Our
lead story: This week Stanford said that it would divest all of its
investments in coal-mining companies, becoming the wealthiest US
university to pledge divestment from sectors of the fossil fuel
industry. Erin gives you her take on the situation.
For our interviews today, we
look at peak oil theory with Richard Heinberg and James Hamilton.
Heinberg argues that we have reached peak oil supply and that will have
major economic consequences for our future prospects of economic growth.
Hamilton on the other hand sees this as more of a demand issue. Take a
look.
Finally in today’s Big Deal,
Edward Harrison and Erin take a look at the return of the subprime auto
loan market. Is this another example of perverse incentives in the
search for yield? Edward gives you his take.
It
fits the pattern of gratuitous bank enrichment perfectly, but this
time, the big beneficiaries of the Fed are foreign banks. A JPMorgan
analysis, cited by the Wall
Street Journal,
figured that in 2014 the Fed would pay $6.74 billion in interest to
the banks that park their excess cash at the Fed – half of that
amount, so a cool $3.37 billion, would line the pockets of foreign
banks with branches in the US.
This
is where part of the liquidity ends up that the Fed has been handing
to Wall Street through its bond purchases. Currently, the Fed
requires that
banks keep a minimum balance of $80.2 billion at the Fed. Banks can
keep up to $88.2 billion at the Fed as part of the “penalty-free
band.” In theory, as “penalty-free” implies, there’d be a
penalty on balances above $88.2 billion.
But the total balance was $2.66 trillion in
April, up from $2.62 trillion in March and from $1.83 trillion a year
ago. The balances in excess of the “penalty-free band” have
reached $2.57 trillion. The highest ever. The penalty on that?
Forget
that. The Fed’s raison
d’être is
to enrich the banks regardless of what the costs to the economy, the
rest of society, and savers. So instead of penalizing banks for these
excess reserves, it pays the
banks 0.25% interest not only on the required balances but also on
all other balances. Spread over the year 2014, as JPMorgan estimated,
interest payments on these balances would amount to $6.74 billion.
It’s a marvelous system. The banks’ cost of
funds, given the heroic efforts the Fed has undertaken to repress
interest rates, is near zero. Banks can borrow short-term from their
depositors – that’s you and me – and from money-market funds –
that’s you and me again – at near zero cost, so maybe 0.10%.
Instead of lending it out, banks put that money on deposit at the Fed
to earn 0.25%. It’s the laziest no-brainer in banking history. A
pure gift from the Fed.
But
there’s a kink. Non-US-charted banks with branches in the US
benefit even more. The Bank for International Settlements, the
umbrella organization for the world’s largest central
banks, revealed how
these non-US banks were taking advantage of the new FDIC insurance
charges on wholesale funding (borrowing from other banks, short-term
repos, or funding from affiliates outside the US). They’d figured
out that these extra costs didn’t apply to them. They only applied
to US-chartered banks.
The wider FDIC charge added 2.5 to 45 basis
points to the costs of large and complex US chartered banks’
short-term wholesale funding. The calculation is complex and its
result by bank is not disclosed, but the rate for the largest US bank
was said to be 8 basis points…. With wholesale rates of 10 basis
points or less, the new FDIC charge made bidding for such funds and
parking them at the Fed at 25 basis points unattractive for many
US-chartered banks but not to the US branches of foreign banks, which
pay no FDIC fee.
These “seemingly small regulatory
differences” at the FDIC, the report points out, turned the Fed
into a special profit center for non-US banks. In this chart from the
report, foreign banks’ balances parked at the Fed (blue area in
dollars, and red line in percent) started shooting up at the end of
2008, and by mid-2013, reached about 50%. It resulted in “massive
changes” in the balance sheets of internationally active banks.
As foreign banks took advantage of the laziest
no-brainer in history, the Fed’s money-printing and bond buying
regime led to an enormous inflow of money into the US – about $1.3
trillion so far. It’s the risk-free banking version of the hot
money. And the $2.6 trillion in excess reserves that economists are
expecting to flow into the US economy sooner or later to really stir
things up? Half of it is that hot money. It won’t ever flow into
the US economy. It won’t fuel the “escape velocity” that has
been forecast for five years in a row. It’ll dissipate.
The
Fed has an excuse for
this banking gravy train: “eliminate effectively the implicit tax
that reserve requirements used to impose on depository institutions,”
it said. OK, I get it, concerning the “penalty-free” $80.2
billion that banks are required to deposit at the Fed. Fine. Pay them
0.25% on that. I don’t get paid that much on my money at the bank.
But what the heck. Let’s not quibble over pocket change, which is
what billions have become to the megabanks these days. But what about
the annual interest on $2.6 trillion in excess reserves?
Ah, the Fed has an excuse for that too: it’s
of course – I mean, how could I possibly not think of this on my
own? – “an additional tool for the conduct of monetary policy.”
A policy whose goal it is to fan reckless speculation, inflate asset
bubbles, enrich the banks and those who run them at the expense of
savers, and douse the entire neighborhood, namely Wall Street, with
free money.
Under
this relentless regime, the labor force participation rate has
shriveled to 62.8%. You have to go back to February 1978 to see
worse. It’s a terrible indictment of the Fed’s policies that
favor capital over labor, Wall Street over savers. New Zealand’s
central bank didn’t follow the Fed’s lead in monetary policy. And
there, the labor participation rate just set a new record high.
