The Two-Tiered Economy
In normal recoveries and normal economies, small business leads the charge in job creation. Because it’s more difficult for the government and other gatherers of statistics to figure out the good things small businesses are up to, analysts usually tend to underestimate what will appear in initial reports on economic growth and jobs. Additionally, subsequent revisions to originally reported data tend to surprise on the upside. This is generally what occurred while I was tracking these things from 2005 until the spring of 2008 under Bush 43.
Anything resembling normalcy ended when the POR economy kicked in. Since then, downward disappointments have happened so often that the word “unexpectedly” associated with bad news has become a running joke in the center-right blogosphere. This is occurring because so many small businesses are either out of business, seriously contracting, or treading water. For the most part, they’re not hiring. Understandably, it takes the statisticians a while to figure this out.
A prime example of disappointment occurred when the Bureau of Labor Statistics adjusted its originally reported job losses for calendar 2009 in its January 2010 report. All of a sudden, the number of people employed fell by over 600,000.
The worst example of a subsequent statistical meltdown occurred with GDP during the third quarter of 2008. That quarter also “just happened” to be the first quarter of the POR economy and of the recession as normal people define it. At the end of its initial round of reports, the government thought the economy had contracted by an annualized 0.5%. Subsequent comprehensive revisions took that number first to -2.1%, then to -2.7%. The government’s July 30 GDP report whacked it down to an annualized -4.0% — eight times worse than originally thought. The cratering occurred because businesses large and small, entrepreneurs, and investors saw the regime uncertainty that was coming (some call it “utter lawlessness“) and battened down the hatches.
Since then, though some of their behavior smacks of trying to be the last guy who gets eaten by the alligator, large firms, thanks to the special advantages cited above, have sort of figured out how to cope. Small businesses without crony connections in the ruling class aren’t as fortunate. As a result, neither are the rest of us, especially those who don’t already have jobs.
This situation doesn’t seem likely to improve significantly until the current atmosphere of regime uncertainty ends. I’m afraid that won’t occur until there is regime change.
Tom Blumer writes:
“Since the arrival of the POR (Pelosi-Obama-Reid) economy just over two years ago, there has been a profound shift in the economy.”
-What is wrong with his opening remarks is that the present economic problems were already here thanks to the administration that preceded this one. The huge deficit was already here thanks to tax cuts for the rich and a downturn in economic activity due to Bush’s mismanagement. But he insists on calling it the “POR economy”. Better it would have been to call it the BGUTR (Bush gave us this recission) economy. The shift was already here on 20 January, 2009.
Deficits under Bush? Yes– bringing us back from the rupture that was 09/11 and fighting two wars will do that.
The unprecedented deficits under Dear Leader and the smoking crater that is this economy? No– spending $1+ trillion on nothing with nothing (nothing!) to show for it will do that.
You are wrong. No amount of data to the contrary will convince you otherwise. You’re simply wrong. So are you a liar or a fool?
Americans, BTW, are neither. They know exactly what has happened and who to blame.
Jake in Pittsburgh huffs…..
“Deficits under Bush? Yes– bringing us back from the rupture that was 09/11 and fighting two wars will do that.”
-I must be getting near the truth when i bring up the facts of the deficits Duh’bya left our nation, because he then gets really defensive (i know when he is getting upset when the name calling begins)…..
“You are wrong. No amount of data to the contrary will convince you otherwise. You’re simply wrong. So are you a liar or a fool?”
-So which data do YOU point to to prove me wrong? Most conservatives point to the 2009 budget as provided by the Dept. of Commerce
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=87&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=2007&LastYear=2010&3Place=N&Update=Update&JavaBox=no#Mid
Yet the 2009 budget reflects Bush’s last year in office! Don’t believe me? Just ask the leftist “Cato Institute”, in the article titled: “Don’t Blame Obama for Bush’s 2009 Deficit”
http://www.cato-at-liberty.org/2009/11/19/dont-blame-obama-for-bushs-2009-deficit/
-From the article….
