And if we look at the details of the jobs report, it turns out that 17.9 percent of Americans are either unemployed or underemployed or flat out have stopped looking for work:

Source:  BLS

This wasn’t the only spin going on in the media.  Before the jobs report came out there was a preemptive flow of information trying to justify the job cuts by blaming it on the weather.  Yes, now instead of blaming the financial catastrophe on the actual perpetrators in Wall Street who systematically looted the American system and turned our economy into a giant casino that they leeched onto, we are now to believe people are losing their jobs because of the weather:

“(CNSnews) Ahead of Friday’s announcement, Goldman Sachs predicted that the storm might skew the job loss number by as much as 100,000 – a prediction that was embraced by officials in the Obama administration.

“The blizzards that affected much of the country during the last month are likely to distort the statistics,” Larry Summers, director of the White House’s National Economic Council, said in an interview with CNBC. “So it’s going to be very important … to look past whatever the next figures are to gauge the underlying trends.”

If the storm caused a skewing of job loss numbers I wonder how many job losses can be linked to Goldman Sachs and their casino style gambling in the derivatives markets and mortgage backed securities?  Then again, people should be happy that the unemployment rate remained steady at 9.7 percent even though more Americans are working part-time with no benefits and many others have simply fallen off the payrolls.  This is supposedly the new American dream for the middle class through the eyes of Wall Street who are selling capitalism but living in a world of corporate handout socialism.

There is a new show called Undercover Boss where a CEO goes undercover to work in the trenches with the proletariat.  As it turns out, the middle class is being worked to death and as we all know, the CEO can’t even do the job most workers do on a daily basis.  Even Henry Ford understood the interworking of the cars he was putting out.  In the end the CEO reveals his identity and gives a nice little handout to the worker and all is well in TV land.  The check is a token of what CEOs actually make.  This is the ultimate reflection of our trickle down economy where those at the top act like sociopaths and rulers of the universe but when it comes to doing the daily tasks of their company, they have no clue.  This is the de facto rule running on Wall Street.  In fact, CEO pay has grown outrageously over the past few decades as the middle class has gotten poorer:

Source:  American Progress

In reality, part-time employment has spread even to poor CEOs making 300 to 400 times the average American worker salary.  Poor CEOs and Wall Street executives need time off to enjoy their tax payer funded yachts and all expense hedonism trips to the Caribbean.  They would like to convince each other that the money they have is all through their will power and market prowess but in reality it is nothing more than being part of a corporatocracy and buying out the government with an army of lobbyist and insiders.  You have to be a self indulgent narcissist to take the economy to the brink of financial destruction in the case of many Wall Street firms and still reward yourself with outrageous bailouts.  The fact that average Americans are still not protesting in mass about this tells me that many actually believe what Wall Street is saying.  You see this when many would rather blame the working class for the ills of today than focus their energy where it really needs to go.

Wall Street loves this economic crisis.  They receive trillions in bailouts yet convince the public that what is occurring today is merely the “market” correcting itself.  So as most Americans have more and more troubles keeping up with their daily bills, companies are squeezing every little excess from those currently working.  Those that have jobs out of fear will work harder and probably demand less merit increases in the current economy.  After all, the head guy is only making 300 times what you make even though he can’t even understand the main function of the organization.  So what if the low level guy is selling toxic crap to some homeless person with no income and giving him access to a $500,000 loan.  These Wall Street tycoons are big picture thinkers and can’t be worried with the day to day operations of the proletariat unless it means turning it into a caricature for mass viewing and quick TIVO access.

You don’t think productivity actually increased?  Take a look at this:

Source:  BLS

This recession has been fantastic for productivity.  Just look at the above chart.  American workers have been doing their part during this recession.  After all, now you can hire a cadre of “contract” workers and not have to pay them one cent in healthcare support or even contribute to their pension.  Once the job is done you can kick them to the curb.  After all, this is capitalism so long as those at the top have managed to setup sweetheart deals and golden parachutes.  This is how the top 1 percent makes sure their hold on 40 percent of the nation’s wealth isn’t damaged.  And if you think financial institutions deserve this bailout money and their outrageous bonuses then companies like Circuit City or Mervyns would still be around today if that model applied across the board.  But this doesn’t apply to the general economy.  This applies to Wall Street and somehow the absurdity of it all still goes on.  The worst financial crisis since the Great Depression and not one solid reform has been enacted.  26 months of job losses and nothing.  Who is running the show?

The rise of the part-time work force is nothing new as we become more and more like Japan.  Japan bailed out their financial institutions after their failed stock market and real estate bubbles popped and today, their working class is made up of one-third part-time workers:

“(LA Times) In the world’s second-largest economy, the global financial crisis has forced part-time workers such as Kudo to face a harsh new reality.

Over the last few years, temporary employees have gone from being a rarity in Japan to accounting for one-third of the workforce of 67 million. They enjoy far fewer protections than full-time workers — placing their necks squarely on the layoff chopping block.

By March, the government predicts, 85,000 part-timers will fall prey to haken-giri, or temporary-worker cutbacks — a relatively small number compared with U.S. layoffs but high for a nation where job security has long been a staple.

On Wednesday, embattled Prime Minister Taro Aso made the plight of part-timers a major piece of a proposed stimulus package. Aso pledged to create 1.6 million jobs, partly by turning part-time jobs into full-time ones.”

Japan’s headline unemployment rate is 4.9 percent.  Just like our headline unemployment rate, the devil is really in the details.  If we continue on this path part-time work may be all that is left.

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What constitutes “middle class” in the United States?  If we go by the median household income the figure is roughly $52,000 per year.  Some 57 million households live on $52,000 or less per year.  This is based on 2008 Census data so it is very likely that figure is down to $50,000.  In fact, 38 million households are receiving food assistance so some are below the poverty line.