Read…. Scorched-Earth
Monetary Policy in the US, And What Happened in New Zealand
Dr Jim Willie has been talking about the BRICS
nations (Brazil, Russia, China, India and South Africa) being joined
by other nations to take down the dollar. He says there are
now 80 nations in the BRICS alliance who have joined together to end
the dollar’s reign as the international reserve currency. China
could have taken down the US economy any time it wanted to after it
had accumulated more than a trillion dollars in US Treasury bonds.
All it had to do was to sell them and buy real assets until the US
government collapsed and surrendered.
The Chinese are
playing a much more sophisticated game. Their goal is to take down
the dollar and the British pound but not to hurt their customers in
Africa, Latin America, Australia and elsewhere. He thinks a Northern
euro will emerge leaving southern Europe and France far behind.
Italy’s future was hurt when they mistakenly decided to send half
of their gold to New York. That gold is in Asia along with the
bullion from the Netherlands and Germany.Dr
Willie agrees with Jim Rickards who says the dollar will be devalued
80%. This will make imported goods 500% more
expensive. And it will also enable foreigners to buy food off the
shelves of America and Great Britain. Please note that the British
pound is being targeted by the BRICS 80 as well.
The signs of inflation continue to appear in
the economy.
The Fed is ignoring this because the Fed is
afraid of deflation… despite food prices, energy prices, healthcare
costs, home prices and stocks soaring.
· FedEx is
increasing prices by 42% for some shipments.
· Commonwealth
Edison is raising electricity rates by 38% in June.
· Chipotle is
raising prices for the first time in three years.
· Netflix is
raising prices on new customers.
·
Colgate-Palmolive is raising prices.
These
are simply explicit price increases. Many companies have been raising
prices via a “stealth” price hike by simply charging the same
price for less of
a product. The latest example of this is bacon, but companies such as
Kellogg’s, Snickers, Tropicana, Bounty, Heinz, and others have been
using this tactic for some time.
Against
this backdrop, the Fed is openly stating that it wants to
create inflation. Put another way, the Fed is not only oblivious to
the fact inflation is already appearing in the broader economy, the
Fed actually wants to create more inflation!
Small wonder the US Dollar is teasing with
breaking multi-year support.
In its quest to fight the brief deflation of
2008-2009, the Fed has unleashed a wave of inflation. These
developments take time to unfold. But the signs are already there.
The grand theme for 2014 will see prices moving higher.
This
concludes this article, swing by www.gainspainscapital.com for
several FREE investment reports including Protect
Your Portfolio, & The
Gold Mountain: how to buy Gold at $273 per ounce.
The signs of inflation continue to appear in
the economy.
The Fed is ignoring this because the Fed is
afraid of deflation… despite food prices, energy prices, healthcare
costs, home prices and stocks soaring.
· FedEx is
increasing prices by 42% for some shipments.
· Commonwealth
Edison is raising electricity rates by 38% in June.
· Chipotle is
raising prices for the first time in three years.
· Netflix is
raising prices on new customers.
·
Colgate-Palmolive is raising prices.
These
are simply explicit price increases. Many companies have been raising
prices via a “stealth” price hike by simply charging the same
price for less of
a product. The latest example of this is bacon, but companies such as
Kellogg’s, Snickers, Tropicana, Bounty, Heinz, and others have been
using this tactic for some time.
Against
this backdrop, the Fed is openly stating that it wants to
create inflation. Put another way, the Fed is not only oblivious to
the fact inflation is already appearing in the broader economy, the
Fed actually wants to create more inflation!
Small wonder the US Dollar is teasing with
breaking multi-year support.
In its quest to fight the brief deflation of
2008-2009, the Fed has unleashed a wave of inflation. These
developments take time to unfold. But the signs are already there.
The grand theme for 2014 will see prices moving higher.
This
concludes this article, swing by www.gainspainscapital.com for
several FREE investment reports including Protect
Your Portfolio, & The
Gold Mountain: how to buy Gold at $273 per ounce.
One in four recently separated U.S. veterans may not be able to
consistently put food on their tables, according to a new report
released Wednesday.
The Public Health Nutrition journal study,
titled “Food Insecurity & Iraq/Afghanistan Veterans,” surveyed more
than 900 young veterans and found 27 percent reported problems with
getting enough food for three meals a day. That’s about twice as high as
the overall national rate.
Study author Rachel Widome, a
University of Minnesota health professor, called the findings “shocking
and disheartening.” Investigators launched the study two years ago after
tracking reports about financial hardships among young veterans.
“We
really had no idea how common it was that Iraq and Afghanistan war
veterans were struggling to afford food,” she said. “Given anecdotal
accounts, I thought food insecurity might be somewhat of an issue, but
really had no idea of the extent.”
About 12 percent of the
veterans surveyed were classified as having “very low food security,”
marking severe difficulties in reliably getting meals.
The study
was conducted with the Minneapolis VA Health Care system and featured
only veterans from Minnesota. Authors said the findings indicate serious
challenges for younger veterans and their families.
Widome said
veterans struggling with food problems also reported struggling with
other life stress, including sleep problems, substance abuse and
employment difficulties.
“For those of us who work with Iraq and
Afghanistan war veterans either in health care or social service
settings, it is important to be aware that these veterans may also have
another hidden struggle,” she said.
“We need to work on connecting
veterans in need with food assistance programs, or even better,
assisting them with finding employment that provides a secure livable
wage after deployment.”
