Consequences of our actions

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Consequences of our actions

http://finance.yahoo.com/tech-ticker/the-u.s.-middle-class-is-being-wiped-out-here%27s-the-stats-to-prove-it-520657.html?tickers=^DJI,^GSPC,SPY,MCD,WMT,XRT,DIA

The Middle Class in America Is Radically Shrinking. Here Are the Stats to Prove it
Posted Jul 15, 2010 02:25pm EDT by Michael Snyder in Recession
Related: ^DJI, ^GSPC, SPY, MCD, WMT, XRT, DIA


From The Business Insider

Editor's note: Michael Snyder is editor of theeconomiccollapseblog.com

The 22 statistics detailed here prove beyond a shadow of a doubt that the middle class is
being systematically wiped out of existence in America. 

The rich are getting richer and the poor are getting poorer at a staggering rate. Once upon a time, the United States had the largest and most prosperous middle class in the history of the world, but now that is changing at a blinding pace.

So why are we witnessing such fundamental changes? Well, the globalism and "free trade" that our politicians and business leaders insisted would be so good for us have had some rather nasty side effects. It turns out that they didn't tell us that the "global economy" would mean that middle class American workers would eventually have to directly compete for jobs with people on the other side of the world where there is no minimum wage and very few regulations. The big global corporations have greatly benefited by exploiting third world labor pools over the last several decades, but middle class American workers have increasingly found things to be very tough.

Here are the statistics to prove it:

•    83 percent of all U.S. stocks are in the hands of 1 percent of the people.
•    61 percent of Americans "always or usually" live paycheck to paycheck, which was up from

49 percent in 2008 and 43 percent in 2007.
•    66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans.
•    36 percent of Americans say that they don't contribute anything to retirement savings.
•    A staggering 43 percent of Americans have less than $10,000 saved up for retirement.
•    24 percent of American workers say that they have postponed their planned retirement age in the past year.
•    Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.
•    Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
•    For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.
•    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.
•    As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.
•    The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
•    Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
•    In the United States, the average federal worker now earns 60% MORE than the average worker in the private sector.
•    The top 1 percent of U.S. households own nearly twice as much of America's corporate wealth as they did just 15 years ago.
•    In America today, the average time needed to find a job has risen to a record 35.2 weeks.
•    More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.
•    or the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.
•    This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.
•    Approximately 21 percent of all children in the United States are living below the poverty line in 2010 - the highest rate in 20 years.
•    Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.
•    The top 10 percent of Americans now earn around 50 percent of our national income.

Giant Sucking Sound

The reality is that no matter how smart, how strong, how educated or how hard working American workers are, they just cannot compete with people who are desperate to put in 10 to 12 hour days at less than a dollar an hour on the other side of the world. After all, what corporation in their right mind is going to pay an American worker 10 times more (plus benefits) to do the same job? The world is fundamentally changing. Wealth and power are rapidly becoming concentrated at the top and the big global corporations are making massive amounts of money. Meanwhile, the American middle class is being systematically wiped out of existence as U.S. workers are slowly being merged into the new "global" labor pool.

What do most Americans have to offer in the marketplace other than their labor? Not much. The truth is that most Americans are absolutely dependent on someone else giving them a job. But today, U.S. workers are "less attractive" than ever. Compared to the rest of the world, American workers are extremely expensive, and the government keeps passing more rules and regulations seemingly on a monthly basis that makes it even more difficult to conduct business in the United States.

So corporations are moving operations out of the U.S. at breathtaking speed. Since the U.S. government does not penalize them for doing so, there really is no incentive for them to stay.

What has developed is a situation where the people at the top are doing quite well, while most Americans are finding it increasingly difficult to make it. There are now about six unemployed Americans for every new job opening in the United States, and the number of "chronically unemployed" is absolutely soaring. There simply are not nearly enough jobs for everyone.

Many of those who are able to get jobs are finding that they are making less money than they used to. In fact, an increasingly large percentage of Americans are working at low wage retail and service jobs.

But you can't raise a family on what you make flipping burgers at McDonald's or on what you bring in from greeting customers down at the local Wal-Mart.

The truth is that the middle class in America is dying -- and once it is gone it will be incredibly difficult to rebuild.


_________________________________________________________________________________________

This has been bugging me.  I guess I need the bug spray.

I posted that article because I thought it was an interesting juxtaposition of a number of statistics.  Granted, the author picked statistics that supported his point.  We all do the same.

I had some unspoken questions about the article and was hoping someone would pick up on it.  Apparently not.  But here they are explicitly, and the "you" does not mean to imply "Kapkao".  Maybe the discussion needs its own thread, maybe no one is interested.

Are these numbers accurate?  Do you have another set of numbers that support idea of the middle class expanding instead of contracting?  How do these statistics fit your your world view of economics?  What do you think is the cause(s)?  Do you agree with the author's conclusion that if the middle class in the US disappears it will be very difficult to return to having a strong middle class?
 

-- I feel so much better since I stopped trying to believe.

"We are entitled to our own opinions. We're not entitled to our own facts"- Al Franken

"If death isn't sweet oblivion, I will be severely disappointed" - Ruth M.


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I didn't catch that the link

I didn't catch that the link got broken.  If one of the mods could fix it, please.


v4ultingbassist
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I think statistics are

I think statistics are needed on the standard of living for the poor here versus other countries.  Most people I know in the working class can afford decent tv's, cell phones, etc.  I feel like it is possible that 'poor' is just a relativistic term for the lower end of OUR economy, not necessarily the world economy.  My guess is that the poor here are still better off than most of the poor in other countries, but I have no stats.


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cj wrote:I didn't catch that

cj wrote:

I didn't catch that the link got broken.  If one of the mods could fix it, please.

 

Fixxored

NoMoreCrazyPeople wrote:
Never ever did I say enything about free, I said "free."

=


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Answers in Gene Simmons

Answers in Gene Simmons wrote:

cj wrote:

I didn't catch that the link got broken.  If one of the mods could fix it, please.

 

Fixxored

 

Thanks so much.

-- I feel so much better since I stopped trying to believe.

"We are entitled to our own opinions. We're not entitled to our own facts"- Al Franken

"If death isn't sweet oblivion, I will be severely disappointed" - Ruth M.


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v4ultingbassist wrote:I

v4ultingbassist wrote:

I think statistics are needed on the standard of living for the poor here versus other countries.  Most people I know in the working class can afford decent tv's, cell phones, etc.  I feel like it is possible that 'poor' is just a relativistic term for the lower end of OUR economy, not necessarily the world economy.  My guess is that the poor here are still better off than most of the poor in other countries, but I have no stats.

