The Poor and Middle Class see their Incomes Still Falling in the Obama Recovery

Posted by PITHOCRATES - March 3rd, 2013

Week in Review

If you listen to the president, his press secretary, the mainstream media and just about anyone on the political left the economy is doing super.  Sure, we can make improvements.  But over all everything is just swell.  If you’re rich, that is. People with money are doing very well in the Obama recovery.  Those who aren’t as rich aren’t.  No.  All they see is high unemployment, rising prices and falling incomes (see Americans see biggest monthly income drop in 20 years by Annalyn Kurtz posted 3/1/2013 on CNNMoney).

Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That’s the most dramatic decline since January 1993, according to the Commerce Department.

It’s something of a combination of one-time events, though.

Monthly income was unusually high in December because companies paid out early dividends to avoid upcoming tax hikes.

Further proof that people change their behavior when the government increases taxes.  The surge in December that made January look so bad was due to one-time distributions of profits to avoid higher taxes.  So December wasn’t that good, either.  Just an aberration as people tried to avoid the higher taxes coming their way.

The payroll tax cut’s expiration also played a role in January’s drop, because most workers have to pay 2 percentage points more in taxes this year…

Meanwhile, economists are closely watching consumer spending, which accounts for about two-thirds of the U.S. economy…

Economists think that rising gas prices in February could cut into consumer spending temporarily. Gas prices rose 10% in February, according to AAA, but are expected to fall in coming weeks…

The Social Security tax break helped consumers at the 2012 election.  Allowing them more disposable income in the year before the election.  And helping them feel things weren’t that bad.  Of course this Social Security tax holiday drew down the Social Security surplus to a dangerous low.  Something they will have to make up for with even higher taxes than the 2% temporary cut used to help the president’s reelection.

Regulatory costs, environmental policies that have shut down oil drilling on public lands and inflation (the incessant quantitative easing of the Fed putting more and more dollars into circulation) are keeping gas prices high.  For you can hide inflation in some consumer goods by reducing package sizes but you can’t do that with gasoline.  Because you sell gas by the gallon.  So the full cost of the Fed’s inflationary policies hit gas prices hard.  And, of course, high gas prices increases prices for everything else that uses fuel.  A large factor in the rise in our grocery bills.  Taking a bigger bite out of family budgets.  Leaving little for other consumer spending.

All of that said, consumers are benefiting from a housing recovery and rising stock prices…

They’re not able to save much, though. On average, people saved about 2.4% of their disposable income in January, down from 6.4% in December. That marks the smallest saving rate since November 2007.

Rich people are benefitting from the housing ‘recovery’ and stock prices.  Those who have a lot of money left over after meeting the living expenses.  Who can save a lot of money.  And invest it into housing.  Or stocks.  In fact, that’s why the stock market does well on news of the Fed continuing their quantitative easing.  For the rich are taking advantage of that cheap money to borrow it.  So they can invest it.  Trading on the interest.  Borrowing at low interest rates.  And investing in something that earns a higher rate of return.  People struggling to make their paycheck buy everything it once did as prices rise everywhere aren’t enjoying any benefits from that cheap money.  As they have no money left over to even save up a down payment on a house.  So they can take advantage of those low housing prices.  No.  The poor and middle class are not reaping anything in the current economic ‘recovery’.  Only the rich are.

Under President Obama the rich are getting richer.  And the poor are getting poorer.  Because of his economic policies.  Especially the Keynesian policies.  Keynesians look at personal savings as leaks out of the economy.  For if people aren’t spending money they are wasting money.  Which is the point of low interest rates.  To get people to borrow money to buy things.  Thus stimulating economic activity.  And generating more consumer spending.  But all that quantitative easing has raised prices so much that consumers are left with less and less money to spend.  The poor and middle class aren’t borrowing money to buy new houses.  They’re just trying to get by on what little they have.  Hoping for good economic times to return when their personal incomes rise once again.

