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A Rat-Infested "*****hole" - This Is New York City's Worst School (And The Reason Why) Submitted by Tyler Durden on 01/13/2014 21:28 -0500 Bond Corruption European Central Bank Michael Moore New York City None in Share 0 In Europe, "it is all austerity's fault" or so the conventional, and very wrong, wisdom goes. Or rather, faux terity, because as we showed months ago , with European debt and spending soaring, tax revenues plunging, and zero actual reforms since Draghi's "whatever it takes" speech made any actual attempt to fix the economy through fiscal policy irrelevant (after all the Goldmanite at the head of the ECB will fix any runaway bond yields), the main thing that actually ails Europe is sheer political incompetence and unbridled corruption (and the hangover of record debt, but as every Keynesian knows, even more debt will easily fix that). As it turns out, the same applies for the US: because in a country in which the lack of economic "growth" and prosperity are attributed to the occasional sequester, and a stingy congress that refuses to unleash the spending floodgates, the money is perfectly sufficient - the problem is that quite often it ends up in the hands of people who one may call criminals, if one were so inclined (although legally is prohibited at least until they end up convicted in a court of law). Take the case of public school PS 106, located in Far Rockaway, Queens - the school is allocated $2.9 million to serve a low-income population with 98 percent of its students eligible for free lunches . As a Title 1 school, it gets extra federal funds. There is one problem: none of that state money actually makes its way to the students, and with no class, or books, and a rat infestation, PS 106 has officially earned the title of New York's worst school . The Post details the educational process at one of New York's public schools: Students at PS 106 in Far Rockaway, Queens, have gotten no math or reading and writing books for the rigorous Common Core curriculum, whistleblowers say. The 234 kids get no gym or art classes. Instead, they watch movies every day. “The kids have seen more movies than Siskel and Ebert,” a source said. The school nurse has no office equipped with a sink, refrigerator or cot. The library is a mess: “Nothing’s in order,” said a source. “It’s a junk room.” No substitutes are hired when a teacher is absent — students are divvied up among other classes. A classroom that includes learning-disabled kids doesn’t have the required special-ed co-teacher. About 40 kindergartners have no room in the three-story brick building. They sit all day in dilapidated trailers that reek of “animal urine,” a parent said; rats and squirrels noisily scamper in the walls and ceiling. * * * But five months into the school year, PS 106 classes still don’t have the books or teacher’s guides. “ They have no reading program, no math program ,” a source said, adding Sills blames outside administrators for not sending materials. Teachers muddle through by printing out worksheets they find online, buying their own copy paper. The DOE gave no explanation for the missing curricula but said it’s “working with the school to provide students with physical education.” Surely, all of the above is the result of some evil legislator who refuses to release another million or two to satisfy the school's pressing budgetary needs. Actually, no. It turns out it is all the principal's fault: The principal — Marcella Sills, who joined PS 106 nine years ago — is a frequent no-show, sources say. Sills did not come to school last Monday. On Tuesday, she showed up at 3:30 p.m. On Wednesday, The Post found her at home in Westbury, LI, all day before emerging at 2:50 p.m. — school dismissal time. Wearing a fur coat, she took her BMW for a spin. She showed up at school Thursday, but not Friday. When Sills, 48, does go to work, it’s rarely before 11 a.m. — and often hours later, say sources familiar with her schedule. “She strolls in whenever she wants,” one said. The school hasn’t had a payroll secretary in years. Not only that, but the school's community members also state that they have never seen a budget tracking the income and spending. Well, the income is clear: generous taxpayers. As for spending: it's quite clear where the funds are being embezzled. When is out, an assistant principal is left in charge. Yet Sills, who gets a $128,207 salary, also pockets overtime pay — $2,900 for 83 hours in 2011, the latest available records show . Unfortunately, it all goes downhill from there, because any attempts to rectify the situation are halted before they will even begin. Staffers won’t speak up or even file a grievance with their union because Sills will retaliate, a source said. Parents wonder if higher-ups know what’s going on. “Why don’t they get on them? I don’t understand that,” said Michael Moore, father of a second-grader. Another father, Roland Legions, added. “They’re not doing right by the kids.” One mom said she couldn’t get a meeting with Sills to discuss concerns. Another said Sills is “just not professional.” “She should be here,” the mom said. “How is she going to run the school if she’s not here?” She won't. But she will gladly collect her paycheck while the student spend time watching movies with the rats. Actually, scratch that: " A spokesman denied the trailers are rat-infested ." In conclusion: “This school is a complete *****hole , but nobody in a position of power comes to investigate . No one cares,” a community member said. That's ok - nobody cares, which means one can once more fall back to the traditional bull***** excuse and again blame those evil stingy legislators who refuse to give Ms. Sills a few more million to collect for doing... nothing. Average: 4.88889 Your rating: None Average: 4.9 ( 9 votes)
The Real China Threat: Credit Chaos Submitted by Tyler Durden on 01/08/2014 20:08 -0500 China default Equity Markets George Soros Gross Domestic Product Jim Chanos Michael Pettis Real estate Shadow Banking in Share 3 As Michael Pettis , Jim Chanos , Zero Hedge (numerous times) , and now George Soros have explained . Simply put - "There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years." The "eerie resemblances" - as Soros previously noted - to the US in 2008 have profound consequences for China and the world - nowhere is that more dangerously exposed (just as in the US) than in the Chinese shadow banking sector as explained below... Submitted by Minxin Pei via The National Interest , The spectacle of a game of financial chicken in the world’s second-largest economy is both entertaining and terrifying. Twice in 2013, the People’s Bank of China (PBOC), the country’s central bank, tried to demonstrate its resolve to rein in runaway credit growth. In June, it engineered a sudden credit squeeze that sent the interbank lending rates to more than 20 percent and caused a short-lived panic in the Chinese financial markets. Apparently, the financial turmoil was too much for the Chinese government, which quickly ordered the Chinese central bank to reverse course. As a result, the PBOC lost both face and credibility. However, as credit growth continued unabated and activities in the most risky segment of China’s financial sector – the so-called shadow banking system – displayed alarming recklessness, the PBOC was left with no choice but try one more time to send a strong