Let us look at how much income is used up by breaking down a few hypothetical budgets:

Source:  U.S. Department of Commerce

The biggest line item for most American families is housing.  When housing prices expanded into a massive bubble, more Americans to keep up with the middle class ideal took on more and more mortgage debt.  But without growing incomes they were seeing more of their money being funneled into servicing the mortgage debt.  With the advent of interest only and negative amortization loans, the process of building equity never took place and in some cases actually grew the initial mortgage balance.  Instead of saving, many middle class families saw their net worth retreat backwards.  This was one really new facet in this current economic crisis.  Traditional mortgages were once seen as a forced savings account because every month a portion of the principal was paid off.  Once you reached the later years of the mortgage, more and more went to paying off the mortgage.  That was not the case with some of the debt we saw in the last decade.

Part of the two income trap is hidden in more troubling ways.  Take for example automobile costs.  Most Americans with a two income household have two cars.  Let us assume that both cars were bought for $20,000 each and carry a $300 monthly payment.  So $600 a month right?  Wrong.  What about fuel?  Add $100 to $200 per month depending on how much you drive.  Car insurance?  This will be roughly $100 per month.  Car service?  Try another $50 to $100 per month.  So in total, many families are spending $600 to $900 per month on car costs.  And people aren’t taking much home after taxes:

So the take home pay for the middle class family is $3,400 if they live in California.  Subtract that $900 in auto costs and you are now down to $2,500.  In places like California where the median home price went up to $500,000 any middle class family stood no chance at buying a home.  Well, they were able to buy but holding on to the home was another story.  Yet people bought at these peak levels and that is why we are seeing such large number of foreclosures in the state but also in other states.  Even last month the number of foreclosure filings in California was near record levels.  The middle class is finding it tougher and tougher to keep their head above water.

Let us run the numbers if someone were to buy a home:

The latest home price for existing home sales in the U.S. is $164,700 for the median.  It is interesting to note that we are now back to January of 2009 levels and for 2009, prices did go up but went full circle back.  Let us assume this family uses a FHA backed loan and is only required to put 3.5% down:

Down payment:                               $5,764

Mortgage payment (PITI):           $1,098

So take that $2,500 left over and now subtract this amount.  $1,402 is what is left over.  This is the amount of money left over for food, healthcare (one illness and that is it with no insurance), and other daily good costs.  What about retirement savings?  That has to come from here as well.  The money can go quickly.  What about cells phones?  Utility bills?  Quickly that number dwindles.  And keep in mind this is household income.  As we now know many families are seeing one of their incomes disappearing and people are having a hard time finding work:

Source:  Itulip

When I look at the above chart it doesn’t take a rocket scientist to figure out that many people are still in the throngs of the recession.  The talk of recovery is muted by the reality of the numbers and all the average American will see is a recovery on Wall Street but in terms of their pocket book, little is funneling to them.  I’ve heard from people across the country looking for work and being unable to find anyone hiring.  And if they do find something, the wages are much less than what they once earned.  This isn’t reflected in the data.  How many people that are now marked as fully employed are in jobs that now pay less than what they once had?  That is why problems even in credit cards are filtering all the way to the bottom of the bank balance sheet.  People are relying on credit cards as their last lifeline and many banks are now shutting these off.

What was once thought of as middle class security is now heavily at risk:

-Secure job   [no longer]

-Steady home values [no longer]

-Access to affordable education [costs are outpacing inflation]

-Healthcare costs are skyrocketing with an aging population [just look at your insurance premiums]

The middle class is really coming under an onslaught of issues.  What we do in terms of financial reform and also, how we view our compact with our nation are going to be really important going forward.  But if the only sure thing is protecting banks from failure, then we are seeing the fruits of that decision playing out.

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Let us first look at a Gallup poll registering underemployment:

Source:  Gallup

Now the Bureau of Labor and Statistics usually measures the above through their U-6 rate.  This rate measures those that are working part-time but would like to have a full-time job.  There is something psychological about this that makes it seem a lot better than full unemployment but the repercussions on the working class is deep and profound nearly as deep as full unemployment.  First, if you are working part-time you have less money to spend and this showed up in the survey clearly:

Source:  Gallup

This is important in understanding that even with a 6 percent growth rate in GDP last quarter that many people still feel this recession deep in their pocketbooks.  In addition, that latest GDP number is based on companies cutting their top line item, employees and also inventory restocking.  But these are usually one time measures.  What we want to be seeing is GDP growth because of additional consumption and growth through hiring.  That is the real nature of a healthy expanding economy.  Cutting and firing middle class workers isn’t exactly the recipe for a longer-term recovery.

Americans are having to do more with less and are facing new measures of austerity.  Many are adapting and many are simply unable to cope with the radical changes taking place.  Even in the past decade, many Americans came to rely on credit cards and home equity as some kind of embedded ATM for most households.  For over a decade this seemed to be the case.  Even many that relied on this deep down realized that something just wasn’t right when home prices kept going up by double-digits while their salaries remained stagnant.  Any lack of wage growth was made up by additional borrowing.  Banks were willing to lend out this money.  But now that the bubble has burst, Americans are filing for bankruptcies in record numbers, losing jobs, and losing their homes through foreclosure.  At the same time, the banking industry has kept their practices going thanks to taxpayer bailouts.  The middle class is bailing out the same industry that was largely at the center of this financial crisis and their practices still largely remain the same.

This struggle to maintain the middle class is going to be the story of the next decade.  But beyond that headline, we now have over 38,000,000 Americans receiving food assistance in this country:

Source:  SNAP

The most prosperous nation in this world has over 12 percent of its population receiving food assistance.  It is tough to see fellow Americans in such difficult times.  You can see on the chart above how quickly the rate has risen in this recession.  Clearly in every recession the rate will go up but in this recession the number has struck many more Americans.  In fact, the length of unemployment is a large reason for this as people eat into emergency funds.  Beyond that, we now have the largest percentage and number of Americans working part-time in history:

Source:  Itulip

In fact, the large number of underemployed has been a shadow to how deep this crisis really is.  For example, the headline unemployment rate nationwide is 9.7 percent.  That seems bad but nothing historical.  But just look above and add in that underemployment rate.  In reality, we can understand why middle class Americans are struggling so much with daily financial life.  Think of someone that lost their job and is now working at Wal-Mart as a greeter.  Sure they aren’t part of that 9.7 percent but they probably would think so:

“(The Atlantic) Over lunch I spoke with one attendee, Gus Poulos, a Vietnam-era veteran who had begun his career as a refrigeration mechanic before going to night school and becoming an accountant. He is trim and powerfully built, and looks much younger than his 59 years. For seven years, until he was laid off in December 2008, he was a senior financial analyst for a local hospital.

