The Witless and the Half Baked

The BoJ was seized by a thought and left in a confusion of dust and feathers, off home, to do yet again what has not worked for two decades, presumably the way a goldfish thinks it will just try the other side of it’s bowl just one more time in case there’s an interesting way out it had not seen before. QE announced, small bounce in Yen and stocks, followed mere hours later by a fade as the markets said to themselves, ‘Is that it?’

Bernanke got much more reaction for his hot air. Wall Street, powered almost exclusively by the Banks these days, appreciated his assurances that the Fed would keep buying bonds, not allow deflation, and had unorthodox measures if needed.

But these are short terms reactions. Somewhat like the smiling photos you take on holiday before you return home and remember that your house is subsiding. Some of that subsidence is to come this week in august US unemployment figures. Some surfaced while Ben was away.

A small Foreign Exchange company in NY called Faros wrote a slightly shrieky paper last week. Not a big company and therefore not an important event, but interesting. In their paper they said, rather too honestly and bluntly perhaps, that the housing stimulus had simply NOT worked. They noted that this is the only time since the 70’s when a Federal stimulus has NOT resulted in a sizable jump in house sales.

They apparently had no idea why this was only that it was terrible.

Then they went on to blame America’s general lack of recovery, and their own difficulties in particular, on dastardly foreigners. Which fits with my last post only too well. Faros said foreigners were competitively depreciating their currencies despite the US asking them not to and so it was time for “the gloves to come off.” Time to ditch QE light and wheel out QE Heavy.

Otherwise they said, Mr Bernanke had to realize that “the light at the end of the tunnel is a train.” So not a vote of confidence.

The resort to gloves off imagery to deal with dirty rotten conniving foreigners is a worry. More interesting is that these financial experts just can’t imagine why house sales aren’t getting better.

The answer they were looking for was actually provided by analysts over at JP Morgan. They took a closer look at US corporate profits which, because they have been above expectations for the last several months, have driven the reported growth in GDP. Growing GDP and corporate profits are exactly what the pundits have all pointed to as proof that we have a recovery. After all if corporations are making good profits then wealth will surely start to flow.

Except that the JP Morgan analysts found that neither the GDP increase nor the profits had been caused by increased sales and revenues but by declining wages. Their analysis showed that this recovery, much more than any other, has been based on wage cuts NOT revenue increases.

This is why those at the top have been saying we are in recovery while all those not at the top have become poorer and more desperate. It also means that while Mr Bernanke and Mr Geithner talk about stimulus it is only stimulus for those at the top. Most of American IS suffering under a policy of austerity. It is just a privatized austerity programme the government does not want to own up to. Because it does leave a nasty taste in the mouth when you see your tax dollars lavished on the wealthy while you are treated to wage cuts or unemployment.

Finally it also answers the question Faros couldn’t figure out. Namely why there has been no housing recovery. Not really that complicated boys. People’s wages are being cut in the run up to them losing their job completely. How did anyone think people were going to react? Pull out the credit card and shop? Buy a new house or car?

The problem with America, and to a very slightly lesser extent europe as well is the vast anbd growing disparity between the have-a-lots and the have-less-and-less. We have the same trend in Europe only not quite as savage. But only slightly less so – no room for smugness at all. In the U.S., 1% of Americans hold 33%, a third of all the wealth in the country. The last time the proportion of wealth owned by the top 1% was that high was …1928. I think we call that progress don’t we?

the 400 wealthiest Americans have a net worth of about 1.5 trillion dollars. The net worth of the bottom 50%! of all the rest of America is 1.6 trillion dollars. Is that morally right?

The problem for America is that that 1%, are the people who run the country, its financial system and either sit in Congress themselves or ‘advise‘ those who do and bankroll their elections and their decisions.

Good luck with that broad based recovery.