 

Poverty, like wealth, is relative.  What is a minimum set of stuff in the US is very different from most countries.  I don't see how people in the US earning the same as people in China or elsewhere is a solution for anyone.  And truly, if you add in transportation costs, the final total cost for goods is not that much less expensive than if they were made in the US. 

http://www.theunionshop.org

We are going to have to deal with global markets and the lower wages and benefits and fewer regulations in other countries.  The reality is that manufacturing jobs were well paying jobs that you could support a family on with little education.  I don't know if education is the answer.  I've listened to big software companies complain they had to import workers because they couldn't find qualified people in the US.  What they really meant was they could hire someone on an H1-B for less than they could pay someone with the education and experience who was a US citizen.

The problem is complex - the solutions are probably also complex.

-- I feel so much better since I stopped trying to believe.

"We are entitled to our own opinions. We're not entitled to our own facts"- Al Franken

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cj wrote : consequences of our action

    Yes,but who will hold the government for it's actions ? People has to involve themselves in Civil Disobedience,to many people are obedient.  

Signature ? How ?


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 cj wrote:Are these numbers

 

cj wrote:

Are these numbers accurate? 

I think that for the most part the numbers the article gave are at least close to accurate and they fit my world view of economics just fine. The main issue I have with the idea of this article is that while most of the data given can evoke an emotional response, a lot of it is incredibly random, lacks context to give any clear meaning, is clearly caused by short term temporary conditions, and/or is irrelevant to whether or not globalism is causing the middle class to decline. 

 

The clearest and most alarming pieces of data are very recent statistics which are probably just caused by our current recession. Also, some of them are just dishonest portrayals of the current state of the economy. There are problems with using many of the data he gives to draw a causal link between globalism/free trade and a decline of the middle class, but I will give one example. The statistic about the recent rise in millionaires completely ignores the fact that the stock market rebounded in the year he was referring to, and even though the number of millionaires rose to 7.8 million in 2009, it is still below the 2006 level of 9.3 million. Stating this increase as if it is a bad thing which is indicative of some huge shift in income distribution is just being dishonest. If anything, it is a good sign which indicates the beginning of economic recovery which should cause unemployment to drop and the middle class to grow.

 

cj wrote:
Do you have another set of numbers that support idea of the middle class expanding instead of contracting?  How do these statistics fit your your world view of economics?  What do you think is the cause(s)? 

In the past couple years, the middle class has declined as a result of the current recession. However, I do think it is very clear that the general standard of living has improved when longer periods of time are observed.T

I don't currently have a list of 22 random data points to support this idea; however, I do know that real GDP has increased substantially faster than population has increased in the past couple decades. I also know that while most increases in income occurred in the top 1% of the population, the inflation adjusted wages in every income bracket have increased over the past couple decades. This means that even though the rich people gained more of the wealth generated by this growth in real GDP than others, poor people are still better off in general. As far as I am concerned, these two pieces of information are proof enough that the average person's well-being is generally improving despite temporary hardships such as the current economic problems.

cj wrote:
Do you agree with the author's conclusion that if the middle class in the US disappears it will be very difficult to return to having a strong middle class?

Absolutely. If the middle class in the US were to disappear, it would be incredibly difficult to restore. It would probably take several generations or never happen. (This is of course assuming that the middle class disappears as a result of structural changes in the economy such as the ones described in this article. If the middle class disappeared for some other reason which left the economy structurally intact, it would be much easier to restore.)

 

This is not to say that free trade and globalism are 100% awesome great things which only have positive benefits. Free trade causes obvious problems for American workers and clearly has factors which increase gaps in wealth distribution. The point I am trying to make is that economic well-being is not declining in America on the long term, and the author of this article is being misleading with his portrayal of data and implications of causal links. 

 

cj wrote:
I don't see how people in the US earning the same as people in China or elsewhere is a solution for anyone.

Personally, I don't see how there can possibly be any other long term solution to the problems created by free trade. However, US workers should be earning the same wages as Chinese people (and people of all other countries for that matter) as a result of improvements in foreign economies, not wage decreases in America. Unfortunately, when we consider how bad some foreign economies are and how inept their governments are at dealing with their economic problems, this is not likely to happen soon.

 

cj wrote:
The problem is complex - the solutions are probably also complex.

I agree. Except, that I don't think there is anything we can do to completely solve these problems. The only way they can be solved is for foreign economies to improve, and America has very limited control over that. We are just going to have to continue to keep our economy strong so that our quality of life improves. However, I do think there are some things we can do to mitigate the effects of these problems. For example, China has been intentionally devaluing its currency in order to attract more foreign businesses to funnel their money into its economy. IMO, we should be putting more pressure on China to stop this policy.

 

I don't understand why the Christians I meet find it so confusing that I care about the fact that they are wasting huge amounts of time and resources playing with their imaginary friend. Even non-confrontational religion hurts atheists because we live in a society which is constantly wasting resources and rejecting rational thinking.


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Thank you

This is the post I was hoping for.

I agree that a set of random statistics do not a trend make.  I would be concerned if the trend continued downward and if it continued for 30-40 years, we are probably in trouble.

I also think globalization started when the first human traveled weeks from his home village to trade obsidian for sea shells.  So unlike the protesters I don't believe trade around the world is going to stop any time soon.  I don't know if tariffs are the answer, but free trade has certainly contributed to the stats in this article.  Is there a third or fourth choice?

Going from dirt poor to wealthy in one generation is an exception rather than the rule.  Even in the US.  it is possible, but it doesn't happen all that often.  More often people go from middle-class almost well-to-do to wealthy in that one generation.  Yes, I know, you could give me a long list of people who have managed to so.  The list that didn't make it is a lot longer than that.

-- I feel so much better since I stopped trying to believe.

"We are entitled to our own opinions. We're not entitled to our own facts"- Al Franken

"If death isn't sweet oblivion, I will be severely disappointed" - Ruth M.


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v4ultingbassist wrote:I

v4ultingbassist wrote:

I think statistics are needed on the standard of living for the poor here versus other countries.  Most people I know in the working class can afford decent tv's, cell phones, etc.  I feel like it is possible that 'poor' is just a relativistic term for the lower end of OUR economy, not necessarily the world economy.  My guess is that the poor here are still better off than most of the poor in other countries, but I have no stats.

There isn't much of a 'maybe' about it -poverty here in the US is royalty in somewhere like India, China, etc.