Poulos said that his frustration had built and built over the past year. “You apply for so many jobs and just never hear anything,” he told me. “You’re one of my few interviews. I’m just glad to have an interview with anybody, even a magazine.” Poulos said he was an optimist by nature, and had always believed that with preparation and hard work, he could overcome whatever life threw at him. But sometime in the past year, he’d lost that sense, and at times he felt aimless and adrift. “That’s never been who I am,” he said. “But now, it’s who I am.”

Recently he’d gotten a part-time job as a cashier at Walmart, for $8.50 an hour. “They say, ‘Do you want it?’ And in my head, I thought, ‘No.’ And I raised my hand and said, ‘Yes.’” Poulos and his wife met when they were both working as supermarket cashiers, four decades earlier—it had been one of his first jobs. “Now, here I am again.”

We are in a deep struggle and fight to preserve the middle class of this country.  What has made this country strong has been a compact between the government and the citizenship between work and some semblance of financial protection.  Yet right now with the banking system in power, it is all about that bottom line and they have no idea what is happening in Main Street USA.  They are happy with GDP going up by 6 percent even though this was based on restocking lost supply and firing workers.  But how is this really good for the middle class?

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I think most Americans have noticed new methods of austerity all around them.  For example, I’m sure many of you have seen the Wal-Mart ad that talks about taking lunch to work.  They even break down the numbers to show you how much your budget will save by doing this.  Contrast that ad with this one below talking about taking a home equity loan while having a couple in a speed boat cruising in the background:

Source:  YouTube uploaded on June, 2007

When you contrast the two messages, one of easy money and endless excess and the new ads talking about brown bagging your lunch to work, we realize that average Americans are finding it much harder to saddle on more debt.  Some might try to recall the last decade as a wonderful time but the economic data shows otherwise.  Much of the spending and consumerism was built around easy access to debt.  People weren’t buying new automobiles with cash, they were financing it with 5 or even 7 year loans.  Want a new surround sound system but are low on cash?  No problem, just take on an extra credit card and charge it up.  Now, the ads highlight a very different economic climate.

I stopped by a local dollar store to pick up some items for the house and noticed that first, the parking lot was full.  A few years ago the parking lot was two-thirds empty.  This trend has been going on for about two years since the recession hit.  After entering the store I noticed that people for the most part were buying groceries.  Now this area is one that I wouldn’t consider poor but more along the lines of middle class.  Yet this is the new reality for the middle class.  There is no sharper contrast than seeing a women load her leased Mercedes full of dollar store groceries.  Austerity doesn’t happen overnight.

On Monday we received news that some of the most egregious practices from credit card companies will need to change now that legislation is in effect.  Yet credit card companies have already adapted by hiking up rates, charging annual fees on good customers, and other methods of front loading earning before the law came into effect.  So Americans who have relied so heavily on credit cards will now have to be extremely cautious when using these items of consumption.  Even the tried rule of paying off your balance every month may not save you from the annual fee that some companies are now imposing.

Casinos Lose Money for Second Time in History

In another clear example of changing habits of the American middle class, Casinos in Nevada lost money last year for only the second time in history:

“(Las Vegas Sun) CARSON CITY – For only the second time, Nevada casinos posted a loss – but this time it was the biggest.

The state Gaming Control Board today released its “Gaming Abstract” for fiscal year 2009, which ended June 30, showing a net loss of $6.7 billion among the 260 major casinos in Nevada.

Clubs along the Las Vegas Strip, which makes up 53 percent of the gambling revenue in Nevada, registered a $4.1 billion loss. The only bright spot, from a financial standpoint, was that people drank more. Sales of booze rose by 2.5 percent while revenue tied to casinos, rooms and food dropped. But 36 percent were recorded as “comp” drinks.

“It was a horrendous year,” said Bill Bible, president of the Nevada Resort Association, which represents several casinos on the Strip. He said many of the casinos had three and four waves of layoffs to cut cost during this national recession.”

I find it really telling that the only “bright spot” was that people drank more booze.  Self medication for the realities of the new economy.  Gambling whether it is in Las Vegas or through lottery tickets is a form of escapism.  I think many people in places like Las Vegas go to strike it big.  The irony of how the city has morphed is a large part of their revenues now come from other sources outside of gaming.  These include boutique stores and high end restaurants.  I was in Vegas only a few months ago and strolled down some of the shops and the higher end stores were very empty.  A few years back, these places were bustling with people.  It is a microcosm of the new austerity in our country.  Contrast the $100 t-shirts versus the Wal-Mart ad highlighting the benefits of taking your lunch to work at the cost of a few dollars per day.  Things are shifting out of a practical necessity.

And this isn’t simply a function of discretionary spending like trips and gambling.  Even in more practical aspects of daily life this is changing and evolving.

Fast-food Breakfast Slumps with Fewer Workers

You know things are tough when even low cost fast food is taking a hit:

“(WaPo) The nation’s high unemployment rate has thrown millions of people out of work, scared shoppers away from stores and threatened the economic recovery. Now it’s taking a bite out of breakfast.

Breakfast sales had grown at a ravenous pace during the boom years as busy workers scarfed down sausage biscuits on the way to the office, fueling a $57 billion business and accounting for as much as a quarter of sales at some fast-food chains. Chains opened earlier and expanded their morning menus to accommodate the traffic as lunch and dinner sales flatlined.

But as the jobless rate hit 26-year highs fewer people headed to work, and even those who did worried about their spending. So they poured bowls of cereal at home or simply slept in, putting breakfast on the back burner.

“Typically, if you’re unemployed, you’re not getting up at six and not going through the drive-thru,” said Jeffrey Bernstein, an analyst at Barclays Capital. “There is a direct correlation between unemployment and breakfast sales.”

