Wealth in US - viral video

[dc.]

I saw this data on an info graphic a few years ago with some other cool data, but this guy does a great job at putting it into a new format.

 

I think it makes the discussion about wealth and poverty so very different. Much like people who think slashing foreign aid will fix the economy, most people are grossly misinformed about the economy and wealth. (Re: Foreign aid. The avg US citizen thinks the US spends between 15 and 25% of the federal budget on aid and would to see it cut to 5-10%. In reality, it makes up less than 1% of the budget - aka, less than the sequester!)

 

[papasmurfbell]

 

good find.

[dc.]

Also found this one via some related links. I really am more interested in as in my econ class we are discussing the importance of "demand" on economic growth.

 

Argument from Amazon investor/founder: the middle class create jobs, through their purchase of goods, and supporting them (even if it means taxing the rich more) is most important. Some nice graphics included on changes in tax rates, tax revenue and income by bracket.

 

 

Also interesting follow-up: TED did not publish the talk at first because the TED CEO thought it "too controversial" for the campaign season.... riiiight. Article follows. Isn't TED all about ideas for progress, regardless of their controversial value?

 

http://business.time.com/2012/05/18/was-nick-hanauers-ted-talk-on-income-inequality-too-rich-for-rich-people/

[papasmurfbell]

He is 100% correct. The issue is the middle class doesn't have anyone on K St representing them.

[thundercleetz]

I think the term "creates jobs" is thrown around too loosely by both parties. Get the deficit worked out one way or another to regain confidence in our economy and the unemployment numbers will take care of themselves. Both parties IMO are approaching the problem backwards.

[dc.]

Cleetz,

 

I agree with the first part - the words are mangled and misused too frequently.

 

I disagree on the second part. The debt and deficit, while simply bad for many reasons, are not a major factor in why there are people unemployed and the economy is sluggish. And such a notion, that the debt is the cause, rather than the result of a sluggish economy, is pretty new. It's a red herring that has recently taken over the conversation. [While not a full argument, I still wonder about this - if the debt and deficit were such legitimate immediate problems, why would they not be devastating the two markets most affected by confidence in the economy: the stock market and the sale of gov't bonds, i.e., why are people still buying them at record low interest rates?] The majority of the debt problem created over the last 10 years is traceable to three root issues: an unfunded pair of wars, a massive recession (sucking up to 2.5 trillion out of tax revenues over 5 years, and adding more than a trillion to welfare programs), and an egregious set of tax cuts. The debt isn't causing these problems, it's a result of these problems!

[thundercleetz]

Cleetz,

 

I agree with the first part - the words are mangled and misused too frequently.

 

I disagree on the second part. The debt and deficit, while simply bad for many reasons, are not a major factor in why there are people unemployed and the economy is sluggish. And such a notion, that the debt is the cause, rather than the result of a sluggish economy, is pretty new. It's a red herring that has recently taken over the conversation. [While not a full argument, I still wonder about this - if the debt and deficit were such legitimate immediate problems, why would they not be devastating the two markets most affected by confidence in the economy: the stock market and the sale of gov't bonds, i.e., why are people still buying them at record low interest rates?] The majority of the debt problem created over the last 10 years is traceable to three root issues: an unfunded pair of wars, a massive recession (sucking up to 2.5 trillion out of tax revenues over 5 years, and adding more than a trillion to welfare programs), and an egregious set of tax cuts. The debt isn't causing these problems, it's a result of these problems!

That is very dangerous thinking DC. I never said the debt is the cause of unemployment, I simply said it should be the primary concern. It is fiscally irresponsible as there is nothing of physical worth that backs our economy. Yes the stock market looks great now, but a few short positions by some big wigs on Wall Street acompannied by some bad news in Europe and things could get terrible real quickly. Remember the Dow Jones was sitting at $13.4K or so in early May 2012 and there was simply bad news out of Europe and it dropped to $12K in less than a month. People thought the sky was falling and everyone put there money into safe investments and as a result probably lost 10-15% of their retirement savings that they never made back. Now people are starting to gain confidence to put there money back into the market and I am scared to death the same thing is going to happen because there is absolutely nothing backing the market now. The most common problem for the average person is they lag behind the market and have there money in stocks when the market is failing and have their money out of stocks when the market is rising.

