Workforce, Population, Jobs by Age-Group

Here are a few demographic-related charts of the workforce, civilian non-institutional population, and jobs, by age-group, from reader Tim Wallace.

Change in the Number of Jobs Since 1970



Civilian Non-Institution Population Since 1970



Workforce Since 1970



Percent of Population in Workforce Since 1970



Number in Age Group Employed



Percent of Age Group Employed Since 1970



Wallace writes ...

Mish,

The attached charts are eye openers.

Graph 1 Comments

The first chart shows the change in the number of jobs and the population since 2007. It shows us that in the 16-19 age group the population has shrunk by 239,000, while the number of jobs in this age group has shrunk by 1,415,000! In the 20-24 age group the population has grown by 1,625,000 while the number of jobs has shrunk by 362,000. For the under 25 age group we have 1,777,000 less jobs with 1,386,000 more people.

In the 25-54 age group that everyone always focuses on, we see a loss in population of 1,382,000 people since August of 2007, but an even greater loss in jobs - 5,940,000! Add to this the loss of 1,777,000 up above and we see the 16-54 age groups have lost 7,717,000 jobs since 2007. And, the population has basically been flat.

Since 2007 we have added 13,745,000 people to the population over age 55. We have also added 5,820,000 to the number employed in that age bracket.

Jobs were lost in every age bracket except the 55+, with 16-19 dropping 22.6%, 20-24 falling 2.6%, 25-54 going down 5.9% and 55+ going UP 22.7%!

Graph 2 Comments

The second graph shows the Civilian Non-Institutional Population by age - note the basic flat lines on all but 55+. The graph shows the Work Force by age - note once again only 55+ goes up.

Graph 4 comments

The fourth graph shows the number employed by age group. Note that only the 55+ group benefited in the current "Recovery". The other groups are all down from 2007, with 16-19 devastated. Just go in Walmart and McDonald's and you will see it first hand - senior citizen workers abound.

Graph 5 comments

The fifth graph shows the percentage of an age group that is employed. The percentage plunged in every age group except 55+.

Graph Six Comments

The last graph shows the percentage of the age group employed. It follows the exact trend of the fifth, as it must.

Those in sales and marketing you should focus on the 55+ age group. Forget the teenagers, they are contributing little, and their parents are sliding fast! Those in the 20-24 hope the  55+ start to retire, but in increasing percentages, they choose not to

Very interesting data, thanks to the BLS for giving us access to the ranges in the data base.

As usual, all data not adjusted for seasonality, just direct comparisons of actual data year on year.

Tim

The charts show something I have repeatedly said since 2008: "kids will be competing with their parents and grandparents for jobs that do not pay a living wage."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 

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Germany Accuses US of Spying on Merkel’s Phone; Merkel Phones Obama; Why Should Any Country Trust the US?

The Wall Street Journal reports Berlin Says U.S. May Be Spying on Merkel’s Phone

BERLIN—Germany said it believed U.S. intelligence may be spying on Chancellor Angela Merkel’s cellphone, an intrusion that it said would constitute a “grave breach of trust” between the longtime allies.

Ms. Merkel called President Barack Obama on Wednesday and made clear that such surveillance among allies would be “fully unacceptable,” her spokesman, Steffen Seibert, said in a statement released late Wednesday evening in Berlin.

Mr. Seibert said Ms. Merkel expected U.S. agencies to explain their overall surveillance practices against Germany, “questions that the German government asked months ago.”

Merkel Phones Obama

The Spiegel Online reports Berlin Complains: Did US Tap Chancellor Merkel's Mobile Phone?

German Chancellor Angela Merkel phoned United States President Barack Obama on Wednesday to discuss suspicions that she may have been targeted by US intelligence agencies for years, SPIEGEL has learned.

The chancellor asked for a thorough explanation of serious indications that US intelligence agencies had declared her private mobile phone to be a target in their operations.

She "unequivocally disapproves" of such methods and finds them "totally unacceptable," her spokesman Steffen Seibert said. "This would be a grave breach of trust," he added. "Such practices must immediately be put to a stop."

The unusually strong reaction from the Chancellery was prompted by SPIEGEL research. After the information was examined by the country's foreign intelligence agency, the Federal Intelligence Service (BND), and the Federal Office for Information Security, Berlin seems to have found their suspicions plausible enough to confront the US government.

During her conversation with Obama, Merkel expressed her expectation that "US authorities would provide an explanation about the possible extent of such surveillance practices, and thus answer questions that the German government already posed months ago," Seibert said.

"As a close ally of the United States of America, the German government expects a clear contractual agreement on the activities of the agencies and their cooperation," he added.

In response to the allegations, a spokeswoman for the US National Security Council told SPIEGEL: "The President assured the Chancellor that the United States is not monitoring and will not monitor the communications of Chancellor Merkel."

The spokeswoman did not wish to specify whether this statement applied to the past.

Thank Whistleblower Snowden

We should all thank whistleblower Edward Snowden for many of the spying revelations now coming to light. I think he is a hero.

Unfortunately, as I noted in Hypocrites and Bullies Speak on "The Importance of Trust" president Obama and numerous bullies don't see it that way.

Hypocrites and Bullies

1. Gen. Martin Dempsey, chairman Joint Chiefs of Staff 
2. Rep. Mike Rogers, Head of the House Intelligence Committee,
3. Sen. Robert Menendez, chairman of the Senate Foreign Relations Committee

I would like to point out to all three gentlemen one important fact: Edward Snowden did not undermine trust.

There was no trust to undermine. All Snowden did was prove the obvious.

If there was any trust the US would not have been bugging the offices of the EU and Germany. If there was any trust, France would not be spying on us.

Bullies, Bribes, and Foreign Aid

Please note the bullying by US imperialists. Rep. Mike Rogers (R) proposes “to send a very clear message that we won’t put up with this kind of behavior.”

Excuse Me! What about unconscionable spying by the US on its alleged allies?

Countries should send a very clear message to the US that they will not put up with our severely misguided imperialism. And they probably would except they fear the US might cut off aid.

If you are looking for a reason very few countries have offered Snowden asylum (see Venezuela, Nicaragua offer asylum to Snowden; Double Standards and Hypocrite Allies), you now have an answer.

Thus, we can all thank Rogers for explaining that US foreign aid is really nothing but bribery so the  imperialists, war-mongers, and hypocrites can continue their ways with impunity, totally clueless they are the ones directly responsible for the undermined trust.

Question of Trust

Why Should Any Country Trust the US? They shouldn't, and the US is to blame, not Snowden. Is this about to matter? Let's hope so.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Measuring What Didn't Happen: Did Obamacare Cause an Increase in Part-Time Jobs? No Says Ritholtz, and Reuters; Yes, Says Mish

A friend sent me an article in Reuters today that claims Little evidence yet that Obamacare costing full-time jobs.

One in five businesses in the service sector think President Barack Obama's signature healthcare reform has hurt employment at their firms over the last three months, a National Association of Business Economics survey showed on Monday.

But there is little discernible impact in the employment figures released in recent months, including the September numbers out on Tuesday. The number of people with part-time jobs who want full-time work, for example, was essentially flat in September at 7.9 million.

The number of part-time workers spiked in 2008, well before Obamacare was enacted, and has been slowly falling as a share of total employment since 2010. In September people working part time because they could not find full-time work made up 5.5 percent of the employed, unchanged from August. The spike in 2008 and the steady drift downward since then suggests the elevated level of part-time workers is more likely due to the economy's weakness.

Did Obamacare Cause an Increase in Part-Time Jobs?

Barry Ritholtz at the Big Picture Blog says "no" in his October 7 post Did Obamacare Cause an Increase in Part-Time Employment?

A reader emailed the following question about this weekend’s WaPo column (ObamaCare: Investing Advice for Senator Ted Cruz):

"How can you make investment decisions about future returns in light of Obamacare driving so many workers to part time status?"

Ahhh, a classic bit of misdirection — an assumption built into a question. The first step in answering that is to verify the reality of that assumption: Has Obamacare actually caused an increase in part-time employment?

As you can see in the black line below, the number of part time workers spiked because of the Great Recession. It peaked and began to slowly reverse before the ACA [Affordable Care Act - Obamacare] was even passed.



No, there does not appear to be an increase caused by Obamacare.

Measuring What Didn't Happen

For now, let's assume the above chart from the Economic Policy Institute is correct. Does that imply there was no Obamacare effect?

