California Free Press

Off the Top of My Head

Hedge Funds Outbidding Average Americans for Single Family Homes

by John Lawrence

Want to know why single family homes are less affordable? Hedge funds are buying them up and turning them into rentals. The long term implications of this are that the American people will become a nation of renters. Home ownership has been the traditional way that Americans have increased wealth. A home represents an asset which increases in value over the years. Renters typically end up with no assets and very little to provide for themselves in old age. Those with fixed incomes are even priced out of the rental market as rents continue to increase. That's why so many seniors are ending up on the streets. This issue is even becoming noticed by Democratic politicians. In the Senate, the End Hedge Fund Control of American Homes Act of 2023 would force big investors to sell off all the single-family homes they own over a period of 10 years, and eventually ban hedge funds from owning any single-family homes entirely. "The housing in our neighborhoods should be homes for people, not profit centers for Wall Street," co-author of the bill, Senator Jeff Merkley, D-Ore., said in a press release. "Yet, in every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices. It's time for Congress to put in place commonsense guardrails that ensure all families have a fair chance to buy or rent a decent home in their community at a price they can afford."

If home ownership is taken off the table for most Americans, there is only one asset class remaining in order to build wealth - the stock market. Today about 58% of Americans are invested in the stock market in some form or other. That's a huge increase from 1990 when only about 20%of Americans owned stock. If the stock market continues to go up in value, those Americans so invested will have a nest egg in their advanced years. However, there is no guarantee that this will be the case. Money has been made in the stock market, and money has been lost. Home ownership by and large has always been a much safer bet. The dotcom bubble of 2000 was a rapid rise in U.S. technology stock equity valuations fueled by investments in Internet-based companies in the late 1990s. When the bubble burst, the Nasdaq, which rose five-fold between 1995 and 2000, saw an almost 77% drop, resulting in a loss of billions of dollars. Home ownership, however, maintained its value. It took 15 years for the stock market to regain its value.

This does not augur well for Americans who are placing all their bets on the stock market to provide for them in old age. Stock market based wealth can vary considerably over time based on economic conditions over which the average investor has no control. Sophisticated investors can buy and sell on an almost instantaneous basis. The average American, however, doesn't have the expertise to exit the market if a crash or even a downturn is imminent. The stock market does not represent a stable investment in the same way that real estate does. Even though real estate values collapsed during the 2007-2008 Great Recession, rents remained stable in that time period. Notably rents did not decrease. Between 2007 and 2011, the worst years of the 2008 Recession, rental prices increased. So an investor in rental property continued to receive the same or more rent, even if the underlying property value decreased temporarily. People should not look to the stock market for all their wealth building needs because it can collapse leaving one with nothing. A rental investment, however, will probably continue to produce rental income in perpetuity unlike a pension or social security which will terminate on the death of the recipient. "This [affordability] crisis [for home ownership] has been exacerbated in recent years by an increasing number of large investors purchasing a significant percentage of single-family homes, squeezing out prospective buyers," said Rep. Adam Smith, D-Wash., in a statement.

Off the Top of My Head

US Weapons Manufacturers Profiting From War in Ukraine

by John Lawrence

So far the US has spent $13.6 billion on the war in Ukraine. The money includes weapons, military supplies and one of the largest infusions of U.S. foreign aid in the last decade. But it also covers the deployment of U.S. troops to Europe and money for domestic agencies to enforce sanctions. Stock prices for Lockheed-Martin, Northrop Grumman and Raytheon are up. They are making money from all the Javelins and Stinger missiles they are selling to the US government which is giving them to Ukraine free of charge. Raytheon Technologies and Lockheed Martin Corp jointly produce Javelins, while Raytheon makes Stingers. EU countries are buying even more US weaponry from the US military-industrial complex. Germany even wants F-35 aircraft from Lockheed Martin. U.S. weapons exports rose 2.8% to $175 billion in fiscal 2020. The Ukraine war is a field day for the weapons industry. As far as they're concerned, the more arms shipments to Ukraine the better. They are bullish. CEOs will probably get a substantial increase in pay, and the weapons contractors will be able to buy back more of their own stock boosting stock values even more. The US policy so far is no boots on the ground, but plenty of taxpayer money going up in smoke, money that could have been spent on bettering the lot of the American people.

The is always money available for war, but when it comes to Biden's Build Back Better package, Congress gets very stingy. So a localized war is more important than the fate of the whole planet due to global warming. Or it's more important than affordable health care. Or it's more important than imposing a tax on multi-billionaires who, by the way, are not paying for the war because they pay no taxes. If they have defense contractors in their portfolio, they are profiting from the war. Politico reported:

More than 25 nations have joined in purchasing and delivering weapons to support Ukraine’s war effort. The U.S. has sent billions of dollars in missiles, ammunition and other items to the front. The EU signed off on a €500 million ($551 million USD) package — a first for the 27-country European bloc — to help arm Ukraine. And both Finland and Germany have rewritten long-standing policy that barred exporting weapons into war zones.

