"End of Wall Street Boom" - Must-read history

[JackRiddler]

.

Comments on Mason's analysis of the global currency wars below.

But first, let's re-steal Nordic's quote from ZH on the Austerity-Schadenfreude thread:

http://www.zerohedge.com/article/visual-reminder-us-social-stratification

How Rich are the Superrich

A huge share of the nation's economic growth over the past 30 years has gone to the top one-hundredth of one percent, who now make an average of $27 million per household. The average income for the bottom 90 percent of us? $31,244.

Out of Balance

A Harvard business prof and a behavioral economist recently asked more than 5,000 Americans how they thought wealth is distributed in the United States. Most thought that it’s more balanced than it actually is. Asked to choose their ideal distribution of wealth, 92% picked one that was even more equitable.

More at the link ...

This is why we all gotta sacrifice equally, especially "public sector" workers (communist mooslim swine) who caused all problems in the universe. This is why impoverished "private sector" workers (Heroes of Capitalism including the unemployed, ex-workers, and those making less than living wages) must be made to resent the incredible privileges that firemen and teachers enjoy, like that they won't be denied care and get evicted for getting sick, or for getting old.

Here's two more from the ZH link:

In light of the present austerity debate and the "entitlements" propaganda the last one is possibly the most infuriating of all -- it shows how a once semi-progressive tax burden was constantly shifted to the workers. I'm a broken record but: Never forget that the payroll tax was for Social Security and Medicare, always with a massive surplus above the expenses of these programs, which went into financing the regular-budget deficits caused almost entirely by war and empire and interest originating from war and empire.

Oh, and as an inevitable function (in part because Americans must keep up with the Joneses, but mostly because in the middle of all that increasing income inequality they still gotta pay the rising costs of health care and housing), here's a last chart from an earlier ZH collection of stratification stats:



Many more at http://www.zerohedge.com/article/detail ... s-consumer


.................................


Thank you AD for Taibbi and gh2 for Mason....

Great stuff.

Really appreciated Taibbi's latest documentation and update of how the gangsters of the 2008 crash escaped justice and continue not only to prosper but to rule and to plunder. That's important, that's the news.

But Mason shows a big map we have largely missed so far, by doing something simple: bringing all of the current ongoing currency conflicts into a single analysis.

In fact we are in the midst of several currency conflicts and I will list them:

China versus the USA: in which the US wants China to allow the RMB to rise against the dollar, weakening China's competitiveness by raising the price of Chinese exports.

There is the USA versus the Emerging Markets: in which the USA's quantitative easing policy is seen to be exporting inflation, again forcing the currencies of Brazil, South Korea and other export giants to rise against the dollar.

With the Brazilian real up 40% against the dollar in two years Brazil responded to QE2 with
a. A tax on foreign purchases of bonds, designed to suppress the flow of capital in Brazil
b. $40bn of intervention into the spot market for its own currency
c. This month, a ban on short selling of the dollar against the real in Brazil

There is the Euro versus the dollar. Analysts at Goldman Sachs estimated that the entire negative impact of European austerity programmes in 2010 could be offset by a fall in the Euro's exchange rate to parity with the dollar: to the extent that this does not happen, Europe bears the cost of its own crisis.

Then there is north Europe verus south Europe. The Eurozone is locked into one exchange rate but peripheral Europe has, over a nine year period lost competitiveness against the core industrialised and export-led countries above all Germany. Southern Europe cannot devalue, so it is being forced to impose an internal devaluation by the Eurozone authorities - which means massive austerity, wage cuts and the erosion of welfare state provision.

Then there is Japan versus America. When America did QE, so did Japan - in part justifying the move on the grounds that QE was an act of exchange rate competition.

Finally there is Britain versus the rest of the world.

We've seen stories here on each of these before, usually many stories. But merely to list them in one place results in something much closer to a complete, synthetic understanding, and also avoids the pitfall of exaggerating any single one of these; they need to be viewed relative to each other. Mason's follow-on discussion is very illuminating.

It gives you another reason why, despite the fundamental overvaluation of the US economy relative to the rest of the world and the US probably facing the most intractable of the large-scale debt crises, almost everyone involved wants to see the dollar propped up anyway, and are willing to bear the price of the QEs not just to maintain the value of their own dollar holdings but to prevent readjustments that they perceive will wreak havoc on their trade-dependent economies.

