that its cash crunch could soon get even worse.

#23) To make up for a projected 2010 budget shortfall of $280 million, Detroit issued $250 million of 20-year municipal notes in March. The bond issuance followed on the heels of a warning from Detroit officials that if its financial state didn’t improve, it could be forced to declare bankruptcy [28].

#22) The National League of Cities says that municipal governments will probably come up between $56 billion and $83 billion short [28] between now and 2012.

#21) Half a dozen cash-poor U.S. states have announced that they are delaying their tax refund checks [29].

#20) Two university professors recently calculated that the combined unfunded pension liability for all 50 U.S. states is 3.2 trillion dollars [30].

#19) According to EconomicPolicyJournal.com, 32 U.S. states have already run out of funds to make unemployment benefit payments [31] and so the federal government has been supplying these states with funds so that they can make their payments to the unemployed.

#18) This most recession has erased 8 million private sector jobs [32] in the United States.

#17) Paychecks from private business shrank to their smallest share of personal income in U.S. history [32] during the first quarter of 2010.

#16) U.S. government-provided benefits (including Social Security, unemployment insurance, food stamps and other programs) rose to a record high [32] during the first three months of 2010.

#15) 39.68 million Americans [33] are now on food stamps, which represents a new all-time record. But things look like they are going to get even worse. The U.S. Department of Agriculture is forecasting that enrollment in the food stamp program will exceed 43 million Americans in 2011.

#14) Phoenix, Arizona features an astounding annual car theft rate of 57,000 vehicles [34] and has become the new “Car Theft Capital of the World”.

#13) U.S. law enforcement authorities claim that there are now over 1 million members of criminal gangs inside the country. These 1 million gang members are responsible for up to 80% of the crimes committed [35] in the United States each year.

#12) The U.S. health care system was already facing a shortage of approximately 150,000 doctors in the next decade or so, but thanks to the health care “reform” bill passed by Congress, that number could swell by several hundred thousand more [36].

#11) According to an analysis by the Congressional Joint Committee on Taxation [37] the health care “reform” bill will generate $409.2 billion in additional taxes on the American people by 2019.

#10) The Dow Jones Industrial Average just experienced the worst May [38] it has seen since 1940.

#9) In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one [39].

#8) Approximately 40% of all retail spending [11] currently comes from the 20% of American households that have the highest incomes.

#7) According to economists Thomas Piketty and Emmanuel Saez, two-thirds of income increases in the U.S. between 2002 and 2007 went to the wealthiest 1% of all Americans [40].

#6) The bottom 40 percent of income earners in the United States now collectively own less than 1 percent [41] of the nation’s wealth.

#5) If you only make the minimum payment each and every time, a $6,000 credit card bill can end up costing you over $30,000 [22] (depending on the interest rate).

#4) According to a new report based on U.S. Census Bureau data, only 26 percent of American teens between the ages of 16 and 19 had jobs in late 2009 which represents a record low [42] since statistics began to be kept back in 1948.

#3) According to a National Foundation for Credit Counseling survey, only 58% of those in “Generation Y” pay their monthly bills on time [10].

#2) During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter [43].

#1) According to the Tax Foundation’s Microsimulation Model [44], to erase the 2010 U.S. budget deficit, the U.S. Congress would have to multiply each tax rate by 2.4. Thus, the 10 percent rate would be 24 percent, the 15 percent rate would be 36 percent, and the 35 percent rate would have to be 85 percent.

Source: Zero Hedge

The Missing Words at the G-20 – or an absurd plan for the global economic crisis

Does the G-20 Show the Shape of things to Come — austerity and extreme police actions?

By Paul Jay
Real News Network

With all the public attention during G20 on the 1000 arrests and such, something critical was overlooked. That’s the paradox the assembled heads of governments created for ending the global economic crisis.

The G20 leaders recognize that “demand” needs to grow. That means people must have the means to buy stuff. Do a search in the G20 Toronto Summit Declaration and fourteen times you’ll find a reference to boosting or increasing “demand”.

Yet they want to halve their deficits by 2013. How are they going to cut government spending and increase demand at the same time?

They acknowledge that some stimulus spending may still be necessary to stop the world from sinking deeper into recession. But by 2013 they want government deficits to plummet. How will they pull it off? It’s already in the works; cut social-safety-net programs with a focus on social security and public pensions.

So the G20 wants to increase “private demand” and cut the deficit. Ok, there must be ways to do this without simply adding more government stimulus money.

Now do a search in the Declaration for the word “wages”. You’ll find it once. The document says “Reforms could support the broadly-shared expansion of demand if wages grow in line with productivity.”

