2020—A Year of Living Dangerously

Popular Economics Weekly



There is plenty of speculation on the effects of killing Iran’s Quds Force General Qassem Suleimani. Of course the first question is how Iran will retaliate? But terrorist attacks by its proxies, such as by the Iraqi militias that were bombed by the U.S., should be the least of our worries.

More important is the effect on world oil prices and economic growth in general, since the only reason the U.S. economy is continuing to grow is the very low inflation coupled with very low, recession level interest rates. And that can’t be maintained if oil prices spike for some reason.

I say recession-level rates, since current interest rates were last this low during the Great Recession. It’s one reason the Federal Reserve had to lower interest rates three times last year. Otherwise the U.S. would already be in recession territory, since the manufacturing component has been shrinking for the past 4 months, according to the ISM’s Manufacturing survey.



We are skating on thin ice, economically speaking, since there were dangerous signals in 2018 when the Fed was raising interest rates to slow down incipient inflation and had to reverse course. The stock market plunged, because money was no longer cheap, and it raised fears of an oncoming recession.

So the unique combination of low rates plus low inflation has kept the U.S. growing in the 11th year of this recovery from the Great Recession, which is the longest post—WWII recovery on record.

But low inflation cannot last forever, as past history has shown. The question may not be skyrocketing oil prices, since the U.S. in now domestically producing more than 7 million barrels per day. But economic growth is already slowing with the tariff wars that have cut foreign trading by almost 25 percent, the UK’s Brexit battle, and now a possible Middle East war. Iran has many ways to create more trouble.

Texas intermediate crude prices per barrel stayed in the $100 per barrel range from 2011 to 2015, per the FRED graph, before coming down to the $50-$60 range in 2015. It was a major reason economic growth hasn’t risen above 2 percent this decade.

Then why has the U.S. been killing Iran’s leading general and Iraqi militia commanders in the recent drone attacks? Reuters is reporting that Iran-backed militias had already been planning attacks on U.S. installations and civilians with advanced weaponry brought in from Iran.

So a new Middle East war may have already begun.

Harlan Green © 2019

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Today’s Very Unequal, Minimum Wage Laws

Financial FAQs



This New Year is a good time to talk about our record income inequality, in the hope that it can be improved. Because it’s the reason a minority of white male Republicans have been able to hold onto power for so long.

U.S. income inequality is the worst since 1929, which is why it was a main cause of both the Great Depression and Great Recession. The majority of Americans held a minority of the wealth, but were the biggest spenders. So when they ran out of the means to spend, the economies crashed.

The above graphs portray the real message of such income inequality. The top 1 percent of U.S. income earners have doubled their share of national income since 1980, whereas the national income share of the 1 percent in Western Europe has held steady at just 10 percent. In other words, there has been a massive transfer of Americans’ wealth to the one percent since 1980.

The result has been disastrous for our participatory democracy. It has created a country of Haves and Have-nots, where the Have-nots live in the poorest red states dominated by Republican legislatures that haven’t raised the current minimum wage above the federal rate of 7.25 percent, and Haves in the more prosperous blue states with Democratic Party-majority governments that have.



The federal minimum wage was last raised in 2009 to $7.25 per hour. Seven states and Washington D.C. are raising their minimum wage to $15 per hour and nearly 7 million wage earners will be getting their minimum pay raised January 1, according to CNBC and the Economic Policy Institute (EPI), a labor think-tank.

The CNBC graph shows those states with pending increases to $15 per hour. That comes to $2,580 per month with a 40-hour week and just $30,960 annually; barely enough for a single person to live, but not families.

That is how much conservatives (and the NFIB small business lobby) have succeeded in blocking any raise to the national minimum wage since 2009.

Recent research by Nolan McCarty, a professor at Princeton University suggests why. McCarty, working with political scientist Boris Shor and economist John Voorheis, has released a new study that shows that the growing ideological gap between the Republican and Democratic parties — a common obstacle to getting anything done in Washington — is not just due to politicians’ incompetence or their unwillingness to work together. It’s due, at least in part, to the widening gap between the rich and poor.