Caveat my thoughts as initial and for discussion:

Current situation: China as it has for years wants to diversify away from the trap of holding huge USD reserves without burning these in a massive USD devaluation, and wants to keep the USD up against the RMB for trade purposes; but all of the economic logic pressures for a USD devaluation against RMB. EU wants a higher USD for trade purposes but probably fears any sudden euro devaluation for the risk of setting off another political crisis over the euro's viability (which is very exaggerated imho), and anyway, going by fundamentals beyond the neocon anti-EU propaganda, the USD is probably still overvalued against euro. Meanwhile, USD has already run into the problem of not enough buyers for bonds (regardless of their confidence in being paid back) simply because there just aren't enough, which is the hidden reason for QE2 in the first place. And the unimaginative US politics are pushing for simple austerity in the US and refuse to deal with income inequality by taxing the rich and spending on stimulation, which means demand ain't going up and there won't be a recovery. (Orlov or Ruppert might tell you there's a necessity there because of peak oil.)

Coming up: Mason suggests going by the Great Depression that those who devalued their own currency first came out ahead in the end, but perhaps now those who bite the bullet first of rising against the USD will come out furthest ahead in the end if they combine that with protection. I don't see a way around regionalization and moving toward an ecological (a word Mason doesn't mention) intelligent self-sufficiency within regions, nations and areas that, however, is still open to mutually beneficial exchange. The globalist one-world-capital-market project ran into disaster, a corrective is required, but no one's willing to be accused of starting a trade war and suffering the retaliation of being perceived as having done so. Can this over-entanglement be peacefully unwound? (Yeah, I know: With these bozos in charge?!)

.

[vanlose kid]

The Weekly Chart That Needs No Introduction Or Explanation
Submitted by Tyler Durden on 02/24/2011 19:27 -0500



...

http://www.zerohedge.com/article/chart- ... xplanation

*

[Luther Blissett]

AD, that Taibbi piece is gangbusters.

[JackRiddler]

The graphic shows that from December 2009 to January 2011, the M2 measure of money supply in the US first dropped from 8550 billion to 8460 (-1.1%) in a month, before beginning a consistent rise to 8900 by the end of the 13-month period (+4.9% from low). By comparison, the claimed GDP growth in the same period was near 3%.

Given TH's world-view it "needs no explanation" because it's an article of religious faith, just like the set of similar charts for six different major currencies "Which Prove That Central Banks All Over The Globe Are Recklessly Printing Money" posted by anothershamus on the last page (viewtopic.php?f=8&t=21495&start=795#p384729). In this worldview, money supply growth is a great evil that will inevitably cause hyperinflation. Depending on the writer, that's either because it's crack for the banksters and lets them "bribe" a corrupted population with Keynesian booze; or because it's the intended strategy to destroy the "wealth" that doesn't actually exist for about 80 percent of the population, whose problem is not how to keep their savings secure but crushing debt (or, for the bottom 20-30 percent: the lack even of that). In a reaction I've seen so often that I have to think of it as a piece of Pavlovian conditioning, one of the first comments to TH's post predictably trots out a link to a Zimbabwean trillion-dollar note for sale on E-bay.

To paraphrase my response from last page:

Whether or not the central banks are recklessly printing, the upward slope in itself proves nothing. It says little without direct comparisons of one currency to another. That requires history and an analysis of parameters beyond M2 money supply. Can TH point me to periods in the modern era without money supply growth, and show that these were better times, or did not also end up in economic crisis?

The perpetual crisis lies in capitalism with its profit imperative and illusion of permanent growth, not in the money supply per se. Since the 1970s wild financial speculation and increasingly central bank money-printing have come to the fore as means to put off and hide crises, with the feature that they set up perpetually larger and more frequent new crises. I don't trust treatments of monetary irresponsibility that don't acknowledge the underlying capitalist dynamics, or worse, pretend that a more pure capitalism would be the solution.

Such a chart is also meaningless in the standard economics without taking account GDP growth, the demand-inflation that accompanies growth, growth in population (in the case of the EU, I noted, that would include its massive expansion in membership from a dozen to now 27 countries), the arrival of money economy to large portions of India and China where it had not previously existed, or the reality that more and more sectors of economies have been monetized.

My point is not whether any of these developments are good or bad, only that the money supply chart by itself is not an argument and does need explanation if it is meant to support one. Many goldbugs think that flashing an upward M2 slope is enough to bludgeon everyone into panic and buy! gold! now!

Also:

I think vanlose hit it earlier when he said, long as the financial system is a business of fraud with bogus accounting and criminals never punished, gold will remain in demand as a perceived haven -- although I think it's a joke as a hedge against total disaster scenarios compared to real assets like housing, land, water, food or production stock.

So do I think QE2 or M2 growth per se are good things? Not at all. QE2 is the latest stop-gap bailout measure for the banksters, and a terrible substitute for a stimulation of the economy through intelligent investment (like the needed plan for a new energy and transport infrastructure, without which all this really is going to become academic in a decade or two). But the immediate disaster is going to come from "austerity."

