As we face up to the recession -- or near recession -- that grips us, disturbing trends are taking shape. Early pain was concentrated in all things housing. Home prices, construction, home improvement have been sliding since August 2007. Months of loud pronouncement reassured that troubles would be small and restricted. Virtually every major piece of economic data released in 2008 has proved this forecast false.
Housing remains at the center of the storm. Economic and credit winds are knocking down jobs, profits, confidence and spending. Wall Street has been sliding since summer 2007. Stock prices are off by about 10% in the last few months.
The pain has been concentrated in financial firms, mortgages lenders and all who hold bundles of consumer debt. Here the losses have been massive and destabilizing. Banks, mortgage lenders, investment houses have seen hundreds of billions of dollars vanish and small firms are falling or being swallowed up. There has been little help to the macro-economy. What help has come, has been targeted at investors and banks. Further, it has been targeted to the largest and most powerful firms. We have seen select bail-ins and take outs. Bail-ins allow firms access to new, greater and subsidized cash for survival. Take-outs occur when authorities allow some to fail or actively assist in their being taken over.
As recession sets in, government officials, business, workers, consumers report pain. America lost 232,000 jobs this year. The losses piling up in and on millions of American households are large and growing. High mortgage debt and low prices are pushing the lower middle class into poverty. Homes are underwater when more is owed on them than they are worth. Over ten million households already owe more on their homes than they are worth. This number is growing and will continue to grow as house prices fall further. Help has arrived for select investors, dominant banks and businesses. As house prices and jobs continue to fall, millions of American families are left waiting. The firms who lent are also suffering. The largest and best positioned are receiving some real help from America's central bank and financial regulator, The Federal Reserve (Fed).
There have been two forms of help so far. The Fed has slashed the interest rates it is has direct influence over. These are the Discount Rate, the interest rate the Fed charges qualified borrowers for loans, and the Fed Funds Rate, the target for interest on interbank loans. The interest rate reports you are seeing and hearing about are the cuts in the Discount and Federal Funds Rate. These actions make more and cheaper cash available to those pained by the size and poor performance of the loans they have already made, bought and sold. The Discount Rate has been lowered 7 times from 6.25% to 2.5%. The Federal Funds Rate has fallen from 5.25% to about 2.25% since August 2007. In time and subject to some uncertainty this helps the overall economy. More and less costly money usually filters through financial institutions into public hands as more and cheaper credit.
The second form of help has been massive regulatory change. New forms of inexpensive and massive access to loans have been introduced since the credit crisis began last summer. Over the last 6 months the Federal Reserve has made more and larger changes to our financial system. Each new innovation and program makes greater assistance to increasingly distressed leading financial firms available. No similar help has been directly given to America's families.
Among the helpful innovations, the New Term Auction Facility (TAF) has allowed large banks to borrow massive amounts of cash against collateral that can't be sold for close to face value. Banks are allowed to drop-off loan bundles for cash or government securities at their local Federal Reserve Bank. $260 billion was loaned through the TAF to large banks in twice-monthly auctions since December 2007.
Borrowing has been increasing as banks are charged the ever lower discount rate for 28 day loans. Since the take-out of Bear Stearns and investment bank bail-in of March 16, 2008, other new innovative help has been announced. On March 11, 2008 The Fed began allowing select financial firms access to 28 day loans of safe US Government Debt in exchange for much less safe debt. As of April 03, 2007 $100 billion had been borrowed. Investment banks have now been invited to join those borrowing large sums at the discount window. Our leading banks got the most and the most rapid help. Current outstanding loans of cash and Treasuries by the Fed total over $320 billion. That is a lot of help. My point is not that the help should not have been given, although serious timing and method concerns remain. I am pointing to a pattern of where help is directed and where it is not directed.
Many households have gotten no direct help and are still waiting for help to filter down from banks of come as small checks in May. We now know that the economy is in or near recession. We know that households are suffering. The Fed calculates how much after tax income households spend on paying debt. The Fed calculates the value of debt service payments and divides this number by after-tax income. This produces the debt service ratio, a measure of the cost of debt to American households. The most recent number, end of 2007, shows that 14.32% of after-tax income goes to debt service. Unemployment is rising, prices are rising and the majority is neither being immediately, nor directly helped. The Fed's actions to help banks and lower interest rates are flooding the economy with cash. Lower interest rates and rising amounts of dollars decrease the value of our currency and risk inflation. Travel abroad or attempt to buy imported goods and you will see the cost our monetary policy has.
