Census reports that 97.3 million Americans are now classified as low-income; earning between 100% and 199% of the poverty level. Together with the 49.1 million who are at or below the poverty level, these groups total 146.4 million Americans; 48% of the population. Inflation adjusted average earning for the bottom fifth of the population have fallen from $16,788 in ’79 to almost $15,000, while earnings for the next fifth are flat at $37,000. Grim.
Let’s Make a Deal!
On 1/1/13 $1.2 trillion in spending cuts commence, the $3.8 trillion Bush tax cuts end and if the 2% Social Security payroll tax holiday is extended, it too will end. Including reduced interest costs these events reduce the deficit by $6.2 trillion over a decade. Moreover, they all occur unless a bipartisan deal to stop them is reached in ’12. A deal is needed because absent a strong economy, such contractionary fiscal policy will devastate the economy.
Guns and Butter
With the troops all out of Iraq, we can now ask what the war cost. While not easy to estimate, if you include spending to date, VA costs, veterans disability payments, interest on the war debt, foreign assistance, future medical and disability costs and added homeland security costs one easily arrives at a figure of about $3.5 to $4 trillion; about 1/4 of our debt. Worth it?
Royal Pain
The Friday File: Times are so tough the Queen of England is feeling it. She is set to receive £30 million/year for the next several years, down from the £77.3 million she received some time ago. Worse, Prince Charles who makes about £18 million/year must now support the court of Prince William and Princess Kate as well Prince Harry and his future family. Times are so tough the queen is even renting out rooms at St. James Palace.
Budgeting Math
Since the Super Committee failed $1.2 trillion in mandatory budgets cuts, starting in ’13 and running through ’21, will commence. But, the $1.2 trillion in cuts are actually only $984 billion! The law assumed that by not borrowing $984 billion, interest costs would fall by $216 billion and that counts as savings! Social Security and Medicaid are untouchable, as are the salaries and benefits of the President and members of Congress.
Taxing License
In DC there are 8,600 cabs for 600K people; plenty of cabs and a hacker license is cheap. In Chicago there are restrictions; only 6,951 cabs for a population of 3 million, and a license costs $200,000. In Boston, there are just 1,825 cabs and a license costs $385,000. And, in NYC there are only 13,237 cabs for 8 million people; the costs of a license, $750,000! Don’t tell me regulations don’t matter.
Shop or Drop?
Consumers are spending but for how much longer? Over the past year disposable income is down, savings has fallen from 5.3% to 3.5%, household net worth has fallen by $2.4 trillion as house prices keep falling and credit card debt is up. Luxury spending is strong but chain-store sales were down in Oct and Nov as were purchases by the middle class. I don’t think households can keep spending at the elevated levels of late.
Where are My Wages?
Over the six quarters ’09Q2 through ’10Q4 corporate profits captured 88% ($464 billion) of the growth in real national income ($528 billion) while wages and salaries accounted for slightly more than 1% of the growth ($7 billion). Through ’11Q1 corporate profits were 92% of growth and wages and salaries actually fell by $22 billion! The next best corporate recovery was 01Q4 through 03Q2 when corporate profits accounted for 53%, and wages and salaries, just 15%.
Packing it in!
The Friday File: Where to invest? The S&P has been marking time for over a decade, Europe is in recession, Treasuries can only go down as yields rise, and gold looks pricey at $1,700. The answer, buy stock in the Green Bay Packers! It pays no dividends, offers no voting rights, and is instantly worth less (zero to be precise) than you paid for it. It really reminds me of the stock I own! Yet never once did I brag about owning shares in Enron!
Swiped Away
Due to Dodd-Frank, the Fed capped fees merchants pay credit card companies (CCCs) on debit cards (DCs) to about 21 cents from about 44 cents. When the fee was 44 cents, CCCs often reduced DC fees on small transactions; less than $5 or $10. Because the fee was lowered, CCCs now want the full 21 cents even on small sales and stores are raising prices to compensate. Did you anticipate this?