Aaron Murray's List: GD2

• I have come to the conclusion that Big Brother’s subjects in George Orwell’s 1984 are better informed than Americans.
• On National Public Radio a half-wit analyst declared, emphatically, that the latest US government statistics proved that the recovery was in place and that there was no danger whatsoever of a double-dip recession. And half-brain economists predicted a better tomorrow.
• For our corrupt financial markets, any news that can be spun as good news can send stocks up. But what are the facts?
• personal consumption is reported to have increased 1.7%, but this surge in consumption took place despite a 1.7% collapse in consumer disposable income! In other words, if there was an increase in personal consumption, it come from drawing down savings or from incurring higher consumer debt.
• For an economy to recover, there must be growth in consumer income.
• The Dow Jones rose 339.51 points on the phony good news, but consumer sentiment is in the basement. John Williams reports that “consumer confidence hit the lowest levels ever recorded in 2008 and 2009” and that consumer confidence has now “fallen back to that 2008 level.” But the stock market boomed. Somehow a population 23% unemployed with debt up to its eyeballs is going to spark an economic recovery.

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• The 1920s "boom" enriched only a fraction of the American people. Earnings for farmers and industrial workers stagnated or fell. Farmers were barely getting by during the roaring 20s. Only the Wall Street crowd was getting rich.  The economic growth of the 1920s did not reach most Americans: 60% of American families earned less than the amount necessary to support their basic needs ($2,500 was considered enough to support a family’s basic needs). The agricultural sector was similarly stagnant: farm prices dropped after World War I when Europe again began to feed itself and new grain exports from South American further depressed prices. The lack of purchasing power of rural people and farmers resulted in declines in consumer purchasing in those areas, as well as increased defaults on debt. Rural, urban, and suburban consumers began to increase their personal debts through mortgages, car loans, and installment plans to buy consumer goods, such as radios.
• Eventually the Wall Street stock exchange began to take on a dangerous aura of invincibility, leading investors to ignore less optimistic indicators in the economy.  Over-investment and speculating (gambling) in stocks further inflated their prices, contributing to the illusion of a robust economy.
• The crucial point came in the 1920s when banks began to loan money to stock-buyers since stocks were the hottest commodity in the marketplace. Wall Street banks encouraged Wall Street investors to use the stocks themselves as collateral. When stocks dropped in value, and investors could not repay the banks, the banks were left holding near-worthless collateral. Banks went broke, pulling productive businesses down with them as they called in loans and foreclosed mortgages in a desperate attempt to stay afloat.
• The Federal Reserve was responsible for regulating the banks. They were responsible for the easy money policies during the 1920s. The biggest financial institutions in the country included: Citibank, Bank of America, Goldman Sachs, JP Morgan & Co., Chase National Bank, and Wells Fargo. Sound familiar? 
• The Great Depression was caused by the Federal Reserve and their owners, the biggest Wall Street banks, aiding and abetting reckless speculation, greed and extreme risk taking with mountains of debt. The rich got richer and the poor got poorer. The income inequality in the U.S. reached an all-time peak in 1928. It stayed at a high level until World War II.
• The glory years of the American Empire were from 1941 through 1979, when the middle class was growing, and the income distribution in the country was fair and equitable, as our manufacturing based economy raised all boats.
• In the early 1930s there was the feeling of revolution in the air. With unemployment at 25% and people in desperate straits, the government feared communists or fascists gaining power. The New Deal was really a way to keep the citizens occupied so that a revolution would not take hold.
• The true unemployment rate today is 23%. Another parallel between the early 1930s and today can be seen in the chart below. Almost 11,000 banks, or 40% of all the banks in the U.S., went out of business. Predictably, these were all small banks. None of the connected Wall Street banks went out of business. They benefitted, as 40% of their competition disappeared.
• The mainstream media tries to convince the American public that the stock market going up means the economy is improving and they are doing better. The chart below shows that the stock market bottomed in 1932 and proceeded to go up almost 500% by 1937.
• Only the privileged stock owners prospered. The common man suffered.
• The unemployment rate remained at elevated levels until World War II. The New Deal policies of Franklin Roosevelt did not end the Great Depression.
• The storyline about FDR’s Keynesian spending ending the Depression is false.
• In 1932, approximately 80 years ago, 43,000 marchers (17,000 veterans) descended upon Washington D.C.  The Bonus Expeditionary Force, also known as the "Bonus Army", marched on Washington to advocate the passage of the "soldier's bonus" for service during World War I.  They set up a camp with tents to bring attention to their cause.
• After Congress adjourned, bonus marchers remained in the city and became unruly. On July 28, 1932, two bonus marchers were shot by police, causing the entire mob to become hostile and riotous. The government turned the U.S. military upon its citizens. Army cavalry units led by General Douglas MacArthur dispersed the Bonus Army by riding through it and using gas. Fifty five veterans were injured and 135 were arrested. Critics of the marchers described them as communists, troublemakers, and criminals.
• Fast forward 80 years and we have protestors setting up camp in a public square, not far from where the same exact banks that caused the Great Depression have created the Greater Depression.
• The Federal Reserve, in collusion with the Wall Street banks, has engineered a two year stock market rally, while the average American has seen their wages decline, food and energy prices soar, home prices fall, and banks paying them .1% on their savings.
• The mood of the country has darkened and talk of revolution and the shadow of impending violence is growing.
• The Great Depression was not an event, it was an era. It was an era of discontent, pain, suffering, and ultimately war and death.
• This Fourth Turning has ten to fifteen years to go. Every previous Fourth Turning has included violence, war and death on an epic scale. Winter has arrived and it will be a long arduous journey until we reach Spring. The choices we make in the next few years will decide the fate of our country. I hope we choose wisely.  