message that it could not be counted on to provide unlimited liquidity to the banking system. It did so in December 2013 with a modified approach that provided liquidity only to the selected large banks but pressured smaller banks (which are the most active participants in the shadow banking system). Although interbank lending rates did not spike to nose-bleeding levels, as they did in June, they doubled quickly. Most Chinese banks held on to their cash and refused to lend to each other. Chinese equity markets fell nearly 10 percent, giving back nearly all the gains since mid-November, when the Chinese Communist Party’s (CCP) reform plan bolstered market sentiments. Unfortunately for the PBOC, the renewed turbulences in the Chinese banking sector were again viewed as too dangerous by the top leadership of the CCP even though it seemed that the PBOC initially received its support. Consequently, the PBOC had to beat another hasty retreat and inject enough liquidity to force down interbank lending rates. Thus, in the first two rounds of a stand-off between the PBOC and China’s shadow banking system, the latter is widely seen as the winner. The PBOC blinked first each time. For the moment, the conventional wisdom is that, as long as the PBOC maintains sufficient liquidity (translation: permitting credit growth at roughly the same pace as in previous years), China’s financial sector will remain more or less stable. This observation may be reassuring for the short-term, but overlooks the dangerous underlying dynamics in China’s banking system that prompted the PBOC to act in first place. Of these dynamics, two deserve special attention. The first one is the rapid rise in indebtedness (or financial leverage) in the Chinese economy since 2008 . In five years, the country’s total debt-to-GDP ratio (including both public and private debt) rose from 130 percent to 210 percent, an unprecedented increase for a major economy. Historically, such expansion of credit hasrarely failed to inflate a credit bubble and cause a financial crisis. In the Chinese case, what makes the credit explosion even more risky is the low creditworthiness of the major borrowers. Only a quarter of the debt is owed by those with relatively high creditworthiness (consumers and the central government). The remaining 75 percent has gone to state-owned enterprises, private real-estate developers, and local governments, all of which are known to have weak loan repayment capacity (most state-owned enterprises generate low cash profits, private real-estate developers are overleveraged, and local governments have a narrow tax base). Staggering under an unsustainable debt burden of roughly 160 percent of GDP (equivalent to $14 trillion), these borrowers are expected to default on a significant portion of their bank debt in the coming years. The second dynamic, closely related to the first one, is the growth of the shadow-banking sector. Two drivers shape activities in this sector, which operates outside the banking system. To minimize their exposure to risky borrowers, Chinese banks have curtailed their lending. But at the same time, these banks have embraced the shadow banking activities to increase their revenue. Specifically, Chinese banks peddle new “wealth management products” – short-term securities promising high interest rates – to their depositors. The issuers of such securities, which are not protected or insured by the government – are typically high-risk borrowers, such as local governments (and their financing vehicles) and real estate developers. In the meantime, these borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP). Understandably, the PBOC does not look upon the shadow banking sector favorably. Since shadow-banking sector gets its short-term liquidity mainly through interbanking loans, the PBOC thought that it could put a painful squeeze on this sector through reducing liquidity. Apparently, the PBOC underestimated the effects of its measure. Largely because Chinese borrowers tend to cross-guarantee each other’s debt, squeezing even a relatively small number of borrowers could produce a cascade of default. The reaction in the credit market was thus almost instant and frightening. Borrowers facing imminent default are willing to borrow at any rate while banks with money are unwilling to loan it out no matter how attractive the terms are. Should this situation continue, China’s real economy would suffer a nasty shock. Chain default would produce a paralyzing effect on economic activities even though there is no run on the banks. Clearly, this is not a prospect the CCP’s top leadership relishes. So the task for the PBOC in the coming year will remain as difficult as ever. It will have to navigate between gently disciplining the banks and avoiding a financial panic. Its ability to do so is anything but assured. It has already lost the first two rounds of this game of financial chicken. We can only hope that it can do better in the next round. Average: 4.5 Your rating: None Average: 4.5 ( 4 votes)
29 Incredible Facts Which Prove That Poverty In America Is Absolutely Exploding By Michael Snyder, on October 27th, 2013 Did you know that the number of Americans on welfare is higher than the number of Americans that have full-time jobs? Did you know that 1.2 million public school students in the U.S. are currently homeless? Anyone that uses the term "economic recovery" to describe what is happening in the United States today is being deeply insulting to the nearly 150 million Americans that are considered to be either "poor" or "low income" at this point. Yes, things are great in New York City, Washington D.C. and San Francisco, but almost everywhere else economic conditions continue to steadily get worse. The gap between the wealthy and the poor is at a level that America has never seen before, and this is beginning to create a "Robin Hood mentality" that could cause a tremendous amount of social chaos in the years ahead. Anger at the "haves" in America continues to rise at a very alarming pace, and the "have nots" are becoming increasingly desperate . At some point all of this anger is going to boil over, and you won't want to be anywhere around major population centers when that happens. Despite unprecedented borrowing by the federal government in recent years, and despite unprecedented money printing by the Federal Reserve, poverty in the United States keeps getting worse with each passing year. The following are 29 incredible facts which prove that poverty in America is absolutely exploding... 1. What can you say about a nation that has more people getting handouts from the federal government than working full-time? According to the latest numbers from the U.S. Census Bureau, the number of people receiving means-tested welfare benefits is greater than the number of full-time workers in the United States. 2. New numbers have just been released, and they show that the number of public school students in this country that are homeless is at an all-time record high. It is hard to believe, but right now 1.2 million students that attend public schools in America are homeless. That number has risen by 72 percent since the start of the last recession. 3. When I was growing up, it seemed like almost everyone was from a middle class home. But now that has all changed . One recent study discovered that nearly half of all public students in the United States come from low income homes. 