Of course not, and Ritholtz should know better.

Even if the EPI chart is correct, it does not show what would have happened had Obamacare not passed.

Realistically, to determine the Obamacare effect, we need to measure what we didn't see (which is what would have happened in the absence of Obamacare).

I am inclined to believe what corporate CEOs are saying given strong evidence they did what they said.

Reuters reported "Many businesses polled by the NABE said they were holding back on hiring due to the costs imposed by the law. The survey also showed 15 percent of service sector firms planned to shift to more part-time workers due to Obamacare."

There is massive evidence that businesses increased part-time hiring due to Obamacare. There is massive evidence of other economic distortions as well.

Obamacare Economic Distortion Synopsis

October 10, 2012: Prepping for Obamacare, Olive Garden and Red Lobster Cut Workers' Hours; Are Other Companies Doing the same?

October 20, 2012: Mish Obamacare Mailbag: Expect More Part-Time Jobs

February 02, 2013: Obamacare in Action: Retail Workweek Hits 3-Year Low

February 19, 2013: Opting Out of Obamacare (the Unaffordable Health Care Act); Not Even Labor Unions Want It

May 3, 2013: Obamacare Affects Part-Time Employment Yet Again; Nullification Bill Passes South Carolina House; Analysis of Healthcare Penalty Rates

May 20, 2013: Obamacare Premiums 47% Higher But Deductibles 27% Lower Than Grandfathered Health Plans; Obamacare Lies

June 21, 2013: Obamacare Effects Hit Local Governments, Small Businesses, Temp Staffing Agencies; Chicago Dumps Retirees Into Obamacare

July 8, 2013: Trends in Full and Part-Time Employment; Obamacare Job Double Counting and Other Economic Distortions

July 12, 2013: "Win-Win" Situation for Employers to Not Offer Healthcare to Part-Time Employees; Now Ain't That Special?

OK Mish, Why Doesn't the EPI Chart Support Your Case?

1. Perhaps the Obamacare distortions were masked over by other hiring trends.
2. Perhaps the BLS data will be revised away later, showing what really happened.
3. Perhaps the assumption we made earlier, "the EPI chart show by Ritholtz is an accurate reflection of the current state of affairs", is in fact, a bad assumption.

Let's explore point number three. Please consider a chart of BLS data, taken from the St. Louis Fed (Fred) Website.

Employed, Usually Work Part Time 2000-2013



Let's hone in on that for a closer look.

Employed, Usually Work Part Time 2008-2013



Questions and Answers

Q.What would the chart look like without Obamacare?
A. Better

Q. Was the Obamcare hiring effect delayed until 2012?
A. Probable. That is when CEOs started complaining. That is when numerous restaurants cut back hours.

Q. Will we see BLS revisions that make the reported data look worse?
A. Probable

Q. Does the Economic Policy Institute chart reflect reality?
A. The chart from the St. Louis Fed is a closer approximation, but revisions are likely

Q. Has Obamacare actually caused an increase in part-time employment?
A. Absolutely.

That is what the chart suggests (even before expected BLS revisions). That is what CEOs say. And that is what plain common sense suggests in the first place (even though we will not understand the full impact for years, if ever).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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ECB President Mario Draghi Announces New Stress Tests; Translating "Draghize"

When it comes to stress tests, especially for European banks, the one thing history suggests is the tests will be essentially stress-free, by design. Why should this time be any different?

Nonetheless, European Central Bank President, Mario Draghi Says ECB Won’t Hesitate to Fail Banks in Stress Tests.

Translating Draghize

For those of you who do not speak Draghize I offer these translations.

Draghize: "Banks do need to fail to prove the credibility of the exercise".
Mish: We are carefully scrutinizing several non-critical banks, looking for a couple of scapegoats, hoping to fool the public regarding the credibility of the exercise.

Draghize: "If they do have to fail, they have to fail. There’s no question about that."
Mish: If any big banks are in trouble. They won't fail. There’s no question about that. 

Draghize: "The test is credible because the ultimate purpose of it is to restore or strengthen private sector confidence in the soundness of the banks, in the quality of their balance sheets"
Mish: The test is credible because we say it is.

ECB Executive Board member Joerg Asmussen: "This is our third and last chance to restore confidence after two previous stress tests by the EBA failed to do so."
Mish: We are praying this stress test does not blow sky high as fast as the last two did.

Draghize: "The region’s governments will be ready to fill any capital holes that emerge as a result of the stress tests."
Mish: The region's governments are totally unprepared to fill any capital holes that emerge as a result of the stress tests. 

Draghize: "I have no doubt whatsoever that backstops will be there - - which doesn’t mean that they will have to be used because first and foremost it’s private money that needs to be used. There’s an explicit commitment to have in place proper, adequate national backstops by the time the exercise is being carried out."
Mish: Bondholders will not suffer as a result of any capital shortages in our hand-picked failures. If anyone needs to suffer, it will, as usual, be taxpayers.

Draghize: "A substantial amount of private capital has been raised so we’re not starting from scratch but certainly, it’s the beginning of a new way of doing things."
Mish: We are starting from scratch. Private capital is inadequate. This is of course why the tests must essentially be stress-free.

To help explain why there will not be any capital shortfalls, please see New Rules for Italy Banks "I'll Guarantee Your Derivatives If You Guarantee Mine"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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New Rules for Italy Banks "I'll Guarantee Your Derivatives If You Guarantee Mine"

New Basel III rules require extra capital for derivative positions. Banks in Italy have already figured out a way around that rule.

Eurointelligence reports ...

We have been on the watch-out for stories that government and central banks encourage banks to continue to act as buyers of last resort of government debt. Here is one from Reuters, according to which Italy is planning to circumvent the Basel III requirement that banks must hold more capital against derivative contracts through which they hedge their exposures on government bonds.

Reuters has the story that the 2014 budget includes a two-way guarantee whereby banks and the state guarantee each others’ derivative positions.

Mutual Guarantees

Reuters reports Italy plans to offer guarantees on government bond derivatives

A new system of guarantees Italy is planning to introduce will make it cheaper for banks to negotiate derivative contracts with the Treasury over government bonds, potentially increasing their ability to buy Italian debt.

The move is linked to new Basel III international banking rules that require lenders to hold more capital against their exposure to derivatives contracts.

Under the new system, outlined in a draft decree linked to the budget law that parliament must pass by year-end, the Treasury and the banks will exchange cash sums on a short-term basis to guarantee their respective derivatives positions, based on their mark-to-market value.

The sums held as collateral will bear interest at money-market rates.

Eurointelligence comments ...

There is nothing technically or legally appalling about the two-way guarantee of derivative positions, but it nevertheless cements the absurd inter-dependence of the Italian state and the Italian banking system. The eurozone crisis resolution policies critically depend on banks behaving as national players. Everything we see is geared towards the maintenance of this extremely unhealthy situation.

The leverage of European banks to their own sovereign debt is enormous. This mutual guarantee agreement encourages banks to continue the leverage party.

Another opportunity to rein in moral hazards just flew out the window. Every bank in Europe will do the same.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Montebourg Announces Deal Between Goodyear and Titan to Save Union Jobs (One Problem - Goodyear Did Not Even Receive the Offer)

The politics in France get curiouser and curiouser (to put things mildly).

On Monday, the Minister of Productive Recovery, Arnaud Montebourg, announced a deal between Titan and Goodyear that would save union jobs in tire manufacturing plants.

The problem, and a significant one, is that Goodyear did not agree to the deal. Heck, the CEO of Titan denies even making an offer.

Via translation from Les Echo, please consider Goodyear Amiens: new imbroglio between Montebourg and Titan

It's a pretty mess that would be almost amusing if it was not hundreds of jobs at stake Monday, the Minister of Productive Recovery Arnaud Montebourg, told AFP that the U.S. tire manufacturer Titan had made a new offer of a partial recovery for the site of Goodyear Amiens Nord, which employs 1,200 workers, the closure was announced in January by the company management.

The proposal concerns the activity of agricultural tires and covers "333 jobs in the Amiens plant whose maintenance is guaranteed for four years," the minister said. Titan International would even be willing to invest "one hundred million minimum on the site".

Alas, Maurice Taylor, the CEO of Titan, contacted by AFP, declined to confirm this announcement. "I am not aware of anything related to your country of great wines and beautiful women," he responded ... Besides, "the management of Goodyear has not received any new offer" from Titan.

