Thoughts

Good Action in the Banks

Weak Dallas Fed Data

The Dallas Fed manufacturing index slowed in April.

History doesn't repeat itself ... at best it sometimes rhymes."

-- Mark Twain

In many ways, today's problems -- namely, structural unemployment, the screwflation of the middle class and fiscal imbalances (around the world) -- are even more serious and more difficult to resolve than its recent predecessors.

At best, subpar growth looms on the domestic economy's horizon; at worst, a double-dip is still possible.

In this past Sunday's New York Times op-ed David Stockman spelled out the most serious (deficit) challenge clearly:

It is obvious that the nation's desperate fiscal condition requires higher taxes on the middle class, not just the richest 2%. Likewise, entitlement reform requires means-testing the giant Social Security and Medicare programs, not merely squeezing the far smaller safety net in areas like Medicaid and food stamps.

Unfortunately, in proposing tax increases only for the very rich, President Obama has denied the first of these fiscal truths, while Representative Paul D. Ryan, the chairman of the House Budget Committee, has contradicted the second by putting the entire burden of entitlement reform on the poor. The resulting squabble is not only deepening the fiscal stalemate, but also bringing us dangerously close to class war.

This lamentable prospect is deeply grounded in the policy-driven transformation of the economy during recent decades that has shifted income and wealth to the top of the economic ladder. While not the stated objective of policy, this reverse Robin Hood outcome cannot be gainsaid: the share of wealth held by the top 1% of households has risen to 35% from 21% since 1979, while their share of income has more than doubled to around 20%.

The culprit here was the combination of ultralow rates of interest at the Federal Reserve and ultralow rates of taxation on capital gains. The former destroyed the nation's capital markets, fueling huge growth in household and business debt, serial asset bubbles and endless leveraged speculation in equities, commodities, currencies and other assets.

-- David Stockman, "The Bipartisan March to Fiscal Madness" (The New York Times)