Why middle income jobs are not coming back

The new normal is most defined by the

decimation of the middle class.

By Maureen Callahan
New York Post
11/14/10
Anne, 45, has always considered herself middle-class: As a single mom earning $65,000 a year in ad sales, she was able to rent a one-bedroom apartment on the Upper East Side for $1,000 a month and send her daughter, now 12, to private school. “I was able to make it,” she says. “Even go on vacation sometimes.”

In the span of 15 months, she has come to define herself as poor — even if the government won’t, denying her multiple applications for welfare and food stamps because, she says, she once made “too much money.”

Upon losing her job in June 2009 — her company was going under — “I was plunged into immediate poverty,” she says. “It was a surprise attack.”

Anne has borrowed money from her sister and her retired parents — who are struggling themselves — to pay the rent; she applied for a Section 8 and was able to slash it in half, to $500 a month. She depleted her 401(k). She had no savings, was living paycheck-to-paycheck. But she still felt economically safe, given her location and her tax bracket and her white-collar job.

“Now, when I go to the grocery store, I have to decide what is absolutely essential for my child,” Anne says. “Sometimes, I’m eating whatever-in-a-can. A lot of the time, I’m literally walking around without a penny in my pocket.” She deliberates before taking her daughter on a day trip downtown, because a round-trip subway fare will cost $9. She negotiated a tuition break with her daughter’s school, and the ease of that leads her to believe she’s not the only parent who’s asked, which she does not find especially comforting.

She’s $16,000 in debt to credit card companies. One of her local grocers, who once let her buy food on a running tab, now has a bill collector after her. She has her résumé up online, but when headhunters call and ask her age, “suddenly they never call me back,” she says. “I’m depressed. None of my friends are able to find jobs. I am living day-to-day.”

Anne’s biggest fear is that her daughter finds out how dire the situation is.

“She’ll say to me, ‘Are we poor?’ And I keep lying,” Anne says. “I think it’s a very traumatic thing for a child. I don’t want her to feel like she’s the only one, or a victim.”

When the recession does ease up, Anne fears that she will emerge as a permanent member of the lower class.

The decline of the middle class in America has been debated and discussed for 30 years — it was in the 1970s that middle-class wages began stagnating and education levels began declining — but it’s the Great Recession that has accelerated and intensified this decades-long trend. There is wealth and there is poverty, and the middle class — a category so vague that the majority of Americans, if asked, define themselves as such, whether they make $30,000 or $200,000 a year — are, in greater and greater numbers, downwardly mobile.

The median income is the US is now $50,000 a year, 5% less than it was in 2000. But whether one is middle class on that salary depends on a host of factors — your education level, how many dependents you have, where you live, whether you’re still paying off college loans, whether your mortgage is underwater.

“People with a college degree are the new working class,” says Lawrence Mishel, president of the Economic Policy Institute. He points to the long-term, exponentially increasing gap between rich and poor in America: from 1989-2007, the upper 1% of the population gained 56% of all income growth, while the bottom 90% gained just 16%.

“People have been doing poorly for a long time, but it’s not because they haven’t been working,” Mishel says. “It’s because the economy is working the way it’s designed to work.”

 Middle income jobs not coming back

Paul Volker: "The Financial System is broken" and Investment banks became “trading machines instead of investment banks"

Paul Volcker remains the most straight shooting, common sense and grandchild friendly member of the administration's economic team. Our grandchildren might actually have a fighting chance if those in power would actually listen to and implement policies consistent with Paul Volcker's opinions.

Mr. Volcker speaks his mind across a broad range of topics

including our business schools.

“We had all our best business schools in the United States pouring out financial engineers, every smart young mathematician and physicist said ‘I don’t want to be a civil engineer, a mechanical engineer. I’m a smart guy, I want to go to Wall Street.’

By Damian Paletta
The Wall Street Journal
9/23/10

Former Federal Reserve Chairman Paul Volcker scrapped a prepared speech he had planned to deliver at the Federal Reserve Bank of Chicago on Thursday, and instead delivered a blistering, off-the-cuff critique leveled at nearly every corner of the financial system.

Standing at a lectern with his hands in his pockets, Volcker moved unsparingly from banks to regulators to business schools to the Fed to money-market funds during his luncheon speech.

He praised the new financial overhaul law, but said the system remained at risk because it is subject to future “judgments” of individual regulators, who he said would be relentlessly lobbied by banks and politicians to soften the rules.

“This is a plea for structural changes in markets and market regulation,” he said at one point.

Here are his views on a variety of topics.

