How Much Money Do We Need?

We all know (or should know) this story in its broad outlines. But this piece, “The Death of the Great American Middle Class”, found on Steve Keen’s DebtWatch site has some details that are worth reviewing and sharing.

A good indicator of the strength of the middle class in a country is the proportion of all the income in that country that goes to the Middle Sixty.  For example, one problem in Mexico is the lack of a strong middle class.  In Mexico, the Middle Sixty take home just 46.6% of Mexico’s income, even though they make up 60% of Mexico’s households.[17]  In Mexico, so much of the nation’s income goes to the Top Twenty that there’s very little left for the Middle Sixty, or for the poor.

The amazing thing is, by this measure even Mexico has a stronger middle class than the United States.  The Middle Sixty in America take home just 46.3% of America’s income.[18]  This is by far the lowest figure of any major developed country. 

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What’s next?

Ambrose says the “hard left” in Greece is polling 35%.  Further confirmation that the post-war order of European social democracy morphing to neoliberalism has run its course. (Unless you think that Club Med will somehow discover a new growth engine)

While my sources tell me that Defkalion may really have a new form of energy harnessed, until we have some better understanding of what appears to be a new form of physics,  I don’t see it saving Greece from debt deflation.

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News Leak

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The Eurozone crisis is pausing, not ending

Hussman’s weekly commentary makes a small but crucial distinction between ECB bond purchasing versus ECB lending. There has been much chatter in the blogosphere in the last few weeks about the ECB’s recent deployment of the “LTRO” facility. This is the one which is taking collateral from the Euro banks and given them euro’s instead. Many have been calling this a “stealth” QE, and a form of debt monetization. Hussman begs to differ, and reminds me that during the first phase of the crisis in 2007-2008, the Fed also did a lot of lending (as opposed to purchasing) which didn’t seem to help much. Only when they started buying bonds outright and expand their balance sheet with freshly printed dollars injected into circulation did things stabilize (a bit). Hussman’s point: The ECB lending is much more easily reversible than purchasing: you just ask for your money back. So it is truly the provision of liquidity rather than QE.

With true QE, the Fed as owner has the problem of how to sell all the toxic assets on its books in to the market. The theory apparently is something like this: once growth resumes and real estate starts to rise, even slightly, and incomes also begin to rise slightly, selling RMBS back to private parties will be possible — or at least won’t be impossible.

But is liquidity enough to help the Eurozone?

In Europe, as Soc Gen explains in a recent note excerpted at FT Alphaville: … the success.. .. of the ECB-style QE ought to be judged through the money multiplier. The latter measures the ‘commercial bank money’/’central bank money’ ratio; e.g. M3 money supply divided by base money (currency in circulation + reserves held by counterparties in the Eurosystem + deposit facility).

But a picture says a thousand words; check out this SocGen graph from the FT Alphaville site:

The graph shows that there is no multiplication effect: money being provided by the ECB is not expanding the M3 supply — instead, it is just being parked back at the ECB. The net effect would appear to be the stabilization of the big banks but continuation of a credit crunch in the real economy. And as recession numbers flow back into the models, the provision of more and more ECB liquidity will be necessary to shore up weak sovereigns and banks, but probably not always on time — so a few train wrecks seem likely.

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Now That’s An Old-School Kinda Guy

A 99 year old man files for divorce after 77 years of marriage over an affair nearly 70 years ago.

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Happy New Year

Lifted from the comments at CR:

nova wrote on Mon, 1/2/2012 – 3:25 pm

There is some seriously dark currents moving below the surface here… Guns are not cheap. Racking up these kind of sales numbers during the Great Recession?

According to the FBI, over 1.5 million background checks on customers were requested by gun dealers to the National Instant Criminal Background Check System in December. Nearly 500,000 of those were in the six days before Christmas.

It was the highest number ever in a single month, surpassing the previous record set in November.

On Dec 23 alone there were 102,222 background checks, making it the second busiest single day for buying guns in history.

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Let Them Eat Cake

I’ve gotten into the habit of listening to a new radio station while driving. This morning I heard a man speaking with a quiet, elegant fury about details of the Fed’s Free Money for Banksters program — the full disclosure of which only came after a lawsuit and court victory by Bloomberg News. (The reporter who doggedly pursued the story died of cancer before seeing the full fruits of his labor, but the American people owe him a debt of gratitude. He was the kind of journalistic hero we see too infrequently these days).

Well it turns out that the man on the radio was reading from a blog post by the cartoonist and radical gadfly Ted Rall.

It is an excellent summary of the way money is a social construct and is titled Jobless? Face It: Obama’s Not That Into You

The whole thing is here, and it deserves wide distribution.

A excerpt:

Bloomberg Markets Magazine reports a shocking story that emerged from tens of thousands of documents released under the Freedom of Information Act: by March 2009, the Fed shelled out $7.77 trillion “to rescuing the financial system, more than half the value of everything produced in the U.S. that year.”

Ask any business executive why nobody is hiring and they’ll blame the lack of consumer demand. If the ultimate goal is to put more money into people’s pockets, why not just, you know, put more money into people’s pockets?

Bank executives used federal taxdollars to pay themselves tens of billions in bonuses and renovate their corporate headquarters. We the people got 0-0-0. What if we’d gotten 7-7-7 instead?

Every man, woman in child in the United States would have received $24,000.

A family of four would have gotten $96,000.

And that’s without an income test.

New data from the U.S. Census Bureau shows that 100 million American citizens—one of out of three—subsists below or just above the official poverty line. Demographers, statisticians and economists were stunned. “These numbers are higher than we anticipated,” Trudi J. Renwick, the bureau’s chief poverty statistician, told The New York Times. “There are more people struggling than the official numbers show.”

For four decades progressive economists have warned that the middle-class was being eroded, that the United States would become a Third World country if income inequality continued to expand. They can stop. We’re there.

If you’re a teacher asking for a raise, or a parent caring for a sick child or parent, or just an ordinary worker hobbling to work on an old car that needs to be replaced, all you’ll get is 0-0-0.

There isn’t any money to help you.

We don’t have the budget.

We’re broke.

You can’t get the bank to call you back about refinancing, much less the attention of your Congressman.

But not if you’re a banker.

Bankers get their calls returned. They get anything they want.

There’s always a budget for them.

They get 7-7-7.

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