Category: The Economy

“Rail deregulation led to consolidation, price-gouging, and a variant of just-in-time unloading that left no slack in the system”

https://prospect.org/economy/how-americas-supply-chains-got-railroaded/

From forbes.com Dec 5th 2019

When U.S. unemployment is at a 50-year low, why do so many people have trouble finding work with decent pay and adequate predictable hours? A new economic indicator—the US Private Sector Job Quality Index (JQI)—gives the answer: we have lots of jobs, but they are increasingly low-quality jobs

https://www.bloomberg.com/news/features/2018-02-01/how-ge-went-from-american-icon-to-astonishing-mess

Executive summary:
Splashy, big name personalies like Jack Welsh and Jeffrey Immelt neglected the core competencies and instead jacked the company up on “low quality” financial investments that helped meet quarterly earnings goals.    After the 2008 crash, the game was exposed.  Now the company is hopefully going back to basics.

 

In the NY Times article, Don’t Blame the Work Force, Peter Cappelli, a professor of management at the Wharton School, has noted sharply different opinions between corporate executives, who typically say that schools are failing to give workers the skills they need, and the people who actually do the hiring, who say the real obstacles are traditional ones like lack of on-the-job experience. In addition, when there are many more applicants than jobs, employers tend to impose overexacting criteria and then wait for the perfect match. They also offer tightfisted pay packages. What employers describe as talent shortages are often failures to agree on salary.

If a business really needed workers, it would pay up. That is not happening, which calls into question the existence of a skills gap as well as the urgency on the part of employers to fill their openings. Research from the National Bureau of Economic Research found that “recruiting intensity” — that is, business efforts to fill job openings — has been low in this recovery. Employers may be posting openings, but they are not trying all that hard to fill them, say, by increasing job ads or offering better pay packages.

From The Next Panic in the Atlantic Monthly:

(Written by Peter Boone, a director at Salute Capital Management and a visiting senior fellow at the London School of Economics, and by Simon Johnson, a professor at MIT Sloan and senior fellow at the Peterson Institute for International Economics)

Europe’s current financial crisis will be followed by a more devastating one, likely beginning in Japan. The Japanese government is using private savings to fund current spending, such as pensions and wage payments. With projected annual budget deficits between 7 and 10 percent of GDP, Japanese savers are essentially tendering their savings in return for newly issued government debt, which is not backed by hard assets. It is backed only by an aging, shrinking population of taxpayers.

The most worrisome implication of Japan’s increasingly precarious position, particularly in the wake of the 2008 crash and Europe’s ongoing crisis, is that our financial systems appear to be returning to their inherently unstable nature, which plagued the 19th and early 20th centuries. Financial institutions back then were not too big to fail—they were too big to save. Their balance sheets dwarfed most governments’ ability and willingness to provide support.

Through the development of central banks and active fiscal and monetary policy, the rich world has managed to avoid serious depression for seven decades. Yet big finance—which tends to grow ever larger when crises are rare and credit risks seem muted—hides deep political flaws, the costs of which compound over time. Relative to the size of the world economy, global debt markets overall are two to three times their size in 1970.

If what this author is saying is true, how come no one is screaming about it on the daily news shows:

“Extend and Pretend”: The Severe Ramifications of Wall Street’s Game:

A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the Wall Street banking syndicate. The plan has been enabled by the FASB, SEC, IRS, FDIC and politicians in Washington DC. This master plan has funneled hundreds of billions from taxpayers to the banks that created the greatest financial collapse in world history. The authorities had a choice.

• In April 2009 the FASB caved in to pressure from the Federal Reserve, Treasury, and Wall Street to suspend mark to market rules, allowing the Wall Street banks to value their loans and derivatives as if they were worth 100% of their book value.
• The Federal Reserve balance sheet consistently totaled about $900 billion until September 2008. By December 2008, the balance sheet had swollen to $2.2 trillion as the Federal Reserve bought $1.3 trillion of toxic assets from the Wall Street banks, paying 100 cents on the dollar for assets worth 50% of that value.
• In November 2009 the Federal Reserve and IRS loosened the rules for restructuring commercial loans without triggering tax consequences. Banks were urged to extend loans on properties that had fallen 40% in value as if they were still worth 100% of the loan value.
• By December 2008 the Federal Reserve had moved their discount rate to 0%. For the last two years, the Wall Street banks have been able to borrow from the Federal Reserve for free and earn a risk-free return of 2%. The Federal Reserve has essentially handed billions of dollars to Wall Street.
• When it became clear in October 2010 that almost two years of unlimited liquidity being injected into the veins of zombie banks was failing, Ben Bernanke announced a second round of quantitative easing (QE2). He has expanded the Fed balance sheet to $2.6 trillion by injecting $3.5 billion per day into the stock market by buying US Treasury bonds. Bernanke’s stated goal has been to pump up the stock market. While taking credit for driving stock prices higher, he denies any responsibility for the energy and food inflation that is spurring unrest around the world.
• The Federal Reserve has increased the monetary base by $500 billion in the last three months in a desperate attempt to give the appearance of recovery to a floundering economy.

• Beginning on December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution.

[During the 2008 crash] The FASB changed the [mark to market] rules so that when the market prices were not orderly, or where the bank was forced to sell the asset for regulatory purposes, or where the seller was close to bankruptcy, the bank could ignore the market price and make up one of its own. Essentially the banking syndicate got to have it both ways. It drew all the benefits of mark to market pricing when the markets were heading higher, and it was able to abandon mark to market pricing when markets went down the drain.

Part two of the master cover-up plan has been the extending of commercial real estate loans and pretending that they will eventually be repaid. Billions in commercial loans are in distress right now because tenants are dropping like flies. Rather than writing down the loans, banks are extending the terms of the debt with more interest reserves included so they can continue to classify the loans as “performing.” The reality is that the values of the property behind these loans have fallen 43%. Banks are extending loans that they would never make now, because borrowers are already grossly upside-down.

Extending the length of a loan, changing the terms, and pretending that it will be repaid won’t generate real cash flow or keep the value of the property from declining. US banks hold an estimated $156 billion of souring commercial real-estate loans, according to research firm Trepp LLC. About two-thirds of commercial real-estate loans maturing at banks from now through 2015 are underwater

It should warm your heart to know that financial [institution] profits have amazingly reached their pre-crash highs. All it took was the Federal Reserve taking $1.3 trillion of bad loans off their books, overstating the value of their remaining loans by 40%, borrowing money from the Fed at 0%, relying on the Bernanke Put so their trading operations could gamble without fear of losses, and lastly, pretending their future losses will be lower and relieving their loan loss reserves. The banking industry didn’t need to do any of that stodgy old-school stuff like make loans to small businesses. Extending and pretending is much more profitable.

The NYTimes has a fantastic multiple choice style test/puzzle called Budget Puzzle: You Fix the Budget for showing people what realistic choices are required to balance the (government yearly) budget.

Most significantly, the web page shows the tremendous cost of entitlements and military spending, and conversely, the insignificance of other popular budget cutting ideas (like cutting the size of the government)