The Fourteenth Banker Blog

More on Regime Change

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Here are several perspectives from the last few days that deserve highlighting. This first piece discusses what has happened with our economy over the last several decades and what we should be acknowledging as the problems that need to be addressed.

Income: Average Real Weekly Earnings, (read: incomes adjusted for inflation), are below what what what they were in 1973. Income wise the average American family is worse off now than they were 37 years (4 decades) ago.

The Dollar’s Value: And it isn’t like we have a stronger dollar now. If we did perhaps we could get buy with less money. No, Uncle Buck is worth 95% less than he was 84 years ago when the “Creature From Jeckyll Island” (read: the “Fed”) came into existence.

Money is supposed to be a store of value. When you boil economics down to it’s core you are left with one law: Supply and demand. Increase the supply of anything and it’s value goes down. Our monetary system is flawed because if it isn’t expanded it collapses and when it is expanded the store of value is obliterated. The Fractional Reserve System is another example of a moronic idea created by greedy lunatics, It was doomed to failure upon inception. Debasing a currency only creates an addiction to debt.

Employment: In 2008 there were about 150 million workers. Today (U3-U6) unemployment is at 22%. The largest problem plaguing unemployment is the fact that most of the jobs lost were jobs that were created because of consumers binging on credit. For instance, in 2008 Americans tapped their home equity for stupid purchases. The best example of this is from Jim Quinn’s 2008 article: Consumers borrowed $9,000,000,000.00 (9 billion) dollars (from home equity loans) JUST to blow it on 4 dollar coffees at Starbucks, which has since closed 900 stores. Debt to expand a business or debt to purchase a home is sound debt for an economy. Debt to buy expensive coffees at “Fourbucks” won’t be economically sustainable (as proved by 900 closed stores).

Note that the first two points are not cumulative. The first, that real wages are stagnant, already considers the effects of inflation, though I suspect it is using a CPI deflator rather than change in the value of the dollar itself versus other currencies or commodities.

Further in the post the writer identifies several contributing factors including:

Corporatocracy: In a nutshell: Corporatocracy has replaced capitalism. I wrote about this in my last article “Why We Are Totally Finished”. Corporatocracy has permitted corporations to influence (bribe and control) the government which then rewarded select sectors for criminal activity. Fraud that led to our economy blowing up. The sectors which literally blew up the economy in 2008 was saved when they should been left to fail. TBTF translates to not regulated correctly to begin with. Nothing holds a gun to our head. Too big means too unregulated to be permitted to grow too big.

Which leads to the next piece and its main point, which is reminiscent of my rant of several months ago.

the entire profit recovery has been predicated not on GDP growth (which explains the constant skittishness about macro events), but on declining labor costs, and as the following JPM report points out, “the latest profit recovery (the three red dots) is reliant on declining labor costs like none before it.” What investors really want to know is how much more wage deflation can America take before it all collapses into a huge stinking deflationary mess?

Companies have brutally cut costs in order to produce profit growth. We have come to the point that each company acting individually in its interest is doing the same thing. They are all cutting headcount, health care benefits, pensions, 401K matches, etc. Management will say it is about competitiveness, but it is really about profit. The firms could accept less profit in given quarters with a view towards the long run. If all companies capable of doing so did, aggregate consumer demand would increase and perhaps the companies themselves would achieve better market valuation.

A profit recovery whose foundation is so reliant on sustained high productivity and low real wage growth should not command a very high P/E multiple.

Finally, this piece discusses the Bernanke speech today and the conditions tending towards revolutionary impulses. Fascinating how this keeps coming up. The title is The Elites Have Lost The Right To Govern. Of course, I agree with this. I’m not sure what to do about it. We need a revolution of justice, new corporate governance, new consumer and small business activism, elimination of the disparities between public sector and private sector benefits (meeting in the middle somewhere), an end to our predisposition to war, etc… to restore balance.  From the linked post:

One of my favorite quotes is from Joseph Schumpeter who said “everyone has elites the important thing is to change them from time to time.”

This is the United States not some sort of petty monarchy.  There is no divine right of any family or group of families to rule.  When this starts to happen you get the disaster we are now faced with.  That said, the bigger point is this.  What Obama has attempted to do is to wipe a complete economic collapse under the rug and maintain the status quo so that the current elite class in the United States remains in control.  The “people” see this ploy and are furious.  Those that screwed up the United States economy should never make another important decision about it yet they remain firmly in control of policy.  The important thing in any functioning democracy is the turnover of the elite class every now and again.  Yet, EVERY single government policy has been geared to keeping that class in power and to pass legislation that gives the Federal government more power to then buttresses this power structure down the road.  This is why Obama is so unpopular.  Everything else is just noise to keep people divided and distracted.

So the situation is intolerable and more and more bloggers are coming to the same conclusion, which is that there must be a realignment of power. How do we do that peacefully?

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