 

There is a market theory based on trade volumes where the trading professions sell when they start seeing the average person buying again. We have an easily manipulated market and if you look at the key numbers (such as earnings per share) on a lot of large stocks, they are wildly inflated. So yes the market looks good now but it could easily be some bad news out of Europe away from a 1-2K swing downward.

 

Note I am not taking sides here. Either cut spending or raise taxes to get the debt under control. We have seen the reports from the CBO where if it wasn't for the Bush tax cuts we wouldn't have nearly the debt problem we have now. In that sense, yes the cuts were egregious because they were not accompanied by lower spending levels. Yet I do not see people volunteering to mail in checks to the IRS for the difference in taxes paid the past decade between the Clinton and Bush tax levels. God knows the IRS would happily accept your money.

 

Until we get the debt under control we will have a wildly cyclical market that is easily manipulated. Employers react just as irrationally: hiring and firing workers based upon these unpredictable, extremely volatile cycles. I just think Washington is diving in head first into the shallow end and have no idea how to efficiently fix this thing. Before any spending cuts are enacted we should really be doing a cost-benefit analysis of the current budget. DC you mention foreign aid is only 1% of the budget. I argue $40B is $40B. President Obama speaks about the sequester effects over a 10 year period, so 10 years of cut foreign aid, $400B. Heck imagine the good SRB could do if Baltimore got $1B.

 

How about vacant government properties that take up billions each year? Excess budgets for government agencies? The average worker doesn't get a pension but government workers do? Do they work harder than the average person? Companies abandoned pensions over 20 years ago because it is not economically efficient. Legalize marijuana and that creates billions in tax revenues and saves billions in prison costs due to ridiculous sentences. Yes these are all low percentages of our overall budget but they are easy fixes that add up.

 

Audit the fed, cut the fat and make easy fixes, then we will have a much better idea of what needs to be done to achieve the goals our society needs.

[papasmurfbell]

The US is at the lowest discressionary spending in decades compared to GDP.

[thundercleetz]

The US is at the lowest discressionary spending in decades compared to GDP.

 

That might be the root of the problem there, identifying what is really discressionary spending, tackling the "mandatory spending", and trying to create an environment where we can increase GDP . Here is a quick hitter from Gary Johnson (who got my vote for president):

 

 

The moral of this ongoing story is clear: We can’t get to a balanced budget without doing some serious work on that 60 percent of spending that is “mandatory,” beginning with the 800-pound gorilla of Medicare. Any politician who claims to want to eliminate deficits but opposes meaningful entitlement reform is simply lying. It can’t be done, and if we needed proof, this sequester mess provides all we need.

 

In fact, do the rough math, and the only way to balance the budget without addressing mandatory entitlements is to almost shut down the rest of the government. While those of us on the small-government side of things might not be entirely heartbroken by that prospect, we probably need to have the government do some things, like national defense.

 

If you believe, as most Americans do, that we cannot continue to spend money we don’t have, and if you believe that there are some legitimate roles for government beyond paying Medicare bills and issuing Social Security checks, there is no getting around the simple fact that we have to bring all of that “mandatory” spending into the conversation.

 

Otherwise, it is just a big lie.

Read more: http://www.washingtontimes.com/news/2013/mar/1/sequestration-ignores-the-real-spending-problem/#ixzz2Ms3psorx

 

Follow us: @washtimes on Twitter

[papasmurfbell]

I agree that SS and Medicare need to be looked at. I have been saying it for a very long time. I was watching CBS Sunday Morning many yrs ago and I belive the subject was a judge on the Georgia bench. He was saying how people like him who are making a very large salary don't need SS. I have to agree. There should be a means test on it. Also the congress has spent moneys that were collected for SS and medicare and spent them on other stuff. Those dollars were taken out specifically for one thing but misspent. Sounds sort of like the gas tax in MD.

