How Extreme is Bernie’s Economic Vision?

Posted on February 22, 2016 by Popular Economics Weekly

Popular Economics Weekly

Major progressive economists are protesting Bernie Sanders predictions of robust economic growth and jobs if his policies are enacted. What are his policies? Policies he claims will give Americans what the other developed countries already offer to their citizens, including a higher minimum wage, tuition-free public university education, universal health care, and better retirement benefits.

Then why are progressive economists protesting, who presumably have similar goals? Because we are not like other developed countries, and so shouldn’t be exaggerating the benefits of such assertions, says Paul Krugman.

“On Wednesday four former Democratic chairmen and chairwomen of the president’s Council of Economic Advisers — three who served under Barack Obama, one who served under Bill Clinton — released a stinging open letter to Bernie Sanders and Gerald Friedman, a University of Massachusetts professor who has been a major source of the Sanders campaign’s numbers,” said Krugman. “The economists called out the campaign for citing “extreme claims” by Mr. Friedman that “exceed even the most grandiose predictions by Republicans” and could “undermine the credibility of the progressive economic agenda.”

Why are the Sanders-Freidman claims so extreme? Because Dr. Friedman claims he can achieve those goals in just ten years, if the body politic will back Bernie. The late Supreme Court Justice Antonin Scalia over some 30 years led conservative attempts to turn the clock back at least one century to a time when the white male patriarchy still ruled.

Whereas Senator Sanders wants to move the economic clock into the next century. “Like the New Deal of the 1930s, Senator Sanders’ program is designed to do more than merely increase economic activity: the expenditure, regulatory, and tax programs will increase economic activity and employment and promote a more just prosperity, “broadly-based” with a narrowing of economic inequality,” says Professor Friedman in his economic analysis.

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Graph: CBPP

The increase in income concentration since the 1970s reverses the prior, long-term downward trend in concentration, says the non-partisan Center For Budget Policies and Priorities.  “After peaking in 1928, the share of income held by households at the very top of the income ladder declined through the 1930s and 1940s.  Consistent with the shared prosperity found in the Census data on average family income, the share of income received by those at the very top changed little over the 1950s, 1960s, and early 1970s.  The sharp rise in income concentration at the top of the distribution since the late 1970s was interrupted briefly by the dot-com collapse in the early 2000s and again in 2008 with the onset of the financial crisis and deep recession.” 

So Sanders and Friedman have a point—what economic policies will catch US up to those benefits that the citizens of all other developed countries have? In fact, but for the record income and wealth inequality, we could already offer many of those same benefits. We still have the worst income inequality since 1929, the beginning of the Great Depression, and it has not improved since the end of our Great Recession.

Can we blame our young for supporting his vision? It could take more than ten years, as the so-called Reagan trickle-down revolution prevailed for more than 30 years, policies that created the record income inequality by the massive transfer of wealth upward; via the combination of lower tax rates with higher deficit spending that caused major cutbacks in government benefits and programs.

So really, the outcome of Bernie’s economic vision is very dependent on the “broad-based” support of his policies by independents voters, as well as Democrats. The Nevada caucus and South Carolina primary should provide that answer.

Harlan Green © 2016

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2016 Housing Update

Posted on February 16, 2016 by Popular Economics Weekly

The Mortgage Corner

What should happen to U.S. housing in 2016, with interest rates at record lows and a healthy job market? Much will depend on population growth, and in particular the newest largest generation of all—the millennials, or Gen Y’ers, 18 to 35 years old and born somewhere between 1980 to 2000, say most demographers. They are finally beginning to move out of their parents’ homes—50 percent of them at last count.

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Graph: CoreLogic

And that is why we are seeing the huge jump in household formation, the main driver of housing growth. A missing ingredient needed to bolster the housing recovery has been a stronger pace of household formation—which is beginning to pick up after eight years of running at low levels, according to CoreLogic Chief Economist Frank Nothaft in the company’s recently released September MarketPulse.

The Great Recession of 2008, with its many job layoffs or employment losses, caused many young adults (and others) to either move in with relatives or share housing with roommates rather than get their own home. As a result, household formation rates fell to their lowest level since the end of World War II.

That trend might be reversing, Nothaft said. In the first half of 2015, the number of new households grew by 1.7 million from the same period in 2014, the largest growth experienced in a decade. Labor market improvements have also played a role in the recent acceleration in household formation, according to Nothaft.

