Category: Economic Policy

Brexit: Better for the Pant Load or for the Pant Suit?

Around here, Monday means a wake-up tune. We should have Brexit breakup music, but instead of song, we need to watch this video by Mark Blythe, a Scottish political scientist, and a professor of international political economy at Brown University, about the logic behind voting for Brexit:

Blythe makes more sense in 5 minutes about the EU, why Brexit happened, and some implications for the US, than the entire journalistic class has said using millions of words over the past few days. At 4:01, he says, “As I like to say to my hedge fund friends, the Hamptons is not a defensible [military] position.”

Let’s take a quick look at a few conclusions of the Brexit vote:

  • Rust cities and towns largely voted to Leave
  • Wealthy cities favored Remain
  • Rural areas that have not seen much immigration had seen a lot of austerity
  • Older voters wanted to return to the prosperous 1970s-1980s, regardless of whether that is realistic

Demographically, the most striking difference in voting was between young people and older people. A YouGov poll showed:

18-24: 75% voted for Remain
25-49: 56% voted for Remain
50-64: 44% voted for Remain
65+:     39% voted for Remain

So younger voters wanted to keep the option to be citizens of a larger economic unit, where they might find more and better job opportunity, while older voters wanted out of the EU for a variety of fact-based and fear-based reasons. On either side of the Atlantic, it’s a mistake to think that people know all the facts before they decide. From Seth Godin:

There are two common causes of uninformed dissent…The second (quite common in a political situation), is the tribal imperative that people like us do things like this. No need to do the science, or understand the consequences or ask hard questions. Instead, focus on the emotional/cultural elements and think about the facts later.

Our first Brexit lesson is that America has a huge base that is angry, scared, and possibly, more than willing to jump into the abyss. Sober analysts warned Britons that pulling out of the EU would be an economic and security debacle. But, as Matthew d’Ancona of The Guardian observed:

They heard the warnings, listened to experts of every kind tell them that Brexit meant disaster, watched the prime minister as he urged them not to take a terrible risk…And their answer was: Get stuffed.

Our second Brexit lesson is that nativism, anti-immigration fervor, and elite-bashing are potent tools.

There was a definite scent of “Make Britain Great Again” running through the Leave campaign. The Leavers urged Britain to “take control” of its borders. While we point at Mexico, they pointed at Turkey, which they said would flood the UK with immigrants, even though Turkey may never be a member of the EU.

You can call it racism, you can blame it on the “market” or, you can blame it on the economic circumstances created by the political elites steering the ship.

This resonates in the US because foreigners are a source of marginal cheap labor that corporations use to bludgeon our working class. That anger is partly justified. However, it is misdirected, because people only believe what they want to believe, and because it’s easier for working people to blame foreigners than to blame themselves for repeatedly electing an economic elite that just keeps playing them over and over.

Brexit is an important wake-up for the US presidential election. Britain’s uprising against the European Union is the sort of populist victory over establishment politics that could easily happen here. As the NYT said on Sunday:

Mrs. Clinton shares more with the defeated “Remain” campaign than a similar slogan — her “Stronger Together” echoing its [Remain’s] “Stronger In.” Her fundamental argument, much akin to Prime Minister David Cameron’s against British withdrawal from the European Union, is that Americans should value stability and incremental change over the risks entailed in radical change and the possibility of chaos if Donald J. Trump wins the presidency.

Hillary urges potential voters to see the big picture, while promising to manage economic and immigration upheaval, just as Mr. Cameron did. She is also a pragmatist battling against nationalist anger, cautioning that the turmoil after the Brexit vote underscored a need for “calm, steady, experienced leadership in the White House.”

But we are not the UK, and today, the ABC/WaPo poll has Hillary is up by 12 points, although we still have miles to go before 2016’s election night.

We will have future columns covering our neo-liberal policies, their impact on the American people, and their implications for 2016, over the coming days and weeks.

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Republicans vs. Yellen

Federal Reserve Chairwoman Janet Yellen appeared before Congress on Wednesday for her semi-annual testimony. This, from the NYT:

Ms. Yellen’s final appearance before the presidential election in November was a master class in how many members of Congress have allowed real debate about the country’s economic challenges to be subsumed in the broader political din.

