Why the Dow is Hitting 10,000 While Everyone Else is Cutting Back
So how can the Dow be flirting with 10,000 when consumers, who make up 70 percent of the economy, have had to cut way back on buying because they have no money? Jobs continue to disappear. One out of six Americans is either unemployed or underemployed. Homes can no longer function as piggy banks because they're worth almost a third less than they were two years ago. And for the first time in more than a decade, Americans are now having to pay down their debts and start to save.
Even more curious, how can the Dow be so far up when every business and Wall Street executive I come across tells me government is crushing the economy with its huge deficits, and its supposed "takeover" of health care, autos, housing, energy, and finance? Their anguished cries of "socialism" are almost drowning out all their cheering over the surging Dow.
The explanation is simple. The great consumer retreat from the market is being offset by government's advance into the market. Consumer debt is way down from its peak in 2006; government debt is way up. Consumer spending is down, government spending is up. Why have new housing starts begun? Because the Fed is buying up Fannie and Freddie's paper, and government-owned Fannie and Freddie are now just about the only mortgage games remaining in play.
Why are health care stocks booming? Because the government is about to expand coverage to tens of millions more Americans, and the White House has assured Big Pharma and health insurers that their profits will soar. Why are auto sales up? Because the cash-for-clunkers program has been subsidizing new car sales. Why is the financial sector surging? Because the Fed is keeping interest rates near zero, and the rest of the government is still guaranteeing any bank too big to fail will be bailed out. Why are federal contractors doing so well? Because the stimulus has kicked in.
In other words, the Dow is up despite the biggest consumer retreat from the market since the Great Depression because of the very thing so many executives are complaining about, which is government's expansion. And regardless of what you call it -- Keynesianism, socialism, or just pragmatism -- it's doing wonders for business, especially big business and Wall Street. Consumer spending is falling back to 60 to 65 percent of the economy, as government spending expands to fill the gap.
The problem is, our newly expanded government isn't doing much for average working Americans who continue to lose their jobs and whose belts continue to tighten, and who are getting almost nothing out of the rising Dow because they own few if any shares of stock. Despite the happy Dow and notwithstanding the upbeat corporate earnings, most corporations are still shedding workers and slashing payrolls. And the big banks still aren't lending to Main Street.
Trickle-down economics didn't work when the supply-siders were in charge. And it's not working now, at a time when -- despite all their cries of "socialism" -- big business and Wall Street are more politically potent than ever.
Cross-posted from Robert Reich's Blog.
Michael Brenner: Lies, Statistics and Economic Statistics
Here is a quick everyman's guide to economic statistics. Making sense of the figures demands a large measure of skepticism and an eye for misrepresentation and forgery.
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Only the superrich can save us. They have the capital to create jobs. But they don't. The most common use of capital by those that have it in over-abundance is to make more money. It is a sport of who can make the most. This is Prof. Reich's Supercapitalism. It buys political inluence to write the laws to make them more money. It outsources production to increase profits.
I have posted this idea before and I will again. End the flat tax on the wealthiests (the top marginal rate) which is the same percentage for those who make 400,000 and those who make $4,000,000,000! The tax rate can be on a curve that approaches flat at 100%as gross income approached ininity. Set the after-tax net income to a multiple of the median income. At double the cap the tax is 50%, at 4x 75%, 10x, 90% etc... If the net income was pegged to median income then the superrich will spend all their energy on creating more and higher paying jobs.
Amazing, I was thinking along those lines yesterday but could never have expressed it as well as you have.
NEW TAX CODE
Proposed For all income >= 40 x median income (MI)
Tax Rate = (TGI -20 x MI)/(TGI/20xMI)
TGI = Taxable Gross Income
TGI = Non capital gain income(NCGI) + taxable capital gain income(CGI) - Social Good Income
Social Good Income = Rewards or Patents for significant (!) inventions and discoveries (advancement in green technology, cures for fatal diseases, etc..)
Taxable capital Income = CGI x (CGI/(NCGI+CGI))
All Incomes
We have replaced one group of scoundrels with another. It must be our destiny to be screwed.
LuKennedy is correct, we have control. To try and tell anyone that is futile. Their eyes glaze over and they tune out. If it isn't on the TV, they think it can't be so. Mind control is well refined. We are a nation of zombies. The living dead.