“A meritocratic society is one in which inequalities of wealth and social position solely reflect the unequal distribution of merit or skills amongst human beings, or are based upon factors beyond human control, for example luck or chance. Such a society is socially just because individuals are judged not by their gender, the colour of their skin or their religion, but according to their talents and willingness to work, or on what Martin Luther King called 'the content of their character'. By extension, social equality is unjust because it treats unequal individuals equally.” "Political Ideologies" by Andrew Heywood (2003)


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cj wrote:And truly, if you

cj wrote:
And truly, if you add in transportation costs, the final total cost for goods is not that much less expensive than if they were made in the US.

 

I'm confused, cost reduction is the main reason for producing goods in foreign countries and then selling them in US markets. Why do you say that the change in total cost is small?

 
cj wrote:
I also think globalization started when the first human traveled weeks from his home village to trade obsidian for sea shells.  So unlike the protesters I don't believe trade around the world is going to stop any time soon.  I don't know if tariffs are the answer, but free trade has certainly contributed to the stats in this article.  Is there a third or fourth choice?
What do you mean by third or fourth choice? Our choices are to have absolutely no trade, have trade with some restrictions (our current policy), or have trade with no restrictions.

 

I don't understand why the Christians I meet find it so confusing that I care about the fact that they are wasting huge amounts of time and resources playing with their imaginary friend. Even non-confrontational religion hurts atheists because we live in a society which is constantly wasting resources and rejecting rational thinking.


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Whatthedeuce wrote:cj

Whatthedeuce wrote:

cj wrote:
And truly, if you add in transportation costs, the final total cost for goods is not that much less expensive than if they were made in the US.

 

I'm confused, cost reduction is the main reason for producing goods in foreign countries and then selling them in US markets. Why do you say that the change in total cost is small?

 

I used to have a link to a website with the comparative costs for producing a t-shirt.  I can't locate it now so these numbers are currently unverified.  It costs 25 cents per t-shirt less to produce it in China, 11 cents per t-shirt less if it is produced in Latin America than if the same t-shirt is produced in the US in a union shop where the workers have a living wage and benefits.  Savings come into play when you are discussing hundreds of thousands of t-shirts produced.  Even that number is not all that large - say 100,000 t-shirts, 25 cents saved per t-shirt is what, $25,000?  Yet, those kind of savings for every item in the store is what has made the Walton family (of WalMart fame) worth over $5,000,000,000 (that's billion with a 'b') today.

 
Whatthedeuce wrote:
cj wrote:
I also think globalization started when the first human traveled weeks from his home village to trade obsidian for sea shells.  So unlike the protesters I don't believe trade around the world is going to stop any time soon.  I don't know if tariffs are the answer, but free trade has certainly contributed to the stats in this article.  Is there a third or fourth choice?
What do you mean by third or fourth choice? Our choices are to have absolutely no trade, have trade with some restrictions (our current policy), or have trade with no restrictions.

 

No trade isn't happening, trade with no restrictions is getting us those lousy statistics, and there is more than one option for trade with restrictions.  I was thinking in terms of some solution other than tariffs.  All I can think of is to put monetary penalties on goods produced in countries other than the home country.  This is just about a non-starter in the current political climate in the US - heaven forbid we should make international wealthy corporations reduce their pay and benefits packages for their CEOs.  So what other ideas are feasible for encouraging employment with a living wage in the US?  Especially for those people without the ability to get an academic degree?  Or for those who have the degree but still wind up flipping burgers?

I have a question for anyone with some sort of economics background.  Why does raising wages for the working poor result in inflation but having multi-million dollar pay, percs and benefits packages for CEOs not result in inflation?  Often, if the people working at a corporation are given raises to bring up everyone in the company to at least a living wage, the total dollar amount required is only a very small fraction of what their CEO makes.  Yet, that CEO will cry the blues about inflation to their congressional representatives.  I have never got it - what is so special about CEO compensation that it has no effect on the economy?

-- I feel so much better since I stopped trying to believe.

"We are entitled to our own opinions. We're not entitled to our own facts"- Al Franken

"If death isn't sweet oblivion, I will be severely disappointed" - Ruth M.


Whatthedeuce
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cj wrote: No trade isn't

 

cj wrote:

 

No trade isn't happening, trade with no restrictions is getting us those lousy statistics, and there is more than one option for trade with restrictions.  I was thinking in terms of some solution other than tariffs.  All I can think of is to put monetary penalties on goods produced in countries other than the home country.  This is just about a non-starter in the current political climate in the US - heaven forbid we should make international wealthy corporations reduce their pay and benefits packages for their CEOs.  So what other ideas are feasible for encouraging employment with a living wage in the US?  Especially for those people without the ability to get an academic degree?  Or for those who have the degree but still wind up flipping burgers?

Wage subsidies and negative income taxes could help improve the incomes of the very poor. Though, I'm not convinced that creating them would be a good idea on the long term except for temporary programs aimed at helping alleviate short term problems. Either way, the U.S. was at about full employment in 2007 and wages have been increasing, so the country has been doing a pretty good job at providing job opportunities for the entire population with increasing pay.

I'm not sure how this is related to free trade though. Specifically, which lousy statistics do you think free trade is giving us, and what is an acceptable sacrifice to improve them?

 

cj wrote:
I have a question for anyone with some sort of economics background.  Why does raising wages for the working poor result in inflation but having multi-million dollar pay, percs and benefits packages for CEOs not result in inflation?  Often, if the people working at a corporation are given raises to bring up everyone in the company to at least a living wage, the total dollar amount required is only a very small fraction of what their CEO makes.  Yet, that CEO will cry the blues about inflation to their congressional representatives.  I have never got it - what is so special about CEO compensation that it has no effect on the economy?

 

I'm not sure what you are asking. Every time money, goods, or services are exchanged, there is an effect on  the economy. Who told you that CEO compensation does not affect the economy, and what was the argument?

Also, keep in mind that most CEO compensation comes from stock and option rewards, so it can't be considered a direct cost to the company in the same way that a worker's salary is a cost.

 

 

I don't understand why the Christians I meet find it so confusing that I care about the fact that they are wasting huge amounts of time and resources playing with their imaginary friend. Even non-confrontational religion hurts atheists because we live in a society which is constantly wasting resources and rejecting rational thinking.


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Statistics are statistics

Statistics are statistics and can be played with so say whatever the heck you want them to say but I don't think anyone can dispute that more American workers are taking jobs they are overqualified for today. But I dispute what the author says about not being able to make a living flipping burgers. You can. People do. In most areas McDonalds pays $8/hr or higher and Walmart pays an average of $10/hr. You can eat on $3 a day, I have. You can rent a motel for $200-250 a week. You can walk or bike to Mcdonalds. It isn't nice but it is possible.  