Keynesian economics don’t work.  Just as Keynesian stimulus does not stimulate.  If it did we wouldn’t still have fewer jobs in the U.S. economy than when President Obama took office.  And he spent about $8000 billion on a stimulus bill.  The American Recovery and Reinvestment Act of 2009.  Some critics said it failed as an $8000 billion stimulus wasn’t big enough.  Even though the Obama administration declared the summer of 2010 the Recovery Summer.  Proof that the American Recovery and Reinvestment Act of 2009 restored economic prosperity.  Even though it didn’t.  For things still haven’t returned to where they were under George W. Bush.  Despite 4 years of Keynesian policies.  That haven’t raised personal incomes.  The true measure of any economic recovery.  And when personal incomes are the lowest they’ve been in 20 years, there hasn’t been any economic recovery.  Despite $800 billion in stimulus.  And 4 years of President Obama’s Keynesian economic policies.

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Nations race to Devalue their Currencies to Boost Exports and Destroy Retirement Savings

Posted by PITHOCRATES - February 3rd, 2013

Week in Review

If you ever traveled to a foreign country you know what you had to do before buying foreign goods.  You had to exchange your currency first.  That’s why they have currency exchanges at border crossings and airports.  So people can convert their currency to the local currency.  So they can buy stuff.  And when traveling people liked to go to areas that have a weaker currency.  Because a stronger currency can get more of a weaker currency in exchange.  Allowing your own currency to buy a lot more in that foreign country.  And it’s the same for buying exported goods from another country.

The weaker a country’s currency the more of it people can get in exchange for their currency.  Allowing importers to buy a lot more of those exported goods.  Which helps the export economy of that nation with a weak currency.  In fact having a weak currency is such an easy way to boost your exports that countries purposely make their currencies weaker.  As they race each other to see who can devalue their currency more.  And gain the biggest trade advantage (see Dollar Thrives in Age of Competitive Devaluations by A. Gary Shilling posted 1/28/2013 on Bloomberg).

In periods of prolonged economic pain — notably the 2007-2009 global recession and the ensuing subpar recovery — international cooperation gives way to an every-nation-for-itself attitude. This manifests itself in protectionist measures, specifically competitive devaluations that are seen as a way to spur exports and to retard imports.

Trouble is, if all nations devalue their currencies at the same time, foreign trade is disrupted and economic growth is depressed…

Decreasing the value of a currency is much easier than supporting it. When a country wants to depress its own currency, it can create and sell unlimited quantities. In contrast, if it wants to support its own money, it needs to sell the limited quantities of other currencies it holds, or borrow from other central banks…

Easy central-bank policy, especially quantitative easing, may not be intended to depress a currency, though it has that effect by hyping the supply of liquidity. Also, low interest rates discourage foreign investors from buying those currencies. [Japanese] Prime Minister Shinzo Abe has accused the U.S. and the euro area of using low rates to weaken their currencies.

“Central banks around the world are printing money, supporting their economies and increasing exports,” Abe said recently. “America is the prime example. If it goes on like this, the yen will inevitably strengthen. It’s vital to resist this.”

So a cheap and devalued currency really helps an export economy.  But there is a downside to that.  In some of these touristy areas with a really weak currency it is not uncommon for some people to offer to sell you things for American dollars.  Or British pounds.  Or Eurozone euros.  Why?  Because their currency is so week it loses its purchasing power at an alarming rate.  So fast that they don’t want to hold onto any of it.  Preferring to hold onto a stronger foreign currency.  Because it holds its value better than their own currency.

When a nation prints money it puts more of them into circulation.  Which makes each one worth less.  And when you devalue your currency it takes more of it to buy the things it once did.  So prices rise.  This is the flipside to inflation.  Higher prices.  And what does a devalued currency and rising prices do to a retiree?  It lowers their quality of life.  Because the money they’ve saved for retirement becomes worth less just as prices are rising.  Causing their retirement savings to run out much sooner than they planned.  They may live 15 years after retirement while their savings may only last for 5 or 6 of those years.

