America—A Country of Serfs Ruled By Oligarchs


By Paul Craig Roberts

The media has headlined good economic news: fourth quarter GDP growth of 5.7 percent (“the recession is over”), Jan. retail sales up, productivity up in 4th quarter, the dollar is gaining strength. Is any of it true? What does it mean?

The 5.7 percent growth figure is a guesstimate made in advance of the release of the U.S. trade deficit statistic. It assumed that the U.S. trade deficit would show an improvement. When the trade deficit was released a few days later, it showed a deterioration, knocking the 5.7 percent growth figure down to 4.6 percent. Much of the remaining GDP growth consists of inventory accumulation.

More than a fourth of the reported gain in Jan. retail sales is due to higher gasoline and food prices. Questionable seasonal adjustments account for the rest.

Productivity was up, because labor costs fell 4.4 percent in the fourth quarter, the fourth successive decline. Initial claims for jobless benefits rose. Productivity increases that do not translate into wage gains cannot drive the consumer economy.

Housing is still under pressure, and commercial real estate is about to become a big problem.

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Obama, live on jobs

The One pontificates. As can be expected, he doesn’t miss any opportunities to take credit for things he believes are going right, and to assign blame “to the other side” for things that went wrong. He criticizes TARP, which makes you wonder why he voted for it himself. Of course, some questions are better left unasked.

From USAToday:

Facing the political peril of double-digit unemployment rates, President Obama today urged a series of tax cuts, infrastructure projects, and small business loans to help employers hire more people.

Some loans would involve unspent federal bailout funds, a step already under fire from Republicans. GOP members such as party chairman Michael Steele said the biggest threats to job creation are Obama’s big spending programs, including health care.

Here’s some play-by-play on Obama’s jobs speech this morning at The Brookings Institution in Washington, D.C.

11:26 a.m. — Obama opens with an anecdote about meeting with his economic team during the transition a year ago, as they discussed the financial crisis that had frozen credit markets. “The fear among economists across the political spectrum was that we were rapidly plummeting towards a second Great Depression,” Obama said.

11:30 a.m. — Obama discusses the “difficult steps” needed to meet the crisis, including the big stimulus package. Also takes a poke at Republican opponents: “We were forced to take those steps largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that led to the crisis, decided to hand it over to others to solve.”

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Recession Drives Surge in Youth Runaways

From The New York Times:

MEDFORD, Ore. — Dressed in soaked green pajamas, Betty Snyder, 14, huddled under a cold drizzle at the city park as several older boys decided what to do with her.

Betty said she had run away from home a week earlier after a violent argument with her mother. Shivering and sullen-faced, she vowed that she was not going to sleep by herself again behind the hedges downtown, where older homeless men and methamphetamine addicts might find her.

The boys were also runaways. But unlike them, Betty said, she had been reported missing to the police. That meant that if the boys let her stay overnight in their hidden tent encampment by the freeway, they risked being arrested for harboring a fugitive.

“We keep running into this,” said one of the boys, Clinton Anchors, 18. Over the past year, he said, he and five other teenagers living together on the streets had taken under their wings no fewer than 20 children — some as young as 12 — and taught them how to avoid predators and the police, survive the cold and find food.

“We always first try to send them home,” said Clinton, who himself ran away from home at 12. “But a lot of times they won’t go, because things are really bad there. We basically become their new family.”

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Waterboard JP Morgan and The Mortgage Bankers Assn


How to give an economics writer a coronary:

Recommend something that has been done twice before, and both times led to disaster, including being a major contributor to The Great Depression.

Well guess what: JP Morgan and the other banks are doing exactly that.

Oct. 13 (Bloomberg) — Banks will push the Obama administration to expand its mortgage-modification program to allow interest-only periods on reworked loans, seeking to bring more homeowners into the initiative while recognizing concern that it may only postpone defaults, according to JPMorgan Chase & Co.


Can I remind people of history?

