The Wrongologist – Page 192 – Geopolitics, Power and Political Economy

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.

What does “To Serve” mean in the Senate?

There is an illuminating Op-Ed in today’s NYT by Frank Bruni that tells two stories, one about Cassandra Butts who was nominated by Mr. Obama to be our Ambassador to the Bahamas. She was never confirmed due to holds placed on the nomination by Republican Senators.

Butts died suddenly at 50 years old from leukemia, after waiting more than 820 days to be confirmed.

The second story is about the Senate’s process and specifically, GOP Senators who no longer even try to work across the aisle. From Bruni’s article:

The Senate held a hearing about her nomination in May 2014, and then… nothing. Summer came and went. So did fall. A new year arrived. Then another new year after that.

Bruni continues:

The delay had nothing to do with her qualifications, which were impeccable. It had everything to do with Washington. She was a pawn in its power games and partisanship.

At one point Senator Ted Cruz, (R-TX) had a “hold” on all political nominees for State Department positions, partly as a way of punishing President Obama for the Iran nuclear deal.

Later, Senator Tom Cotton, (R-AK), specifically placed a hold on Butts and on nominees for the ambassadorships to Sweden and Norway. He had a gripe with the Obama administration over a Secret Service leak of private information about a fellow member of Congress; and he was trying to pressure Obama to take punitive action. But that issue was unrelated to Butts and the Bahamas.

From Bruni: (emphasis by the Wrongologist)

Cotton eventually released the two other holds, but not the one on Butts. She told me that she once went to see him about it, and he explained that he knew that she was a close friend of Obama’s — the two first encountered each other on a line for financial-aid forms at Harvard Law School, where they were classmates — and that blocking her was a way to inflict special pain on the president.

Bruni says that in a subsequent call to Sen. Cotton’s office, his spokeswoman did not dispute Butts’s characterization of that meeting, and stressed, in separate emails, that Cotton had enormous respect for her and her career.

There we have our two stories. In one, a Harvard educated lawyer, a classmate of the president, who could have cashed in by joining the private sector. But instead, she worked in DC, for the N.A.A.C.P.’s Legal Defense and Educational Fund, for the Center for American Progress and for Obama, including time as deputy White House counsel.

Tom Cotton on the other hand, is a Harvard educated lawyer. He was in the US Army. He did stints in Iraq and Afghanistan, and he earned a Bronze Star. He is a Tea Party Republican who is likely to be a candidate for president in 2020.

Cotton’s actions were not tied to ideology. Apparently, he just wanted to hurt President Obama. He is a US Senator. Think about the oath of office for the Senate. Mr. Cotton’s duty is to defend the Constitution, and to serve his constituents and the people of this nation, not to act out his retribution fantasies. The oath a Senator takes does not include ‘inflicting special pain on the president’. It does not include stymieing foreign relations or, in the case of Merrill Garland and 83 other judicial vacancies, our justice system.

Remember this when Sen. Cotton positions himself for his own quest for the White House. Think of the opportunities he would have for enhanced retribution, should he reach the Oval Office.

Senators from both parties use holds on nominations for leverage with the White House. But it has become extreme and egregious: a tactic that’s turned into a tantrum. Politicians sometimes do bad things. Usually, for money, or power, or to assist an ally. Cotton’s action was none of those. It was done purely for spite.

These Senatorial blocking privileges are being abused and should end. They are helping the Senate become a body of obstructionists for whom the verb “to serve” no longer has meaning.

In addition, why not change the Senate’s rules so that any nomination not acted upon for a reasonable time (90-120 days?) should be automatically approved.

It wouldn’t take a Constitutional amendment to accomplish this, just a change in Senate rules.

However, changing the rules in a body that has no accountability will require a “political revolution”, and as we have said before, the revolution has to be won precinct-by-precinct.

Monday Wake Up Call – June 6, 2016

We know that D-Day was June 6, 1944, but what does the “D” in D-Day, stand for?