Americans have just become accustomed to such a lavish lifestyle that they can't imagine canceling their cell phone plans or cable tv. They run up debt to buy things they can't afford, purchase houses that are way out of their price range then whine about how unfair it is when the people they owe money to want their money.

Someone should do a study to see how many people with smart phones get food stamps or welfare. I've seen people using food stamps with nicer cell phones than mine. Americans are up for a rude awakening now that the Ponzi schemes we have been fooling ourselves with are falling apart. Even many of the "rich" are so overextended which is part of the reason they are not investing money to create new jobs. Their multi-million dollar mansions are mortgaged to the hilt and the banks are starting to collect. 

The best solution would be for the fed to increase interest rates to discourage people from borrowing. We need to take the hit we have been building up for the last 20 years. It is going to hurt bad for anyone in debt, and the rest of us will also be hurt by inflation and a lack of jobs but throwing more money into a Ponzi scheme only delays, and makes worse, the inevitable. 

People need to learn to prioritize and take care of the basics. Maybe some people need to move in with their families. In many other countries two or three generations live under the same roof. Yeah, the middle-class is shrinking, but most of the wealthy class isn't as wealthy as they look on paper and our entire country is adding debt by the trillions. It can't continue forever. We are spending money that doesn't exist.

After we take the hit the middle class will come back just like it did after the Great Depression and hopefully Americans will be a lot smarter about getting into debt. The big problem will continue to be the government because politicians find it too easy to bribe voters with money and I really don't know how to change that.  

 

 

It was morality that burned the books of the ancient sages, and morality that halted the free inquiry of the Golden Age and substituted for it the credulous imbecility of the Age of Faith. It was a fixed moral code and a fixed theology which robbed the human race of a thousand years by wasting them upon alchemy, heretic-burning, witchcraft and sacerdotalism.-H.L. Mencken


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Beyond Saving wrote:The best

Beyond Saving wrote:

The best solution would be for the fed to increase interest rates to discourage people from borrowing. We need to take the hit we have been building up for the last 20 years. It is going to hurt bad for anyone in debt, and the rest of us will also be hurt by inflation and a lack of jobs but throwing more money into a Ponzi scheme only delays, and makes worse, the inevitable.

 

 

No... the fed's decision to increase interest rates was one of the main causes of the Great Depression. The FOMC should keep the Federal Funds rate low during recessions if we don't want a repeat of that.

I don't understand why the Christians I meet find it so confusing that I care about the fact that they are wasting huge amounts of time and resources playing with their imaginary friend. Even non-confrontational religion hurts atheists because we live in a society which is constantly wasting resources and rejecting rational thinking.


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Whatthedeuce wrote:I'm not

Whatthedeuce wrote:

I'm not sure how this is related to free trade though. Specifically, which lousy statistics do you think free trade is giving us, and what is an acceptable sacrifice to improve them?

 

My bad.  This is the only one:

•    This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.

I was mentally lumping it in my head with H1B visas, which the author doesn't mention. 

 

Whatthedeuce wrote:
 

I'm not sure what you are asking. Every time money, goods, or services are exchanged, there is an effect on  the economy. Who told you that CEO compensation does not affect the economy, and what was the argument?

Also, keep in mind that most CEO compensation comes from stock and option rewards, so it can't be considered a direct cost to the company in the same way that a worker's salary is a cost.

 

Whenever the subject of raising the minimum wage is brought up - regardless of my personal feelings on the subject - usually people on the conservative side bring up inflation.  Raising the minimum wage will cause inflation.  Oh, woe.

I am not talking about stock options and other percs, I am talking about CEO salary.  CEO salary has risen dramatically in the last few decades.  Yet no one talks about the effect this has on the economy. 

http://blogs.payscale.com/content/2008/07/ceo-salaries--1.html

Quote:

In 1970, CEO salary and bonus packages were typically about $700,000 - 25 times the average production worker salary; by 2000, CEO salaries had jumped to almost $2.2 million on average, 90 times the average salary of a worker, according to a 2004 study on CEO pay by Kevin J. Murphy and Jan Zabojnik. Toss in stock options and other benefits, and the salary of a CEO is nearly 500 times the average worker salary, the study says.

 

I didn't read the entire web site so I don't know where the author was going with this or what their agenda is.  I just grabbed the numbers, okay?  Don't hold me to the whole article.

How does a number of people going from $700,000 a year go to $2.2 million a year not have an inflationary effect on the economy?  Note that stock options and other benefits are not included in these numbers.  Which means this is a direct cost to the company.  And it would have to be figured into their overall pricing scheme, right?

If the argument for minimum wage increases causing inflation is valid, why isn't it valid for CEO salary increases?

I am NOT saying this is bad for the economy, I am just wondering why it isn't discussed and what is the effect.

edit: NB, for many smaller companies, that increase in CEO pay would more than cover increasing worker salaries at the same company.  And that same CEO could live very nicely on $700,000 a year even now.

-- I feel so much better since I stopped trying to believe.

"We are entitled to our own opinions. We're not entitled to our own facts"- Al Franken

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Whatthedeuce wrote:Beyond

Whatthedeuce wrote:

Beyond Saving wrote:

The best solution would be for the fed to increase interest rates to discourage people from borrowing. We need to take the hit we have been building up for the last 20 years. It is going to hurt bad for anyone in debt, and the rest of us will also be hurt by inflation and a lack of jobs but throwing more money into a Ponzi scheme only delays, and makes worse, the inevitable.

 

 

No... the fed's decision to increase interest rates was one of the main causes of the Great Depression. The FOMC should keep the Federal Funds rate low during recessions if we don't want a repeat of that.

 

I don't know about that.  But I have been wondering, if we should encourage lending, and the prime rate is 0%, why would any institution lend money?  This is the rate that is between institutions, correct?  And one of the problems mentioned has been that financial institutions are not lending to each other?  Why should they if they can't get a return on their investment?  I don't think raising them to 10-20% would be sensible, but surely 3-4% wouldn't tip us into depression.  Wasn't this rate increase higher during the depression?

-- I feel so much better since I stopped trying to believe.

"We are entitled to our own opinions. We're not entitled to our own facts"- Al Franken

"If death isn't sweet oblivion, I will be severely disappointed" - Ruth M.


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 Whatthedeuce wrote: No...

 

Whatthedeuce wrote:

 

No... the fed's decision to increase interest rates was one of the main causes of the Great Depression. The FOMC should keep the Federal Funds rate low during recessions if we don't want a repeat of that.