The US International Trade Deficit must be corrected by any means possible! This is the basic structural economic foundation problem that will destroy the US economy.
The USA is losing the Economic War! The USA must re-industrialize, or become a third world nation of mostly unemployed beggars.
The USA has lost the World Technology Leadership! The USA must change the emphasis of our education systems back to technology and science.
The USA is Bankrupt! The USA is selling our privately owned land and other assets to pay for imported products (rather than have US citizens work to produce the things that we consume) and also to pay for growing US government expenses that are in excess of our federal tax collections.
When the USA has no more privately owned land and other assets to sell to foreigners in industrial countries in return for freshly printed US T-Bills, Bonds, or other Securities, those foreigners will not buy more of our freshly printed US T-Bills, Bonds, or other Securities and we will not be able to get any US dollars to pay for our government expenses or our imported consumer products.
The USA is Committing Economic Suicide! The USA will become a third world nation when our US dollar loses all of its purchasing value.
We are going to be in world of hurt when the stimulus programs run out of money. We will probably need another stimulus push, to close the gap between now and when the economy starts to recover.
It will be interesting to see how the winter holiday fare. Our entire family has agreed to not exchange gifts this year. Last year we probably spent around $50k in gifts in total, and I can't imagine we are the only ones planning on cutting back on gifts.
While I normally don't like government programs, it is clear that we need to fix our schools, roads, bridges, power grid, and rail system. Any trip to a European country and it is clear how far the US has fallen behind.
We are going to be in a world of hurt when the newly industrialized countries of the world that include China, India, Pakistan, Brazile, etc. will only pay pennies on the dollar for the freshly printed-paper T-Bills, US Government Bonds, and other US currency instrumernts for privately owned foreign held US Dollars at US Federal Reserve Bank (the FED) public auctions. The buyers are private individuals, banks, and government agencies in China, India, Brazil, Pakistan, and other industrialized countries. These entities use the US dollars that they earned by manufacturing things for international trade, mainly consumer goods with the USA.
The USA has created an economic situation that US gold; US currency; stocks, title to US real estate, businesses, jobs, and other privately owned US assets are leaving the USA to pay people in foreign countries to manufacture the things that US citizens import and then consume. We must change this situation or we will become a post WWI Germany economically. This could happen overnight as soon as we have sold title to all of our privately owned real estate, farms, agri-businesses, food supplies, dairies, forests, industries, breweries, hotels, factories, casinos, financial institutions, retail businesses, and all of the other privately owned assets located in the USA in return for the foreigner's US dollars that they earned by making things for US citizens to consume, and then we will have nothing else of value left to sell to the foreign industrialized nations.
The current proposed US government economic stimulation plan is apparently to print up a bunch of new paper currencies, T-Bills, US Bonds, Dollars and other similar paper US securities for sale at public auction as needed to acquirs US dollars for payment to US contractors to re-build and expand the US infrastructure (Pork Barrel Projects) in order to reduce unemployment. This money will probably be spent on imported earth-moving machinery, imported materials (Steel, Cement, Equipment, Pipe & Wire), new imported private executive jet airplanes, illegal alien labor, outsourced engineering, outsourced CAD drafting, etc., and the US workers will still be mostly unemployed, and the foreign manufacturers will benefit greatly. Any Economic Stimulus Spending should also prohibit any imported products (even if we no longer manufacture those products) from being purchased with these funds, and also prohibit all outsourcing of the Labor Required. What happens after the project ends? This is a short term solution that will only economically benefit foreign manufacturers of industrial and consumer goods, salesmen of the foreign manufactured equipment, materials, airplanes, etc., and the other people working in the distribution of the imported things for our infrastructure improvements, but the balance of trade will still require sending US dollars overseas to pay for these things that we import.
The US government will need to "borrow" at least $6 trillion more US dollars back from the industrial manufacturing countries that earned US dollars before the end of 2009 by conducting more of these FED auctions to sell more freshly printed US T-Bills, US Bonds, and other US credit instruments in return for US dollars that are mostly held by people in the industrialized nations.
