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US Middle Class Revolt is Still Divided

Roughly eight years ago, from the ashes of the Great Recession, we in the United States saw the rise of the Tea Party movement. Three years later brought the Occupy Wall Street movement. Both began by protesting the effects of Wall Street speculators on the economy, and the government’s unwillingness to do anything but bail out banksters and help them become richer. The Tea Party was somewhat mirrored by the rise of rightwing groups in Europe. Occupy and similar movements such as the Arab Spring, the 15-M Anti-Austerity movement (Indignados), etc. were also occurring in other countries, and were often ascribed as much to the ubiquity of cellphones and social media as to any new abuses by government.

The Tea Party was gradually co-opted into a protest against just about everything to do with liberals, the government, and the new President Barack Obama. Tea Party followers were mobilized in primaries to support conservative Tea Party candidates against moderate, establishment Republican state and national congressmen.

Occupy, being run by dedicated anarchists, was more difficult to co-opt. But rank-and-file Occupiers were not ready to do much more than demonstrate peacefully, hold general assemblies and try to hash out an ideal sort of world order. Their camps were eventually overrun by city police, and efforts to revive the fervor have been underwhelming. Some Occupy groups still try to achieve local objectives, like housing the homeless, but no one talks about Occupy candidates in national politics.

Now we have parallel political revolts within the Republican and Democratic parties themselves. One was initially based on anti-immigration fervor, and is personified by Donald Trump, and perhaps Ted Cruz. The other hearkens back to rage over Wall Street’s influence over the government, and is personified by Democratic socialist Bernie Sanders.

A lot of virtual ink has been spilt trying to explain why voters are engaged with a media personality like Trump. One of my friends loves that he is calling media, government and others on all the PC bullshit that has been coming down the pike for years. Nate Silver chalks it up to media exposure. Scott Adams believes that Trump is a Master Persuader in the vein of Dale Carnegie. John Michael Greer believes that Trump is adeptly channeling the resentment of the hourly wage class that has been savaged by Democrats and Republicans, and by the top 1% and the top 25% salaried classes alike. They resent being called racist, but are only accepting of minorities that act just like white people. These folk see immigrants and foreign competition as the primary bogeymen in the loss of their lifestyle.

It seems to me that Sanders is likewise channeling the resentment of underemployed millennials and older folk who have been left behind by the economy and left out of the BLS unemployment statistics. These folk probably attended or closely identified with Occupy events. They may have marched for the environment, favor unions, and tend to feel accepting of minorities and immigrants. They see a rich elite as the bogeymen.

Despite the media’s take on Iowa, both Trump and Sanders did well enough to show that voters are definitely looking for a change. I think that together, these movements would wield enough power to significantly change the government-industrial complex. The question is whether there will ever be enough common ground for them to function together as a political entity.

What’s Next, Noflation?

After Christine Lagarde bandied the Deflation ogre about, more moderate voices insisted we talk about the Disinflation, umm spectre instead. Spectres just scare the pants of of us rather than rending us limb from limb. That’s so much better.

At Bloomberg last week, Peter Kennedy reported on a new ‘flation-word. Inflation. Deflation. Disinflation. The Threat to Europe? Lowflation:

For all the fears of a Japan-style era of deflation, a more likely threat for Europe is what International Monetary Fund officials are calling lowflation.

A sustained period of ultra-low, albeit rising, inflation still has the potential to destroy output, hurt hiring and revive memories of the recent fiscal crisis by hammering the ability of governments to repay debts. With data yesterday showing inflation about a quarter of the European Central Bank’s goal of just below 2 percent, President Mario Draghi is under pressure to respond.

“It is imperative to return inflation to the target as quickly as possible,” said David Mackie, chief Western European economist at JPMorgan Chase & Co. in London. “The ECB needs to acknowledge having low inflation for a long time isn’t neutral.”

But, Lowflation might be more ogre-ish after all. In Getting the message, The Economist picked up on lowflation, and took it seriously:

With inflation dropping further in the euro zone to just 0.5% in March, Ms Lagarde had highlighted the emerging risk of “lowflation”. Mr Draghi said that the council was unanimously committed to using unconventional as well as conventional measures to “cope effectively with risks of a too prolonged period of low inflation”. With little conventional ammunition left, since the ECB’s main lending rate is already just 0.25%, he spelt out that the unconventional measures might include quantitative easing – buying assets with central-bank money – as well as charging negative interest rates on overnight deposits left at the ECB by banks. …

In fact, that is not the only worry about lowflation. Another is that when inflation is so weak, it would take only one further unfavourable shock to demand to tip the currency club into outright deflation, which would harm growth by creating an incentive to postpone purchases and by exacerbating already onerous debt burdens in real terms.