Prior to the depression of the 1920s, there was a mortgage loan product used by many of the American people, known as the interest only loan. Why did this long disappear? And why has it suddenly reappeared? Let’s take a moment to answer each question, and hopefully provide some food for thought.

During the 1920s and into the early 30s, many of the citizenry of this country chose to live above their means. They chose the interest only loan because it allowed them to purchase a larger home for less money. What happened when the stock market crashed and jobs were scarce, and there was no income? Many of these people were left without homes; as they had chosen to simply pay the interest on their mortgage there was no equity built into their homeownership. When no equity builds, and the income ceases, the bank forecloses and residents are forced from their homes.

If our government allows this it will guarantee a GREATER DEPRESSION. Whether it comes now or in a few years, it will happen.  This is the precise same stupidity that led to the 1930s and it will have the exact same outcome this time.

Here’s the problem folks, in one sentence:

The banks are STILL insolvent.

They are sitting on over a trillion of dollars of this paper (about $1.1 trillion to be exact) and several hundred billion is severely impaired or even worthless.  Wells Fargo, just as one example, has (as of its last 10Q) $106 billion of second lines outstanding on balance sheet, and God only knows how much in SPVs (Wells is known to have significant off-sheet exposure “inherited” from Wachovia.)  Let me put this in perspective for everyone.

  • Essentially all of the first mortgage loans written in California and Florida after 2003 are underwater.  Even in parts of the state (such as my area of Florida) that have been “relatively” untouched (compared to, for example, Naples) homes are below 2003 prices.  In “bubble” areas prices have in many cases returned to levels such that anything purchased before 1995 or thereabouts is underwater.  In some parts of SW Florida you can buy a home that sold for $500,000 for $50-75,000, cash, right now.  Those are 1970s and early 1980s prices.  While that is an extreme example the most bubbled areas are the ones with the greatest over-representation of paper from Wells (and ex-Wachovia), JP Morgan/Chase (ex-WaMu) and Bank America (ex-Countrywide.)

  • Many of the homes in these areas, especially in Florida, that have undergone this sort of collapse in price have a literal negative value.  That’s because the former owner has departed and the power was shut off for non-payment; the banks have constructively abandoned these homes.  In Florida if you do this within a reasonably short period of time mold will become established inside the sheetrock.  Once that happens the home must be gutted to the studs or razed, and the cost of doing so exceeds the value of the bare lot.  Then there are the delinquent property taxes, frequently in arrears for two years or more at this point.  Many people have said that “oh there’s a decent recovery” on all this paper.  No, in many cases, there is is in fact no recovery at all, and that’s a fact.

  • In essentially every case a 2nd Line (HELOC or “Silent Second”) behind a first in Florida and California taken out since 2003 is worthless if the primary note goes into foreclosure.  That’s because such a second is a subordinate lien and entitled to nothing until the first is fully satisfied.  But the first can’t be fully satisfied as the home’s value is less than the first line’s balance.  As a consequence these loans are worth zero – literal zero.  Wells may have as much as $25 billion of this worthless paper on balance sheet all on its own and Bank America may have as much as $30-50 billion. (Pinning down the exact amounts is impossible as the companies do not disclose geographic concentration metrics necessary to do so.)  It is not unreasonable to believe that $200 billion in junior lien losses are being hidden – right here and now – which is sufficient to detonate these institutions even without the primary mortgage losses being counted!

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The Obama Recession: When do we stop blaming Bush for the bad economy?


As job losses climb, President Obama faces two related questions. The first is more like a riddle: How do you pass a new round of stimulus measures without tacitly admitting that the first round didn’t work? (Answer: Don’t call it a stimulus.) The second is harder: When does the economy become his own instead of his predecessor’s? (Answer: sooner than he’d probably like.)

It was only July when White House aides said it was premature to discuss a second round of measures to boost the economy. But now, with unemployment pushing 10 percent in September and projections that it will go even higher in 2010, Obama and the Democratic leadership are exploring new ways to reduce the pain.

