3 Stories of the Invisible Economic Recovery: 40,000 Inmates Released or 40,000 Potential New California Home Buyers? Banks increase Revenues by Overdraft Fees. The Ultimate Invisible Jobs Recovery.
The invisible recovery is all around us if you would only close your eyes, and trust your instincts. Contrary to the implosion of many state budgets, the Federal government amazingly seems to have an unlimited amount of money for select causes. For example, Wall Street seems to get every single penny it desires without much question from both parties in Washington. Sure, we’ll have politicians on both sides of the aisle argue their case and fight for the common good while they get their pockets lined by Goldman Sachs, the insurance companies, or the real estate industry. When it comes to real reform the status quo is still here even after the near implosion of the markets. The U.S. Treasury and Federal Reserve are showing us that when push comes to shove, they are servants of the banking elite and protecting the financial health of American people is simply a secondary consideration.
If this is the start of the recovery it sure seems funny. A federal judicial panel has given California 45 days to clean up its inmate overcrowding problem. Of course, this might take two years to implement if things go through but apparently this is how the recovery will look like in the state. Another wonderful story showing us the new economics of the recession, banks are set to collect some $38 billion in overdraft revenues. Good times. Once again, people struggling to buy food with their WaMu Chase debit card need to be careful since they may be slapped with an additional fee. Apparently peak overdraft fees are a leading indicator of an economic recovery. Another fascinating story we keep hearing about is the greatness of a jobless recovery. Too bad that earnings are off from depressed levels a year ago and people forget that losing a big fixed expense like say, an employee, will actually help your bottom line in the short-term. These are three of the stories we are going to talk about in today’s article.
40,000 Inmates or 40,000 New Potential Home Buyers?
As we all know, California is in a dismal state of affairs. In this year alone the state has had to balance some $60 billion in budget deficits including our latest battle with the $26 billion monster. The disturbing thing is much of these cuts are going to be felt at a deeper level in the months to come as the cuts are enacted. We will see this in less state spending but also with thousands being furloughed, you can expect people to be cutting back on purchasing goods and services. The federal judicial panel is looking at the troubling state of the California prison system. In California we have 155,000 inmates with 12,000 being housed in out-of-state institutions. The 33 prisons in the state system were designed to hold 85,000 inmates but like our housing bubble, we like to overdo things a bit.
“(WSJ) California Attorney General Jerry Brown has said he plans to appeal to the U.S. Supreme Court. The order comes just two weeks after Gov. Arnold Schwarzenegger signed a budget deal that includes a $1.2 billion cut to the state prison system.
It is unclear how officials will execute the court’s decision. The California Department of Corrections and Rehabilitation said it is working on proposals to reduce the prison population, but those plans need to be approved by the legislature. If the state doesn’t comply with the order, it could be held in contempt and fined.”
The state has two years to do this but given potential litigation, who knows if this will happen. Yet the fact of the matter is cuts are being made and these are the implications:
Clearly this was unsupportable given the California budget situation. Let us assume these inmates are released in the next year. What work will they find? Ironically, this would only add to the high 11.6% unemployment rate that the state currently faces. Aspiring positive realtors will probably tell us that we will have 40,000 more potential homebuyers. Maybe if we still had the subprime infrastructure in place they would qualify for $500,000 for a Real Home of Genius of their choice. Apparently this is the sign of economic recovery here.
Over Draft This!
Banks now have to resort to higher and higher overdraft fees to find additional revenues. It isn’t enough that their crony capitalist system is rolling out trillions in rescue funds; they now have to squeeze their much poorer client base with the Vise-Grip of money sucking vampires. You might search in the seams of your couch for additional change but the bank is going to find additional methods to screw you each and every way without even thanking you for the generous life saving bailout. Most of the headlines on Monday read:
“Americans pay $38 billion in overdraft fees a year.”
Which is stunning in itself. But when you run the numbers, it becomes downright shameful
“(The Atlantic) There are 300 million Americans, and, the FT reports, 130 million checking accounts. $38 billion divided into 130 checking accounts puts the average yearly overdraft total at $300 dollars, which is the equivalent of 9 overdraft charges from large banks like Bank of America. How many Americans really overdraft 9 distinct times a year? Moebs Services discovers, however, that one bad day for a consumer can mean gangbusters for the banks:
At BofA, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realise they have a negative balance and continue spending, they could incur that fee as many as 10 times in a single day, for a total of $350.”
