Leeds on Finance

I read a recent Chicago Fed Letter, titled “Local Governments on the Brink.”  It was written by Richard Mattoon, senior economist and economic advisor at the Chicago Fed.  The interesting takeaway from the letter is the author’s argument that the local municipality fiscal problem is overstated.  Here’s a quick summary.

 

Local Governments Have Problems:

1.     The drop in real estate values (both personal and commercial real estate) is reducing tax revenue (in some municipalities).  Property taxes comprise 72% of all local tax revenues (2007 – 2008) and the percentage has been relatively steady, but total revenue has declined.

2.     More than property taxes, development fees and real estate transfer taxes (which exploded during the boom) have evaporated.  (As an example, Chicago’s transfer fees dropped from $250MM to $70MM.)

3.     State governments are reducing payments to municipalities.

4.     Underfunded public pensions are consuming larger percentage of smaller state revenues.

5.     Muni bond market did poorly at end of 2010 and into 2011 – making it difficult to issue debt.

 

Arguments Against a Tidal Wave of Bankruptcies

1.     Since 1934, there have only been 600 local government bankruptcy filings. From 1970 – 2009, the cumulative default rate for local governments was .09%.  By comparison, it was 11.06% for corporate bonds.

2.     Local municipalities have greater fiscal resources than commonly discussed.  Municipalities have “rainy day funds” (ending balances for general funds) of 21.4% (on average) of general fund expenditures.

3.     Local municipalities can take intermediate corrective budget action to avoid bankruptcy.  Because of the stigma involved with bankruptcy (and the difficulty of future borrowing), municipalities have a strong incentive to avoid bankruptcy.

4.     While local governments have been increasing their debt, the ratio of municipal debt to GDP was 14% in 2009 (approximately the same level as 1985 – 1994).

5.     Only 2.5% – 5.5% of municipal debt is expiring each year over a 20-year period.  So there is not going to be a period of huge need to refinance.  Municipalities tend to issue debt for infrastructure and they tend to match the term of the debt to the life of the project.

6.     Even in the event of bankruptcy, recovery rates tend to be high for municipal bankruptcies (although this could be different for retirees).

 

The Property Tax Drop is Misleading

1.     There is a lag in reassessing property values.  So, it’s possible that a further drop may occur.

2.     But, in some areas, the dollar amount of total taxation is fixed.  So, dropping home values doesn’t change your bill (if everyone’s value is dropped proportionally).

 

If we’re not going to see a lot of bankruptcies, why did the muni bond market get hurt?

1.     It might have been the result of a glut of debt that came to market.

2.     Continuation of Bush tax cuts may have hurt desire for muni bonds.

 

Some Final Thoughts

Bankruptcy for municipalities is probably not a huge concern at this point.  But, there are certainly municipalities that are in trouble – and obviously, I would worry if I were expecting a pension from an unfunded municipal retirement plan.  While the municipal debt levels don’t sound excessive (in aggregate), the pension liabilities (and health care liabilities) do not show up in the debt levels.  These are the real problems – just like with the federal government.

 

If you want an idea of the size of the problem, total state and local debt was about $2.5 trillion in 2007 – 2008 ($1 trillion for state and $1.5 trillion for local).  Ten years earlier, this was $1.3 trillion ($500 and $800 billion).  One estimate of the pension underfunding is $574 billion.  But, depending on the assumptions you make, this underfunding could be $1 – 3 trillion – which would come close to doubling the outstanding municipal debt.

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On Wednesday, Fed Chairman Bernanke will hold his first press conference after an FOMC meeting.  Personally, I’m not sure that this “transparency” is a good thing.  I think we’re probably better off imagining that there’s a master plan and the “Wizard of the Fed” will make everything okay.  Regardless, Chairman Bernanke certainly will be asked about the dollar’s decline.  Here’s a quick summary of the issue.

 

 

Background

1.     The dollar has dropped approximately 10% in the past year.

2.     The dollar is at its lowest level since August 2008.

3.     The dollar has dropped approximately 40% in the past decade.

 

Reasons for the Recent Decline (Many of these run together)

1.     Low interest rates in the US compared with higher rates abroad.

2.     Belief that the Fed will signal that short-term rates will continue to remain low.

3.     Fiscal tightening in the US will lead to the Fed maintaining low rates.

4.     Disparate growth rates between the US and other countries.  (Money flows to higher growth economies.)

5.     The US deficit and debt problems (and the further light that was brought to these problems by the drop in S&P’s outlook).