Chinese will not be allowed to invest in gold or diamond mining, or
hi-tech projects, Russia hopes to lure cash from the world’s
second-biggest economy into industries from housing and infrastructure
construction to natural resources. Chinese President Xi Jinping and
Russian President Vladimir Putin will meet in Shanghai May 20/21 and
Chinese officials have already confirmed bilateral cooperation
in the areas of investment and finance has made major progress as local
currency settlement in two-way trade increases. Forget sanctions, just remove the US from the world trade equation... As Bloomberg reports,Russian President Vladimir Putin plans to open the door to Chinese money as
U.S. and European sanctions over Ukraine threaten to tip the economy
into recession, according to two senior government officials.
The move would roll back informal limits on Chinese investment
as Russia seeks to stimulate growth, said the officials, who have
direct knowledge of talks and asked not to be identified as the
information isn’t public. The government wants to lure cash from the
world’s second-biggest economy into industries from housing and
infrastructure construction to natural resources, they said.
The Chinese won’t be welcome in all areas: Russia plans to set “red lines” around significant gold, platinum-group metals, diamond mining and high-technology projects, the officials said.
...
Putin’s decision, coming as competition from U.S. and European financing slows, may offer China a good opportunity to gain access to Russia’s economy.
Existing resource projects will probably be more appealing than
starting from scratch, Moscow-based George Buzhenitsa, Deutsche Bank AG
analyst said by phone on May 7.
... “Given that China has a shortage of raw materials from iron
ore to coal to copper, it may be extremely interested in gaining access
to such projects in Russia,” Buzhenitsa said.
And China seems more than willing to step up...
China is ready to join with Russia to increase two-way investment, Chinese Vice Premier Zhang Gaoli said here Thursday.
...
Their talks were focused on bilateral investment and practical
cooperation in the financial area, in preparation for the forthcoming
meeting between the two heads of state. Chinese President Xi Jinping and Russian President Vladimir Putin will meet
when Putin attends the Fourth Summit of the Conference on Interaction
and Confidence Building Measures in Asia (CICA), on May 20 and 21 in
Shanghai. Zhang said bilateral cooperation in the areas of investment
and finance has made major progress. China has increased investment in
Russia and become the country's fourth largest source of foreign direct
investment. He said financial cooperation between China and Russia is
growing as local currency settlement in two-way trade increases and
consultations on a package of currency swaps are on-going.
Zhang expressed the hope that the two sides increase mutual
investment via the China-Russia investment fund and carry out the first
batch of investment projects as planned. He said the two sides should increase investment in the forms
of greenfield investment, equity investment, bond issuance and mergers
and acquisitions.
Zhang asked the Russian side to help Chinese enterprises to invest in special economic zones in the Far East region of Russia.
Who needs sanctions when China is your friend? And it would seem no
matter what card the US tries to play, Putin has a trump (for now).
In an interview with Bloomberg’s Stephanie
Ruhle and Erik Schatzker Athenahealth CEO Jonathan Bush said this
morning on “Market Makers,” he “messed up” when he promised
net income growth and that he feels the reason Einhorn called out
Athenahealth was because he is the ” quintessential value guy.
He likes Apple now that Jobs is dead.” Bush said he wants investors
who “dream of a health-care cloud.”
Bush also said: “I don’t know what we’re
worth. I know we’re worth $1,000 a share at some point in the
future.”
Anchor Stephanie Ruhle concluded the interview
saying “And here we thought David Einhorn was quirky” to which
Bush replied “I am a strange guy, but I’ve found a great thing to
do with my life so I’m just happy.”
**BLOOMBERG
TELEVISION’S “MARKET MAKERS”**
Highlights:
On
promising net income was going to grow:
“I messed up. If I said net income is
going to grow infinitely and then you see this opportunity basically,
the big arbitrage for us is suddenly we’ve got – so we’ve lots
of doctors. Half of our doctors work for hospital companies.
Those hospital companies are saying you must push this network in
through our hospitals. We don’t want the cloud to be
something that happens outside the hospital and then we’re stuck on
Enterprise software inside the hospital. So we said, look, this
is a chance. They’re asking us to serve them. Let’s
double down on R&D. We finally got a good enough reputation
that we can hire as many developers as we want with our standards not
wavering. Let’s do it.”
On
growth targets:
“We believe we need to grow 30 percent a year
– or that we can and we should. To grow more than that,
you’ll have a hard time building out the infrastructure and if you
grow less than that, you might not be able to build the national
network that you’re trying to build, you want to be relevant.
We’ve always said you have to grow the margins of all products to
make them scalable and reliable. It is the natural way of
things in a software enabled service, in a network company, which we
are. So our margins have improved in every product, every
year. But when we add new products, those start at low margins
and then, as we grow them and remove the work, the scut work that is
sort of rotting the walls of health care, the margins go back up
again.”
“You have been to the doctor’s office.
I mean, the clipboard is still there and the phones and faxes.
It’s like that movie, “Brazil,” sort of this weird future where
the Internet never shows up. And finally Athena’s got a
business model that allows us to bring health care onto a secure
sector of the Internet, we call it the health care cloud, in order to
eliminate that kind of scut work.”
On
David Einhorn saying he like Athenahealth and Bush as CEO:
“In the South, that’s when they like bless
your heart.”
On
how he defends his valuation:
“I don’t know what we’re worth.
What I do – I know we’re worth $1,000 a share, no problem, at
some point in the future. And it’s up to David and others to
decide when by discounting back what they think… I pulled [the
valuation] out of my ear. I mean, the point is — what I know,
what David – the only David missed that I can see is that he
doesn’t see what a software enabled service is. So that’s —
we are not a BPO company by any stretch. We are not an
Enterprise software company. We are not even a SAS company.