Wow! An admission that over the last four decades productivity has skyrocketed while wages have remained stagnant? A recognition that the greatest transfer of wealth from working people to the rich in modern history might have led to a lack of real demand and is a root cause of the crisis?

Are we about to see a G20 agreement on promoting anti-strike breaking laws, or eliminating legislation that makes it difficult to impossible to organize unions in many places around the world, including the US and Canada?

Sorry. That one sentence is all there is. Not one recommendation or agreement on how wages will rise in line with increases in productivity. One wonders why they bothered to put the sentence in the document.

Let’s backtrack. If productivity is up, why can’t we afford social programs now that we could in the past? Higher productivity means more wealth, not less, right? Let’s just say the top five percent of income earners in the world have never had it so good.

So if the economic pie is bigger, there must be ways to lower deficits without cutting social spending, right?

Now do a search in the G20 Declaration for the word taxes. You will find zero. Not a single reference to taxing the riches the very few accumulated over the last decades of growth.

That says it all. If you don’t like it, we always have a nice detention cell ready for you.

Paul Jay is the CEO and Senior Editor of The Real News Network. He is an award-winning filmmaker, founder of Hot Docs! International Film Festival and was for ten years the Executive Producer of the CBC Newsworld show counterSpin.

Click here to see video

Source: Real News Network

Obey: White House Suggested Cutting Food Stamps to Pay for Education Program

By Annie Lowrey
Washington Independent

This entire interview with Rep. Dave Obey (D-Wis.), the head of the House Appropriations Committee and a powerful veteran member of Congress, who is retiring this year, is worth a read. But one passage is particularly striking. Obey is discussing his proposal to divert funds from the Obama administration’s Race to the Top education program to save teachers’ jobs. Due to the states’ fiscal crises, as many as 200,000 local government employees, many of them teachers, might lose their jobs in the coming year.

The proposal made it in to the House war-funding bill, which needs a Senate vote. The White House has threatened to veto the war-funding bill if it contains Obey’s change. Here is the quote, from an interview with The Fiscal Times:

“The secretary of education [Arne Duncan] is whining about the fact he only got 85 percent of the money he wanted .… [W]hen we needed money, we committed the cardinal sin of treating him like any other mere mortal. We were giving them over $10 billion in money to help keep teachers on the job, plus another $5 billion for Pell, so he was getting $15 billion for the programs he says he cares about, and it was costing him $500 million [in reductions to the Race to the Top program]. Now that’s a pretty damn good deal. So as far as I’m concerned, the secretary of education should have been happy as hell. He should have taken that deal and smiled like a Cheshire cat. He’s got more walking around money than every other cabinet secretary put together.

“It blows my mind that the White House would even notice the fight [over Race to the Top]. I would have expected the president to say to the secretary, “Look, you’re getting a good deal, for God’s sake, what this really does is guarantee that the rest of the money isn’t going to be touched.” We gave [Duncan] $4.3 billion in the stimulus package, no questions asked. He could spend it any way he wants. … I trusted the secretary, so I gave him a hell of a lot more money than I should have.

“My point is that I have been working for school reform long before I ever heard of the secretary of education, and long before I ever heard of Obama. And I’m happy to welcome them on the reform road, but I’ll be damned if I think the only road to reform lies in the head of the secretary of education.

“We were told we have to offset every damn dime of [new teacher spending]. Well, it ain’t easy to find offsets, and with all due respect to the administration their first suggestion for offsets was to cut food stamps. Now they were careful not to make an official budget request, because they didn’t want to take the political heat for it, but that was the first trial balloon they sent down here. … Their line of argument was, well, the cost of food relative to what we thought it would be has come down, so people on food stamps are getting a pretty good deal in comparison to what we thought they were going to get. Well isn’t that nice. Some poor bastard is going to get a break for a change.”

If Obey is right about this, it is, in a word, horrifying. Food stamps are not particularly generous. They help families that are often desperate. They are just about the last thing that should get cut in the midst of a horrific employment crisis in the wake of a job-sapping recession.

Source: Washington Independent

Build your advocacy skills!

Are you still looking for a great summer activity? Here is one that will be fun and build your advocacy skills.

Our close colleague, the Backbone Campaign, is organizing a “Localize This! Action Camp” which will teach campaign strategy and creative, non-violent tactics and direct action. All sorts of useful skills from puppet making to rappelling and blockades will be taught. The event is being held in Washington State from August 8 to 14 with the main workshops from the 9th to the 13th. The camp is inexpensive, indeed, no one will be turned away and they are suggesting a $25 donation per day or $100-300 sliding scale for the week. There will be on-site camping and Backbone Campaign will be providing food.

Get more information and register at http://localizethis.org or http://backbonecampaign.org