The stock market has broken records. Profits, particularly at our largest financial institutions, are huge. The unemployment rate is dropping. Home prices are rising again. Things are great, of course!
Not in the eyes of American consumers. Real buying power, which began to decline back in 2002, continues its steady downward trend. Polarization between those who earning through labor versus those who generate income from investments is widening at an alarming rate. And those unemployment numbers are profoundly misleading because so many Americans have given up looking for work, dropping them from the statistics entirely. U.S. retail sales fell a tiny 0.4% in March, but the move towards contraction versus growth is disturbing.
Facing decreased buying power around the world for its exports and having to deal with the profoundly negative impact of growth-caused toxic pollution, China’s GDP growth rate is being revised downward. And while Cyprus accounts for significantly less than 1% of the European Union, the turmoil there is a reminder that Europe could fall a whole lot farther as it embraces bigger issues in Greece, Italy and Spain. Unraveling is not out of the question. With global linkage, losing European buying power will remain a thorn in our recovery for the foreseeable future.
What’s worse, the United Sates is about to follow Europe’s economy-crushing austerity program, slashing and burning government spending wherever it can. “For more than two years, European leaders have pushed a cocktail of fiscal austerity and structural reforms on troubled countries like Portugal, Spain and Italy, promising that it will be the tonic to cure their economic and financial ailments. All the evidence shows that this bitter medicine is killing the patient.” New York Times (Editorial Board), April 14th.
Even in the smolderingly-hot financial sector, some at the biggest banks think that maybe the big-earnings party is over. An internal analysis at JP Morgan Chase suggests that between the more stringent capital requirements imposed by Congress after the big fall, salary caps being imposed by European regulators and the general pain from the extended financial crisis will create a very bad environment for continue big profits from investment banking.
The JP Morgan report brought home the harsh reality of the coming years: “Many of the world’s largest investment banks are likely to offer investors paltry returns for the rest of the decade. And uncertainty caused by rising regulatory costs means investors should shy away from banks that combine complex trading activity with more mundane operations like retail banking. For the analysts, the investment advice is simple… ‘We see Tier I investment banks as un-investable,’ JPMorgan’s banking analysts wrote in a report to investors on Thursday. ‘The viability of running a global Tier I investment bank business as part of a universal banking business is starting to be put in question.’” New York Times (DealB%k), April 11th.
Most folks really don’t believe that the economy is in good shape and getting better. They are watching the nascent ripples from cutbacks necessitated by the Sequester, sure to get worse and consume a whole lot of jobs along the way. And while American corporations have saved tons with labor being removed and not replaced, at some point there need to be consumers with enough money to consume and generate the cash flow that really gives companies sustainable growth. Exactly where are those consumers going to come from? Don’t even think about global disruption possible with maniacs in North Korea and Iran!
And know how bad it really is!!! “The Thomson Reuters/University of Michigan’s preliminary reading on the overall index of consumer sentiment fell to 72.3 in April, a level last seen in July, 2012, and below economists’ forecasts of 78.5. The index stood at 78.6 last month… The barometer of current economic conditions fell to 84.8 this month from 90.7, while the gauge of consumer expectations hit 64.2, down from 70.8… Americans’ long-term outlook was even more gloomy, with many anticipating a higher unemployment rate and lower after-tax income in the year ahead, Richard Curtin, the survey's director, said in a statement.” DailyFinance.com, April 12th.
Meanwhile, we have slowed our infrastructure repair and expansion, cut our support of public education at all levels and are cutting funds for basic scientific research. If the Sequester and austerity are killing our shorter-term goals, these fundamental cutbacks will decimate our longer term competitiveness… and slam our ability to generate the kind of growth we will need to manage our deficit issues over time. We seem to be devoid of Senators and Congress men and women capable of understanding the tragedy of polarization or the theories that govern economics, history and leadership. They are reactive, short-term oriented and unable to sell their constituencies on longer-term realities. History punishes nations with these fundamental flaws with looming obsolescence. What is amazing is how most Americans intuitively understand these realities but are unwilling to elect leaders ready to begin the repair process. There are no simple solutions, slogan-driven panaceas or quick fixes. There could, however, be leadership.
I’m Peter Dekom, and I feel like ringing the loudest alarm clock I can find!
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