We’re a company that’s a software enabled service. We give
out our software, Internet native software, to all of our customers
for free. Then we use that software to deliver a series of
complicated services that they hate and stink at. And then,
once we’re doing that, we start to realize this extraordinary
network effect where the margins go up and up and up as we eliminate
paper.”
On
why growth rate didn’t increase when he cared less about margins:
“I can have high gross margins, I just
want to put that money into R&D for new products and sales and
marketing. That income, what’re you going to do, pay 40 percent
taxes to Barack and then stop growing? We’ve got 3 percent of
the doctors; we need them all. We need at least half of them.
I’m shooting for half of the doctors, not 3.5 percent of doctors. ”
On
the Athenahealth network effect:
“So there are today there are 52,000
caregivers — nurse practitioners, doctors, et cetera — who in
their office look at a little iPad or a whatever, a laptop, a
browser, with Athenanet on it. They do all the work. In
the background, all of them are connected to one instance of one
software, one database. Every time any of them get a single
claim denied, any one guy in North Dakota, the Athena analysts in a
room not as sexy but close as this, get to the root cause, build code
that night into the network, and then no doctor ever gets that claim
denied again. So the margin associated with following up and
appealing and dealing with the insurance company turns into a new
level of profit. Similarly, a doctor wants to send a patient to
a laboratory. Athena will build a connection into that
laboratory and then any doctor in the country that ever wants to send
a patient who that laboratory is automatically lit up and connected
like you’ve added a new cable channel. That creates a huge
revenue — margin arbitrage. Because what used to be a Athena
sending a fax and receiving a fax and typing it in becomes an
instantaneous, real-time, all-margin.”
On
whether he thinks Einhorn feels he was made promises that
shareholders are not getting:
“If you ask me, the guy’s a quintessential
value guy. He likes Apple now that Jobs is dead, right, because
all they’re going to do is drive up, drive up, drive up. He’s
not going to be – Steve’s not going to be running around
demanding some crazy new space age product with all of their money,
right? He doesn’t even like Amazon. Look at how Jeff’s
pushing more and more and more into not sure we need drones, but
maybe I’m wrong. Maybe the drones are key to the grocery
business. So, I’m more in that sort of line of thinking, which is
not his. And those who buy our stocks should not be sort of
bottom watching value investors. They should be people who
dream of a health care cloud.”
On
wanting value investors to understand the company:
” I’m looking forward to the cage match
between Einhorn and Morgan Stanley, because they’re the ones who
are doing the bottom up stock pricing. David seems to be doing
well financially, so maybe there’s reasons. All I am saying
is I know that this health care cloud is a really good idea.”
On
Einhorn’s concern about getting inside hospitals:
“So lucky for us, a lot of hospitals, 550
hospitals, are already clients. We just do the doctors they
employ, and they’re saying, hey, finish the job. Move on
through. We just announced Steward Healthcare, which is a
service-backed hospital chain, that’s allowing us to start
performing services toward the in-patient side and we’re going to
roll out a new service called Enterprise Coordinator that moves
through. It’s also worth noting that hospital chains, like
Ascension, which is the largest nonprofit Catholic hospital chain in
the country, has already chosen us for billing and then said to
doctors, hey, you guys — if you want to keep the Enterprise
software that you already have for your medical records, you can, we
won’t make you leave. And six out of seven of the ministries
have switched to Athena Clinicals even though they just have these
new Enterprise software based EMRs. Enterprise software is not
a competitor to Athena; it’s a sort of previous era substitute.
And as the cloud rises up, you throw out your software.”
On
whether he sees Athena partnering with Epic:
“Totally. Run by a great lady and a
great guy. You know, they have to protect business model, which
I think is obsolete, but they do a very good job within the context
of that business model. We’ll work with them all over.”
On
hospitals having a harder time bringing doctors into the fold unless
they are willing to connect with Athena’s software:
“The average hospital today in this buying
spree since Obama was elected is up to $180,000 per doc per year
loss, subsidizing doctors to use the hospital operations and the
hospital systems. That can’t last forever. And even if
it does last for the ones they’ve bought, they’re not going
to be able to go and buy the other half of the doctors, but they’re
going to want patients. So they’re going to need to connect.”
The only way to not just survive but thrive
as an entrepreneurial enterprise is to destroy fixed costs and labor
overhead.
It is not coincidental that the middle class
and small business are both in decline.Entrepreneurial enterprise
and small business have long been stepping stones to middle class
incomes and generational wealth, i.e. wealth that is
passed down to future generations rather than consumed. As the
headwinds to entrepreneurial enterprise and small business rise, the
pathway to middle class prosperity narrows.
The decline of small business also hurts
employment. Successful small businesses expand and hire
employees. As small businesses close, jobs vanish en masse.
What are the headwinds to entrepreneurial
enterprise and small business? Here are a few key dynamics:
1. Barriers erected by cartels and the
government. Cartels prosper by eliminating competition, and
the easiest, cheapest way to restrict competition is to influence
government to create regulatory barriers that raise the cost to
levels no small business can afford. There are dozens of examples of
regulations that do little to “protect the public” (the usual
rationalization) whose primary intent and effect is to suppress
competition.
Sickcare and higher education, to take two
egregious examples, are protected from real competition: there is
little real transparency in pricing and little accountability for the
efficacy of the product (diplomas, wellness).
2. Overcapacity. Supply exceeds
demand in almost every nook and cranny of the global economy. There
aren’t many high-value opportunities to pursue because every field
is already crowded or restricted.