“As the job market has improved, many millennials now have the financial independence to form their own household, and we anticipate that the pent-up desire of young workers to live on their own will sustain household growth of about 1.2 million per year, on average, for several years,” Nothaft said, citing a report from the Joint Center for Housing Studies at Harvard University that forecasted new household growth of between 11 million and 13 million over the next decade depending on the pace of immigration in the United States.

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The result is that adult millennials, who will total more than their parent baby boomers by 2020, are boosting household formation. And they also ‘own’ the labor force, with more than 53.6 percent of those that are working or looking for work in Q1 2016 and growing, according to PEW Research.

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Graph: PEW Research

And interest rates are at or below historical levels, especially mortgage rates, which will continue to boost housing growth this year. The 30-year conforming fixed rate has plunged as low as to 3.25 percent in California, with 1.5 originations points, on a given day.

Fed Chairman Janet Yellen is sounding more dovish about the need to raise rates further, as oil prices have plunged, keeping inflation at bay. Yellen reiterated on Wednesday that the Fed expects to have “gradual” interest rate increases. The Fed’s committee meets next in mid-March. But many experts doubt that a March rate hike will happen because other central banks are moving in the opposite direction.

For instance, Japan’s central bank recently introduced negative interest rates, China’s central bank has spent hundreds of billions to prop up its currency and the European Central Bank could soon increase its stimulus program.

Harlan Green © 2016

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The Candidates Economic Promises Versus Pronouncements

Posted on February 12, 2016 by Popular Economics Weekly

Financial FAQs

Who should we believe of the leading candidates remaining in the Presidential primaries that last through June? Bernie says he will tax the wealthiest enough to pay for his programs, such as free public college tuition and universal health care. But that means raising middle class taxes, as well.

The Donald says he is such a successful businessman that he will negotiate us out of all our problems. But how much can he be believed with four bankruptcies and three marriages already?

Polls show that economic issues top the voters’ concerns, so we should look at the how they will solve those issues. Bernie believes he will save citizens money by converting to universal health care, because if everyone’s covered, the government will have the clout to negotiate down drug and hospital costs.

Though Trump says he won’t touch social security and Medicare, he would cut taxes for the wealthiest further, which will only increase the budget deficit. That’s because trickle-down economics doesn’t work (i.e., more tax breaks for the wealthiest), as evidenced by GW Bush’s two recessions and 8 million jobs lost during his 8 years.

So Mr. Trump is trying to convince us that he is the better negotiator than President Obama, who has managed to pass so many progressive programs (like Obamacare) that conservatives say they feel betrayed. His most hollow pronouncement is the Wall to keep out Hispanic immigrantss, when as many enter through Florida and New York, not to speak of California, and maybe Canada? So he would have to build a wall that surrounds all of US!

Today’s economy is experiencing both record income inequality, since the wages and salaries of 80 percent of our workforce have barely risen above inflation for the past 30 years, and our degraded infrastructure. And let us not forget Flint, but also the many other municipalities with drinking water problems.

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Senator Bernie says we are the only developed country without universal healthcare and tuition free higher education. Denmark is his oft-repeated example, but they pay for it with a maximum tax rate of 60 percent. Well, America had a maximum tax rate of 92 percent during President Eisenhower’s reign, which enabled US to build our freeway system, land on the moon, create the Internet, and we still had a 4 percent plus growth rate during that time.

So can Bernie’s promises be paid for? We would have to reverse a trend of lower taxes begun in the 1970s. That means bringing out new voters—mostly young—that have been sitting on the sidelines until now. The New Hampshire primary results show that the new voter turnout was HUGE, in Bernie’s words. But as Rachel Maddow pointed out on MSNBC, they were mostly Republicans.

His test will come with the upcoming Nevada caucus and South Carolina primary, with their much more diverse ethnicities. The economic issues being debated this election year are really between facts and fiction—whether economic facts can trump political ideologies. That’s the bottom line. We, the United States of America can’t grow and thrive without our citizens having the benefits of every other developed country, and many undeveloped ones.

Those benefits may seem expensive, as in the Nordic countries, but the drag to economic growth from neglecting these issues is even more expensive—with the ongoing poor health outcomes, a crumbling infrastructure, and unprotected environment.