Printing money to devalue a currency to expand exports hurts those who have lived most responsibly.  Those who have saved for their retirement.  Making them ever more dependent on meager state pensions.  Or welfare.  And when that’s not enough to cover their expenses they have no choice but to go without.  We see this in health care.  Where those soaring costs have an inflationary component.  With the government squeezing doctors on Medicare reimbursements doctors are refusing some life-saving treatment for seniors.  Because the government won’t reimburse the doctors and hospitals for these treatments.  Or doctors will simply not take any new Medicare patients.  As they are unable to provide medical services for free.  And with their savings gone seniors will have no choice but to go without medical care.

The United States, Britain, Europe, Japan—they are all struggling to provide for their seniors.  As China will, too.  And a big part of their problem is their inflationary monetary policies.  Coupled with an aging population.  The Keynesians in these nations have long discouraged their people from saving.  For Keynesians see private savings as leaks in the economy.  They prefer people to spend their money instead of saving it.  Trusting in state pensions and state-provided health care to provide for these people in their retirement.  Which is why the United States, Britain, Europe and Japan are struggling to provide for their seniors in retirement.  A direct consequence of printing too much money.  And not letting people take care of their own retirement and health care.

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Team Obama Lying to Scare Americans to Increase the Debt Limit so they can Continue their Orgy of Spending

Posted by PITHOCRATES - July 10th, 2011

Talking up the Horrible Economy in 2010

Back in August of 2010, Timothy Geithner took to the New York Times to tell everyone how wonderful the economic recovery was (see Welcome to the Recovery by Timothy Geithner posted 8/2/2010 on The New York Times).

The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery…

Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months…

Wow.  In only 6 months their policies have created 136,000 new jobs.  And their swift and bold action prevented the freefall loss of gosh knows how many jobs.  That’s good.  So how bad was that freefall?

The new data show that this recession was even deeper than previously estimated. The plunge in economic activity started an entire year before President Obama took office and was accelerating at the end of 2008, when G.D.P. fell at an annual rate of roughly 7 percent.

Panicked by the collapse in demand and financing and fearing a prolonged slump, the private sector cut payrolls and investment savagely. The rate of job loss worsened with time: by early last year, 750,000 jobs vanished every month. The economic collapse drove tax revenue down, pushing the annual deficit up to $1.3 trillion by last January.

Okay, first he has to get the obligatory blame George W. Bush first out of the way.  So then we get to the good news.  The amount of damage they prevented.  We were losing 750,000 jobs every month.  Which would be 4,500,000 in a 6-month period.  Humph.  Getting back 136,000 of the 4,500,000 jobs lost is being on the road to recovery?  That’s like one job back for every 33 lost.  Are you sure this is a recovery? 

Oh, and that $1.3 trillion deficit?  It wasn’t from a lack of revenue.  It was from an orgy of spending.

The economic rescue package that President Obama put in place was essential to turning the economy around. The combined effect of government actions taken over the past two years — the stimulus package, the stress tests and recapitalization of the banks, the restructuring of the American car industry and the many steps taken by the Federal Reserve — were extremely effective in stopping the freefall and restarting the economy.

According to a report released last week by Alan Blinder and Mark Zandi, advisers to President Bill Clinton and Senator John McCain, respectively, the combined actions since the fall of 2007 of the Federal Reserve, the White House and Congress helped save 8.5 million jobs and increased gross domestic product by 6.5 percent relative to what would have happened had we done nothing. The study showed that government action delivered a powerful bang for the buck, and that the bank rescue on its own will turn a profit for taxpayers.

A powerful bang for the buck?  I don’t know.  Saying how great your actions were by what didn’t happen is a bit spurious.  I mean, I could say that thanks to George W. Bush and the policies he implemented after 9/11 he saved the lives of 8.5 million Americans that would have otherwise died in terrorist attacks.  Simply by scaring a lot of bad guys from trying anything now that there was a new sheriff in town.  It’s as plausible as that Blinder and Zandi report.  You can’t prove either.  Or disprove either.  So it’s a license to lie.

Still Talking up the Horrible Economy in 2011

It’s almost been a year since Geithner’s NYT piece.  If he was right things should be a whole lot better now.  The Obama administration took full credit then for the ‘recovery’.  So the current economic numbers are now theirs.  Which means they can’t blame George W. Bush anymore.  And how are those numbers?  Still horrible (see You are what your record says you are by Conn Carroll posted 7/10/2011 on The Washington Examiner).