Do QE2 or M2 growth automatically spell inflation? In commodities, I think they have, indirectly. QE2 and money supply growth have merely put more cash in the hands of the banksters and the big corporations. The top 500 US non-bank corporations are not only making big profits but also holding 2 trillion in cash reserves, and they're not using it. They don't believe in investing in the American economy, for some reason. The banksters are also entering a third post-crisis year of plenty of cash to play with and minimal lending to the economy. So they're making interest off these reserves (a further extractive burden to the productive economy) or playing around in the equities and commodities markets, looking for new asset classes to inflate or other games with which to turn money into more money without needing an intervening and messy stage of, ugh, business. This is related to the global commodity inflation and the food crisis.

But the simple existence of money supply isn't causing inflation through devalution of buying power, since that surplus money supply is not circulating in the real economy but in the financial games.

Some comments from that page, an interesting clash of ideologies:

by Sam Clemons
on Thu, 02/24/2011 - 19:40
#995354


Please, they [the Fed] never plan to sell it [the accumulated US debt they now hold]. Just like most the other sh*t they bought using money created out of thin-air to bailout the wealthy elite and letting the rest of the world pay for it via higher prices.

But they (the Fed) can't take losses. They own the press and are un-auditable. There isn't an exit plan. The exit plan is to continue creating as much debt as possible. It is already going asymptotic - that is the only way to keep the Ponzi scheme going as it needs more and more.

.....

by ZerOhead
on Thu, 02/24/2011 - 19:52
#995386

"There isn't an exit plan."

I can't understand how otherwise 'smart' people can't get this. We have gone way way beyond NEVER NEVER LAND. I for one do not even wish to know where the trillions in Fed Central Bank 'swaps' have gone. Probably Israel... or repatriated to wherever to join the $2.3 trillion missing pentagon dollars Rummy was talking about on 9/10.

.....

by asdasmos
on Fri, 02/25/2011 - 03:01
#996274

The Fed's reaction will be as predictable as ever.

We already know that Chairman Bernanke exculpates the Fed for any blame in creating inflation either domestically or abroad. In fact, he refuses to even consider rising food and energy prices in his definition of inflation. Americans could be paying $50/pound for ground beef, but as long as their houses are still losing value, Bernanke doesn't see an inflation problem. Meanwhile, they're eating squirrel for protein while making payments on a mortgage twice as expensive as the house.

The truth is that Bernanke doesn't know what causes inflation, so he can't be expected to spot it, much less do something about it. Using the Fed's own history as a guide, Bernanke will view rising commodity prices as a threat to GDP growth and a sign of pending deflation. That's because the Fed is caught up in a 'Phillips curve' philosophy that only equates economic growth and prosperity with inflation. In short, Bernanke believes that slow growth and rising unemployment rates equate to deflation, despite plentiful contrary examples in history.

Since he believes rising commodity prices are deflationary and have nothing to do with his own loose monetary policy, the Fed is likely to expand its balance sheet to a greater degree. The fact that the Fed's massive money printing effort is the progenitor of global food riots completely escapes him. As more damage is done, the Fed will use the resulting contraction in GDP to justify a third round of quantitative easing - further harming the GDP.

Unfortunately, the vicious cycle of stagflation will grow more acute with each iteration of the Fed's love affair with counterfeiting. Countries that make the mistake of continuing to peg their currencies to the US dollar will suffer more inflation and more destabilization. Since it will be hardest for the US to ditch the dollar, our hopes are dimmer.

http://blogs.forbes.com/michaelpento/20 ... inflation/

.......

by Spalding_Smailes
on Thu, 02/24/2011 - 19:51
#995381

Bernanke discusses plan to unwind Fed's balance sheet

"The traditional tools the Federal Reserve uses to conduct monetary policy areopen market operations, the discount rate, and reserve requirements.TheFederal Open Market Committee (FOMC) uses these tools to stabilize prices and promote economic growth and full employment. Over the course of a typical business cycle, the FOMC will adjust the federal funds rate, historically the primary policy tool, to achieve the Fed's dual mandate, thus promoting stable long-term economic growth. " .....................

http://www.frbatlanta.org/pubs/extracre ... _sheet.cfm

"Jan. 10 (Bloomberg) -- Federal Reserve Vice Chairman Janet Yellen presented a possible timeline of about seven years before the Fed’s balance sheet is restored to normal levels, while saying the central bank’s asset purchases will end up creating 3 million jobs by 2012.

