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Posts Tagged ‘Housing bubble’

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US Federal Reserve Chairwoman Janet Yellen is faced with a problem. In the seventh year of an economic expansion there is considerable disagreement over whether the Fed should hike interest rates.

According to Bloomberg News, “At the presidential debate on Sept. 26, Republican candidate Donald Trump accused Federal Reserve Chair Janet Yellen of inflating “a big, fat, ugly bubble” by keeping interest rates too low. Yellen couldn’t just shrug off the accusation, because only five days earlier three members of her own rate-setting group, the Federal Open Market Committee, had expressed the same idea in more delicate language.”

So what’s the problem? The economy isn’t overheating at a time when it’s likely peaking. Unemployment is low, but then so is demand for goods or services compared to previous business expansions. Otherwise, the Fed would be happy to raise rates in order to curb inflation.

The underlying problem for Yellen and the governor’s of the Fed is that income distribution has become so one-sided that the 99 percent cannot afford to purchase enough stuff to make inflation rear its head. This is the one thing the press and Yellen don’t consider, at least not in public. Perhaps this is because it’s politically unpalatable to the super-rich overseers of the elected officials of the Republican and Democratic parties.

Those overseers have a financial stake in the outcome of the Fed’s decision. Raising rates might push share prices lower. Of course, that housing bubble might also blow up.

The 1 percent took 99 percent of all income growth from 2009-14 (an historic record), and more than 50 percent in 2015. The 1 percent now are stealing via legislation anywhere from 22 to 36 percent of all income produced every year in the US (depending on whose figures you use), up from roughly 8 percent in 1981. That leaves the 99 percent with less money to burn.

Of course, the 99 percent use credit to make up for some of that shortfall, but during this recession, picking up the slack in demand via credit isn’t working as well as during the other boom times during the last 35 years.

And so Yellen sits and waits, while the governors of the Fed argue over whether rates should be raised. There’s obviously strong interest within the Fed to pop that bubble.

Maybe those Fed officials should be wondering what they’re going to do when the economy tanks. It’s late in this boom period. Perhaps, Fed officials need to think about applying negative interest rates.

#Note: The Fed raised interest rates by a tad last November, but it hasn’t dared lift them since.

Yellen Can’t Hide the Struggle Inside the Fed–Bloomberg News

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A Great Depression Homeless Camp

A Great Depression Homeless Camp. Looks a lot like a modern day homeless camp doesn’t it?

The US Bureau of Labor announced the United States created 255,000 jobs in July. While good news, and rightly praised by the pundits, there is trouble hiding behind those numbers. The US durable goods sector went into recession early last autumn, while the entire manufacturing sector followed by November. That’s over 12 percent of the economy. Here’s what isn’t well known.

The entire economy has followed the durable goods sector into recession in each of the last recessions since and including the Great Depression. Historically, it takes sixteen to eighteen months for the rest of the economy to follow durable goods. So we’re most likely looking at a recession hitting somewhere between October of this year and June 2017.

Given that 99 percent of all income growth from 2009 to 2014 went to the top 1 percent, an historic record, the next recession will likely be more severe than the last. That’s because the great middle class will historically have fewer dollars to spend during the coming recession, which means the demand for goods and services will be depressed at levels not seen in decades.

This is the fourth longest economic expansion on record, and also among the weakest when it comes to job and wage growth. The US experienced higher monthly job growth in the economic expansions of the 1960s (170,000 per month), 1980s (230,000 per month) and the 1990s (200,000 per month), despite a smaller population, smaller GNP, and less worker productivity. Those expansions also featured real wage growth, especially during the 1960s. The current boom period has seen only 184,000 jobs created per month. Contrast that with the much maligned President Carter. Job growth of 206,000 per month occurred under Carter, with a population 2/3’s the size of today, and a GNP roughly 40 percent of today’s economy. Wage growth was consistent under Carter.

In addition, the most recent housing bubble will burst, as it always has done when recessions hit. Typically, when a recession occurs along with a bursting of a bubble, things are significantly much worse than without a bubble.

So, given the bubble, and historic income and wealth inequality, we should be looking at a whale of recession that is coming down the pike at hurricane speed.

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The big banks are holding 3.67 million homes off the market, according to the new Bloomberg report. What’ve I been tellin’ ya?

According to Bloomberg, the 3.67 million homes “clogging up the market” are more than the total number of new and existing homes combined that are available for sale in the entire United States. The total value of those homes is $382 billion.

The result of this scam is a massive increase in housing prices, both sale and rental prices. The big banks and their rich shareholders are making out like bandits, because they are bandits.

The big banks have conspired to keep these homes off the market in order to drive up prices. This is called “a conspiracy in restraint of trade,” and it is a violation of several different US laws.

This is also a massive income redistribution scam as citizens are forced to spend tens of thousands of dollars more per home, or pay thousands more in yearly rent, than would otherwise be the case. The big winners of this scam are the rich shareholders of the banks, along with their CEOs.

Don’t hold your breath for justice. The big banks own both major political parties, they have judges in their back pocket, and they basically own the federal government, including the US Department of Justice.

You can see from the chart below that the number of people taking out mortgage applications reached a peak in 2005. Currently, applications are at a 21 year low. That means demand for houses isn’t pushing up the value of homes to create the current housing bubble.

Rather, a more than 50 percent reduction of supply has caused the bubble. The only way for the banks to keep such a huge amount of houses off the market is for them to illegal conspire together in violation of the law.

For more on this story see The Shadow Housing Inventory–Bloomberg News

MBAApril152015

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Notice in virtually every mention in the so-called news media in reporting or editorials for or against raising the minimum wage, there is never any mention that corporate profits are at historic highs, and that raising the minimum wage to $15 an hour would be easy just because of that. The reason we don’t hear that is because the primary job of the propaganda machine of the 1 percent is to keep us misinformed, even if it means simply lying to us. The Oregonian news paper, Fox News, MSNBC, and the Wall Street Journal are cases in point.