4. How can anyone deny that we are a socialist nation when half the people are getting money from the federal government each month? According to the most recent numbers from the U.S. Census Bureau, 49.2 percent of all Americans are receiving benefits from at least one government program. 5. Signs of increasing poverty are even showing up in the wealthiest areas of the nation. According to the New York Post, New York subways are being " overrun with homeless ". 6. According to the U.S. Census Bureau, approximately one out of every six Americans is now living in poverty. The number of Americans living in poverty is now at a level not seen since the 1960s. 7. The gap between the rich and the poor in the United States is at an all-time record high . The wealthy may not consider this to be much of a problem, but those at the other end of the spectrum are very aware of this. 8. The "working poor" is one of the fastest growing segments of the U.S. population. At this point, approximately one out of every four part-time workers in America is living below the poverty line. 9. According to numbers provided by Wal-Mart , more than half of their hourly workers make less than $25,000 a year. 10. A recent Businessweek article mentioned a study that discovered that 300 employees at one Wal-Mart in Wisconsin receive a combined total of nearly a million dollars a year in public assistance... “A decent wage is their demand—a livable wage, of all things,” said Representative George Miller (D-Calif.). The problem with companies like Wal-Mart is their “unwillingness, not their inability, to pay that wage,” he said. “They hand off the difference to taxpayers.” Miller was referring to a congressional report (PDF)released in May that calculated how much Walmart workers rely on public assistance. The study found that the 300 employees at one Supercenter in Wisconsin required some $900,000 worth of public assistance a year. 11. The stock market may be doing great (for the moment), but incomes for average Americans continue to decline. In fact, median household income in the United States has fallen for five years in a row . 12. The quality of the jobs in America has been steadily dropping for years. At this point, one out of every four American workers has a job that pays $10 an hour or less. 13. According to a Gallup poll that was recently released, 20.0% of all Americans did not have enough money to buy food that they or their families needed at some point over the past year. That is just under the record of 20.4% that was set back in November 2008. 14. Young adults are particularly feeling the sting of poverty these days. American families that have a head of household that is under the age of 30 have a poverty rate of 37 percent . 15. As I wrote about a few weeks ago, one out of every five households in the United States is on food stamps. Back in the 1970s, about one out of every 50 Americans was on food stamps. 16. The number of Americans on food stamps now exceeds the entire population of Spain . 17. According to one calculation , the number of Americans on food stamps now exceeds the combined populations of "Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming." 18. We are told that we live in the "wealthiest nation" on the planet, and yet more than one out of every four children in the United States is enrolled in the food stamp program. 19. The average food stamp benefit breaks down to approximately $4 per person per day . 20. It is being projected that approximately 50 percent of all U.S. children will be on food stamps before they reach the age of 18. 21. Today, approximately 17 million children in the United States are facing food insecurity. In other words, that means that "one in four children in the country is living without consistent access to enough nutritious food to live a healthy life." 22. It may be hard to believe, but approximately 57 percent of all children in the United States are currently living in homes that are considered to be either "low income" or impoverished. 23. The number of children living on $2.00 a day or less in the United States has grown to 2.8 million . That number has increased by 130 percent since 1996. 24. In Miami, 45 percent of all children are living in poverty. 25. In Cleveland, more than 50 percent of all children are living in poverty. 26. According to a recently released report, 60 percent of all children in the city of Detroit are living in poverty. 27. According to a Feeding America hunger study, more than 37 million Americans are now being served by food pantries and soup kitchens. 28. The U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years. 29. It has been reported that 4 out of every 5 adults in the United States "struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives". These poverty numbers keep getting worse year after year no matter what our politicians do. So is there anyone out there that would still like to argue that we are in an "economic recovery"? And as I mentioned above, the "have nots" are becoming increasingly angry at the "haves". For example, just check out the following excerpt from a recent New York Post article ... The maniac who butchered a Brooklyn mom and her four young kids confessed that he did it because he was jealous of their way of life, a police source told The Post on Sunday. “ The family had too much. Their income (and) lifestyle was better than his ,” the source said. The bloody suspect was caught holding the kitchen knife he used during the Saturday night rampage inside the Sunset Park apartment where he had been staying with the victims, the source added. Sadly, this was not an isolated incident. All over the western world, a "Robin Hood mentality" is growing. This is something that I am so concerned about that I made it a big part of my new book. At this point, even wealthy Hollywood-types such as actor Russell Brand are calling for a socialist-style "revolution" and a " massive redistribution of wealth ". Perhaps Brand does not understand that what he is calling for would mean redistributing most of his own wealth away from him. When the next major wave of the economic collapse strikes, I fear that all of this anger and frustration that are growing among the poor will boil over in some very frightening ways. I believe that we will see a huge spike in crime and that we will eventually see communities all over America looted and burning. But I am not the only one that is thinking along these lines. A new National Geographic Channel movie entitled "American Blackout" attempts to portray the social chaos that could erupt in the event of an extended national power failure ... American Blackout, National Geographic Channel’s two-hour, edge-of-your-seat movie event imagines the story of a national power failure in the United States caused by a cyberattack — told in real time, over 10 days, by those who kept filming on cameras and phones. You’ll learn what it means to be absolutely powerless. You can view a clip of the film that was made available by NatGeo for the SHTFplan.com community right here . What would you do if something like that happened to you? How would you handle desperate, hungry people at your fence asking for food? And what if those people were armed and were not "asking nicely" for your food? Don't ignore what is happening in America right now. It is setting the stage for some very chaotic times. Get ready while you still can.