The red states have been hit hardest by the loss of industrial jobs, and conservatives have fanned the flames of political polarization by scapegoating immigrants (especially the dark-skinned), while blaming Washington’s political ‘swamp’, and big city folk in general for their suffering that has skyrocketed rates of suicide and opioid use.

The EPI calculates the federal minimum wage of $7.25 was worth 14.8 percent less than when it was last raised in 2009, after adjusting for inflation, and 28.6 percent below its peak value in 1968, when the minimum wage was the equivalent of $10.15 in 2018 dollar.

The federal minimum wage has no inflating indexing, which is why it is worth so much less today; whereas it is indexed with some state minimum wage laws, and eighteen states have upcoming minimum wage increases that are also indexed to inflation. But at least 12 red states have not slated increases. It is one reason they are among the poorest states while voting for President Trump in 2016.

There is an even greater danger looming due to the record income inequality. It is to the U.S. Constitution. For the current Republican Party has become the party of oligarchs, the supremely rich, which is why they can deny the reality of the suffering of their red state supporters, the voting rights of minorities, and constitutional laws that protect us from foreign intervention in elections.

It is incredible that they have managed to convince their red state constituents they are not the cause of so much suffering when they were the first to advance a free trade agenda, thus allowing many of those higher-paying manufacturing jobs to flee the U.S..

It is also why they almost totally support a sociopath in the White House with no regard for the truth or laws that support a democracy. They prefer to live by the only law they heed—the law of the jungle in a Darwinian survival of the strongest exploiting the weakest for their own personal gain.

Harlan Green © 2020

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

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Christmas Isn’t For Bullies

Popular Economics Weekly



This is how one of our political parties celebrates the Christmas spirit. Restrict as much aid to the poor and weak as possible—i.e., cut up to $1.5 billion in Medicaid and Medicare spending to ‘pay’ for their 2017 tax cuts, and build a wall while cutting back immigration quotas (even of family members) to keep out as many non-white peoples as possible.

Wait a minute, doesn’t President Trump need them to maintain his properties? Then create enough H2-B exemptions for low-skilled workers to benefit him personally, including 70 granted last year just for Mar-a-Lago, his Florida White House.

What was once the Republican Party is now the Trump Party, cleansed of all Christmas spirit. There’s not even a whiff of Christmas or Christian charity left—instead the Trump Party is tearing babies away from immigrant mothers seeking safe haven, and cutting some $1.4 billion from the food stamp programs that aid the poorest among US.

Why the malevolence towards the weakest who are least able to protect themselves? I have called it the Bully Mentality that tends to prevail during chaotic times a time of pervasive fear and paranoia. It is the prevailing psychosis of the American far right movement.

Bullying behavior manifests itself in many ways, but bullies come into the open when there are no leaders that will stand up to them to condemn the hate and cruelty bullies always manifest against those weaker than them. And today we have a leadership vacuum. There is no spiritual leader such as Martin Luther King, Jr., and no political leader since former President Obama has disappeared from the public sphere.

Such malevolence towards others shows in many ways and fits the definition of bully behavior. Psychology Today has posted a list of bullying behavior, a list that fits the Trump Party to a tea:

  • – Uncontrolled anger and unpredictable irritability, frequently directed at the weakest people (‘safe targets’) or those perceived as a future threat
  • – A sociopathic ability to control their own image – the selective ability to look like a different person to different audiences – for example, being aggressive to ‘subordinates’, while being charming and helpful to others
  • – Having little status outside of work, bullies wield the power that their job gives them with vicious zeal
  • – Running ‘witch-hunts’
  • – Gratuitous domineering behaviour – sometimes physical
  • – The ability to make the unreasonable seem reasonable, even to the victims
  • –Projecting their own inadequacies onto others
  • – Making irrational accusations
  • – Publicly putting people down
  • Sadistic enjoyment in humiliating others

Americans love to celebrate the Christmas spirit. It is the time to give aid and comfort to those less fortunate, to treat all with empathy and love, rather than hateful cruelty. Celebrating brotherhood is also one of the best ways to stand up to bullies. Remember, bullies are really cowards who only dare to prey on the weakest.