When and if foreign individuals and governments stop buying freshly printed US paper T-Bills, US paper bonds, and other paper US securities at Federal Reserve public auctions to get back US dollars for US government expenses, and/or if foreigners start buying these items at the foreign currency exchange equivalent of a few pennies or less on the dollar face value, the government checks, social security checks, government payroll checks, and private paychecks will then not buy very much food or anything else that we consume. Your life savings might only sustain you for a couple of weeks.
And at that point, Gerald, those of us who own outright land on which to grow our own food and barter with others for what we can't make or grow ourselves, will be comparatively well off. Those who don't own arable land will be in dire straits.
Better start hoarding seed and learning to garden now, aye?
"If you want to remain slaves of the bankers and pay for the costs of your own slavery, let them continue to create money and control the nation's credit."
Sir Josiah Stamp
"Let me issue and control a nation's money and I care not who writes the laws"
Mayor Amschel Rothschild
"Whoever controls the volume of money in our country is absolute master of all industry and commerce, and when you realise that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."
James A. Garfield, 20th President of the US, two weeks before his assassination
" I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and the corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered. THE ISSUING POWER SHOULD BE TAKEN FROM BANKS AND RESTORED TO THE PEOPLE, TO WHOM IT PROPERLY BELONGS"
Thomas Jefferson
This is a documentary from the 90s that tells the whole scary story...a MUST-SEE! Audit the FED!!
http://video.google.com/videoplay?docid=-515319560256183936#
I really like this article!!!
It irritates me when my banker refers to Banking, Stock Trading, Insurance and other financial businesses as "industries", since they do not create anything, except worthless toxic asset paper financial "products".
The Wall Street Stock Exchanges and Banks are essentially corrupt and should have been allowed to close in Bankruptcy. Wall street is too corrupt and inept to be salvaged. Stocks should be delivered to the registered owners.
US Corporations should abandon Wall Street, buy and sell their company stocks themselves, and then allow new stock brokerage firms to slowly be created and evolve with tighter regulation and more penalties to prevent future Wall Street type criminal atmosphere of entitlement.
Houston, Atlanta, Dallas, Chicago, or some other different location might be a better location for a clean new start.
Well said, sir!
Well, what happened to the Happy Keynesian? Going to push for more govt spending, then, to make things even worse? Let's unlease the Krugman, and finish things off for sure.
If businesses across this nation are so important to our economic success, then why are they not creating jobs?
Where are the neocon thinktank conferences, with their smart and business-savvy CEOs, getting together to dig us out of this economic mess?
Why aren't CEOs of mega, international, national, large and medium sized corps gathering to find a way to provide jobs for everyone?
Oh... that's right. THEY'RE the one who got us into this mess in the first place. They and their GOP shills in the government who decided that deregulating everything and that laissez-faire capitalism was the end all and be all.
Funny how reality kicks in and proves their mythology a gigantic lie -- which affects not just a couple dozen people, but an entire planet.
This "They" that we all keep talking about, we need to put it into some perspective:
How many things in your home will last more than five years?
How many of those things that will last more than five years were purchased within the past twenty years versus those that have been passed down to you from your elders?
Do you have an old tube television or a giant flat screen? (can you even buy an old tube tv anymore, or have our standards been set for us by the industry?)
How much of you own was made in a foreign country?
How much of the meals you eat are pre-packaged for your convenience in plastic, which is made out of oil?
How many times a week do you eat out for convenience rather than cooking in?
Do you have a vegetable garden? Do you have time to garden?
When your doctor doesn't provide a cure, do you go back and pay again, or do you demand your money back?
How many vacations did you take last year?
WE are THEY.
The businesses across this nation are creating jobs, but these jobs are located in foreign nations because of the latest US government trade and enironmental laws. Labor and environmental costs are almost always much less expensive in foreign nations due to the latest US government trade and enironmental laws.
US citizens elected the congressmen and senators who voted for these laws that were generally created in the past four or five decades. Both major parties are in favor of free trade and a clean environment. Both Democrtats and Republicans voted (equally?) for this legislation. I do not know what the Prohibition Party's position is on this issue, or if that party still exists.
There was an era in the 1960's when people living in Pasadena, Texas said that their refinery pollution smelled like jobs, money, food, housing, and college educations for their children.
