Saturday, March 10, 2007

Is the American economy nearing collapse? (guest post by Uranus)

In this article posted on MSN today, the dubious claim is made that American households are richer than ever. Of course, this claim depends very much on one's perspective:

American household wealth climbed to a record high in the final quarter of last year, according to data released this week by the Federal Reserve.

The bad news: The data show U.S. households continued to fall deeper into debt.

Stock gains were the principal reason for the surge in household net worth, the Fed said in a quarterly statistical report.

We have learned the Bush administration obscures all the figures. A few minutes ago I attempted to send a message to my Congressional representatives through the website to accept the M3 economic study rather than the M2. I was told I have to complete the CAPTCHA procedure to send my message, but no procedure was presented on the website.

The "experts" at MSN Money say we're all doing great. "Experts" started the Middle East wars which, among other things, drove fuel prices sky high, directly raising the cost of everything which utilizes transportation; therefore, virtually everything but real property.

"Household net worth –- the difference between the value of assets and liabilities –- amounted to $55.6 trillion at the end of the fourth quarter of 2006," the report said. "Household net worth rose $1.4 trillion last quarter, with most of that increase accounted for by gains on direct and indirect holdings of corporate equity."
I'm sure this comes as a great relief to those of you who spend all your time managing your millions and billions in investments—and to hear MSN Money tell it, that's everyone but the dead and unborn.

Professor Uranus would like to supplement this cheer with the street report. As a printer I could tell what the stock market would do weeks in advance by what happened to the cost of staple paper products like number 10 envelopes and 8½ x 11" 20-lb. white bond. Great prices and sale deals meant a buyer's market and a thriving, growing economy. No sale deals and rising prices meant a seller's market and a suffering, shrinking economy. That was a quarter century ago and I'm not a printer now. I am a grocery shopper, and what I see at the checkout stand suggests the darkest foreboding (and scares the shit out of me)...

Since the first of the year prices for staple items like bread and Pepsi have increased about 25 to 30 percent. For other items, like Iams adult dry cat food, the price increase is 100 percent. I found similar increases in the price of mayonnaise and breakfast cereal, generally expressed by smaller quantities without reduced prices. I don't have a good link for this, because it's what I see at the store. I began noticing what things cost in stores 50 years ago, and in that time this is by far the largest across-the-board increase in prices I've seen.

I don't have investments to nurse me along. At year's beginning, Social Security granted recipients the benevolent increase of two percent, which amounts to an admission by Washington prices are increasing, and increasing prices are a symptom of
inflation. In today's political climate, I'm flabbergasted the Bush administration would allow such a conspicuous admission THEIR economy's health isn't perfect!

Runaway inflation is one of the hallmarks of imminent economic collapse. Am I the only person on earth who notices it? According to the people working the cash registers, I am.


steven andresen said...


I do not disagree that the cost of common and necessary things in stores is going up. I can't give but a few examples.

The cost of houses. We live in a place where most people still think their homes are investments and will generally continue to increase in value.

The cost of cars. I have thought that the cost of cars advertised on the TV has been higher in the last ten years. Some of those things are priced higher than houses when I was much younger.

I notice the price of Pepsi. The bottles just went up another nickle.

Meat. I think both chicken and beef are more expensive, though I cannot give specifics.

I cannot see how investments can be counted as wealth. The value of them changes over time. That is true. But you don't have the cash value of these stocks until you sell them. That may be in the future at a time when their value is less than you would have expected or would want. So, now the stock market is high and we think we are wealthy. However, in ten years when we want to sell these stocks we could be in the beginning of our next medieval age and those stocks could be about worthless.

I'd think the people of the country would be wealthy if they had steady valuable work. They would be counted wealthy if their kids wanted to stay around where they grew up because there was work for them. I'm afraid the best places to work now will be where we now think of as developing or third world. Hence, friends of mine are going to live in Spain, Brazil, India, Latin America, and Africa.

rimone said...

Uranus: Runaway inflation is one of the hallmarks of imminent economic collapse. Am I the only person on earth who notices it? According to the people working the cash registers, I am.

bullshit. since 01, i've been back in dec 02, jan 05 and feb 06 and starting in 05, have been amazed at all the price increases (and my mom's falling investment and house worth or whatever).

«—U®Anu§—» said...

It's a relief to hear I'm not imagining things. High on my list of reasons why I oppose war is it forces a budgetary deficit which devalues the economy. As a schoolboy in the late 1920s and early 1930s, my father could purchase steak dinner with trimmings for his family of six at the store for 25 cents. Those days are long gone, and they shouldn't be. Of course, wages were lower then and the dollar was worth more.