What to do? The low-hanging fruit would be simply to extend provisions already included in the original stimulus package. For example, continuing the unemployment benefits that are set to expire in November—a “no-brainer,” says Dean Baker of the Center for Economic and Policy Research, since people with low income tend to spend their extra cash—and make sure laid-off workers keep getting health insurance. Extending these policies should be easy politically as well, since they can be billed as social safety measures rather than stimulus. (Democratic leaders today introduced a bill that would extend unemployment benefits another 14 weeks.)

Trickier would be passing a new batch of policies that weren’t part of the original deal. The proposal that has gotten the most traction this week is a tax credit for businesses that hire new employees. The logic is simple enough: Reward companies that create jobs. The problem is implementation. The government could simply give every employer a payroll tax credit and hope it hires new workers. While that would be a windfall for companies, they might not use the money to expand payroll. “You wouldn’t get a big bang for the buck,” says Ted Gayer of the Brookings Institution.

Another option would be to give companies the bonuses only after they hire new workers. But that arrangement would be vulnerable to manipulation, says Gayer, since companies could twist the definition of “new” worker. Other ideas that haven’t quite made it onto the president’s desk: re-upping on the stimulus money given directly to states; paying employers to lower the number of work hours so they can hire new workers, per Dean Baker; and boosting small-business loans, as proposed by Mark Zandi of Moody’


These proposals face the same questions as the original stimulus: How many jobs would they create and at what cost? The question is moot for policies like unemployment insurance, which isn’t supposed to create new jobs. Two economists estimate that the employer tax credit, however, would cost $20,000 for each job created. Now compare that with the original stimulus package: The administration originally promised that it would save or create 3.5 million jobs. (So far, the administration says, the stimulus package has saved or created about 1 million.) At $757 billion, that’s about $216,000 per job. Of course, money from the stimulus package was used for other things as well. But, politically, that was the tradeoff. With that precedent, $20,000 per job may be an easy sell.

Even Rep. Eric Cantor of Virginia, the Republican whip, doesn’t seem opposed. “There is a lot of traction for this kind of idea,” he told the New York Times. “If the White House will take the lead on this, I’m fairly positive it would be welcomed in a bipartisan fashion.”

But taking strong action on the economy comes with political risks. For one thing, a second round of stimulus implies that the first round didn’t work—a claim made by economists from across the political spectrum. “They put forth a package that by their own numbers wasn’t going to be able to fully deal with the problem,” says Baker. (Council of Economic Advisers Chairwoman Christina Romer thought the bill should have been $1.2 trillion, not $800 billion.) Republicans, meanwhile, point to the 8 million (and climbing) jobs lost since December 2007 as evidence that the president’s plan isn’t working.

And that’s just Obama’s point: Since 2007. When he wasn’t in office. Obama has often bemoaned the fact that he inherited “a trillion-dollar deficit, a financial crisis, and a costly recession.” Discussing the economy last week, Vice President Joe Biden said the administration “inherited an awful lot of baggage.”

But at some point, Bush’s economy will become Obama’s economy. And the more the Obama administration tinkers, the nearer that moment draws. Hence the urge to play down a second round of stimuluslike measures.

Are we there yet? Probably not. Polls suggest that Americans are still giving Obama the benefit of the doubt when it comes to the economy, although in steadily decreasing numbers. The latest survey to address the question directly was Rasmussen, which found last week that 55 percent of Americans still blame Bush for the economy. (And that’s coming from a polling outfit known for tilting toward conservatives.) Another proxy for blame is whether people think Obama’s economic policies are working. Back in April, most people thought it was too early to tell, according to Pew Research Center. Now, fewer than half do—suggesting that people are finally holding Obama responsible for the current economy. And the people getting off the fence say Obama’s policies are making things better rather than worse—in other words, siding with Obama more than with Bush.

How long before Obama is responsible for the shape we’re in, good or bad? “I don’t think there’s a point with a switch flipping,” says Mark Blumenthal of It will be a gradual evolution, he says, and “I don’t think we’re there yet.”