Whenever Margin Debt Goes Over 2.25% Of GDP The Stock Market Always Crashes By Michael Snyder, on June 17th, 2013 What do 1929, 2000 and 2007 all have in common? Those were all years in which we saw a dramatic spike in margin debt. In all three instances, investors became highly leveraged in order to "take advantage" of a soaring stock market. But of course we all know what happened each time. The spike in margin debt was rapidly followed by a horrifying stock market crash. Well guess what? It is happening again. In April (the last month we have a number for), margin debt rose to an all-time high of more than 384 billion dollars . The previous high was 381 billion dollars which occurred back in July 2007. Margin debt is about 29 percent higher than it was a year ago, and the SP 500 has risen by more than 20 percent since last fall. The stock market just continues to rise even though the underlying economic fundamentals continue to get worse . So should we be alarmed? Is the stock market bubble going to burst at some point? Well, if history is any indication we are in big trouble. In the past, whenever margin debt has gone over 2.25% of GDP the stock market has crashed. That certainly does not mean that the market is going to crash this week, but it is a major red flag. The funny thing is that the fact that investors are so highly leveraged is being seen as a positive thing by many in the financial world. Some believe that a high level of margin debt is a sign that "investor confidence" is high and that the rally will continue. The following is from a recent article in the Wall Street Journal ... The rising level of debt is seen as a measure of investor confidence, as investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. The latest rise has been fueled by low interest rates and a 15% year-to-date stock-market rally. Others, however, consider the spike in margin debt to be a very ominous sign. Margin debt has now risen to about 2.4 percent of GDP, and as the New York Times recently pointed out, whenever we have gotten this high before a market crash has always followed... The first time in recent decades that total margin debt exceeded 2.25 percent of G.D.P. came at the end of 1999, amid the technology stock bubble. Margin debt fell after that bubble burst, but began to rise again during the housing boom — when anecdotal evidence said some investors were using their investments to secure loans that went for down payments on homes. That boom in margin loans also ended badly. Posted below is a chart of the performance of the SP 500 over the last several decades. After looking at this chart, compare it to the margin debt charts that the New York Times recently published that you can find right here . There is a very strong correlation between these charts. You can find some more charts that directly compare the level of margin debt and the performance of the SP 500 right here . Every time margin debt has soared to a dramatic new high in the past, a stock market crash and a recession have always followed. Will we escape a similar fate this time? What makes all of this even more alarming is the fact that a number of things that we have not seen happen in the U.S. economy since 2009 are starting to happen again. For much more on this, please see my previous article entitled " 12 Clear Signals That The U.S. Economy Is About To Really Slow Down ". At some point the stock market will catch up with the economy. When that happens, it will probably happen very rapidly and a lot of people will lose a lot of money. And there are certainly a lot of prominent voices out there that are warning about what is coming. For example, the following is what renowned investor Alan M. Newman had to say about the current state of the market earlier this year ... "If anything has changed yet in 2013, we certainly do not see it. Despite the early post-fiscal cliff rally, this is the same beast we rode to the 2007 highs for the Dow Industrials. The U.S. stock market is over leveraged, overpriced and has been commandeered by mechanical forces to such an extent that all holding periods are now affected by more risk than at any time in history." Unfortunately, most Americans never get to hear such voices. Instead, most Americans rely on the mainstream media to do much of their thinking for them. And right now the mainstream media is insisting that we are not in a stock market bubble... Forbes: " Why Stocks Are On Solid Footing And This Is No Bubble " ABC News: " AP Survey: Economists See No Stock Market Bubble " Businessweek: " Prognostications: It's Not a Stock Bubble " Yahoo: " This Is NOT a Stock Bubble! Says Ben Stein " MarketWatch: " Is a stock bubble coming? No, say economists " So what do you think? Do you believe that we are in a stock market bubble that is about to burst, or do you believe that everything is going to be just fine? Please feel free to express your opinion by posting a comment below
Will It Be Inflation Or Deflation? The Answer May Surprise You Submitted by Tyler Durden on 05/23/2013 22:33 -0400 Consumer Prices Federal Reserve Great Depression Gross Domestic Product Hyperinflation Recession Trade Deficit Warren Buffett Submitted by Michael Snyder of The Economic Collapse blog , Is the coming financial collapse going to be inflationary or deflationary? Are we headed for rampant inflation or crippling deflation? This is a subject that is hotly debated by economists all over the country. Some insist that the wild money printing that the Federal Reserve is doing combined with out of control government spending will eventually result in hyperinflation. Others point to all of the deflationary factors in our economy and argue that we will experience tremendous deflation when the bubble economy that we are currently living in bursts. So what is the truth? Well, for the reasons listed below, we believe that we will see both. The next major financial panic will cause a substantial deflationary wave first, and after that we will see unprecedented inflation as the central bankers and our politicians respond to the financial crisis. This will happen so quickly that many will get "financial whiplash" as they try to figure out what to do with their money. We are moving toward a time of extreme financial instability, and different strategies will be called for at different times. So why will we see deflation first? The following are some of the major deflationary forces that are affecting our economy right now... The Velocity Of Money Is At A 50 Year Low The rate at which money circulates in our economy is the lowest that it has been in more than 50 years. It has been steadily falling since the late 1990s, and this is a clear sign that economic activity is slowing down. The shaded areas in the chart represent recessions, and as you can see, the velocity of money always slows down during a recession. But even though the government is telling us that we are not in a recession right now, the velocity of money continues to drop like a rock. This is one of the factors that is putting a tremendous amount of deflationary pressure on our economy... The Trade Deficit Even single month, far more money leaves this country than comes into it. In fact, the amount going out exceeds the amount coming in by about half a trillion dollars each year. This is extremely deflationary. Our system is constantly bleeding cash, and this is one of the reasons why the federal government has felt a need to run such huge budget deficits and why the Federal Reserve has felt a need to print so much money. They are trying to pump money back into a system that is constantly bleeding massive amounts of cash. Since 1975, the amount of money leaving the United States has exceeded the amount of money coming into the country by more than 8 trillion dollars . The trade deficit is one of our biggest economic problems, and yet most Americans do not even understand what it is. As you can see below, our trade deficit really started getting bad in the late 1990s... Wages And Salaries As A Percentage Of GDP One of the primary drivers of inflation is consumer spending. But consumers cannot spend money if they do not have it. And right now, wages and salaries as a percentage of GDP are near a record low. This is a very deflationary state of affairs. The percentage of low paying jobs in the U.S. economy continues to increase, and we have witnessed an explosion in the ranks of the " working poor " in recent years. For consumer prices to rise significantly, more money is going to have to get into the hands of average American consumers