The way the kabuki play works, the Fed Chair starts with prepared remarks that all committee members already have in their hands. On Wednesday, she flagged long-run headwinds to economic growth, and said considerable uncertainties remain for the economic outlook, including risks from China and the so-called Brexit vote in the European Union. Still, she offered a dose of optimism, noting a considerable step-up in second-quarter growth and strong consumer spending in recent months.

Then the Kabuki play moved to questions by Congresspersons. More from the NYT:

It probably tells you everything that you need to know about the current state of the Federal Reserve and monetary policy that in the first ten minutes of Yellen’s Q&A, much of the questioning revolved around issues such as bank regulation/capital requirements and the diversity hiring policies of the Federal Reserve System.

It seems that Congresspersons can’t be bothered drilling down about what the Fed is really thinking about the economy. Based on yesterday’s evidence, they cannot even be bothered learning what Fed policy actually is!

House Financial Services Committee Chairman Jeb Hensarling, (R-TX), said in his opening statement that the Fed is “complicit” in the failure of the Obama administration’s economic policies and the inability of the economy to grow above a 3% annual rate. (FYI, we have hit 3% or more just nine times in the past 16 years)

It got worse:

  • Bill Huizenga, (R-CA), said he’s worried the Fed has itself become a too-big-to-fail financial institution. Remember folks, the Fed can issue all the money it might require, so it is difficult to come up with a scenario where the Fed fails.
  • Representative Scott Garrett, (R-NJ), accused Ms. Yellen of unfairly aiding Wall Street and worsening income inequality. From the NYT:

“Why do you see a need to benefit Goldman Sachs?” he asked.

“I’m sorry, we are not trying to benefit the rich,” Ms. Yellen responded, before trying to interject that more than 14 million jobs had been created since the recession ended in 2009.

“Excuse me, I have the floor,” said Mr. Garrett,

  • Huizenga, (R-MI), said the Fed should also have to undergo a “stress test” like a big bank because of its $4.5 trillion balance sheet. Huizenga said he is worried the Fed is insolvent.

Yellen said the Fed has already undertaken this sort of exercise. Our balance sheet is very different…The Fed is very different from a commercial bank.

Then came the “excess regulations are holding the economy back” questions from Republicans:

  • Randy Neugebauer, (R-TX), says there has been a “buffet” of new rules put on banks with little thought of the overall impact. Yellen replies that the Fed is trying to “reduce the odds” that banks get in trouble, and that most banks are profitable.
  • Blaine Luetkemeyer, (R-MO), asks why no new banks are being chartered, again stressing burdensome regulation. Yellen says the challenging economic environment, not regulation, is the likely culprit.
  • Steve Stivers, (R-OH) says that Fed regulations have held down private investment.

Yellen says Fed regulations are not out of line with international standards and the safety and soundness of the banking sector has improved.

  • Sean Duffy, (R-WI) asked if government regulation was a headwind to growth, saying that businesses cite regulation as a headwind. Yellen replies: “Are you referring to our regulations?” (emphasis and brackets by the Wrongologist)

I’m talking about government regulations…Why don’t you cite it as a headwind?

It’s very hard to quantify the extent to which regulations… [are] headwind[s], she said.

After a fruitless attempt to get Ms. Yellen to call health insurance costs for Wisconsin manufacturers a headwind, Mr. Duffy gave up in a fit of pique.

I’ll accept that as a non-answer, he said.

This hearing is an object lesson in why average people hate Congress. Committee members had a chance to drill down on the country’s economic challenges, but see only another talking points opportunity.

Imagine what similarly ill-informed Congress critters might ask witnesses in front of a different committee, say, at the Judiciary Committee:

Is it really appropriate to hold confirmation hearings when your term ends in four years?  Do we really want to saddle America with a Supreme Court justice nominated by a potential lame duck president?

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The Pant Suit vs. the Pant Load – Jobs, Part Infinity

We are in a time when a presidential candidate’s personality counts for more than the candidate’s policies. Candidates obfuscate on most policy issues and the media lets them get away with absolutely outrageous declarations of near-facts or outright half-truths.

One policy we must make them nail down explicitly is their jobs policy.

The key to making America great again is adding more jobs. Wrongo is a pest on this subject, but without more jobs, growth in GDP is harder to achieve. Tax revenues are more difficult to grow. People who are idle get into trouble.

