The Market for Million Dollar Homes is Hot – the Rest? Not.

If you want to buy a million dollar home, then you better hustle out there and get one. The National Association of Realtors says that sales of homes costing $1 million or more rose 7.8 percent in March of 2014. With big bonuses back in style in the financial sector and stocks tripling their value since 2009, the wealthiest 10% of the population is living in style.

fancy houses

Oh yes, the number of transactions for $250,000 or less – about two-thirds of the housing market – fell by 12%. Slow wage growth, rapidly rising prices, and rising mortgage rates have put home ownership out of reach for many first-time homebuyers.

With demand so slow at the bottom of the market, many homebuilders are switching to larger, more expensive properties that appeal to wealthier buyers. For example, KB Home now builds about half of its houses for the upper tiers of the market. “With the mortgage headwinds and the lack of job growth and everything else that we dealt with through this housing cycle and now into the recovery, the typical first-time buyer got kneecapped,” said Jeff Mezger, company CEO.

Since the Federal Reserve Bank announced last May that it was going to begin cutting back on its $85 billion monthly purchases of housing bonds and treasury bonds, the average mortgage rate has risen by almost a full point. In addition, millions of Americans are still stuck in homes where they owe more on their mortgages than their houses will sell for. In March of 2014, nearly five years since the recession officially ended in the summer of 2009, 18.8% of homeowners – 9.7 million families – have mortgages that are “underwater.” Another 18% are all but underwater because their home won’t sell for enough to give them a down payment on a new house.

Let’s face it, there are winners and there are losers in 21st century America. As Bonnie Stone Sellers, CEO of Christie’s International put it, “The trends in luxury housing are similar to trends in other luxury goods. Whether you’re buying a third home in Manhattan as a pied-a-terre or another Picasso, these are acquisitions of passion, of lifestyle, and of experience.”

Noah is a Rousing call for Christian Environmentalism

It has been a grim week for the planet, but the movie Noah offers a glimmer of hope by delivering a spectacular wake-up call to Christians – reminding them that it is God’s creatures who are going extinct and God’s jewel of a planet that is being destroyed.

NoahWith the environmental movement desperately trying to protect the earth, energetic Christian environmentalists would be a welcome addition.

We all know the biblical story of Noah: humans have wandered far from the Garden of Eden, with immoral cities, plundering and killing. The movie Noah adds an interesting twist that makes the story jump into the 21st century – the most visible evil is how humans are befouling the earth. As the movie begins, we find Noah and his family living in an odd wilderness. Later, when they begin their journey to discover God’s vision for Noah, we suddenly realize that the wilderness is a forested area that has been completely, ruthlessly, denuded of trees and top soil by heedless human farmers.

The cruel and disheveled people they meet on their journey are literally starving to death as the earth becomes barren under the weight of human development. Only Noah seems able to recognize the beauty and worth of the animals, plants, and birds that struggle to share the planet with these ravenous humans.

The movie has a series of unexpected plot twists that put everyone in the family under intense moral strain but throughout, the sense of wonder and reverence for the creatures and the fullness of life on the plant remains a constant – right down to Noah’s final words after the flood, asking his family to replenish, not subdue, the earth.

Wall Street Adrift

The erratic movements of the stock market since the beginning of 2014 reflect the sense of uncertainty that grips the wealthy investors and institutional buyers who dominate the market. (The 1% own 33% of all stock wealth.)

Trader Reacts to 1987Over time, stock prices reflect current corporate profits and expectations about future profits. Without the Federal Reserve pumping $85 billion each month (over $1 trillion in 2013) into the financial system, few investors believe corporate profits will continue to rise.

The irony is strong – signs that the American economy will grow more rapidly in 2014 and that unemployment will continue to decline actually reinforce the fears on Wall Street that corporate profits and stock prices are about to take a fall.

The current situation highlights the agonizing contradictions the U.S. economy has developed over the last 40 years. Without innovative policies emanating from Washington D.C., prosperity for the general population will continue to remain elusive. The profit squeeze scenario has three elements:

1) The main way in which corporations have increased their profits is by clamping down on worker salaries – that is, workers’ wages have actually fallen since the 1970s, with an acceleration in the decline since 2008, while worker productivity has increased. A 4% fall in wages along with a 2% rise in productivity means a 6% increase in profits, even with small increases in sales. Now, as the economy slowly picks up, business economists argue that a 6.5% unemployment rate will lead to a shortage of skilled labor and a resulting rise in wages. Their claim is that many of the 4 million long term unemployed and most of the 5 million people who have dropped out of the labor force since 2008 are no longer employable as skilled labor. If they are right, then wages for skilled workers will soon rise – squeezing corporate profits.

