The Democratic Party is not an association of political virgins and pacifists, but the second-oldest capitalist party on the planet, steeped in blood from its origins as the party of the Southern slaveowners. It is the party of World War I, World War II, Korea and Vietnam, of Hiroshima and Nagasaki." Patrick Martin
The right question here is in fact the simplest one: Are financial institutions doing things that provide a clear, measurable benefit to the real economy? Sadly, the answer at the moment is mostly no. But we can change things. Our system of market capitalism wasn’t handed down, in perfect form, on stone tablets. We wrote the rules. We broke them. And we can fix them.
It’s no accident that corporate stock buybacks, corporate pay and the wealth gap have risen concurrently over the past four decades. There are any number of studies that illustrate this type of intersection between financialization and inequality. One of the most striking was by economists James Galbraith and Travis Hale, who showed how during the late 1990s, changing income inequality tracked the go-go Nasdaq stock index to a remarkable degree....
Recently, this pattern has become evident at a number of well-known U.S. companies. Take Apple, one of the most successful over the past 50 years. Apple has around $200 billion sitting in the bank, yet it has borrowed billions of dollars cheaply over the past several years, thanks to superlow interest rates (themselves a response to the financial crisis) to pay back investors in order to bolster its share price. Why borrow? In part because it’s cheaper than repatriating cash and paying U.S. taxes...
Remooring finance in the real economy isn’t as simple as splitting up the biggest banks (although that would be a good start). It’s about dismantling the hold of financial-oriented thinking in every corner of corporate America....
A couple of weeks ago, a poll conducted by the Harvard Institute of Politics found something startling: only 19% of Americans ages 18 to 29 identified themselves as “capitalists.” In the richest and most market-oriented country in the world, only 42% of that group said they “supported capitalism.” The numbers were higher among older people; still, only 26% considered themselves capitalists. A little over half supported the system as a whole....
Over the past few decades, finance has turned away from this traditional role. Academic research shows that only a fraction of all the money washing around the financial markets these days actually makes it to Main Street businesses. “The intermediation of household savings for productive investment in the business sector—the textbook description of the financial sector—constitutes only a minor share of the business of banking today,” according to academics Oscar Jorda, Alan Taylor and Moritz Schularick, who’ve studied the issue in detail. By their estimates and others, around 15% of capital coming from financial institutions today is used to fund business investments, whereas it would have been the majority of what banks did earlier in the 20th century...
Across all advanced economies, and the United States and the U.K. in particular, the role of the capital markets and the banking sector in funding new investment is decreasing.” Most of the money in the system is being used for lending against existing assets such as housing, stocks and bonds....
financialization. It’s an academic term for the trend by which Wall Street and its methods have come to reign supreme in America, permeating not just the financial industry but also much of American business. It includes everything from the growth in size and scope of finance and financial activity in the economy; to the rise of debt-fueled speculation over productive lending; to the ascendancy of shareholder value as the sole model for corporate governance; to the proliferation of risky, selfish thinking in both the private and public sectors; to the increasing political power of financiers and the CEOs they enrich; to the way in which a “markets know best” ideology remains the status quo. Financialization is a big, unfriendly word with broad, disconcerting implications...
The changes were driven by the fact that in the 1970s, the growth that America had enjoyed following World War II began to slow. Rather than make tough decisions about how to bolster it (which would inevitably mean choosing among various interest groups), politicians decided to pass that responsibility to the financial markets. Little by little, the Depression-era regulation that had served America so well was rolled back, and finance grew to become the dominant force that it is today. The shifts were bipartisan, and to be fair they often seemed like good ideas at the time; but they also came with unintended consequences. The Carter-era deregulation of interest rates—something that was, in an echo of today’s overlapping left-and right-wing populism, supported by an assortment of odd political bedfellows from Ralph Nader to Walter Wriston, then head of Citibank—opened the door to a spate of financial “innovations” and a shift in bank function from lending to trading...
Debt is the lifeblood of finance; with the rise of the securities-and-trading portion of the industry came a rise in debt of all kinds, public and private. That’s bad news, since a wide range of academic research shows that rising debt and credit levels stoke financial instability. And yet, as finance has captured a greater and greater piece of the national pie, it has, perversely, all but ensured that debt is indispensable to maintaining any growth at all in an advanced economy like the U.S., where 70% of output is consumer spending. Debt-fueled finance has become a saccharine substitute for the real thing, an addiction that just gets worse...
Washington, too, is so deeply tied to the ambassadors of the capital markets—six of the 10 biggest individual political donors this year are hedge-fund barons—that even well-meaning politicians and regulators don’t see how deep the problems are...