Peter Schiff, a financial analyst of the Austrian leaning, seems comfortable with disinflation and/or lowflation, which leaves little opportunity to make money other than financial speculation – his bailiwick. Schiff is bearish on the US main street economy, preferring foreign investments, and while he (and Roubini) garnered some respect for predicting the collapse before the Great Recession, he has often (so far incorrectly) predicted that hyperinflation is lurking in the wings. In Russia Today, he pooh-poohs Lagarde’s fears in Meet ‘lowflation’: Deflation’s scary pal:

In recent years a good part of the monetary debate has become a simple war of words, with much of the conflict focused on the definition for the word “inflation.”

Whereas economists up until the 1960’s or 1970’s mostly defined inflation as an expansion of the money supply, the vast majority now see it as simply rising prices. Since then the “experts” have gone further and devised variations on the word “inflation” (such as “deflation,” “disinflation,” and “stagflation”). And while past central banking policy usually focused on “inflation fighting,” now bankers talk about “inflation ceilings” and more recently “inflation targets”. The latest front in this campaign came this week when Bloomberg News unveiled a brand new word: “lowflation” which it defines as a situation where prices are rising, but not fast enough to offer the economic benefits that are apparently delivered by higher inflation. Although the article was printed on April Fool’s Day, sadly I do not believe it was meant as a joke.

Update 20140409: Many otherwise progressive peakists and collapsniks find themselves as strange bedfellows with anti-inflation economists like Schiff and at odds with inflation-creates-growth Keynesians like Paul Krugman. Peakists feel that growth and inflation rely on increasing supplies of limited energy resources, thus that trying to grow is doomered to failure. Unfortunately, limping along in low- or disinflation is also increasing the misery index as financial barons profit while everything else declines.

I wonder if there is a third choice.

Tips and Bonuses

‘Tis almost the season for the end-of-year bonus. For some of us. Wall Street was famous for large bonuses, and certain firms bailed out with public money became infamous for using TARP money to continue paying out large bonuses. The banksters benefiting from our largesse claimed that bonuses were actually a late payment of money they had earned all year, but most folk can’t expect a bonus if the firm isn’t profitable. Many can’t even imagine more than a token Xmas bonus at all, and WalMart employees can only hope that shoppers will drop a few sugar plums in their baskets.

Forbes, CNN and Reuters note that financial sector bonuses are rising in general, though more for the less risky side of the business.

Wall Street Bonuses Due To Rise 5% To 10%
Wall Street bonuses rise as jobs decline
Wall Street bonuses to rise 5 to 10 percent this year

A few weeks ago, some Wall Street ex-big shot made news by blogging a tirade about having to tip the bathroom attendants. The NY Post reported:

Managers at Soho’s Balthazar said Monday they’re wiping bathroom valets off their payroll after business-news blogger Henry Blodget made snippy comments about the antiquated, “extortion-by-guilt” practice.

Blodget, a disgraced Wall Street analyst who now edits the Business Insider Web site, wrote last week that dealing with bathroom attendants is “never anything other than uncomfortable and degrading.”

Since then, I’ve noticed several articles challenging the practice of offering gratuities for personal service. Sushi Yasuda in NYC made news by eliminating tipping and raising prices to pay the staff a bit more. US News offered five facts, while Pacific Standard questioned the rationale behind tipping:

… it makes very little economic sense. You can lose hours reading theories about tipping, but here’s a nice summary: “Economists presume that individuals act in their economic self-interest. Thus, individuals engage in transactions with one another when it is in both their economic self-interests to do so. But it is hard to see how tipping is in the tipper’s self-interest.”

I don’t pay anyone’s salary, hence I don’t pay bonuses, but I do tip for personal service. We don’t dine out much, but when we do I tip servers at least 20%. I discarded the old 5/10/15 rule for breakfast, lunch and dinner because it seemed clear the servers work just as hard serving eggs and pancakes as beef and lobster. I give my barber $5, and he seems grateful. Hey, the man holds a straight razor near my throat – I want to keep him happy. I would tip my masseur if he wasn’t self-employed. Massage is about as personal as service can get and still be legal.

Just for grins, I looked up gratuity and bonus on Dictionary.com:

gra·tu·i·ty [gruh-too-i-tee, -tyoo-] noun, plural gra·tu·i·ties.
1. a gift of money, over and above payment due for service, as to a waiter or bellhop; tip.
2. something given without claim or demand.

bo·nus [boh-nuhs] noun, plural bo·nus·es.
1. something given or paid over and above what is due.
2. a sum of money granted or given to an employee, a returned soldier, etc., in addition to regular pay, usually in appreciation for work done, length of service, accumulated favors, etc.

They don’t sound too different, do they? Unless you work on Wall Street.