This is doubly threatening to stock prices because, after the internet bubble burst in 2000 and even more since 2008, corporations have used their profits to artificially push up the value of their stock by buying it back, thus increasing the value of the remaining securities left on the open market. For example, in 2013, corporations invested more than $600 billion buying back their own stocks. If profits go down, fewer companies will be able to carry out this strategy.

2) Another reason corporate profits have been very healthy since the Great Recession is because American businesses have become adept at “financial engineering.” Financial engineering is a business strategy designed to ensure that corporate profits are high and grow almost every quarter. With the great increase in financial speculation that began in the1980s and 1990s, Wall Street began severely punishing companies that don’t report higher profits every quarter. This is feat is almost impossible in an economy where demand and supply rise and fall in unpredictable ways.

However, corporations have discovered they can create steadily rising profits by borrowing money at low interest rates and investing those funds in short term financial products such as derivatives and commercial paper. Now, as the Fed cuts back on its $85 billion per month subsidy, the possibility of rising interest rates threatens the viability of this profit-making strategy.

3. Finally, Wall Street knows there is a major flaw in the Keynesian argument that greater consumer spending will jump start the economy by triggering increases in sales that will improve corporate profits. The flaw is, without tariffs to balance out price differences, American consumers will use wage increases to buy huge quantities of less expensive or higher quality foreign products. Even in a slow growth economy, we continue to run huge trade imbalances with China, with Japan, with Germany, with South Korea, with Singapore, with Saudi Arabia, with Venezuela – the trade deficit with China alone was $440 billion in 2013.  Thus, pumping up our economy is like putting air into a leaky tire – there is lots of huffing and blowing, but the tire stays limp.

In the 1980s, the 1990s, and then the 2000s, the Federal Reserve and the Federal Government joined consumers in debt binges that together, blew hard enough to make our economic tire fill up. However, in the world of 2014, both Federal institutions are cutting back their stimulus efforts. This is why Wall Street investors are afraid; they believe we are headed for a brief period of prosperity, followed by a withering away of corporate profits and then of economic growth.

FBI Covers Up Marathon Bombing Mistakes

As the anniversary of the tragic bombing of the 2013 Boston Marathon approaches, all we can hear is the sound of silence from our national security agencies. The FBI in particular, which appears to have made a number of mistakes in the years leading up to the bombing, is putting roadblocks in front of attempts to discover what went wrong.

The lead Boston Marathon bomber was pointed out twice to U.S. authorities by the Russian intelligence service; in spite of these warnings, the FBI, along with the Customs Bureau, let him get away.

The House Committee on Homeland Security has just released a report that “takes the FBI, Customs and Border Protection, and other officials to task for missing opportunities to scrutinize Tamerlan Tsarnaev after he was first investigated by the FBI in 2011.” Yes, the FBI was warned in 2011 by the Russian intelligence agency Federal Security Service (FSB) that he was known to associate with radical Islamists in Chechnya. The FBI sent an agent to investigate Tamerlan and his name was entered into a processing system called TECS, which is an information sharing system that links a number of security databases and can be used by multiple federal agencies. However, a few months later, the FBI closed the investigation saying “the assessment found no links to terrorism.”

As part of their closing of the case, the FBI did not notify the Boston Police Department of their investigation. An officer from the police department was assigned to the FBI’s Joint Terrorism Task Force in Boston, “but the officer’s ability to handle information was severely restricted.” The House report states that no one knows what the Boston police would have done with this information, but “it is impossible to know how wider dissemination may have impacted events.”

In September of 2011, the FSB, perhaps amazed at the incompetence of the FBI, sent a second warning about Tamerlan to the CIA. Again, Tamerlan’s name was put in the TECS system with a note saying he must be detained if he attempted to leave the U.S. In January of 2012, when Tamerlan flew to Russia out of JFK airport in New York, the TECS system notified an FBI agent in the Joint Terrorism Task Force in Boston. For reasons the House Committee could not discover, no action was taken.

When Tamerlan arrived at the airport, Customs Bureau officials were busy with other high-interest travelers and the soon-to-be Boston bomber was not detained. He then spent six months in Dagestan, a region near Chechnya, and U.S. officials believe he received training from Islamic radicals during that time. When he booked a flight back to New York from Moscow, the TECS system notified the FBI’s Joint Terrorism Task Force in Boston. Again no action was taken and again Customs Bureau officials did not detain him when he came through the airport.

Is it any wonder that the FBI refuses to co-operate with the House investigation? According to a member of the committee, U.S. Congressman Bill Keating of Massachusetts, the FBI turned down three opportunities to testify before the committee. “There hasn’t been full co-operation, Keating said. “Two trips to Russia and I get more information than I do going down the street 10 blocks in Washington.”