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• Americans are staying put more than at any time since World War II, as the housing bust and unemployment keep young adults at home and thwart older Americans' plans for a beachfront or lakeside retirement.
• Residents have been largely locked in place; families are stuck in devalued homes and young adults are living with parents or staying put in the towns where they went to college.
• "The latest decline shows we are in a long-run economic reset and that we never really recovered — we've just been stagnating along," Florida said.
• An Associated Press-LifeGoesStrong.com poll this month found that more than half of baby boomers born between 1946 and 1964 say they are unlikely to move someplace new in retirement; about 4 in 10 say they are very likely to stay in their current home throughout all of their retirement.
• In all, the mid-decade housing boom and subsequent bust took a toll on virtually all age and race groups. Homeownership declined in 47 states and the District of Columbia while the national ownership rate fell by its largest amount since the 1930s.
• Other bright spots in the housing bust included urban, high-tech college meccas that are proving to be a draw for young, college-educated adults of all races and ethnicities.

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• The US banking system as a whole is leveraged at 13-to-1. While this is not horrible relative to Europe’s banking system (more on this in a moment), these levels still mean that an 8% drop in asset values wipes out ALL equity.

   

   

   

  Then you have Europe’s banking system, which is leveraged at 26-to-1. Anecdotally, this is borderline Lehman Brothers (30 to 1). At these levels, even a 4% drop in asset prices wipes out ALL equity.

   

   

   

  Japan’s banks are leveraged at 23 to 1. France’s are 26 to 1. Germany is 32 to 1.

   

   

   

  You get the idea.

   

   

   

  However, worse than any of these the US Federal Reserve. With $2.8 trillion in assets and only $52 billion in capital, the Fed is leveraged at 53 to 1. Yes, 53 to 1.

• The BIG picture is that there is far too much debt in the financial system. Europe’s getting taken to the cleaners today… but these very same issues are going to spread to Japan and the US in short order. Even China, which is considered THE creditor nation of the world, is estimated to post a REAL Debt to GDP ratio of 200%.

   

   

   

  Yes, 200%. China.
• Ignore stocks, they’re ALWAYS the last to “get it.” The credit markets are jamming up just like they did in 2008. The banking system is flashing all the same signals as well.
• So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding.

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• Peace should not be taken for granted if the euro fails, German chancellor Merkel told MPs Wednesday (26 October) ahead of the eurozone summit where an increase of the bail-out fund firepower may lead to Germany's own state assets being taken as collateral.
• That's why I say: If the euro fails, Europe fails," Merkel said, followed by a long applause from all political groups.
• On the three euro-countries currently propped by EU-IMF loans, Merkel said Ireland was on "the right path", Portugal showed it could implement the promised reforms, while Greece was still "at the beginning of a long road."

• "But debt restructuring alone does not solve the problem. Painful structural reforms have to be made, otherwise even after debt restructuring we're back to where we are today," Merkel warned.

     

  That's why, she said, Greece would have to be "assisted" for quite some time. "It's not enough that the troika comes and goes every three months. It would be desirable to have a permanent supervision in Greece," she said, adding that this issue would be brought up at the summit.
• In return for what seems to be an unprecedented sovereignty loss in an old EU member state, Merkel promised German investments and mentioned a meeting of local representatives from Germany and Greece in the coming weeks.
• The leftist opposition was outraged, with Die Linke leader Gregor Gysi pointing out that austerity has forced 27,000 small and medium enterprises to go bankrupt in Greece and that teachers earn as little as €1,000 a month. "What more do you want from them? Do you want them to starve to death?" he said.