Last month, David Gregory tripped up new DNC Chair Debbie Wasserman Schultz up with a chart detailing President Obama’s economic record. It showed unemployment up 25 percent since Obama was inaugurated, debt up 35 percent, and gas up more than 100 percent. Wasserman Schultz lamely tried to argue that the economy was getting better, to which Gregory replied: “Americans don’t believe that’s the case.”

This Sunday was Treasury Secretary Tim Geithner’s turn and he fared no better. At one point he even blamed the weather for Obama’s terrible economic record.

The numbers are horrible now.  And they were horrible a year ago.  There’s been no recovery.  And all of the administration’s actions haven’t done anything but explode the federal debt.  Which is at a record high.  As are the deficits under Obama.  And what does Team Obama want to do about that?  Why, borrow some more.  To spend some more.  Of course.

The U.S. isn’t close to Running out of Money

Despite the great economic news last August and the current great news (per the Obama administration, not per reality), things are pretty bad on the debt front.  In fact, those rascally Republicans with their opposition to raising the debt limit may place this glorious economic recovery into jeopardy.  Worse, they may destroy America as we know it (see ‘No delaying’ deadline to lift US debt ceiling posted 7/10/2011 on the BBC).

The US faces running out of money and defaulting if Congress does not allow the government to take on more debt.

If no agreement is reached, the government would be unable to pay civil servants, government contractors, pensioners or holders of government debt.

Economists and the White House have warned that such a default could push the US back into recession and have a global economic impact.

This is actually BS.  And I don’t mean Barbara Streisand.  The federal government is awash in cash.  Just not enough to further increase spending.  How much?  Well, let’s look at some of the numbers per the Tax Policy Center.  Tax receipts (i.e., actual cash dollars the government collects) for the years 2008, 2009 and 2010 were $2.5 trillion, $2.1 trillion and $2.2 trillion, respectively.  That doesn’t include any borrowing.  That’s pure cash on the barrelhead.  That’s a lot of cash that can pay a lot of bills.  It’s in the neighborhood of $180 billion a month.  And the projection for 2011?  Holding steady at about $2.2 trillion.  Again, that’s cash flowing into Washington from taxpayers.  Nothing borrowed.  Or printed.

Despite this staggering amount of cash raining down on Washington it’s not enough.  For the years 2008, 2009 and 2010, the deficits were $458 billion, $1.4 trillion and $1.2 trillion, respectively.  And the projected deficit for 2011 is $1.6 trillion.  Again, it’s the orgy of spending that is the problem.  It’s not a revenue problem.  The U.S. isn’t close to running out of money.  Team Obama is just lying to try and scare the pants off of people to get them to hate Republicans.  And to pressure them to raise the debt limit.  So they can borrow more.  And go on another spending bender.

Green Energy can only Survive when heavily Subsidized by the Government 

So what, exactly, did they spend all that money on?  Well, there was the stimulus.  The financial and auto bailouts (which should have been left to the bankruptcy courts).  And all their tweaking of the private sector economy.  Especially the green one.  For that’s America’s future.  Green energy.  And they were going to help make it happen.  By subsidizing the crap out of it (see Michigan town shows promise and pitfalls of job retraining by Don Lee posted 7/10/2011 on The Los Angeles Times).

Uni-Solar began with a hiring surge that by 2009 had climbed to 422 workers… But the Greenville plant’s primary market is Europe, and when sales in Italy and France declined as a result of the recession and other factors, Uni-Solar cut back…

Greenville and Uni-Solar also were hurt because state and federal policies simply weren’t in place to support them. Unlike the United States, for instance, Canada subsidizes consumers who adopt solar power, but only if they buy solar panels with domestically manufactured contents…

Canada is not alone in adopting comprehensive programs of subsidies, tax provisions and other incentives to foster domestic industries. Germany has an elaborate program to support automobile, electronics and other manufacturing and to discourage its companies from moving operations overseas.