Apparently, this is a frequently asked question by visitors to The National WWII Museum. But the answer isn’t simple. Disagreements between military historians and etymologists about the meaning of D-Day abound. Here are two explanations:

In Stephen Ambrose’s D-Day, June 6, 1944: The Climactic Battle of World War II, Ambrose writes:

Time Magazine reported on June 12 1944 that ‘as far as the U.S. Army can determine, the first use of D for Day, H for Hour was in Field Order No. 8, of the First Army, A.E.F., issued on Sept. 20, 1918, which read, ‘The First Army will attack at H-Hour on D-Day with the object of forcing the evacuation of the St. Mihiel salient.’ (p. 491)

In other words, Ambrose reports the D in D-Day stands for “Day.” But In Paul Dickson’s War Slang, he quotes General Eisenhower:

When someone wrote to General Eisenhower in 1964 asking for an explanation, his executive assistant Brigadier General Robert Schultz answered: ‘General Eisenhower asked me to respond to your letter. Be advised that any amphibious operation has a ‘departed date’; therefore the shortened term ‘D-Day’ is used.’ (p.146)

It’s an enigma wrapped inside of a mystery. A continuing enigma is the lack of accountability by both our elected officials and our state and national bureaucrats. Today’s travesty was reported in the UK’s Guardian:

Despite warnings of regulators and experts, water departments in at least 33 cities used testing methods over the past decade that could underestimate lead found in drinking water.

These tests are taken annually and sent to the EPA in Washington. The 33 offending cities were in 17 different states. Of the cities, 21 used the same failed water testing methods that were used in Flint MI. Additional findings:

Michigan and New Hampshire advised water departments to give themselves extra time to complete tests so that if lead contamination exceeded federal limits, officials could re-sample and remove results with high lead levels.
Some cities denied knowledge of the locations of lead pipes, failed to sample the required number of homes with lead plumbing or refused to release lead pipe maps, claiming that would be a security risk.

Since the Flint water crisis erupted last year, school districts from coast to coast have stepped up testing of fountains and sinks. From Newark to Boston to Detroit, city after city has reported elevated levels of lead in the water of some educational buildings. The Portland OR schools have the problem and the school district has been aware of it for years. But the federal government doesn’t actually require most schools to test, so few do.

Apparently, the federal EPA has known since 2001 that its testing guidelines were weak. They are working on “long-term revisions” to its lead and copper rule, which are expected in 2017. Or sometime.

From Ian Welsh:

No regulator worth its salt, who is doing their job, could have missed entire States and large cities cheating, because any regulator worth its salt does its own audits and testing.

Republicans do not see this as a problem. Yes, there have been apologies, but no federal funding to remediate the problem. In fact, Fitch Rating Service estimates that capital costs to replace the nation’s lead water service lines could exceed $275 billion.

Republicans expect Mr. Market to take care of issues like this, once we privatize our water supply.

After all, aren’t invisible hands already cleaning the lead from the brains of America’s children?

It’s the miracle of market self-regulation.

Time for a wake-up call for all who think that business as usual is acceptable for our aging infrastructure, and in the case of our water supply, our poisonous infrastructure. Let’s look back to a time when America could do great things, even if it cost real dough. In 1977, we sent the Voyager I and II interstellar satellites off into space with a record of the things we thought made Earth unique. The music we sent was picked by Carl Sagan. This link lists all of the music we sent into the cosmos. One of his picks was by Blind Willie Johnson, “Dark Was the Night”, which has no lyrics, but creates a mood of loneliness. Here is “Dark Was the Night”:

This song will likely last longer than the human race. It’s doubtful that Blind Willie ever thought THAT was gonna happen.

What isn’t gonna happen is that our politicians decide on their own to be accountable to the rest of us.

Pant Suit vs. Pant Load, Part III

(Note: this week there will be no Sunday Cartoon Blogging, since Wrongo will be visiting MA and PA through Sunday, returning on Monday.)

Wrongo and long-time blog reader Terry engaged in a short email dialog on how to “fix” the US political system. We were concerned that there is no individual Congressperson accountability. A backbencher can follow an agenda that can imperil our nation (and a few have done just that) without consequence.

But in America, accountability is managed by election district. Your only alternative is to round up enough votes to replace poor representation. So, if you wanted to reform the impact that money has in our politics, or the way the filibuster works in the Senate, you have to reform Congress.

Yet, under our Constitution, only Congress can reform Congress. And today, there are three parties vying for control of it, and since they rarely are willing to work with each other, not much gets done. So you can completely forget about Reform.

And the parties have not been willing to deal with the not-so hidden desperation in America that shows up in statistics like increasing opioid addiction and suicide rates. The political class ignores how lethal the US economy is for the less fortunate: The New York Times reported this week that US death rates have risen for the first time in a decade.

The increase in death rates among less educated whites since 2001 is roughly the size of the AIDS epidemic. One reason is the use of opioids. And, despite Mr. Obama’s speech in Elkhart, IN where he said our economy is doing well, there has been a spike in suicides to levels higher than during the 2008 financial crisis.