We are headed for a huge recession no matter what we do. It is too late now. Although there are key differences between now and 1928. We are not on the gold standard anymore. When the fed raised rates in 1928 investors moved gold to the US because people with money will put that money where they can make a profit on it. Other countries then instituted deflationary policies in an attempt to reduce economic activity and price levels to keep gold in their countries. The result was a worldwide race to the bottom. Since we are no longer on the gold standard that is no longer an issue. The world wide economy is far more globalized than it was in 1928.

The depression in the US lasted longer and was worse than in most of the world and I would argue there are two reasons for that. First, we stayed on the gold standard and were one of the last countries to give it up. Second, our government chose that time to spend a load of money we didn't have on social welfare programs and instituted a lot of policies that discouraged business investment. FDR believed that the depression was caused by overproduction and actually set out to reduce production. 

 

cj wrote:

I don't know about that.  But I have been wondering, if we should encourage lending, and the prime rate is 0%, why would any institution lend money?  This is the rate that is between institutions, correct?  And one of the problems mentioned has been that financial institutions are not lending to each other?  Why should they if they can't get a return on their investment?  I don't think raising them to 10-20% would be sensible, but surely 3-4% wouldn't tip us into depression.  Wasn't this rate increase higher during the depression?

Our government has bought into the notion of Keynesian economics which believes the Great Depression was caused by low demand. So to prevent another depression we have been trying to increase demand. When demand for goods began to drop off in the 90's the fed cut interest rates. Remember all those super low interest credit cards? Why not buy whatever you want today, it might be more expensive tomorrow. This artificially raised demand and kept our economy humming. But that idiot, Alan Greenspan, never took into account that all those rate cuts were really doing was taking consumer demand from the future. When you buy something on credit you have to pay for it eventually which means in the future you have less money then you would have if you hadn't gone into debt. Less money in a consumers wallet = less demand. We kept procrastinating it by dropping rates more and taking on more debt. Even using debt to pay the debt we had. Sooner or later you run out of money to pay the debt and to buy more things. That is where we are now.

So since they cant drop rates anymore, the geniuses in our government have decided to keep demand up by using government money to buy things and increase demand. Just like the rate cuts, it is only a temporary especially since they are not actually paying for any of it. The government is doing the same thing the consumer did, borrowing money, to keep up demand. Or for example, Cash for Clunkers where we purposefully destroyed a bunch of cars to encourage demand for new cars. Destroy your old (but still working) TV set, are your wealthier now? It doesn't make sense.

The kicker is that the longer we procrastinate taking the fall the bigger it is going to be because the more debt we will be in (individual and government) the less money we will have and the lower demand will be for everything. It can't go on forever. Add on the current administration that is eager for government to run every industry under the sun and we are headed to make the most fantastic economic implosion seen in recorded history.

I strongly believe we need to stop fooling ourselves and take the hit now before it builds up to be even worse. The other idea I've toyed around with in my head is that our government could simply give everyone they owe the middle finger and reissue the currency but that very well might cause a world war but at least we still have a kick-ass military.

 

 

It was morality that burned the books of the ancient sages, and morality that halted the free inquiry of the Golden Age and substituted for it the credulous imbecility of the Age of Faith. It was a fixed moral code and a fixed theology which robbed the human race of a thousand years by wasting them upon alchemy, heretic-burning, witchcraft and sacerdotalism.-H.L. Mencken


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Way to go cj

 You pushed one of my buttons so now you get to read one of my rants (or scroll down past it) but I'll feel better.

 

To expand on the concern Whatthedeuce has raising interest rates is a double edged sword. For those with money it is very beneficial because they will earn higher profits. It will make life a lot easier for the elderly who actually saved for their retirement. Picture a retiree with 400k saved up. If they are lucky, they are earning 3% or roughly 12k per year (3% was a common guaranteed minimum for a lot of annuities/equity based funds sold in the 90s) if they are only now taking their money out of the stock market they are more likely looking at a 1.5 - 2% rate or a gain of only 6k per year. If interest rates were raised a percent or two they could reinvest their money and earn say 5% or 20k per year. Now your individual who is retired and has 400k or more saved up is also a likely candidate to either start a  new business or invest in a business ran by their children. If you are earning and extra 8 to 14k per year you can afford to speculate with some of that money or purchase land and houses increasing demand in the housing market which is still hurting. Even for those who choose not to invest directly into business the extra money they leave in the bank eases pressure on the banks and allows them to loan more money at a higher profit. Banks don't write a loan if they do not believe they will gain a profit except where forced to by the federal government i.e. Fannie & Freddy. The loans will be at a higher interest rate so while more money will be available to loan fewer people will be able to qualify for them. THAT IS A GOOD THING. You have no business getting a loan unless you can reasonably expect to pay it back. The result would be a relative minority of people getting loans substantial enough to start new businesses and hire new workers.

The big downside is all the people who are currently in debt up to their necks. When credit card rates go even higher they will find themselves unable to pay the bills and more will declare bankruptcy. However, I argue that we have already been suffering the brunt of people going under despite low rates. The number of people adversely affected by higher interest rates today is far lower than if rates were raised even 5 years ago. Our hearts bleed for people who lose their houses and everything they own but at the end of the day they purchased things they could never afford. 

 

 

The Mistakes of The Great Depression:

We are repeating several mistakes made by Hoover & FDR that prolonged and made the Great Depression worse. Hoover, while often accused of being laissez faire was not. He was obsessed with attempting to keep wages high. He cajoled, bullyed and adopted policies designed to keep wages high even as demand dropped. The Smoot-Hawley tariff act and Davis-Bacon act are examples of attempts to increase prices to keep wages high but only resulted in less economic activity. Now I'm assuming all of you understand the basics of supply and demand. When demand drops prices should drop as well which in turn increases demand. Take an individual company that makes widgets, when demand for widgets is high they charge more money because it wants more money (those greedy capitalist pigs) Say it charges $100 per widget and pays each worker $20 per widget. When demand for widgets drops the company lowers prices because people are no longer willing to pay $100 but maybe they will pay $60. So the company drops the price to $60 to keep selling them. Now in most cases the company will be unwilling or unable to continue paying $20 per widget to their workers so they either cut pay or cut the number of workers and demand more widgets from the smaller work force. Hoover, being obsessed with keeping wages high implemented policies to keep the widgets priced at $100. The problem is if people are not willing  to pay $100 they wont no matter what the government does. The result is the companies lost massive amounts of profits and eventually went out of business or had to fire all of their workers. So pretend you were a widget maker and were getting paid $20 when things were great  but when demand disappears are you better of accepting $15 per widget now and maybe get your raise back when the widget market recovers or are you better off keeping your $20 per widget now even though in two or three years you will be out of work making nothing? Simply put, the government can't force prices (and thus wages) to remain high if demand is dropping. In the short term it will help but in the long term it will make things worse.