The Pant Suit and the Pant Load know this, so they will talk from here to November about adding manufacturing jobs back to cities that lost them starting in the 1970’s. Those jobs are never coming back, but both of them are working hard to convince you they can do it. Consider this, from Parallel Narratives:

We’re now being told by folks who know better that all we need to do to bring those jobs back, to resurrect a future we can believe in, or make America great again, is to elect the outsider politician who is not beholden to elite interests like banks, CEOs and politicians. Unfortunately, that horse has left the barn, those jobs are gone for good…

A great example of a politician braying the “I can bring jobs back” mantra was in Sunday’s NYT business section’s column, “Preoccupations.” In it, a young couple had the option to work from home, so they moved from Austin, TX, that hot-bed of tech, to South Portland ME, not so techie. They work for two different firms from two home offices. Then, they are invited to attend a funds-raiser for a gubernatorial candidate: (emphasis by the Wrongologist)

The candidate raising campaign funds was a hard-working lawyer who seemed genuinely well meaning, but no one had told him that his economic platform of protecting manufacturing jobs and Maine’s traditional industries wasn’t going to fly with an audience of health care professionals, programmers, web designers and researchers…We muttered to each other that this guy didn’t have a place in his platform for people like us, many of whom worked for employers in other states. Our checkbooks stayed in our pockets.

If you hear this kind of BS from the Pant Suit or the Pant Load, your checkbook should also remain hidden.

While the low-wage jobs problem has been around for more than 40 years, America’s politicians are still peddling the same solutions. In fact, a new analysis from the White House’s Council of Economic Advisers (CEA) released Monday shows that only 88% of men ages 25 to 54 are participating in the US workforce. The CEA reports that the US has the third-lowest labor-force participation rate for “prime-age men” among the world’s developed countries. We have done so well that, on a percentage basis, Greece, Slovenia and Turkey all have more men working than the US does. Greece! The decline is concentrated among less educated. Here is a chart:

Male Labor Force Part by Edu

More than 95% of men used to work in 1964, regardless of their educational attainment. Today, you better have at least a bachelor’s degree if you want to be sure you will get a job.  But it is worse than that. The CEA said:

In recent decades, less-educated Americans have suffered a reduction in their wages relative to other groups. From 1975 until 2014, relative wages for those with a high school degree fell from over 80% of the amount earned by workers with at least a college degree to less than 60%.

Clinton and Trump would have you believe that the problem is bad trade deals with China, the TPP, or immigration. Trump in particular, is saying that the political elites have knowingly caused this all at the expense of the American worker. There is a modicum of truth to that, but it is the American corporation and the American tax code that is closing out US jobs, and hammering the middle class. American corporations now pay about 11% of our total US taxes, down from about 30% of US taxes in 1960, as jobs (and markets) have moved abroad.

What are the Pant Suit and/or the Pant Load going to do in the face of advancing automation now facing us not just in manufacturing, but also in the service and knowledge industries?

It is time to make the candidates talk about this on the campaign trail.

The basic policy choice we have is to put people to work, or to continue to allow the profit motive to dominate. If the profit motive remains supreme, we will continue our relentless drive to reduce labor costs — by eliminating jobs, or by paying workers less for the same work.

To date, our leaders have chosen the latter path, and we have reaped the results. We have become a land of spreadsheets and flags.

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Can the GOP Edge in the Primaries Carry Over?

(Note: There will not be a Sunday Cartoon post again this week. Wrongo and Ms. Right will be in Santa Barbara CA for our granddaughter’s college graduation. Blogging will resume on Tuesday, 6/14)

In 2008, the Republicans turned out a total of 20.8 million votes in 45 Primaries. In the 2016 primaries, the Republicans grew that total to 28.6 million votes.

The Democrats have 27.7 million primary votes in 2016, before the DC primary. When Clinton and Obama ran against each other in 2008, they had 37.4 million votes.

So the GOP is up 7.8 million votes or a 37.5% increase over 2008. The Democrats are down nearly 26% or, 9.7 million votes. The parties were separated by only 900,000 votes by the end of the 2016 primary season, and the GOP was on top.

The question to ask the pundits: What does the Republican increase in primary voter turnout by almost 8 million, and the Democrats’ vote shrinking by almost 10 million mean for the general election?