So Merry Christmas and Happy New Year to everyone in the spirit of love that is the best weapon against hate!

Harlan Green © 2019

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A New Year’s Wish—Greater Prosperity for All of US!

Popular Economics Weekly


Although this cannot happen until results of the 2020 presidential election overturn a Republican Senate, I wish for something that President Eisenhower has said best. With higher tax rates that prevailed in the 1950-1970s, corporations in the past chose to spend their wealth on investments for future growth that were tax deductible, rather than pay the government.

Corporate tax rates since then have dropped to a low of 21 percent today.  What have corporations done instead with their record profits? Rutgers Economic historian James Livingston has been sounding the alarm about the results:

” So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.”

The architects of the Reagan revolution tried to reverse these trends as a cure for the stagflation of the 1970s, said Professor Livingston, but couldn’t. “In fact, private or business investment kept declining in the ’80s and after. Peter G. Peterson, a former commerce secretary, complained that real growth after 1982 — after President Ronald Reagan cut corporate tax rates — coincided with “by far the weakest net investment effort in our postwar history.”

There are many ways to look at the huge wealth disparities suffered by Americans whose household incomes have stagnated since the 1970s, when maximum tax rates were still in the 70 percent range. Americans wanted lower taxes so they could become voracious consumers, rather than pay for government services, which caused public investment to decline at the same time that it became the government’s job to create all the necessary public investments to protect consumers, and invest in their future.

It was public spending that in the past had enabled the building of our modern infrastructure of interstate highways and energy grid, as well as scientific research that led to the moon landing and Internet, for starters.

President George W. Bush’s tax cuts had similar effects between 2001 and 2007: real growth in the absence of new investment. According to the Organization for Economic Cooperation and Development, retained corporate earnings that remain uninvested were 8 percent of G.D.P. in 2000.  They have reached a record 14 percent of G.D.P. since then, even with a looming $1 trillion annual federal budget deficit.



Sadly, corporations began to spend their growing wealth from lower taxation on themselves and their lobbyists that where able to push through legislation to strengthen their monopolistic consolidation (via deregulation) and labor unfriendly legislation,

It has resulted in the likes of such undemocratic lobbying entities as ALEC, the American Legislative Exchange Council, the advancer of red state policies such as voter ID laws that restrict voting rights, protector of NRA gun rights like Florida’s Stand Your Ground law that protects shooters rather than their victims, and the fossil fuel industry that has no interest in protecting our environment.

The ironic result is that consumers haven’t become wealthier with all the available and cheap consumer goods, haven’t really benefited from higher GDP growth, even with the increased employment we have today in lower-paying service jobs.

So the result of the decline in corporate tax rates to the current 21 percent has been disastrous for householders’ wealth and health. It is at the core of America’s record income inequality.

So let us wish for a greater prosperity for all in the New Year!

Harlan Green © 2019

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

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Q3 GDP Unchanged

Popular Economics Weekly



The Commerce Department’s final estimate of third quarter U.S. economic growth was unchanged at 2.1 percent, as strong consumer spending was offset by weaker business investment and shrinking inventories.

Consumers were the difference, as they kept up spending at a 3.2 percent annual pace, which was not quite as strong as the second quarter’s very strong 4.6 percent rate but enough to counteract the drop in business investment and inventories. Companies are not restocking their shelves as if they expect things to improve next year, in other words.

In fact there was a significant decline in spending that would create future growth. Q3 investments in structures fell 2.3 percent and spending on equipment declined 9.9 percent.

Why? Corporate profits are declining. Adjusted pretax corporate profits were revised in the final estimate to show a -0.2 percent decline instead of a +0.2 percent increase. Profits have fallen 1.2 percent in the past year, suggesting that business investment is unlikely to accelerate anytime soon.