Many of you have experienced this once in your lifetime. You decide to put the $10 sushi roll on your debit card and get reamed for $35 because you used the wrong card. Most of us would suspect that this only happens once or twice in our lives. But to account for $38 billion in fees? Why not deny the transaction? Clearly there is a systemic problem here. I once had this occur and had to go through a long wait to talk with a bank representative to simply block any charges beyond the zero point. The bank rep kept insisting the “just in case scenario” but given my love of paying the $35 fee, decided to simply block this by opting out. Charging this kind of penalty is like having a loan shark pounding your knees for not coming up with the additional points. So when you hear about those wonderful bank profits, just think of all those overdraft fees that are part of the new economic recovery.
No Jobs = 50 Percent Stock Market Rally
During the housing bubble one comment made me realize, “this is going to end badly in an epic way.” A homebuyer who happened to buy one year before the peak had his home “appreciate” by $50,000 in one year. What I thought was a joke was a serious contemplation on his behalf. He uttered, “with my home going up $50,000 per year, who needs to work anymore?” Indeed, in this recovery work seems to be optional like clothing at a nude beach.
If you haven’t noticed, we didn’t exactly add any jobs last month. The only significant improvement as you may have heard is that “things are getting less bad.” This is like getting kicked in the shins instead of the stomach. As the chart above highlights, job losses are still occurring. But a few things occurred last month that made the numbers appear better:
(a) Big government hiring – a jump in auto activity with the wonderfully named cash for clunkers helped spur back some growth but also, the increased hiring for the 2010 Census helped. Now you tell me, how many times are we going to do that 2010 Census?
(b) Minimum wage – the increase in the minimum wage pushed up the overall hourly wage rate. So those using this as a key point fail to miss a one-time gain.
(c) Seasonal adjustments – We are still adding jobs through the BLS Birth/Death model which has to do with new business growth. Now when you think of invisible recovery, this is your mascot.
And another key point is we have now lost nearly a decade of job growth. Even though we only had 247,000 jobs lost last month, we have now lost 6,664,000 non-farm jobs since the recession started in December of 2007:
In 2000:Â 131,785,000 (non-farm employed)
In 2009:Â 131,488,000 (non-farm employed)
Welcome to the new recovery. This kind of information is sufficient to cause a 50 percent stock market rally from the March lows. Even though most institutions are way off in earnings from 2008, they have revised their earnings to beat the street. Now you show me an analysis of what industry is going to create some 7 million jobs and then I might consider the recovery legit. Until then, let the invisible good times roll.
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21 Responses to “3 Stories of the Invisible Economic Recovery: 40,000 Inmates Released or 40,000 Potential New California Home Buyers? Banks increase Revenues by Overdraft Fees. The Ultimate Invisible Jobs Recovery.”
The next shoe to drop will be public employee pensions in Calif.
Calpers has lost tens of billions in investments. Since employee pensions are guaranteed at a certain level,(as high as 95% of salary),this shortfall will have to made up by local cities and school districts, at a time when sales and income taxes have fallen over a cliff. For the gory details,see
http://www.pensiontsunami.com
We don’t really have government in any proper sense at all; we are ruled by Wall St. and the banking elite.
They are all scum.
My foreign lady friend had a $500 debit card a while back that was entirely EATEN by the banks crazy charges. She only got the card to establish credit.The poor lady can barely speak english, and actually used the card only ONE time for a small purchase. The ENTIRE $500 that she put up for the card was eaten by those phony “overlimit” fees, two kinds of insurance that she never asked for, inappropriate “late fees,” etc.
I had to file a small claim on her behalf. Their attorney settled in the hallway, probably not wanting this aired in public, and gave her every cent of her money back. Imagine, they took $500 from a dirt poor foreigner who is waiting tables and can barely make ends meet, all by word twists and chicanery.
The really tricky thing on the car was the overlimit fee, and it was sneaky as hell…an amount was given at the top of the card, the amount seeming to be the least that you could pay for that month, and my friend paid that amount innocently thinking that that was the right thing to do. But paying that small amount kicked in the crazy overlimit fees each and every month, and at $35 a pop that adds up. In a few months they had completely stolen every cent of her money.
I was furious over this as i waded through and discovered all of the deception involved.
The bankers are fecal matter and should be flushed down the nearest drain.
http://www.dailybreeze.com/latestnews/ci_13035010
I was stunned to see this article today that California has 4,000 more state workers than June of 2008. Yes, an increase in total number. This state is beyond redemption.
I get tired of people using the word “capitalism” when they complain about the current economic mess. Capitalism is merely an extension of freedom and democracy. Capitalism is necessary, though not sufficient, for democracy. It is economic freedom – to earn/produce your wealth how you wish and then to consume/spend your wealth how you wish . . . and to save the remainder how you wish.