1. Macroprudential regulation — “somehow those words grate on my ears.”
2. Banking — Investment banks became “trading machines instead of investment banks [leading to] encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system.”
3. Financial system — “The financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.”
4. Business schools — “We had all our best business schools in the United States pouring out financial engineers, every smart young mathematician and physicist said ‘I don’t want to be a civil engineer, a mechanical engineer. I’m a smart guy, I want to go to Wall Street.’ And then you know all the risks were going to be sliced and diced and [people thought] the market would be resilient and not face any crises. We took care of all that stuff, and I think that was the general philosophy that markets are efficient and self correcting and we don’t have to worry about them too much.
5. Central banks and the Fed — “Central banks became…maybe a little too infatuated with their own skills and authority because they found secrets to price stability…I think its fair to say there was a certain neglect of supervisory responsibilities, certainly not confined to the Federal Reserve, but including the Federal Reserve, I only say that because the Federal Reserve is the most important in my view.”
6. The recession — “It’s so difficult to get out of this recession because of the basic disequilibrium in the real economy.”
7. Council of regulators — “Potentially cumbersome.”
8. On judgment — “Let me suggest to you that relying on judgment all the time makes for a very heavy burden whether you are regulating an individual institution or whether you are regulating the whole market or whether you are deciding what might be disturbing or what might not be disturbing. It’s pretty tough and it’s subject to all kinds of political and institutional blockages as well.”
9. On procyclicality — “It’s the hardest thing as a regulator in my opinion…when things are really going well, the economy is going well, the market is not disturbed, but you see developments in an institution or in markets that is potentially destabilizing, doing something about it is extremely difficult. Because the answer of the people in the markets is, ‘what are you talking about? Things are going really well. We know more about banking and finance than you do, get out of my hair, if you don’t get out of my hair I’m going to write my congressman.’”
10. Risk management — “Markets that are prone to excesses in one direction or another are not simply managed under the assumption that we can assume that everybody follows a normal distribution curve. Normal distribution curves — if I would submit to you — do not exist in financial markets. Its not that they are fat tails, they don’t exist. I keep hearing about fat tails, and Jesus, it’s only supposed to occur every 100 years, and it appears every 10 years.”
11.  Derivatives — “I’ve heard so many stories about how important” derivatives are but “there doesn’t seem to be much doubt that the creation of derivatives has far exceeded any pressing need for hedging.”
12. Money market funds — “Money market funds have encroached so much on the banking market. They are nothing, in my view, but a regulatory arbitrage. The purpose that they serve in handling payments and short term paper is a commercial banking function” but they don’t hold the capital or face the regulation of banks.
13. The Fed and Dodd-Frank — Volcker said it was a “miracle” that despite all the criticism aimed at the Fed the central bank “came out with enhanced regulatory authorities rather than reduced regulatory authorities.”

Warren Buffet: "we're not going to have a double-dip recession at all." WAIT: "It's common sense that we are still in a recession."

Before your CNBC Town Hall Meeting, my line will be:

"we're not going to have a double-dip recession at all."

Nice recap by Huffington Post

The Oracle of Omaha told CNBC this morning that it's just plan "common sense" -- "we're still in a recession."

If you've been following Warren Buffett's statements on the economy lately you may be a bit confused. Earlier this month, in an appearance with Microsoft CEO Steve Balmer, Buffett said "we're not going to have a double-dip recession at all." (Presumably this is because, according to Buffett, the first recession never really ended.)

Earlier this week, the National Bureau of Economic Research, the independent body that tracks downturns in the U.S., recently announced that the recession ended in June 2009. But in an interview with CNBC's Becky Quick, Buffett disputed that notion:

BECKY: The NBER said this week that the-- recession officially ended back in June of last year.

BUFFETT: Well, they define it differently. (Laughs.) But I-- I mean, I-- I define it-- I think we're in a recession until real per capita GDP gets back to where it was-- before. That is not the way the National Bureau of Economic Research measures it. But I will tell you that to any-- on any common sense definition, the average American is below where he was before, or his family, in terms of real income, GDP. We're still in a recession. And-- and we're not gonna be out of it for awhile, but we will get out of it.

Buffett added that most small businesses "have come back somewhat" but haven't approached anything near their pre-crisis levels. Banks, Buffett said, are sitting on "trillions" and "dying to get the money out." A host of bad loans and a still sagging consumer, he suggested, have prlonged the downturn. Here's more:

BUFFETT: Our businesses are coming back-- on average, we've got 70-some businesses. But most of them-- the great majority are coming back slowly. If you take our railroad business, and our railroad business is typical of the other railroads in the company. If you take the peak period for shipments and then you go all the way down to the bottom, we're 61 percent of the way back up. That's better, I think, than most businesses are in the country. I don't think most businesses are 61 percent-- our-- our carpet business, our brick business, our insulation business, they're not back 61 percent, but they are moving back.
 