The Business Roundtable on Wednesday said an index that measures CEOs’ outlook for the economy fell for the seventh quarter in a row, adding to doubts about future growth. The index slipped 2.5 points to 76.7, a bit below its historic average, reports MarketWatch.

Once again CEOs are saying the trade fight with China is widely viewed to have weakened the global economy, dampened U.S. exports and hurt American manufacturers.

“CEOs remain cautious in the face of uncertainty over trade policy and an associated slowdown in global growth and the U.S. manufacturing sector, which is currently contracting,” said the Roundtable.

This is while another indicator of future growth was basically flat. 

“The US Leading Economic Index (LEI) was unchanged in November after three consecutive monthly declines. Strength in residential construction, financial markets, and consumers’ outlook offset weakness in manufacturing and labor markets,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “While the six-month growth rate of the LEI remains slightly negative, the Index suggests that economic growth is likely to stabilize around 2 percent in 2020.”

This is what happens when corporate profits decline. It has to mean CEOs will eventually cut back on hiring as well. Stocks are rallying to record highs on news that a Phase I trade agreement with China should be signed in January. But its details are extremely vague, as China says it doesn’t want to buy all the agricultural products that Trump is demanding to help him in his re-election, for starters.

There are so many details to still be worked out, in other words. And there is so much geopolitical uncertainty that companies will have to deal with in the New Year—Brexit, the EU maybe in recession, Trump’s impeachment trial, Russian interference with the 2020 election, etc.

So lots to worry about. Why not keep some cash on hand for the next rainy day.

Harlan Green © 2019

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Full Speed Ahead for Housing Construction, Sales?

The Mortgage Corner



The ultra-low interest rates are making a difference as homebuilder sentiment is soaring along with new building permits, which should boost new and existing-home sales as well. For instance, more new homes on the market encourage existing-home owners to move up or downsize, depending on their age and family.

Builder confidence in the market for newly-built single-family homes increased five points to 76 in December off an upwardly revised November reading, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This is the highest reading since June of 1999.

This is making a small dent in the severe housing shortage since the Great Recession that has resulted in soaring rents and the current homelessness in communities that haven’t been building enough new housing.

“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability,” said NAHB Chief Economist Robert Dietz. “Higher development costs are hurting affordability and dampening more robust construction growth.”

All three components of that gauge — present sales, future sales expectations and prospective buyers traffic — improved, said Wrightson, but the biggest gain was a seven-point rise in current sales of new homes to a 21-year high of 84.  Regionally, the gains were more mixed, with the Midwest index improving sharply, the South rising marginally, and the West and Northeast declining.

Homebuilders also boosted construction on new homes in the U.S. at an annual pace of 1.37 million in November, the Commerce Department said today. This was a 3.2 percent (±10.0 percent) increase from a revised 1.32 million in October, 13.6 percent higher than a year ago.

And new building permits hit another post-recession high, up at a seasonally-adjusted rate of 1.48 million. That was 1.4 percent (±1.4 percent) above the pace of 1.46 million set in October and 11.1 percent above last year’s rate.

We know there is still a tremendous shortage of housing that came from the reluctance of builders to build for years after the Great Recession. Some of the shortage also came from Wall Street firms buying up housing abandoned from the busted housing bubble that were then turned into rentals.

A recent report by CBSN documented the carnage from the busted housing bubble and Great Recession. More than 9 million homes were foreclosed or sold at a loss after the bubble popped, leading to fears that tracts of abandoned neighborhoods would become “ghost towns.”

This led government officials such as then Fed Chair Ben Bernanke to suggest foreclosed homes could be sold in bulk to private investors as rental properties. But that wasn’t enough, as there was very little government help to keep homeowners in their homes as happened during the Great Depression when the Home Owners’ Loan Corporation (HOLC lent low-interest money to families in danger of losing their homes to foreclosure. By the mid-1930s, the HOLC had refinanced nearly 20 percent of urban homes in the country, allowing homeowners to stay in their homes with very lenient terms to enable them to weather the joblessness of the Great Depression.