“But there is one rather important detail that makes a big difference. The chart is based on the assumption that the current administration should be blamed for the 2009 fiscal year. While this makes sense to a casual observer, it is largely untrue. The 2009 fiscal year began October 1, 2008, nearly four months before Obama took office. The budget for the entire fiscal year was largely set in place while Bush was in the White House.”
-Yes, I am such a fool, aren’t I?
David W. Walters,
Thanks to the Bush tax cuts, the economy under Bush was actually quite good (despite 9/11) until the housing bubble that was created by the sub-prime market popped. The sub-prime market was created after Bill Clinton’s CRA revisions led to the Fanny Mae/Freddie Mac-led regulatory monstrosity tha forced banks to give mortgages to anyone that asked for one. Throughout the Bush years, the Democrats successfully resisted (by politicizing the issue and outright lying, as usual) all Republican efforts to rein in Fanny and Freddie and deflate the rapidly expanding bubble of bad mortgages until it was too late and it finally popped in the fall of ’08, thereby guranteeing Obama’s election (but even then, Obama was elected only because the American electorate has within its ranks far too many morons like you). Left to the Republicans, the conditions that led to the collapse would simply not have existed. The “economic downturn” had nothing to do with Bush’s “mismanagement.”
The Bush tax cuts were across the board. The “rich” benefited more, to the extent that they actually did, only because they were already paying a gigantic share of the federal revenue. I’ll see if I can explain it to you: One percent of 100,000 is 1000. One percent of 100 is 1. So in raw dollars, a rich person gets a $1000 tax cut while a middle-class or poor person only gets a $1 tax cut. No one argues that $1000 is more than $1. But (here it gets complicated) the rich person pays a far larger share of the fed’s revenue. The top 20%, for example, pay roughly 80% of federal revenue. Do you understand it now, or are you too f_cking stupid? Incidentally, the percentage share of the “rich’s” liability for federal revenue went UP after the Bush tax cuts. In other words, the “rich” pay more as a percentage of liability now then they did before the Bush tax cuts.
Economic expansion is the result, always, of tax cuts. You can try to argue this, but to do so is to make yourself look like even more of a moron than you already do. Revenues increase as the economy expands. Period. Bush got into deficit trouble not because of his tax cuts, but because of the explosion in federal spending on the war and on Homeland Security. (Just because the Left does not take the Islamo-Fascist threat seriously does not mean the rest of us should be so clueless.)
Lastly, it is beyond ridiculous to try to blame the deficits that we are seeing now, under “POR,” on Bush.
There are a lot of cards that the left plays assuming everyone else in the game is ignorant of the facts. One that is played quite often is the ‘tax cuts for the rich’ card. Anyone who uses it either knows better and is simply falling back on a class warfare position or they don’t know better because they have no grasp of the tax structure.
I generally stopped reading David’s nonsense when it became apparent that he’s blind to any present administration culpability on any issue anyway. So I haven’t a good feel for whether he knows better when he plays the ‘tax cuts for the rich’ card or knows nothing and is just parroting slogans. Doesn’t matter really, because as soon as he played that card he cast himself as incapable of contributing to an intelligent discussion about the economy and should be tuned out anyway.
Rich M asserts the blame for the crash was:
“Thanks to the Bush tax cuts, the economy under Bush was actually quite good (despite 9/11) until the housing bubble that was created by the sub-prime market popped. The sub-prime market was created after Bill Clinton’s CRA revisions led to the Fanny Mae/Freddie Mac-led regulatory monstrosity that forced banks to give mortgages to anyone that asked for one.”
Those darn’d regulators! Let me ask you a question Rich. As a percentage of both the total numbers of foreclosures, and the VALUE of the foreclosures, exactly what role DID Fanny/Freddie play in this bubble pop? Most sub-prime loans were RE-FINANCES, not 1st time home buyers that forced banks to give them mortgages under Fanny/Freddie guidelines. In fact only 1 of the top 25 sub prime lenders in 2006 was directly subject to Fanny/Freddie regulations!