Economic Times Remain Tough Unless You are a Lobbyist

$4.65 million by The Pharmaceutical Research and Manufactures of America

Lobbying...Recession Proof

2010 Q2 Lobbying Investments

(not a complete list..two hours worth of headline reading)

$8.3 million by General Electric

$4.40 million by Verizon

$3.80 million by Comcast
$3.08 million by A T & T
$2.96 million by Merck
$2.89 million by Prudential
$2.72 million by GM
$2.71 million by Dow Chemical
$2.30 million by Pfizer
$2.40 million by The American Bankers Association
$1.85 million by Microsoft
$1.65 million by The Independent Community Bankers of America
$1.60 million by US Airlines
$1.58 million by Goldman Sachs
$1.53 million by Visa
$1.52 million by JPMorgan Chase
$1.47 million by American Airlines
$1.47 million by Citigroup
$1.43 million by Wal-Mart
$1.34 million by Google
$1.29 million by Wells Fargo
$1.20 million by Johnson and Johnson
$1.15 million by Oracle
$1.11 million by The National Association of Manufacturers
$1.09 million by Bank of America
$930,000 by The Real Estate Roundtable
$720,000 by Travelers
$671,000 by Delta
$590,000 by Credit Suisse
$560,000 by Goodyear
$552,000 by The Pharmaceutical Care Management Association
$531,000 by Chrysler
$500,000 by Amazon
$490,000 Hartford Financial
$463,000 by The Generic Pharmaceutical Association
$420,000 by The National Association of Chain Drug Stores
$419,000 by Honda
$410,000 by Express Scripts
$400,000 by The Consumer Bankers Association
$385,000 by Continental
$370,000 by NYSE Group
$330,000 by The Air Line Pilots Association
$200,000 by The Financial Industry Regulatory Authority (FINRA)
$160,000 by Southwest Airlines

Recession is Over...just in time for Obama's CNBC Town Hall Meeting and November Elections

Hear Yee...Hear Yee

The Recession is Officially Over

Just in time for Obama's CNBC Town Hall Meeting

and November Elections

15.5 Million children living in poverty the rate for unemployed

and underemployed is 16.7% and banks repossessed

a record 95,364 homes last month.

Yeah! The recession is over!!

CAMBRIDGE September 20, 2010 - The Business Cycle Dating Committee of the National Bureau of Economic Research NBER) met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.

The committee waited to make its decision until revisions in the National Income and Product Accounts, released on July 30 and August 27, 2010, clarified the 2009 time path of the two broadest measures of economic activity, real Gross Domestic Product (real GDP) and real Gross Domestic Income (real GDI). The committee noted that in the most recent data, for the second quarter of 2010, the average of real GDP and real GDI was 3.1 percent above its low in the second quarter of 2009 but remained 1.3 percent below the previous peak which was reached in the fourth quarter of 2007.

Identifying the date of the trough involved weighing the behavior of various indicators of economic activity. The estimates of real GDP and GDI issued by the Bureau of Economic Analysis of the U.S. Department of Commerce are only available quarterly. Further, macroeconomic indicators are subject to substantial revisions and measurement error. For these reasons, the committee refers to a variety of monthly indicators to choose the months of peaks and troughs. It places particular emphasis on measures that refer to the total economy rather than to particular sectors.

These include a measure of monthly GDP that has been developed by the private forecasting firm Macroeconomic Advisers, measures of monthly GDP and GDI that have been developed by two members of the committee in independent research (James Stock and Mark Watson, (available here), real personal income excluding transfers, the payroll and household measures of total employment, and aggregate hours of work in the total economy. The committee places less emphasis on monthly data series for industrial production and manufacturing-trade sales, because these refer to particular sectors of the economy. Movements in these series can provide useful additional information when the broader measures are ambiguous about the date of the monthly peak or trough. There is no fixed rule about what weights the committee assigns to the various indicators, or about what other measures contribute information to the process.

The committee concluded that the behavior of the quarterly series for real GDP and GDI indicates that the trough occurred in mid-2009. Real GDP reached its low point in the second quarter of 2009, while the value of real GDI was essentially identical in the second and third quarters of 2009. The average of real GDP and real GDI reached its low point in the second quarter of 2009. The committee concluded that strong growth in both real GDP and real GDI in the fourth quarter of 2009 ruled out the possibility that the trough occurred later than the third quarter. Link to Town Crier

How Unequal Are We?