Thank you Robert Reich for your always insightful commentary.
I hope people are listening to you...
Hey Bob -- if you read these comments. Great stuff. Apropos, I had a thought today. My thoughts are generally denoted weird and worse.Feel free to ignore. If I lived in Berkeley I would feel free period.
Combine these two ideas.
1. Kiva-ize the world. Kiva does microcredit which recycles loans back to the lender and keeps building economies at the grass roots. Beats most philanthropy.
2. Institude a global guaranteed income floor administered by IMF or World Bank, keyed to cost of living.
Nations that or corrupt or genocidal would affect the floor. Their victims would get enough to escape their deleterious rule and enough to resettle somewhere else without necessitating huge refugee camps.
If you agree I will let you in on my third idea.
Rewrite the Geneva Convention to outlaw any form of war that inflicts more harm on an enemy than has been already inflicted, The Bush war would have had a limit of around 3000 lives.
What do you think?
Sorry for the misprints. Cleaned up here: http://stephencrose.wordpress.com
What would the cost of living be, exactly? Enough for food, water and shelter? Or do we also include the desires? If we don't include desires, upon whose needs do we base the floor for the basic necessities? Do we use your needs--your morning coffee you can't live without, your three meals a day, your bottled water? Do we use my needs--my medical conditions (I don't ask anyone to pay for them, by the way), my children's extra-curricular activities, my dog's food? If we include desire, upon whose desires to we base that floor? Yours? Mine? EAch person's idea of want and need is different. Each person's cost of living is different. Do we institute caps to insure that no one could exagerate their needs in order to take advantage of the system (there are seven billion of us in the world, that's a whole lot of people to police)? Where do those claiming amnesty settle? Do I have the right to denounce my citizenship and claim amnesty right here so that I get the benefits of those coming in, because often their benefits are better than mine? My nation is pretty corrupt, after all....
Wow, you pay your medical bills yourself?! You must be rich! Personally, my insurance pays. If I didn't have insurance, I don't know how I'd possibly manage.
You know, I've found it's much much more difficult to have the vision and courage to come up with new ideas, however farfetched, than it is to sit back and knock them down. Criticism is easy.
I'll add another one and brace yourself. This one's way out there. We improve our technology as a species to the point were it can provide for our human needs, food, shelter, energy, education and comfort to the point where we can eliminate all forms of currency and move to a resource based economy. Whoa.
http://www.thevenusproject.com/a-new-social-design/resource-based-economy
This blog article is not getting enough attention. It needs to be front and center.
People are getting poorer and the rich, who may or may not be people, are getting richer, still, again, and still. By "still" I mean since Regan.
The government is spending money that it is creating (printing). Nothing is being produced and that is why jobs are not created. It is really not as complicated as it is made out to be - we as a country cannot consume more than we produce. Remember, the government simply takes money that we make for producing goods and services (in the form of taxes) and redistributes that money in the form of services and transfer payments. When you view Reich's comments in that light, it's a little scary.
Remember also that the government taxes that money on all ends. We are taxed on productivity at the level of business, we are taxed on our incomes, and we are taxed on the goods we purchase. When the government prints that created money, that influx of created money causes inflation and a subsequent rise in prices even though our paychecks do not increase in kind. Because things are more expensive, the thing that used to cost one dollar that now costs two (exaggerating to make a point) which is still being taxed at 7% more or less is increasing the money collected by government from 7 cents tax to 14 cents tax. Instead of paying $1.07 for something I need, I'm paying $2.14. The individual is not making any more money for this scheme, but is losing money all the way around, htus making those poor people who just lost their jobs or those poor people who can't afford their medical bills or those poor people who need welfare even poorer.
The other day I saw a couple paying for basic food with rolls of change. Is this the change we were promised?
No. This isn't the change you were promised. It is your oun ignorance come to roost in the big, conservative rape called "supply side (voodoo) economics". Don't you feel stupid? Boy, I sure do. The message given to us workers from 2000 to 2008 was "This is a country of billionaires, and if you don't like it, you can just leave!" You don't matter. Your job doesn't matter. This isn't a free country, it has transformed into a country of a priviledged few.