6.     The political uncertainty in resolving these problems.

7.     Recent yuan appreciation, which means that China has to purchase fewer dollars.

8.     The rumor that China is going to diversify their currency reserves away from dollars.

9.     Belief that worldwide growth will recover thereby encouraging investors to take risk.  The carry trade occurs where money is borrowed in low-yielding currencies (like the dollar) and sold to finance higher yielding assets.

10. Fear of US inflation.

 

A cheaper dollar has some benefits.  Most importantly, it makes it easier to export.  This helps technology firms and manufacturers.  Of course, there are also some problems…

 

The Bad Side of a Cheap Dollar

1.     Raises the cost of imports – and there are some imports that we need (oil).

2.     Raises concerns about the importance of the US and our role in the world.

3.     The idea that our currency is weakening vs. euro and yen is troubling.  We don’t see Europe or Japan as bastions of financial health.

4. The Fed may have to defend the dollar by raising rates.

 

From a technical perspective, some analysts believe that buyers will enter the market because the dollar is hitting levels at which it has bounced in the past few years.

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Leaving no stone unturned, the super-analysts of S&P uncovered problems with the US fiscal situation.  Unafraid to take drastic action, they left the US debt rating at AAA, but stated that the outlook was negative.  (In a separate report this week, they announced that the outlook for John McCain’s 2008 presidential bid had also turned negative.)

 

The novice might view this change in outlook as miniscule.  But, to my trained eye, I think that what they’re really saying is that “US Treasuries might be an even crappier investment than the CDOs that we rated AAA”.  My favorite line was when they boldly tip-toed out on the ledge and said, “we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the US within two years.”  I think that I liked that line because Jenny frequently tells me that “there’s a one-in-three likelihood”, and I appreciate that she uses that phraseology instead of her old line of “how does the 12^th of never sound?”  S&P’s assessment is like saying “there’s a one-in-three chance that, in the next two years, we’re going to do what we should have done four years ago.”

 

When the S&P analysis was released on Monday, one early news story reported that it made House Speaker Boehner cry.  Later though, Boehner’s spokesman explained that he had been crying about something else.

 

Lest I digress, let me tell you what these S&P sleuths uncovered.

 

The US Maintains AAA Rating Because:

1.     “The economy of the US is flexible and highly diversified.”  (I agree.  Sort of like Enron.)

2.     The country’s effective monetary policies have supported growth while containing inflationary pressures.

3.     “Consistent global preferences for the US dollar…gives the country unique external liquidity.”  (In other words, foreigners like dollars and will loan to us.  If that doesn’t make sense to you, it’s sort of how idiot bond investors used to loan money to subprime borrowers.  I hope that helps.)

4.     We have “adaptable labor markets”.  (In fact, 14 million people have adapted to being unemployed.)

5.     We have “a long track record of openness to capital flows.”  (This is correct.  We will let anyone finance us.  It’s sort of like taking either cash or credit at the brothel.)

 

We’ve Spotted Some Problems:

1.     Very large deficits.

2.     Rising government indebtedness.

3.     “The path to addressing these (the deficits and the debt) is not clear to us.”  (I’m not sure here if they’re saying that our politicians are terrible or if they’re simply admitting that “it’s not clear to us” sort of like how we missed the financial crisis.  It could be either.)

4.     Shockingly, they “believe there is a material risk that US policymakers might not reach an agreement on how to address medium and long-term budgetary challenges by 2013.”  (Apparently, they detect some sort of extreme partisanship that the rest of us have missed.)

5.     “We were driving down the road and all of a sudden, a $50 trillion unfunded liability came out of nowhere and crushed our car.”  Okay, that wasn’t really included in the S&P report, but it should have been.

 

As many of you know, I’ve been concerned about our debt situation and our unfunded liabilities for a long time.  But, no more.  If S&P tells me that we’re AAA, I’m good with that.

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Last week, Fed Vice-Chair Janet Yellen spoke about commodities and inflation.  Her speech was premised on the same idea that we’ve heard from other Fed officials…we don’t need to worry about commodity inflation because it’s transitory.

 

We can look historically and see that Janet Yellen is correct.  Commodity inflation has always been a short-term phenomenon.  You can look at 1973-74 and 1979-1980 as examples.  In 1973-74,  the Yom Kippur War was fought and several nations reduced supply to the US.  In 1979 -80, the Iranian revolution disrupted supply and then Iraq and Iran went to war (which also caused supply problems).