That’s because raising the minimum wage will cut into those historically high corporate profits, possibly putting downward pressure on share prices and corporate bond ratings. That would eliminate some paper wealth of the 0.01 percent.

However, recent studies show increasing the minimum wage creates jobs and spurs economic activity and growth by enhancing the demand for goods and services. In other words, that paper wealth of the 0.01 percent, as well as those massive record corporate profits, drag the economy down.

After a potential decline in value due to a minimum wage increase, the stock markets would rebound with soaring share prices due to more robust demand for goods and services.

Here’s a point the corporate propaganda machine doesn’t want you to especially consider.

The rise of the current US stock markets are nothing more than a series of bubbles, NASDAQ and the Dow Jones Industrials being examples. If the federal minimum wage were to be enacted those bubbles would deflate safely to some degree, possibly curbing the great impending economic disaster, which is on the horizon. That economic holocaust will make the last recession look like a blessing.

Just like the stock market bubble in the 1920s, just like the housing bubble exploded from 1994-2007, this current bubble will burst, and with it, much of the US and world economy will evaporate with it.

There are worker strikes for higher minimum wages going on across the United States. They began last week, although some have been on-going for a while.

Forbes magazine reported six days ago;

“The Fight for $15 movement is growing as more Americans living on the brink decide to stick together to fight for better pay and an economy that works for all of us, not just the wealthy few,” said Mary Kay Henry, president of the Service Employees International Union, which has been backing the protests.

Workers in industries beyond fast food have joined the fight because they face the same struggles, says Arun Ivatury, campaign strategist with the National Employment Law Project. “These are all some of the fastest-growing occupations in the country, and they’re also some of the lowest-paying, as little as $8 or $9 an hour in terms of the median wage in these occupations. These are struggles these workers are facing across these industries — they’re facing the same struggle for respect and decent schedules with advance notice and enough hours to make a decent living.”

Giving these people a raise might actually stave off or at least delay the impending economic crash that’s headed our way. It would be good economic policy in the long run.

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US Senator Elizabeth Warren is, of course, is describing a government corrupt to the marrow.

The corruption of the US government goes way back, but a relatively small wave held in check by the New Deal turned into a tidal wave of corruption beginning with the tax cuts for the rich of President Ronald Reagan. That money was used by the 1 percent to stimulate corruption at all levels, and which in turn purchased legislation that redistributes income from the 99 to the 1 percent. That’s why we have inequality and its growing.

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A friend named Sloan purchased a vacant lot in the city of Portland, Oregon for $120,000 in 2010. This year he was offered $210,000 for the same land. Okay, the housing bubble has been resurrected under President Obama, and just like President George W. Bush and President Bill Clinton and their housing bubble, our current president has no intention of doing a thing about it, even as Bush’s bubble wrecked the economy.

Why is Obama not doing anything about the bubble? Because Wall Street loves it, and whatever Wall Street loves, Obama seems to it love it just as much.

Wall Street investment banks such as Goldman Sachs purchase bonds backed by home mortgages to the tune of trillions of dollars. There is a lot of money in this. A rise in housing prices means a rise in bond prices. When the housing bubble peaks, it will only take an 8 percent drop in home prices for those bonds to become worthless, according to Michael Lewis in his book The Big Short.

Then the government will rescue those who are too big to fail, not that they are too big to fail in a business sense. Rather, they will be too big to fail in a political campaign contribution sense. And that’s why the current housing bubble is allowed to continue.

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Tax cuts for the rich destroy jobs. When the rich get tax cuts, they simply use their newly available money to push CEOs to ship jobs overseas. When the rich have less money, they have less leverage with which to do so.

That’s why, in part, the Clinton years saw an historic explosion of job growth. There were, of course, other factors.

The housing bubble began circa 1994, the tech bubble hit its stride, and interest rates were coming down. However, massive amounts of income were being redistributed to the 1 percent from the 99 percent because of Nafta, which by most accounts, saw a loss of 2.5 million US jobs within a few years after Clinton signed the treaty.

Note something else. Two of the major factors in economic growth during the eight years of Clinton were bubbles. The tech bubble exploded just after Clinton left office. However, the housing bubble marched onward during the reign of George W. Bush.

The housing bubble only occurred because Wall Street investment firms had created a way to buy home mortgages and then issue bonds to rich investors backed by the mortgages. Commercial banks and other lenders no longer held on to mortgages, they simply sold them to Wall Street investment banks. The result was a disaster for middle America. Standards for mortgage borrowers plunged, causing housing prices to explode.

Note that interest rates also came down during the Clinton era. This also spurred economic growth. However, the decline in interest rates occurred because massive amounts of income were being redistributed from the 99 to the 1 percent via Nafta, deregulation and other federal legislation. More and more of the 99 percent couldn’t afford to buy as much stuff as before at higher interest rates. Rates were forced down because demand could not sustain higher rates.

So the Clinton era wasn’t really all that great for the middle class. The 99 percent got bubble created jobs, massive amounts of our income redistributed to the 1 percent, and we got low interest rates to buy houses and cheap plastic junk made in China (which we couldn’t afford). Oh, yes, we also got a ton of debt.

There was one thing we lost during the decade. When Clinton signed Nafta, it signaled the complete corporate takeover by the 1 percent over the Democratic leadership, and about 80 percent of every Democratic congress person. That’s when we should’ve known there was nobody left in the Democratic and Republican parties to represent the 99 percent, at least not in large enough numbers to be meaningful.

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