The problem is corporatism and croniism. Those problems arise from giving the gov’t $3,000,000,000,000 to spend every year. Give the gov’t that much wealth to spend and all our representatives will get lobbied, bought and sold. If you are tired of the corruption and ineptitude, keep your tax dollars (as much as feasible). Let the lobbyists lobby us, all 310,000,000 citizens directly. Let the banks fail. Let GM and Chrysler fail like they are supposed to, let the bond holders get reimbursed by selling off the company to the highest bidder, let the UAW actually negotiate a fair wage rather than monopolize labor . . . and respect the RULE OF LAW (Obama and past presidents included). Problem solved; mostly anyway.
BTW #1: The census is a not a boon to the economy. All those people are not producing a thing, they are a drain. If they were so useful, why don’t they count farm animals and household pets while there out there. Double the number of census workers and have them count trees too. They need to be building Buicks or havesting wheat so that we can ship that stuff to China and earn some of our dollars (IOU’s) back.
BTW #2: Cash for clunkers is a stupid program too. We are taking working cars (capital) and destroying them, so that people who can’t afford a car and being subsidized by me ($4500 tax credit) to buy a car, and go deeper into debt (thanks China), wherefore the production of said car occured over seas.
Has everyone taken crazy pills?
I think capitalism does need to be discussed. The theory is that it is the best way to direct resources but in practice it lead to short sightedness due to the allure of the quick buck. I support small business and believe their tax burden is too high but believe that the small guy needs protection from large corporations. We need a discussion of what works with laissez-faire capitalism and what doesn’t work – no theory in social science works as originally conceptualized.
Unions play an important role in the history of our country. Without the unions we would still be working 12 hour days, 6 days a week. People died fighting for our freedoms from the corporate overlords and it saddens me to see so many normal people dismiss their accomplishments while enjoying the fruits of their sacrifices. When labor is suppressed leading to an uneven distribution of the resources gained by efficiency, there are depressions. What is best for the corporations’ profits is not necessary the best thing for America.
But the real truth is that left and right don’t matter right now. What matters is the recognition of the corruption in our current system. Let’s get term limits, a removal of money from politics and abolishment of the federal reserve – then argue it out later. I have no idea how the make those changes but will am open to ideas.
“Since employee pensions are guaranteed at a certain level,(as high as 95% of salary),…”
Cite please….
As far as the overdraft fees go and other fees the banks charge, it really depends on how much money you have in their bank. I have several six figure CDs in different banks, and because of the amounts, they wave any and all fees I might incur with checking, credit cards, etc…
Bank of America told me it would cost me $30 to stop payment on a $20 check.
That civilian-employment-to-population ratio (actually, percentage) graph is concerning to me since it shows a dramatic decline in a relatively short period, but it’s difficult to extract some of the important information to understand how frightened or reassured we should be at the absolute numbers. Thinking about it, I judge that we should be worried.
1. The data begins in the late 1940’s, after WWII. This was a different time – when families were larger and had a greater tendency to have a single income. Elderly folks didn’t tend to live very long after their working years. It is also the period of the baby-boom – so it makes sense to see a relatively stable rate that follows the business-cycle until the mid-to-late 1960’s.
2. From the late 60’s (when the boomers enter the workforce) until the turn of the century, the ratio explodes from a low of 56 to a high of nearly 65 percent. But a lot of that is due to constantly increasing female participation, the elderly population remaining relatively small, and the boomers are having less kids than their parents.
3. But with the recent downturn, the percentage is still now just as low as it was 30 years ago – and these workers will, one way or another, have to support the rest of the population (which is a much more expensive prospect than it was in the 70’s). This is not even to mention the fact that of that declining working population – a relatively smaller fraction of it remains in the private sector and must support the ever-growing expenditures of government.
4. And what will become of this increasing burden even if the employment picture improves in the short-term? Female participation rates are probably at a plateau. The boomers (a huge fraction of the population) are headed to retirement. They will likely live a long time, but cost the government a fortune. The fertility rate is barely at replacement so natural growth alone will not provide a new stream of domestic high-productive workers.
5. So, it’s quite probable that the next 10 years will look a lot like the 1970’s in terms of that percentage ratio – except of course that the relative burden on those workers will be much larger. Their elders’ costs (pensions, social security medical benefits, etc…) will be much more expensive to support overall, the “real national debt per worker” will explode (it’s already doubled in the last 20 years), and government spending will take up an even larger portion of the production of the shrinking private economy.
6. So, future workers face a lot of challenges, but at least it will be cheap for them to buy their houses when that shadow-inventory flood and Alt-A/Option-Arm tsunami comes splashing into the market.
Well explained article. Thank you for giving the readers such article like this.
What a great essay. The comment about the person who figured he didn’t have to work because his house was appreciating $50,000 a year, takes me back to a few years ago, when I knew people whose net worth was rising much faster than I could catch up with, simply because they had a house and I did not. I had a well-paying job, and yet the housing prices were going up faster than any money I was making. It was enough to create a sense of hopelessness; I figured I had not gotten in at the right time, and I could never catch up to the skyrocketing prices now. But of course it was all a bubble, made up of wishful thinking, greed and hype.