Amusing Background

This tire story has an amusing background.

I wrote about it on February 19, in Incredible Letter from CEO of Titan to France Minister of Industrial Renewal, Blasting French Unions and USA: "How Stupid Do You Think We Are?"

"Les Echos" received a copy of the letter which the President of the American Titan told the Minister of Industrial Renewal why he threw in the towel on purchasing the Goodyear plant Amiens Nord, in a very direct style.

"How Stupid Do You Think We Are?"

Here are some excerpts I transcribed from an image of the letter posted on Les Echos.

Dear Mr. Montebourg:

Goodyear tried for over four years to save part of the Amiens jobs that are some of the highest paid, but the French unions and French government did nothing but talk.

I have visited the factory a couple of times. The French workforce gets paid high wages but works only three hours. They get one hour for breaks and lunch, talk for three, and work for three. I told this to the French union workers to their faces. They told me that's the French way!

The Chinese are shipping tires into France - really all over Europe - and yet you do nothing. In five years, Michelin won't be able to produce tire in France. France will lose its industrial business because government is more government.

Sir, your letter states you want Titan to start a discussion. How stupid do you think we are? Titan is the one with money and talent to produce tires. What does the crazy union have? It has the French government. The French farmer wants cheap tire. He does not care if the tires are from China or India and governments are subsidizing them. Your government doesn't care either. "We're French!"

The US government is not much better than the French. Titan had to pay millions to Washington lawyers to sue the Chinese tire companies because of their subsidizing. Titan won. The government collects the duties. We don't get the duties, the government does.

Titan is going to buy a Chinese tire company or an Indian one, pay less than one Euro per hour and ship all the tires France needs. You can keep the so-called workers. Titan has no interest in the Amien North factory.

Best regards,
Maurice M. Taylor, Jr.
Chairman and CEO

Perhaps there was some exploratory talk, perhaps not. Regardless, facts show the deal Montebourg announced is totally fictional.

Whether or not some deal eventually transpires,  Montebourg looks like (and is) a complete fool.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 

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Treasury Secretary Pleads for Higher Taxes, More Government Spending, Big Farm Bill, No Cuts in Food Stamps

In a New York Times Op-Ed, Treasury Secretary Jacob Lew made a plea for more government and higher taxes.

Of course,  his title was not "more government and more taxes". Rather, Lew disguised his message by labeling it Lessons From a Crisis.

Let's take a look at some details.

Lew: Without question, the government shutdown and the debt ceiling impasse have led to economic hardship in every corner of the country. While we do not yet know the exact magnitude of the damage, these events have generated unnecessary headwinds for the economy. We should never again take this country to the point of near-default in order to exact political gain. We can start by hammering out a budget agreement that builds on the progress we have already made to lower our budget deficits.

Mish translation: Without question, we can start by raising taxes.

Lew: This is an opportunity to improve our nation’s long-term fiscal health, and it should be achieved through a comprehensive package that shrinks our deficits, protects Medicare and Social Security for those who rely on it, and expands our economy well into the future.

Mish translation: This is a welcome opportunity to raise taxes and throw more money at Medicare and Social Security.

Lew: That means closing wasteful tax loopholes and making targeted investments to improve our education system, increase domestic energy production, and expand our manufacturing base.

Mish translation: Let's raise taxes and target more money for education.

Lew: We must come together to fix the blunt spending cuts known as sequestration, once and for all. These indiscriminate, across-the-board cuts, which went into effect earlier this year, were intended to be so mutually disagreeable that they would force Congress to find agreement on a balanced package of deficit reduction measures.

Mish Translation: Let's roll back the miniscule cuts in the projected increase in government spending. To do that, we need a balanced package of tax hikes.

Lew: Congress should pass comprehensive immigration reform.

Mish Translation: Illegal immigrants are here to stay, and welcome. They vote Democratic, don't they?

Lew: Another piece of bipartisan legislation that has passed the Senate, but not the House of Representatives, is the farm bill. Getting this bill signed into law is not only important for America’s farmers and protecting America’s most vulnerable children, it is important for our economy.

Mish translation: Whoa! Don't cut food stamps.

Ready to Rumble Over the Farm Bill

Few realize this, but the biggest component of the farm bill is food stamps. Please consider Ready to Rumble Over the Farm Bill

The first meeting of the House and Senate conference committee on the farm bill promises to be the biggest spectacle in American agricultural and nutrition policy in decades.

House Agriculture Committee Chairman Frank Lucas, R-Okla., who will chair the conference, would have preferred to hold the meeting this week. But the Senate, exhausted from the negotiations to end the government shutdown, is taking the week off, so the meeting is expected to take place the week of Oct. 28.

The biggest difference between the Senate and House bills is that the Senate bill retains the 1938 and 1949 farm laws as the basis for agricultural programs while the House bill would make the 2013 commodity title permanent law. Lucas wrote the change out of fear that it will be even harder to pass a farm bill in five years, but with most farm groups and Democrats opposed to it he will have a hard time prevailing.

Beyond permanent law, there are five flash points in the bill. Here is a guide to those issues and to the role that conferees may play in them:

Nutrition: This is the big kahuna of the farm bill. The Senate bill cuts only $4 billion over 10 years from food stamps—officially the Supplemental Nutrition Assistance Program—while the House bill would cut $39 billion through a series of provisions that Democrats say will lead to increased hunger. House Speaker John Boehner, R-Ohio, appointed Rep. Steve Southerland, R-Fla.—who has made food stamps his main issue and wrote the amendment to which the Democrats object the most—to the conference committee even though he doesn't serve on Agriculture.

Senate conferees are expected to oppose a big cut to food stamps, but two Republican senators who have been strong supporters of food stamps over the years—Cochran and Pat Roberts of Kansas—now face tea-party primary opposition and could feel forced to support bigger cuts. Roberts, who saved the structure of the food stamp program in the 1996 welfare-reform negotiations, has called for big food-stamp cuts this year while Cochran, whose state of Mississippi has one of the highest levels of food-stamp beneficiaries, has remained a steadfast advocate for it.

Lucas has said the size of the food-stamp cut will have to come from "on high," meaning Boehner, Senate Majority Leader Harry Reid, D-Nev., and President Obama.

Crop insurance: Costing about $9 billion per year, this program has become the pillar of the farm safety net and the biggest target outside food stamps for budget savings. The Senate farm bill contains a provision that would reduce crop-insurance subsidies by 15 percentage points for farmers who make more than $750,000 a year. Written by Senate Majority Whip Dick Durbin, D-Ill., and Sen. Tom Coburn, R-Okla., it was adopted on the Senate floor over the objections of the Senate Agriculture Committee.

The House bill does not call for a premium subsidy reduction, but last week the House adopted a resolution sponsored by Budget Committee Chairman Paul Ryan, R-Wis., to agree to the Durbin-Coburn amendment. Few if any members of the conference committee are likely to support Durbin-Coburn or other cuts and payment limits on crop insurance but are under pressure to come up with budget savings.

Commodity title: With both bills eliminating the $5 billion in annual direct payments that crop farmers have been getting whether prices are high or low, there will be a battle over the structure of a new commodity program. The centerpiece of the Senate bill is a program to pay farmers for "shallow losses" that crop insurance doesn't cover, although this year the Senate bill makes concessions to rice and peanut farmers who wanted an increase in target prices. The House bill is target-price-based, but includes a shallow-loss program. Lucas and Peterson are big advocates of target prices and the issue is whether Senate conferees from the South urge adoption of the House commodity title and how hard Northerners fight for their program.

Dairy: The Senate farm bill contains a new Dairy Security Act favored by dairy farmers and developed into legislation by Peterson. The House Agriculture Committee passed the measure, but it was amended on the House floor to take out what dairy farmers call a market stabilization program and dairy processors call supply management.

The sponsors of the House amendment—former House Agriculture Chairman Bob Goodlatte, R-Va., and Rep. David Scott, R-Ga.—were kept off the conference committee but Boehner so dislikes supply management he has labeled it communist and Peterson has said he worries that Boehner's enlargement of the conference committee to 17 Republicans and 12 Democrats could mean it will be difficult for the House to concede to the Senate on the issue.

Farm Bill Predictions

1. A bipartisan effort by farm-state Senators and Legislators will prevent major rollbacks in crop subsidies.
2. Senate Democrats will prevent needed changes in the food stamp program.
3. Despite pressure to come up with budget savings in the farm bill, the best we can realistically hope for is that it does not increase the deficit by much.