We could talk about the populist turn in 2016. The electorate is rebelling against the establishments of both parties. We could point to the insecurity about jobs, social security and pensions for the 98% of America who know these things are no longer certain in today’s America, and are even less certain in tomorrow’s America. These have made the Bernie promise of free education, Medicare for all, and a break-up of the banks very popular with Millennials. Trump has understood the economic fears of the white middle and lower classes, and has added fear of Muslims, fear of Mexican immigrants and a longing for a simpler world where America was unchallenged, and the 40-hour work week was nearly a right, to be the aspirational standard for tomorrow’s America.

We could talk about Hillary Clinton and the enthusiasm gap. In 2016, Hillary has garnered 15.7 million votes, and she will win the nomination. In 2008, she received 18.1 million votes, 2.4 million more than she got in 2016, and lost. This time around, she was not facing one of the best retail politicians of the last 100 years in Barack Obama, and no one thought that Bernie was real competition, until he was.

So, America is now at a point where, for the Pant Suit vs. the Pant Load, these numbers really begin to matter. Let’s remember that primary turnout doesn’t necessarily translate into a reliable indicator of the turnout in the general election.

Also, over half of the GOP turnout was for candidates other than Trump. Voter preference may change significantly for the general election.

This election will be true to previous form and will be decided in just a few states: Ohio, Florida, Michigan, North Carolina, Virginia and Pennsylvania will likely decide the outcome. Obama won all but NC in his 2012 race against Mitt Romney.

Assume that Hillary will win the majority of blacks, Hispanics, other ethnic minorities and many white women. The biggest question is: What percentage of women will vote for Hillary? If Trump peels off enough, he may be able to win in a few of those states.

So, turnout will be key. As an example, Charlie Crist would be the current governor of Florida if just 50% of the African American voters who were registered Democrats, had voted in the last gubernatorial election. In just in one (populous) Florida County.

The gap in the primary voting numbers are a good indicator that the GOP primary voters were more enthusiastic than were Democratic voters in 2016. However, the Democrats were very good at “Get out the Vote” programs in 2008 and 2012. Can Donald Trump match that in 2016?

Hillary starts with better odds of winning since the Democrats have an Electoral College advantage. Romney won 206 Electoral College votes. He lost Colorado, Florida, Ohio, Pennsylvania and Virginia each by between 150,000 and 250,000 votes. So, it’s conceivable that the enthusiasm for Trump in these states combined with less enthusiasm for Hillary could give him an Electoral College victory.

OTOH, Trump can’t change who he is. He’s not going to go toe to toe with Hillary on wonky policy details. So, he’ll continue the campaign that won him the primary in the general.

Will Pant Load fatigue set in? It hasn’t yet.

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More Questions for The Pant Suit and the Pant Load

Yesterday, Wrongo broke the bad news about the May job report. Exactly one year ago, Wrongo wrote “Technology Isn’t Creating Enough Middle Class Jobs.” That article spoke about how deploying new technologies continues to cost more and more mid-skilled jobs.

With low interest rates, the cost of capital investments have fallen relative to the cost of labor, and businesses have rushed to replace workers with technology. Because of technology, since the mid-1970s capital and labor have become more substitutable, and it’s a major global trend. Some proof of this is in the article in the Quarterly Journal of Economics, where  Loukas Karabarbounis and Brent Neiman from the University of Chicago found that the share of income going to workers has been declining around the world.

As Brad Delong, economist at the University of California, Berkeley, wrote recently, throughout most of human history, every new machine that took the job once performed by a person’s hands and muscles increased the demand for complementary human skills — like those performed by eyes, ears or brains.

This is no longer true. From Wrongo’s June, 2015 column:

Facebook is touted as a prime player in the knowledge economy, but it only employs 5,800 to service 1 billion customers! Twitter has 400 million total users. It has 2,300 employees.

What is the value of Facebook and Twitter to the jobs economy? These are two of our very “best” success stories, and they only employ 8,100 workers.

These firms have had a huge impact on society, but the total jobs they have created are only a rounding error in our economy.

As the idea sinks in that human workers may be less necessary than in the past, what happens if the job market stops providing a living wage for millions of Americans?

How will people afford to pay the rent? What will happen if the bottom quartile of workers in the US simply can’t find a job at a wage that could cover the cost of basic staples?