One possible landmark will be Obama’s one-year anniversary. “Once you get past November—certainly by January—I think that’ s a psychological benchmark for people,” says Gayer. “If we don’t see improvement by spring, my sense is people will blame the administration.”

Another possibility: whenever the stimulus was supposed to kick in. The problem is, the stimulus has been “kicking in” since February, and will continue to do so through 2011. So the administration could always argue that it’s premature to judge the recovery package when only half of the money has been spent. That’s no excuse, says Baker: More important to the economy than the total amount spent is the rate of spending, which won’t get much higher than it is now.

When will the Bush economy become the Obama economy? Whatever the polls say, we won’t really know until the only poll that really matters—Nov. 2, 2010.

Bernanke declares ‘recession is very likely over’

The recession is over, but unemployment will continue to be high. Yeah, sure, right.

From MarketWatch:

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — Federal Reserve Chairman Ben Bernanke said Tuesday that the recession has ended, at least based on the numbers.

“From a technical perspective, the recession is very likely over at this point,” Bernanke told a conference at the Brookings Institution. But “it’s still going to feel like a very weak economy for some time.”

Bernanke added there is a risk that labor markets will remain weak through 2010 because growth will be too anemic to create jobs. Many economists now expect the labor market to recover slowly, he noted.

Taxpayers Beware, AIG Still in Need of Rescue

WSJ’s Dennis Berman tells colleague Evan Newmark why we should still care about AIG. He says taxpayers should know that parts of the insurer are still in need of rescue and that they will most likely be the ones footing the bill.

Unless the economy can manage growth stronger than its long-term trend rate, “unemployment will be slow — slow to come down,” he said. “It will come down, but it may take some time.”

After acknowledging that economic forecasting “is not one of your most precise sciences,” Bernanke said most forecasters think economic growth in 2010 will be moderate because of “ongoing headwinds,” including financial and credit problems, sectoral adjustments in the economy, the desire of families to pay off debt and the need for the federal government to restrain spending.

Vince Reinhart, a former top Fed staffer who is now at the American Enterprise Institute, said the technical end of the recession is more about arithmetic than anything else.

“June was mostly likely the trough. Growth will be positive in the third quarter,” he commented. “All that tells you is that market economies do not stay in free fall. That doesn’t tell you that we have a durable expansion in motion, it doesn’t tell you growth is assured in 2010 and it doesn’t tell you that the unemployment rate goes down.”

Bernanke also expressed confidence that Congress would complete work on new rules for Wall Street.

Many analysts have raised doubts that Congress could grapple with reforming the health-care system and the financial framework this year. But Bernanke didn’t share this doubt.

“I am quite confident comprehensive reform will be coming,” the Fed chief said.

One of the reforms that’s needed is to provide some way to unwind big financial institutions “in a way that would impose market discipline, impose losses on creditors, but would avoid the disorderly chaotic type of collapse that we saw with Lehman a year ago.”

The bulk of Bernanke’s remarks was devoted to a defense of the response from the Fed and its global partners to the financial crisis. Read his prepared remarks.

Bernanke said global regulators acted swiftly in the wake of last September’s financial crisis and succeeded in bringing the global economy back from the brink of collapse. There is no longer widespread fear of a financial collapse and economic activity is leveling out, he added.

Bernanke’s remarks were similar to a speech he gave in August at the Fed’s annual retreat in Jackson Hole, Wyo.

Since the August speech, Bernanke was reappointed by President Barack Obama to a second four-year term at the helm of the central bank.

Despite Recession and Rising Unemployment, Rate of Uninsured Did Not Increase, Says Census Bureau Data

This shoots a hole in my conspiracy theory.

From CNSNews:

Thursday, September 10, 2009
By Terence P. Jeffrey, Editor-in-Chief

David Johnson, chief of Census Bureau’s Housing and Household Economics Statistics Division (Census Bureau photo).
( – Even though the nation was in a recession and unemployment rates were rising, the percentage of people lacking health insurance in the United States did not increase during 2008, according to data released today by the Census Bureau.

