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Archive for the ‘economy’ Category

Unemployment Number Drops While Economy Weakens

Posted by Steve Markowitz on November 17, 2015

The US Bureau of Labor Statistics last week released the monthly unemployment figures that indicated over 270,000 new jobs being created with the unemployment rate dropping to 5%.  The Obama Administration touted these figures as positive indicators of economic strength.  A look under the covers shows show something different.

While the official unemployment rate has dropped significantly since President Obama’s first election, these numbers are at best suspect.  First, they do not take into account the quality of the jobs created; i.e. pay scales. In addition, the figures ignore the many Americans who are underemployed and no longer count because they are no longer searching for a job.

Tony Sagami recently published an article titled The Poisonous Cocktail of Main Street Woes and Federal Reserve Liftoff that shares some sobering statistics putting the true economic situation in perspective.  This includes:

·       401(k) plans are a tax efficient means for workers to put money away for retirement.  Withdrawing funds from these accounts prior to the age of 59.5 leads to a 10% penalty and additional income tax.  Irrespective of this 30 million workers have prematurely taken money out of the plans with 20% of account holders borrowing against their 401(k)s.

·       A record 36% of women between the ages of 18 and 34 continue to live with their parents.  In addition homeownership is at its lowest level in three decades even though mortgage rates are at historic lows.

·       During October, foreclosures on homes jumped by 12% with final stage foreclosures increasing 31%.

At best the numbers Sagami presents demonstrate the weakness of the recovery since 2008.  They likely indicate systemic problems within the economy caused my inept governmental and central-bank policies, as well as the inefficiencies brought to the economy via access governmental regulations.

The low interest rate policies pursued by the Federal Reserve since the 2008 meltdown have failed to create a robust economy.  These policies have not only weakened long-term economic growth, but also increased the disparity between wealthy and average Americans.  However, the Fed is now in a conundrum.  While it should be increasing interest rates, and there are predictions it will do so in December, the economic withdrawal caused by that action could lead to further economic weakening.

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Posted in economy, Unemployment | Tagged: , , , , , | 1 Comment »

US GDP Figures Go Negative

Posted by Steve Markowitz on May 29, 2015

The New York Times reported that the US Commerce Department has revised downward the country’s first quarter Gross Domestic Product (GDP) from a paltry plus 0.2% to a minus 0.7%.  Downward revisions have become too common in recent years and bring into question the science behind the government’s numbers.

In an attempt to soften the bad news the government and some economists blame the winter weather and other one-time factors for the decline.  However, given history and the trajectory of the GDP figures in recent quarters these explanations are not credible.

Some of the causes of the economic slowdown are obvious.  The significantly increased value of the US dollar hurts exports by American companies.  In addition, the energy market has become an important part of the US economy with the increased oil and gas production.  Depressed prices have curtailed exploration and other activities in this market.

Digging deeper into the figures indicate more systemic reasons behind the slowdown.  For example the Times reported that while personal consumption, a key ingredient in the US economy, increased by nearly 4.5 half percent in late 2014, it has since dropped down to less than 2%.  GDP growth was near 5% in mid-2014, but has gone negative in last quarter.

Economists generally agree that GDP must grow by a minimum of 3% annually to have a reasonably healthy economy.  The latest figures make this unlikely for 2015, the second consecutive year with less than 3% growth.  History and current trends indicate that a recession is a strong possibility.

The latest GDP figures bring into question another governmental statistic, the unemployment rate, which is reported to be currently less than 5.5%.  This figure is bogus as the government does not count those that are unemployed, but have stopped looking for employment.  Preposterous!

The government’s reaction to the 2008 financial meltdown started during the Bush Administration with bailouts and the TARP Program.  Obama’s economic programs have since included more bailouts and record deficits in order to implement stimulus spending programs.  During both administrations the Federal Reserve fostered historically low interest rates.  Given the anemic recovery of the past seven years and the current economic data it is clear that these policies have failed.  It is now reasonable to question whether the policies themselves have hindered economic growth.

One accepted definition of insanity is repeating actions, but expecting different results.  That is precisely what the US government and Federal Reserve are doing for economic policy.  The Obama Administration suggests still more governmental spending and the Federal Reserve continues to promote low interest rates.  Both must now accept responsibility for the ongoing economic malaise.

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US GDP Grew 5% for Q3

Posted by Steve Markowitz on January 4, 2015

The Bureau of Economic Analysis released third quarter GDP figures late last month indicating that the US economy grew at a torrid pace of 5% (annualized). This is a remarkable growth rate that would indicate the strongest GDP growth in a decade.

