What’s a ponzi scheme? It’s con in which those who are the first to sign up get all the goodies, and the last to sign up lose money. So what’s the Great American Ponzi Scheme of my title? It’s called our economy.
Look at this graph from the Economic Policy Institute:
Notice how the share of income for everyone except the top 1% of Americans (the Crème de la Crème, as it were) declined between 2001 and 2005. Guess what happened during that time. That’s right, Bush’s grand reform of our tax code, otherwise known as the Economic Growth and Tax Reform Reconciliation Act of 2001 (EGTRRA), was passed, and tax cuts for the wealthiest Americans flowed like a backed up septic tank all across this great land of ours. And the result is what you see above. More for the richest Americans and less for everyone else.
(cont.)
How much did the bottom 90% of Americans lose in the great and wonderful Bush economy? Well, in real terms (i.e., adjusted for inflation) the bottom 90% of American households (including most readers of this blog I imagine) lost an average of $1,293 from 2001 to 2005, or 4.2% of their income in a four year perio. And remember, this was during a period of “economic recovery” from the recession of 2000. Indeed, the recovery was a very narrow one, since it lifted the yachts of the wealthy while punching holes in the rowboats of everyone else’s economic ship.
Here’s another graphic from EPI showing the change in income among various Amewrican just from 2004 to 2005 to clarify this point for those who like to see data presented visually:
As you can see, everyone at the 90th percentile and below lost income between 2004 and 2005. There was a slight gain for those up to the 95 percentile (2.2.%), and even bigger gain for those between the 95th and 99th percentiles (4.4.%) an even larger gain for those whose incomes fell between the 99th and the 99.5th percentiles, and for the top .05 (or one half of one percent) of all Americans a hefty 16% raise in their incomes over a period of just one year! That’s a pretty stunning accomplishment. And please note, this occurred the the year before the rise of gasoline prices to over $3 a gallon.
Now I’m not an economist, but for today I’ll play one on this blog. It seems to me that such gross income disparities between the very wealthy and everyone else is not a good thing for a robust economy. And the recent turmoil in the mortgage market, the rise of personal debt and the increase in personal bankruptcies are all data points that support my theory. And if you want a little history, just look at the era prior to the Great Depression, a period when the chasm between the incomes of the rich and the rest of America was just as vast as it is today, and mortgage foreclosures were an all too common occurrence.
Now imagine what will happen once the inevitable recession hits, because, as Bush is always reminding us, our economy is very “strong” thanks to his tax cuts. And I suppose it is strong, if you look at it from a top-down standpoint. However, once you dig a little past the “surface numbers” you find an economy that is reliant upon huge deficit spending by the Federal Government (all that Republican backed privatization and defense contracts for the war, not to mention corporate welfare such as the Medicare Prescription Drug Farce which was oh so helpful to the bottom line of Big Pharma), and the purchase of massive amounts of US Treasury debt instruments by the Japanese and Chinese. It sure isn’t based on a lot of great jobs that have been created; quite the cont5rary. So should the Chinese and Japanese ever stop buying our debt the entire edifice of the “Bush recovery” will collapse, and we will most likely experience the worst economy any of us (aside from our parents or grandparents who lived through the Great Depression) have ever seen.
In the meantime, Bush’s economic policies will continue to look great if you are a multi-millionaire — but for everyone else, behind on your rent or mortgage payments, struggling to put your kids through college or lacking health care coverage? Not so much.
This reminds me of a couple of years ago when, in fundraising for the non-profit I work for, I visited one of those “uber-wealthy” folks in our state to ask for a donation. He told us that he had increased his charitable giving by $300,000 a year as a result of his tax cuts.
I suppose if I was only looking at this from a fundraising standpoint, I’d say “Yeah.” But my reaction was actually – WTF!!! Just how much did your tax cuts total that you’d have an extra $300,000 to donate??? Anyone want to guess? I’d say, at minimum a half mil, and probably much more.
And, of course, you pair this with all the budget cuts in our state at that same time period that resulted in at least one disabled woman I know loosing her AFDC because she also received SSI.
Make me so f…ing angry, I can hardly type anymore.
But socialism is so “evil.”
<snark>
It’s why them Yurpeens are so decadent!
The Great American Ponzi Scheme right now are the Hedge Funds. Few people understand exactly how they work but they have shown such enormous returns over the last few years so they’re attracting more and more money. They multiply that money by leveraging the holdings of the fund to buy more and more holdings. They tend to balance those holdings (stocks/gov’t insured bonds/uninsured bonds like corporate “junk” or low-end mortgages that can’t be gov’t insured) and borrowing against each class of holdings to buy more of another class. Meanwhile they need to keep new money flowing in.
This is very high-risk investing, even though you are maintaining a “balanced” portfolio. You are always running the risk that any one class of investment could fall dramatically (like non-gov’t insured mortgage backed securities) and suddenly they can’t make the payments on the loans they took out to buy the other classes of investments. So they have to sell something. There’s no market (liquidity crisis) for one class of investments, like the mortgage-baked securities, so they have to sell something else to get the money to make the debt payments. Of course, since everything in the fund is leveraged (held as collateral) they also have to pay off the debt that they took out on whatever they sell as they sell it. This quickly turns into an avalanche and all it takes is a downward turn in any area of the markets. Very quickly they find themselves with a basket with only the virtually worthless investments that they could not sell, like corporate junk bonds and uninsured mortgage-backed securities, since there is no market for them. By this time, the smarter initial investors have pulled out their investments and leave the suckers who came in later holding the basket of crap. The fund freezes withdrawals, files for Bankruptcy in the Cayman Islands where it is incorporated, rather than the US Bankruptcy court… and Poof! everything is gone.
Bottom line. Look at your investments, especially the ones in any 401K plan right now. Get out of anything that has holdings in these Hedge Funds right away. They’re going down – and when they do, they’ll take our over-inflated stock markets with them. A domino effect occurs until the only place money is safe is in gov’t insured bonds or precious metals or foreign currencies.
I doubt that the Fed can stop this. All the “happy talk” coming from some corners is not very reassuring. The uber-rich are getting out, slowly, right now and they’re gonna leave unsuspecting middle-class retirement investors with virtually nothing.
I hope I’m wrong, but it really does feel like another great depression is coming… and with the advent of hedge funds and automated trade executions, it could happen in as little as a day or two, really.
given this analysis, one would have to say that BushCo™ has delivered the goods to his base:
“This is an impressive crowd — the haves and the have mores. Some people call you the elite — I call you my base.”
George W. Bush…he wasn’t joking.
lTMF’sA
Since this is Merica, where we are all #1 or could be with a little more luck or effort, I guess most good Mericans view your graphs as a good thing. Wait till I get that promotion and I’ll be close to bein in the top 1%. When (not if) I get there, lookit at how rich I’ll be! Ain’t Merica great?
During the moves to offshore manufacturing facilities most often the product quality goes down. That is in addition to the numerous ways quality has been engineered out of a product.
Having just returned from Maine an attempt was made to buy a chain for a chainsaw. “Oh, did you buy this one at Lowe’s or Sears?”, the clerk said.
“We don’t sell the cheap ones here, loggers refuse to use them, but to get the better chain you need a new bar”.
One instance but look around and you will see getting less each day for more money.