 

It would really help the economy to stop corprate wellfare and wellfare of the rich.

[thundercleetz]

I agree that SS and Medicare need to be looked at. I have been saying it for a very long time. I was watching CBS Sunday Morning many yrs ago and I belive the subject was a judge on the Georgia bench. He was saying how people like him who are making a very large salary don't need SS. I have to agree. There should be a means test on it. Also the congress has spent moneys that were collected for SS and medicare and spent them on other stuff. Those dollars were taken out specifically for one thing but misspent. Sounds sort of like the gas tax in MD.

 

It would really help the economy to stop corprate wellfare and wellfare of the rich.

 

Good points and nice remark on the MD gas tax. I am actually a proponent of taxes that raise funds for transportation projects. I think these projects are money well spent, and I believe the Red Line through Baltimore and the Purple Line through Montgomery and PG Counties are great projects. (Side note: Anyone see the recent report that had the commute from Baltimore County to Baltimore City as the 16th WORST in the nation? That is unacceptable!) Like you said, the politicians say the revenue is going toward transportation but with O'Malley that trust is not safe. This bill needs to make sure the transportation trust fund is locked air tight.

[dc.]

That is very dangerous thinking DC. I never said the debt is the cause of unemployment, I simply said it should be the primary concern. It is fiscally irresponsible as there is nothing of physical worth that backs our economy. Yes the stock market looks great now, but a few short positions by some big wigs on Wall Street acompannied by some bad news in Europe and things could get terrible real quickly. Remember the Dow Jones was sitting at $13.4K or so in early May 2012 and there was simply bad news out of Europe and it dropped to $12K in less than a month. People thought the sky was falling and everyone put there money into safe investments and as a result probably lost 10-15% of their retirement savings that they never made back. Now people are starting to gain confidence to put there money back into the market and I am scared to death the same thing is going to happen because there is absolutely nothing backing the market now. The most common problem for the average person is they lag behind the market and have there money in stocks when the market is failing and have their money out of stocks when the market is rising.

 

There is a market theory based on trade volumes where the trading professions sell when they start seeing the average person buying again. We have an easily manipulated market and if you look at the key numbers (such as earnings per share) on a lot of large stocks, they are wildly inflated. So yes the market looks good now but it could easily be some bad news out of Europe away from a 1-2K swing downward.

 

Note I am not taking sides here. Either cut spending or raise taxes to get the debt under control. We have seen the reports from the CBO where if it wasn't for the Bush tax cuts we wouldn't have nearly the debt problem we have now. In that sense, yes the cuts were egregious because they were not accompanied by lower spending levels. Yet I do not see people volunteering to mail in checks to the IRS for the difference in taxes paid the past decade between the Clinton and Bush tax levels. God knows the IRS would happily accept your money.

 

Until we get the debt under control we will have a wildly cyclical market that is easily manipulated. Employers react just as irrationally: hiring and firing workers based upon these unpredictable, extremely volatile cycles. I just think Washington is diving in head first into the shallow end and have no idea how to efficiently fix this thing. Before any spending cuts are enacted we should really be doing a cost-benefit analysis of the current budget. DC you mention foreign aid is only 1% of the budget. I argue $40B is $40B. President Obama speaks about the sequester effects over a 10 year period, so 10 years of cut foreign aid, $400B. Heck imagine the good SRB could do if Baltimore got $1B.

 

How about vacant government properties that take up billions each year? Excess budgets for government agencies? The average worker doesn't get a pension but government workers do? Do they work harder than the average person? Companies abandoned pensions over 20 years ago because it is not economically efficient. Legalize marijuana and that creates billions in tax revenues and saves billions in prison costs due to ridiculous sentences. Yes these are all low percentages of our overall budget but they are easy fixes that add up.