Harlan Green © 2016

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Job Openings and Hires At Record Levels

Posted on February 9, 2016 by Popular Economics Weekly

Popular Economics Weekly

Job openings rose 5 percent to 5.6 million in December, the Labor Department said Tuesday. So why are the financial markets worrying about a looming recession? That reading was the second-highest ever recorded, behind only July 2015, when it touched 5.7 million. Hires rose to 5.36 million from 5.25 million. That’s not just good news for job holders—it also shows that employers and job seekers are finding each other.

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Graph: Calculated Risk

The above graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the Labor Department’s JOLTS report. Voluntary quits also surged, rising 7 percent to 3.1 million, a sign of worker confidence. Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. … There were 3.1 million quits in December, up from November. This is even higher than in December 2007 (2.8 million), the first month of the recession, says Calculated Risk

Nobelist Paul Krugman has said it has taken this long for the hire rate to catch up to job openings because of the lack of overall, or aggregate demand, rather than structural factors. (That is, the lack of workers with certain skills.) In other words, wages haven’t been spiking in certain job categories, but have been low in all job categories.

“You see, when the Great Recession struck — a demand-side shock if ever there was one — it took no time at all for a strange consensus to develop in elite opinion, to the effect that a large part of the rise in unemployment was “structural,” and could not be reversed simply by a recovery in demand. Workers just didn’t have the right skills, you see. Many of us argued at length that this was foolish. If skills were the problem, where were the occupations with rapidly rising wages? I pointed out that people said the same thing during the Great Depression, only to see it disproved when we finally got a big fiscal stimulus called World War II.”

And even the problem of low wages may be disappearing. The January unemployment report showed consumer incomes rising faster. Though nonfarm payrolls rose just 151,000 in January, it was enough to push the unemployment down to 4.9 percent and average hourly earnings up 0.5 percent.

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Graph: Econoday

The 0.5 percent monthly spike in average hourly earnings may largely be due to rises in the minimum wage that are beginning to take effect, say the pundits. Hooray! This is the second strongest gain of the whole cycle, back to 2008, and means a large portion of the lowest-paid workers will finally see an improvement in their living standards.

So will the financial markets come to the realization that our economy doesn’t depend on high oil prices, as alternative energy sources such as wind and solar power begin to take over? Those falling oil prices mean consumers have more to spend on such as autos, and yes, housing. The good news is with residential housing where construction spending rose a very strong 0.9 percent on the month led once again by multi-family units. But single-family units have also been strong, up a year-on-year 8.7 percent.

And interest rates are back to record lows, including mortgage rates, which will also boost consumer spending, and keep us out any recession. In fact, this is the first time since former Fed Chairman Bernanke’s the introduction of QE3 that the conforming 30-year fixed mortgage rate has dipped as low as 3.25 percent.

Harlan Green © 2016

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Why Are Mortgage Rates At Historical Lows?

Posted on February 9, 2016 by Popular Economics Weekly

The Mortgage Corner

Mortgage rates continued to tumble over the past week as investors fled to the safety of government bonds, pushing Treasury yields down, mortgage provider Freddie Mac said Thursday. This is no surprise given the geopolitical uncertainties buffeting economies worldwide.

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Graph: Marketwatch

The 30-year fixed-rate mortgage averaged 3.72 percent in the Feb. 4 week, down from 3.79 percent from a week earlier and is at the lowest level since April 30, Freddie Mac said. The 15-year fixed-rate mortgage averaged 3.01 percent, down from 3.07 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.85 percent, down 5 basis points.

“These declines are not what the market anticipated when the Fed raised the Federal Funds rate in December,” Freddie’s chief economist, Sean Becketti, noted in a statement. “For now, though, sub-4 percent mortgage rates are providing a longer-than-expected opportunity for mortgage borrowers to buy or refinance.”

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Graph: Calculated Risk

In fact, the 30-year conforming fixed rate can currently be bought down to 3.25 percent. This is a historical low, and causing a rise in mortgage applications. The Refinance Index increased 0.3 percent from the previous week to its highest level since October 2015, reports the MBA. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index increased 11 percent compared with the previous week and was 17 percent higher than the same week one year ago.