It is often difficult to properly interpret economic figures published by the government since not only are they complex and based on many variables, but also due to political pressures often exerted on governmental agencies to gin figures.

This Blog is concerned about the reliability of the current figures given the inaction of the Federal Reserve. Specifically, if the GDP actually grew at a 5% annualized rate during the third quarter, it is reasonable to have expected the Fed should to have started raising interest rates in order to forestall an overheating of the economy. The fact the Fed continues to leave rates at historically low amounts indicates that it is either not doing its job properly or it does not believe the GDP growth figures to be reliable.

Tony Sagami wrote an article titled Connecting the Dots for mauldineconomics.com that raises specific concerns relating to Q3’s published GDP growth figures that includes:

  • The largest contributor to the GDP growth was in Net Exports that occurred because of downturn in imports, a counter indicator to growth.
  • Nearly 20% of the Q3 GDP growth came from government spending, mainly on defense. This is not long-term growth indicator.
  • Nearly 50% of Q3’s GDP growth came from an area called Personal Consumption Expenditures. This area was aided by increased household spending on medical care; i.e. Obamacare. Wasn’t Obamacare supposed to be revenue neutral or an aggregate cost cutter?
  • Sagami points out that total Goods spending only increased by 27 basis points with durable goods actually declining.

Sagami’s offers a plausible explanation as why the Federal Reserve is not moving quickly to increase interest rates. It also adds color to the lack of transparency of governmental issued economic data.

Posted in economy | Tagged: , , | 2 Comments »

Stephanie Pomboy on Ben Bernanke

Posted by Steve Markowitz on June 1, 2014

Well-known economist, Stephanie Pomboy, made a presentation at the Wine County Conference 2014 posted below. Pomboy reviews a series of charts that demonstrate the failure of Ben Bernanke’s easy money policies.

During the 2009 economic meltdown, the federal government and Fed used the crisis as a pretense for massive interventions. In the early months this included TARP, which bailed out banks that were at financial risk because of their own imprudent behavior. After the election Barack Obama and the Congress passed the massive Stimulus Program. While it is not possible to determine if these programs protected the economy from Armageddon, given the anemic recovery, the slowest since the Great Depression, it is evident that they did not aid long-term economic growth.

Ms. Pomboy specifically takes on the failed Fed easy money programs, mainly Quantitative Easing (QE) that in essence is printing money. The Fed purchased Treasury Bonds in an effort to keep interest rates artificially low under the theory that this helps stimulates economic growth. The slow recovery is one indicator that this effort’s benefit has been marginal.

Easy money policies typically lead to inflation. To date, however, QE has not generated broad-based inflation likely due to the competitive nature of globalization, excess production capacity and depressed demand. However, certain assets significantly inflated including energy, certain foods, and equities. One consequence has been the growing inequity between high net worth individuals and the greater population. Not only are wealthier individuals less impacted by food and energy cost increases, but they benefited more from the increases in equity values. In addition, as food prices increase, the poor in less developed countries go hungry. Some theorizeS&P 500 Interest that the Arab Spring was propelled more by hungry people than those seeking political reform.

Ms. Pomboy refers to a various charts that indicate some of the negative impacts to the economy resulting from Ben Bernanke’s (Fed’s) QE policies. One charts posted shows the benefit large corporations have obtained from artificially low interest rates.  This has increased profits that further propelling equities’ valuations. That Corp Profits Vrs GDPbenefit has flattened more recently and will inhibit these gains and possibly equity values going forward.

Also plotted are corporate profits as a percentage of GDP. This has reached new heights that are unsustainable. The two previous periods that this ratio peaked was before the Dotcom meltdown in 1999 and before the stock market crash of 2008.

Perhaps the most significant chart presented by Pomboy is the one showing the source of funds from which the U.S. Treasury borrows to fund our deficits. Since Quantitative Easing started, the willingness of other countries to buy America’s debt has dropped S&P 500 Interestsignificantly. This trend is unlikely to change with the artificially low interest rates being paid on US Treasuries. There are two likely outcomes to this trend. Either: 1) the United States will have to pay significantly higher interest rates on future borrowings that will force the government to significantly cut spending, or 2) the Fed will have to increase QE to fund the country’s deficits. The second outcome, which Ms. Pomboy predicts, will create significant inflation and place at risk the US dollar’s unique position as the world trading currency. The ramifications of this latter item are quite destabilizing for the American economy.