Consolidating with the Club

Over a decade ago, I took out a debt consolidation loan. Chase, an incarnation of Chase Manhattan Bank, sent me a large check and a payment book. I paid off my credit cards, never missed a payment and retired the loan on time in a few years. I swore to never run up credit debt again.

Then we bought a little house. We repaired water damage. We gutted the homasote wallboard to add insulation and gypsum board. We put in a new kitchen. We paid a roofer put on new shingles. We gutted and renovated the bathroom. We raised some ceilings. We enclosed two porches with windows. We paid cash when we could, but charged a lot of materials on home store and credit cards. We even bought a low mileage used car from a little old lady.

The idea behind consolidation loans is that credit card lenders are charging such high rates that borrowers can save a great deal with a single lower interest loan. Sometimes lenders require your house as collateral; other times not. I’ve written about getting a lot of dubious debt management offers – Embrace, American Debt Mediators, Credit Card Hardship Programs – so I didn’t pay attention to the Lending Club solicitation right away.

Read More…

The Walking Debt

Even if it was just a Tea Party blunder, we are all relieved that the debt ceiling has been raised and that the government shutdown is over, right? Interviewed by The Real News Network, Professor of Economics Gerald Epstein considers the debt ceiling show to be essentially meaningless:

The debt ceiling is an odd legal rule that was set up in the 1920s to try to give Congress some say over borrowing. But in fact it’s redundant because the United States Congress and the president make decisions about spending, and by making decisions about spending they’re also make decisions about how to finance it. And if their budget requires borrowing, then that’s implicit in the decisions made by the Congress. So it’s completely redundant and adds a political complication to the whole structure that we now are living with.

Epstein is also codirector of the Political Economy Research Institute (PERI).

The big problem for the United States is not the amount of debt that it owes, but it’s the way that it’s been investing in social assets–in education, in infrastructure, in all the things that can make the economy develop properly. … oftentimes those kinds of investments, they pay for themselves in terms of more and more revenue. But as the economy grows, the amount of debt relative to the GNP goes down anyway. And I think most economists, including at the Congressional Budget Office and elsewhere, realize that this whole debt is a secondary issue. … right-wingers that are financed by big billionaires like the Koch brothers and others, their goal is to completely dismantle those aspects of the government that threaten them, [so] this debt ceiling fight has gotten out of control.

Like most people, Epstein assumes that the economy will just keep growing. Because, except for the occasional depression, recession or panic, Western economies have grown for the last several hundred years. But at the ArchDruid Report, John Michael Greer warns that imperial decline and energy depletion will inexorably lead to the reverse of that trend:

… These days the US government spends about twice as much each year as it takes in from taxes, user fees, and all other revenue sources, and makes up the difference by borrowing money. … A variety of gimmicks, … printing money at a frantic pace — has forced interest rates down to historically low levels, in order to keep the federal government’s debt payments down to an annual sum that we can pretend to afford. … None of those measures has a long shelf life. They’re all basically stopgaps, and it’s probably safe to assume that the people who decided to put them into place believed that before the last of the stopgaps stopped working, the US economy would resume its normal trajectory of growth and bail everyone out. That hasn’t happened, and there are good reasons to think that it’s not going to happen—not this year, not this decade, not in our lifetimes.

So, why hasn’t the economy started growing?

… the traditional drivers of growth aren’t coming into play, because the surplus of real wealth needed to make them function isn’t there any more, having had to be diverted to keep drilling more and more short-lived wells in the Bakken Shale.

Essentially, we are spending more fossil fuel energy to try to keep the fossil fuels flowing. When we reach the point that it takes all the energy from a barrel of oil to extract and transport a barrel of oil, we will be back to relying on all forms of solar energy – everything from passive solar to ethanol – and probably limited installations of nuclear power – generated far away from those that will actually be using it, but paid for by those at risk.

What is the Main Problem?

Doc Cleveland recently posted Larry Summers is not the Main Problem on dagblog: 

I’m as pleased as anyone that Larry Summers has withdrawn from consideration as the next Chair of the Fed. I thought he would do a terrible job. But Summers himself was never the real problem. His candidacy was only a symptom. The real problem is that we have a President who wanted to nominate Summers in the first place. Obama does not understand what’s wrong with the American economy, and five years into his term, he persists in some basic misunderstandings.

There are two basic Democratic narratives to explain the 2008 financial meltdown, and they contradict each other. When Obama took office, he had to choose which story to believe.