 

Audit the fed, cut the fat and make easy fixes, then we will have a much better idea of what needs to be done to achieve the goals our society needs.

 

I think you misunderstood some of what I was saying there.

 

First, the debt and deficit certainly matter. I'm not arguing otherwise. And I also certainly want them contained.

 

Second, I am not saying that stocks are a good measure of the economy. But I am saying that they tend to be measures of confidence in the economy. And one of the biggest reasons the debt is considered to matter is the issue of confidence. So we should be making some connections between investor confidence and the critical mass of debt. It's far from perfect, and I don't intent to imply it is at all, just that debt is not so critical as to be undermining everything we do.

 

My point is only this: there is a lot that could be done better all over the place, but they are not immediate issues. The immediate issues are unemployment, production, stable savings, stable and functional regulation, promised payments (social security and medicare, etc). We can institute plans now to reduce the debt and deficit drastically over time without creating some of the instability that immediate "balancing" would create. Of course, one of the largest problems with attempting to "balance" the budget is that it's always estimated. You could cut spending 10% and think you'd be 10% closer to balance - but you wouldn't because you would likely be dramatically affecting tax revenues via the people affected by the 10% cut (even indirectly).

 

Also - note that I am not taking sides, either. I want some seriously dramatic cuts. I would love to see SS and Medicare overhauled (though, as I think I have posted before - a single payer system aka medicare for all - is probably the most efficient change there). I would also think tax increases are probably necessary. You don't see anyone jumping to give money back in a recovery, of course. But as we saw in the video above, middle class income has hardly moved - in fact in real dollars it is $45k below what it should be from years ago - so why should the tax hikes affect that group?

 

 

As an aside - I think the article you cite makes a decent argument and I agree entitlements need some reform. Though I would also say he uses facts as he sees fit - like everyone. If we looked only at cuts, and assumed no change in tax receipts (not even rates, just receipts), then yes, you'd have to cut almost everything non-mandatory. But tax receipts as a percent of GDP are still estimated to be 3 percentage points below where they were pre-recession this year, which is also 3-4% below where they averaged for the last 70 years! In other words, without even changing tax policy, a recovering economy can begin to close the deficit, even modestly. In fact, it already has, as most of our deficit spending the last 5 years was a result of recession causing low receipts and high expenditure. (And yes, I still think the deficit would remain far too high in such a circumstance - but it undercuts a bit of the 'we'd have to cut everything!' yell)

[RavenMad]

I don't know what the interest rate is like in the US but over here the base rate has been set at a historic low of 0.5% for the last 4 years and now there is rumors that it could drop to zero or even go negative to try and encourage growth.

 

The effect that has is people who are saving their money are losing out as inflation is still around 4-5%. In real terms it is not worth keeping their money in banks. So these people are using the stock market to invest their cash. Just like most things the laws of Supply and Demand are effecting the stock market and I believe giving it a false impression of confidence in the economy. I think people are looking at it like there is no better solution so lets invest in stock and hopefully make some money if we are lucky rather than losing money with the status quo.

[papasmurfbell]

Good points and nice remark on the MD gas tax. I am actually a proponent of taxes that raise funds for transportation projects. I think these projects are money well spent, and I believe the Red Line through Baltimore and the Purple Line through Montgomery and PG Counties are great projects. (Side note: Anyone see the recent report that had the commute from Baltimore County to Baltimore City as the 16th WORST in the nation? That is unacceptable!) Like you said, the politicians say the revenue is going toward transportation but with O'Malley that trust is not safe. This bill needs to make sure the transportation trust fund is locked air tight.

I agree on infastructure issues. I think efficient mass transit is a very wise issue. The MTA should do it smarter. I think they should do it like Chicago and make L's.

 

I don't know what the interest rate is like in the US but over here the base rate has been set at a historic low of 0.5% for the last 4 years and now there is rumors that it could drop to zero or even go negative to try and encourage growth.