The market ultimately sets the value of any
output. You can ask $30 for a lunch plate but the market will
determine the value. If your cost is $20 per plate and the market
value is $15, you will lose money and go out of business.
3. High cost structure. Many people
are calling for small businesses to pay their employees a living
wage. I understand the emotional source of this demand: a desire to
close the income gap and raise the standard of living of the working
poor. But since the market sets the value of any enterprise’s
output (good or services), and the business has fixed costs (rent,
utilities, business licence fees, taxes, inventory, back-office
overhead such as accounting, etc.), a business can only pay wages and
labor overhead out of gross profit–what’s left after fixed costs
are deducted from revenue.
Fixed costs and labor costs are both
skyrocketing. Commercial landlords have inflated
expectations of rent, thanks to the Fed-induced real estate bubble:
since they overpaid for the building, they need to charge high rents
to cover their mortgage payments and property taxes.
As I have explained in previous entries in this
series on the middle class, the costs of labor overhead–healthcare
insurance, pensions, payroll taxes, worker compensation, etc.–are
rising. That leaves less available for wages.
Local governments are responding to their own
soaring healthcare and pension costs by raising junk fees and taxes
on small business: in many areas, a new small business faces a
blizzard of fees for licenses, permits, etc.
The fundamental context of our economy is
not conducive to small business or conventional employment: the
cost of human labor keeps rising while technology that replaces human
labor gets cheaper; fixed costs keep rising while overcapacity and
anti-competitive barriers reduce high-value opportunities.
Any enterprise exposed to free-market forces
must create value. If businesses can only create low value good and
services, i.e. goods and services with thin margins, they can only
pay low wages–not just to employees, but to the
owners/entrepreneurs.
The only way to not just survive but thrive
as an entrepreneurial enterprise is to destroy fixed costs and labor
overhead. The food services enterprises that will thrive are
those that share the expensive fixed costs of a
kitchen. The enterprises that thrive will not own vehicles, they will
share vehicles. The enterprises that thrive will not have employees,
they will draw upon self-employed people who organize to complete a
specific project/task and share the revenue.
The way to destroy fixed costs and labor
overhead is to pay no business rent, own no vehicles, have no
employees, owe no debt, own your own tools/means of production and
nurture human and social capital. This model for small
enterprise is overturning all the skimming cartels and bureaucracies:
commercial real estate, local government fees and property taxes,
etc. etc.
The future of middle class prosperity is
entrepreneurial enterprise and joining the class of Mobile Creatives
who minimize fixed costs and overhead and maximize productive
cross-fertilization of skills, human and social capital and debt-free
ownership (or shared access to) the means of production.
Central banks around the world are following one core mission. That mission revolves around expanding debt to goose equity markets
and attempting to solve a debt crisis with more debt. Even the more
conservative European Central Bank bowed down to easy digital money
printing by announcing they too would follow in the footsteps of the Fed
and Bank of Japan. Global banking is now fully addicted to non-stop
debt. Every dollar of debt is having a smaller impact on what it can do
to the real economy. The Fed’s balance sheet is now well over $4.3 trillion
and while talks of tapering are made in public, there is no visible
action being taken to show this is the intended goal. At the core of the
global crisis was an expansion built on too much debt. Banks attacked
this issue as one of liquidity but in reality this was a crisis of
solvency. Banks never dealt with writing down assets but have decided to
use modern day inflation methods
to boost banking profits at the expense of working class families.
Global debt has now reached a terminal velocity mode and central banks
have no choice but to continue to expand their balance sheets.
Central banks follow one mandate
Some people act as if the crisis never happened. US stock markets are
at record levels and those with access to wealth continue to get
richer. The policies that are creating a massive low wage economy
in the US are also part of the other side of the coin expanding debt
based bubbles. It is no coincidence that items financed by debt (i.e.,
college, housing, cars, etc) are seeing inflation many times higher than
that of wages. In fact, wages are stagnant. Central banks realize that
keeping interest rates low through whatever means necessary is the only
endgame for their current charade.
Would you lend someone money if you knew you would never get paid
back? Probably not. Yet this is the trajectory being followed by central
banks. Take a look at the below illuminating chart and tell me if
central banks are operating as if we are in a full recovery:
Central banks are taking on policies that appear to indicate a deep
and profound recession. The only issue with this is that the US
recession ended in 2009. Why continue expanding at such an aggressive
pace? The chart above shows continued aggressive expansion of central
bank balance sheets. First, many US banks were fully insolvent. That is,
they had overplayed their hand and were holding onto assets that were
way overvalued. This led to the foreclosure crisis. But a funny thing
happened. The US allowed these toxic assets to fall into the Fed’s
balance sheet and policy makers allowed mark to market accounting to be
suspended. Little by little banks inflated the housing market back up.
This dramatically helped banks stay afloat while fully manipulating the
market at the public’s expense. Keep in mind millions of people lost
their homes yet every large major bank actually has become bigger and
salaries of these financiers are back to where they once were. In an
incestuous twist, many of those foreclosures are now owned by the new
rentier class as they chase yields in every asset class.
The Fed’s balance sheet only continues to grow since they essentially own the US mortgage market:
Where is the taper talk being reflected in the chart above? The Fed
now has a $4.3 trillion balance sheet. The Fed is operating in full
crisis Great Recession mode. Don’t believe any of the hype that the Fed
is in control here. Look at the Bank of Japan and you will realize that
when you are a debt making hammer, everything looks like nail.