But for how long can these below-historically-low rates continue? Too much oil, for one, should help to keep oil prices, and therefore inflation, almost non-existent for this year, at least. That’s according to Barron’s resident economist Gene Epstein. “…over the past five years,” says Epstein, “the world has found a trillion extra barrels of oil—the equivalent of 30 years of extra supply—with a third of it coming from shale, a third from deep water, and a third from oil sands. Over the past year, the costs of recovery from these sources has noticeably fallen. A return to triple-digit prices on crude oil is (therefore) unlikely for the foreseeable future.”

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Graph: Barron’s

But there’s another reason for such low interest rates. Growth is slowing worldwide, which is the major reason inflation is so low. And Janet Yellen is now backtracking on raising the Fed’s rates any higher this year.

But consumers don’t seem to be listening to the bad news. Consumer spending — the main engine of the U.S. economy — rose 3.1 percent in 2015 to set the fastest pace since 2005. Unless Americans suddenly turn pessimistic, they’ll keep spending at a decent clip this year and give businesses no reason to resort to mass layoffs.

One major bellwether is car sales, says Marketwatch’s Jeffry Bartash. After snapping up a record 17.5 million new vehicles in 2015, Americans were back at it in January. Sales rose last month rose at the same robust 17.5 million pace. “That’s not a sign of an increasingly anxious consumer.”

Harlan Green © 2016

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Iowa and the Stand For Nothing Party

Posted on February 6, 2016 by Popular Economics Weekly

Popular Economics Weekly

Can the Republican Party survive the Iowa and New Hampshire primaries and either Donald Trump or Senator Cruz winning? Can the Grand Old Party survive and thrive on a platform that opposes every relevant issue today — whether it’s voting rights, women’s rights, immigrant rights, global warming, racial discrimination, greater income equality, health care for all — even hope to corral more votes than those of the extreme right wing of their party, which means standing for nothing that would boost productivity or growth?

Why are these issues so important? Because the economic “malaise”, or whatever pundits want to call the tepid growth since the Great Recession, is precisely due to the Party that only compromises when it has to, even on taxes. And now we have the just reported Q4 GDP of 0.7 percent, after 2.0 percent growth in the third quarter.

Their anti-everything positions and policies come out of an incredible ignorance of how government and economies work. Maybe it’s the willful ignorance of those presidential candidates wooing the Tea Party, but the tax cut mantra of conservatives has literally damaged those factors that make US more prosperous. Cutting spending on schools, infrastructure and the environment — much less opposing raising the minimum age — literally cuts into work efficiency, slowing down learning, transportation of goods and services, and the damage from environmental catastrophes. The Flint drinking water crisis is just the latest example of such ignorance.

It isn’t government workers that build the roads, bridges, schools, and repair environmental damage that’s paid for with our taxes. It’s private industry that profits. Caterpillar Industries, for instance, says that just passage of the $305B Fixing America’s Surface Transportation Act, or the FAST Act transportation bill will add some 4,000 workers to its payrolls and $millions in profits.

The ‘socialist’ Bernie Sanders is right in saying that tax cuts from President Reagan to Bush II have benefited the wealthiest, but he doesn’t explain the why of it very well. So much of the opposition to taxing the wealthiest and corporations that evade or pay no taxes comes from that ignorance of what generates economic growth, and how government is there to aid in that growth.

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Bernie knows, for instance, that the current tepid economic growth still boosts the wealth of the wealthiest investor class, because they make most of their money speculating on Wall Street, but not the wages of 80 percent of the working force.

Whether it’s the massive hoarding of profits by corporations (more than $5 trillion in cash or cash equivalents at last count, according to the St. Louis Fed), or massive CEO salaries ($36 million in 2015 for JP Morgan’s Jamie Dimon), these profits aren’t being invested in productive enterprises for a reason.

Iowans that voted in the primary caucus are a fickle lot. And they seldom pick a president. So it may not matter. The Donald doesn’t so much oppose the most important issues as take both sides when it suits him. “I am malleable,” said Trump to Maureen Dowd in her latest New York Times Op-ed. “The head of Russian (Putin) calls me brilliant and you want me to disavow it? What are you smoking?”

“He rejects the idea that he’s too easily swayed by compliments or slights,” continues Dowd. “Maybe because Trump is so easily aggrieved himself, he had bonded with legions of aggrieved Americans.”