Now the fun is over. Housing prices are still well above where they should be–where a median-earning family can afford a median-priced house. The government is doing everything it can to keep the prices too high, to help their friends the banks on the balance sheets. And yet even so, the concept of people buying a house for a few years and then moving up to a better house, using the profits from the first one, is clearly over. No one can reasonably expect their house to appreciate in price anytime soon. So we have a weird situation, where those people who are sitting in their underwater house, hoping for more government help, or just not paying their mortgages, are never going to be able to get out of that house in one financial piece. They can’t move up; they can’t live off their refinances; they will just stay there. My hunch is that this economy was only propped up by the bogus wealth effect of housing; with that gone, how many people are really making enough money to pay for or buy much of anything?
My view is that what the government should do, is to stop interfering, stop trying to reinflate the bubble, or artifically prop up prices through all the loan modification programs they are backing. Let the prices go to where responsible people can buy houses at the standard 35% or so of their monthly earnings. The banks will take losses, the overreaching currrent owners will take losses, but the economy will ultimately be on a lot more solid footing. As it is, the responsible portions of the middle class are being destroyed by policies which are trying to desperately bail out the people who caused this debacle.
William I agree with you, the whole concept of buying a home has changed over the last few years from sound investment, to get rich quick scheme, to currently bad idea.
I don’t have a clear idea where to put my money. I know I’m not alone. I hearing about inflation I feel stupid keeping it in CD’s. Watching the stock market fluctuate wildly I think I have better odds in Vegas. At least there the odds are clear and never changing. People are finding ways to game everything these days. Nothing is off the table. Exploiting Wall Street, real estate, government, insurance, currency – illegal operations currently have stronger core concepts than what is being done in those previously mentioned sectors.
I trust drug dealers more than I do real estate agents or investors. At least with dealers their numbers work out.
Although Paul Krugman did not event the term “jobless recovery”, he is its number one champion. I wonder having tenure at Princeton and being a NYTimes.com column distort one’s view of the plight of the common man.
Millions and millions of Green jobs will be created once the nation is weaned of its addiction to fossil fueled death gas creation.
The only limit is our imaginations – the post-carbon world is going to be a clean, green paradise.
Other states will gladly house our prisoners at far less expense than we do here…
Somehow people are utterly dismayed about the implications of “energy dependence”, getting our energy from other nations; but are completely nonplussed about our vast finance dependence, getting our spending money from other nations.
Ahhh mornings are beautiful-
http://www.dispatch.com/live/content/business/stories/2009/08/09/mortgage_middlemen.ART_ART_08-09-09_D1_MJEN8D4.html?sid=101
Gee, I wonder why I’m at the end of my 3 month payment and have had ZERO information from my Bankster. They just made ANOTHER $5500 for not doing a DAMN thing. You can have my piece of #@$% 1200 square foot home in Lake Forest. I only OWE $376,000 and comps are selling for less than $300k, it’s too bad I put 20% of MY hard earned cash down in 2004…buh bye $90,000
“People are finding ways to game everything these days.”
But I think it’s a fools game. For me at least, it’s not how much I can make, but how much I can lose. My money is in short term CDs and for longer range planning, tax-free Municipal Bonds. Sure they don’t pay a lot, but I can to protect the principle amount. This for me, in this environment, makes some sense. And I don’t see inflation as a real issue because over the last 4 to 5 years, other than gas and electricity, my cost of living is about the same.
I am still wondering what in the hell is a jobless recovery. They have a nice name for everything they try to get you to swallow. After my husband lost his tech job to cheaper imported labor so his company ceo’s could cash out big in the stock market, I wrote a novel called Jobless Recovery. Sadly many of the things I wrote about in the book have now come to pass, including mass joblessness and foreclosures.
“And I don’t see inflation as a real issue because over the last 4 to 5 years, other than gas and electricity, my cost of living is about the same.”
funny if we are discussing housing: my rent has gone up several times in that same time period. There’s no inflation, sure there’s not ….
Kaboom, I sure hope your post was a sarcasm and you don’t live in that fantasy land. All this “green” energy is going to cost more than the return. And it won’t be so green when you realize the damage that is done to the enviroment by “green energy” such as wind farms. Talk about an ugly eyesore. We already have endagered birds committing suicide by flying into them.
I think we are missing the point here. The major job producing sectors 2000-2008 were finance and real estate. It seems to me that Cali is about to have 40,000 potential banksters and real estate agents out on the streets. It is no wonder the stock market is bubblin’. Goldman sacks (the american public) will be happy to see their 40,000 peeps gainfully employed.
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