The decline in the value of our money is increasingly showing up as inflation. Foreign lenders, buyers and those selling anything priced in US Dollars demand more of our Dollars as each one declines in worth. You can see the effects in food prices, energy prices, metals and basic materials prices.
This is where we are, the early months of a recession are always difficult. As time passes and pain intensifies, fighting begins over who gets help, how much help and when. This has begun. So far the help offered to the public has been little and lagging. As debates rage about how much help is needed, the best connected and positioned firms have been demanding and getting generous sums. More, or at least some, targeted assistance to America's troubles families is required. Artificially keeping house prices up is not wise and will not be possible. House prices need to continue to fall and will. This will place increasing pressure on household balance sheets. To begin to address this situation, we need to concentrate on elevating earnings and reducing debt levels. This will require the kind of creativity and expense reserved for banks so far.
It was when the sailors stationed in St. Petersburg found their common cause with the workers of the city and the soldiers on the eastern front began to refuse the order to "go over the top", replacing their commanding officers by electing leaders from within the unit that a series of labor disputes became a crisis at the foundation of the economic order. With the domestic economy in an accelerating downward spiral and the rate of suicide among troops serving in Iraq skyrocketing i would ask: What is the U.S.A and Where is it going?
How quaint.
Read my lips: THE GREAT DEPRESSION OF 2008 IS HERE.
Plan Accordingly.
You have two options. The first is to whine, grovel, and pawn over your ledger-books. The second is to throw the damn books into the nearest river, go buy yourself a cup of really good cappuccino, and think.
This is America. The greatest industrial superpower on earth, at least it was when your grandparents were your age. Okay, you drank the Reagen kool-aid and refused to listen to Eisenhower and now you are Here. You f*cked it up, big-time. Now what do you do?
Well, first of all... you f*cked it up all right, but you did it all ON PAPER. Your Excel spreadsheets just don't balance anymore. So... throw them away. Your debits don't credit and your credits don't debit, so throw them all away too.
What you have... is opportunity. 300 million people with high standards, all in one place, with tens of thousands of idled factories. Thinking that you could somehow supply all those people, say, with shoes or with underwear(!), by the wave of your ledger-books was ... and still is ... utter and complete idiocy. So, throw it away.
Produce.
Just like your grandparents did.
Produce.
When these C EO 'S of failed company's and so many others have hidden cash offshore the cash leave the ecomony and the doubling effect from that currency stops.
Bill Clinton wanted treaties with other countries to find assest hidden from stock holders to prevent stock holders from being robbed of value. But Republicans spent $ 30 million on Ken Star to stop him.
I'm here to take the consumer seat on the Fed's Board of Governors and OMC.
Excuse me?
There is no consumer seat?
There is no labor seat?
There is no small-business seat?
No credit-union seat?
No rural or agricultural seat?
No taxpayer seat?
Oh, I see.
Maybe that's why...
"as time passes, the pain intensifies"
for these groups.
Throw the bums out.
Establish the PEOPLE's sovereign Central Bank of the United States.
And give the private bankers a seat on its Board.
That is like inviting the fox into the hen house.
Give 'em one seat on the 20 member Board.
First of all, we can constantly remind them that is was more than THEY did.
But also, they WILL be out there in the economy, playing with their own money.
And, I'm not that anti-capitalistic.
Let them compete aganst honest-money funded business enterprises and credit-unions, who believe that cooperation has a higher human, social and economic value than competition.
Give them a seat at the table.
Just don't give them the people's money.
See:
http://www.neweconomics.org/gen/uploads/CreatingNewMoney.pdf
Let's get on with it.
At its peak, median residential housing was 70% over the trendline, of the boom that took off in 1998.
There is NO way to prop up the housing market at some arbitrary bubble figure, a correction back to reality simply has to happen. That will hurt. Delaying the inevitable will only make matters worse for later.
The Economist Has No Clothes ...
http://www.sciam.com/article.cfm?id=the-economist-has-no-clothes
The Myth of Free Trade and the Secret History of Capitalism'
http://www.buzzflash.com/articles/hartmann/023
As usual this is an aggregate figure, containing the richest of the rich and the poorest of the poor. The fact is at the lower end of the scale it is far worse. This is just like GDP, where GDP goes up yet wages over this so called recovery are down for the average person big time as the income becomes increasingly skewed to the top 1/2 of 1%.
Max in the future try using figures that represent what is really happening to the poor, working and middle classes.