So, the cover-up continues. IT IS AN OUTRAGE: the FBI owes a full accounting to everyone – the more than 200 bombing victims and their families, the thousands of runners and by-standers, the residents of Massachusetts, and all Americans.

Wal-Mart Leads the Low Wage Economy

Wal-Mart not only exploits its 1,400,000 workers, its huge size and low prices force other companies – both its suppliers and its competitors to exploit their workers.  In the process, Wal-Mart is one of the major forces pulling down wages in the United States.

The cost of Wal-Mart’s persistent anti-worker policies extends to every taxpayer.  For example, half of Wal-Mart’s workers qualify for federal assistance through the food stamp program.

On Black Friday, I went to the Wal-Mart nearest to my home.  Not to shop, but to demonstrate against Wal-Mart’s employee policies.  The theme of the rally was Wal-Mart: Always Low Wages, Always.  It felt good to do a small thing to protest against hard working people being squeezed by the largest employer in the country.  It also felt good that many people in cars coming into the parking lot honked their horns in support of our protest.  This makes sense – the people most likely to shop at Wal-Mart are the millions of minimum or near minimum wage workers who seek low prices in order to stretch their household budgets.

In recent posts, I have outlined how we are becoming a low-wage economy, with the real wages of average families falling by almost 10% since the recession of 2000 – 2001.  Wal-Mart is the leader of the pack in holding wages down.  The average hourly wage of a Wal-Mart sales associate is $8.81.  That adds up to $1,527 per month or $18,325 per year if the person works full time – but, of course, no sales associate works full time.  That is why a new report from the Democratic staff of the U.S. House Committee on Education and the Workforce estimates that each Wal-Mart store costs taxpayers an estimate $1 million in public assistance for its employees.

Oh, and the company reported profits of $17 billion in 2012.  If even half of those profits were distributed equally to its employees, each of them would make an extra $6,070 each year.

Unfortunately, Wal-Mart’s competitors are working just as hard to keep their wages down, too.  The nine other companies that employ the most low-wage workers should be very familiar – McDonalds, Starbucks, TJX (Marshalls & TX Max), Macy’s, Darden Restaurants (Olive Garden, Red Lobster), Sears, Yum Brands (Taco Bell, Pizza Hut, KFC), Target, and Kroger (Kroger, City Market, Dillons).  Together they have 3,021,000 employees and made $15.6 billion in profits last year.

Of course, these employees could unionize, but it is like rolling a boulder up hill.  First, the workers are scattered around the country in hundreds of retail or restaurant outlets.  Second, the turnover is tremendous because workers leave as soon as they can find anything even a little bit better in terms of hours and wages and benefits.  Finally, these employers are nasty.  According to the National Labor Relations Board, Wal-Mart has “unlawfully threatened, disciplined, and/or terminated employees” in 13 states for protesting their work conditions or attempting to organize a union.  In four states those charges also include “the surveillance, discipline, and or termination of employees in anticipation of” planned strikes.

That is why our citizen protest was important.  There is a rising tide of discontent among Wal-Mart workers and other low-wage employees.  Unions are trying to organize workers at many stores around the country.  When Wal-Mart workers get together and actually try to negotiate with management, we can expect a hostile reaction and the new union will have to strike to get any concessions.  That is when community support will be crucial and can tip the balance.  I urge you to adopt a local Wal-Mart and help the community committee forming to help its workers – some day soon it will be a vital service.

The Federal Reserve vs. the Tea Party

The Federal Reserve turned down its invitation to a Tea Party.  The Fed looked at the havoc Tea Party Republicans want to create with the U.S. budget and decided to put more sand bags in the economic dike.

Ben Bernanke and his fellow bankers decided on September 18 to keep buying $85 billion in mortgage bonds and treasury bonds, hoping they can keep the feeble economic recovery from collapsing into recession when the Tea Party Republicans refuse to raise the debt ceiling.

The good news is that Fed Chairman Ben Bernanke is trying to keep the economy on track as we head into a serious collision between the Democrats and the Republicans over the federal budget and the debt ceiling resolution – both of which have to be resolved in October.  The bad news is the economic expansion is so weak, a few weeks of political confusion might plunge us back into recession.

Buried in the back part of stories about the Federal Reserve’s decision was the grim news that the Fed’s economists have lowered their predictions for economic growth.  The new prediction is for tepid growth of 2.0 to 2.3 percent this fall – a rate that will not put many people back to work.  The Fed and the mass media have finally noticed what I pointed out last spring in this blog – much of the fall in the unemployment rate is coming from people dropping out of the labor force.