Mish Alternative Food Stamp Proposal

• Prohibit food stamp purchases of potato chips, snacks, soft drinks, candy, pizza, frozen foods of any kind except juice.
• Limit food stamp users to generic (store brand vs. name brand) dried beans, rice, peanut butter, pasta, fresh vegetables, fresh fruit, frozen (not bottled) juice, canned vegetables, canned soup, soda crackers, poultry, ground beef, bread, cheese, powdered milk, eggs, margarine, and general baking goods (flour, sugar, spices).
• Calculate a healthy diet based on current prices, number in the family, ages of recipients, and base food stamps allotments on that diet.
• In the interest of health and cleanliness, expand the food stamp program to include generic soap and laundry products.

My proposal will not only lower the cost of the food stamp program, the resultant healthier diets would lower Medicaid and Medicare costs as well.

Moreover, my proposal would give people a strong incentive to get off the food stamp program without intrusive, costly big-brother ideas like drug testing which cannot possibly work for the simple reason that anyone who fails will steal to get food rather than starve.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Establishment Survey: +148K Jobs, Household Survey: +133K Jobs, Unemployment Rate 7.2%

Initial Reaction

The establishment survey showed a gain of 148,000 jobs. July was revised lower, from +104,000 to +89,000. August was revised higher, from +169,000 to +193,000. The net effect was +9,000 more than previously reported.

This was the third straight month of revisions. The previous two revisions were significantly lower. Perhaps the BLS has numbers they are happy with now.

The unemployment rate dropped 0.1 to 7.2%. It's the household survey that determines the unemployment rate, not the establishment survey. So let's take a look at the factors.

Explaining the Unemployment Rate Drop

• Employment rose by 133,000
• Those in the labor force rose by 73,000
• The civilian population rose by 209,000.
• The Participation Rate (The labor force as a percent of the civilian noninstitutional population) was flat at 63.3%, a low dating back to 1979.

Employment rose more than the labor force, so the unemployment rate declined.

September BLS Jobs Statistics at a Glance

• Payrolls +148,000 - Establishment Survey
• US Employment +133,000 - Household Survey
• US Unemployment -61,000 - Household Survey
• Involuntary Part-Time Work +15,000 - Household Survey
• Voluntary Part-Time Work -372,000 - Household Survey
• Baseline Unemployment Rate -0.1 to 7.2% - Household Survey
• U-6 unemployment -0.3 to 13.7% - Household Survey
• Civilian Labor Force +73,000 - Household Survey
• Not in Labor Force +136,000 - Household Survey
• Participation Rate +0.0 at 63.2 - Household Survey

Quick Notes About the Unemployment Rate

• The unemployment rate varies in accordance with the Household Survey, not the reported headline jobs number, and not in accordance with the weekly claims data.
• In the last year, those "not" in the labor force rose by 1,893,000
• Over the course of the last year, the number of people employed rose by 1,429,000 (an average of 110,000 a month)
• In the last year the number of unemployed fell from 12,082,000 to 11,255,000 (a drop of 827,000)
• Percentage of long-term unemployment (27 weeks or more) is 36.9%, a decrease of 1.0 from last month.
• The mean duration of unemployment is 36.9 weeks, a decline of 0.1.
Once someone loses a job it is still very difficult to find another.
• 7,926,000 workers who are working part-time but want full-time work. A year ago there were 8,607,000. This is a volatile series.

September 2013 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) September 2013 Employment Report.

Total nonfarm payroll employment rose by 148,000 in September, and the unemployment rate was little changed at 7.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in construction, wholesale trade, and transportation and warehousing.

Click on Any Chart in this Report to See a Sharper Image

Unemployment Rate - Seasonally Adjusted



Employment History Since January 2009



click on chart for sharper image

Change from Previous Month by Job Type



Hours and Wages

Average weekly hours of all private employees remained at 34.5 hours. Average weekly hours of all private service-providing employees was flat at 33.3 hours. Average hourly earnings of all private workers rose $0.04 to $20.24. Average hourly earnings of private service-providing employees rose $0.05 to $20.02.

Real wages have been declining. Add in increases in state taxes and the average Joe has been hammered pretty badly. For 2013, one needs to factor in the increase in payroll taxes for Social Security.

For further discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution?

BLS Birth-Death Model Black Box

The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.

The Birth-Death numbers are not seasonally adjusted, while the reported headline number is. In the black box the BLS combines the two, coming up with a total.

The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.

Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Birth Death Model Adjustments For 2012



Birth Death Model Adjustments For 2013


Birth-Death Notes

Once again: Do NOT subtract the Birth-Death number from the reported headline number. That approach is statistically invalid.

In general, analysts attribute much more to birth-death numbers than they should. Except at economic turns, BLS Birth/Death errors are reasonably small.

For a discussion of how little birth-death numbers affect actual monthly reporting, please see BLS Birth/Death Model Yet Again.

Table 15 BLS Alternate Measures of Unemployment



click on chart for sharper image

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

Notice I said "better" approximation not to be confused with "good" approximation.

The official unemployment rate is 7.2%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 13.6%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Labor Force Factors

1. Discouraged workers stop looking for jobs
2. People retire because they cannot find jobs
3. People go back to school hoping it will improve their chances of getting a job
4. People stay in school longer because they cannot find a job
5. Disability and disability fraud

Were it not for people dropping out of the labor force, the unemployment rate would be over 9%. In addition, there are 7,926,000 people who are working part-time but want full-time work.

Grossly Distorted Statistics

Digging under the surface, much of the drop in the unemployment rate over the past two years is nothing but a statistical mirage coupled with a massive increase in part-time jobs starting in October 2012 as a result of Obamacare legislation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Japan's Sexless Youth

Sexless Japan

Here are some interesting points regarding social attitudes and demographics from a Guardian article by Abigail Haworth: Why have young people in Japan stopped having sex?

• A survey this year by the Japan Family Planning Association (JFPA) found that 45% of women aged 16-24 "were not interested in or despised sexual contact". More than a quarter of men felt the same way.
• Population of 126 million has been shrinking for the past decade
• Population projected to plunge additional one-third by 2060
• Survey in 2011 found that 61% of unmarried men and 49% of women aged 18-34 were not in any kind of romantic relationship
• Fewer babies were born in 2012 than any year on record.
• Of the estimated 13 million unmarried people in Japan who currently live with their parents, around three million are over the age of 35.
• Married working women are sometimes demonised as oniyome, or "devil wives".
• Japan's Institute of Population and Social Security reports an astonishing 90% of young women believe that staying single is "preferable to what they imagine marriage to be like".

Lets dive into the article for some interesting comments and interviews.

Ai Aoyama is a sex and relationship counsellor who works out of her narrow three-story home on a Tokyo back street.  Aoyama, 52, is trying to cure what Japan's media calls sekkusu shinai shokogun, or "celibacy syndrome". Japan's under-40s appear to be losing interest in conventional relationships. Millions aren't even dating, and increasing numbers can't be bothered with sex.

Japan's under-40s won't go forth and multiply out of duty, as postwar generations did. The country is undergoing major social transition after 20 years of economic stagnation. It is also battling against the effects on its already nuclear-destruction-scarred psyche of 2011's earthquake, tsunami and radioactive meltdown. There is no going back. "Both men and women say to me they don't see the point of love. They don't believe it can lead anywhere," says Aoyama. "Relationships have become too hard."

Japan's punishing corporate world makes it almost impossible for women to combine a career and family, while children are unaffordable unless both parents work. Cohabiting or unmarried parenthood is still unusual, dogged by bureaucratic disapproval.

Aoyama says the sexes, especially in Japan's giant cities, are "spiralling away from each other". Lacking long-term shared goals, many are turning to what she terms "Pot Noodle love" – easy or instant gratification, in the form of casual sex, short-term trysts and the usual technological suspects: online porn, virtual-reality "girlfriends", anime cartoons. Or else they're opting out altogether and replacing love and sex with other urban pastimes.

Some of Aoyama's clients are among the small minority who have taken social withdrawal to a pathological extreme. They are recovering hikikomori ("shut-ins" or recluses) taking the first steps to rejoining the outside world, otaku (geeks), and long-term parasaito shingurus (parasite singles) who have reached their mid-30s without managing to move out of home. (Of the estimated 13 million unmarried people in Japan who currently live with their parents, around three million are over the age of 35.) "A few people can't relate to the opposite sex physically or in any other way. They flinch if I touch them," she says. "Most are men, but I'm starting to see more women."