We saw a 30 to 40 percent increase in the price of dairy products about three years ago; since then, the price has remained fairly constant.

The jump in prices I've seen the past month is really breathtaking, very frightening.

Mizgîn said...

Uranus, you are not the only one to notice the increase in prices.

I think the ones I notice most are food prices and gas prices because, for one thing, I despise shopping. For another, food and gas are the two things I must buy every week.

One other thing--health insurance premiums doubled since last year, and for what? It's outrageous.

Imagine, all that money going to the MIC, and for a fraction of it, the US could have health care for everyone.

damien said...

Mike Whitney has published some devastating articles on this economic dysfunction:

The income gap is growing faster in the United States than in any other developed nation. Between 1990 and 2000 in the U.S.worker pay and inflation remained approximately equal, while corporate profits rose 93% and CEO pay rose 571%. Meanwhile, the portion of federal revenue derived from corporate income tax has decreased from 33% in the 1950s to 11.9% in 2005, reaching a low of 7.4% in 2003. Hundreds of companies have avoided taxes by relocating to tax havens such as Bermuda and the Cayman Islands. Eighty-two of our largest corporations paid no tax in at least one of the first three years of the Bush administration. (link).

An economic tsunami is upon us. The corporate sector has stolen the lifeboats and decamped for the Caymans. Also (1 2 3 4 )

And, yes, groceries are becoming more expensive, but don't be disturbed. The market will save us!

rimone said...

mizgin: Imagine, all that money going to the MIC, and for a fraction of it, the US could have health care for everyone.

lol, you teh funny.

calipendence said...

Was talking on this issue last night. Real inflation is growing far more than our salaries. It's being masked by certain more publicized goods and services staying the same or being lower and touted as a sign that we don't have inflation due to outsourcing of the jobs that makes them cheaper, technology changes which makes certain kind of products cheaper over time, etc.

One really needs to consider the following factors that have occured since the 60's when the New Deal was still largely in effect then:

1) The movement from a single wage earner in the family to two wage earners. This has allowed one to artificially increase family income collectively, even though the cost of child care, etc. is going through the roof for many families today, or kids are getting shortchanged on their parenting now. There's not anywhere to grow this factor any more now without taking away child labor laws and forcing kids to work instead of go to school.

2) Growing debt to fuel our economic activity is being allowed to happen way to easily without prudent evaluation of people's ability to pay off loans. Movies like "In Debt We Trust" highlight this huge problem now. People are going to reach a wall soon, where it won't matter how much more debt they incur, but that they won't be able to pay debt off any more, especially with the interest rates and fees that CC companies are allowed to throw out now.

3) The housing market, as one of the last remaining tax break areas that a middle class family can still gain leverage over the marketplace can have with tax breaks, etc. (and increasingly is being priced out of), is about the only thing left where people can gain more money over time over inflation, since their salaries no longer do so. As you note, this isn't an "income source" that can be counted on to grow any more.

4) Interest rates are so low now to keep this method of growing equity alive now, and if any significant interest rate is made, our housing market will crash, and the one way many families have of staying ahead of their expenses will go away. On the other hand, if one keeps the interest rates where they are now or continues to let them slide to nothing, the investment into the dollar keeps going into the toilet, and the U.S. dollar will continue to be ditched as the currency investment of choice to the Euro, and once this happens to all nations in the oil market, we're screwed with the value of the dollar. That is one of the fundamental reasons why we attacked Iraq, and likely are going to attack to Iran too, to control oil and those countries and ensure that they still trade in dollars instead of Euros.

5) Normally if a country has the value of its currency fall, it can have this be made up for by the value of its exports being made more valuable in the world economy, and can become a bigger exporter of goods, which should help that economy get better. With all of the outsourcing and offshoring of most of our manufacturing, etc. now, we've lost the ability to profit from our dollar value dropping, as we don't have near as much goods produced here any more that we can export and gain some of that money. Thus our trade deficit continues to grow.

We're heading towards a precipice where once the housing market crashes and all of the other variables are in place, we'll have a depression that will make the one at the turn of the last century look tame by comparison. Most people won't own the land they are on like they did then, to allow the family farm to still be a force of stability and source of jobs and a place to stay for those who lose everything. Instead, the cities will be a complete zone of high crime calling the shots, with the amount of weaponry one controls calling the shots ala Mad Max. It's not that far away folks.

The way out of this? The ONLY way out of this? Is to start raising people's salaries over the value of inflation, and therefore decrease the net worth gap, etc. How to do this? Increased labor organization to demand higher wages, etc. Put the highest marginal tax brackets back to what they were in the 60's at around 90+% instead of only 30+% that they are today. Continue efforts to allow investors to control how much CEOs and other execs get paid, etc.