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• The euro is plunging against other currencies after European leaders and banks appeared deadlocked over how much of Greece's debt should be forgiven.
• The euro fell to $1.3805 at 11 a.m. Eastern from $1.3931 late Tuesday. It rose early Wednesday to a six-week high of $1.3975. The euro fell to 104.98 Japanese yen from 105.71.

• Last weekend, the Iraq war had cost more than $800 billion since 2001; the Afghan war, $467 billion plus.
• For the 8-1/2-year conflict in Iraq alone, that works out to nearly $3,000 a second.
• Throw in the replacement of vehicles, weapons, equipment, etc., and the eventual tab for the United States could reach $4 trillion to $6 trillion, according to University of Columbia economist Joseph Stiglitz and Harvard University budget expert Linda Bilmes. Those are big numbers.
• It’s more than the $3.6 trillion the US spent to fight World War II, even after adjusting for inflation, Mr. Ritholtz estimates.

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• In a Gallup poll released yesterday, 22% of small business owners said their most important problem was "complying with government regulations."
• Everybody hates regulations, and small businesses have some legitimate gripes about overregulation. Right now, though, their real problem is crystal clear: the economy sucks and they need more customers.

• Home prices in 20 U.S. cities dropped more than forecast in August, highlighting one of the obstacles facing the economic recovery in its third year.
• Recovering the 31 percent plunge in home prices from their 2006 peak will probably be years in the making as foreclosures throw more properties on the market and sales flag. Federal Reserve policy makers like William Dudley are among those that believe bolstering housing is among the “most pressing issues” facing the central bank.
• There is still a big imbalance between demand and supply
• The drop in home values has pushed almost a quarter of U.S. mortgage borrowers underwater, meaning their debt is more than their homes are worth, according to CoreLogic Inc., a real estate data company in Santa Ana, California.

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• Consumer confidence unexpectedly dropped in October to its lowest level in two-and-a-half years
• The struggling housing market continues to be one of the biggest hurdles for the economic recovery as attempts to bolster the sector have had limited success.
• "Consumer spending has slowed because confidence has deteriorated, and these numbers are very, very consistent with that view," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
• "You can't look at these numbers and be optimistic about growth in 2012."

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• SAN LUIS OBISPO, Calif. (MarketWatch) — Worst-case scenario’s closing fast: Occupy Wall Street growing. But no political power or allies yet. Feared yes, attacked by GOP proxy tea party. Soon the Occupation will explode into a new American Revolution.
• When? A string of European bank collapses is dead ahead. And like the Arab Spring, they will trigger an economic disaster for American banks.
• No new bailouts. That will push the economy into a deep recession.
• All this was so obvious, so predictable. America is at a crossroads.

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• We expect a moderate slowdown in the beginning of next year, as two small policy shocks—another debt downgrade and fiscal tightening—hit the economy.
• The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.

• Almost 9.3 million Americans are considered underemployed
• That's up from just over 8 million in July
• Put together, almost 26 million Americans are either unemployed, marginally attached to the labor force, or involuntarily working part-time—a number experts say is unprecedented.
• "The labor force is substantially underutilized relative to what we experienced in most of the post-World War II period," says Patrick O'Keefe, director of economic research at accounting firm J.H. Cohn and former deputy assistant secretary in the U.S. Department of Labor.
• To get a more accurate understanding of the struggles that many Americans face, that base should be broadened even further
• about 20 percent of adults have jobs that pay poverty-level wages
• "I'd consider that to be another version of underemployment—mainly jobs that are just too low-quality," says Osterman
• Americans who fall below the poverty line make less than $10.50 an hour.
• "The weaknesses are on multiple dimensions—one is just the quantity of jobs, and the other is the quality of jobs that do exist."
• "The labor market is just not delivering for Americans what it should be delivering," Osterman says.

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• The charts explain what the Wall Street protesters are angry about. They also explain why the protesters' message is resonating with the country at large.
• Unemployment is at the highest level since the Great Depression (with the exception of a brief blip in the early 1980s).
• At the same time, corporate profits are at an all-time high, both in absolute dollars and as a share of the economy.
• Wages as a percent of the economy are at an all-time low. In other words, corporate profits are at an all-time high, in part, because corporations are paying less of their revenue to employees than they ever have.
• Income and wealth inequality in the US economy is near an all-time high: The owners of the country's assets (capital) are winning, everyone else (labor) is losing.
• The top earners are capturing a higher share of the national income than they have anytime since the 1920s
• CEO pay and corporate profits have skyrocketed in the past 20 years, "production worker" pay has risen 4%
• After adjusting for inflation, average earnings haven't increased in 50 years.
• It's worth noting that the US has been in a similar situation before: At the end of the "Roaring '20s," just before the start of the Great Depression.
• It took the country 15-20 years to pull out of that slump and fix the imbalances.