Special Thanks to Zero Hedge for the post (http://www.zerohedge.com/):

America has long had a working group on financial markets (whose sole purpose some suggest is to keep stocks from plunging in times of turbulence), so why not have a working group on that other much more critical phenomenon of US society: a trend of unprecedented unequal wealth distribution, which can be summarized as simply as pointing out that 1% of US society holds more wealth (or 33.8% of total), than 90% of the remaining portion of America (26.0%), and also is in possession of more than half of all stocks, bonds and mutual fund holdings in the US. Well, there is, even if is not formally recognized, and made up of the same distinguished professionals as the PPT (Geithner, Bernanke, Gensler and Schapiro).

Extreme Inequality.org

Inequality Index

· Percentage of U.S. total income in 1976 that went to the top 1% of American households: 8.9.

· Percentage in 2007: 23.5.

· Only other year since 1913 that the top 1 percent’s share was that high: 1928.

· Combined net worth of the Forbes 400 wealthiest Americans in 2007: $1.5 trillion.

· Combined net worth of the poorest 50% of American households: $1.6 trillion.

· U.S. minimum wage, per hour: $7.25.

· Hourly pay of Chesapeake Energy CEO Aubrey McClendon, for an 80-hour week: $27,034.74.

· Average hourly wage in 1972, adjusted for inflation: $20.06.

· In 2008: $18.52.

Income data

Median household income in 2008 was $50,303, according to Census data. Half of American households had income greater than this figure, half had less.

Between the end of World War II and the late 1970s, incomes in the United States were becoming more equal. In other words, incomes at the bottom were rising faster than those at the top. Since the late 1970s, this trend has reversed.

For example, data from tax returns show that the top 1% of households received 8.9% of all pre-tax income in 1976. In 2007, the top 1% share had more than doubled to 23.5%.

There is reason to suspect that this level of income inequality is dangerous to our economy. The only other year since 1913 that the wealthy claimed such a large share of national income was 1928, when the top 1% share was 23.9%. The following year, the stock market crashed, which led to the Great Depression. After peaking again in 2007, the U.S. stock market crashed in 2008, leading to what some are now calling the “Great Recession.”

Between 1979 and 2008, the top 5% of American families saw their real incomes increase 73%, according to Census data. Over the same period, the lowest-income fifth saw a decrease in real income of 4.1%.

In 1980, the average income of the top 5% of families was 10.9 times as large as the average income of the bottom 20 percent, according to Census data. In 2008, the ratio was 20.6 times.

The current recession has hit incomes hard across the board. Median household income declined 3.6% in 2008, the largest single-year decline on record. Adjusting for inflation, incomes reached their lowest point since 1997. (Center on Budget and Policy Priorities analysis of Census data)

Wealth Facts

Wealth is equivalent to “net worth,” which is equal to your assets minus your liabilities.

Examples of assets include checking and savings accounts, vehicles, a home that you own, mutual funds, stocks and bonds, real estate, and retirement accounts.

Examples of liabilities include a car loan, credit card balance, student loan, personal loan, mortgage, and other bills you still need to pay.

Median net worth in 2007, the latest year for which figures are available, was $120,300. Half of American households had net worth greater than this figure, half had less.

Net worth is even more unequal than income in the United States.

In 2007, the latest year for which figures are available from the Federal Reserve Board, the richest 1% of U.S. households owned 33.8% of the nation’s private wealth. That’s more than the combined wealth of the bottom 90 percent.

The top 1% also own 50.9% of all stocks, bonds, and mutual fund assets.

Retirement accounts like 401(k)s are more equally distributed. The top 1% owns only 14.5% of all retirement account assets, while the bottom 90% owns 40.5%.

The total inflation-adjusted net worth of the Forbes 400 rose from $502 billion in 1995 to $1.6 trillion in 2007 before dropping back to $1.3 trillion in 2009.

Net Worth is highly unequal when it comes to race. In 2004, the latest year for which Federal Reserve figures are available, the typical white household had a net worth about seven times as large as the typical African American or Hispanic household.

Since the 1980s, Americans have spent more and more of their income on expenses, leaving less for savings. The U.S. Personal Savings Rate declined from 10.9 percent in 1982 to 1.4 percent in 2005 before rising to 2.7 percent by 2008. Link to complete report

ECRI Plunges At 9.8% Rate, Double Dip Recession Virtually Assured (Zero Hedge)

Thanks to Zero Hedge

The ECRI Leading Economic Index just dropped to a fresh reading of 120.6 (flat from a previously revised 121.5 as the Columbia profs scramble to create at least a neutral inflection point): this is now a -9.8 drop, and based on empirical evidence presented previously by David Rosenberg, and also confirming all the macro economic data seen in the past two months, virtually assures that the US economy is now fully in a double dip recession scenario.

"It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data)." We are there.