The little people know that the economic policies followed by both parties have brought income inequality to Gilded Age levels. They know that all of the post-crisis income gains have accrued to the top 1%. Unlike in China which continues to grow, our economic expansion has brought with it high unemployment and underemployment, particularly among the young.

As a result, people feel powerless. In fact, a RAND survey in January found that 86.5% of GOP voters who strongly identified with the statement “people like me don’t have any say about what the government does” were Trump supporters.

And, since so much of politics is about corralling money into the bank accounts of our politicians, your Congresspersons have no intention of listening to you unless you have given at least $10,000 to their campaign fund, or are the CEO of a major employer in their district or state. In US politics, money=speech. But, there is little meaning to free speech without free access to influence the political process.

Many of us feel nihilistic about our politics and our government. So the Pant Load’s support seems a lot like a form of public political vandalism where The Donald is the can of spray paint.

Most people can see that a large portion of Americans are poorer with each new election cycle. After all, the reason Trump (and Sanders) are doing well is because many, many workers are seeing their job security, income security, and retirement security all go up in smoke. That’s no mystery, just the natural outcome when the government fails to represent the people in favor of the rich who fund their campaigns. It’s no wonder the Pant Load is easily corralling the frustrated.

But can the Pant Suit reverse the Democratic Party’s abandonment of the working class in America?

We know that she needs to focus on drawing more potential working class and young supporters, but so far, Democrats are content to run only in their municipal strongholds, following a strategy of stitching together interest groups, largely in states with big urban populations.

Energizing people around the fact of our corrupt political system is both a way to get higher turnout, and a way to elect members of Congress and state legislatures to fix the corrupt system. That is Bernie’s message, what he calls a “political revolution.” But Sanders is not the person to bring this about. Consider Sanders just the messenger.

Strategically, the Pant Suit needs to figure out how to get folks energized enough to vote for her and against Trump for reasons that don’t so paralyze them with fear that they stay home. If she is successful, it could be the start of re-establishing the New Deal coalition, and a re-installation of the principles of the civil rights movement.

That’s a huge job that will not be completed in one election cycle.

This threat is the GOP’s worst nightmare. They have worked for 40 years to eliminate these ideas, so expect the GOP to unanimously support the Pant Load:

COW Never Hillary

The Bernie Dems will rally behind Hillary for similar reasons.

Trump/Arpaio 2016: Because immigrants are the greatest threat to the nation.

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.

The Pandering Pant Load

Trump is a thin-skinned Pandering Pant Load© with rabbit ears: He hears everything that is said about him and responds to it all. Say something, and @realDonaldTrump will tweet back something nasty.

We saw two examples of his pandering in the past few days. First, Trump attended “Rolling Thunder” an annual event which brings hundreds of thousands of motorcyclists to DC to raise money for POW-MIA’s of the Vietnam War. On Sunday, He told about 5,000 that illegal migrants in the US are often better cared for than the nation’s military veterans:

Thousands of people are dying waiting in line to see a doctor. That is not going to happen anymore

Although Trump has used this comparison of the treatment of immigrants and veterans before, it isn’t true. Congress and many states have written an assortment of laws and policies designed to restrict government services to people living in the country illegally.

Could Congress do more for vets? Absolutely. Do we do less for them than we do for illegals? NO.

We know that the Pandering Pant Load© claimed to have raised $6 million for veteran’s groups, including $1 million of his own money when he held a fundraiser for veterans’ causes in place of an Iowa debate that he skipped.

But so far, he hasn’t distributed it, or said where it is going. He is expected to hold a news conference today to announce the names of the charities selected to receive the money. We’ll see.

Still, when you tell an interest group that you will do more for them than we do for illegals, you are setting the bar very low.

Second, the Pandering Pant Load© supposedly told House Speaker Paul Ryan (R-Wis.) he supports cutting Social Security but cannot admit it publicly because it would hurt his election chances, according to Bloomberg BusinessWeek. Trump said of cutting Social Security:

From a moral standpoint, I believe in it…But you also have to get elected. And there’s no way a Republican is going to beat a Democrat when the Republican is saying, ‘We’re going to cut your Social Security’ and the Democrat is saying, ‘We’re going to keep it and give you more.’

Bloomberg reported that The Pandering Pant Load© made the above comments during the May 12 meeting with Mr. Ryan aimed at improving ties between them, citing an unnamed source who was in the room.

So the deal was made, and what we have been watching is theater. And from a “moral standpoint”, Trump just lies about what he plans to do, because his audience is against it?