The net effect of this will be more inflation for some average goods and services, as the cost of labor will go up some, but if the other higher end goods and services drop by comparison (the cost of housing, health care, etc.), due to the cost reductions of the higher end costs like middlemen in health care being removed, CEOs being taken out of the picture, and less dependency on the value of the house to appreciate a family's ability to live in society, it will even out.

And the more we replace the value of house, 401k investments, etc. and other non-stable sources of income with something like salaries and pensions, social security, universal health care, with more guaranteed baselines than what we have now, the less we'll be prone to these other cyclic market effects in terms of creating a crash in the average person's ability to live and survive at a healthy rate.

We need to globalize labor unions now! We need to support fair trade policies NOW! We need universal health care NOW! We need to remove tax breaks for the wealthy and give incentives to the poor and middle class NOW!

«—U®Anu§—» said...

Thanks for your comments, everyone. There are brilliant people in the world of economics, and I've long thought we should let them explore some way to renovate "money." Meanwhile, I notice AARP is running TV spots with little kids complaining Social Security is broken. That's a vicious lie. Take a look at the 2008 Discretionary Budget Request, and you can see for yourself how Congress chooses to spend money. It could be time to join AARP and preach to them that if the U.S. government doesn't wish to fund social security such that recipients live in the very lap of luxury, everyone in Congress can pay with their job on election day.

LeeB said...

Tariffs on foreign labor: You wanna send jobs to India for services needed in the U.S.? Then you have to pay a tax equal to the difference between the $2.00/hr Word Processor in India and the $26 - $35/hr Word Processor here. The new, $75/hour baby lawyer here is being replaced by the $20/hour lawyer in India for things like document reviews and legal research. Estimates are for 79,000 such lawyering jobs to be outsourced over the next ~ I think ~ five years.

You want a car built in China with 32cents/hr labor and bring it to the U.S. to sell? The tariff makes it a wash to go all the way to China to build the damned thing.

You want to lure undocumented workers to the U.S. to finish off what remains of labor here? Prepare to go to prison. We have laws that have not been enforced since the cabal began this destruction in the Reagan administration.

And now, ICE is arresting brown people at factory jobs, spiriting them off to detention facilities, and leaving their young children, often American citizens, to come home from school to empty houses and no one is even told where the parents are. Some are now saying that these undocumented immigrants will (if they aren't already) be put to work for the corporations at prison wages. It is insane.

Universal Health Care: Put the damned health insurance companies out of business by expanding Medicare and making that payment program the single payor system. It's overhead ranges, depending on who you talk to, between 2% and 5.5% of the taxes paid into it. The private, pay-the-dividends-to-the-stockholders system of profits before health care costs 30% to 35% while they suppress the payments to actual healthcare providers to match the payments made for the same services by Medicare (it would require an upward tweak on that score). All this so bastards like Maguire of United Health Care can rake in $1.78 Billion for one year. (And no, it is NOT socialized medicine where the hospitals and doctors, etc., are run by and work for the government.) Which reminds me: Back when my kids were born, hospitals were not allowed to be for profit. In terms of medical expenses and 4 days in the hospital with each one, the total expense was about $300 each.

Social Security? Get rid of the damned cap.

Rapid escalation in grocery prices is a direct result of rapid escalation in prices of fuel at the pump. They are doing this to the middle class in the U.S. (dunno about elsewhere . . . Luke?) ON PURPOSE. After they have destroyed this country, where are these limosine criminals going to live ~ beind stone walls with guards every ten feet?

Sorry. I'm in a mood today . . . >:-|

calipendence said...

Some are speculating that this new effort of having unregulated highway from Mexico through the U.S. to Canada and certain entities' stealth efforts at building a "North American Union" efforts have a lot to do with in effect shutting down or driving down revenue for our trucking and farm industries, with cheap overseas goods coming into the heart of America with cheaper labor driving the trucks, etc. too. Then in their mind, the rise of grocery prices will stay flat instead of rise in the face of rising fuel prices.

Agree totally on tarriffs and removing the social security cap. Then I'll stop paying the same amount of social security taxes as Bill Gates does. Also, we should reindex AMT tax instead of getting rid of it so that it does what it was originally intendd to do instead of now hitting the middle class even more draconianly with rates designed to hit the wealth well over 30 years ago. Then people likem me back during the dotcom boom/bust won't be hit with AMT tax on both salary and unemployment benefits in the same year like I did one year then!