When FDR was elected he continued what Hoover was doing (kind of like Obama "Bush did it too&quotEye-wink and added on massive government spending and taxes. He instituted things like the minimum wage to keep wages artificially high even though there was no demand. The result? Well if you can't make a profit you get out of business and that is what the wealthy did. Throw in the Ponzi scheme known as Social Security and you have a fine mess.

 

My conclusion is that recessions and depressions can be a lot smaller if  politicians simply got the hell out of the way. The economy has a natural ebb and flow of supply and demand. Supply never exactly matches demand and never will. The marketplace will always over correct and it is these over corrections that lead to booms and recessions. If prices and wages are allowed to drop on their own the drop will be a lot smaller than if politicians try to cover up the drop with government regulation. The economy cannot grow every year forever, if we just accept the natural recessions we will be far better off. 

The problem is that no politician wants a recession while they are in office because voters tend to blame politicians even when they are not at fault. So they follow policies to delay recessions and institute short term fixes so that the economy stays strong during their administration. It is kind of like drinking more alcohol to avoid a hangover. But just like drinking the short term fix only leads to a worse hangover. Trust me, I've tried it.

It was morality that burned the books of the ancient sages, and morality that halted the free inquiry of the Golden Age and substituted for it the credulous imbecility of the Age of Faith. It was a fixed moral code and a fixed theology which robbed the human race of a thousand years by wasting them upon alchemy, heretic-burning, witchcraft and sacerdotalism.-H.L. Mencken


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Beyond Saving wrote: You

Beyond Saving wrote:

 You pushed one of my buttons so now you get to read one of my rants (or scroll down past it) but I'll feel better.

 

Not my intent, but shit happens.  My point with this thread was to explore some questions I have had - I don't have strong opinions myself.

I agree with a lot of your post, but want to comment on a couple of things.

 

Beyond Saving wrote:

The loans will be at a higher interest rate so while more money will be available to loan fewer people will be able to qualify for them. THAT IS A GOOD THING. You have no business getting a loan unless you can reasonably expect to pay it back. The result would be a relative minority of people getting loans substantial enough to start new businesses and hire new workers.

 

This is basically true.  But I have to take exception - sometimes shit happens.  I very carefully bought a house I could afford with the wages I was earning then.  And having lived through the 70s where mortgage rates jumped from 7% to 14%, I was careful to get a fixed percentage loan - even though it cost a little more.  I was laid off and have been unemployed for over 19 months, the 401K is gone and if I am not employed shortly, the bank will start talking foreclosure.  Shit happens to everyone, even the more cautious of us.

 

Beyond Saving wrote:

The big downside is all the people who are currently in debt up to their necks. When credit card rates go even higher they will find themselves unable to pay the bills and more will declare bankruptcy. However, I argue that we have already been suffering the brunt of people going under despite low rates. The number of people adversely affected by higher interest rates today is far lower than if rates were raised even 5 years ago. Our hearts bleed for people who lose their houses and everything they own but at the end of the day they purchased things they could never afford. 

 

The last numbers I saw were that over 2/3 of bankruptcies in the US were due to unexpected health care costs.  Having a heart attack is damned expensive.

 

Beyond Saving wrote:

The Mistakes of The Great Depression:

We are repeating several mistakes made by Hoover & FDR that prolonged and made the Great Depression worse. Hoover, while often accused of being laissez faire was not. He was obsessed with attempting to keep wages high. He cajoled, bullyed and adopted policies designed to keep wages high even as demand dropped. The Smoot-Hawley tariff act and Davis-Bacon act are examples of attempts to increase prices to keep wages high but only resulted in less economic activity. Now I'm assuming all of you understand the basics of supply and demand. When demand drops prices should drop as well which in turn increases demand. Take an individual company that makes widgets, when demand for widgets is high they charge more money because it wants more money (those greedy capitalist pigs) Say it charges $100 per widget and pays each worker $20 per widget. When demand for widgets drops the company lowers prices because people are no longer willing to pay $100 but maybe they will pay $60. So the company drops the price to $60 to keep selling them. Now in most cases the company will be unwilling or unable to continue paying $20 per widget to their workers so they either cut pay or cut the number of workers and demand more widgets from the smaller work force. Hoover, being obsessed with keeping wages high implemented policies to keep the widgets priced at $100. The problem is if people are not willing  to pay $100 they wont no matter what the government does. The result is the companies lost massive amounts of profits and eventually went out of business or had to fire all of their workers. So pretend you were a widget maker and were getting paid $20 when things were great  but when demand disappears are you better of accepting $15 per widget now and maybe get your raise back when the widget market recovers or are you better off keeping your $20 per widget now even though in two or three years you will be out of work making nothing? Simply put, the government can't force prices (and thus wages) to remain high if demand is dropping. In the short term it will help but in the long term it will make things worse.

When FDR was elected he continued what Hoover was doing (kind of like Obama "Bush did it too&quotEye-wink and added on massive government spending and taxes. He instituted things like the minimum wage to keep wages artificially high even though there was no demand. The result? Well if you can't make a profit you get out of business and that is what the wealthy did. Throw in the Ponzi scheme known as Social Security and you have a fine mess.

 

I've seen people try to work it both ways.  They take the cut in pay, hoping for better times and the company goes overseas anyway.  They refuse to take the cut in pay and the company goes overseas.  There is no solution for manufacturing jobs in the US at this time - I don't see anyone being willing to implement a tariff that will really work, so .....

I don't as if I can say the policies of Hoover or FDR had any effect on the economy one way or the other.  Our history shows the depression eventually went away - in spite of?  because of?  Who can tell?  People just let their prejudices suck them into a conclusion.  I'm interested in knowing what works, but it seems to be hard to tell for all the noise in the system.  We still don't have an economic model that is a valid predictor - and as the economy just gets larger, the models get further away from any predictions that hold up over time.

I have also yet to hear of anyone talking about price fixing.  Nixon tried it in the 70s - didn't work then.  I don't know of any reason for it to work now.  I also don't see the government trying to take over private enterprise.  There is a major difference between running businesses and regulating businesses.  And Adam Smith insisted that the "invisible hand" only worked when the "captains of industry" were prevented from colluding on prices and wages.  Mr. Smith was all for regulating business.  Having grown up in a small business - a trucking company - my experience is deregulating just drives the small companies out of business.  Health care?  It is still privately owned for-profit companies.  Darn few changes there.