 

Here’s the problem with this argument…in the past, we had interruptions to the supply of oil.   All of these supply interruptions were transitory – the wars ended.

 

Today, we again have some fear of supply issues, such as the civil war in Libya.  But, there’s another big issue today and it’s very different than the past – the rising demand from the emerging nations such as China.  This type of increase in demand is not a transitory issue.

As Vice-Chair Yellen points out herself, China has accounted for approximately half of global growth in oil consumption over the past decade.  Assuming that there are limits to the potential growth of the supply of oil, we could be facing a very different scenario.

 

The Fed seems to be relying on the belief that inflationary expectations will remain anchored due to the (historic) transitory nature of commodity price shocks.  At the same time, in arguing that QE2 is not responsible for high oil prices, they attribute price increases to increased demand from emerging markets.   These arguments seem to be in conflict to me.  Increasing demand (with limits to the increase in long-term supply) can result in a permanent price increase.

 

High oil prices can cause a tremendous number of problems.  Consumers’ purchasing power has decreased as more of their income is being used for food and energy.  Since we are an importer of oil, more of our income is going abroad.   Finally, higher oil prices can result in both higher unemployment and higher inflation.  There’s little that the Fed can do that will solve both of those problems at the same time.  Lets hope that the increase in the price of oil has been caused by QE2 and will be transitory in nature.

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Atlanta Fed President Lockhart made some interesting comments about manufacturing in a recent speech.  Here’s what he said:

1.     Manufacturing output expanded at an annualized rate of 9% in January and February.

2.     The manufacturing purchasing managers index remained at strong levels through March.  The rebound of this index has been the strongest since the rebound following the deep recession in the early 1980s.

3.     There are approximately 340,000 manufacturing establishments in the US.

4.     Manufacturing output represents about 11% of the US economy in real GDP terms.  This has been relatively constant for several decades.

5.     Despite China’s rapid growth, the US remains the worlds’ largest manufacturer.  According to UN data, the US accounts for 1/5 of global manufacturing output in real terms.  This has been relatively constant for 20 years.

6.     Our high share of global manufacturing output reflects the size of the US economy and domestic demand.  We’re not the world’s largest exporter (China and Germany are ahead of us).

7.     In the current recovery, manufacturing production has grown faster than total GDP.  But, we’re still 10% lower than three years ago because of the outsized decline during the recession.

8.     While manufacturing output has maintained its share of total GDP, manufacturing’s share of jobs has steadily declined.  In the 1950s, almost one in three payroll jobs was in manufacturing.  Today, that is less than one in ten.

9.     In absolute numbers, manufacturing jobs fell by almost five million over the past decade.  We are currently at 11.6 million (manufacturing jobs) after remaining stable in the 1980s and 1990s.  This is the result of increasing productivity.

10. Productivity has increased by automation, robotization and reconfiguring production processes (including offshoring labor-intensive processes).

11. Manufacturing wages remain higher than average wages and have been growing faster.  The average weekly wage in manufacturing is nearly $200 higher than for all private industries.  This reflects the changed mix of jobs and relatively higher skill requirements in the manufacturing sector today.

12. Manufacturing is no longer the job creation engine.  Its future depends on its ability to change and reinvent itself in response to global competitive pressures.

13. The demise of US manufacturing have been greatly exaggerated.

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Income and wealth inequality are huge issues.  Here’s what I know…it would be really bad if the top 1% of earners only earned 1% of the income (i.e., all jobs were compensated equally).  It would also be bad if the top 1% of earners received 100% of the income.   We could make similar arguments about wealth (how much wealth should be owned by the top 1%).

 

We all have different opinions as to what the appropriate numbers should be.  (I’m confident that I believe the numbers should be far lower than the average reader of my blog believes they should be.  In other words, I believe income and wealth inequality are huge problems.)  This is a crucial issue.   Ultimately, your belief with respect to this issue impacts your belief concerning tax policy and the importance of taking care of the poor.

 

Nobel Prize winner (and Columbia Professor) Joseph Stiglitz wrote a short piece about income inequality for Vanity Fair. If you believe that this is an important issue, I urge you to take 15 minutes and read Stiglitz’s piece.  As you know, I read a lot and I think that this may be the most important article I have read in the past few years.  My summary (much of which is lifted word-for-word) can’t do it justice.  If you don’t believe that income inequality is a problem, you might as well stop reading here.

 

Here are a few of his comments, but again, you need to read the entire article.