It is hard to even comprehend that breakfast sales accounted for $57 billion in revenue.  However, with more people out of work many are skipping breakfast or eating at home.  On my early morning drives I will always see cars pulling up to McDonalds or Starbucks for that early morning purchase.  The lines seemed a lot shorter and looking at the data it is part of the new frugality that Americans are having to deal with:

Source:  Washington Post

And this recession is shaping how people view their future and what they expect out of it:

“(New York Times) See that,” she said, spotting a man dressed as the Statue of Liberty. Standing on a sidewalk, he waved at passing cars with a sign advertising a tax preparation business. “That will be me next week. Do you think this guy ever thought he’d be doing this?”

And yet, she would gladly do this. She would do nearly anything.

“There are no bad jobs now,” she says. “Any job is a good job.”

That person dressed up as the Statue of Liberty is a very common vision especially with tax season here.  2010 is a very different world from 2007.  I wonder what lady liberty would think about how we are spending our tax dollars in bailing out banks while average Americans are forced to tighten their belts?

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The first important thing to understand is that yes, the income of middle class families has gone up since the 1950s but a large part of this was the rise of the two income households with women entering the workforce:

The above chart is disturbing in many ways because it bucks the nearly 50 year long-term trend of employment.  Now, even with two income households many with rising job losses are finding they now have to make it with one income while inflation has eroded their buying power over the decades.  In this recession 3 out of 4 job losses have been men.  If you have any doubt regarding the insidious nature of inflation I put together a chart looking at various costs over the last few decades:

Part of this is due to the Federal Reserve and U.S. Treasury trashing the U.S. dollar over the decades.  For example, in 1950 it took the median household income (which was largely a one income household) about 2 times the annual household income to purchase the median priced home.  In 2008, it took the median household income (now largely a two income household) four times annual earnings to purchase the median priced home.  In fact, the two income household has hidden a large part of how much the middle class has fallen behind in this country.  Now with this recession, the deep cracks are now being exposed in the system.

Income inequality has also risen in this country and a large part of it is due to the financial sector.  1 percent of our population control 42 percent of all financial wealth.  In fact, in the last decade the only segment of our population that has seen any sizeable gains in true wealth is the top 1 percent.  Every other category has seen a loss of housing net worth, wage stagnation, and higher costs for daily items that consume a larger part of their budget.  Just take a look at the chart below showing this change:

Source:  CNN

The above is looking at a one income household in 1973 versus the two income household in the 2000s.  It is interesting to note that in the 1970s Nixon took the dollar into a purely fiat system and since that time, the dollar has lost much of its actual value.  This would be expected.  The Federal Reserve with its banking lieutenants has been able to put our country so deep into debt that realistically we are in a position of never paying back all our outstanding obligations.  The only way out is via inflation and with a fiat system that is the path we are heading down.  This is important because when you look at the charts above prices rise for various reasons and inflation is a hidden tax.  No need for higher taxes to bailout the banking sector when you can just destroy the purchasing power of middle class Americans by monetizing enormous amounts of debt as we have done.

That is why in the next decade, Americans are now working for someone else beyond their immediate household.  A large chunk of their money is now going to the banking sector.  This can be in absurd payments to credit card companies, loss of purchasing power because of the Fed, or other hidden methods of taxing the public.  We are really at a crossroads for the middle class.  If we dissect the data further we realize that even though things cost more, much of it has been financed through debt:

Ironically the family in the early 1970s had more discretionary income than the family in the early 2000s even with a dual income.  Yet if you look around, it isn’t immediately apparent because of the massive debt bubble financed by the banking sector.  Sure people bought bigger homes and newer cars but all this was under a phony veneer of success and was financed with debt.  All of it was built around a mountain of debt.  Yet here is where the big divide hits.  Middle class families are now losing their homes through foreclosure.  Many are having their cars repossessed because they can’t make their payments.  Bankruptcy filings are soaring because people cannot service their debt.  So middle class Americans are paying the price with the rules that are setup.  Yet banks are not.  They are sucking the American taxpayer for all their horrible bets and are not dealing with the ramifications of their actions.  In other words, the bill is going to the middle class as the middle class is dealing with their own bad decisions.  This is part of the system built around the corporatacracy model of government.  Losses are socialized while gains are privatized.

And don’t kid yourself, this entire game was financed on debt:

And the small group of banks at the top now control a large portion of all FDIC backed assets in our country:

Source:  FDIC, Bank Financial Statements

Forget about the Republican or Democrat parties, we are being governed by the financial sector of this economy.  It is amazing how hard it is to get sensible legislation even after this great calamity.  To prove this point, in California an insurance company announced they are hiking healthcare premiums by 30 percent in the midst of this recession even though they pulled in billions in profits.  The government will sit back and let the middle class get fleeced because they are part of the problem.  They speak a good game but are bought by the industry.  Prove us wrong if this isn’t the case.  Enough talk, time for action.  From now on we need to focus on who is delivering results.  If you can, take you money out of the big banks and put them in local regional banks.  Let your local representatives know that their number one priority should be focusing on protecting our struggling middle class.  Time to get some real reform or we really risk losing our middle class.

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The banking industry and Wall Street is corroding the actual engine of our economy.  GDP is growing but when you pull back the data, much of the profit comes from the banking sector and debt payments.  Take for example the recent jobs report.  A revision was made to the January jobs report last week that added over 1,200,000 more Americans who have lost their job in the last year.  And this was somehow good news!  The unemployment rate which comes from a separate survey dropped to 9.7 percent because a large number of people dropped off the employment radar.  This is what goes for good news.  Also, we have the troubling amount of commercial real estate loans with a value of $3.5 trillion now defaulting at record levels.  Much of these loans are with too big to fail banks.  To be blunt, it is now our problem.  Let us go through the big risk transfers in this recession starting with jobs.