Senator Cruz prefers to carpet bomb (his term, not mine) his enemies, by simply ignoring the facts. He wants no path to citizenship for immigrants, even though he’s a Canadian born immigrant himself (and half of those 11 million ‘undocumented’ immigrants are actually here legally). Rather than decreasing income inequality, he opposes extending unemployment benefits and raising the minimum wage by “fiat”, which means by executive order. How would he raise it, then? He wouldn’t, in other words.

He led fight to shut down the federal government in 2010, which led to the spending sequester and downgrade of U.S. Treasury debt for the first time in history by the S&P rating agency to AA+. Senator Cruz is an anti-government bigot in every undemocratic way. It’s hard to say if he’s really for anything, other than carpet bombing the Middle East, until the “sands glow red”, in his words. He has read the Book of Revelation too many times with its end of the world prediction.

So it’s really hard to say what has caused such a massive ignorance of how and why our economy grows by one political party. But until the Grand Old Party realizes this, our economic growth ‘malaise’ will only continue.

Harlan Green © 2016

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Why Slower Fourth Quarter Growth?

Posted on January 30, 2016 by Popular Economics Weekly

Popular Economics Weekly

Gross domestic product — the value of everything a nation produces — expanded at a 0.7 percent annual rate from October to December. That’s a big markdown from 2 percent growth in the fall and 3.9 percent last spring. The economy expanded at a 2.4 percent clip last year, the same as in 2014, the Commerce Department said. Alas, the U.S. hasn’t topped 3 percent growth since 2005.

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Graph: Marketwatch

But those numbers may be revised higher, as more data on imports/exports and inventories for December come in. Hence there are two more revisions to the Q4 GDP estimate put out by Commerce. Softer consumer spending, falling exports and a smaller buildup in business inventories were largely the cause of the fourth-quarter slowdown, fresh government data showed.

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Graph: Marketwatch

However, the biggest drag on growth was in industrial production. Though the drop in industrial production in the fourth quarter was concentrated not in manufacturing, per se, but in mining and utilities, mostly due to falling energy prices, says Marketwatch’s Rex Nutting. “Manufacturing output slowed in the fourth quarter, but it did grow, at an anemic annual rate of 0.5 percent. Meanwhile, mining output (mostly petroleum and other fossil fuels) plunged at a 15.5 percent rate and utilities (hurt by the warmer-than-usual fall) saw seasonally adjusted output drop at a 15.4 percent annual rate.”

On the other hand, spending on services was higher, adding 0.9 percentage points, as was spending on goods, at plus 0.5. Residential investment, another measure of consumer health, rose very solidly once again, contributing 0.3 percentage points. Government purchases added modestly to growth.

Inflation fell again, but personal consumption is holding up, as is consumer sentiment. And next week’s December unemployment report will tell us if January growth might pick up, since strong employment tends to boost consumer spending.

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Graph: Econoday

Consumer spending may not be that strong but consumer confidence is solid, at 98.1 in January, says the Conference Board. “Consumer confidence improved slightly in January, following an increase in December,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions held steady, while their expectations for the next six months improved moderately. For now, consumers do not foresee the volatility in financial markets as having a negative impact on the economy.”

The assessment of the current jobs market is favorable with only 23.4 percent describing jobs as hard to get. This is a low percentage for this reading and down more than 1 percentage point from December. But improvement here is offset by a dip in those describing jobs as currently plentiful, down 1.4 percentage points to 22.8 percent.

The bottom line is economic growth has slowed due to a decline in energy and commodity prices that hurts some industrial sectors, but it helps consumers. And consumers account for some 70 percent of economic activity these days. So look for increased government spending (state and national) on public works, as well as more new home construction to keep us out of a recession in 2016. This activity is all domestic, which isn’t affected by what is happening in China, Europe, the Middle East, Russia, and other third world countries.

Harlan Green © 2016

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Higher Employment = More New Homes

Posted on January 27, 2016 by Popular Economics Weekly

The Mortgage Corner

Twenty Five states had lower unemployment, reports the Bureau of Labor Statistics, as the economic recovery continues. That is probably why consumers continue to be optimistic and housing prices continue to soar—as high as 11 percent in Portland, San Francisco, and Denver, reports the latest S&P Case Shiller Housing Price Index.

