Gap Between Rich and Poor Rooted in Government Policy

January 24, 2013

Anyone who proclaims the American economy is recovering from the financial crisis of 2008 is either lying or not paying attention.  The good people at the Economic Collapse Blog have aggregated 37 statistics that strongly indicate the economy continues to worsen under the financial leadership of President Obama and Federal Reserve chairman Ben Bernanke.  In particular, the figures indicate that it is the lower economic classes which have been most severely devastated by four years of reckless federal spending, bailouts for the well-connected, and artificially low interest rates.

For instance, since 2008 15 million more Americans rely on food stamps.  According to the Census Bureau, 146 million of us, nearly half of the U.S. population, are poor or low-income.  The Civilian Employment/Population ratio, which is the broadest measure of employment in the country, is the lowest it has been since the early 1980s.  Median household income has retreated to its 1995 level.  Lastly, the economy is not producing jobs for U.S. college graduates as 53 percent of them under the age of 25 are either unemployed or underemployed.  Given that many graduated with huge college debt, what could the future hold for these folks?

But, don’t despair.  Some in our society are doing quite well because of the federal largess thrown their way.  Most of them just happen to be located around New York City and the District of Columbia.  You see, the U.S. stock and bond markets are at, or near all-time highs.  Real estate in Manhattan and Washington, D.C. has bounced back nicely and are both at all-time highs.  Even the Contemporary Art market in the Big Apple has seen sales skyrocket in spite of higher prices.

But, this is predictable given that New York and the nation’s capital is where the Wall Street/Washington Axis of Financial Evil is headquartered.  It is where that axis prints the new money and injects it into the economy through its well-connected surrogates – i.e the “too big to fails”.

And it is all done in the name of stabilizing prices so the rest of us don’t suffer so much.  How nice it is that the powers that be are looking out for us working folk!

Don’t be fooled for a moment.

The financial establishment in this country, which includes the Federal Reserve and its “too big to fail” cronies, knew exactly what it was doing.  Through monetizing federal debt, a series of quantitative easing schemes and holding interest rates below market prices the banking establishment has succeeded at stabilizing the cost of living above market levels.  Put another way, if left to its own devices with no monetary easing from the Fed, the market would have rid itself of all the mal-investment built up from the previous Fed induced false boom period (housing boom).

Consequently, housing prices would be lower, commodity prices would be lower; in fact general price inflation would be lower.  The cost of hiring new workers would be lower causing an employment recovery.  Savers would have gotten a decent return on their money.  In short, working class Americans would have seen an enhancement in their standard of living.

On the flip side, many rich folks would have been devastated.  Their stock and bond portfolios would have been decimated.  Many would have lost their jobs through bankruptcy and restructuring.  The value of their homes wouldn’t have been restored on the backs of working men and women.

This is what should have happened.  After all, they caused the crisis along with their accomplices in government.  Didn’t they deserve the consequences of their actions?  That is capitalism.  That is the American way.

Article first published as Gap Between Rich and Poor Rooted in Government Policy on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

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There’s No Recovery, Just More Hard Times Ahead

July 7, 2010

It’s comical to watch the financial channels’ pundits and Obama Administration officials almost on a daily basis tell us that we are well into an economic recovery.  Yes, there have been times when the economic data looked promising.  During some weeks first time unemployment claims have been down.  The economy has grown between two and three percent some months.  And there have even been some months when new home sales have swelled and the prices of houses in general have increased.  But the fact of the matter is that the worst of the crisis is yet to come and of course like the initial crisis which has lasted for close to three years already it will be Washington’s fault.

So, what are the indications that we are not well into an economic recovery and the worst of the economic pain is yet to come?  For one thing, the National Bureau of Economic Research (NBER), the government’s official judge of economic expansion and contraction, has not pronounced the recession that began in 2007 to be over.  Additionally, just yesterday the government announced the economy lost 125,000 jobs last month.  The real unemployment rate which takes into account discouraged and underemployed workers is still north of 16 percent.  Food stamp usage has skyrocketed to a record high of 40.2 million recipients.  Bank repossessions are still a massive problem.  They hit a record 93,777 in May which represented a 44 percent increase over May of the previous year.  Worst yet, all 50 states are experiencing year-over-year increases.  Banks still aren’t lending; consumers aren’t spending; and the national deficit and debt is in outer space with nothing good to show for it.

In all fairness, as mentioned above, there has been some good economic news from time to time.  For instance, housing prices did increase in April.  But most analysts attribute the rise to the rush to take advantage of the government tax credit for homebuyers which expired at the end of that month.  Since the tax credit expired almost all housing market barometers have dropped significantly.

Then there were those months that jobs were produced.  But, again, this had more to do with government gimmicks – 2010 census hiring and government spending then real economic progress. 

To be sure, some Americans are doing quite well in this recession and this might account for the president’s insistence that the recession is over and prosperity is just around the corner.  Who is doing well?  Well, folks that live close to Washington and Wall Street are doing very well.  Forbes Magazine has reported that 12 of the 25 riches counties in the country border the nation’s capital and financial headquarters.  It’s no wonder since government workers receive 45 percent more in pay and benefits than their private sector counterparts.  This is pretty good when you consider that it’s almost impossible to lose a government job even in economic recessions.  Of course, given the huge taxpayer bailouts to Wall Street bankers and the generous Federal Reserve policies towards the same it is also easy to see why suburban New York City is riding high in these tough times.

Besides the bureaucrats and bailout recipients several political cronies of the president have cashed in during this recession.  According to Floyd Brown and Lee Troxler in their book, Killing Wealth, Freeing Wealth, Larry Summers, chair of Obama’s Council of Economic Advisors, made $5.2 million in 2008 through his hedge fund.  Tom Donilon, a deputy National Security Advisor, made $3.9 million in legal fees representing Citigroup and Goldman Sachs.  As members of Obama’s inner circle, they are uniquely positioned to guarantee that federal policies continue to favor their interests.

And let’s not forget Obama’s huge financial supporter and billionaire buddy, George Soros.  According to Brown and Troxler, the financier pulled in $1.1 billion in trading profits in 2008.  After helping to finance Obama’s White House run, the president has wasted little time in rewarding his benefactor.  It is ironic that their partnership involves deepwater drilling.

The president and his cohorts in the media can spin economic news anyway they wish.  But, after 17 months in office and trillions of dollars spent to stimulate the economy the only thing the president’s policies have produced is more debt and predictions from many analysts that we are headed for a double-dip recession.  This should be no surprise – since similar economic policies deepened and prolonged the recession of 1929.  Then, Americans had to wait about 16 years for good economic times to return.  Given this president’s current propensity to spend there’s no telling how long it will take for this recession to end.