Risk One – Jobs

The above chart is one of the more important charts in measuring the actual unemployment problem.  Average Americans are struggling to find work and those that do have jobs are finding it harder to maintain their wages.  The unemployment rate is highly inaccurate in the short-term because of how it computes its rate.  Think of last month were the unemployment rate dropped from 10 percent to 9.7 percent yet a revision on another survey showed an additional loss of 1.2 million jobs over the past year.  This is straight out of 1984 economics.  And the problem with this risk transfer is that we’ve been discounting headline job losses for over a year:

Instead of having one month with 700,000+ job cuts, the new revised data tells us we had 4 months at this rate!  Even with the December data, instead of 85,000 jobs being lost we lost 150,000 jobs.  Take a look at the above chart and you’ll see how much we were underrating the actual employment situation of Americans.  This went on for over a year and here you have Wall Street betting stocks up on data that wasn’t even accurate.  Who needs jobs when you have the taxpayer funding your casino that doesn’t even rely on accurate data?  All you need to do is issue a revision a year later and say, “sorry, we just happened to find 1.2 million more actual jobs that were lost during this recession.”

Risk Two – Banking

The banking sector by far has pushed the biggest risk onto the taxpayer.  Wall Street and their new corporatacracy have created a system where gains are privatized and losses are socialized.  It is the worst system possible for the American public.  Have you noticed that since the massive bailouts, almost no kind of bad news phases the market?  We have headlines that show commercial real estate showing losses of trillions in value and the stock market keeps going up.  Foreclosures are occurring in the millions and people are losing their homes (foreclosures do cost banks money) but somehow banks keep turning profits.  From where?  They certainly aren’t lending the money to consumers:

And banks are certainly not making mortgages with their own money.  So where is the profit coming from?  Simple.  Any risk or loss has now been pushed to the taxpayer.  Why do you think banks are fine with people not paying their mortgage for months?  Because they can still claim the asset at a peak value thanks to the suspension of mark to market and then make the bulk of their profits betting on the absurd stock market rally from March of 2009 that has shown no connection to reality based fundamentals.  Here is the breakdown of the bailouts:

You would think that over $14 trillion in bailouts would create at least one net job but it hasn’t because much of the money has gone to transferring the wealth to Wall Street and the corporatacracy and shifting the risk to average Americans.  Is that the deal we were looking for?

Risk Three – Housing

Yet at the core of this crisis, is the real estate market.  Banks are now simply lending mortgages backed by the government serving as middlemen in the transaction:

The above chart should tell you everything you need to know about the current housing market.  Banks have no faith in the average American.  They are more than happy to lend out mortgages that are backed by the government (aka the taxpayers) and would rather hold onto their precious reserves to deal with the real problems in the market or make additional bets on Wall Street.  That wasn’t really the initial deal since they pleaded for funds to keep lending going but have now decided it is more profitable to gamble against the American public with their own money.  Take for example Goldman Sachs that created and bet against the same mortgage backed securities that it was pushing to clients.  When things went kaboom, it simply decided to get the American government to bail it out.  In other words, the market was trying to flush them out of the system because of their horrible structure yet their corporatacracy connections allowed them to survive and now thrive with the taxpayer as their funder.

Take a careful look at the chart above.  Since 1988 we have never seen this much government backed loans in the housing market.  Banks are not lending from their own money because they know what is going on:

Banks have held on tight to their excess (bailout) reserves.  Even with a 0.25 interest rate they have more incentive to hold onto this money then lend it out to the public.  The Federal Reserve can easily increase lending from member banks.  All it would need to do is drop the interest rate or even better, charge banks a fee (heck, banks charge a fee for everything to average Americans) and banks would start lending some of that money.  Yet referring back to risk #1 above, Americans are dealing with an economy with very few jobs and low hiring.  So who are they going to lend to?

It should be abundantly clear that risk has been shifted to the average American with no upside or even change on how we do business.  We are way beyond incremental change at this point.  So what can we do?  Break up the too big to fail banks.  Enough with the government backing every mortgage being pumped out.  How about we get better measures of employment?  These would be a few things that would mitigate the risk now placed on the shoulders of an already struggling middle class America.

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It is amazing that we even have to debate the issue of employment.  Our economy cannot function and provide the middle class a thriving environment without jobs.  This should be obvious yet the Wall Street crowd is feeling comfortable even though the public is still dealing with double-digit unemployment (we’ve lost jobs for 24 straight months and would have to go back to the Great Depression to find a similar streak).  In fact, the largest state economy in our nation that of California with an economy of over $1.8 trillion managed to average out an underemployment rate of 21.1 percent for all of 2009:

Source:  BLS

This chart is downright troubling.  Who would have thought that Michigan and California would lead the way in 2009 with underemployment rates over 21 percent?  Michigan has had issues for many years and their economy pulls in a GDP of $380 billion.  But California being the biggest economic state in our country with a GDP of $1.8 trillion should make you pause before you think we are somehow in recovery mode.  And from the looks of it, California with their historical housing bubble looks to have years of financial trouble to work through.  These issues are large and we haven’t even begun examining their state budget issues that are projected to come in at $21 billion.

Having a job is the cornerstone of our economy and also our vibrant middle class.  This has been the case for multiple decades and actually has been part of our identity since the disastrous years of the Great Depression.  Having a job is a pact with our country and Wall Street has taken this for granted in the last thirty years.  Slowly we moved from an economy that valued work to a casino like economy that funneled money into Wall Street and whatever demand came after the spending of the corporatocracy was given as crumbs to the public.

This notion of “jobless recovery” is such an oxymoron.  How can we have a recovery while losing 8 million jobs?  Just because bank bonuses are back to record breaking levels does not mean a recovery is in place.  Statistically we can massage the numbers however we like.  And what else would you expect?  We pumped $14 trillion in bailouts, backstops, and gifts to bankers so of course something was bound to happen.  Even a mountain can move with enough force.  Yet where are the jobs?

We should examine job gains after previous recessions to see the erosion of our middle class base:

Source:  NBER

The above chart marks the month ending of all recessions since 1945 and how long it took to have a net positive month in job gains.  For the most part, jobs were added fairly quickly and in many cases the month right after the official end of the recession.  But starting in 2001 we start noticing this shift to the jobless recovery era.  Now why did this occur?  Well for previous recessions the business cycle was easy to follow and track.  The economy pulled back and so did employment.  But once the economy got back on track demand followed and so did employment.   But since the banking oligarchs have taken over our economy, a gain in the economic indicators does not mean additional employment.  Since we now are largely importers we can buy cheap goods but have dismantled our goods producing base.   Ask yourself this, where did banks make their profits in 2009?  It definitely wasn’t because employment boomed.  Demand has been mute.  So where did it come from?  The profits came from gambling on exotic financial instruments all over the world with taxpayer money.  In other words, the recent stock market rally is artificial and no longer represents the economic reality for most Americans.