 

The effect that has is people who are saving their money are losing out as inflation is still around 4-5%. In real terms it is not worth keeping their money in banks. So these people are using the stock market to invest their cash. Just like most things the laws of Supply and Demand are effecting the stock market and I believe giving it a false impression of confidence in the economy. I think people are looking at it like there is no better solution so lets invest in stock and hopefully make some money if we are lucky rather than losing money with the status quo.

We are sponsoring the banks with basically no interest loans. We should cut them off. When they start failing because they are run like crap then they should be nationalized made whole and broken up and sold off back into the market. Basically do the Iceland model. But they also threw so many people in prison fro their fraud. We have let them all skate.

 

 

 

[papasmurfbell]

http://www.rollingstone.com/politics/blogs/taibblog/fallout-from-untouchables-documentary-another-wall-street-whistleblower-gets-reamed-20130304#ixzz2MvRSgLSW

[dc.]

I don't know what the interest rate is like in the US but over here the base rate has been set at a historic low of 0.5% for the last 4 years and now there is rumors that it could drop to zero or even go negative to try and encourage growth.

 

The effect that has is people who are saving their money are losing out as inflation is still around 4-5%. In real terms it is not worth keeping their money in banks. So these people are using the stock market to invest their cash. Just like most things the laws of Supply and Demand are effecting the stock market and I believe giving it a false impression of confidence in the economy. I think people are looking at it like there is no better solution so lets invest in stock and hopefully make some money if we are lucky rather than losing money with the status quo.

The formula is much the same in the US - rates at record lows. Bank of America is offering .01% on a regular savings account. Literally, .01%!

 

But I think the markets have some adjustment for that. Me putting some money in mutual funds and money markets instead of my savings account (and that happening en masse), is not really driving the markets as much as we are seeing at the moment. JMO.

 

More broadly, though, I think the support of the banks and financial markets is absurd. Papa is on the right path.

[cravnravn]

DC, if you elect to go the mutual funds or money market way, do it online, I know for a fact that M&T Bank offers a percentage rate higher on-line, then if you would walk into a branch and open one up..

 

We are still not recovered from our mutual fund loss since 2008, its going to be a long recovery.

[papasmurfbell]

[papasmurfbell]

http://www.nytimes.com/2013/03/10/business/for-mary-jo-white-few-big-bank-cases-as-a-prosecutor.html?pagewanted=all&_r=0

 

The SEC will not touch the banks.

[papasmurfbell]

http://usatoday30.usatoday.com/MONEY/usaedition/2013-03-15-Senate-report-blasts-JPMorgan-Chase-risky-trade-conductART0_CV_U.htm

 

 

Senate report blasts JPMorgan Chase

The nation's largest bank hid high-risk derivatives trading that ran up $6.2 billion in losses by inflating trade values, dodging federal regulators, and misinforming investors and the public about the dicey strategy, a scathing new congressional report charges.

The so-called London Whale trades in early 2012 by JPMorgan Chase were so large that they roiled world credit markets, despite bank CEO Jamie Dimon's initial and since withdrawn dismissal of the losses as a "tempest in a teapot," the Senate Permanent Subcommittee on Investigations reported Thursday in a 301-page analysis that disclosed new details of the financial debacle.

The bank's use of federally insured deposits for at least part of the risky trades reprised some of the questionable financial practices that led to the national recession, the report concluded. The bank said Thursday that "while we have repeatedly acknowledged significant mistakes, our senior management acted in good faith and never had any intent to mislead anyone."

The Senate panel is scheduled to question several current and former JPMorgan Chase officials, along with federal regulators, at a Capitol Hill hearing today. Four bank employees deeply involved in the trading ducked Senate subpoenas by arguing that they lived outside the U.S. Nonetheless, the bipartisan report, based on bank personnel interviews, internal documents, e-mails and other electronic records, concluded that the bank and its Chief Investment Office:

•Gambled billions of dollars in hidden "high-risk, complex, short-term trading strategies" by London-based traders from the bank's Synthetic Credit Portfolio. The strategy and trading were known by several bank managers, but were only fully disclosed to federal regulators in the Office of Comptroller of the Currency after the massive losses drew news media attention.

