As consensus builds for economic recovery, mass anger is building in lock-step. Consumer sentiment surveys show that the public does feel better about the economy. Stock and bond markets have been celebrating, here and abroad, since March. Public officials have been speaking of the rebound for at least three months.
Our national GDP - broad value of final goods and services sold in America - will grow in the third quarter of 2009. Interest rates on corporate debt and US government debt and mortgage rates are low. Corporate profits have rebounded on rising productivity, falling dollars and rising sentiment.
However, unemployment and poverty are on the rise and foreclosures continue. The real economic situation for the least affluent 80% of Americans continues to deteriorate amidst the recovery.
This discrepancy is creating anger and opposition that is exploding in unlikely places, debates and attitudes. It is one ingredient driving the anger at tea parties, health policy meetings, protests and proclamations.
Why is our "recovery" so skewed?
There are many complex answers to this vital question. One answer is our reliance on monetary policies that were focused on addressing the financial crisis. This is one element of the structural economic decline that is battering American fortunes. We have a structural economic crisis and a financial crisis. These two different elements of the great recession have been confused and conflated by analysts, policy makers and public perception. This created excess focus on financial matters by most. Angry masses see the recession as purely financial. This is false. Policy makers have rushed to address the financial crisis. This is near sighted. Monetary policies have dominated our policy response. We have addressed one of our afflictions and left the greater economic problems under-appreciated and unaddressed. This makes our recovery very fragile and skewed.
Monetary policies have provided over $11.5 trillion of assistance to our monetary/financial sectors since March 2007. The rules for remaining financial institutions have been re-written many times over the last 18 months. New access, support and assistance have been provided with each leg down. The Federal Reserve has led this process. You can see this leadership in the $1.2 trillion (approximately 150%) increase in the Federal Reserve balance sheet. The FDIC, the Treasury Department, Congress and two White Houses have been deeply involved. You already know this, and it has been exhaustively reported. What no one seems to have discussed is how this response skews our "recovery."
Our leading responses to the crisis have been to slash interest rates and provide trillions in assistance to our financial institutions. This makes sense but betrays the structural problem. We are a society that lives on debt and speculation. Our houses are ever more owned by investors. 2007 was the last year Americans owned more than 50% of their homes. Today, America owns 43% of its housing stock, and creditors own the other 57%. We have $10.4 trillion in mortgage debt and $2.5 trillion in consumer debt. Every month 350,000 American houses are being seized by creditors. These numbers hint at the real problem. We are dependent on the financial sector. This is result of our structural economic problem. We have been over-consuming for 15 years. American wages, salaries and savings have not been enough. We have been borrowing and speculating for the difference. The world has joined the game with global financial deregulation and market integration. Real recovery will take time, and has not been attempted. Instead, we have been working and spending to put Humpty Dumpty back together again.
We have been straining to jump start the financial machine that has enabled a debt-and-speculation economy. This skews the recovery. Low interest rates and enabling policies for lenders have succeeded in buoying our surviving firms. They borrow cheaply from the Fed, markets and the public. Safe investments offer very low yields, but they can borrow for even less. This pushes up earnings. Even more essential, government programs buy and assure safe assets. The Federal Reserve has purchased $700 billion in mortgage backed securities and plans another $500-$600Â billion in purchases over the next year. The Federal Government's Fannie Mae and Freddie Mac have purchased over 75% of the mortgages and mortgage backed securities sold in the first 6 months of 2009.
The Federal Reserve has also been buying US Treasury Debt. This drops the returns on safe assets. People re-enter more risky markets and start speculating again. This is done by design to drop the price on mortgages. Thus, our policy response helps people with good credit get cheap mortgages. We are also providing assistance to financial institutions and returns to speculators. We are making vast sums of money available and make the returns on safe assets very low. You don't need me to tell you what this creates. This drives money into riskier and riskier investments. Look at stocks, particularly in the developing world.
This skews our recovery. The job market continues to be very weak and it is clear that it will be several years before we create the 7 million jobs lost, let alone the backlog of missing jobs that we need. Our population growth suggests we need 125,000 new jobs a month just to standstill. Weak job markets mean stagnant wages and rising productivity. It is hard to get wage increases and easy to be over worked in understaffed workplaces when fear runs high. People with bad or questionable credit don't get those new lower borrowing rates. Today's cheaper mortgages are hard to get for many and out of the question for those in trouble. The rapid rise in asset prices does nothing fast and direct for the mass of Americans who own few of the assets. What is owned is squirreled away in battered retirement accounts. The stagnation in the US economy, falling dollars and falling debt flow make foreign markets and enterprises more essential. This directs attention, new employment and excitement to other nations. All of this shrinks the future importance of the lower 80% of Americans in global business terms.
Our recovery is fragile and has left behind many. This is rarely discussed and even more rarely understood. In the absence of discussion and understanding, anger simmers and erupts in odd places, times and ways.
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i 25 September 2009 Bloomberg News. Bloomberg estimates $11.6trillion in total assistance to the financial system.http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahys015DzWXc
ii The Federal Reserve releases its balance sheet every Thursday. http://federalreserve.gov/releases/h41/Current/
iii 13 August 2009, Freddie Mac. Chart Source. http://www.freddiemac.com/corporate/company_profile/pdf/fm_housing_crisis.pdf
Consensus among some economists, maybe. If you walk down the street or talk to people you wonder, what recovery?
A few issues stand out:
1. The metrics used by formal economics do not really catch what's happening now. That's a biggie. GDP just tells us money is flowing. It does not tell us if the flow is doing any good and it does not tell us what proportion of the population gets to share in the flow.
2. Some of the metrics have been cooked. Back when Bush was still in office lots of people said that true inflation was higher than reported. They were using a market basket that ignored the spending patterns of normal people.
3. The vocabulary of economics has been slow-cooked.
For the last 100 years economists have been working for the bosses, not the plebs. I think the vocab got purged as we Westerners tried to make it very clear that we had no sympathy for Marx. I don't care for Marx either, but he was right to be alarmed by the wretched poverty of Victorian London, when Britannia ruled.
Max is right
"...anger simmers and erupts in odd places, times and ways."
and my favorite eruption point is that of those lower middle class folk that passionately argue against Health Care. Welcome to the third world.