 

Beyond Saving wrote:

My conclusion is that recessions and depressions can be a lot smaller if  politicians simply got the hell out of the way. The economy has a natural ebb and flow of supply and demand. Supply never exactly matches demand and never will. The marketplace will always over correct and it is these over corrections that lead to booms and recessions. If prices and wages are allowed to drop on their own the drop will be a lot smaller than if politicians try to cover up the drop with government regulation. The economy cannot grow every year forever, if we just accept the natural recessions we will be far better off. 

The problem is that no politician wants a recession while they are in office because voters tend to blame politicians even when they are not at fault. So they follow policies to delay recessions and institute short term fixes so that the economy stays strong during their administration. It is kind of like drinking more alcohol to avoid a hangover. But just like drinking the short term fix only leads to a worse hangover. Trust me, I've tried it.

 

I don't know - see the South Sea bubble and Tulips in the Netherlands long before capitalism was even a word.  Check out the depression of the 1890s in the US.  For that matter, the depression of 1929 was in an unregulated economy.  The regulations and controls were put in place after the crash - not before.

I don't know if the large, very visible, attempt by our government to control the economy (the Federal Reserve Board) is doing any good or not.  It seems to work if the economy responds according to the current prejudices of the seated board members.  If the economy doesn't respond according to their prejudices, it just seems to make things worse. 

Politicians are in it for the votes and not much else - and so miss the boat on a regular basis.

-- I feel so much better since I stopped trying to believe.

"We are entitled to our own opinions. We're not entitled to our own facts"- Al Franken

"If death isn't sweet oblivion, I will be severely disappointed" - Ruth M.


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cj wrote: Not my intent,

cj wrote:

 

Not my intent, but shit happens.  My point with this thread was to explore some questions I have had - I don't have strong opinions myself.

I agree with a lot of your post, but want to comment on a couple of things.

Oh I meant that in the best possible way 

 

cj wrote:

This is basically true.  But I have to take exception - sometimes shit happens.  I very carefully bought a house I could afford with the wages I was earning then.  And having lived through the 70s where mortgage rates jumped from 7% to 14%, I was careful to get a fixed percentage loan - even though it cost a little more.  I was laid off and have been unemployed for over 19 months, the 401K is gone and if I am not employed shortly, the bank will start talking foreclosure.  Shit happens to everyone, even the more cautious of us.

 

Thats why I said "reasonably expect" to pay it back. Any loan is a risk that is why the interest rate charged is higher than both  the fed rate and expected profit because bankers calculate the percentage of loans they expect to default. A low percentage of defaults isn't a problem, massive defaults is a mess. The mortgage industry is the largest example of giving out loans that everyone KNEW there was no chance of them ever being paid back. The government put pressure on the banks to loan money to people without checking their incomes and offering 100% financing. Previously, you had to have at least 20% for a down payment to even consider buying a house. When you make 30k a year you can't afford a 200k house. Everyone knew that but the loans were made anyway, mostly due to fanny & freddie (which have somehow escaped all of the financial reforms).

 

cj wrote:

The last numbers I saw were that over 2/3 of bankruptcies in the US were due to unexpected health care costs.  Having a heart attack is damned expensive.

 

Health care is a separate but contributing problem. Although generally a bankruptcy for healthcare reasons doesn't affect you mortgage or car payment. You can declare bankruptcy to get rid of the healthcare bills you can keep your house and mortgage. Often, what happens is people already put themselves in the position of paying their debt paycheck to paycheck so a medical crises puts them out of work for a period of time and so they can't pay any bills because they have no reserve. You really ought to have a years worth or more of savings to pay bills from should something happen. If your debt is so high that you have nothing left to save each month you have too much debt, buy something cheaper. Hospitals are actually the easiest debt collectors to work with and are often mollified with partial payments so if you have a reserve that can get you through until you can find work or a new source of income the hospital isn't going to drive you to bankruptcy. 

cj wrote:
 

I've seen people try to work it both ways.  They take the cut in pay, hoping for better times and the company goes overseas anyway.  They refuse to take the cut in pay and the company goes overseas.  There is no solution for manufacturing jobs in the US at this time - I don't see anyone being willing to implement a tariff that will really work, so .....

I don't as if I can say the policies of Hoover or FDR had any effect on the economy one way or the other.  Our history shows the depression eventually went away - in spite of?  because of?  Who can tell?  People just let their prejudices suck them into a conclusion.  I'm interested in knowing what works, but it seems to be hard to tell for all the noise in the system.  We still don't have an economic model that is a valid predictor - and as the economy just gets larger, the models get further away from any predictions that hold up over time.

The economy is incredibly complex which is what makes it so interesting to study. Although the one absolute anyone can guarantee is that economies will expand and contract no matter what anyone does. Governments can attempt to minimize the effects but I argue those attempts generally make the effects worse.

cj wrote:

I have also yet to hear of anyone talking about price fixing.  Nixon tried it in the 70s - didn't work then.  I don't know of any reason for it to work now.  I also don't see the government trying to take over private enterprise.

They don't call it price fixing anymore because that has a negative connotation. Look for words like minimum wage, unionize, and subsidy. For example, the 10k housing "subsidy" was essentially an attempt to control the price of houses by lowering the cost of purchasing a house 10k. As for taking of private enterprise have you heard of GM? We still own over half of it and a good portion of the rest is owned by the union. Fannie & Freddie own a large percentage of mortgages in the US they are government corporations. The last financial bill made it ILLEGAL for banks to offer private student loans. That means every student loan in the US from now on will come from the government. The Health Care bill that was passed will lead to private health insurance companies going bankrupt at which point the government is going to step in with a public option. 

 

cj wrote:

 There is a major difference between running businesses and regulating businesses.  And Adam Smith insisted that the "invisible hand" only worked when the "captains of industry" were prevented from colluding on prices and wages.  Mr. Smith was all for regulating business.  Having grown up in a small business - a trucking company - my experience is deregulating just drives the small companies out of business.  Health care?  It is still privately owned for-profit companies.  Darn few changes there.

 

Adam Smith was in favor of the government breaking up monopolies and ensuring that there was free competition. The regulation we are discussing is a far cry from that. Regulating to keep business honest is good. Regulating to control prices, wages or benefits is bad. I don't have time to address health care right now but the new law changes a lot. I will get into details later.

 

cj wrote:
 

I don't know - see the South Sea bubble and Tulips in the Netherlands long before capitalism was even a word.  Check out the depression of the 1890s in the US.  For that matter, the depression of 1929 was in an unregulated economy.  The regulations and controls were put in place after the crash - not before.