first... When The Debt Bubble Bursts Right now, we are living in the greatest debt bubble in the history of the world. When a debt bubble bursts, fear and panic typically cause the flow of money and the flow of credit to really tighten up. We saw that happen at the beginning of the Great Depression of the 1930s, we saw that happen back in 2008, and we will see it happen again. Deleveraging is deflationary by nature, and it can cause economic activity to grind to a standstill very rapidly. During the next major wave of the economic collapse, there will be times when it will seem like hardly anyone has any money. The "easy credit" of the past will be long gone, and large numbers of individuals and small businesses will find it very difficult to get loans. When the debt bubble bursts, cash will be king - at least for a short period of time. Those that do not have any savings at all will really be hurting. And some of the financial elite seem to be positioning themselves for what is coming. For example, even though he has been making public statements about how great stocks are right now, the truth is that Warren Buffett is currently sitting on $49 billion in cash. That is the most that he has ever had sitting in cash. Does he know something? Of course there will be a tremendous amount of pressure on the U.S. government and the Federal Reserve to do something once a financial crash happens. The response by the federal government and the Federal Reserve will likely be extremely inflationary as they try to resuscitate the system. It will probably be far more dramatic than anything we have seen so far. So cash will not be king for long. In fact, eventually cash will be trash. The actions of the U.S. government and the Federal Reserve in response to the coming financial crisis will greatly upset much of the rest of the world and cause the death of the U.S. dollar. That is why gold, silver and other hard assets are going to be so good to have in the long-term. In the short-term they will experience wild swings in price, but if you can handle the ride you will be smiling in the end. In the coming years, we are going to experience both inflation and deflation, and neither one will be pleasant at all. Average: 0 Your rating: None Tweet - advertisements - VectorVest Stock Analysis. Find out Whether a Stock is a Buy, Sell or Hold. Get your Free Stock Analysis simply by clicking here! Login or register to post comments 1064 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: How The U.S. Will Become a 3rd World Country (Part 2) Mike “Mish” Shedlock Answers: Is Global Trade About To Collapse; And Where Are Oil Prices Headed? Bernanke Speech And Word Cloud 2012 Year In Review - Free Markets, Rule of Law, And Other Urban Legends Silver Surges Over $46.25/oz As Rumours Of A Short Squeeze And Cornering Market Gain Credence
10 Things That Every American Should Know About The Federal Reserve By Michael, on February 8th, 2012 What would happen if the Federal Reserve was shut down permanently? That is a question that CNBC asked recently , but unfortunately most Americans don't really think about the Fed much. Most Americans are content with believing that the Federal Reserve is just another stuffy government agency that sets our interest rates and that is watching out for the best interests of the American people. But that is not the case at all. The truth is that the Federal Reserve is a private banking cartel that has been designed to systematically destroy the value of our currency, drain the wealth of the American public and enslave the federal government to perpetually expanding debt. During this election year, the economy is the number one issue that voters are concerned about. But instead of endlessly blaming both political parties, the truth is that most of the blame should be placed at the feet of the Federal Reserve. The Federal Reserve has more power over the performance of the U.S. economy than anyone else does. The Federal Reserve controls the money supply, the Federal Reserve sets the interest rates and the Federal Reserve hands out bailouts to the big banks that absolutely dwarf anything that Congress ever did. If the American people are ever going to learn what is really going on with our economy, then it is absolutely imperative that they get educated about the Federal Reserve. The following are 10 things that every American should know about the Federal Reserve.... #1 The Federal Reserve System Is A Privately Owned Banking Cartel The Federal Reserve is not a government agency. The truth is that it is a privately owned central bank. It is owned by the banks that are members of the Federal Reserve system. We do not know how much of the system each bank owns, because that has never been disclosed to the American people. The Federal Reserve openly admits that it is privately owned. When it was defending itselfagainst a Bloomberg request for information under the Freedom of Information Act, the Federal Reserve statedunequivocally in court that itwas "not an agency" of the federal government and therefore not subject to the Freedom of Information Act. In fact, if you want to find out that the Federal Reserve system is owned by the member banks, all you have to do is go to the Federal Reserve website .... The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year. Foreign governments and foreign banks do own significant ownership interests in the member banks that own the Federal Reserve system. So it would be accurate to say that the Federal Reserve is partially foreign-owned. But until the exact ownership shares of the Federal Reserve are revealed, we will never know to what extent the Fed is foreign-owned. #2 The Federal Reserve System Is A Perpetual Debt Machine As long as the Federal Reserve System exists, U.S. government debt will continue to go up and up and up. This runs contrary to the conventional wisdom that Democrats and Republicans would have us believe, but unfortunately it is true. The way our system works, whenever more money is created more debt is created as well. For example, whenever the U.S. government wants to spend more money than it takes in (which happens constantly), it has to go ask the Federal Reserve for it. The federal government gives U.S. Treasury bonds to the Federal Reserve, and the Federal Reserve gives the U.S. government "Federal Reserve Notes" in return. Usually this is just done electronically. So where does the Federal Reserve get the Federal Reserve Notes? It just creates them out of thin air. Wouldn't you like to be able to create money out of thin air? Instead of issuing money directly, the U.S. government lets the Federal Reserve create it out of thin air and then the U.S. government borrows it. Talk about stupid. When this new debt is created, the amount of interest that the U.S. government will eventually pay on that debt is not also created. So where will that money come from? Well, eventually the U.S. government will have to go back to the Federal Reserve to get even more money to finance the ever expanding debt that it has gotten itself trapped into. It is a debt spiral that is designed to go on perpetually. You see, the reality is that the money supply is designed to constantly expand under the Federal Reserve system. That is why we have all become accustomed to thinking of inflation as "normal". So what does the Federal Reserve do with the U.S. Treasury bonds that it gets from the U.S. government? Well, it sells them off to others. There are lots of people out there that have made a ton of money by holding U.S. government debt. In fiscal 2011, the U.S. government paid out 454 billion dollars just in interest on the national debt. That is 454 billion dollars that was taken out of our pockets and put into the pockets of wealthy individuals and foreign governments around the globe. The truth is that our current debt-based monetary system was designed by greedy bankers that wanted to make enormous profits by using the Federal Reserve as a tool to create money out of thin air and lend it to the U.S. government at interest. And that plan is working quite well. Most Americans today don't understand how any of this works, but many prominent Americans in the past did understand it. For example, Thomas Edison was once quoted in the New York Times as saying the following.... That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt. Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost. But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good. We should have listened to men like Edison and Ford. But we didn't. And so we pay the price. On July 1, 1914 (a few months after the Fed was created) the U.S. national debt was 2.9 billion dollars. Today, it is more than more than 5000 times larger. Yes, the perpetual debt machine is working quite well, and most Americans do not even realize what is happening. #3 The Federal Reserve Has Destroyed More Than 96% Of The Value Of The U.S. Dollar Did you know that the U.S. dollar has lost 96.2 percent of its value since 1900? Of course almost all of that decline has happened since the Federal Reserve was created in 1913. Because the money supply is designed to expand constantly, it is guaranteed that all of our dollars will constantly lose value. Inflation is a "hidden tax" that continually robs us all of our wealth. The Federal Reserve always says that it is "committed" to controlling inflation, but that never seems to work out so well. And current Federal Reserve Chairman Ben Bernanke says that it is actually a good thing to have a little bit of inflation. He plans to try to keep the inflation rate at about 2 percent in the coming years. So what is so bad about 2 percent? That doesn't sound so bad, does it? Well, just consider the following excerpt from a recent Forbes article .... The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level. #4 The Federal Reserve Can Bail Out Whoever It Wants To With No Accountability The American people got so upset about the bailouts that Congress gave to the Wall Street banks and to the big automakers, but did you know that the biggest bailouts of all were given out by the Federal Reserve? Thanks to a very limited audit of the Federal Reserve that Congress approved a while back, we learned that the Fed made trillions of dollars in secret bailout loans to the big Wall Street banks during the last financial crisis. They even secretly loaned out hundreds of billions of dollars to foreign banks. According to the results of the limited Fed audit mentioned above, a total of $16.1 trillion in secret loans were made by the Federal Reserve between December 1, 2007 and July 21, 2010. The following is a list of loan recipients that was taken directly from page 131 of the audit report.... Citigroup - $2.513 trillion Morgan Stanley - $2.041 trillion Merrill Lynch - $1.949 trillion Bank of America - $1.344 trillion Barclays PLC - $868 billion Bear Sterns - $853 billion Goldman Sachs - $814 billion Royal Bank of Scotland - $541 billion JP Morgan Chase - $391 billion Deutsche Bank - $354 billion UBS - $287 billion Credit Suisse - $262 billion Lehman Brothers - $183 billion Bank of Scotland - $181 billion BNP Paribas - $175 billion Wells Fargo - $159 billion Dexia - $159 billion Wachovia - $142 billion Dresdner Bank - $135 billion Societe Generale - $124 billion "All Other Borrowers" - $2.639 trillion So why haven't we heard more about this? This is scandalous. In addition, it turns out that the Fed paid enormous sums of money to the big Wall Street banks to help "administer" these nearly interest-free loans.... Not only did the Federal Reserve give 16.1 trillion dollars in nearly interest-free loans to the "too big to fail" banks, the Fed also paid them over 600 million dollars to help run the emergency lending program. According to the GAO , the Federal Reserve shelled out an astounding $659.4 million in "fees" to the very financial institutions which caused the financial crisis in the first place. Does reading that make you angry? It should. #5 The Federal Reserve Is Paying Banks Not To Lend Money Did you know that the Federal Reserve is actually paying banks not to make loans? It is true. Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on "excess reserves" that U.S. banks park at the Fed. So the banks can just send their cash to the Fed and watch the money come rolling in risk-free. So are many banks taking advantage of this? You tell me. Just check out the chart below. The amount of "excess reserves" parked at the Fed has gone from nearly nothing to about 1.5 trillion dollars since 2008.... But shouldn't the banks be lending the money to us so that we can start businesses and buy homes? You would think that is how it is supposed to work. Unfortunately, the Federal Reserve is not working for us. The Federal Reserve is working for the big banks. Sadly, most Americans have no idea what is going on. Another example of this is the government debt carry trade. Here is how it works. The Federal Reserve lends gigantic piles of nearly interest-free cash to the big Wall Street banks, and in turn those banks use the money to buy up huge amounts of government debt. Since the return on government debt is higher, the banks are able to make large profits very easily and with very little risk. This scam was also explained in a recent article in the Guardian .... Consider this: we pretend that banks are private businesses that should be allowed to run their own affairs. But they are the biggest scroungers of public money of our time. Banks are lent vast sums of money by central banks at near-zero interest. They lend that money to us or back to the government at higher rates and rake in the difference by the billion. They don't even have to make clever investments to make huge profits. That is a pretty good little scam they have got going, wouldn't you say? #6 The Federal Reserve Creates Artificial Economic Bubbles That Are Extremely Damaging By allowing a centralized authority such as the Federal Reserve to dictate interest rates, it creates an environment where financial bubbles can be created very easily. Over the past several decades, we have seen bubble after bubble. Most of these have been the result of the Federal Reserve keeping interest rates artificially low. If the free market had been setting interest rates all this time, things would have never gotten so far out of hand. For example, the housing crash would have never been so horrific if the Federal Reserve had not created such ideal conditions for a housing bubble in the first place. But we allow the Fed to continue to make the same mistakes. Right now, the Federal Reserve continues to set interest rates much, much lower than they should be. This is causing a tremendous misallocation of economic resources, and there will be massive consequences for that down the line. #7 The Federal Reserve System Is Dominated By The Big Wall Street Banks Even since it was created, the Federal Reserve system has been dominated by the big Wall Street banks. The following is from a previous article that I did about the Fed.... The New York representative is the only permanent member of the Federal Open Market Committee, while other regional banks rotate in2 and 3 yearintervals. The former head of the New York Fed, Timothy Geithner, is now U.S.Treasury Secretary. The truth is that the Federal Reserve Bank of New York has always been the most important of the regionalFed banks by far, and in turn the Federal Reserve Bank of New York has always been dominated by Wall Street and the major New York banks. #8 It Is Not An Accident That We Saw The Personal Income Tax And The Federal Reserve System Both Come Into Existence In 1913 On February 3rd, 1913 the 16th Amendment to the U.S. Constitution was ratified. Later that year, the United States Revenue Act of 1913 imposed a personal income tax on the American people and we have had one ever since. Without a personal income tax, it is hard to have a central bank. It takes a lot of money to finance all of the government debt that a central banking system creates. It is no accident that the 16th Amendment was ratified in 1913 and the Federal Reserve system was also created in 1913. They have a symbiotic relationship and they are designed to work together. We could fill Congress with people that are committed to ending this oppressive system, but so far we have chosen not to do that. So our children and our grandchildren will face a lifetime of debt slavery because of us. I am sure they will be thankful for that. #9 The Current Federal Reserve Chairman, Ben Bernanke, Has A Nightmarish Track Record Of Incompetence The mainstream media portrays Federal Reserve Chairman Ben Bernanke as a brilliant economist, but is that really the case? Let's go to the videotape. The following is an extended excerpt from an article that I published previously .... ---------- In 2005 , Bernanke said that we shouldn't worry because housing prices had never declined on a nationwide basis before and he said that he believed that the U.S. would continue to experience close to "full employment".... "We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though." In 2005 , Bernanke also said