Ms. Pomboy theorizes, somewhat sarcastically, that Ben Bernanke retired from the Federal Reserve because of his understanding of the dilemma resulting from foreign buyers losing their appetite for US treasuries. Printing money is voodoo economics that has been tried in the past by failed economic models. It is never resolved a country’s long-term problems. The question is not whether there will be consequences, only what they will be.

Posted in economy, Federal Reserve | Tagged: , , , , , , , , | Leave a Comment »

White House Continues to Blame Bush for Ongoing Economy’s Problems

Posted by Steve Markowitz on January 30, 2014

Dan Pfeiffer, a Senior Obama advisor, hit the talk shows this past weekend.  In a question-and-answer session with Fox News Chris Wallace, video below, Pfeiffer continued to blame Obama’s predecessor, George W. Bush, for the country’s continued poor economic.

During the exchange, Wallace pointed to the following economic problems that plague the country that worsened during the Obama presidency:

  • median      household income dropped from $55,900 to $52,100,
  • poverty      increased by 6.7 million to 46.5 million, and
  • participation      in the labor force dropped from 65.% to a 36-year low of 62.8%.

When asked by Wallace if a stronger economy would have helped lessen these problems Pfeiffer responded: “Well, absolutely, but I think it’s important to remember this president inherited the worst economic situation since the Great Depression.”

The gall that Washington politicians have is remarkable.  We are into the sixth year of the Obama presidency and his administration continues to blame his predecessor for the ongoing economic malaise.  These folks have no shame.

 

Posted in economy, President Obama | Tagged: , , , | Leave a Comment »

Economist Caused the 2008 Meltdown

Posted by Steve Markowitz on January 9, 2014

For readers interested in reality economics we recommend reading the postings of John Mauldin.  John gets it and shares his broad economic knowledge weekly in a newsletter.

This week’s Outside the Box is titled Knowledge and Power and includes a few chapters from George Gilder’s book, Knowledge and Power.  These chapters go a long way in explaining the flaws in logic used by economists in not only predicting future economic activity, but also their rather lame attempts to control (“fix”) the economy.  A particularly interesting quote is including below as a teaser.

Remarkably, we continue to allow those that created the ongoing economic mess to experiment with still further market interventions and expect better results in the future.

The late financial crisis was perhaps the first in history actually to be caused by economists. Entranced by statistical models, they ignored the larger dimensions of human creativity and freedom. To cite an obvious example, “structured finance”—the conglomerations of thousands of dubious mortgages diced and sliced and recombined and all trebly insured against failure—was supposed to eliminate the surprise of mortgage defaults. The mortgage defaults that came anyway and triggered the collapse came not from the aggregate inability of debtors to pay as calculated by the economists, but from the free acts of home buyers. Having bet on constantly rising home prices, they simply folded their hands and walked away when the value of their houses collapsed. The bankers had accounted for everything but free will.

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America’s Income Disparity

Posted by Steve Markowitz on December 8, 2013

A reader sent in the analysis posted in full below recently published by Matthew Dowd, an ABC News analyst, titled “United States ‘Spring’ Coming?”.  While a disturbing view of the current state of American society, Dowd raises serious issues facing the Country.

Dowd points out that the income disparity between the haves and have-nots has been increasing over the decades.  While Progressives typically place blame for this on Republicans, Dowd correctly points out that it has also occurred during the times when Democrats controlled the Congress and presidency.

Since the 2008 meltdown, bailouts of failed banks and companies have been the standard modus operandi for government. These bailouts started under the watch of Republican George W. Bush and since then perpetuated under the tutelage of Democrat President Barack Obama.  These actions offered benefits more heavily weighted towards wealthier Americans.

Recently President Obama raised America’s income disparity with a populist tone in hopes to take attention off his dismal healthcare reform failure.  Missing from the President’s talking points is the role his policies played in exasperating this problem including his penchant to bail out the imprudent at the expense of the prudent.  Without these bailouts there would have been significantly greater wealth destruction as a result of the 2008 downturn.  A lion’s share of these losses would have been born by wealthier Americans, the market’s way of taking corrective action to the problem of the growing wealth disparity.  Instead, Progressives including Obama will promote even more governmental interventions into the economy to right wrongs that their own policies helped create.

United States ‘Spring’ Coming?, By Matthew Dowd

Could an “Arab Spring” type of upheaval be brewing in the United States?  Is the frustration and anger toward our dysfunctional politics and economics beginning to reach a tipping point where young folks begin to push for profound change?  Has our democracy become so broken that citizens are going to find creative avenues to express their feelings?  Will we pass through the holidays and winter of our dysfunction to arrive at a spring of change?  I sense a movement of social unrest growing strongly and quietly towards our own version of the Arab Spring.