Of course, there are other elements to the story of America’s slow-growth economy, including familiar trends from globalization to technology-related job destruction. These are clearly massive challenges in their own right. But the single biggest unexplored reason for long-term slower growth is that the financial system has stopped serving the real economy and now serves mainly itself. A lack of real fiscal action on the part of politicians forced the Fed to pump $4.5 trillion in monetary stimulus into the economy after 2008. This shows just how broken the model is, since the central bank’s best efforts have resulted in record stock prices (which enrich mainly the wealthiest 10% of the population that owns more than 80% of all stocks) but also a lackluster 2% economy with almost no income growth....
if you were to chart the rise in money spent on share buybacks and the fall in corporate spending on productive investments like R&D, the two lines make a perfect X. The former has been going up since the 1980s, with S&P 500 firms now spending $1 trillion a year on buybacks and dividends—equal to about 95% of their net earnings—rather than investing that money back into research, product development or anything that could contribute to long-term company growth. No sector has been immune, not even the ones we think of as the most innovative. Many tech firms, for example, spend far more on share-price boosting than on R&D as a whole. The markets penalize them when they don’t. One case in point: back in March 2006, Microsoft announced major new technology investments, and its stock fell for two months. But in July of that same year, it embarked on $20 billion worth of stock buying, and the share price promptly rose by 7%. This kind of twisted incentive for CEOs and corporate officers has only grown since.
As a result, business dynamism, which is at the root of economic growth, has suffered. The number of new initial public offerings (IPOs) is about a third of what it was 20 years ago....
It's is true that readings on inflation have risen of late, with core Consumer Prices, which exclude volatile food and energy costs, touching, or even mildly exceeding the Fed's 2 percent objective.
However, the Fed's preferred measure of overall inflation, the core PCE Deflator, remains a few tenths of a percent below target, suggesting patience may still be a virtue. ...
I may sound like a broken record, but inflation remains a phantom problem. The ghost of economies past, particularly that of the 1970s, continues to haunt the hallowed halls of the Fed. But the wage/price spiral that some Fed officials still fear occurred in an environment that bears no resemblance to today's economy...
Financial deflation and technological disinflation remain the larger factors in a weak global economy.
In addition, despite some mildly stronger than expected data on Tuesday, the U.S. economy appears to be decelerating. And, the rest of the world is hardly operating at full capacity.
The U.S. economy probably could withstand another quarter-point rate hike, as an inoculation against incipient inflation … probably.
But in truth, the process of normalizing interest rate policy remains data dependent and dependent, as well, on a strengthening global economy, for which there is no convincing data at all.
Now that Swedish inflation is starting to approach the target, it may be time to think about the conditions for monetary policy over a longer perspective, according to Skingsley. If it has become more difficult to conduct monetary policy, what can the Riksbank and other central banks do?
Skingsley says that it will not be possible, in the future, to conduct monetary policy in the way and with the impact we have previously been accustomed to. And this is something for which we need to prepare ourselves. She notes that, alongside cutting the policy rate to below zero and purchasing securities, so-called helicopter money could provide a hypothetical path to take to increase scope for monetary policy.
"It is probably something that should not be tried until other possibilities have been exhausted. However, considering the difficulties that are weighing many of the world's economies down, I think that it is wise to discuss the different possibilities, without closing any doors," says Skingsley.
Federal Reserve officials sent skeptical investors a sharp warning Wednesday that an interest-rate increase is still in play for June’s policy meeting if the economy keeps improving.Until a few days ago, traders in futures markets saw almost no possibility the Fed would move short-term interest rates up at midyear. However, a batch of strong economic data, recent comments by Fed officials and a new release by the central bank on the deliberations at its last policy meeting have changed that perception.
Fed officials concluded a rate increase in June was a distinct possibility when they last gathered to discuss the economy, according to minutes of their April 26-27 policy meeting released Wednesday afternoon.
“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the [Fed’s] 2% objective, then it likely would be appropriate for the [Fed] to increase the target range for the federal funds rate in June,” said the minutes
After the release, traders in futures markets put a 34% probability on a move by the June 14-15 meeting, up from just 4% a few days ago. The Fed could still wait to move instead at its meetings in July or September. By late Wednesday, traders put a 56% probability on a move by July, up from 20% on Tuesday.
The shift in expectations sent markets for a loop. The Dow Jones Industrial Average dropped by more than 180 points after the release of the minutes, then rallied late into the day and finished nearly flat.
Yields on 10-year Treasury notes rose 0.123 percentage points to 1.882%, while the prices on these notes, which move inversely to the yield, dropped. The value of the dollar rose 0.8% against a broad basket of currencies.