Aoyama cites one man in his early 30s, a virgin, who can't get sexually aroused unless he watches female robots on a game similar to Power Rangers.

"Marriage is a woman's grave," goes an old Japanese saying that refers to wives being ignored in favour of mistresses. For Japanese women today, marriage is the grave of their hard-won careers.

I meet Eri Tomita, 32, over Saturday morning coffee in the smart Tokyo district of Ebisu. Tomita has a job she loves in the human resources department of a French-owned bank. A fluent French speaker with two university degrees, she avoids romantic attachments so she can focus on work. "A boyfriend proposed to me three years ago. I turned him down when I realised I cared more about my job. After that, I lost interest in dating. It became awkward when the question of the future came up."

Prime minister Shinzo Abe recently trumpeted long-overdue plans to increase female economic participation by improving conditions and daycare, but Tomita says things would have to improve "dramatically" to compel her to become a working wife and mother. "I have a great life. I go out with my girl friends – career women like me – to French and Italian restaurants. I buy stylish clothes and go on nice holidays. I love my independence."

Romantic commitment seems to represent burden and drudgery, from the exorbitant costs of buying property in Japan to the uncertain expectations of a spouse and in-laws. And the centuries-old belief that the purpose of marriage is to produce children endures. Japan's Institute of Population and Social Security reports an astonishing 90% of young women believe that staying single is "preferable to what they imagine marriage to be like".

The sense of crushing obligation affects men just as much. Satoru Kishino, 31, belongs to a large tribe of men under 40 who are engaging in a kind of passive rebellion against traditional Japanese masculinity.

"It's too troublesome," says Kishino, when I ask why he's not interested in having a girlfriend. "I don't earn a huge salary to go on dates and I don't want the responsibility of a woman hoping it might lead to marriage."

Japanese-American author Roland Kelts, who writes about Japan's youth, says it's inevitable that the future of Japanese relationships will be largely technology driven. "Japan has developed incredibly sophisticated virtual worlds and online communication systems. Its smart phone apps are the world's most imaginative." Kelts says the need to escape into private, virtual worlds in Japan stems from the fact that it's an overcrowded nation with limited physical space. But he also believes the rest of the world is not far behind.

That's a reasonably lengthy set of clips but there is much more in the article that merits a closer look.

Fighting Demographics

Those wondering why prime minister Abe is having such a hard time stimulating inflation can now stop wondering.

Until Japanese attitudes towards child-bearing, jobs, and relationships change, Abe will continue to struggle.

Abe seeks to stimulate inflation, but that is likely to encourage more saving, not more spending.
With the bulk of Japanese pensions tied up in bonds yielding next to nothing, higher taxes and higher cost of goods and services will decrease demand from aging retirees.

The US

In the US, student debt hinders family formation. Millions of young adults have moved back home because they do not have a job.

Germany

In Germany, free child-care is not enough to fix Germany’s falling birth rate dilemma

Germany has one of the lowest birth rates in Europe and it continued to decline between 2001 and 2011 despite Angela Merkel’s government spending a lot of money on subsidies promoting and helping families.

Attitudes in General

Here are some reasons behind the low birthrates: Lack of Jobs, Student Debt, Aging Parents, High-Priced Housing, Earthquakes, Nuclear Waste.

Some of the reasons for lower family formation are universal, others like nuclear waste are country specific.

Inflating money increases asset prices (until the bubbles pop) but that does not help those fresh out of college with no assets. Pumping up home prices helps banks stuck with housing inventory, but it hurts those seeking to buy a first-time home.

Easy money policy is to the benefit of those with first access to money: the banks and the already wealthy. Easy money is to the detriment of everyone else.

Attitude Spiral

As income inequality soars, attitudes sour. As robots displace workers, attitudes sour. As taxes go up to support inane union pensions, attitudes sour. As politicians fight, attitudes sour.

Everything boils down to attitudes. Unfortunately, central bankers and politicians are making matters worse. Few see that now, but wait until the bubbles pop.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Fed Wonders "Why Are Housing Inventories Low?"; More Than Meets the Fed's Eye

Inquiring minds are reading the San Francisco Fed Economic Letter "Why Are Housing Inventories Low?"

Inventories of homes for sale have been slow to bounce back since the 2007–09 recession, despite steady house price appreciation since January 2012. One probable reason why many homeowners are not putting their homes on the market is that their properties may still be worth less than the value of their mortgages, which would leave them owing additional money after a sale. In other cases, homeowners may simply be hoping that house prices will continue to rise, allowing them to recover lost equity.

No matter what the condition of the economy might be, some base level of inventory for sale always exists in the housing market. Young homeowners may sell their homes in order to relocate for a job or because their family has gotten larger and they need more space. Older homeowners may sell because they no longer need so much space or they want to turn their housing investment into cash as they reach retirement. All these reasons for selling can be thought of as life-cycle motives not necessarily tied to the business cycle. Such noncyclical factors produce a general level of churning in the housing market. Nevertheless, inventories show a distinct cyclical pattern, rising in good times and falling in bad times. This could be due to the cyclical nature of credit conditions. The risk premiums charged by lenders and their willingness to accept loan applications tend to ease during good economic times, allowing more potential buyers to enter the market. At the same time though, the level of house prices is by far the most important cyclical variable that influences the inventory of homes for sale.



Two important points emerge from Figure 2. First, in the aggregate U.S. data, the for-rent inventory of homes as a share of total housing units has risen steadily during the recession and the recovery, while the for-sale inventory has steadily dropped and is now stabilizing.



The data do not extend far enough back to indicate whether this is typical over the economic cycle. But other sources, such as Census Bureau aggregate inventory data, suggest that the drop in owner-occupied units relative to renter-occupied units is unprecedented since the 1960s. This phenomenon is widespread. The surge in foreclosures during the housing bust cannot be the only cause of this shift.

 In theory, falling house prices alone may keep some homeowners from selling. It may seem logical that decisions to sell should be based only on information about current and future market conditions. But David Genesove and Christopher Mayer (1997) show that homeowners take more time to sell their houses if prices have fallen since the original purchase. That is, two similar homeowners experiencing similar housing market conditions will behave differently if one of those homeowners has an unrealized loss on his or her house.

Another possible explanation for the breakdown in the normal relationship between prices and inventories of homes for sale is that homeowners may be taking a longer-term view of the housing market. It is well documented that house price changes are persistent, meaning that price rises are likely to be followed by more rises, and price drops by more drops. Homeowners with flexibility on the timing of their home sales can potentially take advantage of this persistence. If they observe prices going up, they may want to wait and gamble that the increases will continue, allowing them to sell later at a higher price.

The data are consistent with this explanation. Figure 4 confirms on a county level the negative relationship between prices and inventories shown at the aggregate level in Figure 1. On balance, counties that experienced relatively large increases in house prices over the past year also experienced relatively large declines in inventories available for sale.



Conclusion

History shows a long-run relationship between house prices and the number of houses available for sale. Thus, current inventories of homes for sale are low given more than a year of house price appreciation. County-level data suggest that many homeowners are waiting for prices to rise further in their markets. Markets that have seen the strongest house price appreciation and job growth are the ones where for-sale inventories have declined the most.

More Than Meets the Eye 

I endorse the Fed's conclusion. However, the Fed's research analysis does not go far enough.

Inventories in some areas are low because "investors" are snapping houses up expecting further appreciation. Some of this is large scale investment like Blackrock, but Flippers are in the game too, especially at the high end.

Momentum trading is back in vogue as noted in "Bubblicious" High End Flipping Up 350%, Overall Flipping Down 13%.

Flipping is up at the high end but renting is up overall. As long as home prices keep rising the renters and the flippers and those buying on spec will do well. But ....

What About Demographics?

Who are the flippers and investors going to sell to?  Aging boomers? Their kids fresh out of college with no job?

I suggest we are in the midst of an echo bubble that can only last as long as QE lasts, as long as Boomers keep on living, as long as cities don't collapse under pension obligations, and as long as taxes do not soar in an attempt to keep cities and pension plans alive.

How long is that? I really don't know. But it is far, far shorter than the life of the average mortgage. And even for all cash buyers, demographics suggest that rising rents are hardly a given.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Dysfunctional Global Economy; Can Things Get Worse? Rediscovering the Price of Money

Steen Jakobsen, chief economist of Saxo Bank in Denmark, says things are so bad they cannot get worse. Please consider Rediscovering the Price of Money.