What if smart machines took out the lawyers and bankers? Bloomberg is reporting that job loss is on the way for bankers. Banks are racing to remake themselves as digital companies to cut costs. In other words, they’re preparing for the day that machines take over more of what used to be the sole province of humans: knowledge work. From Bloomberg:

State Street had 32,356 people on the payroll last year. About one of every five will be automated out of a job by 2020, according to Rogers. What the bank is doing presages broader changes about to sweep across the industry. A report in March by Citigroup…said that more than 1.8 million US and European bank workers could lose their jobs within 10 years.

They close by saying that Wall Street will go on—but without as many suits.

Some estimates say that automation could cost half of all current jobs in the next 20 years. The OECD thinks the number is smaller. They argued last month that lots of tasks were hard to automate, like face-to-face interaction with customers. They concluded that only 9% of American workers faced a high risk of being replaced by an automaton.

9% of today’s American workforce equals 13.6 million jobs. It just took us seven years to gain 14.5 million jobs, most of which were contractors and temp jobs.

The prognosis for many medium and some higher-skilled workers appears grim.

The corporatists have seen these forecasts. It explains their unwillingness to do anything serious to create effective jobs programs here at home. They don’t need to do anything, because there is a (virtually) infinite supply of skilled and unskilled workers in the overpopulated third world.

So, these are today’s questions for the Pant Suit and the Pant Load, and their answers need to be specific:

  • Where will the household’s income come from when jobs alone can’t provide it?
  • How will we deal with large-scale inequality that requires large-scale redistribution?
  • Is it time to think about how to provide more income that isn’t directly tied to a job?

From Eduardo Porter:

For large categories of workers, wages are already inadequate. Many are withdrawing from the labor force altogether. In the 1960s, one in 20 men between 25 and 54 were not working. Today it’s three in 20. Although the population is generally healthier than it was in the 1960s; work is almost uniformly less demanding. Still, more workers are on disability.

The issue is not technology, or robots, or restoring our manufacturing base. It isn’t better skills, or technology or outsourcing. We have too many people chasing too few good jobs.

This is why we need the presidential candidates to speak the truth about job creation in America.

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The Pant Suit vs. the Pant Load – Jobs

The 90% know they’ve gotten the short end of the stick for way too long. Now, with the bad May jobs report that came out last Friday, there is concern that our seven-year recovery, which has not helped everyone, may not last a lot longer.

So, a quick review of the numbers: The BLS reported that the economy had added 38,000 jobs in May, the lowest since September, 2010. Furthermore, the April job gains of 160,000 were cut by 37,000, while the March job gains of 208,000 were cut by 22,000.

So, with 59,000 jobs revised away, and with only 38,000 jobs “created” in May, the net total in today’s report was a net loss of 21,000 jobs in the last 3 months. We haven’t seen this since the 2008 Financial Crisis. And the labor participation rate dropped for the second month in a row, to 62.6%, which doesn’t bode well for the future either.

But the true bad news was that the number of temporary jobs also fell by 21,000. Temporary employment is a predictor of future employment trends, both on the way up, and on the way down.

The temporary-help sector has been the best thing about the economy; we reported in March that more than 100% of the jobs created in the US since 2005 were temp or contracting jobs. The temporary jobs sector peaked in December 2015 at 2.94 million, and has lost 63,800 jobs since then:

Temp Jobs 2006-2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Wolf Richter thinks that the decline in temporary workers isn’t just a one-month statistical blip, but a five-month trend, and that the sector has become a warning sign that the labor market could be heading towards deeper trouble. From Richter:

This also happened in 2007, when the temporary help sector started shedding jobs even as the overall economy was still adding jobs until right up to the official beginning of the Great Recession. And it happened in 2000, before the 2001 recession kicked in.

We lost nearly 8 million jobs in the Great Recession. Since 2009, the economy has added 14.5 million new jobs. But if we subtract the 8 million jobs lost during the recession, our net job growth was 6 million added, while our population grew by 16.5 million.

Now, not all of the growth in population is a person currently looking for a job. The big contributors are immigrants (both legal and otherwise), and births. Most of the immigrants want work, but they are the smaller fraction of our population growth, while infants, toddlers, and young children do not need access to employment just yet. The Boomers are trying to stay employed and not retire, while Millennials have moved into the workforce.