This is the system you wanted. You cheered on the Reagan liars as long as you were involved. Now that you are not involved, it is Obama's or someone elses fault. What happened to the belief that the angelic, altruistic corporations will police themselves? For more than 20 years, the dimwit social conservatives have screwed this country into a corner. It will take more than 9 months for the 'new' dimwit to clean it up. Why do we teach our children not to be selfish, greedy, and stupid, and then elect the same in government. How do you feel now that you have figured out that your government is just one big get-rich-quick scheme?...And it isn't you getting rich.
The US government "borrows" US dollars, or actually they sell freshly printed-paper T-Bills, US Government Bonds, and other US currency instrumernts for privately owned foreign held US Dollars at US Federal Reserve Bank (the FED) public auctions. The buyers are private individuals, banks, and government agencies in China, India, Brazil, Pakistan, and other industrialized countries. These entities use the US dollars that they earned by manufacturing things for international trade, mainly consumer goods with the USA.
The US Government essentially became bankrupt when the US stopped redeeming our US T-Bills, US bonds, US dollars, and etc. for gold from our gold reserves at Fort Knox in 1971 or 1972. The US government then declared that the dollar is now backed by the "full faith and credit of the USA" (aka Junk Bonds). We now redeem foreign earned US dollars and other freshly printed US currencies for the title to privately owned US property (real estate, farms, agri-businesses, food supplies, dairies, forests, industries, breweries, hotels, factories, casinos, financial institutions, retail businesses, etc.) and other assets located in the US, instead of gold. This allows US citizens to sell assets generated by previous generations in lieu of US citizens having to work to produce the things that US citizens consume. These privately owned US located assets are finite, and the day will come when there is nothing left to sell to foreigners.
The FED publicly received bids of almost 4% interest for $100 billion of freshly printed paper US Treasury securities that were printed and sold at the May 2009 public auctions. This was about double the rate expected by the Treasury Department. The US government will need to "borrow" at least $6 trillion more US dollars back from the industrial manufacturing countries that earned US dollars before the end of 2009 by conducting more of these FED auctions to sell more freshly printed US T-Bills, US Bonds, and other US credit instruments in return for US dollars that are mostly held by people in the industrialized nations.
Who knows how high the interest rates and/or face value discounts will be bid at these future FED auctions. China, India, Brazil, Pakistan, and the other industrialized wealth generating nations already hold a large portion of all US federal debt securities, and they are exchanging these instruments for title to US real estate, farms, agri-businesses, food supplies, dairies, forests, industries, breweries, hotels, factories, casinos, financial institutions, retail businesses, and most other privately owned assets located in the USA that they do not already own, as fast as they can, since the US government will no longer redeem their dollars and other US government financial instruments for gold.
Some sources estimate that the title to 25% of privately owned US located assets with recorded deeds and/or titles are now listed as foreign owned (http://economyincrisis.org/articles/show/1072) and this percentage is increasing rapidly. Our payments for foreign oil, manufactured assembly parts, and foreign raw material suppliers are handled in essentially this same manner. What will we do when we have nothing of value to sell to the foreigners who work to make the things that we consume? I do not believe that they will work for free.
If we stopped allowing this exchange of US currency for US property, the buying value of the US dollar would diminish to the point that it might take a whole day's wages to buy one loaf of bread.
These privately owned US located assets are finite, and the day will come when there is nothing left to sell to foreigners, and then we will then have to re-industrialize.
The discounts/interest rates offered at public bid to purchase our freshly printed US securities by industrialized manufacturing nations that have acquired US dollars will depend and reflect upon the confidence that the USA instills these foreigners by our economic actions. (What if we made our currencies more pretty, or used psychedelic colors to improve their cash value. This might improve the value of the paper that they are printed on).
Many countries are losing confidence in the dollar as the benchmark for world trade and currency values. Other currencies, like the Chinese Yuan with a more stable value, are now being talked about as a replacement for the US Dollar as the benchmark for international currency values. The Chinese Yuan might be the last man (currency) standing after the US government destroys the US Dollar.
If taxes taken in each year are not sufficient to pay these expenses, the US government just prints more paper T-Bills, Government Bonds, etc. and sells them at FED auctions to people who are holding US dollars (foreign industrial manufacturers and foreign governments) in exchange for these freshly printed T-Bills, Government Bonds, etc. The US government deposits these US dollars into banks to redeem the government checks written for various US government expenses.