So, how and why did these banks make these loans? Because they wanted to and they could. It became hugely profitable for banks to originate these loans only repackage them as securities and sell them as such. The Gramm-Leach-Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999 was the mechanism that that allowed banks to act as investment bankers. Look it up and do some research instead of parroting what Rush or Glen Beck say. Think for yourself, sir.
The banks made the loans because, had they not, they would have had their licenses pulled. Idiot. Janet Reno was laying the heavy lumber to banks that refused to loan the money, back in her day.
Richard W.
Idiot?
-My friend……Janet Reno wasn’t even Attorney General for 7 years prior to the crash.
“Janet Reno was laying the heavy lumber to banks that refused to loan the money, back in her day.” Are you trying to tell me the loans made prior to 2001 are the loans responsible for the crash? Again, how much of the money lost to banks in the crash was Freddie/Fannie loans?
As I stated prior, the Financial Services Modernization Act of 1999 broke down the firewall between banking and investments that had been placed there by the Glass Stegall Act of 1933. This allowed banks to make loans….mostly re-finances THAT WERE NOT COVERED BY FannyMae & FreddyMac…..and then repackage these loans they originated and SELL them as securities. This is why the loved, wanted and DID make the loans. -Because they COULD due to Phil Gramm’s law. Tell me Richard, what does Phil Gramm do for a living now? He works for a Swiss BANK! Now just to show I’m fair….Bill Clinton DID sign the bill into law. But Rep. Phil Gram (Texas) was the chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs at that time. Follow the money my friend…..
Wake up Richard, and lay off the Limbaugh, and learn how to think for your self.
I’m very hesitant to allow myself to get drawn into an argument with someone like you, David, because I always find it so exasperating. If you’ll allow a quick digression, I once had a cat that was very hard to potty-train. I find myself thinking of that cat everytime I argue with a liberal.
First off, between the two of us, if anyone is “parroting” anything, Dave, it’s you. That’s obvious. What is it with you people on the Left that brings about this arrogant and automatic assumption that any conservative that happens to point out the ridiculousness of your side has to be “parroting” someone? No Dave, I do think for myself. You should try it.
Second, exactly WTF is your argument? You start out blaming Bush, the Bush tax cuts, Bush’s “mismanagement,” etc. Then, when contested, you change course and start blaming Phil Gramm and his piece of legislation from 1999. What was it, the “GLB?” Wow, that’s pretty impressive arguing there Dave. You really pulled that one out of your ass.
But seriously, let me see if I’ve got this straight. Let me see if I can understand the David W Walters School of Argument. I’m going to guess that it’s a three-step process:
1: Make a completely inane and illogical comment. If possible, parrot Keith Olbermann. Wait to see if anybody notices. If so, proceed to step 2.
2: Go on idiotic left-wing website. Parse out a few statistics that might vaguely support new and improved argument. Completely re-formulate argument.
3: Answer opponents with new and improved, re-formulated argument. Be sure to throw in all the new stuff found while researching idiotic left-wing website. Accuse opponents of “not thinking for themselves.”
Is that about right Dave, or am I missing something?
I’m not sure where you’re getting your numbers, Dave, but even if they are 100% accurate (which I doubt), there are a few glaringly obvious and important points which seem to be flying right over your head. I’m sure my list will not be complete, but here’s a couple:
1: I don’t think you provided any actual stats on the refinance vs finance stuff, but if it’s true that the majority of the sub-prime loans were re-financings, so what? Of what I said in my previous comment, what exactly does that counterpose? The sub-prime market exploded in the mid-90′s right after Clinton tweaked the Community Reinvestment Act (1977) to FORCE banks to provide risky mortgages. That is empirically indisputable. Where do you think the vast majority of foreclosures are coming from Dave? (I’ll go ahead and answer that. They’re almost entirely sub-prime.) What is it about this that you do not get?