I’ve been starting my speeches for some time now by saying: “I am the most optimistic I have been in almost thirty years in the market—if only because things can’t get any worse.”

Is that true, and more importantly, how do we get a fundamental change away from this extend-and-pretend which prevails not only in Europe but also the world?

History tells us that we only get real changes as a result of war, famine, social riots or collapsing stock markets. None of these is an issue for most of the world—at least not yet—but on the other hand we have never had less growth, worse demographics, or higher unemployment since WWII. This is a true paradox that somehow needs to be resolved, and quickly if we are to avoid wasting an entire generation of European youth.

Policymakers try to pretend we have achieved significant progress and stability as the result of their actions, but from a fundamental point of view that’s a mere illusion. Italian banks today own more government debt than before the banking crisis, leaving them systematically more exposed to their own government, not less. The spread on government bonds between Germany and Club Med is down below historic averages, but the price has been a total suspension of the “price discovery” of money.

The price discovery of money is the cruel capitalistic part of any system. An economics  textbook would call it the modus operandi by which capital is allocated where it can find the highest marginal utility. In practice, this should mean that the market dictates the price of money beyond one year—while at durations of less than one year, the central banks determine the price of money. The beauty of the system is that money is allocated in an auction where the highest bidder for “money” or “credit” gets filled on the price he or she deems to match his expected price of money.

Contrast the market-driven model with the present “success story” of relatively low sovereign spreads in Europe, which are driven by the European Central Bank president Mario Draghi’s promise to do "whatever it takes" to keep the euro out of trouble. He has threatened to activate the European Financial Stability Facility and the European Stability Mechamism plus the full arsenal of policy tools to ensure stability.

By doing so, he has effectively suspended price discovery for sovereign debt and for money, as the ECB and local central banks will provide infinite liquidity to local banks and hence indirectly to their government in any market conditions. This one-sided offer from the ECB and the market means there is no power to discipline the government with higher rates or to allocate credit more generally. We have simply disconnected the market and the price of money.

This comes after Draghi’s longer-term refinancing operation, a cheap funding for banks with little or no collateral, or the closest thing to quantitative easing you can have without calling it quantitative easing.

This is a problem because corporations that need to finance long-term projects, like building a power station over six to eight years, need a price for the credit they require throughout the building period. Right now they have an almost flat yield curve from zero to 30 years, which would be fine if it were realistic. But the problem is that one day in the “distant future” when the market normalises, interest rates should revert to their normal price, which is roughly inflation plus a risk premium.

In the case of an industrial company, an appropriate loan rate calculation could be something like: inflation plus Libor plus a risk spread, which might work out to about seven percent. Compare this with the rates available for highly creditworthy companies. Recently, Nestle  was able to issue a four-year corporate bond at 0.75 percent—the lowest ever. Yes, it’s nice for Nestle but remember the situation is created by the central banks presence in the market, not just due to the financial strength of Nestle.

A move from less than one percent to seven percent would administer an ugly shock to companies.  We have created a negative vicious circle in which not only investors, but also companies are depending on low interest rates forever. They have priced their future earnings and costs on government support prices rather than on realistic market prices.

The worst thing about the situation, however, is that the reason a blue chip company like Nestle can borrow at less than one percent in the capital market is the lack of alternatives for banks and investors. Less creditworthy small and medium enterprises (SMEs) which make up as much as 80 percent of many countries’ economies are not allowed to borrow. They are deemed too risky to lend to at the current “market rates” even though they hold the key to improving the employment and productivity picture.

They are willing to work cheaper, longer, harder and with higher risk tolerance in order to survive. So the remaining 20 percent of the economy occupied by large and publicly listed companies and banks gets 95 percent of all credit and 99 percent of all political capital. In other words, blue chips receive artificially low interest rates only because the SMEs don’t get any credit. Herein lies my continued belief in the my traditional opening statement: things must get better soon because they can hardly get any worse.

We have never been in a more dysfunctional state at the corporate, political and individual level in history. It’s time to realise that the reason capitalism won the war against communism in the 1980s was its strong market based economy—itself based on price discovery. Now the policymakers in their “wisdom” are copying everything a planned economy entails: central planning and control, no price discovery, one supplier of credit, money and the corollary effect of suppressing SMEs and even individuals.

Finally, history offers a compelling lesson: the last time the Federal Reserve engaged in a sizeable quantitative easing was in the 1940s. The low growth and falling inflation only reversed when the Federal Reserve stopped intervening due to a severe recession brought on by the policy mistakes of keeping QE in place too long.

In 2014, a bout of near or real recession in Germany and the US could kick start the price discovery mechanism again, which will help us to start healing the deep wounds left by years of policymakers compounding their errors with round after round of extend-and-pretend. Getting to the bottom is good in one sense: the only way is up.

By Steen Jakobsen

Can Things Get Worse?

I certainly agree with Steen on the dysfunctional state of the global economy, price discovery, and the implied bubble in corporate bonds. But are things so bad they cannot get worse?

In what sense? Any normalization of interest rates is going to crash the corporate bond market. When bonds crash, stocks will join the party. Is that better? Actually it is, but most won't view the accompanying recession as "getting better".

Illusion vs. Reality

The Fed offers an illusion that things are getting better now. The reality is the global economy has been getting more dysfunctional (and that dysfunction happened to lift financial assets).

Why Can't Things Get Worse?

• Abenomics is guaranteed to heighten trade tensions and make things worse.
• What about the surge of the Eurosceptics in parts of Europe?
• What about the surge of Marine Le Pen' National Front party in France?

What's the Definition of "Better"?

What's "better" is in the eyes of the beholder. Some may construe anything that hastens the breakup of the eurozone is for the better.

Does the line stop at the National Front in France? With the neo-Nazi Golden Dawn party in Greece?

Breaking Point Optimism

Those who want to be optimistic on the basis "things cannot get more dysfunctional" have numerous things to be optimistic about

1. Global Equity Bubble
2. Corporate Bond Bubble
3. Sovereign Bond Bubble
4. Abenomics
5. Central Bank Intervention
6. China Property Bubble
7. China shadow Banking
8. Trade Protectionism
9. US Militarism
10. Social Security Promises
11. Pension Promises
12. European Bank Leverage
13. European Isolationism
14. Canadian Housing Prices
15. Australian Housing Prices

Recovery From the Ashes

Optimists who believe "things cannot get much worse" must expect the dam to break on most or all of those bubbles and distortions at once. Curiously if a dozen of the above dams/bubbles did break at once, it sure would not feel good when it happened, even to the optimists.

I suggest that if Steen's optimism is justified (and perhaps even if it's not) asset prices are highly likely to get clobbered, with equity prices dropping as much as 50%. 

Yet, economically speaking, that would be a good thing, especially if a sound banking system (void of fractional reserve lending) arose from the economic ashes.

Unfortunately, a word of caution to the optimists is warranted. Central banks have a proven history of making matters worse over time and not learning anything along the way.


Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Growth in Social Security Benefits vs. Wage Growth

I have an update from reader Tim Wallace on Social Security.

Hello Mish

I made new Social Security charts that show:

1. Growth in percent from 1967 in average payout per month to those that receive social security
2. Amount of money paid out to those that recieve social security per worker in the USA
3. Average annual wages as presented in the Social Security systems "National Average Wage Index"

Senior citizens continue to receive all the benefits on the backs of the younger generations. By the way, I had to stop at 2011 as 2012 is not published yet.

Tim

Percentage Growth in Social Security Payments, Per Worker vs. Wage Growth



click on any chart for sharper image

Social Security Payments Per Worker



Demographics Says Path is Unsustainable

Clearly this payout trend is unsustainable, but what politician dare touch it?

Social Security is not that difficult a problem in theory (at least in comparison to Medicare), except for the politics of it all. Numerous things could be done to put the system in the green.

Possible Ways to Make Social Security Actuarially Sound

1. Raise retirement age
2. Raise or eliminate the cap on payroll taxes
3. Cut benefits
4. Collect Social Security on personal income
5. Implement a Tiered Cap structure
6. Means Testing

Democrats would oppose 1 and 3. Republicans might oppose all but 3. So, how does this mess end if politicians won't touch it?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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"Bubblicious" High End Flipping Up 350%, Overall Flipping Down 13%

Flipping houses went out of fashion around 2008, along with flip phones and sub-prime mortgages. But real estate data shows the practice is on the upswing — among million-dollar homes.