Yellen, speaking in Denver on Jan. 8, referred to a model created by Fed economists that assumes the central bank will complete its second round of large-scale Treasuries purchases within a year. The Fed’s balance sheet would stay “elevated” for two years before returning to a normal size over five years, she said, alluding to the economists’ research.

The timetable is “a reasonable proxy for what they might do,” said Allen Sinai, president and chief executive officer of Decision Economics Inc. in New York, who appeared on the same panel as Yellen.

Unwind Assets

Under the simulation, the Fed “renormalizes the size and composition of its security holdings within five years.” In order to achieve that path, the paper said, the Fed would unwind assets at a pace of about $80 billion per quarter through the middle of 2017." ....................

http://www.businessweek.com/news/2011-0 ... ed-qe.html

by JonNadler
on Thu, 02/24/2011 - 21:12
#995613

the GDP from 1980 to 2011 went up about 4.5 times

M2 went about 9 times

by Spalding_Smailes
on Thu, 02/24/2011 - 20:02
#995417

Over the last 10 years, especially since the 2008 crash, the Chinese government has taken several actions which, although correct at the time, have fanned the price of commodities more so than QE2. Such moves include:
The 2008 stimulus package that pumped $584 billion into the Chinese economy. In 2010, China's M2 money supply rose 19.7% over the prior year. With money supply now at 73 trillion yuan, it is larger than China's GDP of 67.5 trillion . By comparison, the U.S. M2 as a percentage of GDP is close to 0.6. That will create some inflation.
For many years, the Chinese government has artificially kept prices of electricity, water, and natural gas low through subsidies to promote economic development. Unfortunately, this has promoted waste by end users and was expensive to the government. Last year, they increased these prices to true market levels. This came as a shock to many and added to perceptions of greater inflation.
To deal with an over-heated high- and middle-end housing problem in coastal cities last year, the Chinese government implemented a number of draconian macroeconomic policies. They've worked as hot money has been taken out of the housing sector. Yet, evidence existsthat speculation and hoarding has flowed into food items such as onions, beans, peanut oil, corn, ginger, apples, and sugar. Food CPI increased by almost 12% last year, which contributed to two-thirds of the overall increase in the Chinese CPI.
The Chinese government has been trying to migrate the Chinese economy from one driven by foreign exports to domestic consumption. This is seen as more stable and less vulnerable to some foreign Lehman-like shock in the future.

The government's efforts have been successful. Last year, Chinese consumer spending increased 18.4% to 154 trillion yuan from the prior year. Yet, such consumption doesn't occur without requiring more raw materials to build televisions and appliances. It's a big reason why -- in the last year -- cotton was up 88%, wheat 54%, sugar 38%, and copper 21%.
The migration of many rural workers to bigger cities to pursue higher standards of living have resulted in stories of "empty villages" back in the country with insufficient labor to grow the needed crops. Lower agricultural demand in turn drives up prices. China has been a net importer of food for many years already. As purchasing power increases in the coming years, the Chinese desire to feed themselves a higher protein diet will further exacerbate prices.
With an expectation that the yuan will need to be revalued upwards in the coming years and with China's relative outperformance in the global economy, hot money continues to flow into China . That creates additional inflationary pressures.

http://www.thestreet.com/story/11019783 ... oblem.html

..........

by ZerOhead
on Thu, 02/24/2011 - 20:12
#995457

So it's not freshly created (out of thin air) trillions sloshing around in the global financial system that is causing commodity inflation.

It was the goddamn Chinese government!

Thanks for the enlightenment, now I finally know what drives commodity prices!

.........

by Spalding_Smailes
on Thu, 02/24/2011 - 20:20
#995478

That's right. In China.

Read the piece again. What's China's M2 again/GDP.

But , but, but .... I thought HYPERINFLATION is just around the corner, just wait a bit, it's coming soon Lol'

And tell me again who is going to take over the reserve status from the USA ? China - Euro .... Fail, next.

[Where does this certainty of euro-fail come from with these people?]

.........

by ZerOhead
on Thu, 02/24/2011 - 20:33
#995511

So you believe there are no alternatives to the US dollar right?

You will learn a hard lesson my friend!

.........

by Spalding_Smailes
on Thu, 02/24/2011 - 20:42
#995529

O.K. What's the Alternative ?

I can't find one ..... And not enough Gold above / below ground that can support global finance. That's why they dump'd it in the first place. Forex, Global Finance ect .... The market is too big.

.........

by ZerOhead
on Thu, 02/24/2011 - 21:14
#995614

Good... at least we now have a conversation. And at least you realize we are currently in one hell of a jam. And as you have rightly pointed out there is no simple currency solution.

And I gotta tell you up front... I'm not such a big fan of Global finance these days and markets... as we are finding out... are not the true economy anyway.