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Graph: Calculated Risk

Only 8 states, from New Mexico to Louisiana, now have more than 6 percent unemployment. Even energy-dependent states like Oklahoma and Texas are at less than 5 percent unemployment.

The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 5.3 percent annual increase in November 2015 versus a 5.1 percent increase in October 2015. The 10-City Composite increased 5.3 percent in the year to November compared to 5.0 percent previously. The 20-City Composite’s year-over-year gain was 5.8 percent, up from 5.5 percent reported in October.

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Graph: Calculated Risk

This hardly puts housing prices in bubble territory. They rose more than 10 percent in 2014, before dipping back to the current increases. And it is putting pressure on the housing inventory, now down to a 3 months’ supply for new housing. So look for a continued surge in housing construction this year, which gives another boost to overall growth.

Builders broke ground on 1.11 million homes in 2015, more than at any point since 2007, according to a recent UBS study. That was an 11 percent gain compared to 2014. The consensus view of 1.25 million that UBS cites would represent a 13 percent gain in 2016. Their own forecast is for 1.31 million starts, an 18 percent jump.

The result is more new home sales, as sales ran at an annual pace of 544,000, the highest since February, the Commerce Department said Wednesday. November’s previously-reported 490,000 pace was revised up to 491,000.  In all, some 501,000 new homes were sold during 2015, Commerce said, a 14.5% increase over 2014’s tally.

And consumer spending may not be that strong but consumer confidence is solid, at 98.1 in January, says The Conference Board. “Consumer confidence improved slightly in January, following an increase in December,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions held steady, while their expectations for the next six months improved moderately. For now, consumers do not foresee the volatility in financial markets as having a negative impact on the economy.”

Is this a good sign for future employment? That depends if consumers continue to spend. Retail sales have dipped below 4 percent annually in 2015, and the stock market is particularly volatile due to the uncertainty over energy prices. But this has not affected the mood of consumers, yet.

Harlan Green © 2016

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Davos Conference Highlights Why There’s Slower Growth

Posted on January 25, 2016 by Popular Economics Weekly

Financial FAQs

It’s time for the World Economic Forum, and this year more than 40 heads of state and 2,500 other participants are unlikely to run short of topics to discuss. “Meeting against a backdrop of market jitters, heightened geopolitical risks and a renewed focus on climate change, there will be intense focus on how these A-listers propose to solve the challenges facing the global economy,” reports Marketwatch about the meeting held at the ski resort of Davos, Switzerland.

What should be at the center of discussions is the increased inequality in wealth and income that is affecting U.S. economic growth in particular, but also the rest of the world.

How does inequality affect economic growth? Nobelist Joseph Stiglitz has written most recently about what he calls the “Great Malaise”, and IMF President Christine LaGarde says is the “New Mediocre” in economic growth.

“The economics of this inertia is easy to understand,” says Stiglitz, “and there are readily available remedies. The world faces a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity. Those at the top spend far less than those at the bottom, so that as money moves up, demand goes down. And countries like Germany that consistently maintain external surpluses are contributing significantly to the key problem of insufficient global demand.”

What is aggregate demand? It is an economic term that describes the overall demand for goods and services from consumers, business, and government, first formulated by the British economist JM Keynes. Professor Stiglitz’s thesis is that when most of the wealth goes to the top income brackets, less of it gets spent or invested in productive enterprises.

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Graph: St. Louis Fed

This is evidenced by the huge amounts of wealth that is hoarded where it does the least good. Corporations are holding more than $5 trillion in cash and cash equivalent assets, rather than investing it in productive enterprises. And the Federal Reserve is holding more than $2 trillion is excess reserves in MZM deposits, meaning that they earn little or no interest.

In fact, the St. Louis Federal Reserve Bank reports the Federal Reserve Banks currently hold some $2,330,461,000 in excess reserves (that are reserves beyond the required minimum bank capital reserves), whereas it was close to $0 before the Great Recession. Why isn’t it being invested productively?

The New York Fed says it is a byproduct of the Fed’s easy credit policies. The Federal Reserve Banks lend to commercial banks so that banks with constrained liquidity as a result of the Great Recession will continue to lend. But who are the banks lending to? Much of Wall Street’s borrowing is for leveraged buyouts, or buybacks of stock to boost stock prices (and CEO salaries, let us not forget).