At the low end, where flipping might actually make some economic sense, flipping is down.

MarketWatch reports House flipping makes a comeback

For the market as a whole, flips of single family homes fell 13% in the third quarter, according to new research from RealtyTrac, with investors earning a gross profit of nearly $55,000 on each property. But at the higher end of the market, homes seem to flip as quickly as a griddle full of hamburgers. Flipping increased 34% among homes worth $750,000 and over, 42% among $1 to $2 million houses, and 350% for properties worth between $2 and $5 million.

Flipping tends to be most common in cities with a large supply of expensive homes. (To qualify as a flip, a home must be purchased and subsequently sold again within six months.) In fact, more than three-quarters of all high-end flipping took place in five markets: The New York metro area and Los Angeles, San Francisco, San Jose and San Diego.

What’s behind these quick turnarounds? “Flipping happens when prices are rising rapidly even if price levels are low,” says Jed Kolko, chief economist for real-estate firm Trulia.

It’s possible to double the value of a home, says Jeff Salgado, a San Francisco-based realtor. Investors could buy a dilapidated home for $1.2 million, invest $600,000 and sell it for $2.4 million, he says. “Our buying community is driven by the biotech and high tech sectors. These people are brilliant at what they do, but a good portion of them don’t know the difference between a screwdriver and a hammer.”

Bubblicious

When asked to comment, Bernanke replied "It's not a bubble, it's bubblicious". Well ... not quite.

But signs of a bubble are all over the place. And just as in 2000 with the dotcom bust, and 2007 with the real estate bust, the Fed is 100% oblivious of massive bubbles now.

Alternatively, the Fed harbors a "We Just Don't Care" attitude, hoping employment picks up before the stock market, corporate bond market, and housing bubbles burst.

Regardless, bubbles never end well (except for bank executives and corporate insiders who cash out stock options and sell every share on the way up).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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J.P. Morgan Reaches $13 Billion Deal with Justice Department; Is This a Fair Deal?

The Wall Street Journal reported today J.P. Morgan Reaches $13 Billion Tentative Deal with Justice Department. However a criminal investigation is not yet closed.

J.P. Morgan Chase & Co. has reached a tentative deal to pay a record $13 billion to the Justice Department to settle a number of outstanding probes of its residential mortgage-backed securities business, according to a person familiar with the decision.

The deal, which was struck Friday night, doesn’t resolve a continuing criminal probe of the bank’s conduct, which could result in charges against individuals or the bank itself and possibly increase the penalty tab. The two sides continued to disagree over an admission of wrongdoing that would end the criminal probe and decided instead to resolve the civil allegations related to the mortgage securities.

The deal includes $4 billion to settle claims by the Federal Housing Finance Agency that J.P. Morgan misled Fannie Mae and Freddie Mac about the quality of loans it sold them in the run-up to the 2008 financial crisis, another $4 billion in consumer relief, and $5 billion in penalties paid by the bank, according to a second person close to the talks. How the consumer relief and penalties get dispersed and distributed is largely up to the government, and those details are still unclear, this person said.

The tentative settlement comes as J.P. Morgan tries to put as many legal woes behind it as possible. Earlier this week, J.P. Morgan agreed to pay $100 million and acknowledge wrongdoing to settle allegations by the Commodity Futures Trading Commission related to its botched “London whale” trades. Last month, the bank agreed to pay $920 million to settle similar charges with U.S. and U.K. regulators related to that 2012 trade.

The task force issued a series of subpoenas to various financial companies, seeking internal documents. Those documents held a number of promising leads, one of which was assigned to federal prosecutors in Sacramento.

Investigators in that case discovered an email by a bank employee, warning her higher-ups that the bank was vastly overstating the value of the mortgages being securitized, according to people familiar with the probe. That employee, who has since left the company, has been cooperating with federal prosecutors, who expect to call her as a witness if the case ever goes to trial, according to people familiar with the case.

While the Justice Department considers the evidence in that case to be strong, officials at the bank strongly disagree, according to people familiar with the negotiations.

In late September, as the Justice Department neared its own deadline to file a civil lawsuit in the case, the bank offered $3 billion to settle the case. Attorney General Eric Holder rejected that offer, and government lawyers prepared to file the suit. The bank then offered billions more, if the government was willing to throw into the settlement separate cases, raising the total price and resolving more of the bank’s legal headaches.

As the negotiations intensified in September, Mr. Dimon sought a face-to-face meeting with Mr. Holder to try to resolve the remaining sticking points. The two met Sept. 26 at the Justice Department, but the meeting failed to settle the outstanding issues. As talks continued over the remaining weeks, the size of the deal swelled, but the two sides continued to disagree over an admission of wrongdoing that would end the criminal probe.

On Friday night, Mr. Dimon and Mr. Holder decided they were just not going to come to terms on the criminal issue–and take the deal on the terms where they did agree.

Is This a Fair Deal?

For starters, I am astonished at the massive settlement. $13 billion sounds huge (and it is compared to the typical whitewashing affairs we see).

However, things could have been much worse.

CNN Money notes JPM held "$23 billion in reserves for potential litigation expenses. In a footnote to its SEC filing, the bank said legal costs could be nearly $6 billion above that figure in a worst case scenario."

Perhaps $23 billion, $40 billion, or any amount that wipes out JP Morgan litigation reserves is "fair".

Clearly "fair" is in the eyes of the beholder. I will consider it "fair" if executives of the largest banks are tried and convicted in criminal court. Don't count on it. As astonished as I was about the amount of the settlement, I will be even more astonished if any bank executives are criminally convicted.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Illinoisans Beware: "Progressives" Seek Massive Tax Hike Again; Fight the Hike!

Illinois "Progressives" (a single word to describe "economically illiterate public union sympathizers") want to pick your pocket once again. The Progressives want to hike the Illinois 2015 top tax rate from 3.75% to a whopping 9%.

Moreover the income tax rate will go up on a sliding scale for everyone making over $18,000.

Promises, Promises

Recall that On the campaign trail in 2010, Gov. Pat Quinn told voters he'd veto any income tax hike that would raise Illinois' rate over 4 percent.

That was one of the quickest disclosed tax lies in history. Here are a few snips from my January 13, 2011 post Business Owners Blast IL Tax Hikes;Quinn's Blatant Lies;Neighboring States Gleeful, Mayor Daley Whines;Escape to Wisconsin; Arrogance,Greed,Corruption

Tax insanity in Illinois is now official. Governor Pat Quinn signed off on a 67% hike in personal income taxes and a 46% hike in corporate taxes the moment the bill hit his desk.

The personal income tax rate immediately rises to 5 percent, up from 3 percent. The corporate income tax rate rises immediately to 7 percent, up from 4.8 percent. The Chicago Tribune reports Quinn, House Speaker Michael Madigan and Senate President John Cullerton — all Chicago Democrats — muscled the tax hike through in the eleventh hour of the lame-duck legislature. Only Democrats voted for the bills.

Not Fixed

That tax hike was supposed to permanently fix the Illinois budget. It did nothing of the kind.

On June 11, 2011, I noted Illinois Insanity: State Spend $365K Taxpayer Dollars to Teach People How to Fish; Hands Out $4 Million in Free Tuition to AFSCME Public Union Workers

On August 31, 2011, I noted Illinois Loses Most Jobs in Nation Following Tax Hikes.

Also recall that Instead of acting to help cities, Governor Quinn strengthened prevailing wage laws several times (see my March 27, 2011 article Poisonous Illinois; Caterpillar CEO Threatens to Leave Illinois over Taxes; Illinois Attorney General Wins Dubious Honor "Prevailing Wage Award").

Illinois Overtakes California for Second Highest Unemployment Rate in Nation

With the above backdrop, no one should have been surprised by my September 25, 2013 report Unhappy Anniversary: Illinois Overtakes California for Second Highest Unemployment Rate in Nation

Temporary Hike?

Quinn's tax hike was billed as temporary. Fortunately the legislature actually passed it that way.

On January 04, 2013 the Chicago Tribune discussed the setup in Your Quinncome tax hits home

Two years ago on their night of infamy, 1/11/11, General Assembly Democrats — and exclusively Democrats — voted to raise the Illinois personal income tax rate by 67 percent.