What is real are the nuts and bolts businesses that never even get listed on the global market gaming boards.

Whether GM is selling for $10 a share or $10,000 a share is largely irrelevant to the functioning economy. They build cars. If the cars sell for more than it cost's to produce they make a profit... if not.. perhaps a loss. The price of the stock has (largely) no effect on the day to day business they are engaged in.

And when the creation of money becomes itself a bubble weve got serious problems heading our way.

We shall see the inevitable loss of purchasing power play out for now until an event triggers either collapse or hopefully merely a hard/soft landing to a much lower standard of living for at least the majority of western developed nations.

As confidence in the viability of fiat currencies continue to erode people will continue buying assets like PM's, base metals, stocks(unfortunately) and my personal preference?

Distressed real estate.

.........

by mtomato2
on Thu, 02/24/2011 - 23:40
#995971
What follows is so stupid and anecdotal, I know, but check it out:

I bought a .99 cent double stack today at Wendies for $1.46.

Is that O.K.? Is everything fine? Should I be worried?

[vanlose kid]

Hi Jack, you mean something like this?

Guest Post: So is Everyone Printing Money? (Short And Sweet)
Submitted by Tyler Durden on 02/25/2011 10:57 -0500

From James Vinall

Henry Morganthau Jr., said in 1939:

Never in the history of the world has there been a situation so bad that the government can’t make it worse.

So is Everyone Printing Money?



Greenspan started this calamitous monetary expansion to bail out US Inc and banks from the tech wreck in 2000,as revealed in the chart of the price of gold below. Bernanke continued the stimulus and Darling/Osbourne, Trichet et had no choice but to follow.



The Japanese has had thrown vast amounts of stimulus money at the economy since 1990 to little or no effect and all they got was more debt (sounds like Henry Morganthau Jr.)



Here is a chart of 6 major equity market crashes caused by overburdening debt, starting 6 years before the ultimate market peak and the aftermath. In 1931, the DJI bottomed out at 10% of its peak value as there was no meaningful stimulus package and it took 25 years to make a new high. The NASDAQ bottomed at 23% of its peak value in 2003 and remains under 60% of its ultimate. Japan saw massive stimulus in 1992 supporting the market at 40% of its ultimate, but when that stimulus ran out 8years later the markets fell to 20%. The Chinese since 2007, seem the be following the Japanese path of smoothing a decline.



Japan has found out the perils of a long term zero interest rate policy means the banks have no incentive to assume credit risk and lend to each other or anyone else, so they trade their own book. The performance of the FTSE 100 and S&P500 suggest the true extent of the banks continuing to use cheap government money to trade bonds and equities. Japan knows what happens when the “extend and pretend” gravy train stops rolling.

Equities should continue to rise while government stimulus money can find no other home. This is why politicians are irked at bankers bonuses, because they wouldn’t be making fat profits without cheap government money raised at the expense of the tax payers. All tangible assets, commodities (metals, energy, agricultural) and rare artifacts are likely continue rising until growth is undermined. The threat of rampant inflation and civil unrest will eventually cause the US, UK, Eurozone, Japan and China to rethink stimulus packages.

We are in bubble caused by politicians across the world trying spend their way out of debt. It hasn’t worked before and it won’t work this time either.

The problem we have is not knowing when the bubble will burst.

http://www.zerohedge.com/article/guest- ... -and-sweet

*

[vanlose kid]

Madoff for sec.tres.



*

[JackRiddler]

.

Just for kicks, some more charts by McKinsey from http://www.zerohedge.com/article/detail ... s-consumer

Relevant to the whole currency war thing:


Meanwhile, domestic:



With income growth flat, where'd that growth in consumer demand in the 2001-7 period come from?

This part's incredible -- we've seen it before, but it's easy to forget -- scamming the people into taking $4.5 trillion more in debt in just 5 years!







This one has dropped more since 2008:


Interestingly, with the reduced reliance on debt:


No surprise given income inequality:


This greatly distorts the economy; everything's oriented to service to the rich and luxury goods. Or as TH says:

A drill down of disposable net income (after tax) and net worth, demonstrates why any discussion of "generic" consumers should be much more properly phrased as an observation of the "Wealthy" and "Everyone else".



The disposable income difference between the richest 10% and even the next richest decile is staggering: a 3x order of magnitude. And a fact that Taleb fans would likely appreciate most, the pretax income difference between the median and mean for the top decile is shocking: $206,900 versus $397,700. This is skewed by a statistically low number of outliers earning an abnormally large amount of disposable income.