"I am going to be hauled over the coals. … (Y)ou don't lose 500 M(illion) without consequences," bank trader Bruno Iksil wrote in a March 2012 instant message after a day of heavy losses. He was among the four who declined subpoenas.

•Claimed at times that the strategy functioned as a hedge against credit risks -- even though the bank failed to identify the assets being hedged or show how the trading lowered, rather than increased, risk. Although a Dimon e-mail requested a report to document the hedging claim, the subcommittee "found no evidence this analysis was completed."

•Hid more than $660 million in preliminary losses for months in 2012 by overstating the value of credit derivatives and "ignoring red flags that the values were inaccurate."

•Breached all five of the major risk limits on the trading -- and then raised the limits and disregarded red flags to continue the strategy. Bank managers were aware of the breaches "but allowed them to continue, lifted the limits, or altered the risk measures after being told that the risk results were 'too conservative,' not 'sensible,' or 'garbage.'"

•Misinformed investors, the public and policymakers about the risk and total losses after the disastrous trading became public. The strategy forced JPMorgan Chase to reduce and restate first-quarter earnings last year. It ultimately led to a 50% cut in Dimon's 2012 pay, reducing his annual compensation to $11.5 million.

The Senate panel called for tougher oversight of bank-based derivative trading, including procedures used to gauge prices and costs of executed trades. The report concluded that the Office of Comptroller of the Currency failed to spot the risky strategy and rein in the bank even though it had approximately 65 examiners and related personnel physically located at JPMorgan Chase.

Red flags overlooked

Until 2012, the OCC "had very little understanding of the strategies, size, or risk profile" involved in the derivatives trades, the report concluded. That was due "primarily to a lack of disclosure" by JPMorgan Chase about when the trading strategy "was established, when it delivered unexpected revenues, or when it began to increase in size and risk in 2011," the report said.

The OCC didn't catch some red flags, including a tenfold growth in risky trading volume in 2011, the subcommittee report said. But the regulators at the same time coped with what they told investigators was strong push-back from Ina Drew, then JPMorgan's chief investment officer, in response to a 2011 regulatory report that cited some needed corrections.

The OCC told Senate investigators Drew complained that the agency was trying to "destroy" JPMorgan Chase's business. According to the report, regulators quoted her as saying "that investment decisions are made with the full understanding of executive management including Jamie Dimon." The report adds, "She said that everyone knows that is going on and there is little need for more limits, controls, or reports."

OCC examiner Elwyn Wong characterized the bank's purported anti-risk hedging strategy as a "make believe voodoo magic 'composite hedge'" in a May 18, 2012, e-mail. But that came after media reports brought the financial debacle to light.

'Piled on risk … hid losses'

"The bottom line is that the bank did not disclose and the OCC did not learn of the extent and associated risks … until media reports on April 6, 2012, described the book's outsized credit derivative holdings," the report concluded.

JPMorgan Chase "piled on risk, ignored limits on risk-taking, hid losses, dodged oversight and misled the public," said Sen. Carl Levin, D-Mich., the subcommittee chairman. The bank's London trading office created a "runaway train that barreled through every risk warning," he said.

Regulations not finalized

Sen. John McCain, R-Ariz., the panel's ranking minority member, added that the findings documented "a shameful demonstration of a federally insured bank taking substantial risks and gambling away billions of dollars on ill-advised traders while regulators were asleep at the switch."

Congress approved the Dodd-Frank Act financial reforms in 2010 in part with the aim of preventing risky trading by large banks that could threaten the domestic and global economy. Part of the law, known as the Volcker Rule, was included in an effort to prevent banks from engaging in proprietary trading with federally insured deposits.

But after missing earlier deadlines for completing Volcker Rule provisions, U.S. financial regulators are still working on finalizing specifics.