Look at this, the number of people in the labor force, that is, working full or part time or looking for work, fell by 312,000 in August.  As a result the labor force participation rate fell to just 63.2 percent – the lowest it has been since 1978, back when it was pretty common for only one adult in a household to be working.  The impact is staggering – the unemployment rate has fallen 2.7 percentage points from a peak of 10 percent in 2009 to 7.3 percent in August.  The majority of that decline, 1.8 percentage points is from the drop in the participation rate!

Enter the Tea Party/Republican Party.  In utter disregard for the spreading poverty around them, the House of Representatives voted 217 to 210 to slash $40 billion from the Food Stamp program.  This is the latest round in the right’s relentless push to re-distribute income through tax cuts for the rich and benefit cuts for the poor.  As usual, this subversive program is obscured by a fog of words proclaiming a moral crusade against deficit spending and the undeserving poor.  For example, Representative Marlin Stutzman of Indiana, who led the Republican push for the cuts, said “This bill eliminates loop-holes, ensures work requirements, and puts us on a fiscally responsible path.”

What nonsense.  The 44 million Americans, one in every seven of us, who have their income supplemented by food stamps and the 48 million Americans without health insurance are not causing our economy to stumble along.  The Republicans have been using this “blame-the-victims economics” for over a generation.

It only works if the rest of us are unable to see that the root causes of our problems lie in the selfish decisions being made by bankers, hedge fund managers, right-wing CEOs, and the political leaders they support with millions in political donations.  Don’t take my word for it, ask Ben Bernanke.  If the Federal Reserve Board is afraid of the political plans of the Republican Party, then we should be too.

Labor Day Lament

News Item: economists are concerned that income from American wages and salaries fell by $21.8 billion in July of 2013, about -0.3%.  The decline was led by $7.7 billion lost because of forced furloughs for federal employees.  However, dividend income increased by 2.2 percent and rental income by 1.3 percent, so the category “income from assets” went up by 0.7%.  Consumer spending, boosted by increases in spending by upper income groups, rose 0.1 percent.

News Item: To the delight of many consumers, Twinkies and other Hostess products are back on the shelves.  When the company went bankrupt in the fall of 2012, 15,000 union workers lost their jobs.  The new company emerged from bankruptcy with no union workers and a whittled down wage and benefits package – for example, former employee pensions have been reduced from $1,800 per month to $500 per month.

Since the 1970s, fierce competition from foreign imports has pushed many companies to reduce wages to maintain profit rates that will keep their Wall Street investors happy.  Since then, there have been a series of campaigns led by Republicans, think tanks, and right-wing talk shows to reduce the wages of “undeserving” groups of workers.  Democrats have responded to these campaigns by gradually increasing funding for federal job training programs.

One by one, groups that had middle class wages and benefits have been targeted and subdued.  So, on Labor Day, 2013, with real salaries and wages at approximately the same level as they were in 1973, I publish this lament, with acknowledgements to Pastor Martin Niemoller:

In the 1970s they said regulated industries were fueling inflation, and the process of de-regulation led to slashed wages in the airline and trucking industries,

But I did not speak out because I didn’t work in transportation;

Then, in the 1980s they said the wages and pensions of blue-collar manufacturing workers were making America uncompetitive in world markets, and crushed the Air Traffic Controllers union and many other unions,

But I did not speak out because I didn’t work in manufacturing;

Then they said that middle managers were useless bureaucrats who were making American companies uncompetitive, and those workers were forced into early retirement,

But I did not speak out because I didn’t work in middle management;

Then they said in the 1990s that retail workers were unproductive and inefficient, and they computerized stores and gave people part-time shifts without benefits,

But I did not speak out because I didn’t work in the retail trade;

Then they said that teachers were lazy and inefficient and laid the blame for poor children’s lack of educational attainment on teachers unions, companies like Apple got better at avoiding local taxes and hard-pressed tax-payers supported laws that restricted teacher salaries and benefits,

But I did not speak out because I wasn’t a teacher;

Then they said in the 2000s that technical assistance people were inefficient and spent too much time helping people over the telephone, and they replaced them with telephone systems with recorded voices and endless choices or with technical workers from other countries,

But I did not speak out because I did not provide services over the phone;

Then they said that the post office was out-dated and postal delivery people were inefficient, and they passed laws forcing the post office to forward fund its pensions so it began losing money and had to close post offices and lay off employees,

But I did not speak out because I didn’t work at the post office;

Then they said that I was inefficient, my health care benefits were too generous, and I was not competitive in the world economy,

And everyone else was scrambling to get by on their low wages and had no time to speak for me.