All of these groups are jostling for jobs. If US job growth can’t accommodate them, their individual situations will get worse, even while the overall numbers might look acceptable on paper.

So the questions for the Pant Suit and the Pant Load are:

  • Do they think that the lack of GDP growth and our lack of jobs growth is politically sustainable? How long could it go on without seeing pitchforks in the streets?
  • Where are the jobs going to come from?
  • What will they do if the jobs fail to materialize?

Hillary Clinton has the bigger problem, since she is presenting herself as the heir of Obama’s (and earlier, Bill Clinton’s) economic policies. She has to play defense on the economy. Trump can jump on the bad data, saying he can fix it, and many people will accept that uncritically.

But don’t count on hearing either candidate say anything that you think is useful. They will look for, and fail to find, “market” solutions to this dilemma created by the “market.”

And market solutions are what they will tell us we must wait for.

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Will Take-Home Pay Grow?

One of the big questions that we must force Hillary Clinton and Donald Trump to address is: Where will growth in take-home income come from?

If we look at pay, despite recent improvements, real average hourly earnings have declined since the 1970s:

Real Hourly Earnings 2016

Source: Advisorperspectives.com

At the same time, the average hours per week have trended down from around 39 hours per week in the mid-1960s to a low of 33 hours at the end of the last recession. It is 33.7 hours today. After eight years of economic recovery, it is only up by 42 minutes.

So, take-home pay has stagnated (or worse) for the average American since the Nixon administration. People have coped by having both spouses work, by borrowing under a Bank of America heloc, and by refinancing mortgages when interest rates declined.

But, by 1995, spousal participation in the job market had peaked, at about 60%. Borrowing under home equity lines of credit peaked in 2005 at $364 billion. These loans that were used to pay for remodeling, education costs, or new Ford F-150s were less than half of that amount in 2015, at $150 billion.

After the Great Recession, The only remaining way to boost household cash was mortgage refinance. There were windows to refinance a mortgage in 2009, and again in 2013. The reason was that mortgage interest rates stayed very low. In fact, US 10 year treasuries were at a 60 year low in 2013 at 1.50%, and mortgage rates are tied to the treasury rate. Refinancing mortgages can happen to many people, this is where companies like Polar Mortgage come in to help homeowners out. Homeowners also have the ability to get financial help from the government through the use of federal credit union home loans in order to refinance their homes.

As an example, a 1.5% decline in a mortgage payment on a $250,000 house would save $3750 a year, or a little over $300 a month added to the pockets of the average hourly worker. Taking income tax into consideration, it would take an additional 17.5 hours of work at the $21.45 rate to equal that amount. But that’s not practical. It would require a 52% increase in hours, if you are working the national average number of hours, which isn’t going to happen.

So, if the Federal Reserve raises interest rates, as they seem set to do this month or next, mortgage refinance will no longer be helpful to the vast number of working people. CoreLogic tracks the interest rates on outstanding mortgages, collecting data from mortgage servicers. Their data track the volume of outstanding mortgages by interest rate level for both the number of mortgages, and the unpaid principal balance on those mortgages (UPB).

Their analysis says that few mortgages will be refinanced if rates go up: Most borrowers have mortgages with rates below 4.50%, with 62% of mortgages and 72% of UPB in this range. There are an additional 14% of borrowers and 13% of UPB with mortgage rates between 4.5 and 5.0%.

Since refinancing has costs (legal, title search and insurance, and points), a simple rule of thumb is to add 1% to the current mortgage rate to get a rate at which borrowers would have a financial incentive to refinance. The current Freddie Mac mortgage rate is 3.57%, so the point of indifference for a borrower would be ~4.5%. CoreLogic estimates that only about 28% of the UPB of America’s outstanding mortgage loans are worth refinancing today. And should the Fed live up to their plan, and increase rates by ½% in 2016, an additional 5.5 million borrowers will lose their incentive to refinance.

So, if mortgage rates rise in 2016 as predicted, refinancing won’t improve the financial situation for very many of us.

New Deal Democrat sees all of this and says:

So the bottom line is, we are already in a period…where real gains by average Americans won’t be available from financing gimmicks, but must come from real, actual wage growth. At the moment I see little economic or political impetus to make that happen, even though average Americans understand via their wallets the issue all too well.