“In the decade since the crash,” said the CBSN report, “7 million more households have become renters, while only 1 million more have become homeowners, according to Census data. And “institutional landlords,” as the Wall Street investors are called, have become a major driver of the affordable housing woes many Americans are now facing—from steep rent payments all the way to eviction.”

The homeownership rate as a percentage of households that own vs. renting hasn’t recovered, dropping from its pre-recession high of 69 percent to 64.3 percent of households today. The U.S. has become a nation of renters at a time when rental rates are soaring due to the lack of new housing, resulting also in the more than one-half million homeless.

Another casualty of the Great Recession was lack of new household formation among the millennial generation children of the baby boomers who in fact outnumber their boomer parents, but alas, were without adequate available housing.

But now residential construction is beginning to meet the demand from new household formation that is back to the longer-term 1.2 million historical average, according to the U.S. Census Bureau. Millennials are paying down their college debt enough to move out of their rental or parents’ home, and forming more families.

There is more economic good news to report this week in upcoming columns. Industrial production has picked up in autos and trucks after the GM strike, according to the Federal Reserve, though not back to pre-recession levels. And job vacancies continue to soar with 1.4 million more vacancies than new job hires.

It means jobs are plentiful, so look for housing construction and home sales to keep this economic recovery afloat!

Harlan Green © 2019

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

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Why are Consumers Buying Less?

Financial FAQs



President Trump tweeted this morning that U.S. and China were close to a “really big deal”, and stocks rallied with the S&P up as much as 30 points and the DOW 250 points higher in early trading. Yet both chief economic spokesman Larry Kudlow and OMB chief Mick Mulvaney said there was no agreement on reducing or eliminating the December  tariff increases on Chinese imports of consumer goods.

A report from the Wall Street Journal indicated U.S. trade negotiators are offering to cancel new China tariffs and reduce existing levies on Chinese goods by up to 50% on $360 billion worth of imports.tariff increases on Chinese imports of consumer goods.

So there is no agreement of even a Phase I trade agreement with China, as I said yesterday, which is why inflation has remained moribund for so long. And today’s Producer Price Index for final demand—a term that describes the demand for wholesale prices that go into product prices—confirms that fact. That is the surest sign of falling prices, which is the real measure of economic growth.

It’s a term economists understand, but few others. It measures how much consumers and businesses want and are able to buy, because it filters into retail inflation, the market price consumers pay, which hasn’t risen much above 2 percent, either.

“The November results held the YOY increase in the headline final demand PPI steady at the October level of 1.1 percent,” said Reuters’ ICAP summary, “but trimmed the YOY rise in the narrow core index from 1.5 percent to 1.3 percent.  That is the smallest 12-month increase in the core measure since September 2017.

This tells us why predictions for Q4 GDP growth are now below 1 percent, when third quarter GDP growth was revised slightly upward to 2.1 percent. Falling final demand is a stark result of the toll from an erratic foreign policy that the Trump administration uses to play to public popularity rather than a foreign policy that serves the public interest.

It turns out that reducing tariffs on $360 million Chinese imports would be a good thing for consumers, since consumers are cutting back on spending with fewer imports, and Midwestern farmers’ bankruptcies have skyrocketed due to the lost revenues that combine with record floods decimating crop yields.

Yet Trump seems to be holding out for China to agree to $60 billion in agricultural purchases from farmers, whereas it has historically never been higher than $20 billion per year and is currently just $8 billion. Meanwhile China has gone to Brazil and other countries that grow lots of corn and soybeans to replace that from Trump’s Midwestern constituents. Will those farmers ever recover from their lost revenues that Trump has been replacing with taxpayer money, and that contributes to the $1 trillion annual budget deficit?

So in the end it is Americans who are really paying for the tariff wars that are not in the public interest; which has been obvious for a long time.

Harlan Green © 2019

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