 

The Issue

1.     The top 1% of earners take nearly a quarter of the nation’s income.  The top 1% have 40% of the nation’s wealth.  This is an inequality that even the wealthy will come to regret.

2.     The problem has become worse.  Twenty-five years ago, the numbers were 12% and 33%.  Our current numbers are like Russia and Iran.

3.     The wealthy explain this with the “marginal productivity theory”.  In effect, they say that greater productivity and contribution to society results in higher income.  Of course, there are problems with this belief.  Many of the executives who have brought great harm to our economy are wealthy.  Many of the individuals who have created great innovation (e.g., genetic understanding or the pioneers of the Information Age) are not wealthy.

 

Inequality is Bad for the Long Run

1.     Concentrated wealth means that there is less equality of opportunity.  This means we don’t use all of our most valuable assets (people) in the most productive way.

2.     We create distortions in the economy which undermine efficiency.  For example, many of our best students now go into finance rather than fields that lead to a more productive and healthy economy.

3. Third, we need “collective action” – investment in infrastructure, education and technology.  But, we underinvest and cutbacks lie ahead.  “None of this should come as a surprise – it is simply what happens when a society’s wealth distribution becomes lopsided.  The more divided a society becomes in terms of wealth, the more reluctant the wealthy become to spend money on common needs.  The rich don’t need to rely on government for parks or education or medical care or personal security – they can buy all these things for themselves.  In the process, they become more distant from ordinary people, losing whatever empathy they may have once had.  They also worry about strong government – one that could use its powers to adjust the balance, take some of their wealth, and invest it for the common good.  The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes.”

What Has Caused The Growing Inequality?

1.     Labor-saving technologies have reduced the demand for middle class, blue-collar jobs.

2.     Globalization has pitted expensive unskilled American workers against cheap unskilled foreign workers.

3.     Social changes, such as the decline of unions, has had an impact.

4.     The top 1% have impacted tax policy.

5.     Lax enforcement of anti-trust laws.

6.     Manipulation of the financial system – such as the recent bailouts.

 

The Problem With the Political System

1.     Virtually all US senators and most representatives are members of the top 1% when they arrive, are kept in office by money from the top 1% and know that they will be rewarded by the top 1% when they leave office (if they have served the top 1% while in office).

2.     Key executive branch policymakers on trade and economic policy also tend to come from the top 1%.

 

America’s Inequality Distorts Our Society

1.     Trickle-down behaviorism – people outside the top 1% live beyond their means.  (This is not a defense of people living beyond their means; rather, it’s just a statement that this is a distortion we see.)

2.     Foreign policy – the children of the top 1% usually don’t serve in the military and we pay for wars by borrowing rather than taxing.  As a result, there is no constraint on our military adventures.  Corporations and contractors only stand to gain.

3.     The erosion of our sense of identity, in which fair play, equality of opportunity and a sense of community are so important.  The chances of a poor (or even middle-class) American making it to the top are smaller than in many European countries.

 

The Trickle-Down Economics Argument Has Problems…

1.     One in six Americans is either unemployed, under-employed (they have part-time work when they want full-time work) or so discouraged that they’ve quit looking.

2.     One in seven Americans is on food stamps.

 

Stiglitz’s Conclusion

Self-interest is the key to our future.  Self-interest doesn’t mean maximizing what I can get right now.  It means appreciating that paying attention to everyone else’s self-interest – in other words, the common welfare – is in fact a precondition for one’s own ultimate well-being.  Looking out for the other guy isn’t just good for the soul – it’s good for business.

“The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live.”

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One of my favorite speakers, Dallas Fed President Richard Fisher, gave a speech on Friday, titled “Is America’s Decline Exaggerated or Inevitable? The Role of Monetary and Fiscal Policy.”  As usual, he didn’t disappoint.  Here’s the link. Here are his key thoughts (most of which are direct quotes, but some are paraphrased).

The Big Picture

1.     Whether America’s decline is exaggerated or inevitable depends upon monetary and fiscal policy.  The issue is whether we can get our economic house in order.

2.     With respect to monetary policy, there is no way to argue that liquidity is still a problem (see below).  We need to start withdrawing liquidity.  There are several risks if we don’t.

3.     From a fiscal policy perspective, the challenges are great.  We need to balance the budget and handle our unfunded liabilities without slowing growth or job creation.