We’ve killed our economy.

You’d think after 8 years where most US job growth was in part-time jobs, where hourly income is at the same level as in the Ford administration, where we have the most people ever in poverty, where student debt exceeds credit card debt and automobile debt, people would catch on.

Maybe, but not unless we demand real answers of Hillary Clinton and Donald Trump, and not let the candidates say the plan is to rearrange the deck chairs on the Titanic.

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Sunday Cartoon Blogging – May 29, 2016

Californians will be pleased to know that when Donald Trump becomes president, he can stop their drought overnight. California just went through the driest four-year period on record.

But Trump isn’t sold. He told supporters in Fresno, CA that the dry spell is bogus. Trump said the state was denying water to Central Valley farmers to prioritize the Delta smelt, a native California fish nearing extinction — or as Trump called it: “a certain kind of three-inch fish.” He told the crowd:

We’re going to solve your water problem. You have a water problem that is so insane. It is so ridiculous where they’re taking the water and shoving it out to sea…

At least we know where Trump stands on the issue:

If I win, believe me, we’re going to start opening up the water so that you can have your farmers survive.

Never mind that this is a state, not a federal issue, because Trump will win on the environment too.

In other news, Hill’s email problem gives her a few hurdles:

COW Hillarys Hurdles

So far, we’ve heard what we already knew, she broke a rule that others had broken before her. Of course, to Republicans, breaking an agency rule is proof she’s broken the law. Maybe, but rules ain’t the same as the law. She needs to put this behind her, or face death by a thousand cuts.

We got our first look at Hill’s emails:

COW Hills Emoticon

Bill & Hill feel the Bern in CA:

COW kids in car

Trump and Bernie wanted to debate. You know who the target was:

COW Trump Bernie

Apparently, we have no antibiotic for the Superbug:

COW Superbug

 

 

 

 

 

 

 

 

 

 

 

The GOP plans to make the transgender toilet rule a centerpiece in the campaign:

COW Toilet

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Will We See a Recession Soon?

With Trump vs. Clinton vs. Sanders sucking all of the oxygen out of the news cycle, it is probable that you missed the release by the Federal Reserve on May 18th of its delinquency and charge-off data for all commercial banks in the first quarter. It isn’t a pretty picture.

Heres a few nuggets:

  • Delinquencies of commercial and industrial (C&I) loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have ballooned. C&I loans are classified delinquent when they are 30 or more days past due.
  • Between Q4 2014 and Q1 2016, delinquencies have increased by 137% to $27.8 billion. Currently, they are halfway to the all-time peak during the Financial Crisis in Q3 2009 of $53.7 billion. And theyre higher than they were in Q3 2008, when Lehman Brothers melted down.

Below is a chart of delinquencies released by the Board of Governors of the Fed. The shaded areas are times of economic recession. Wolf Richter of Wolf Street added the emphasis in red to point out where we stand in relationship to the 2008 Lehman moment:

C&I Deliq Q1 16

As you can see from the chart, business loan delinquencies are usually a leading indicator of economic trouble. They begin rising at the end of the credit cycle since loans made in the good times start to go bad when the economic situation changes. Then, the obligations of interest payments and loan repayments begin to pose a problem for weaker borrowers whose sales, instead of rising as expected when times were good, may be flat or shrinking while expenses can be rising. Suddenly, there is not enough money to service the loan.

It is however important to also consider Economic Injury Disaster Loans (EIDLs). Although no one can accurately predict what might happen in the future to an absolute degree of certainty, economists should always consider the possibility that we might see an increase in businesses seeking SBA eidl status in the event of a recession.

That being said, this all started with the oil and gas sector reacting to lower crude oil prices in 2015, but it has moved beyond the oil patch. Total US commercial bankruptcy filings in April, 2016 rose 3% from March, and are up 32% from a year ago, to 3,482, according to the American Bankruptcy Institute.

This is happening at an interesting time.

First, the health of the economy will be a huge deal in the General Election. Both Trump and Clinton have a stake in saying it isn’t as good as it could be. Yet, it is highly unlikely that we will be in a recession in November 2016, because our current economic momentum will carry us for at least another 6 months.