Let’s take a look at some of the factors that might be pointing in this direction.  This past week the GDP showed very positive growth (up 3.6 percent in the third quarter), corporations are booking huge profits, the stock market is at an all-time high, and we have more multimillionaires and billionaires than ever before.  So why does 70 percent of the country believe the United States is off on the wrong track?  Why is trust of our economic, governmental and political institutions at a historic low?  Why is the poverty rate back to a historical high?

For more than a generation, the middle class of this country has not seen any significant improvement in their financial situation.  In fact, when you factor in inflation, the majority of the country has actually seen a decline in their economic status over the past 25 years.  The wealthiest 5 percent of America has basically garnered nearly all the gains we have seen in economic growth over the last few decades.  Many in New York City, Washington, DC and small enclaves around the country have done very very well, while the rest of America is either stagnant or in decline.  As we reflect on Nelson Mandela’s passing it is time to ask if we have our own version of apartheid here – not by race, but by economic status.

And all the above has occurred as the presidency and Congress has been lead by both political parties and ideologies including conservatives and liberals.  Young Americans have put their hopes in presidents of both political parties who said they were going to change Washington DC and bring a new kind of politics, and have come away very disappointed and frustrated.  Recently polling shows these young Americans (along with other citizens) have gone from overwhelmingly supporting President Obama to now incredibly upset about another politician who said one thing and did another.  And the economics and dreams of their own life has been set back once again.

So here we have a majority of Americans at best no better off in more than a generation.  Citizens with an incredible distrust and disappointment in the federal government, Wall Street, and both political parties.  Citizens who have tried voting for each party, but come away worse off and more disillusioned.  And citizens who are still searching for authentic leadership where words and actions are integrated and one.  It is no wonder the simple yet powerful and authentic message of Pope Francis has been applauded by both Catholics and non-Catholics alike.

The main activists in the Arab Spring were young people (and especially young men) who grew very frustrated and finally took to the streets.  So why haven’t the young men (and women) of main stream America taken more to the streets here and pushed their own version of a revolution?  Maybe it is because they tried making change through regular politics and have now seen it hasn’t worked.  Maybe it is because they so far are preoccupied with video games which give them an outlet and a sense of control, but will soon tire of this as they realize there is more to life and want meaning.

Whatever the reason, at some point I believe the status quo in our politics and economics will no longer be acceptable to a large part of our country, and because the existing institutions are unresponsive, these agents of change will rise up in some way and very loudly and clearly say “enough is enough.”  And I think this will be a very good thing if it is done in a forceful and non-violent way.

I have feared that the tragic school shooting and mass killings by deranged young men has been a canary in the coal mine for a growing dissatisfaction with life.  I for one think we need some alternative for people in this country who have been ignored, misled, and forgotten about in the halls of power in DC and Wall Street to assert a new way and institute new leadership and structures that are responsive.  Otherwise, a revolution of the heart and soul could easily become a clenched fist of force.  As John F. Kennedy said, “Those who make peaceful revolution impossible will make violent revolution inevitable.”  It is time we begin to have this conversation more openly.

There you have it. 

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Unemployment Figures Mask Reality

Posted by Steve Markowitz on August 2, 2013

Unemployment Figures Mask Reality

This morning’s unemployment headlines looked good on their face.  The New York Times breaking news alert stated “U.S. Added 162,000 Jobs in July; Unemployment Falls to 7.4%”.  However, digging into the article indicates a different narrative.

The US Labor Department indicated that job growth was in “retail, food services, financial activities and wholesale trade”.  Retail and food services jobs are typically lower paid positions.  Further, the better paying manufacturing sector gained only 6,000 jobs.  In addition the Times reported that  the average hourly wage and workweek declined during July.

However, the most significant problem with the unemployment figure is that it does not match reality.  For example, the government in its infinite wisdom stops counting the long-term unemployed as unemployed.  You can’t make this stuff up.

A more appropriate piece of employment data to look at is the number of employed Americans.  As the chart below indicate, that number continues to decrease even though the recession was supposedly over three years ago.  In addition, as indicated in the charts below, the number of those unemployed for more than 27 weeks, as well as the number of part-time workers, is that historically high rates.  As they say, figures lie and liars figure.