Another key indicator to look at is long-term unemployment:

It is amazing that the largest group of unemployed Americans falls under the long-term unemployed category.  Over 6,130,000 Americans fall in this group.  These are people that have been out of work for at least 27 weeks and will most likely, need to find a job in a different industry.  We’ve discussed this in previous posts that the groups that took the biggest hits in this recession are manufacturing and construction.  The financial industry has contracted as well but nothing compared to what other sectors have.  The above chart should be indicative of where we are.  This recession may be over in terms of GDP increasing but remove the bailouts and the stimulus and you get a deep economic mess.  Plus, we have yet to add any net jobs.  Think about this, we’ve added some $14 trillion in bailouts and backstops and we have yet to add a net job in the economy.  Is this really the reflection of a healthy economy?

The middle class since the 1970s has seen their savings dwindle, their work week increase while their pay lags, and the cost of necessities like housing and healthcare zoom past any income gains.  Even with two income households many Americans are simply trying to make ends meet.  Even those who are doing well, those making enough to be hit with the Alternative Minimum Tax (AMT) are feeling the pinch as well.  Because in reality, the last decade has been a gift to the top 1 percent of the nation.  Think about how taxes play out.  Many of these people live off capital gains that are taxed at 15 percent while even a physician working 70 hours a week will need to pay the top federal tax bracket of someone actually working.  In other words, our system values people who put their money into the casino as opposed to working.

How else can we explain the cheerful smiles of Wall Street traders while the nationwide underemployment rate is up over 17 percent?  How else can we explain the giddiness of bankers counting their bonuses while home values are still in the dumps for most Americans?  The continuous chants of “jobs lag the stock market” are absolutely tiresome and in fact, wrong.  The current system is only waiting like a beggar hoping Wall Street creates enough demand so most Americans can get a piece of the action.  We already saw what this creates with the housing bubble.  You can enjoy the ride for a few years but you’ll be kicked out once the fun is over.  While the public gets kabuki theater programs like HAMP bankers get bailed out 100 cents on the dollar like Goldman Sachs did through the AIG gift exchange.  In other words, this bailout isn’t for you and it certainly isn’t about creating jobs.

There is this argument about global bubbles.  Gold bubbles, a China bubble, another stock market bubble.  But take China for example.  Even though they are spending enormous amounts of money they have pumped billions into infrastructure projects that are at least building up their economy and putting people to work.  Engineering analysts for the U.S. estimate that we have about $2 trillion in infrastructure upgrade projects that we have delayed or simply ignored.  Why not take some of that $14 trillion and put it to at least reinforcing that core of our economic structure?  I’m not talking about building strip malls and dumping more money into the commercial real estate pit.  How about reinforcing our highways, bridges, universities, and other key components that make our economy strong and envied around the world?  If we are going to spend at least spend in the right place.

Yet the irony of this is the Wall Street system still believes in a “free market” world yet they’ve never even lived in anything resembling a free market.  Their idea of financial innovation is setting up credit cards with 79.9 percent interest rates and creating mortgages that harm your financial health when you’re not looking.

People are focusing on places like Greece, no doubt a big problem but California has an economy that is 13 percent of U.S. GDP!  Michigan has a bigger GDP than Greece ($357 billion) yet so much attention is being given to this issue.  Our nation’s number one GDP state has an underemployment rate of 21 percent and is on the precipice of financial insolvency.  Not only California, but other states.  In fact, many have been borrowing for their unemployment insurance funds trying to keep those long-term unemployed from going into despair:

Source: Propublica

Four enormous GDP states in California, Texas, Florida, and New York have bankrupt unemployment insurance funds and are now borrowing from the federal government who is also broke (not broke enough to bailout Wall Street however).  How anyone can look at the above and claim we are in recovery is really beyond me.

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If we look at where the jobs losses are coming, we will see that manufacturing has taken another major hit in this contraction:

Every industry has seen significant job cuts.  It is interesting to look at the financial sector and see how well it has done in comparison to other sectors.  No wonder why Wall Street since March of 2009 has been on a historic rally.  Fascinating how in the last few days when mention of breaking up the too big to fail banks was brought about that we had our first major correction in nearly a year.  Could it be that the only way banks are making money in this current economy is by gambling in the stock market?  Absolutely.  In fact, most of their profits aren’t coming from making loans to average Americans but by trading and acting like pseudo-hedge funds except the banks are using taxpayer money as their safety net.  If you truly believe in capitalism then you understand that too big to fail should not even exist.  Creative destruction is part of a capitalistic system.  Right now banks are operating in a system that offers them different rules from typical Americans who are seeing their jobs disappear.  It is a two-tiered system.

It may also be the case that the system is learning to make do with part-time employment:

You rarely here that employment is a lagging indicator from reputable sources because of the cynical nature of this old economic mantra.  This line is as old as saying real estate prices never go down.  Sure, in previous recessions you would see the economy bounce right back up after a correction but this isn’t one of those typical recessions.  This is a generational correction and old rules of economics don’t play anymore.  Temporary help hiring has increased but the system isn’t hiring any full-time workers either on a net-basis.  In other words, we are still losing full-time jobs.  Businesses have learned to tweak their employment base to a much finer degree so the need for full-time workers with all additional benefits and compensation may not make financial sense.  In the end it is the average American that is thrown under the bus.

Our employment base has also shifted to a major focus on service orientation.  If we rewind to the 1940s and 1950s a large part of our economy revolved around manufacturing.  This isn’t to say that having a large manufacturing base is necessarily good or bad but a large part of Americans had a job that was stable and also provided an income that would make it easy to pursue the American dream.  What did this mean?  Being able to buy a home and support a family without going into massive debt that would put you at risk for bankruptcy and foreclosure down the road.  The rise of the two income household is a positive but it is also an economic necessity for many.  The typical American household brings in $52,000 per year.  Considering this is the median for a household, you can see how quickly losing one job can send a family into a financial tailspin.