HuffPo reported that Trump’s opposition to cutting Social Security (SS) has been both a hallmark of his campaign and one of his greatest departures from traditional conservative ideology. Now it seems, he is simply pandering. Consider this:

Many conservative House Republicans told The Huffington Post shortly after the May 12 meeting with Ryan that that they were unconcerned about Trump’s public posture on Social Security.
Why? Because Trump policy advisor Sam Clovis had already appeared to reverse course on May 11, indicating that Trump would be willing to consider cuts as president.

The media have their nice, shiny Trump, and they have signed on for the whole ride, so don’t expect to hear much more about his pandering.

The Pant Load will try to dupe people (this week, Vietnam Vets and the middle class) into voting against their interests, because he is sure that they can’t be bothered to pay enough attention to understand that he’s lying.

The truth is that SS faces a funding gap beginning in 2034. Without Congressional action to either raise the program’s revenues or scale back benefits, there will be an across-the-board benefit cut of approximately 20%.

We all know this.

Why is the Pandering Pant Load© being dishonest about it? Maybe the real shock shouldn’t be that Trump is devoid of integrity; if he’s breathing, he’s lying.

It’s that his base doesn’t seem to care that he’ll throw them under the bus without a second thought.

Memorial Day 2016

Thank You Armed Forces

Every year, the Wrongologist reminds blog readers that Memorial Day was called Decoration Day for more than 100 years, ending in 1971. It was established by an order issued by Gen. John Logan, the national commander of the Grand Army of the Republic. This is from Gen. Logan’s order:

The 30th of May, 1868, is designated for the purpose of strewing with flowers, or otherwise decorating the graves of comrades who died in defense of their country during the late rebellion, and whose bodies now lie in almost every city, village and hamlet churchyard in the land…

Back then, it was our most solemn holiday. It was first observed on May 30, 1868, when flowers were placed on the graves of Union and Confederate soldiers at Arlington National Cemetery, a tradition we still follow today.

The Civil War claimed more lives than any conflict in US history, requiring the establishment of the country’s first national cemeteries. Drew Gilpin Faust’s book, The Republic of Suffering-Death and the American Civil War (2008) reminds us just how deadly the Civil War was: 620,000 dead soldiers, (2% of the US population at the time), at least 50,000 dead civilians, and an estimated 6 million pounds of human and animal carcasses to deal with on battlefields.

When the Civil War began, neither army had burial details, graves registration units, means to notify next of kin, or provisions for decent burial. They had no systematic way to identify or count the dead, and until 1867, no national cemeteries in which to bury them. In an ironic twist, in 1866, after the assassination of Abraham Lincoln, the Union Army opened an office in Ford’s Theater to record deaths, house the war records and assist families to find lost loved ones. In 1893, the building collapsed, killing 22.

The mortality rate in the South exceeded that of any country in WWI. In addition, the South lost nearly 2/3rds of its wealth in the War.

Decoration Day became Memorial Day when Congress passed the National Holiday Act of 1971, which made us observe national holidays on Mondays, creating three-day weekends for We, the People. So, along with parades, picnics and mega-sales on the web and in the malls, many think that the holiday celebrates the start of summer.

Instead, please stop and remember the people who died in our wars. Do that irrespective of whether you “believe” in a particular war.

Memorial Day is a time to meditate on the difference between right and wrong wars. Mr. Obama spoke in Japan last Friday, walking a fine line, remembering the atomic weapons dropped on Hiroshima and Nagasaki, but not calling WWII and our actions against Japan “wrong”.

Another thing to remember is that our government owes our all-volunteer military policies and policy decisions that are worthy of their sacrifice. But, our government rarely makes decisions that are completely worthy of such sacrifice.

Let’s also give some thought to this quote from Andrew Bacevich:

With its military active in more than 150 countries, the United States today finds itself, if anything, overextended. Our principal security challenges — the risks to the planet posed by climate change, the turmoil enveloping much of the Islamic world and now spilling into the West, China’s emergence as a potential rival to which Americans have mortgaged their prosperity — will not yield to any solution found in the standard Pentagon repertoire. Yet when it comes to conjuring up alternatives, the militarized history to which Americans look for instruction has little to offer.

Ask Trump and Clinton what will be different if they become Commander-In-Chief. Which one will address climate change, the rise of China, or the near-civil war in the Greater Middle East?

Finally, when you think about policies worthy of sacrifice, here is a Memorial Day tune from Warren Zevon: “The Envoy”, from the album of the same name. The song was written in 1981, back when we thought our issues in the Middle East were rare. It was inspired by Philip C. Habib, who was President Reagan’s special envoy in the Lebanon crisis.