But when the Democrats boosted the personal income tax rate from 3 to 5 percent — with a companion hike in the corporate income tax — most of us didn't suffer: The state tax hike coincided with a 2-percentage-point decrease in the federal payroll withholding for Social Security. That payroll tax reduction, a last-minute proposal from President Barack Obama's White House, was the final component of a bipartisan Washington deal to keep the Bush-era income tax cuts in place.

Think of it this way: The impact of your Quinncome tax increase — long advocated by Gov. Pat Quinn and made law by his signature two years ago — has finally hit home. Your home. You just took a pay cut.

What's more, the Illinois tax hike hasn't been the saving grace for you, and for your state, that Democrats promised on 1/11/11: State government remains insolvent, unable to pay billions in bills as they come due. And there's no additional money to educate your children or to care for your disabled fellow citizens. Why not?

Because just about every penny of the state's roughly $7 billion in new Quinncome tax revenue goes to paying public pension costs — either making annual contributions to pension funds, or paying off debt from years when Illinois foolishly borrowed money to make its annual pension contributions.

Remember, the Democrats sold the Quinncome tax as temporary: It's in full force for four tax years, 2011 through 2014, then is scheduled to fall to 3.75 percent in 2015 and to 3.25 percent in 2025.

Beware the "Progressives"

In 2015, the personal income tax rate is supposed to drop to 3.75%.

However, the Illinois Policy Institute reports State Rep. Naomi Jakobsson, D-Urbana, introduced legislation for a new progressive tax rate schedule that hit Illinois’ middle and working classes hard.

Under current Illinois law, the individual income tax rate will be 3.75 percent in 2015. Under Jakobsson’s new plan, however, a higher 4 percent rate kicks in for people earning just $18,000.

Here is Jakobsson’s proposed scheme.



If you think that is absolutely nuts, you are not the only one.

The Illinois Policy Institute writes "Jakobsson’s progressive tax rates attack the middle class as well. Her 5 percent tax rate applies to people earning just $36,000. When an Illinoisan earns more than $58,000, Jakobsson’s tax rates jump to 6 percent, and again to 7 percent on income earned after $95,000 – nearly double the rate Illinoisans will pay in 2015.

It’s no surprise that Jakobsson’s progressive tax hike proposal targets the middle class – it’s how progressive income taxes work. That’s where a lot of the money is."

Fight the Hike!

I made a donation to the Illinois Policy Institute, and if you live in Illinois, please consider doing so was well.

Your gift to the “Flat is Fair” campaign will be matched for a one-two punch against the progressive tax hike.

Donations through Sunday, October 20 will be matched.

Please, Fight the Hike!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Still More France Economic Idiocies: New Rent Price Controls, Mandatory Rental Insurance, "Unfair Competition" Laws

The economic stupidities in France keep piling up. Reader "AC" who lives in France writes:

Hi Mish,

I saw you covered some of the latest crazy things happened in France recently: actually there is much more. Let me give you a short digest of the craziest things.

Government wants to address the high cost and low availability of apartments to rent, especially in Paris.

After passing a law regulating the rent increase (the increase an owner can ask to a new person renting his apartment with regard to the rent of the former occupant), Cécile Duflot, the Minister of Territorial Equality and Housing, decided to go a big step further: government will fix the price of the lease.

The proposed law (and most likely going to be approved), will impose 2 things:

Mandatory insurance for unpaid rent. The cost will be shared by the owner and the renter
For new rental contracts, the owner will have to stay in a band of +/- 20% of a reference price the government will set based on the average price per square meter in the area where the apartment is located.

No matter what features the apartment has (or lack thereof), or its condition, government will fix the price.

Mandatory insurance seeks to address another chronic problem: owners are extremely concerned about people not paying rent, because the time it takes to get them out of the flat by a court can be very long (up to 2 years), and often in these cases the renters return the flat in poor state. Therefore landlords are extremely selective. Most likely, the mandatory insurance will compound the problem.

The craziest thing is the destruction of real, private, profitable jobs along with the creation of public subsidized, unprofitable jobs, in the middle of growing unemployment and falling GDP.

You have already written about the "Emplois d'Avenir", government subsidies for jobs for not qualified people in the no-profit sector. And that is already crazy enough.

But now, smack in the middle of the rising unemployment, unions have started a campaign to destroy on purpose real, profitable jobs, citing "unfair competition".

The most incredible situation has been the make-up shop Sephora in Champs Elysees.

Champs Elyssees is one of the most crowded and touristic avenues of the world. There are locals and tourists anytime of the day, especially after dinner. Some shops there stay open until late, because of the tourists.

Sephora was one of the shops having an extended opening. It stayed open until midnight every day of the week. 20% of their sales came between 20:00-24:00. The employees get paid more for this working time, and everybody was happy, except of course the unions.

The unions started a legal action to oblige Sephora to close by 21:00 like most other shop, arguing that Sephora had an "unfair advantage". After some back and forth negotiation, Sephora was obliged to close at 21:00 and fire people. The Daily Motion has a video where Sephora employees are in tears for something they never asked.


In the video the union representative says that they will go shop after shop among those having extended hours in Champs Elysees, obliging them to close at 21:00 for "unfair competition".

This is not an isolated situation: The same is happening with a number of "bricolage" stores open on Sunday in the Paris suburb. The problem is getting so hot that the government is thinking passing a law to clarify when businesses can stay open outside normal hours.

Just have a deeper look on the Web, you will find more and more stories like these (for example auto-entrepreneurs).

France will be soon the sick man of Europe.

Best regards,

AC

Rise of National Front

If Paris rentals were in short supply before , they will be in even shorter supply now. And inane union agreements take away real jobs on top of it.

These economic insanities are exactly the kind of thing that will fuel the rise of extreme right candidate Marine Le Pen (See Decisive Victory by Le Pen's Eurosceptic National Front Party in Local Election Stirs Fear in Mainstream French Parties).

Please note that I am not a fan of Marine Le Pen's position on every issue even though I agree with her anti-Brussels stance.

Pater Tenebrarum gets it correct in Europe's Tottering Banks

Political Risks

Said tax cows have lately become rather restless, as inter alia shown by the municipal by-election that was recently won by Marine Le Pen's Front National in France. If you read Mish's assessment which we have linked to, he is quite correct when he states that the whole EU and euro project could easily be derailed by political developments. Populist parties continue to gain support amid euro-land's economic decline, to the point where they represent a real threat to the EU.

We would add that Ms. Le Pen's FN, although it has received a 'face-lift' to rid it of the more obviously objectionable parts of its far-right image, still pursues an economic agenda that closely resembles the autarkic economic program of the German national socialists of yore. The FN is not just another version of UKIP, with its far more libertarian streak. Although we sympathize with Ms. Le Pen's anti-Brussels technocracy stance, her protectionist mercantilistic agenda is just as doomed to failure as Mr. Hollande's milder version thereof (note that the differences between socialist and national socialist economic programs are only of a cosmetic nature; not surprisingly, the FN's gains have largely come at the expense of the socialist party). In spite of the intellectual bankruptcy of France's political mainstream, it is a bit disconcerting that the FN actually leads in national polls at present. France's voters seem eager to “chasser les démons par Belzébuth“, i.e., to replace one evil with an even worse evil.

This brings us back to the banks, which have incidentally become quite a popular target of Europe's populist political parties. They are quite correct in objecting to bailouts of course. The point we want to make is merely that any upcoming revelations of additional large losses hidden at European banks have a political dimension that could go well beyond the current 'banking union' related discussions.

Poisoned Policies

Those looking for poisoned economic policies should look no further than the policies of socialist president Francois Hollande. Here are seven prime examples.

1. October 10, 2013: Law of Career Security: France's Minister of Digital Economy Orders Telecom Companies "to be Virtuous and Patriotic" and to Use Alcatel-Lucent to Prevent Layoffs
2. October 3, 2013: France Vows to "Save the Bookstores", Fixes Price of Books, Bans Free Shipping by Amazon
3. May 17, 2013: Hollande Asks ECB to Engage in Japanese Style Currency Debasement
4. March 22, 2013: Hollande Announces 20 "Confidence Shock" Measures to Support Home Building
5. January 28, 2013: France "Totally Bankrupt" Says Labour Minister; Inappropriate or Inaccurate?
6. October 31, 2012: "Google Law" Yet Another Warped Policy by Hollande; Government Motors French Style
7. June 8, 2012: Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"

My next update on the economically insane policies of France will have this post as the eighth example.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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