As recent macroeconomic data have demonstrated, the massive slack in the job pool has caused real wages to decline materially. In fact, for an end consumer, a 5% real or perceived decline in pretax income would offset all the "beneficial" implications of the 50% increase in the S&P since the March lows (not even considering the 30% market decline from its highs). The reason for the Fed's nervousness is evident: the truth is that all three of the key psychological metrics that determine consumption are plunging, and absent the recent aberration driven by the abnormal market action over the past 5 months, the consumer has no reason to be cheerful about the future, and to go forth and spen and drive the US (and global) economy forward.

[seemslikeadream]

Vanz can’t dance, but he’ll steal your money,
Watch him or he’ll rob you blind.

Out in the street a crowd is gatherin’,
Pushed down by the heat of the building, they’re wantin’ to dance.
Makin’ their way up the street, a boy with a pig and a radio;
Little billy can work on the crowd, put ’em into a trance,
For the little pig vanz.

You’re watchin’ ’em dance, not a care in the world;
So billy and vanz get busy, they’re makin’ their move;
The little pig knows what to do, he’s silent and quick, just like oliver twist;
Before it’s over, your pocket is clean,
A four-legged thief paid a visit on you.

[vanlose kid]

Guest Post: Corporate Profits Soaring Thanks To Record Unemployment
Tyler Durden's picture
Submitted by Tyler Durden on 02/28/2011 16:27 -0500

Submitted by Mark Provost of The Economic Populist

In a January 2009 ABC interview with George Stephanopoulos, then President-elect Barack Obama said fixing the economy required shared sacrifice, "Everybody’s going to have to give. Everybody’s going to have to have some skin in the game." (1)

For the past two years, American workers submitted to the President’s appeal—taking steep pay cuts despite hectic productivity growth. By contrast, corporate executives have extracted record profits by sabotaging the recovery on every front—eliminating employees, repressing wages, withholding investment, and shirking federal taxes.

The global recession increased unemployment in every country, but the American experience is unparalleled. According to a July OECD report, the U.S. accounted for half of all job losses among the 31 richest countries from 2007 to mid-2010. (2) The rise of U.S. unemployment greatly exceeded the fall in economic output. Aside from Canada, U.S. GDP actually declined less than any other rich country, from mid-2008 to mid 2010. (3)

Washington’s embrace of labor market flexibility ensured companies encountered little resistance when they launched their brutal recovery plans. Leading into the recession, the US had the weakest worker protections against individual and collective dismissals in the world, according to a 2008 OECD study. (4) Blackrock’s Robert Doll explains, “When the markets faltered in 2008 and revenue growth stalled, U.S. companies moved decisively to cut costs—unlike their European and Japanese counterparts.” (5) The U.S. now has the highest unemployment rate among the ten major developed countries. (6).

The private sector has not only been the chief source of massive dislocation in the labor market, but it is also a beneficiary. Over the past two years, productivity has soared while unit labor costs have plummeted. By imposing layoffs and wage concessions, U.S. companies are supplying their own demand for a tractable labor market. Private sector union membership is the lowest on record. (7) Deutsche Bank Chief Economist Joseph LaVorgna notes that profits-per-employee are the highest on record, adding, “I think what investors are missing - and even the Federal Reserve - is the phenomenal health of the corporate sector.” (8)

Due to falling tax revenues, state and local government layoffs are accelerating. By contrast, U.S. companies increased their headcount in November at the fastest pace in three years, marking the tenth consecutive month of private sector job creation. The headline numbers conceal a dismal reality; after a lost decade of employment growth, the private sector cannot keep pace with new entrants into the workforce.

The few new jobs are unlikely to satisfy Americans who lost careers. In November, temporary labor represented an astonishing 80% of private sector job growth. Companies are transforming temporary labor into a permanent feature of the American workforce. UPI reports, “This year, 26.2 percent of new private sector jobs are temporary, compared to 10.9 percent in the recovery after the 1990s recession and 7.1 percent in previous recoveries.” (9) The remainder of 2010 private sector job growth has consisted mainly of low-wage, scant-benefit service sector jobs, especially bars and restaurants, which added 143,000 jobs, growing at four times the rate of the rest of the economy. (10)

Aside from job fairs, large corporations have been conspicuously absent from the tepid jobs recovery. But they are leading the profit recovery. Part of the reason is the expansion of overseas sales, but the profit recovery is primarily coming off the backs of American workers. After decades of globalization, U.S. multinationals still employ two-thirds of their global workforce from the U.S. (21.1 million out of 31.2 million). (11) Corporate executives are hammering American workers precisely because they are so dependent on them.