Second, the Fed is now indicating that it believes the economy is strong enough to raise rates for a second time this year, perhaps as soon as June, according to the Feds recent Open Market Committee minutes. That supports the idea that no recession is imminent.

But we still have this pesky loan delinquency data.

Loan delinquencies must be cured within a specified time. If not, they’re taken from the delinquency bucket and dropped into the default bucket. If defaults are not cured within a specified time, the bank deems a portion (or all) of the loan balance uncollectible and writes it off, therefore moving it out of default and into the write-off bucket. This is a factor in many different loan types, such as the usda business loans on the market.

That’s why the delinquency statistics usually do not get very large loans and don’t stay delinquent for a very long period.

Of course, there are other loans that might be impacted by these trends too. For example, it would be interesting to analyze the trajectory for merchant funding options such as a business cash advance loan for businesses in need of a financial boost. Ultimately, only time will tell what the future holds for loans and the financial sector in general.

Regardless, the Fed has painted itself into a corner. They have to raise rates because low rates are destroying many pension funds and they hurt retirees who rely heavily on interest-bearing investments. Pension funds have been modeled on interest rates of between 6%-8%, which have not been seen for at least 10 years.

But, a Fed rate hike would add more risk of more loans becoming delinquent.

And the largest American corporations are awash with the debt that they used to fund buy-backs of their shares. That debt has to be renewed periodically. If rates rose high enough to help pension funds, it could wound quite a few large companies.

If that wasn’t bad enough, South America, Europe, and the Chinese are looking increasingly fragile. Even if the Fed engineers a domestic miracle of sorts, it may not be enough. The financial world can be a minefield when we are trying to hang on to our hard-earned money.

So, prepare to hear both Trump and Hillary tell you they have the answers.

Since their global corporate benefactors now rule the world, they should be able to figure out what to do with it.

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“Hey GOP: Stop Being So Mean”

Trump thinks the GOP is trying to keep him from scoring The Deal of the Decade, or as the rest of us know it, the GOP nomination. Here is the predictable reaction in TrumpWorld from today’s New Yorker:

COW So Mean (2)

Wrongo got to spend time with the owner of his local PC repair company today. During the work on the PC, the talk turned to politics. The owner said quite a few things that everyone in America seems to feel, that politicians can’t be trusted, that they do nothing to solve America’s problems, and are just there to line their pockets.

He is a two-time voter for Obama, but is leaning this year towards Donald Trump. Two issues are fueling his thinking: First, that illegal immigration is a real issue, and that our economy, and to some extent our society, are being harmed by a large flow of immigrants. We live in Connecticut. Our county has the lowest population density of any county in Connecticut and is geographically, the state’s largest county. We are the whitest county: The 2010 census shows our county to be 94% white, and 1.3% black or African American. People of Hispanic or Latino origin made up 4.5% of the population. So, we enjoy little diversity, although many of our lawn and construction workers are Hispanic.

My computer guy points to a neighboring city in another county which has had large increases in black and Hispanic populations since 2000, now with 25% of its population Hispanic, and 8% black, both up dramatically.

Second, he thinks that Obamacare hurts his business. Never mind that his healthcare comes through his wife’s job, and that he has less than 5 employees, so his business isn’t paying for health insurance.

He also gives Obama no credit for America’s recovery from the Great Recession, saying that it took a really long time to recover, and the economy probably would have recovered on its own.

He is concerned that Trump would be an inappropriate president, a guy who can’t speak civilly to foreign leaders. He isn’t sold on Trump’s foreign policy either.

It is a sample of one. A two-time Obama voter who doesn’t think he has anywhere to go in November. He doesn’t think Hillary is the one; he thinks Sanders is a fringe player, right along with Trump.

He’s looking for a leader, and wonders why nobody who is truly great wants the job.

But that’s easy to understand. Too many people pin their hopes on getting “the right person” in the presidency, not realizing that it takes much more than just the leader to get the wheels of change moving.

Without courage and support from both houses of Congress, government won’t move an inch. Trump or Sanders could win, and be completely unable to steer the ship of state anywhere but where the oligarchs choose for to go.

Connecticut will be a reliable state for the Democrats in the fall, but they need to think again if they plan to use the same old interest group song and dance that worked to elect Obama in 2008 and 2012.

My PC guy isn’t gonna buy it.

It’s doubtful that he’s alone.

 

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