New Deal democrat's blog

Measuring the Decline of America

So, here I was, working on a contrarian (you ought to know me by now!) diary about inflation being near or past its peak for this cycle (which I'll post tomorrow anyway), when I realized that nobody should give a damn! After all, if there is ZERO percent inflation in the price of unleaded gasoline in the next year, what does that mean? It means that gasoline will sell for $4 a gallon for the entire next year! That's why it's worthwhile to post this graph all over again and highlight it:

because this is a graph of the decline of middle America over the last decade. The average American family hasn't had a raise since 1999, and in fact for most of this decade has brought home less income (inflation adjusted) than it did at the peak of the Clinton boom:

Another squeeze by the Boa Constrictor economy

(hat tip to taonow: I've stolen your analogy)

A while ago, in a diary entitled Are Hard Times near? The Great Decline in interest rates is ending I pointed out that the great decline in interest rates that began in 1981 looked like it was coming to an end, and with it American consumers' ability to refinance debt at lower rates. I noted that if consumers could no longer refinance at better terms, and if their wages weren't growing, the engine of the American economy would stall, not just for a short time, but for a very long period -- What I have called "The Slow Motion Bust."

With oil prices at $126 a barrel, and $4 a gallon gasoline, the boa constrictor of higher prices has tightened around the average American's budgetary breathing space some more. A look at how much and how consumers are coping, below.

Globalization's Biggest Most Dangerous Lie

Over at TPM Cafe, this week Fareed Zakaria's new book, "The Post American World" is being discussed. In it, Zakaria repeats the theory of globalization's most toxic and unproven claim: that countries which participate in trade together do not make war upon one another. So if you want to prevent war, just participate in deep and interwoven trade with the other country and everything will be hunky-dory.

It's a lie.

Zakaria claims that We're Living in Scarily Peaceful Times":

Scenes from the World Food Crisis

Events of the past two years have made food an increasingly worrisome item in household budgets and in the budgets of nations. In early 2008, food prices to the American consumer were 25 percent greater than two years earlier. This reflected dramatic increases in farm beef prices, while farm corn prices were double and wheat prices triple those of early 2006. Clearly something new has happened to a food market which has historically fed Americans well and for a uniquely small proportion of their income.

A series of events was associated with these price adjustments. In 2005 the U.S. dollar began to depreciate and a major realignment of international currencies set underway. (1) [A series of crop failures and poor harvests around the world magnified the food problem]. Finally, Congress adopted legislation that drastically altered the framework of American agriculture....
- Foreign Affairs (2)

Thinking aloud about yesterday's GDP report

I was a little surprised at the total lack of coverage of the GDP report yesterday on the political blogs (the econ blogs had a few things to say). I suspect it was because most people expected GDP to be significantly negative (I sure did) and yet here was this positive number.
Some people will just say the numbers are cooked, but as I keep pointing out, as long as the bias is regular (like a clock that is always 10 minutes slow) the data gives a lot of information.

So, a few thoughts.

China's out-of-control Inflationary Boom

America and China appear to be locked in a financial embrace turned toxic. If America is running perennial trade deficits and if American consumers are running dire savings deficits, then China appears to be wrestling with the opposite peril: a worsening inflationary spiral caused by a tsunami of incoming ever-cheaper dollars.
I won't pretend to be an expert on China's stock or bond market, but then again finding such discussion of financial conditions in China seems to be just about impossible. What I do know a little about is financial history, and what conditions in stock and even moreso bond markets can tell us about where an economy is going.

With that in mind, it is worthwhile to look at China's markets and ask ourselves, "If this was the US, where would the economy be heading?" The answer (while enviable compared to America's condition) ain't so pretty.

Why the Economy may favor McCAIN on election day!

If you are open minded enough to consider evidence that runs contrary to received wisdom and challenges your assumptions, read on, I hope you will find this thought-provoking.

Because there is some excellent evidence that, if "It's the Economy, Stupid", then there are some very powerful people who have operated some very powerful economic levers to the benefit of one certain Senator John McCain. And the cocaine they are injecting into the economy is going to hit full force by about election day.

Those very powerful people are the Open Market Committee of the Federal Reserve Bank, including Fed Chairman Ben Bernancke.

Worst Housing Slump since World War 2 CONFIRMED!

This morning's New Home sales, as reported by AP, make it official:

Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped further at the start of the spring sales season.

The median price of a new home in March compared to a year ago fell by the largest amount in nearly four decades.

The Commerce Department reported Thursday that sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991.

The median price of a home sold in March dropped by 13.3 percent compared to March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.

In a prior diary I asked if we were in The worst housing slump since the Great Depression? As of today, we have come close to our final answer.

Peak Everything?!?

Are we...

In my last couple of blog entries I have suggested that data from past commodity driven recessions, as well as strongly supported evidence from the yield curve indicate that we may be near an inflation peak, and that as a result there might be a respite from this recession by the end of the year.

In a number of places on the econoblogosphere this position has been criticized, and in general the criticism comes down to two words: "Peak Oil!". I put that in caps and with an exclamation point because the argument is that "Peak Oil!" explains everything.

Will the Recession be Over by Election Day?

The economy is always a yin and yang, with one thing tending to counterbalance another. In the past I have frequently differentiated one such tension between the "Kudlow economy" for the top 20% (actually more like top 5%) which prospered mightily during the Bush/GOP malAdministration, and the "Bonddad economy" of the bottom 80%, which saw little or nothing of the alleged prosperity.
Until late last year, consumption in the Kudlow economy more than balanced the distress in the Bonddad economy. Then, the balance changed.
I am here to deliver a message which I fear will be as welcome as a skunk at a wedding reception: I believe the balance is about to change again, at least briefly, back in favor of the Kudlow economy. Even if you disagree strongly, I hope you take the time to consider the evidence I amass below.

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