 

We Have Enough Liquidity

1.     The Fed’s balance sheet is bloated: $2.4 trillion of assets (approximately triple the pre-crisis level).  In addition, the composition has changed – we hold $937 billion in mortgage-backed securities and over $1.3 trillion in Treasury securities, including those of longer duration than is typical.

2.     Banks have $1.4 trillion in excess reserves parked in the 12 Federal Reserve Banks.  Other financial intermediaries are flush with cash.  There is a surfeit of cash on the books of corporations and nonfinancial businesses, and more is available at little cost through a robust bond market and a fully recovered stock market.

3.     The liquidity was sufficient even before we agreed to buy another $600 billion of Treasuries and replace the runoff of our $1.25 trillion MBS portfolio.

4.     It is hard to dispute that there is now plenty of fuel in the tanks of American businesses to finance expansion and put unemployed and underemployed Americans to work.

 

While Fed Policy Was Necessary, There Were Certainly Problems

1.     We protected imprudent lenders and investors from the consequences of their decisions; we rescued sinners and penalized the virtuous.

2.     The “too big to fail” financial institutions that placed our economy in jeopardy have ended up with even greater financial power.  Adding insult to injury, leaders retained their posts and few suffered financial setbacks.

3.     We helped all shareholders and bondholders.  Yet, we hurt the most conservative investors who buy CDs, T-bills and money market funds.

 

There Are Many Risks to Accommodative Policy

1.     Perceptional risk – we can be perceived as monetizing our debt of fiscally imprudent government.

2.     There is risk we might breach our duty to hold inflation at bay.  We’re seeing worldwide inflation.  Germany has 3% wage inflation, UK retail price inflation is 5%, China has 4.5% inflation, Brazil has 6% and India has 8%.

3.     We are starting to see disturbing practices again: a resurgence of “covenant-lite” loans ($24 billion issued in Q1 vs. $100 billion for all of 2007); private equity firms are back and using leverage to pay dividends; payment-in-kind and “toggle” notes are back; insurance companies and pension funds are returning to exotic asset classes to juice returns.

 

Fiscal Policy Must Align Spending With Taxation

1.     We must not cut off the recovery.

2.     We must bring Social Security and Medicare to solvency.

3.     We must realize that in a global world, jobs are created in places that offer the most compelling fiscal and regulatory environments.  Permanent jobs are created by the private sector.

 

Two final notes.  First, Fisher says that his gut tells him that we will see some unpleasant general price inflation numbers in the next few reporting periods.  (Realize that the Fed presidents receive loads of information from business leaders in their region.)  Second, Fisher said that he was optimistic because we are a nation of people who act and we will overrun those who don’t act (including politicians).  I hope he’s right.

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Kansas City Fed President Thomas Hoenig gave a speech at the London School of Economics arguing that after a central bank helps to prevent a financial crisis, they have another important job.  They must create conditions for a sustained economic recovery that requires looking beyond short-term goals to long-term consequences.

 

Here are some of his thoughts:

1.     The FOMC should gradually allow its $3 trillion balance sheet to shrink toward it pre-crisis level of $1 trillion.

2.     The FOMC should move the fed funds rate off of zero and toward 1% within a fairly short time.  Then, the rate needs to be moved toward something more normal.

3.     Focusing on the longer run would reflect a sharp awareness that policy geared too long toward extensive accommodation undermines market discipline and encourages speculative activities.

4.     In other words, the longer exceptionally accommodative monetary policies remain in place, the greater the danger that resources will be misallocated within and across world economies.

5.     The US is recovering (we have GDP growth; we’ve created 1.5 million jobs in the past year).  You would expect to see the stimulus throttled back.  Ultimately, policy turns on one’s confidence in the long run economic trends and the degree of monetary accommodation needed to ensure that those trends continue.

6.     Policy is now more accommodative than it was during the crisis.

7.     We’re focusing on raising inflation expectations, increasing asset values and pushing up demand and employment.  While these are worthy goals, our policies are creating risk.

8.     The goal of the central bank should be to take care of the long-term so that the short-term can take care of itself.

9.     We risk introducing new imbalances and long-term inflationary pressures into an already fragile recovery.

10. In June 2003, with the fed funds rate at 1.25% and the economy growing, there was fear of deflation.  As a result, we lowered rates further (to 1%).  This led to a huge increase in credit, the monetary base and housing prices.

11. Extended periods of accommodative policies are almost inevitably followed by some combination of ballooning asset prices and increasing inflation.  The relationship between negative rates and high inflation is unmistakable.  In addition, nearly 50% of the housing price busts were preceded by negative real policy rates in the years before the busts.