The global markets are controlled by central banks. This is a central
bank market rally. It is also, once again, causing global property
bubbles from Canada, China, Australia, to the United States (again). The
small globally connected elite realize this and that is why you have
foreign money buying condos in New York, flats in London, and single
family homes in California. They understand what is playing out and are
doing their best to purchase real assets before the public starts waking up to this slow inflationary robbery despite what official statistics show.
Central banks have no desire to taper. Once you give a market low
rates, an addiction takes hold. Similar to low wage capitalism, once
people get used to a low price good luck trying to push higher costs.
Everything gets driven down for the prosperity of the few. We live in a
world of limited assets and central banks dealt with this debt crisis by
creating more debt. So it is no surprise that global property bubbles
are once again raging.
The fact that tapering talks have been going on for some time with no
real reversal (take a look at the Fed balance sheet chart above), you
start to realize central banks are in full terminal velocity mode. They
only have one hand to play. Convince the public they have all of this
under control until it spirals out of control, again. Keep in mind Ben
Bernanke thought the housing market issues were confined to the subprime
market in 2007, right at the peak of all the global debt madness. All
central banks are playing out of the same rule book; keep pushing rates
lower for the main purpose of keeping wealth inflated for those that actually have wealth higher by simply going into deeper debt.
Famed
commodity investor Jim Rogers is on Kitco News to speak about the
Chinese and US economy, gold, and even bitcoin. Rogers has some very
interesting thoughts about the yellow metal and where he thinks it may
be headed. “Gold is still correcting… I expect there to be another
opportunity to buy gold sometime in the next year or two.” He also
shares his insights on the US economy and how he is not so confident in
the US dollar given the country’s elevated debt levels. “No country in
world history has got itself into this kind of situation and got out
without a crisis or semi-crisis.” He also shares some insights on
bitcoin and what he thinks of the cryptocurrency. Tune in now to watch
the latest edition of “On the Spot” with Daniela Cambone. Kitco News,
May 8, 2014.
Nearly half a billion dollars in federal money has been spent
developing four state Obamacare exchanges that are now in shambles —
and the final price tag for salvaging them may go sharply
higher. Each of the states — Massachusetts, Oregon, Nevada and
Maryland — embraced Obamacare, and each underperformed. All have
come under scathing criticism and now face months of uncertainty as
they rush to rebuild their systems or transition to the federal
exchange.
The federal government is caught between writing still more
exorbitant checks to give them a second chance at creating viable
exchanges of their own or, for a lesser although not inexpensive sum,
adding still more states to HealthCare.gov. The federal system is
already serving 36 states, far more than originally anticipated.
As for the contractors involved, which have borne most of the
blame for the exchange debacles, a few continue to insist that fixes
are possible. Others are braced for possible legal action or waiting
to hear if now-tainted contracts will be terminated. The $474
million spent by these four states includes the cost that officials
have publicly detailed to date. It climbs further if states like
Minnesota and Hawaii, which have suffered similarly dysfunctional
exchanges, are added.
MORENO
VALLEY, Calif. — The freeway exits around here are dotted with people
asking for money, holding cardboard signs to tell their stories. The
details vary only slightly and almost invariably include: Laid off. Need
food. Young children.
Mary
Carmen Acosta often passes the silent beggars as she enters parking
lots to sell homemade ice pops, known as paletas, in an effort to make
enough money to get food for her family of four. On a good day she can
make $100, about double what she spends on ingredients. On a really good
day, she pockets $120, the extra money offering some assurance that she
will be able to pay the $800 monthly rent for her family’s
three-bedroom apartment. Sometimes, usually on mornings too cold to sell
icy treats, she imagines what it would be like to stand on an exit ramp
herself.
“Everyone
here knows they might have to be like that,” said Ms. Acosta, 40,
neatly dressed in slacks and a chiffon blouse, as she waited for help
from a local charity in this city an hour’s drive east of Los Angeles.
Both she and her husband, Sebastian Plancarte, lost their jobs nearly
three years ago. “Each time I see them I thank God for what we do have.
We used to have a different kind of life, where we had nice things and
did nice things. Now we just worry.”
Photo
PATCHING TOGETHER A LIVING Mary
Carmen Acosta and her husband, Sebastian Plancarte, with their
daughter, Camila, outside their apartment in Moreno Valley, Calif.Credit
Emily Berl for The New York Times
Five
decades after President Lyndon B. Johnson declared a war on poverty,
the nation’s poor are more likely to be found in suburbs like this one
than in cities or rural areas, and poverty in suburbs is rising faster
than in any other setting in the country. By 2011, there were three
million more people living in poverty in suburbs than in inner cities,
according to a study released last year by the Brookings Institution.
As a result, suburbs are grappling with problems that once seemed
alien, issues compounded by a shortage of institutions helping the poor
and distances that make it difficult for people to get to jobs and
social services even if they can find them.
In
no place is that more true than California, synonymous with the
suburban good life and long a magnet for restless newcomers with big
dreams. When taking into account the cost of living, including housing,
child care and medical expenses, California has the highest poverty rate
in the nation, according to a measure introduced by the Census Bureau
in 2011 that considers both government benefits and living costs in
different parts of the country. By that measure, roughly nine million
people — nearly a quarter of the state’s residents — live in poverty.
Not
long ago, the Inland Empire, as the sprawling suburban area east of Los
Angeles is known, attracted people hoping to live out that good life.
Before the recession, it was booming; housing developments were cropping
up all the time, quickly followed by big box stores and strip malls to
cater to the new residents.