The Fed’s apparent confidence about raising rates has mixed implications for investors. On the one hand, officials’ view that the economy is improving could be reassuring; on the other hand, higher rates tend to put downward pressure on stocks because they raise the cost of investing.
Fed officials want to signal confidence without spooking markets or causing an overreaction. “The markets got a little out of whack and the Fed is just nudging them back to where they are,” said John Canally, chief economic strategist for LPL Financial. “They want the market to be on guard that there is going to be a hike, then judge the reaction to it.”
As part of the effort at message control, Fed officials have struck a more upbeat tone in minutes and public comments, sounding less worried about risks posed by global economic and financial conditions, and pointing to additional strengthening of the U.S. labor market despite the first quarter’s slowdown in economic activity.
To that end, officials saw a need to reset market expectations. Some officials at the April meeting viewed the market’s expectations of a June increase as “unduly low,” the minutes said, and they emphasized the importance of communicating clearly before the next meeting how officials intend to respond to economic and financial developments.
Fed officials in recent days have flagged the potential for a June increase. “I think that the data to my mind are lining up to make a good case for rate increases in the next few meetings, not just June, which means it’s very live in terms of that,” San Francisco Fed President John Williams said Tuesday in an interview with The Wall Street Journal.
The Fed raised its benchmark federal-funds rate in December to a range between 0.25% and 0.50%, after leaving it near zero for seven years. At the time, officials projected they would raise rates by a full percentage point this year. But officials cut that estimate in half at their March meeting, as worries about risks from abroad and turbulent financial markets had stayed the Fed’s hands on interest-rate increases in the early months of the year.
Officials headed into the April meeting with a mixed picture of the economy. And it still isn’t certain they will be convinced the economy is strong enough to withstand another rate increase as early as next month.
Early indications of second-quarter growth have been encouraging. Industrial production surged last month; retail sales climbed to the highest levels in more than a year; and momentum in the housing sector continued to build. U.S. consumer prices also jumped, suggesting inflation is starting to rise.
However, this follows a disappointing first quarter, when economic output expanded at a meager 0.5% annual pace. Job growth in April was also weaker than expected.
Still, Fed officials signaled they weren’t overly worried about the apparent slump, judging it was temporary and “could partly reflect measurement problems and, if so, would likely be following by stronger [gross domestic product] growth in subsequent quarters,” the minutes said.
The view wasn’t unanimous. Some officials worried that softness in consumer spending and declines in business investment may be a sign of a more persistent slowdown in economic activity.
For officials to raise rates in June, they will want to see economic data exceeding their expectations and financial markets remaining calm, LPL’s Mr. Canally said.
US stocks fell as investors fretted about the prospects of higher interest rates...
The Dow Jones Industrial Average fell 180.73 points, or 1%, to 17529.98. The S&P 500 dropped 19.45 points, or 0.9%, to 2047.21. The Nasdaq Composite lost 59.73 points, or 1.3%, to 4715.73.
Tuesday’s declines reduced the S&P 500’s gains for the year to 0.2%....
At an event in Washington on Tuesday, both Federal Reserve Bank of San Francisco President John Williams and Atlanta Fed President Dennis Lockhart said the June meeting is “live,” suggesting that a rate increase next month isn’t off the table.
The Fed’s minutes from its April policy meeting are scheduled to be released Wednesday.
U.S. crude-oil futures rose 1.2% to $48.31 a barrel, a seven-month high, on continued signs of supply declines from around the world.
Economists classify the income earned by U.S. households as either labor earnings or capital earnings. From about 1950 to 2001, the labor share of income never wavered far from 62 percent, even as the nation underwent a transformation from an economy based primarily on manufacturing to one grounded chiefly in services. The economist John Maynard Keynes called this 50-year pattern of labor-share stability “a bit of a miracle.” The “miracle” inhered in a singular coincidence, namely, the falling labor share in manufacturing industries and the rising one in service-providing industries balancing each other out, resulting in no change in the overall labor share. However, Keynes’s “bit of a miracle” eventually ended: beginning in 2001 through the present, the labor share slowly fell, dropping to about 56 percent of income by 2014. But why did the “miracle” end? That question is what Roc Armenter seeks to answer in “A bit of a miracle no more: the decline of the labor share,” published in the Federal Reserve Bank of Philadelphia Business Review for the third quarter of 2015....
Finally, the globalization hypothesis links that phenomenon to the falling labor share of income: U.S. industries that are more labor intensive will outsource their work to countries with cheap labor while industries that are more capital intensive will remain in the United States. The result is an increase in the capital share of income and a decrease in the labor share
In a reference to Republican presidential nominee Donald Trump, who has promised that if elected he will “Make America Great Again,” Obama insisted that social and economic conditions have never been better than they are now. “In fact, by almost every measure, America is better, and the world is better, than it was 50 years ago, or 30 years ago, or even eight years ago.”