2: OK, so are you using that statistic from 2006 to try to assert that somehow Fannie was not at the forefront of our economic meltdown of 2008? Was that your point Dave? (Because I’m really not sure.) If so, for Godsakes Dave, that’s just absurd. If you had read what I wrote precisely, I said that Fannie and Freddie “led” the way. Fannie, Freddie, and any other GSE that you want to throw in there. I didn’t say that they had a hand in every bad loan made, or even a majority. But these GSE’s were out there backing bad loans, to whatever extent, which incentivized the whole sub-prime system / market. The sub-prime numbers really exploded (as I said before) immediately after Clinton’s CRA revisions. And this was in 1996, not 1999. As you know, 1999 was the year of the dreaded “GLB.” I think you’ve lost your nexus Dave.
3: No offense Dave, but I think you really went off the deep-end when you started blaming the “GLB” (which was right after you blamed “GWB”) for our economic problems. Once again I’m having difficulty completely understanding your theory here but I think you are saying that the GLB enabled banks to enter into these risky mortgage agreements with unqualified borrowers so that they could, in turn, package large numbers of these bad mortgages and sell them as securities to hapless investors, some of which, ironically, were other banks. Darn those bankers. How did you put it Dave? We shouldn’t let banks “act like”, ummm, banks? Was that it? I don’t know Dave, what should they act like? Grocery stores? Aside from the fact that, as I said before, the sub-prime market was going full-swing at least two years before the GLB got out from under Gramm’s paperweight, bankers don’t enter into risky agreements voluntarily. You don’t think they would have made these very risky loans without Clinton’s new regs forcing them to, do you Dave? Come on, I know you are a liberal but…please.
I’m looking at this from a strictly fundamental and empirical standpoint. There is nothing theoretical about it. Why don’t you guys on the Left just go ahead and admit that, once again, you screwed everything all up. Really, the first step toward healing is to face the truth.
It was Bush! Yes! It was George W. and Merrick who duplicated the key to the lock for the strawberries.
-David Walters Queeg
http://www.youtube.com/watch?v=3zgeQmzV9kk
nearablackhole,
-As you can see for yourself, Phil Gramm is the author of the Financial Modernization Act of 1999 that directly led to the crash of 2008. Study, do some research (-research doesn’t include listening to Rush Limbaugh and watching Sean Hannity and Glen Beck). And if you do not learn to think for yourself, you’ll be like “Captain Queeg cutting your own tow line”, ready to run your ship aground.
Remember when you didn’t have to kiss the ring of Don Obama to make money?
This is nothing more than organized crime elevated from the gutters of Chicago to the halls of Congress and the White House.
November can’t come soon enough. We can send this group of corrupt “progressives” back where they came from and get back to a country where everyone has the same opportunity instead of the right connection and approval of some government overlord who wants his cut of your profit.
But of course! This is the economy characteristic of a corporate-social-fascist political regime.
To be fair — and though this should go without saying, these days it needs to be said aloud — we’ve been on the road to this destination for many a year, approximately since the Wilson Administration. For all that, it’s never been clearer where our political elite wants to take us…and there can be no harsher nor more revealing test of the character of us who call ourselves Americans.
Sleeping in the same bedroom with a kill-crazy sniper will mess anyone’s mind up. That is the atmosphere that Obama alone has forced our nation to live under.
Everyday long established businesses, corporations, institutions, international alliances and average citizens in every square inch of America have been and are being dropped dead in their tracks by Obama.
This isn’t a Two-Tiered Economy. It is survival of the fittest; period!
That is what happens when a nation of instant self-gratification people decide that they can get away with making their late night fantasies come true by choosing a certifiable maniac as their leader.
This article is right by pointing out that nothing is going to improve until Obama is gone.
What this article doesn’t do is inform people that things are going to get one hell of a lot worse than they are now before that day comes.
America said it wanted real change.
America got it.
Now live with it!
“The cratering occurred because businesses large and small, entrepreneurs, and investors saw the regime uncertainty that was coming…and battened down the hatches.”
That is known as “The Democrat Effect” (or economic terrorism).
Tom, I am so tired of having the talking heads in the media telling their audiences that businesses are doing well and just don’t want to hire because they feel unconfident or imply that they are bad people.
The big companies have downsized their expenses in line with their revenues inorder to make a profit which is perfectly rational. They are not supposed to be government job creators.