The perpetuation of corporatism will only serve to inflame the hemorrhaging wound that is the American economy.
Most of the jobs in the USA are created by coroporations and businesses. You could study and then work hard and then start your own corporation (or business) as I did in 1968.
Without businesses providing jobs, everybody would have to live off of the land. Any family, tribe, country, etc. and its individual members can prosper or become debt ridden in accordance with their industrial behavior, government spending behavior, and/or other economic actions of the leaders of that family.
The only thing that will create/save US jobs, preserve/restore the buying power of the US Dollar is reversing the trade deficit, reducing US government borrowing, and reducing the US government spending in order to start re-building the USA gold reserves which is the basis of the buying value of the US dollar. Only a positive balance of trade will eventually create US jobs. The only way that we can accomplish exporting US made products is to re-industrialize and make these products, hopefully with mostly US materials & Labor. The only way that our products will be sold abroad is if these products are either technologically superior, or cheaper. US citizens must manufacture and sell things to foreign countries in order to get US currency back from foreign nations in order to buy back the privately owned US assets sold to and now owned by foreigners.
Existing Science and Technology will not save the USA economy because in the last few decades we have decided that science and engineering educations should not be financially rewarded as much as other less demanding educations. Asian countries are now producing large quantities of technically educated and competent scientists and engineers that are probably better technically qualified than the US engineering graduates, while the USA produces Historians, Poets, MBAs, Economists, Social Scientists, Political Scientists, and etc. The Asian and other industrial countries produce very few of these non-technically educated students. China is a source of enormous scientific talent because the technical education process starts early and continues up the line to produce, at the end, a stream of highly qualified young people that is quite large compared to what comes out of US undergraduate programs. American students will not endure the hard work and intense focus that is required for science and engineering degrees, especially since there is such limited financial rewards and respect for that effort. The USA education system directs students to other fields of study that require very little effort and are rewarded with a highly paid Wall Street career.
Many entrepreneur owners of Restruants and retail stores here in Houston are Engineers who decided that engineering was no longer financially rewarding and left the Engineeirng profesion for more lucrative professions and businesses. My dentist is an ex NASA electrical engineer.
US Government jobs generally do not produce any of the food, shelter, and clothing required to sustain life. The communist form of government where everybody works for the government because the government owns everything does produce the food, shelter, and clothing required to sustain life. Most of the people in communist countries want to work at something other than producing the produce the food, shelter, and clothing required to sustain life. They become a nation of non-producers wanting the producers to produce more and more so that they can keep themselves busy as musiciams, poets, social workers, philosophers, historians, politicians, beaurocrats, administrators, etc., and let others produce the food, shelter, and clothing required to sustain the life of the nation.
Maybe the USA can no longer afford to tax the producers and spend their money on National Service, social entitlements, welfare, environmental clean-ups, digging holes then re-filling the same holes, pork barrel projects, free educations, free medicine, subsidized housing, humanities, art, music, poems, make-work schemes, entertainment, etc., and/or similar things that does not contribute positively to the long range benefit of our economy. These things are nice but the USA cannot afford these expenses until we re-establish our economic strength. These activities take tax money and employ people to do things that do not accumulate wealth for the family, tribe, or nation.
There has been no rhyme or reason about the direction the stock market indexes have taken in the past and now. This scenario has happened in the past and will happen in the future. In the past, many times during the rise and fall of the market, it never made any sense to anybody, at the time it happened. But the big Guru’s have always succeeded in giving a plausible explanation after the swing. I think most of them were only disingenuous speculation. If these Guru's are that good, why are they not able to predict these events at least most of the time. All this is more true, especially, in the short run.
The problem with your theory is that the stock market OVERALL has gone down. Manipulators, speculators control it. Statistically you cannot make a case that the the stock market has gone up.
Maybe certain insiders have made money, but the indices are way down in inflation adjusted terms and always has been. The 90s were the most extended period of gain in the indexes. The vaunted 80s just kept up with inflation.
Once Main Street hopped on the bandwagon that is when the scam accelerated.
So this is a government produced bubble...
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