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Belmont Club

by Richard Fernandez

Happy Days Are Here Again

August 27th, 2012 - 8:34 am

You’re better off today than ever. You just don’t know it.  Obama campaign official Stephanie Cutter has said that President Obama has created more jobs than Ronald Reagan. Cutter made this assertion at MSNBC’s Morning Joe:

“Well, I think that worker probably has a good understanding of what’s happened over the past four years in terms of the president coming in and seeing 800,000 jobs lost on the day that the president was being sworn in, and seeing the president moving pretty quickly to stem the losses, to turn the economy around. And over the past, you know, 27 months we’ve created 4.5 million private-sector jobs. That’s more jobs than in the Bush recovery (or) in the Reagan recovery.”

Set against this is are reports that the average middle class family has lost more than $4,000 in annual real income since Obama became President. Moreover, the middle class families kept losing income even after the President had announced a recovery.

In January 2009, the month President Obama entered the Oval Office and shortly before he signed his stimulus spending bill, median household income was $54,983. By June 2012, it had tumbled to $50,964, adjusted for inflation. (See the chart nearby.) That’s $4,019 in lost real income, a little less than a month’s income every year.

Unfair, you say, because Mr. Obama inherited a recession? Well, even if you start the analysis when the recession ended in June 2009, the numbers are dismal. Three years after the economy hit its trough, median household income is down $2,544, or nearly 5%.

But just be patient. ‘Help’ — something once reserved for the unfortunate and indigent is now on constant offer even to industries. They get assistance not just once, but all the time. Michael Barone notes that while General Motors is in worse shape today then before it received a bailout from the President, Obama is so encouraged by his success at GM that he’s going to apply the same formula on other industries. He said, “so now I want to say that what we did with the auto industry, we can do in manufacturing across America. Let’s make sure advanced, high-tech manufacturing jobs take root here, not in China. Let’s have them here in Colorado. And that means supporting investment here.” Barone asks:

Was he calling for a federal bailout of other American manufacturing companies? And what does he mean by “supporting investment”? White House reporters have not asked these obvious questions, for the good reason that the president, who has been attending fundraisers on an average of one every 60 hours, has had only one press conference in something like two months.

The most obvious answer to Barone’s rhetorical question is that Obama intends to use more tax dollars to pick winners and losers because it’s worked so well. Besides in the current context it is hardly possible to get ahead any more without ‘help’. This often takes the form of cheap college and home loans or government programs funded by deficit. But to keep those interest payments affordable it is necessary to make the middle class pay their fair share.

One way to do this is to reduce the return on their investments. “The Federal Reserve’s near zero interest-rate policy, aimed at stimulating the economy, has created bargains for borrowers refinancing a mortgage or buying a car. But the low rates are penalizing “savers” such as seniors and others on fixed incomes, forcing millions of middle-class Americans to reconsider how they will live when they retire, if they can retire at all.”

Combined with a volatile stock market, the rock bottom rates make you feel like “there’s nowhere to go” with your savings, said Nancy Nonini, whose Apple Valley company Retirement Education PLUS counsels companies on aging issues …

At 91, retired mechanic Glenn Summers does all his own yard work at his Bloomington home. He has kept most of his money in safe havens such as money market accounts for income to supplement his Social Security and pension. The nest egg used to generate $10,000 to $15,000 more than it does now.

Like many seniors interviewed for this story, Summers is loathe to complain about the losses. He gets by, he said, “but I don’t have any extra.”

Altogether, personal interest income in the U.S. totaled $986 billion last year — down about 25 percent from 2007, according to the U.S. Bureau of Economic Analysis. That’s $332 billion forgone.

Retirees feel the undertow, but so do baby boomers eyeing retirement. Folsom, for instance, had planned on returns of 5-7 percent on his investments. He had to scratch that out and work with 2-5 percent.

Spend, but don’t invest. Claim your benefits even if you don”t work. But as the formal economy sputters, the crony and underground economy is booming. If the US automotive industry’s daily survival depends on government ‘help’, banks worldwide are increasingly dependent on the sufferance of dark cash flows. Roberto Saviano, a journalist who has written books on organized crime has described the financial crisis as “a blessing for organized crime”. In an article in the New York Times Saviano argued that the only thing that was keeping banks up was mob money.

In 2009, Antonio Maria Costa, an Italian economist who then led the United Nations Office on Drugs and Crime, told the British newspaper The Observer that “in many instances, the money from drugs was the only liquid investment capital” available to some banks at the height of the crisis. “Interbank loans were funded by money that originated from the drugs trade and other illegal activities,” he said. “There were signs that some banks were rescued that way.” The United Nations estimated that $1.6 trillion was laundered globally in 2009, of which about $580 billion was related to drug trafficking and other forms of organized crime.

Maybe it is still true. It’s easy to see why the crooks do so well. They don’t pay income taxes and are largely unencumbered by regulation.  The rules are for chumps. People on the inside track have special friends. Most importantly criminal syndicates provide a route to getting something done in a system increasingly paralyzed by red tape. There is now a kind of Prohibition in effect on legitimate economic activity. Play by the rules and get hit by the book. Under those circumstances the underground economy because the new speakeasy for all kinds of transactions. Saviano continues:

In Greece, as conventional bank lending has gotten tighter, more and more Greeks are relying on usurers. A variety of sources told Reuters last year that the illegal lending business in Greece involved between 5 billion and 10 billion euros each year. The loan-shark business has perhaps quadrupled since 2009 — some of the extortionists charge annualized interest rates starting at 60 percent. In Thessaloniki, the second largest city, the police broke up a criminal ring that was lending money at a weekly interest rate of 5 percent to 15 percent, with punishments for whoever didn’t pay up. According to the Greek Ministry of Finance, much of the illegal loan activity in Greece is connected to gangs from the Balkans and Eastern Europe.

In that kind of environment, continuous ‘help’ from a patron becomes a requirement for survival. General Motors and Chicago will no longer represent the exception; in the era of Hope and Change they become the rule. “So now I want to say that what we did with the auto industry, we can do in manufacturing across America.” It’s worked so well it’s already created more jobs than Ronald Reagan. Even the younger generation can hardly wait

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