The
region was — and still is — the fastest growing in the state. But the
jobs have never really followed the people who come here looking for
cheaper housing. The median home value is $325,000 and the median rent
is $1,690, according to the real estate database Zillow. That compares
with $462,000 and $1,860 in Los Angeles.
For
many, those costs are still unaffordable. Unemployment in the region
hovers around 10 percent and nearly one-fifth of all residents live in
poverty, the highest rate among the largest metropolitan areas in the
country. By the official federal measure, nearly one-third of all
children here are poor. The number of poor in San Bernardino and
Riverside Counties nearly doubled over the last decade.
Many
would-be workers lack office skills or more than a basic education,
making minimum-wage jobs the norm for them. Many here are immigrants —
some living in the United State illegally, making them ineligible for
most government benefits. But like Ms. Acosta, many others came here
legally decades ago and had a strong foothold in the American economy — a
job, a house, cars and regular travel.
Photo
Ice pops being made at the family’s home for sale on the street.Credit
Emily Berl for The New York Times
“This
is where poor people live now, and this is where they are going to
live,” said Alan Berube, an author of the Brookings Institution study.
“When poverty moved out of the inner cities it didn’t just go next door,
it went 30 miles away. But at the time those families might not have
been poor — they were just chasing the middle-class dream. Then, boom,
that evaporated.”
Prosperity Slips Away
Most
mornings Sebastian Plancarte, 39, puts on a freshly laundered, collared
polo shirt, carefully tucked in. He gets his daughter, Camila, dressed
for kindergarten and makes sure his son, Sebastian, has his homework
ready for middle school. They are out the door by 7:30 a.m. and he is
home nearly two hours later, back to wander parking lots selling ice
pops before the afternoon pickup routine begins. He is happy to be
involved in his children’s lives, but this is hardly the kind of
fatherhood he once imagined.
For
years, the couple thought of themselves as wealthy. They bought a
five-bedroom house in a suburb just a few miles east of downtown Los
Angeles, where they both worked in the jewelry district — she inspected
diamonds and he designed bracelets and rings. Making $16 an hour, plus
commissions, they earned as much as $2,000 a week. They traveled to San
Diego and Las Vegas, they bought their two children the toys they asked
for. Just more than a decade after they had emigrated from Mexico, they
believed their hopes had become a reality.
But
in 2011, Ms. Acosta was laid off. So was Mr. Plancarte, just a few
months later. They soon sold the house for far less than they had paid.
They drove east, looking for something they could afford to rent, and
landed in Moreno Valley, a city 60 miles inland that has become a common
outpost for those priced out of Los Angeles. They live in a sprawling
apartment complex designated for low-income families.
The
paletas have become a centerpiece of their lives. The couple constantly
think about the best prices for ingredients and how many pops are in
their small freezer; they take orders by phone to deliver to backyard
parties. When their son asks to get hamburgers at the local In-N-Out,
they have a standard response: “The mathematics are very simple,” Ms.
Acosta said. “If you want to eat there, we need you to sell $25” of the
ice pops.
“The
hardest part is the shame,” Mr. Plancarte said, sitting at his kitchen
table as his wife and daughter ate mango paletas doused in chamoy, a
blood-red sugary hot sauce. “People say to me, ‘Why don’t you find a job
over there, or at that factory or that place?’ First of all, they
aren’t there, I’ve tried. But even if they have a job, it’s going to be
paying me $8 an hour. So I’ll spend no time with my family to make less
money than I make now selling these.”
By
Ms. Acosta’s calculation, the couple earned about $25,000 last year,
nearly all of it in cash. And while it is nearly $2,000 above the
official poverty line for a family of four nationally, it is hardly
enough to meet their basic needs. By the time they pay for rent, gas,
phone, electricity and food, they have spent about $2,000 a month, Ms.
Acosta said.
Her
husband is still looking for work; in the winter months they relied
mostly on whatever she could make selling cosmetics and costume jewelry
door to door. Their lives reflect the contradictions of many living on
the edge. They have a 2001 Jeep Cherokee, a small flat-screen television
and a few remaining pieces of jewelry. They don’t have health insurance
or any savings, and they have not bought new clothes for nearly two
years.
For the last year, Ms. Acosta spent much of her time at the local Catholic Charities office,
taking self-help classes with other women in similar circumstances. She
earned $100 a month enrolling women in courses on healthy diets,
balancing checkbooks and parenting skills. She keeps a folder thick with
certificates she has earned in such classes. A letter from President
Obama thanking her for volunteering at her son’s school, calling her a
“shining example,” is tucked in a protective plastic sleeve. The few
friends she has made here, she said, are the women she has met at
Catholic Charities.
“My friends in L.A., the ones who still have money, it’s like they forgot all about us,” she said.
The
family’s economic descent has proved most difficult for 12-year-old
Sebastian, who remembers Christmas trips to Universal Studios and
regular mall excursions. Camila, 5, cannot recall anything different
from what she has now. Neither child knows that their Christmas gifts
came from charity. They are all contributing to the piggy bank in the
kitchen; if they can save enough, Ms. Acosta has promised to take them
to Disneyland this year. For now, even going to the beach an hour west
would cost too much for gas. The local park is hardly a fun outing — it
reminds them of their work selling ice pops most weekends.
Photo
Jewelry that the couple sell door to door.Credit
Emily Berl for The New York Times
“We
have to be really good actors,” Ms. Acosta said. “But after they go to
bed, we just sit and worry about how we are going to pay for things we
want to give them.”