That’s right, the green energy sector can only survive when heavily subsidized by the government.  To help the green energy market compete with the more reliable and less expensive fossil fuel market.  In the U.S.  As well as in Europe.  Worse, all this government help has only created a green energy bubble.  Created a lot of supply for a demand that wasn’t there.  Just like this plant in Greenville, Michigan.

The only way to make Green Energy practical is to make Consumers pay more for Electricity

The U.S. should consider itself lucky that their government is cutting subsidies.  Because it at least gives consumers a chance at a better economy.  Perhaps Washington will cut its spending.  And let the taxpayers keep more of their money so they can make it in an economy with rising prices.  Unlike in the UK (see Power bills to soar by 30% in ‘green’ reforms by Rowena Mason and David Barrett posted 7/9/2011 on The Telegraph).

Costly new incentives to encourage energy companies to invest in renewable power sources such as wind farms will put an extra £160 a year on the average household bill over the next 20 years…

Mr Huhne is expected to announce on Tuesday that energy companies, such as Centrica and EDF, will get a fixed price for electricity generated from nuclear power and wind farms, which will be higher than the market price.

The financial incentives will be funded by consumers, who will see their electricity bills rise by 30 per cent over the next 20 years from an average of £493 per year to £655 per year.

You see, renewable energy is a money losing investment.  It’s just too costly.  So power companies won’t venture into these green markets unless someone makes it worth their while.  And in the UK the government is doing just that.  By giving them lucrative cash incentives.  Which the government will pay for via higher electricity bills.  Leaving the consumer with less money to live on in an economy with rising prices.

The costly package due to be outlined in full this week is designed to reassure generation companies that Britain is an attractive place to build nuclear power stations and wind farms.

Mr Huhne admitted in an interview with The Sunday Telegraph last year that there was no money available for direct state subsidies for a new generation of nuclear plants, so this week’s announcement sets out how consumers will shoulder the cost of incentives directly.

Yes, the only way to make green energy practical is to make consumers pay more for electricity.

The changes to be outlined by Mr Huhne this week will hand billions of pounds in subsidies to the energy companies and kick-start a construction programme creating thousands of jobs.

But combined with further green taxes, such as the European emissions trading scheme, and upgrades to Britain’s national grid the measures could see Britain’s gas and electricity bills rise by 50 per cent – or £500 per average household bill – according to Ofgem, the energy regulator.

Create ‘thousands of jobs’ by making all consumers live on less.  At least those who use electricity.

By the time you factor in the other costs of green living the average Briton could see a 50% increase in their utility costs.  Which is a staggering cost to pay for a few thousand jobs.  The economy, and the consumer, would be better off with coal.  It’s more reliable.  It’s cheaper.  And one plant out of site can provide power to hundreds of thousands.  Which is better than dotting the landscape with windmills as far as the eye can see.  To produce power only when the wind blows.

The Government has a Spending Addiction

Team Obama has made a mess of things with their orgy of spending.  More than tripled the deficit since coming into office.  Requiring ever more borrowing to ‘save the country’.  Which is, of course, a lie.  Washington is awash in cash.  Over $2 trillion a year.  And if that isn’t enough to pay the bills then this administration should just resign.

The economy is stalled.  The recession never ended.  Money poured into the green energy sector was money wasted.  And is only creating a green energy bubble by building supply for demand that isn’t there.  Like in Greenville, Michigan.  Yes, supply can create demand per Say’s Law.  If that supply is something that people want.  And that’s the problem.  People don’t want more expensive and less reliable energy.  Especially in an economy with rising prices.

The facts and figures all confirm one thing.  The U.S. has a spending problem.  Not a revenue problem.  The government is like an addict with a spending addiction.  Who will lie and say anything to satisfy that addiction.  Only this addict is worse than your run of the mill junkie.  For if Team Obama overdoses it will take a nation with it.  In fact, this administration is in such denial that perhaps an intervention is in order.  Which is really what the budget debate is.  The Republicans need to be strong.  For Obama.  And the nation.  They have to hold the line on the debt limit.  Do not give them more money to spend.  Because with over $2 trillion a year, they have enough already.

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