that he believed that derivatives were perfectly safe and posed no danger to financial markets.... "With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly." In 2006 , Bernanke said that housing prices would probably keep rising.... "Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise." In 2007 , Bernanke insisted that there was not a problem with subprime mortgages.... "At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency." In 2008 , Bernanke said that a recession was not coming.... "The Federal Reserve is not currently forecasting a recession." A few months before Fannie Mae and Freddie Mac collapsed, Bernanke insisted that they were totally secure.... "The GSEs are adequately capitalized. They are in no danger of failing." For many more examples that demonstrate the absolutely nightmarish track record of Federal Reserve Chairman Ben Bernanke, please see the following articles.... *" Say What? 30 Ben Bernanke Quotes That Are So Stupid That You Won’t Know Whether To Laugh Or Cry " *" Is Ben Bernanke A Liar, A Lunatic Or Is He Just Completely And Totally Incompetent? " But after being wrong over and over and over, Barack Obama still nominated Ben Bernanke for another term as Chairman of the Fed. ---------- #10 The Federal Reserve Has Become Way Too Powerful The Federal Reserve is the most undemocratic institution in America. The Federal Reserve has become so powerful that it is now known as "the fourth branch of government", but there are less checks and balances on the Fed than there are on the other three branches. The Federal Reserve runs the U.S. economy but it is not accountable to the American people. We can't vote those that run the Fed out of office if we do not like what they do. Yes, the president appoints those that run the Fed, but he also knows that if he does not tread lightly he won't get the money from the big Wall Street banks that he needs for his next election. Thankfully, there are a few members of Congress that are complaining about how much power the Fed has. For example, Ron Paul once told MSNBC that he believes that the Federal Reserve is now actually more powerful than Congress ..... "The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress." As members of Congress such as Ron Paul have started to shed some light on the activities of the Federal Reserve, that has caused many in the mainstream media to come to the defense of the Fed. For example, a recent CNBC article entitled " If The Federal Reserve Is Abolished, What Then? " makes it sound like there is absolutely no other rational alternative to having the Federal Reserve run our economy. But this is not what our founders intended. The founders did not intend for a private banking cartel to issue our money and set our interest rates for us. According to Article I, Section 8 of the U.S. Constitution , the U.S. Congress has been given the responsibility to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures". So why is the Federal Reserve doing it? But the CNBC article mentioned above makes it sound like the sky would fall if control of the currency was handed back over to the American people. At one point, the article asks the following question.... "How would the U.S. economy then function? Something has to take its place, right?" No, the truth is that we don't need anyone to "manage" our economy. The U.S. Treasury could be in charge of issuing our currency and the free market could set our interest rates. We don't need to have a centrally-planned economy. We aren't China. And it goes against everything that our founders believed to be running up so much government debt. For example, Thomas Jefferson once declared that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing .... I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing. Oh, how things would have been different if we had only listened to Thomas Jefferson. Please share this article with as many people as you can. These are things that every American should know about the Federal Reserve, and we need to educate the American people about the Fed while there is still time.
As Goes China, So Goes The World And Definitely Australia Submitted by Tyler Durden on 02/26/2013 18:11 -0500 Australia China Japan While China depends on only one nation for 15% or more of its exports (US 17.3%), Bloomberg's Michael McDonough notes that an incredible 35 nations depend of China for at least 15% of the exports; up from just 4 in 2001. Most are emerging markets or major commodity producers with the shift being driven by China's demand for raw materials, fueled by its investment-led growth model and the stimulus package following the global financial crisis. This gross dependence leaves the world's economy increasingly susceptible to shifts in the Chinese business cycle - most notably Australia which relies on China for a massive 30% of its export demand . This is almost double the next largest developed nation of Japan (which relies on China for 18.5% of its exports) though tensions between the two nations has led to an almost 10% decline in Chinese imports of Japanese goods since September . As we have noted, China has become a key source of FDI in Africa in recent years and 12 of the 20 most-China-dependent economies are from that continent; but as China attempts to transition from investment toward consumption, demand for commodities may slow and downside risk grows for these dependent commodity-producing nations . Charts: Bloomberg Briefs Average: 4.88889 Your rating: None Average: 4.9 ( 9 votes) Tweet Login or register to post comments 7738 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: China, Japan, And The US - Tying It All Together Guest Post: China, Inflation Gold: China Created Paper Money And Paper Money Then Created Inflation Goldman Downgrades China, Upgrades The Nikkei, As It Hikes Oil, And Other Non-Sequiturs Guest Post: China, Japan And The Senkaku Islands: The Roots Of Conflict Go Back To 1274 French Downgrade Comes And Goes As Europe Open Fills EURUSD Gap
China's Economy "Bottoming Out"? - Not So Fast! Submitted by Tyler Durden on 12/04/2012 14:27 -0500 China Fitch Gross Domestic Product Michael Pettis ratings Reuters While China's equity index continues to plumb new depths, the macro data of the past two weeks has been the crutch for US equity bulls losing faith in the fiscal cliff negotiations - growth is up, investment is up, and inflation is down - with analysts hailing the news as evidence that the Chinese economy has "truly bottomed out." As Michael Pettis, of China Financial Markets , notes though "I think we need to be very cautious and refrain from allowing ourselves to get too caught up in the huge sigh of relief that the sell side is heaving . Growth rates in China will continue to slow dramatically in the next few years, and if there are temporary lulls, as there must be, these do not represent any sort of “bottoming out” at all." His perspective is simply that Beijing cannot afford 'politically' to allow the transition/adjustment/reforms to take place too fast - and occasionally needs "to step on the investment accelerator." The bottom-line, he notes, is that " you can get as much growth as you like if you expand credit, but once expanding credit has become the problem, it cannot also be a permanent solution to slower growth . The country’s balance sheet continues to deteriorate – and the most recent growth spurt implies faster deterioration – and this, ultimately, is the main constraint of the Chinese growth model." SHCOMP vs HSI or Industrial Output vs PMI Via Michael Pettis, China Financial Markets : The big news in the past two weeks has been the slew of economic data suggesting that China has firmly turned the corner on its economic closedown. ... I think we need to be very cautious and refrain from allowing ourselves to get too caught up in the huge sigh of relief that the sell side is heaving . Growth rates in China will continue to slow dramatically in the next few years, and if there are temporary lulls, as there must be, these do not represent any sort of “bottoming out” at all. They simply represent the fact that Beijing cannot afford politically to allow the adjustment to take place too quickly , and from time to time Beijing is are going to step on the investment accelerator to speed things up temporarily. More credit Doing so of course will only make the adjustment longer and more painful , but given how difficult politically the transition to a balanced economy is likely to be, we would be crazy to expect otherwise. ... You can get as much growth as you like if you