When
his son asked for pizza recently, Mr. Plancarte took a silver bracelet
he had given his wife to a pawnshop, where he was offered a fraction of
what he thought it was worth. He accepted, too embarrassed to tell his
son they could not have pizza. Ms. Acosta recently went back and saw the
bracelet priced at $90 — more than twice what her husband had received.
Traveling More to Make Less
Sitting
inside Catholic Charities offers a glimpse of the constant need: this
family needs extra cash to pay the utility bill; this single mother
cannot find child care to allow her to work a graveyard shift; that
elderly man who came from Mexico has no way to pay for his medication.
Imelda
Santana, whose desk is just a few feet away from the entrance, is often
the first stop for requests. Ms. Santana is empathetic — just a couple
of years ago she needed help after her husband left her and she lost her
job as a loan officer amid the housing crisis. After working as a
volunteer for months, Ms. Santana was hired to sift through requests to
see which families the organization might assist. Even on the best days,
she said, there are more demands than they can handle.
“We
have people here who used to make donations now knowing what it is to
run out of toilet paper in their house and not have the money to buy
more,” she said. “Even if they get food stamps, it does not cover
toiletries. There’s just never enough.”
Yadira
Rodriguez, 35, has traveled hundreds of miles looking for work in this
county, which is roughly the size of New Jersey. When her husband
stopped earning enough to pay for monthly expenses for their three young
children, she took a job in a factory packing boxes to be shipped to
retail stores. But the $8-an-hour job was 30 miles north of her Moreno
Valley apartment, taking her more than an hour in traffic, twice that if
she needed to take the bus.
Since
she was classified as a temporary worker, she would leave her home at 4
a.m. only to find out at 6 a.m. that she would not be hired for the
day. On days there was work, she would arrive back home 12 hours after
she left.
“I
could not understand how this was worth the money,” Ms. Rodriguez said.
“I would get home and the kids would be tired and cranky and I didn’t
have energy for them. How was this going to make my life better?”
After
three months, she quit. Her family relies on $800 a month from the
state’s temporary cash assistance program to pay for groceries and
utilities, and gets occasional help from charities. The landlord has let
the family slide on the rent at times, Ms. Rodriguez said.
Like
Ms. Rodriguez, many would-be employees see unpredictability as a fact
of life. Many social workers see more clients working two part-time
minimum wage jobs, juggling schedules to make sure they do not
disappoint any boss and hustling to cobble together child care for
shifts that can begin or end before dawn. Many are immigrants who speak
only basic English after years of living in Latino enclaves, first in
Los Angeles, and now here.
“This
is the edge of affordability; people came here because they were pushed
out to the only place where they could afford,” said John Husing, a
local economist who has studied the region for years. “When they came
here the primary wage earner could find a job to pay the bills. The
problem is that time has passed and we don’t have a lot of jobs that
allow that anymore.”
Photo
AD HOC AID A clothing giveaway at Victoria Elementary School in San Bernardino, Calif. The school also sponsors a medical clinic.Credit
Emily Berl for The New York Times
While
many of the state’s coastal areas have begun to see signs of an
improved economy, the inland region has continued to struggle.
Unemployment and foreclosure rates remain stubbornly high here and there
are few signs that the area will boom as it did a decade ago. Housing
prices have inched up as wages have stagnated, making it even more
difficult for families to stay afloat.
“What
we have out here is more need and fewer centers of resources,” said Dom
Betro, the executive director of Family Services, a nonprofit group
that provides child care and food to needy families in Riverside County.
“We have more working poor than anyone can know how to handle. People
travel further distances to work for less pay because they have to. Even
if there is help — and that’s not always — people who need it can’t get
to it.”
Social workers here often point to a 2009 study by the James Irvine Foundation,
which showed that the region has far fewer nonprofit groups per capita
than the rest of the state, with less money funneled in from local
foundations.
“There’s
all these new problems but no new philanthropic dollars there to
address them,” said Mr. Berube, from the Brookings Institution. “In many
places there are these de facto systems in place but not the kind of
leadership to really address what’s needed.”
When
Larry Ellwell became principal of Victoria Elementary School in San
Bernardino a few years ago, he was stunned by the number of families who
could not afford necessities like clothes and dental care. When he
worked with poor students closer to Los Angeles, he said, they knew
where to find aid. But in the Redlands school district, home to a
university and well-appointed mansions, there were few free clinics or
other outlets for assistance. So he began to offer them — now the school
hosts a roving clinic staffed by medical students and a clothing
giveaway known as Victoria’s Closet.
“It’s
a lot of triage work — who needs something the most and what do they
most need,” Mr. Elwell said. “There’s no stigma anymore, because so many
people are just trying to scrape by and make it work.”
For
Ms. Acosta, scraping by recently took a new turn: She moved to the
other side of the desk at Catholic Charities, taking a job as an intake
worker. She works about 30 hours a week at $12 an hour, giving people
the same kind of help she seeks. Even now, she is not earning enough to
stop selling ice pops.
Just
a couple of years ago, when the dry cleaner called reminding her to
pick up a pair of pants, Ms. Acosta told him to give them to charity.
“Now I am one of the people taking giveaways,” she said. “I see people
all the time in worse positions than we are in. The kids are healthy, we
have a roof. Maybe that’s the best we can hope for.”
A version of this article appears in print on May 10, 2014, on page A1 of the New York edition with the headline: Hardship Makes a New Home in the Suburbs. Order Reprints|Today's Paper|Subscribe