We small businesses, for the most part, have and are still getting hammered. What the MSM and Obama don’t get is we don’t have any demand!d How in the world can we hire when demand for our products is down 50-80 from our historic highs. Even if the bank would lend me additional dollars, what do I borrow it for? Their is no demand!
Our ONLY CHANCE for an economic turnaround is if the rocket scientists in Washington will cut taxes on all tax paying citizens, along with capital gains and corporate income tax, cut down on the regulations, get rid of health care and cut 20% or more of the federal budget.
By the way, my sister lives in Mason!
A house divided cannot stand. After Joshua and the judges it took about forty years for the people to fall away and follow the idols of the land. With the New Deal we became a divided nation with a built in ratchet to keep the Socialists dogma moving. Always, under a Democrat they gained ground and under a Republican they marked time. The bureaucratic ratchet kept us from moving back. Our Constitution was like our immigration law, gathering dust on the shelf. There is no such thing as debt financing for the simple reason that debt has nothing to contribute. The financing comes from capital which we can borrow but a vacuum contributes nothing. After WW II we began to merge our larger businesses who could then buy out smaller businesses. Much of this was done either is pursuit of capital or as a hedge against regulation. In any case it was government induced. As the years passed our government took more and more of our capital in taxes and passed more and more rules that has concentrated our meat packing industry, our oil industry, crippled our auto industry and is now causing more and greater gaps on our retail shelves. It is not market forces that are doing this but Social engineering. Capital financing gives too much independence while the borrower is servant of the lender and when the government is the lender….. ?? If you can follow my reasoning I think I have said enough for you to build on. We are a house divided and it is time to decide which side of the house we should support.
Throwing stones at the Birth/Death rate models and assorted statistical anomalies is fair game in my book, but why no hate for our banking system?
Most small businesses don’t rely on personal capital, nor venture capital to fund them. It’s that trip to the bank for a business loan. So when you talk about uncertainty, it’s not necessarily on the part of the entrepreneurs, but on our lending institutions.
Faced with a shortfall and a bad economy, they’ve recorded tremendous profits. Lets make that clear, banks like Chase are making millions through sweetheart deals simply on access to easy capital. If you look at your credit card rates and fees for services, it becomes even more clear that the plan to replace lost revenue involves soaking it to consumers, not growing the economy.
I’m not fearful of government taking over banks, our current system can’t even get banking leaders down to Washington without someone thumbing their nose at the President. But passing over their reluctance to do perform their role in Capitalism in lieu of placing blame solely on Government seems a bit much.
Lefty, I think you miss the point. Banks are custodians of capital. They are no more honest than the people who run them. When I was getting started after WW II I dealt with a very good and helpful banker and then, later, with his son-in-law. Later yet this bank was bought out by a larger bank and I became an account number. I also changed banks. What most people don’t know is how much power our government has over our banking system. Fannie Mae and Freddie Mac have been in the news a lot lately but nary a word about their actual function of preventing banks from being independent. They do this with their mortgage practices and other government furnished perks.
There is no such thing as debt financing because a debt can only exist because it has borrowed from existing capital. When the government dries up all our capital it is then the only source of capital which tends to evaporate. The Social engineers keep preaching against a profit while they covet every dime you make. Covetousness is far worse than a capitalist making a profit. If I can buy something for a dollar that you couldn’t get on your own, such as what you usually find in the supermarket and then sell it for $1.50 where is the greed? You were happy to get it for the $1.50 But if my competition put that same item on sale for $1.25 you would likely choose to buy from my competitor so where is the greed? That is a socialist trick that has no merit except that their greed remains hidden. Sure I like to get a good price but I also like a high volume and there are ratios between price and volume. Just watch any auction. After the opening bid there are lots of buyers but as we reach the selling price the buyers begin to drop out till the last two. But if its a tool auction you have more than one item to sell at the top price so you begin to back down toward your cost price. You already know the level of interest because of the bidding. There is a point where the price/volume will equal the best return on your investment. Where is the greed in this? I know a lot more can be said but just consider. We are a house divided, more Socialist than
capitalist but why have we been going down hill under Socialism?