I agree with dag commenters that that it was a thoughtful post, but I don’t believe that elected officials of either party could stray too far from the dictates of the oligarchy. In, Was This Whistle-Blower Muzzled? former investment banker William D Cohan, author of Money and Power: How Goldman Sachs Came to Rule the World posts an opinion piece that shows what happened when a Citigroup executive tried to pull back a fold of the curtain:

On Feb. 27, 2010, Mr. Bowen met with Victor J. Cunicelli and Tom Borgers, two F.C.I.C. investigators, and, briefly, with Bradley J. Bondi, the commission’s deputy general counsel. For four hours, with his own two lawyers present, Mr. Bowen told them his story. “This was placing the company in extreme risk with regard to losses, and I made that known,” he told the commission staff.

The investigators told him they found his account “very compelling,” and Mr. Bowen was subsequently invited to testify publicly before the commission, on April 7, 2010. Mr. Bowen’s conversation, like hundreds of others, was recorded (including mine when, as the author of two books on the financial crisis, I was interviewed).

Unlike those other conversations, though, Mr. Bowen’s Feb. 27 interview, a transcript of which I have read, is not publicly available. Instead, the document, along with the commission’s other records, was sealed and sent off to the National Archives, where it may be reviewed beginning in 2016. “Why five years?” Mr. Bowen wondered. “I don’t know. I’m sure it’s just a coincidence that five years is the statute of limitation for fraud.”

Riding a Poorly-Fed Horse

I had heard of Hutterites, but knew very little about them. In the latest of his series, Communities that Abide—Part V: An Example of Success, Dmitry Orlov offers a quick, but interesting, look at Hutterites in the US. After an ugly episode with a handful of ardent feminists at the Age of Limits conference, Orlov is careful to not endorse the old-fashioned gender roles of the Hutterites, but it is clear that he doesn’t expect ardent feminism, or indeed the sort of ardent self-expression we take for granted, to survive in a declining economy. Commenter Lynford1933 adds some personal experience with the Hutterites.

BTW, even though Dmitry (who comments as kollapsnik) and commenter Butch disagree with commenter Edmond, the first fourteen comments are as on-topic and rational as in any comment section I have read in a long time.

First Orlov takes stock of the have-nots and haves in the US:

… just last week we saw walk-outs by fast food workers in the US who thought it unfair that their wages were low enough to qualify them for public assistance and that the terms of employment often offered them only part-time work but with the condition that they be available to work at any time, precluding them from finding any other work. This is the end result of a couple of centuries of class struggle. Labor has lost. Gone are all of their gains: regulated work week and overtime pay for nights and weekends are history; guaranteed old age pensions are finished; right to public education replaced with right to attend public schools where students are taught little, tested endlessly and medicated into submission for misbehaving.

One might think that if labor has lost, then capital must have won. Indeed, on paper the capitalists are doing better than ever, with greater than ever wealth disparities, equity markets at all time highs (for how much longer?) and non-stop displays of ostentation and conspicuous consumption by those whose profits are subsidized by the Supplementary Nutritional Assistance Program that keeps their workers fed. But look at it another way: the capitalists and the rentier class are surfing on a gigantic wave of debt, and the collateral for that debt is rather doubtful. An economy that is 70%-driven by consumer spending, where 80% of the population is toying with poverty, is not too promising. If labor is the horse and capital is the rider, and the horse dies, where does leave the rider? On foot, I would think.

There are rumblings of another recession on many sites. Peak Oil and gold bug sites are always predicting imminent collapse, but even normally steady Econbrowser is a bit disappointed in the numbers. In, Econbrowser recession indicator index up to 30.5%, James Hamilton notes:

The bare growth of the economy over 2012:Q4-2013:Q1 is the main reason that our Econbrowser Recession Indicator Index jumped up to 30.5%, a significant increase from the 9.2% figure that we released last quarter. This is one objective signal that the recent GDP numbers are even weaker than we’ve become accustomed to seeing since the economy began its disappointing recovery from the Great Recession in 2009:Q3. Note, however, that this does not mean the economy has entered recession territory. Our index would have to rise above 67% before we would issue such a declaration.

Among other mixed signals, it seems that the recent strong US auto sales are mostly due to boomers continuing to buy new cars every few years. As do many industry observers, Bloomberg wonders why young people aren’t buying cars. Jalopnik offers the obvious answer:

… when the rate of unemployment for people age 16 to 24 is double the national rate, and you add in staggeringly high student loan debt, it’s kind of understandable that young folk aren’t out binge-purchasing expensive cars. The word “unemployment” isn’t even mentioned in the Bloomberg story, …

(To Bloomberg’s credit, today writer Megan Durisin published a story about how underemployment and student debt hampers Millennials’ car purchasing, and why carmakers aren’t giving up on them.)

If, despite the complaints of many pundits and bloggers, Obama appoints Larry Summers to take over the Fed, I’d expect a lot more of us to realize that we are riding a horse that is being fed imaginary oats.