expand credit , but once expanding credit has become the problem, it cannot also be a permanent solution to slower growth. The country’s balance sheet continues to deteriorate – and the most recent growth spurt implies faster deterioration – and this, ultimately, is the main constraint of the Chinese growth model. Within the banking sector we are seeing all kinds of strains as companies and banks stretch for liquidity. Large-company receivables are growing quickly, as are payables (no one, it seems, wants to part with cash), loans simply are not getting repaid, and deposits are no longer growing, perhaps because flight capital is more than enough to offset China’s very high trade surplus. ... Remember that thanks to disguised flight capital and commodity stockpiling the surplus is almost certainly a lot larger than reported, and yet banks are still feeling the liquidity squeeze . And for all their happy noises, the authorities nonetheless are worried, at least about certain parts of the banking system. ... Most worrying of all Charlene Chu, perhaps the only analyst who actually understand what is happening in the banking system, released a new report with Fitch Ratings that is described in a Reuters article : Fitch Ratings says faster growth of broad credit in Q312 was one factor behind the recent improvement in Chinese economic data . In a comment published today, the agency highlights that, after slowing from Q411 to Q212, broad credit is back on track to surpass CNY17trn (USD2.7trn) in 2012. Fitch’s measure of broad credit includes shadow and offshore sources omitted from the central bank’s official total societal financing metric. “ This marks the fourth year in a row that net new credit will exceed one-third of GDP ,” said Charlene Chu, Head of Chinese banks’ ratings at Fitch. At current growth rates, by 2013 China’s banking sector assets will have expanded by nearly USD14trn since 2008. This is equivalent to replicating the entire US commercial banking sector in just five years . Such massive balance sheet expansion has limits, according to the agency. You can accelerate investment forever It is, to me, astonishing that China in just five years is “replicating the entire US commercial banking sector”, and yet so many analysts are expressing delight with China’s return to growth. Of course you can generate growth if you force such a tremendous expansion in credit, but this is simply unsustainable. I know I’ve said this many times, and I apologize for boring regular readers, but while I expected that politics would require a jump in growth over the rest of this year and the beginning of the next, this “good growth” tells us nothing about the health of the underlying economy. It only tells us how difficult politically the transition is likely to be. My guess is that the more difficult the consolidation of power, the longer the period of above 7% growth – so the happier the sell-side analysts are, the more worried long-term investors should be. At some point growth will start dropping rapidly again, and of course the same analysts who are now hailing the return to rapid growth will assure you, when growth begins to slow sharply again, that this was part of Beijing’s plan and was fully predictable. China is slowing because Beijing wants it to slow, they will say, and that’s a good thing. Meanwhile the fact that China is speeding up is also a good thing. ... I also published for Foreign Policy last week a longer piece on the challenges facing the new leadership in China . My main argument in the Foreign Policy piece is that both historical precedents and a common sense understanding of the rebalancing process suggest that politics, not economics, will determine China’s success . So far Beijing has succeeded largely because of its ability to collect and control the total savings of the country, and unleash waves of investment whenever necessary. Many countries have done the same things, but once credit expansion is no longer efficiently invested, few countries have made the transition to a different growth model . Powerful groups who benefitted from the old growth model – in China they are referred to generically as “vested interests” – have always succeeded in diluting or preventing the necessary reforms. The rebalancing always occurs anyway, either in the form of a debt crisis and negative growth or in the form of a long period of no growth and slow rebalancing. Some times – very rarely – the country completes the rebalancing and then moves swiftly on to becoming a developed country, but this doesn’t happen often. Of the dozens of developing economies that have experienced investment-driven growth miracles in the past 100 years, the only ones that have managed the transition to developed country status are South Korea, Taiwan, and maybe Chile. This is a pretty limited success ratio. China’s previous success, in other words, tells us noting about how it will manage the next stage, and the precedents give us little reason to assume that the country can’t help but advance to the next stage of development. In fact the more confident Beijing is that it will manage the transition successfully, the less likely it is to succeed, which is why I am delighted that policy advisors seem so much more pessimistic than sell-side analysts. What happens to China will be determined largely by the political decisions it will make in the next few years, and it is foolish to assume we know how things will turn out. 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More Evidence: The American Dream is in Trouble Posted on September 6, 2011 by Michael Morrison The Pew Charitable Trusts released a new report this morning, Downward Mobility from the Middle Class: Waking up from the American Dream, reveals troubling indicators associated with economic mobility. The major findings include: A middle-class upbringing does not guarantee the same status over the course of a lifetime. Marital status, education, test scores and drug use have a strong influence on whether a middle-class child loses economic ground as an adult. Race is a factor in who falls out of the middle class, but only for men. Differences in average test scores are the most important observable factor (of those considered in this report) that accounts for the large downward mobility gap between black men and white men. There is a gender gap in downward mobility from the middle , but it is driven entirely by a disparity between white men and white women. Drilling down into the report we find more specific information, which I quote liberally: A third of Americans raised in the middle class—defined here as those between the 30th and 70th percentiles of the income distribution—fall out of the middle as adults. Marital status, education, test scores and drug use have a strong influence on whether a middle-class child loses economic ground as an adult. Compared with married women, women who are divorced, widowed or separated are between 31 and 36 percentage points more likely to fall down the economic ladder. In turn, never-married women are 16 to 19 percentage points more likely to be downwardly mobile than married women. Men who are divorced, widowed or separated are 13 percentage points more likely to drop out of the middle class than are married men, and men who have never married are 6 to 10 percentage points more likely to fall than married men. Men and women raised in middle-class homes are generally more likely to fall out of the middle if they do not obtain education beyond high school. Race is a factor in who falls out of the middle class, but only for men. There is a gender gap in downward mobility from the middle, but it is driven entirely by a disparity between white men and white women. Only among whites are women more downwardly mobile than men: Thirty percent of white women fall out of the middle class, compared with 21 percent of white men. Black women experience less downward mobility than black men, and Hispanic men and women have nearly identical chances of falling from the middle. Differences in average test scores are the most important observable racial difference in accounting for the large downward mobility gap between black men and white men, but none of the factors examined in the report sheds light on the gap between white men and white women. The full report, Downward Mobility from the Middle Class: Waking up from the American Dream , can be found by clicking on the link. Other posts directly dealing with the American Dream can be found here and here .
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