But this is not where banks should be lending, if the goal is to increase productive investing, and so economic growth. A major reason for the Great Malaise is the huge cutback in government investments, due to the ongoing austerity policies of the western world mentioned by Dr. Stiglitz.

In the U.S., it has been conservative politicians—mainly Republicans—that oppose any government stimulus programs, which they believe takes wealth away from those that already have it. But that ‘no compromise” mentality made infamous by former House Speaker Boehner has made everyone poorer in the long run, and our public infrastructure in grave danger of collapse.

There is some hope with the new U.S. $1.1 trillion budget agreement, plus the $305 billion Highway Infrastructure Act, plus the Paris Climate Change Accord that will pump more $Trillions into alternative energy technologies, will mean government is coming back into the productive investment game.

That is how our public highway system was built, after all, as well as our Moon exploration, and even the Internet was developed. It took public monies to create the new technologies that private enterprise believed was either too risky, or didn’t benefit them directly.

“The obstacles the global economy faces are not rooted in economics, but in politics and ideology,” continues Stiglitz. “The private sector created the inequality and environmental degradation with which we must now reckon. Markets won’t be able to solve these and other critical problems that they have created, or restore prosperity, on their own. Active government policies are needed.”

Will Davos give us any ideas on how to boost economic growth? Time will tell.

Harlan Green © 2016

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Candidate Bernie Is Candidate Obama

Posted on January 25, 2016 by Popular Economics Weekly

Popular Economics Weekly

What I learned from last Sunday’s Charleston, South Carolina Democratic debate, the last debate before the Iowa and New Hampshire primaries, is that Bernie Sanders the idealist, is almost a reincarnation of candidate Barack Obama in 2008 when he was the fiery progressive on the campaign trail.

Hillary Clinton actually, maybe inadvertently, pointed this out during the debate, when she said candidate Obama the idealist became President Obama the pragmatist who had to compromise to accomplish as much as he did during his Presidency. Dodd-Frank was passed that put in place orderly procedures to downsize banks and Wall Street entities in danger of failure, as well as the Affordable Care Act, in spite of almost universal Republican opposition.

Candidate Obama also campaigned on single-payer, universal health care, raising taxes on the wealthiest, as well as cleaning up Wall Street and the too-big-to-fail banking system, just as candidate Sanders has promised. Only Bernie promises to work to break up these same banks from Day One of his Presidency that helped to cause the Great Recession with their “criminal behavior”.

What happened when Obama became the pragmatist in order to accomplish what he did with Republican majorities or near majorities in the House and Senate? Those Progressives that became disillusioned with Obama now support Bernie, even calling Obama a weak leader for not fulfilling his promises made on the campaign trail.

I maintain candidate Sanders will confront the same problems if he succeeds in becoming President. Why? Because there is little or no chance that both the House and Senate will have Democratic majorities after 2016. And he will have to work with the Congress to get anything passed, whether he likes it or not.

We have learned that much from the Obama Presidency. Nobelist Paul Krugman criticized Sanders on his naiveté re the costs of a universal, single payer health plan such as was tried in Bernie’s home state of Vermont, as described by Vox Reporter Sarah Kliff.

“Vermont Gov. Peter Shumlin announced in late 2014 that he would give up on single-payer after budget analysts realized Vermont would need an additional $2.5 billion in tax revenue to pay for the system,” said Kliff. “That would have required raising the payroll tax by 11.5 percent and income tax by 9 percent.”

To which Krugman added, “The point is not that single-payer is a bad idea. It is that given where the U.S. is now, achieving the kind of low costs we see in other countries would involve imposing large losses on many stakeholders, including people with generous policies, health care providers, and more — which is the point I’ve been making. The gains would almost surely be bigger than the losses, but that’s not going to make the very hard politics go away.”

So candidate Hillary Clinton has a problem, maybe the same problem she had in 2008. If she remains the seasoned, political pragmatist, claiming to carry on President Obama’s legacy, can she ignite the same passions in her followers that caused Obama to defeat her in 2008, and seems to be igniting Bernie’s supporters?

The real question is whether a seasoned 20-year Senator such as Bernie can work with his colleagues on both sides of the aisle, as has Obama, and that candidate Hillary promises to do. Bernie so far is acting like the Bernie of old, the Vermont, lone-wolf Independent he was before joining the Democratic Party.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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