Percentage or Workers EMployed

Part Time

 

27+weeks

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Fed Policies Hindering Economy

Posted by Steve Markowitz on June 6, 2013

Since the 2008 financial crisis the Federal Reserve (Fed) and central banks worldwide have been on a grand experiment.  They pushed interest rates to near zero and have been printing money at historic levels, sometimes referred to as Quantitative Easing.  When these efforts were first employed they were justified with the theory that without them the world was heading towards economic Armageddon.  That claim will never be proved, but there is no doubt the financial markets froze up and required action.

We are now five years past the height of the financial crisis and Fed policies remain unchanged.  We also now have the benefit of history that indicates the policies have not cured the economic malady facing United States and much of the world.

David Malpass, an assistant Treasury Secretary during the Reagan Administration, published an op-ed in the Wall Street Journal titled “Fed Policy is a Drag on Recovery” proffering the view that the Fed’s low-interest policies have hindered economic growth and recovery.  Malpass’s op-ed includes (emphasis added):

As this month’s stock and bond market gyrations showed, traders are obsessively focused on every nuance of the Fed’s monetary plans.  Billions of dollars are at stake for Wall Street, which profits mightily from the Fed’s bond buying and cheap credit.”

Recoveries are normally fast and broad once markets are allowed to clear and begin operating.  Quarterly growth topped 9% in 1983 after a deep recession and 7% in 1996 leading into President Clinton’s re-election.  Interest rates were high, yet median incomes were rising sharply.”

Growth in the current recovery only rose above 4% once, in the fourth quarter of 2011, and averaged just 2% per year in its first four years versus 5% in the same period of the 1980s recovery, 3.2% in the 1990s recovery and 2.9% in the 2000s recovery.  The underperformance over the past four years translates into more than three million jobs that should have been created but weren’t, an economic disaster that lowered real median incomes by 5%.”  In addition, “Private-sector credit grew only 0.8% from the end of 2008 through the end of 2012, whereas credit to the government grew 58%.”

Tax-and-spend policies sapped investment, and the Fed’s low rates and bond purchases damaged markets, hurt savers and channeled credit to the government at the expense of job creators.  It’s a zero-sum process that should be stopped because of the bad effect on growth and jobs.”

“Incredibly, as Fed Chairman Ben Bernanke alluded to in his May 22 congressional testimony, the Fed is now angling to create a semi-permanent control dial with which the Fed can increase its $85 billion in monthly bond purchases when growth slows and reduce them if growth ever speeds up.  This creates maximum uncertainty for the private sector, giving an advantage to traders, the government and the rich but hurting growth and long-term investors.

“This trickle-down monetary policy has contributed to very fast growth in corporate profits, part of the explanation for the record stock market, but also to weak GDP growth and declining middle-class incomes.  The extra credit the Fed channeled to government and big corporations meant less credit elsewhere in the economy, a contractionary influence since most new jobs come from small businesses.”

Finally, Malpass quotes retired Federal Reserve Chairman Paul Volcker who recently said that the Fed should not “accommodate misguided fiscal policies” and that such policies “will inevitably fall short.”  Volker also said of the Fed that “credibility is an enormous asset” that ”once earned, it must not be frittered away.”  Given the failure of the Fed’s accommodating policies its credibility has been severely damaged.

President Obama was recently praised by retired Secretary of State Colin Powell for his handling of the economy based on the stock market’s high valuation and the improving unemployment rate.  The lofty stock market valuation in a slow-growing economy is a negative sign of a bubble.  As for the employment rate, the chart below shows that it is now at a 30 year low.  Decades of government intervention, along with the current Administration’s and Fed’s failed policies, are the cause and need to be dismantled.

EMployment History

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Nouriel Roubini Calls for Bubbles, Then Bust

Posted by Steve Markowitz on April 30, 2013

roubini_081105_mainDr. Nouriel Roubini is a world renowned economist who teaches at New York University and has a knack for making correct predictions on the future of the economy.  He properly called the housing bubble bust and the financial markets’ crisis prior to the meltdown of 2008 that led to his nickname “Dr. Doom”.

Roubini recently made a call on the future of the economy.  The good news is that he is predicting a robust growth in the equities market for the next year or two.  The bad news is that he believes this is the buildup of yet another bubble that will result in an historic meltdown in two years.

Prof. Roubini blames Federal Reserve (Fed) policies similar to those that created the 2008 meltdown for creating new bubbles, i.e. historically low interest rate.  He predicts a bust within two years stating:  “They are creating massive fraud,” and further stating “at some point, there’s a levitational problem“.

Roubini concludes that “in the short-term, it’s great for assets“.  As for the medium and long term, that seems to be a little concern to central bankers worldwide.  But then again we can hope that Roubini is wrong this time.  However, hope is not a plan.

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