Among other trends, Obama cited the decline in crime rates, teenage pregnancies, the percentage of people living in poverty and an overall increase in life expectancy as proof that life in America is better than it has ever been. He also cited the fact that a greater share of Americans have a college education and more blacks and Latinos sit on corporate boards and hold political office than ever before.
In the course of his remarks, Obama complained that access to the Internet and smart phones has “in some ways… made us more confident in our ignorance… We have to agree that facts and evidence matter. And we got to hold our leaders and ourselves accountable to know what the heck they’re talking about.”...
Obama’s rose-colored account flies in the face of the reality of life confronted by the vast majority of Americans in 2016. Over the last eight years workers have experienced declining incomes and wages, and rising death rates among working class men and women due to an increase in suicides, drug overdoses and alcoholism. Entire cities and regions have been devastated by decades of deindustrialization, with the rate of poverty higher than ever in urban and suburban areas across the country.
Obama was addressing an audience that is part of a generation saddled with more than $1.3 trillion dollars in student loan debt. The first generation worse off than their parents, millions of college graduates who entered the job market after the 2008 economic crisis are either unemployed or underemployed, with an average student loan debt of $30,000.
A majority of individuals with onerous debt payments are unable to afford to buy a car, buy their own house and many delay getting engaged or married. A recent poll found that 77 percent of respondents found it more difficult to live due to their student loan debt.
After eight years of the candidate of “hope and change,” a period in which 95 percent of income gains (since 2009) have gone to the top one percent, there is a general sense that the entire political system is rotten and the economic order is rigged.
Even as Obama argued that social and economic conditions in America are better than ever, he insisted they could be even better if only more people, especially students, voted in even greater numbers for the Democrats! He cited 2014 voter turnout, which was the lowest since the World War II era, and warned that “apathy has consequences.”
Obama cynically counseled the students to “have faith in democracy,” by which he meant they should support a political set-up entirely controlled by and subservient to the interests of the wealthiest individuals and corporations. The accusation that those who do not vote are apathetic is slander. The general sentiment is not apathy, but hostility and anger over a corrupt two-party system over which Obama himself presides.....
In an additional jab at students, Obama went on to criticize protests at Rutgers over a previous announcement that Condoleezza Rice, one of George W. Bush’s secretaries of state, would speak at a commencement. That students should object to having to listen to a war criminal upon their graduation is, according to Obama, an outrageous violation of the principle that is is necessary to “listen to those who don’t agree with you.” Obama perhaps worried that he could be the object of similar protests and denunciations in the not-so-distant future.
Even as he admitted that “big money in politics is a huge problem,” he cynically asserted that “the system isn’t as rigged as you think, and it certainly is not as hopeless as you think…if you vote and you elect a majority that represents your views, you will get what you want. And if you opt out, or stop paying attention, you won’t. It’s that simple.”
It was apparently lost on the president that the history of his own administration is ample proof that the anger and hostility he sought to counter is, in fact, entirely justified
The uproar over the Nevada state convention is an entirely manufactured political provocation. It shows both the desperation of the Clinton campaign, which has seen Sanders disrupt the expected coronation of the Democratic frontrunner, and the hostility of the corporate-controlled media to the left-wing sentiments animating millions of young people and working people who have flocked to the campaign of the self-professed “democratic socialist.”
It is grotesque and disgusting to see media pundits like Wolf Blitzer, a publicist and cheerleader for every American war of the past quarter-century, an enthusiast for drone-missile assassinations, complaining about a few chairs being thrown in a Las Vegas casino ballroom....
And yet Sanders’ own aim throughout his campaign has been to channel growing anti-capitalist sentiment behind Democrats, which, no less than the Republicans, are a party of the “rich and powerful.” The notion that his campaign is going to transform the Democratic Party into a representative of the working class is exposed by the reaction of the Democratic establishment to the events in Nevada.
The Democratic Party is not an association of political virgins and pacifists, but the second-oldest capitalist party on the planet, steeped in blood from its origins as the party of the Southern slaveowners. It is the party of World War I, World War II, Korea and Vietnam, of Hiroshima and Nagasaki.
There is not a major Democratic Party city leader, governor or senator who is not well practiced in the dark arts of bourgeois politics, all the way up to the highest levels of the state. The party is headed by a president who engages in daily assassinations around the world. The candidate whose supporters are bleating about Sanders’s alleged violence, Hillary Clinton, is notorious for her cackling obituary of Muammar Gaddafi: “We came, we saw, he died.” Barbara Boxer and Harry Reid did not object to that celebration of NATO bombs and Islamist lynch mobs.