An annual study by USA Today found that private sector paychecks as a share of Americans’ total income fell to 41.9 percent earlier this year, a record low. (12) Conservative analysts seized on the report as proof of President Obama’s agenda to redistribute wealth from, in their words, those ‘pulling the cart’ to those ‘simply riding in it’. Their accusation withstands the evidence—only it’s corporate executives and wealthy investors enjoying the free ride. Corporate executives have found a simple formula: the less they contribute to the economy, the more they keep for themselves and shareholders. The Fed’s Flow of Funds reveals corporate profits represented a near record 11.2% of national income in the second quarter. (13)
Non-financial companies have amassed nearly two-trillion in cash, representing 11% of total assets, a sixty year high. Companies have not deployed the cash on hiring as weak demand and excess capacity plague most industries. Companies have found better use for the cash, as Robert Doll explains, “high cash levels are already generating dividend increases, share buybacks, capital investments and M&A activity—all extremely shareholder friendly.” (5)

Companies invested roughly $262 billion in equipment and software investment in the third quarter. (14) That compares with nearly $80 billion in share buybacks. (15) The paradox of substantial liquid assets accompanying a shortfall in investment validates Keynes’ idea that slumps are caused by excess savings. Three decades of lopsided expansions has hampered demand by clotting the circulation of national income in corporate balance sheets. An article in the July issue of The Economist observes: “business investment is as low as it has ever been as a share of GDP.” (16)

The decades-long shift in the tax burden from corporations to working Americans has accelerated under President Obama. For the past two years, executives have reported record profits to their shareholders partially because they are paying a pittance in federal taxes. Corporate taxes as a percentage of GDP in 2009 and 2010 are the lowest on record, just above 1%. (17)

Corporate executives complain that the U.S. has the highest corporate tax rate in the world, but there’s a considerable difference between the statutory 35% rate and what companies actually pay (the effective rate). Here again, large corporations lead the charge in tax arbitrage. U.S. tax law allows multinationals to indefinitely defer their tax obligations on foreign earned profits until they ‘repatriate’ (send back) the profits to the U.S. U.S. corporations have increased their overseas stash by 70% in four years, now over $1 trillion—largely by dodging U.S taxes through a practice known as “transfer pricing”. (18)Transfer pricing allows companies to allocate costs in countries with high tax rates and book profits in low-tax jurisdictions and tax havens—regardless of the origin of sale. U.S. companies are using transfer pricing to avoid U.S. tax obligations to the tune of $60 billion dollars annually, according to a study by Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon. (18)

The corporate cash glut has become a point of recurrent contention between the Obama administration and corporate executives. In mid December, a group of 20 corporate executives met with the Obama administration and pleaded for a tax holiday on the $1 trillion stashed overseas, claiming the money will spur jobs and investment. In 2004, corporate executives convinced President Bush and Congress to include a similar amnesty provision in the American Jobs Creation Act; 842 companies participated in the program, repatriating $312 billion back to the U.S. at 5.25% rather than 35%. (19) In 2009, the Congressional Research Service concluded that most of the money went to stock buybacks and dividends—in direct violation of the Act. (20)

The Obama administration and corporate executives saved American capitalism. The U.S. economy may never recover.