The actual number of people lacking health insurance ticked up slightly during the year, but so did the actual number of people who were insured, as the overall population increased from 299.10 million in 2007 to 301.48 million in 2008. There was also a slight movement of people from private insurance into government insurance—including seniors moving into Medicare.

“The number of people without health insurance coverage increased to 46.3 million in 2008 (from 45.7 million in 2007), and the uninsured rate was 15.4 percent, not statistically different from the rate in 2007,”  David Johnson, chief of the Census Bureau’s Housing and Household Economics Statistics Division told reporters in a teleconference this morning.

The statistics were published in a Census Bureau report titled, “Income, Poverty and Health Insurance in the United States: 2008.”

“The number of people with health insurance increased to 255.1 million in 2008—up from 253.4 million in 2007,” says the report. “The number of people covered by private health insurance decreased to 201.0 million in 2008—down from 202.0 million in 2007. The number of people covered by government health insurance increased to 87.4 million—up from 83.0 million in 2007.”

An additional 1.6 million U.S. seniors went on Medicare in 2008.  “The percentage and number of people covered by Medicare increased to 14.3 percent and 43.0 million in 2008, from 13.8 percent and 41.4 million in 2007.”  This increase of 1.6 million in Medicare recipients was larger than the 1.0 million drop in people covered by private insurance during the year.

The uninsured rate for children18 years and under declined in 2008 to the lowest level since the Census Bureau has been tracking the number. “In 2008, the percentage and number of children under 18 without health insurance were 9.9 percent and 7.3 million, lower than they were in 2007 at 11.0 percent and 8.1 million,” says the Census Bureau report. “The uninsured rate and number of uninsured for children are the lowest since 1987, the first year that comparable health insurance data were collected.”

The Census Bureau report noted that the current recession started in December 2007–as determined by the National Bureau of Economic Research. This means that although all of 2008 was a recessionary year, the rate of uninsured did not spike. According to the Bureau of Labor Statistics, the unemployment rate rose from 4.9 percent in January 2008 to 7.2 percent in December 2008.

Of 46.340 million people in the United States who lacked health insurance in 2008, the Census Bureau report says, 9.511 million were foreign nationals and 36.829 million were U.S. citizens.

Among the 46.340 million uninsured, there were also 9.725 million who earned more than $75,000 per year, says the Census Bureau report.

In his speech to Congress last night, President Obama said, “There are now more than 30 million American citizens who cannot get coverage.”

When this quote was cited for the Census Bureau’s Johnson during his teleconference today and he was asked if there was any data in the Census Bureau report that would allow someone to distinguish between people who did not have health insurance because they did not want it and people who did not have health insurance because they could not get it, he said the Census Bureau does not ask people whether they can get or cannot get insurance.

In previous presentations, President Obama has said there are either 46 million or 47 million uninsured “Americans” or “citizens.”

In an op-ed published in the New York Times on August 15, Obama said, “I don’t have to explain to the nearly 46 million Americans who don’t have health insurance how important this is.”

In a July 22 primetime press conference, Obama said there were “47 million Americans who have no health insurance.”

At an August 11 town hall meeting in Portsmouth, N.H., Obama said “nearly 46 million Americans don’t have health insurance coverage today” and that “46 million of our fellow citizens have no coverage.”

As the new Census Bureau report released today makes clear (see Table 7 on page 21), there were 35.920 U.S. citizens who lacked health insurance in 2007, and 36.829 million U.S. citizens who lacked health insurance in 2008.

While the overall rate of uninsured in the United States held constant at 15.4 percent between 2007 and 2008, the rate of uninsured among foreign nationals in the country ticked up from 43.8 percent to 44.7 percent during the same period.  This was despite the fact that the actual number of uninsured foreign nationals declined from 9.737 to 9.511.