That was the start of something that hasn’t achieved much. The US currently has 48 Special Envoys, but you can’t see any peace from where we sit.

OK, the song isn’t “Roland the Headless Thompson Gunner” or, “Werewolves of London,” but Zevon was one of the best and brightest. Here is “The Envoy”:

These 34 year-old lyrics about the Middle East could be tomorrow’s headlines. Is there a threat to world peace? Oh yeah, us.

Those who read the Wrongologist in email can view the video here.

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:

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

Are Underwater Car Loans Sustainable?

The auto industry has had a spectacular run since we bailed them out in 2009. We saved it because the auto industry is crucial to the US economy and jobs. Auto sales have accounted for 21% of total retail sales so far in 2016.

The trickle-down effect is huge, from transporting new cars via truck and rail to financing and insuring them, and collecting the tax revenue they generate for state and local governments, sales of cars generate lots of jobs and money for our economy.

But the seven-year boom may be near its top.

Take underwater car loans: Bill wants to buy a new car. His current car has a trade-in value of $20,000. But he owes $25,000 on it because when he bought it new a few years ago, he financed it for 84 months to keep the monthly payment low. He also asked the dealer to roll the amount for tag, title, and license fees into the loan, along with the $2,000 he was upside down on his trade. So he buys a new $30,000 car that now costs $35,000. He may consider financing this with car title loans near me, or he may have other options he can take.

The car is financed with a 4% interest rate loan. If Bill took a five year loan, he would start accumulating positive equity-where the car’s market value becomes greater than its loan balance-midway in the fourth year. However, there are loans that might be able to help for example those that are similar to Ikano Bank VISA as well as looking loans before they take them out. If he took an eight year loan instead, he would be $9000 underwater at the same time, and won’t start accumulating any positive equity until the end of the seventh year:

Positive Equity

Source: Money Sense

So just how big is the problem of negative equity? Since 2011, the number of vehicles traded in with negative equity has ballooned by 37%, and underwater auto loans now account for a record 31% of all vehicles traded in:

Underwater Car Loans

(Chart by Chad Champion, at Bonner & Partners):

One reason negative equity is rising is that lenders have extended the duration of car loans to keep monthly payments affordable. If a customer has a lower monthly payment, she/he’s likely to owe more than the vehicle is worth for a longer period. Bloomberg reported that the percentage of car loans that are longer than six years was 29% in 2015, up from just 9.6% in 2010.

Growth in loans to subprime borrowers is also driving growth in auto sales. Experian Automotive reported last month that poor credit consumers (subprime) now make up a record 20.8% of the new auto loan market – more than one in five new auto loans are going to subprime borrowers. We remember subprime from the housing fiasco of 2008. Subprime is back, but not yet causing alarm bells to ring.

Subprime borrowers pay higher rates: Average rates for subprime loans were 10.36% in the fourth quarter of 2015 while the poorest subprime borrowers averaged 13.31%. At the same time, new car buyers with excellent credit paid 2.7% interest.

The Office of the Comptroller of the Currency has noticed the problem. In its most recent Semiannual Risk Perspective, the banking regulator warned: (emphasis by the Wrongologist)

Underwriting practices and weak loan structures in auto lending are most concerning in banks with high concentrations to try Auto Finance Online. Strong auto loan growth alone does not pose systemic risk…Even as banks have increased capital levels, auto loan portfolios represent greater than 25% of capital at about 15% of banks.

The OCC worries that the rapid growth of auto loan balances are not a problem per se, but the “extended durations of loans caused by lengthening maturity schedules” and the rising loan-to-value ratios are a concern. Together, they “create a longer period of time that banks and consumers are in a negative equity position.”

This is what happens when the players in the auto sales game, both the manufacturers and financiers game the system to front-load sales and profits, thus paving the way for an eventual reckoning.

And here is the other issue: When we export manufacturing jobs to places such as Mexico (who now manufactures for Ford, Chrysler, GM, VW, Toyota, Nissan, Mazda, and Honda and exports 70% of the cars it manufactures to the US), we lose the purchasing power of all those people who used to have jobs in the US auto industry. So corporate America’s solution is to make credit cheap and easy so that working stiffs can leverage themselves even more in order to buy a new car. Obviously, some loans are needed at certain times in peoples lives, if you are looking at how to get a loan there are many websites that can give you a guide.

To be sure, the car buyers are culpable, but the system relies on foolish people to go deeper into debt in order to fuel the system.

Impressive boom to possible bust ? this show is brought to you by corporate America, with support from the Federal Reserve.

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 18^th 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.