Economic systems exist regardless of whether or not they are named. And as I have repeatedly pointed out, economies grow and shrink constantly. The only thing constant about economies is that they change. The economy was far from unregulated in 1929, Hoover and FDR just added a lot more regulation when things started getting worse then things got much worse. 

It was morality that burned the books of the ancient sages, and morality that halted the free inquiry of the Golden Age and substituted for it the credulous imbecility of the Age of Faith. It was a fixed moral code and a fixed theology which robbed the human race of a thousand years by wasting them upon alchemy, heretic-burning, witchcraft and sacerdotalism.-H.L. Mencken


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Predictability

 Do a search on Google for "surprising" and "unemployment", you will find dozens of news stories about all these "forcasters" and "economic experts" that have been surprised every month for the last who knows how many years. Hmm, every American you talk to can tell you the economy and especially the job market sucks right now but the ones with the degrees are "surprised". You got me thinking cj with your statement about economic models and not being able to predict the future of the economy. We might not be able to accurately predict exact numbers but it doesn't take an economic genius to predict major events.

For example, the housing crash. I predicted it for years before it happened and I didn't have my BA when I made the prediction. Glenn Beck was predicting it in 2002 and he certainly isn't an economics expert. In 2003 a few members of congress attempted to address the issues that were developing with Fannie & Freddie but were unable to garner the political support. Rep. Barney Frank said,

"I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury.

I must say we have an interesting example of self-fulfilling prophecy. Some of the critics of Fannie Mae and Freddie Mac say that the problem is that the Federal Government is obligated to bail out people who might lose money in connection with them. I do not believe that we have any such obligation. And as I said, it is a self-fulfilling prophecy by some people.

 

So let me make it clear, I am a strong supporter of the role that Fannie Mae and Freddie Mac play in housing, but nobody who invests in them should come looking to me for a nickel--nor anybody else in the Federal Government. And if investors take some comfort and want to lend them a little money and less interest rates, because they like this set of affiliations, good, because housing will benefit. But there is no guarantee, there is no explicit guarantee, there is no implicit guarantee, there is no wink-and-nod guarantee. Invest, and you are on your own.

Now, we have got a system that I think has worked very well to help housing. The high cost of housing is one of the great social bombs of this country. I would rank it second to the inadequacy of our health delivery system as a problem that afflicts many, many Americans. We have gotten recent reports about the difficulty here.

Fannie Mae and Freddie Mac have played a very useful role in helping make housing more affordable, both in general through leveraging the mortgage market, and in particular, they have a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing, and that is what I am concerned about here. I believe that we, as the Federal Government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals. I worry frankly that there is a tension here.

The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disastrous scenarios. And even if there were a problem, the Federal Government doesn't bail them out. But the more pressure there is there, then the less I think we see in terms of affordable housing." 

The full context is available at 

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_house_hearings&docid=f:92231.wais

. As we know now Fannie and Freddy failed miserably and I'll let you count how many nickles are in a trillion dollars. I don't know who all these brilliant economics experts are advising our politicians but they should all be fired. I know if I spent so much time being surprised I would be fired.

So now we have all these "experts" being surprised that unemployment remains in the dumps. Well let me tell all those "experts" why, for the last year the government has been spending like drunken sailors (no offense sailors), passing a gigantic health care plan and are now discussing raising taxes. Now pretend you own a business and are considering whether to hire a new employee or not. The immediate costs or recruiting, training and paying the salary of the new worker are obvious but you have other concerns as well. With the government spending so much you know that sooner or later that bill has to be paid. You, as a business owner know that most likely you will be the target of those tax increases. Suppose your business brings you 200k net profit per year and you calculate the new employee will increase that 10%. So your new profit can be expected to be 220k no brainer right? Hire a new employee make and extra 20k next year. Oh wait. Obama says he is going to tax those evil rich who make over 200k. You are currently paying 28% in taxes so you actually bring home 144k and with the new employee could expect 158.4k. But what if your rate is raised to 36%? (The rate if the Bush tax cuts expire without editing) Now with the new employee you make 140.8k but if you get your profit at 200k you only pay 31% taxes you make 138k without the new employee. Is it really worth going through the effort for $1800? And what if your prediction is a little off? What if your new employee quits after 3 months? You could easily lose money. Should you make that hire now or wait until you know for sure what the tax policy will be?

The bottom line is that business people make their decisions based on cold calculations of how much profit they will make. If they can't expect much profit from a new employee they won't hire them. In an environment where they see demand for their products dropping and a government that is racking up debt that the "rich" will have to pay off hiring for anything other than absolutely essential employees would be economically stupid. Yet our politicians go out and grandstand against the rich, yell at them for not hiring while at the same time promising to raise their taxes. And the experts are surprised?

Add into that the fact that most small business owners can no longer go to the bank to get a loan if money gets tight. Since many businesses do not provide steady streams of income many small businesses rely on short term loans to meet payroll when business slows down for a few months. Now they have to build up their own cash reserves because one thing is guaranteed, when the small business goes under the politicians aren't going to help bail them out like they did fannie & freddy & co.

If the government starts taking serious steps to cut back its spending and get debt under control and lays out a clear taxation policy for the next five to ten years and raises the interest rate to make lending & saving profitable companies will start hiring again. Until they know what is coming, they will stay in their turtle shells.  

 

 

It was morality that burned the books of the ancient sages, and morality that halted the free inquiry of the Golden Age and substituted for it the credulous imbecility of the Age of Faith. It was a fixed moral code and a fixed theology which robbed the human race of a thousand years by wasting them upon alchemy, heretic-burning, witchcraft and sacerdotalism.-H.L. Mencken


Teralek
Theist
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Joined: 2010-07-15
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George Soros: The average

George Soros: The average person actually did not get much benefit from the boom, this super boom in the last 20 years. It's really the people like me, who have really earned enormous amounts of money. 

What more do we need to change the rules and take the power?! Even they are saying it plain and simple and we just sit on our asses... bunch of conformists

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"I once prayed to god for a bike, but quickly found out he didnt work that way...so I stole a bike and prayed for his forgiveness"

"All matter originates and exists only by virtue of a force... We must assume behind this force the existence of a conscious and intelligent Mind. This Mind is the matrix of all matter." (Max Planck)

"the existence of mind in some organism on some planet in the universe is surely a fact of fundamental significance. Through conscious beings the universe has generated self-awareness. This can be no trivial detail, no minor byproduct of mindless, purposeless forces. We are truly meant to be here." Paul Davies