A recent article in the Financial Times, “US debt ceiling fears cast shadow over Fed plans” reports that the Fed’s plan to stop quantitative easing might be imperiled by a Congressional stand-off over the US debt ceiling at the end of this September.
Our federal government’s debt limit is currently $19.8 trillion. If exceeded, the U.S. Treasury can’t borrow any more money. Unfortunately, we’ve hit that limit already back in March. Congress has been tweaking the law so that it had more time to do something about the debt limit.
The FT’s article mentions that a number of financial experts are worried because so far Congress’ and the President’s record on passing major legislation has remained at zero.
If their fears come true, there could be major spending cuts (insisted upon by the Freedom Caucus and other right-wing Republicans). Or even more worrisome, there might be a complete government shutdown.
Clearly this would impact the Fed’s plans! The Fed’s schedule for unwinding its huge debt might have to wait. This would create a crisis around the time of the next Presidential election as $777 billion of Fed debt comes due in 2018 and 2019. Continue reading →
Does it seem to you that the present government is splintering apart? There are divisions between the White House and Congress; between the House and the Senate; within the House and the Senate, and within the White House itself.
And then there are The Media….
While most of the mainstream media, aka “fake news” in alt-right eyes, are focusing on how inept Congress and the President are, the fact is that both of these arms of government are moving quite quickly forwards, but toward opposing goals. Continue reading →
For years we’ve been hearing various explanations of why income disparity in the US has been widening between the rich and poor.
For example, one reason given is that the “real value” of wages has fallen steadily over the past three decades. This means the average worker’s paycheck buys less than it used to.
Proposed remedies have included a rise in the minimum wage, lower taxes on workers, a resurrection of labor unions, and currently, creation of more jobs for workers through corporate tax breaks and corporate support of infrastructure projects.
Another reason for the loss of wealth among working Americans is job loss.
Theories about this are that too many American workers are poorly educated and new jobs in manufacturing require better skills; also robotic devices are fast hitting the American factory – take a tour of a nearby factory and you can see these fascinating objects in action: and finally, foreign workers can work more cheaply then American workers—i.e., outsourcing is to blame.
A different theory used in explaining the increasing poverty of the middle class is that illegal immigrants are being supported by the US government with funds that should go for other purposes. America First, means Americans First, others Never.
All of these ideas are up for debate, but one thing I see missing in this discussion is the fact that most Americans, young, middle age or old, working or retired used to have a source of income growth that disappeared after the “Great Recession” of 2007.
This source of income for savings was the compounded interest paid by banks on savings and checking accounts, money market certificates, and the government paid on U.S. Treasuries – Treasury bills and bonds alike.
All of this went the way of the dinosaurs when the first money market fund went bust and Lehman and US banks, large and small, started failing by the hundreds.
Before the Great Recession (and now after it) unregulated companies were creating bubbles with car loans and student loans that were also being turned into subprime derivatives.
Added to this there was the gigantic mortgage bubble which broke after large insurers and banks began buying up mortgages, piling them into blind trusts, and selling mortgage-backed derivatives that included many subprime mortgages that banks were handing out without doing proper paperwork.
Many Americans depended on home mortgage refinancing as a source of relief when they ran into economic surprises, but the surprise in 2007 was a tsunami that left many homeowners “underwater”.
The Fed’s role in creating poverty in the US
Continue reading →