And if we look at the top jobs in our country, we realize that we have replaced manufacturing with a near obsession with service oriented jobs:

Source:  BLS

I find it amazing that the two biggest occupations include retail salespersons and cashiers.  If you consider that a family might have one worker in each of these fields, they wouldn’t even come close to meeting the median annual household income of $52,000.  And go down the list.  The vast majority of the jobs above pay slightly above the federal poverty level if someone were to have a family.  It is no wonder that many households went into debt using toxic credit cards that change fees at the drop of a hat.  I find it amazing how quickly some people are to judge these people for financially mismanaging their budgets but at the same time, remain silent on the financial shenanigans of the banking sector that is largely responsible for this financial mess.  The cognitive dissonance is palatable but it is clear that the vast majority of Americans see this distinction and are lashing out at Wall Street and rightfully so.

And when we say Wall Street, we mean the financial sector.  Keep in mind that what I would view as core capitalistic companies like Google or Apple actually provide a service and added value products and these companies aren’t even asking for a government handout.  In fact, they are adding real wealth back into the economy instead of siphoning it off.  How many companies failed trying to be like Google or Apple?  Remember the search engine Alta Vista?  It once reigned supreme and is no longer here.  Companies come and go and that is part of our system.  The idea that banking is somehow immune to this is troubling.  And that is exactly what we did.  Well, not exactly “we” per se because the vast majority of American don’t support the bailouts but this is what was done by those representing us.  What we have now is a full functioning corporatocracy.  The recent Supreme Court ruling allowing corporations to contribute to candidates unlimited sums of money only cements this structure further.

If we look at the S&P 500 and compare it to companies back in the 1950s, approximately 50 companies still remain on the top 500 list.  Many have failed or dropped out or have simply been surpassed by companies that are fairly new (i.e., Google, Apple, Microsoft, etc).  This is the beauty of our system.  Ideally we wouldn’t favor one industry over another.  Yet our slow process into favoring the banking sector is disturbing because we are allowing the financial sector to govern our country.  And clearly we are seeing that what is best for Wall Street isn’t best for Main Street.  Even Henry Ford despised Wall Street and it should be clear to most Americans why.  Wall Street has its place but when it starts becoming a revolving door to D.C. and has Congress on speed-dial we have bigger issues.

44 states recorded increases in their unemployment rates last month.  And what is even more troubling is the length of time people are remaining unemployed:

Nearly 6 million Americans have been unemployed for over 27 weeks, the highest number we have ever seen on a percentage basis.  But on the other side of the coin, we have seen part-time employment for economic reasons spike to over 9 million during this recession.  This group is made up of people looking for full-time work but only being able to find part-time employment.  Add these two together and you start getting a sense of where our economy is heading if things don’t change.  Japan during their lost decade(s) followed a similar path to the one we are going down.  They bailed out their banking sector allowing zombie banks to remain and slowly over a grueling generation, one-third of their population was classified as part-time workers.  Japan also had major fiscal programs but nothing has helped.  Just look at the Nikkei average over this time:

The Nikkei is down 71 percent over 20+years.  So the banks are still there in spirit but what about the overall economy?  Japan has been lagging over the past two decades and bailing out the banks had a lot to do with this.  It is no coincidence that their part-time employment sector makes up one-third of their employment base.

And tying this all together including with the commercial real estate bust, we see that demand for commercial space is absolutely at the bottom:

Source:  Atlanta Fed

And why would you expect this number to be anything else?  Banks needed more and more demand even if the market didn’t demand it so they could keep on expanding and making further and further bad bets.  What did they care?  Ultimately they were bailed out by the taxpayers and government.  Yet we are now seeing deep anger in our country because nothing infuriates a society more than having a large unemployed population especially when aid was given to the banking sector that actually created this employment disaster in the first place.  Apparently Americans are still hungry for change.

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Food Stamps

Nearly 37 million Americans are on some form of food assistance, the largest percentage on record.  It is hard to argue with food stamp data since these are usually allocated to Americans who can least afford any bumps in their income.  They are simply trying to meet the basic necessities of daily life.  That is why we have heard multiple stories of people waiting until the clock strikes midnight so they can begin shopping at Wal-Mart for food.  It is also the case that those at the bottom of our economic ladder are usually the first to be let go when recessions hits.  The unemployment rate for those with a college degree is 5 percent while those with no college education have a rate of 15 percent.  If we dig deeper, only 1 out 4 Americans have a bachelor’s degree so the average American has none to little college education and thus makes it harder to compete in the current troubled workforce.

I’ve seen many reports were schools, companies, and even households have cut back on manual labor positions which are usually very low paying.  This is one of the primary reasons why those at the bottom are seeing such crushing blows in this recession.  The above data tells us a very different story from what is happening on Wall Street.

There is also a financial cost to this:

Last year $37 billion was spent on food stamps.  This year we are going to be solidly over $40 billion (possibly $45 billion).

Bankruptcy

There are few things more painful than bankruptcy.  Bankruptcy is largely a disappearing middle class phenomenon.  Whereas with food stamps, you have to have virtually zero in assets with bankruptcy it is expected that you have something that you are filing bankruptcy against.  In many cases this is crushing debt from credit cards and other consumer loans but now, a large number of bankruptcy is now caused by the popping housing bubble.  Bankruptcy filings are typically the end of the line for many Americans.  They no longer can sustain their payments and have to file.  In 85 percent of the cases there is “no-asset” for creditors to go after.  This number is very high contrary to what is happening on Wall Street.

Credit Access

Americans have come to rely on their credit cards as if they were part of their monthly budget.  No longer just a convenience product it has become the payment option of choice.  It also made it easier for people to spend beyond their means because credit card companies understand human nature.  Well that is now coming back to hit many people including credit card companies.  But unlike the credit card companies, the average American doesn’t have access to unlimited funds from the U.S. Treasury and Federal Reserve.