12. The US real fed funds rate has been negative for 11 quarters.

13. As the US continues to ease policy into its recovery, once again there are signs that the world is building new economic imbalances and inflationary impulses.  The longer policy is ultra-accommodative, the greater the likelihood that these pressures will build and undermine growth.

14. We’re beginning to see some assets accelerate in price.  Agricultural land prices are increasing at double-digit rates.  High yield securities are being priced high relative to risk.

15. Over the past four months, core PCE inflation has increased from .7% to 1.5%.

16. From the 19^th century to the present, there is a striking parallel between the long-run growth rate of money and the growth in the price-level index.   See exhibit below.

17. While we may temporarily increase GDP and employment, we risk (in the long run) instability, damaging inflation and lost jobs.  This is a dear price for middle and lower income citizens to pay.

 

 

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Many investors and commentators have been discussing inflation.  Most importantly, the fear is that rising inflation would result in the Fed ending QE2 and would lead to more restrictive monetary policy.  Chicago Fed President Charles Evans recently spoke about these issues.  Here are a few of his thoughts that were interesting to me:

 

1.     In the past three months, energy prices have increased at an annual rate of 29% and food prices are up nearly 14%.  This hurts purchasing power.

 

2.     The increase in prices is the result of rising demand and some unique supply side conditions (weather issues, unrest in Middle East, etc.).

 

3.     “In such case, there is not a direct role for monetary policy.  Monetary policy cannot affect the scarcity of resources.”

 

4.     What we’re seeing is not inflation – we’re seeing a change in relative prices.

 

5.     Changes in relative prices provide an important signal to market participants – encouraging consumers to find ways to economize and giving suppliers an incentive to increase production.

 

6.     Relative price changes become inflationary only if they somehow spur price increases for a broader range of other goods and services.  If this were to happen, monetary policy would need to change.

 

7.     The Fed tends to look at the Index for Personal Consumption Expenditures (PCE) for long-term inflation.  In the short-term, they look at Core PCE (excluding volatile food and energy).

 

8.     Recently, the PCE has been at 1.5% and the Core PCE has been at 1%.  This is below the unstated 2% goal.

 

9.     Three important factors for examining inflation are: commodity costs, resource gaps and inflation expectations.

 

10.  Because commodities only contribute a minor portion of the total cost of bringing most items to market, we see little historical evidence that commodity prices will drive core inflation.  For commodity prices to influence consumer prices, firms must be able to pass cost increases on to consumers.  This won’t happen with lax demand.  Instead, rising input prices can squeeze profits.

 

11. Prices rise when increases in demand push up resource utilization and put broad-based pressure on firms’ cost of production.  Slack in labor markets means small increases in wages and salaries.  Labor represents the largest component of production costs and that’s not causing any price increases.  For price increases to be sustained, you need higher wages and higher demand.

 

12. Higher commodity prices don’t seem to have impacted consumer expectations.

 

13. “Slow progress in closing resource gaps and underlying inflation trends that are too low lead me to conclude that substantial policy accommodation continue to be appropriate.”

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I read two really interesting editorials this past week.  Here’s a quick summary of some key points:

 

“We’ve Become a Nation of Takers, Not Makers” – WSJ by Stephen Moore

1.     There are nearly twice as many people in the US that work for the government (22.5 million) than in all of manufacturing (11.5 million).

2.     This is almost an exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million government workers.

3.     More Americans work for the government than in construction, farming, fishing, forestry, manufacturing, mining and utilities combined.

4.     Every state in the US (other than Indiana and Wisconsin) has more government workers than people manufacturing industrial goods.

5.     Private industries tend to become more productive and need fewer people.  You don’t see those gains in government productivity.

 

” They’ve Got to Fix Their Priorities” – The New York Times

1.     The banks seem to have weathered the financial crisis, but the rest of the country hasn’t.

2.     The Fed has allowed many of the large banks to resume dividends – good news for bank investors and executives (many of whom are large shareholders).

3.     Many of the too-big-to-fail banks are even larger now.

4.     Legislation to reform the banks is under attack.

5.     It is hard to know how safe the banks will be if home prices fall further.

6.     Many of these large banks have issued government-backed debt totaling nearly $120 billion.  That should be paid back before shareholders receive money.

7.     Banks also face possible fines related to foreclosure practices.

8.     The Fed is continuing to put banks first – and this is the type of favoritism that led to our problems.

 

Please forward this to others who may be interested.

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