Sources:
1. ‘This Week’ ABC News with George Stephanopoulos, January 2009. http://abcnews.go.com/ThisWeek/Economy/ ... 199&page=2
2. OECD report, U.S. lost most jobs among rich countries. EMMA VANDORE AP Business Writer http://abcnews.go.com/Business/wireStory?id=11104432
3. Carnegie Endowment for International Peace. Policy Brief 89. November, 2010. Uri Dadush & Vera Eidelman. Five Surprises of the Great Recession. http://carnegieendowment.org/files/five_surprises.pdf
4. OECD Indicators of Employment Protection. http://www.oecd.org/document/11/0,3343, ... 1_1_3745...
5. The Wall St. Journal. June 8, 2010. Robert Doll. Opinion. The Bullish Case for U.S. Equities. http://online.wsj.com/article/SB1000142 ... 79646147...
6. Bureau of Labor Statistics. International Labor Comparisons. Updated Dec. 2, 2010. http://www.bls.gov/ilc/intl_unemploymen ... onthly.htm
7. Bloomberg Businessweek. January 22, 2010. Holly Rosenkrantz.Union membership in the private sector declines to record low: http://www.businessweek.com/news/2010-0 ... the-priv...
8. Joseph Lavorgna quote: CNBC. When will profits translate into jobs? http://www.cnbc.com/id/40350345/When_Wi ... ts_Trans...
9. UPI. Temp work becomes a fixture. Dec. 20th, 2010. http://www.upi.com/Business_News/2010/1 ... fixture/...
10. Restaurant industry’s hiring helping to revive economy. DAYTON, Nov 28, 2010 (Dayton Daily News - McClatchy-Tribune Information Services via COMTEX): http://www.techzone360.com//news/2010/11/28/5161348.htm
11. Tax Notes, Martin A. Sullivan. U.S. Multinationals Cut U.S. Jobs While Expanding Abroad. http://taxprof.typepad.com/files/128tn1102.pdf
12. USA Today. May 26, 2010. Private pay shrinks to historic lows as gov't payouts rise. http://www.usatoday.com/money/economy/i ... hifts-fr...
13. New York Times. Economix blog. Catherine Rampell. Nov. 23, 2010. Visualizing Booming Profits. http://economix.blogs.nytimes.com/2010/ ... g-profits/
14. $262 billion in equipment and software investment, calculated from EconStats. http://www.econstats.com/nipa/nipa_5__3___5q.htm
15. ABC News. Dec. 20, 2010. Mark Jewell. S&P 500 Companies More Than Double Buybacks in 3Q. http://abcnews.go.com/Business/wireStory?id=12440445
16. The Economist. Companies’ cash piles: Show us the Money.http://www.economist.com/node/16485673
17. Corporate Income Tax as a share of GDP, 1946-2009. http://www.taxpolicycenter.org/taxfacts ... ?Docid=263
18. Bloomberg. May 13, 2010. U.S. Companies Dodge $60 Billion in Taxes with Global Odyssey. http://www.bloomberg.com/news/2010-05-1 ... e-60-bil...
19. Bloomberg. Jesse Drucker. Dec 29, 2010. Dodging Repatriation Tax Lets U.S. Companies Bring Home Cash http://www.bloomberg.com/news/2010-12-2 ... x-lets-u...
20. Center for Budget priorities. Robert Greenstein and Chye-Ching Huang. Feb. 2009. Proposed Tax Break For Multinationals Would Be Poor Stimulus
“Dividend Repatriation Tax Holiday” Failed in 2004, Unlikely to Work Now. http://www.cbpp.org/cms/index.cfm?fa=view&id=2270

http://www.zerohedge.com/article/guest- ... employment

*

[8bitagent]

http://www.huffingtonpost.com/2011/02/2 ... 28963.html

[JackRiddler]

.

From 8bit's link:

"Inside Job" won the 2011 Academy Award for best documentary on Sunday night. The film's director used his acceptance speech to deliver pointed criticism of Wall Street and the financial industry.

Haven't seen it yet, I've heard only good things, I wish to take nothing away from the winner. But last year they didn't even nominate Capitalism, or other films have also told the same story. With the banking robberies of 2008 having receded, this is now a safe choice compared to Gasland. That would have been a huge controversy and courageous, it would have helped in a still-undecided fight over gas driller plans to poison the watersheds that supply the big cities of the Northeast.

The Oscar buildup featured speculation about whether Banksy, a mystery man of the street-art world, might show up for his awards entry, "Exit Through the Gift Shop." If he was at the Oscars, he did not declare himself.

But Justin Timberlake did as he stepped up to the mike: "I'm Banksy! Oh, it feels so good to have that off my chest!"

But it was the topic on most people's minds the last two years, the economy, that resonated among Oscar voters.

"Inside Job" director Charles Ferguson subjected Wall Street players, economists and bureaucrats to a fierce cross-examination to depict the economic crisis as a colossal crime perpetrated on the working-class masses by a greedy few.

His film examined the financial crisis of 2008. His speech lamented the lack of accountability three years later.

"Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that's wrong," Ferguson said.

Good for you Ferguson! A billion people watching and every one of them, minus a a few million idiots and the 10,000 fucks who need to be indicted, said FUCK YEAH. That's a direct quote!

This was all that he said, by the way, except for thank-yous. The show producers were very aggressive about cutting off acceptance speeches at 45 seconds, which makes for a lot of stress if it's supposed to be an entertainment program.

.

[Nordic]

I had a moment today on Facebook, a guy I know who's smart and whose heart is in the right place, but otherwise is a bit of a blowhard and a die-hard Obama fan, posted today about the very subject of that film, and the guy's statement on the show last night, and asked very dramatically why indeed has no one gone to jail yet, and I have to say it felt good to respond to him by saying "hey, why don't you ask your buddy Obama, since last I checked he's in charge of the Justice Department." This guy, who always has a response for everything, has finally fallen silent.

Maybe he's finally figuring it out.

[2012 Countdown]

[JackRiddler]

[Nordic]

Gee, thanks, RUB IT IN why dontchya!?

I saw this coming a few years ago, bought a lot of it, had to sell ALL OF IT last year.