Oct 30 2010

Income disequilibrium – The top 74 Americans earned an average of $518 million in the economic troubling year of 2009. Top 1 percent earned 14 percent of all earnings in 2009 versus 11 percent in 1989.

The disappearing middle class in the United States is a troubling consequence of the culmination of economic and political policies of many decades.  There is a sense, and probably why so much frustration is out in the country, that the once comfortable life of being middle class is slowly slipping through our hands.  The American public senses something is amiss with the economic system and clearly is not happy.  When we look at income data from the Social Security Administration records, we realize that even in years that Americans have suffered greatly, the wealthiest in our country actually became a lot richer.  The jump is incredible and begs the question that in a year where millions lost their jobs and witnessed collapsing home values how was it possible for a few to make hundreds of millions of dollars and sometimes billions of dollars?  Let us first examine the income data for this elite group.

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Oct 27 2010

Shipping the housing market overseas. Long-term housing prospects hinge on an economic recovery for working Americans first – No housing bottom until middle class recovers a foothold in the U.S.

The housing market can have no sustainable recovery without the employment market improving.  It is incredible that over three years into this crisis that there has been little focus on coupling employment with housing.  Banks argue that many are simply not paying their mortgage yet they want the Federal government to ease lending restrictions.  Who are they going to lend to?  Over 95 percent of all mortgages now being originated are government backed.  It is disturbing that all bank bailouts including the Fed forcing the interest rate lower merely focus on one aspect of the financial equation.  The reality is, without a burgeoning middle class housing will never recover.  Even the rising default rates in government backed loans, many “plain vanilla” loans are defaulting in record numbers because people are not able to service their debt.

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Oct 25 2010

Debt U – 4,800 colleges and universities in the U.S. and many are putting students into massive amounts of debt. The higher education bubble is getting to a point of bursting.

A few months ago a troubling milestone was passed.  In the United States college loan debt outstanding has surpassed credit card debt.  As of June 2010 $829 billion in student loan debt was outstanding compared to $826 billion in credit card debt.  Higher education by looking at a handful of metrics is clearly in a bubble.  The only question that remains is when will it burst?  Bubbles tend to go on longer than many people expect (i.e., the housing bubble) but when they burst they carry long-term ramifications for the economy.  Bubbles have unique sociological phases that they go through.  For example, at the height of the housing bubble people started questioning whether home prices were really worth it.  When people woke up from their sleepwalking and questioned ancient mantras like real estate never goes down, then the bubble implodes either by the sheer size of debt or by people shunning the market completely.  In education, the mantra has always been “going to college is worth it no matter what the costs” but the costs are now so high that we do have to question whether college is worth it.  Let us take a look at a few reasons why higher education is in a bubble and why it will certainly pop.

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Oct 24 2010

How the mortgage interest deduction subsidizes the spending of wealthy families at the expense of middle class families. Average California mortgage deduction for filers is over $18,000 versus $9,900 in Texas.

One of the sacred cows of our economy revolves around the mortgage interest tax deduction.  Home buying is heavily subsidized in the United States.  The Federal Reserve has injected trillions of dollars in purchasing mortgage backed securities and other questionable assets all for the purpose of keeping interest rates low.  Yet this is one area of misunderstanding by the public because when the data is sorted out it becomes clear that the mortgage interest tax deduction heavily subsidizes the home buying of wealthier Americans and those who live in more expensive states.  The golden goose is expensive to maintain.  The median household income of $50,000 garners very little benefit from this deduction because the standard deduction is already high for half of U.S. households.  Let us carefully examine the details of this expensive subsidy and visualize how costly this subsidy is but first let us look at the failed home buyer tax credit.

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Oct 20 2010

Some American families are $133 a month away from Great Depression like problems – 1 out of 7 Americans receiving food assistance at an average of $133 per person.

The U.S. government is now spending roughly $5.6 billion per month on food assistance helping out 41,836,000 Americans.  How bad is it for the lower economic strata of families in our economy?  In January of 2007 we had 26,000,000 Americans on food assistance.  The economic crisis has added 15,800,000 Americans onto the food assistance program now known as SNAP.  These numbers are incredible and demonstrate how deep the recession has gotten.  Even though on paper the recession ended in the summer of 2009 these numbers show a very different economic climate.  Where did these 15 million people come from?  Many have fallen off the middle class treadmill and have been sucked into the ever growing invisible class of people in the U.S.

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Oct 18 2010

Fed extends a helping hand to Hilton Hotels and takes over malls across the country – The Federal Reserve clandestine bailout of the $3 trillion commercial real estate industry. South Florida apartment building prices down 52 percent from peak.

If you think residential real estate is having problems, you should shift your gaze to the mammoth issues confronting commercial real estate.  Little is mentioned about commercial real estate (CRE) in the mainstream media yet this is a $3 trillion market (or twice the annual GDP of Texas).  Much of the problems in CRE are profound and pose systemic risks to the banking sector.  While the current attention is on fraudulent paperwork on residential housing, the biggest and most hushed bailout of commercial real estate is occurring.  The Fed directly buying up questionable mortgages from banks is an indirect form of bailing out CRE.  Yet in some instances, the Fed has gone ahead and directly taken on the role as owner for places such as a mall in Oklahoma.  While U.S. residential property prices have fallen approximately 30 percent CRE has fallen by 42 percent.

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Oct 16 2010

The debt end game – Top 10 percent of families own an average of $700,000 in stocks while the next 15 percent own an average of $53,000. The other 75 percent are insignificant players by Wall Street standards.

The government recently announced on a slow Friday a $1.29 trillion budget deficit as if it were no big deal for the completed fiscal year.  In fact, this was spun as grand news since the previous budget deficit topped $1.4 trillion.  We are now reaching a nationwide tipping point of debt.  The U.S. Treasury and Federal Reserve are gearing up for another round of quantitative easing that will surely depress the U.S. dollar further.  Does anyone outside of the enclosed circle of the Wall Street crowd actually have any faith in the Fed?  This is the same organization that dropped rates to historical lows and fanned the blistering red flames of the housing bubble.  And keep in mind that the first round of quantitative easing of buying up mortgage backed securities (MBS) did very little for the working and middle class.  What is going on is a giant busload transfer of wealth and this should be the headline story everyday on the news until the financial crisis is resolved.

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