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• discussions of the economy have focused on one key question for the past two years: When will corporate America start hiring again?
• the question on many executives' and economists' minds is whether the nation is on the brink of another large round of layoffs.
• Chief executives have already begun to echo the warning that U.S. President Franklin Delano Roosevelt made early in the Great Depression of the 1930s: "The only thing we have to fear is fear itself."
• Some 24 percent of large-company chief executives expect to cut jobs in the U.S. over the next six months
• Theirs is a darker view than that of the chief financial officers of mid-sized companies, where 68 percent expect to add jobs over the next year, down from 80 percent earlier this year
• Companies are also cutting their spending plans for the United States. Wal-Mart Stores Inc, the world's largest retailer said on Wednesday it plans to cut its U.S. capital spending by 7.4 percent next year.
• "If the economy continues to slow ... I expect companies probably to continue to keep payroll very lean and for the unemployment rate to bump to 9.25 percent, conceivably it could go to 9.5 percent," said Michael Yoshikami, CEO of YCMNET Advisors a San Francisco investment house with $1 billion under management. "As CFOs and (human resources) managers are planning going forward, you can't avoid the human dynamic here. And if the outlook is very uncertain, they're going to be very, very hesitant to make broad hiring decisions. It's not good timing because budgets are being set right now."
• The sharpest downward revisions have come in the finance sector, where analysts now look for profit to rise just 1.7 percent, down from a prior expectation of 15.6 percent. They've also lowered estimates for companies that sell basic materials like metals, telecommunications firms and sellers of consumer staples like food.
• The finance, retail and manufacturing sectors could all see cuts -- with retailers particularly vulnerable if the holiday selling season is weak, analysts said.
• "We certainly are on a cusp here and it does feel as though the economy has downshifted,"

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• Chosen to serve power, not popular interests, Obama wrecked America's economy to save giant Wall Street banks. He's still doing it, despite claiming he's been out in front doing all he can.
• Until now, the 1930s Great Depression was America's last severe downturn, lasting a decade, punctuated by failed bounces.
• America's Greatest Depression began in late 2007. Rosenberg calls is a "modern-day" one similar to what Japan experienced for over two decades.
• Depressions occur "once it becomes painfully obvious" that conditions don't improve despite "repeated bouts of policy stimulus."
• Most of America's went for banker bailouts, tax cuts for corporate favorites and super-rich elites, as well as quantitative easing money creation for speculation, not economic growth. In contrast to recessions lasting six to 18 months, depressions last years.
• From 2002 - 2007, America's economy was massively manipulated and levered.
• As a result, America experience levered prosperity. Conditions are now reverting to the mean. A long way down remains. Since fall 2007, GDP, production, real income, and other major economic indicators never recovered to previous cycle highs. In normal times, post-recession tops are achieved and surpassed in a year or less. Not now. Home sales are 22% lower than in late 2009. Employment growth, in fact, has been stagnant for over a decade. The S&P 500 is no better than in spring 1998.  In terms of job creation (what matters most on Main Street) and equity appreciation, America's had a lost decade well into another one.
• When excesses produce bubbles, mean reversion is protracted and painful. Structural, not cyclical, problems need fixing. It happened in the 1930s, Japan since 1990, and today in America and Europe, causing global reverberations.
• After nearly four years of near-zero interest rates, unprecedented money creation (QE ad infinitum), loan adjustments, and tax cuts, no end is in sight to contracting credit, no job growth, or economic pain, despite tout TV pundits saying otherwise. Despite fiscal and monetary measures, America's economy "is still saddled with roughly $1 trillion of excess capacity." Moreover, unemployment is shockingly high at nearly 23%.
• headline numbers stick to the illusory 9.1% based on most recent data because the formula to compute it was manipulated to lie.
• Around 25% idle manufacturing capacity also shows economic trouble, not recovery.
• "It will take time and a shared burden by lenders, households and future generations of taxpayers before we hit bottom in this credit contraction." Expect years before it ends, exacerbated by secular attitude changes toward credit, savings, discretionary spending and homeownership.
• Consumers no longer see dwellings as a surefire investment, especially with continuing foreclosures and falling valuations with no end of pain in sight. Moreover, since late 2007 to mid-2011, an estimated $7 trillion of household net worth was lost. Recouping modest amounts of that will take years, and for older workers nearing retirement it's too late.
• Moreover, the combination of rising US savings reducing aggregate demand will be deflationary for years.
• It also suggests protracted hard times for beleaguered households, struggling through hardships not helped by counterproductive policies. They understand it better than Wall Street's best and brightest, getting fat bonuses while working Americans suffer.

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