During the peak, Americans came close to touching $1 trillion in credit card debt.  That number has now fallen to approximately $890 billion due to defaults and credit card companies simply removing access to credit in the marketplace.  Yet this pinch is hurting Americans in the short run.  Many of us will agree that many spent beyond their means.  Yet the hypocrisy that we are seeing is that banks are not needing to cut back because of their taxpayer bailout while they expect customers to tighten their belts.  It is the ultimate double standard but it shows who is running the show in D.C.

The fact that credit card companies are now adding onerous terms and traps for good paying customers shows how desperate they are to milk every last penny from the average American.

Unemployment and Hiring

If you look at the latest data from Gallup, employers are hiring and firing at the same rate as in March of this year when it seemed the entire world was flying off a cliff.  Yet today, we are still seeing the exact same numbers.  The fact that there are 6 Americans for every 1 job opening shows that the employment situation is still deep in the hole.  Without hiring or job growth, how are we to expect and sustainable recovery.  Things have gotten so bad that people cheer simply because the unemployment rate didn’t go up.  Too bad they ignore discouraged workers or part-time workers but that is of no consequence to the Wall Street crowd.

Until hiring picks up, the employment situation is still going to feel miserable.

Housing

And finally, the last piece we will look at in our misery index is monthly foreclosure filings.  Even with every kind of bailout and government assistance, monthly foreclosure filings are still near their peak.  It is hard to make any housing payment without a job, moratorium or no moratorium.  And that is largely a problem of how we attacked this problem.  It was assumed that if you fixed the banks and housing, all else would be fine.  But the banks only wanted to fix housing because that is where their money and leverage was.  They didn’t care about job growth.  In fact, if employment was solid and wages hadn’t been stagnant for a decade then higher home prices would have made sense.  Yet higher home prices merely because of higher bank leverage was the ultimate recipe for disaster.  The average American is now paying this bill by losing their home and bailing out Wall Street.  A two hit combo.

Until overall foreclosures begin decreasing, many are still going to deal with the burden of too much debt on homes that are worth less than they once were.

When we look at these five sectors most directly linked to Americans, you can see why there is very little to any recovery.  Unless you only care about the stock markets we have much to fix before we can issue a recovery statement.  The facts are very different from what is coming from Wall Street and D.C.

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It is hard to believe in this recovery because the bailout has gone to the financial sector and is reflected in hyper-inflated equity prices.  As obvious as it seems, some people don’t make the connection that an unemployed American is a weaker consumer.  Consumption as we all know is two-thirds of our economy.  Therefore you would assume that investors would make this connection but that is not the case.  The banks being the few with any sort of heavy government money, instead of lending to Americans, are once again gambling in the stock market casino.  What a sad testimony to our crony capitalistic system that banks instead of believing in the average American, are deciding to double down on Wall Street and trying to recoup their 2008 losses.  This on the pretense that banks needed money to get lending going again.

One thing that is clear is the employment situation is in a major funk.  10 states now have underemployment rates of over 20 percent.  We are talking about Great Depression statistics here:

The above data is pulled from the Bureau of Labor and Statistics and is an average from the fourth quarter of 2008 to the end of the third quarter in 2009.  In other words, the data above is optimistic and doesn’t use the latest data that is even higher.  For example, California recently reported their U-6 rate is now up to 22 percent.  Michigan?  Their U-6 is now closer to 25 percent.  There is nothing remotely close to a recovery in the data above.

This recovery is unlike your daddy’s recovery because multinational companies can leverage cheap labor and a pathetically weak dollar to increase business overseas.  In past recessions when we actually had a manufacturing base, once the recession started ebbing you started to see domestic production pick up thus bringing people back to work:

The pattern is unmistakable.  After every recession since the 1940s, manufacturing jobs contracted throughout the recession only to pickup after the recession ended.  This trend started getting weaker in the 1970s.  Even in the early 1990s recession, manufacturing jobs picked up slightly throughout the decade.  Now, in the 2001 recession manufacturing has been plummeting and has completely broken the trend.  In fact, we now have the same number of people working in manufacturing as we did back in 1940.  One slight difference.  The U.S. had 132 million people in 1940 and now we have 307 million.  We have nearly 2.5 times the population and the same amount of people working in manufacturing.

The U.S. Treasury and Federal Reserve would want to convince you that a declining dollar is good for you.  This might be the case if you weren’t paid in U.S. dollars and most Americans buy imported goods that will become more expensive eventually.  After all, it isn’t like we are making the stuff anymore as the above charts show.  It is a myth that the Fed tries to sell.  If a weak currency is a good thing, Zimbabwe would be the world financial center.  Or consider the fact that we import most of our oil.  There isn’t much we can do about that.  Even with demand waning domestically, oil is now approaching $80 a barrel.  We can thank our central bankers for attempting to destroy the U.S. dollar.

And forget about employment growth.  We have lost 8 million jobs since the recession started in December of 2007, 22 months ago.  We have lost an average of 360,000 jobs per month since the recession started.  Where are these jobs going to come from?  What is troubling is how many of these jobs are gone for good:

Long-term unemployment is now at a record high.  Many of these jobs are likely never coming back.  For example, think of the tens of thousands who worked in the housing industry as mortgage brokers, bankers, and construction workers that now are going to need to adjust to a new economy.  Or if you want a specific example, think of Winnebago:

Here is a company that manufactured the consumer happy motorist dream of RVs.  Yet it was built on the idea of cheap oil.  At one point, at the March low, this company was trading 90 percent off its recent highs.  The stock is still off by 65 percent even with the current stock market casino rally.  Do you think this demand is every coming back?  The average American is now looking for cheaper goods and sadly, much of that is imported.  Instead of traveling the roads on $1 a gallon oil many are looking to make food last until the end of the month.

The government is in cahoots with Wall Street and maybe they don’t care what the average American is going through.  Clearly on the jobs front little of the bailout money is making its way down.  If we consider 79.9 percent interest rates on credit cards as helping the consumer then we really have things backwards.
Welcome to the new kind of recovery where jobs are lost and incomes get sucked into a vortex.  But at least you can still afford cable and see that wonderful CNBC ticker go up as those on Wall Street gamble the bailout money away.

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