FRIENDS OF JOE, BIDEN THAT IS, DO VERY WELL. HE GIVES HIS CHOSEN COMPANIES HUNDREDS OF BILLIONS OF DOLLARS IN SO CALLED GREEN ECONOMY JOB MONEY. THEN HE SHOWS UP WITH THE GOVERNEMENT CONTROLLED MEDIA TO ANNOUNCED THE OBAMA PEOLOSI RECOVERY. SHADES OF THE POTEMKIN VILLAGES IN THE OLD SSR NOW BEING USED IN THE NEW SSR.
This is nothing more than the oldest form of politics, rewarding your friends and punishing your enemies. You need look no further than the bailouts to unions and the Gulf oil moratorium to see this in action.
The latest US economic news:
- pending home sales decline 2.6% in July
- homebuilder sentiment index plunged in July to its lowest level
- consumer confidence plunged in July to its lowest level in nine months
- ISM Mfg Index declined in June for the fourth straight month
- factory orders fell 1.2% in June
- National Federation of Independent Business reported its index measuring the confidence of small business owners fell in July.
- the NFIB noted that nearly 75% of respondents said now is a bad time to expand their business, that small businesses see sub-par growth in the second half of the year
- recent 2nd quarter GDP report showed economic growth slowed to only 2.4% in the 2nd quarter
- last Friday’s employment report showed an additional 131,000 jobs were lost in July, and only 71,000 new jobs were created in the private sector versus forecasts of 100,000
- new private sector jobs previously reported for June were revised down sharply from 81,000 to only 31,000
- business productivity in the U.S. dropped at an annualized rate of minus 0.9% in the 2nd quarter
- China’s trade surplus spiked up in July to it highest level and thus a sharp decline in import growth from the US
OK, I admit it, I want all economic indicators to continue their downward spiral, to the point that all damned Keynesians and progressives, especially that triumphalist Liar-In-Chief (and also closet progressives such as Bush and the GOP) finally have their noses rubbed raw in reality.
Why do I want such a thing?
Because absolutely nothing else is going to stop their sanctimonious spin, lies, rationalizations, prevarications, and semantic games.
Yes, I admit it, after all the corruption of the Fed, GS, AIG, Fannie Mae, Freddie Mac, Chris Dodd, Barney Frank, Obama, Pelosi, Reid, etc, etc, ad infinitum, ad nauseum, that is what I most dearly want to see.
Tom, TennesseeVolunteer – Whew! Finally, someone gets it and is willing to say it out loud. Micro and small businesses are getting hammered, and there’s no relief in sight. You can network, market, sell, promote, brand all day long. When your customer base has been cut in half and demand has plummeted, it just becomes another form of churn (lots of energy and motion, few results).
So, out of curiosity, I’ve been conducting my own informal, statistically invalid survey of small and micro business owners. The results are demoralizing. On a scale of 1-10 (1=what recovery?, 10=fully recovered), the average response is 3 – barely staying afloat. One owner rated their business recovery at -4 (yes, minus 4). They’re still making cuts and expect to continue slashing expenses, overhead and expenditures for the foreseeable future. The problems? They’ve already made so many cuts, they’re down to bone. And, as a small business working with other small and medium businesses, their customer base has been decimated. That small company is just the tip of the iceberg. Small businesses everywhere are dying, and the data is not being captured, which means the “jobs/growth” outlook is even worse than reported.
Meanwhile, the POR crowd raises taxes with one hand and pushes for tax CREDITS with the other. I’m not a tax wizard, but even I can figure out that credits have very little impact for most of us and to qualify, you first must spend money you don’t have and/or pay the over-inflated tax. I can’t name a single small business that’s hired someone in order to get the paltry government credit at the end of the year. Add ObamaCare and its hidden tax bombs, expiring tax cuts, the threat of cap-and-trade plus VAT … it’s not a pretty picture.
Small business is trapped between a rock and hard place. Big government is the rock, big business is the hard place, and small business is being ground to pieces from both directions.