At the same time, there are tens of thousands of troops being activated and deployed by NATO countries in Eastern Europe.

Using a resource guide retrieved from the Forum on the Arms Trade that mostly relies on official government statements and reports in the media — and backfilled with our own independent research — POLITICO has worked to track and compile weapons and materials that have been announced or directed to Ukraine by various countries since January.

This non-exhaustive list focuses on lethal weapons and some non-lethal material. It does not count humanitarian and developmental aid that has been sent to Ukraine in the same period. Arms trade research organizations have noted the timeline and official receipt of equipment is hard to confirm due to security concerns. In some cases, such as with France and Turkey, an official tally has not been made public.

While US taxpayers are paying for the war in Ukraine and for the delivery of weapons to Europe, Saudi Arabia and other places in the world, billionaires are paying nothing. Congress will not even pass a tax on billionaires so that they would be forced to pay, as Biden says, "their fair share." Their fair share is zero, zip according to Congress which is basically on the side of the billionaires. So planet earth diminishes in importance, as far as global warming is concerned, because fighting and paying for war is so much more important. In fact not only is war more important than peace, which doesn't move the stock market, it's more important than renewable energy. All of a sudden there is a need for more oil, more fossil fuel, all of which produces more greenhouse gasses. The attitude is if we need to destroy planet earth in order to win this war, then that is the price we'll have to pay.

Off the Top of My Head

The Stock Market is Too Big to Fail

by John Lawrence, April 2, 2021

Just as the big Wall Street banks are too big to fail, so now is the stock market. The stock market will never take another radical dive downward because the Federal Reserve won't let it. The way the economy is shaping up Treasury bonds, which hardly pay any interest, are just a safe place to store your money and also for foreign nations which need the world's reserve currency (the US dollar) to have a savings account because they need dollars to conduct business. There is no worry that the US will have to pay off the trillion dollars in Treasuries that China owns because they need those dollars to do business with the US and other nations. If they did want to dump all their Treasuries for some reason the Fed could just create the money to pay them and effectively take the Treasuries on its own balance sheet.

So the stock market is the only game in town for those who want to actually "invest" their money. There is so much 401(k) money in the stock market that that is reason enough to never let it fail. Instead it will continue on its merry way upward while the Fed keeps interest rates at approximately zero so that not much in the way of interest will have to be paid on US debt. There is no reason to fear that Joe Biden's $2 trillion infrastructure plan will bankrupt the US. Since the US dollar is a sovereign currency, the Fed can print as much money as it wants. If international investors don't want to buy this debt, it ends up on the Fed's balance sheet which is an effective black hole from which it never has to emerge.

Then why is there all this kibuki theater about "how to pay for it," the $2 trillion infrastructure plan I mean. It's just that most Americans including most Congressmen are under the illusion that a country with a sovereign currency like the US faces any constraints in paying for anything. Well, there is one constraint - inflation. This is probably of little concern as long as the money is targeted at the lower middle class an the poor which haven't seen wages rise in 40 years. The real inflation in the economy is the asset inflation that the rich are mostly responsible for. That includes the stock market and real estate. Inflation in the stock market will be carefully controlled by the Fed. We've seen that the stock market moved up even during the pandemic. The real problem is inflation in the real estate market which has made housing unaffordable for many. It continues to get worse as the extra dollars the wealthy have to invest are driving up prices. That's why it makes sense to tax the rich ostensibly to pay for the infrastructure bill. The real reason, however, is that inequality is getting out of hand in the American and the world economy. Taxing the rich is the only effective means to reduce inequality to a reasonable level. It will also help to bring inflation in the real estate market under control.

The real problem that Biden's infrastructure bill will have to deal with is changing the nature of the US economy. When the economy was in full employment under Trump, there were still 4% unemployed. 5% unemployment is considered "full employment," but that still leaves about 15 million people out of work. Biden's infrastructure plan will put those 5% back to work. It had been considered by conservative neoliberal economists that 5% unemployment was necessary to ward off inflation, but that theory has been debunked by Modern Monetary Theory. While inflation will still be a concern with all of Biden's stimulus spending, the main concern is restructuring the US economy from an entertainment economy to a constructive labor economy. Trump's economy was arguably a full employment economy (except for the 4% unemployed), but it was an economy the jobs of which were mainly in the entertainment and military industries. In other words, in my opinion, it was an economy based on false unbeneficial values. An economy based on labor participation rebuilding American infrastructure will be an economy based on necessary and fundamentally beneficial values. This might mean that some of those presently employed in frivolous industries might be incentivized to change jobs. Reducing the entertainment and military sectors while increasing those employed rebuilding infrastructure would be, in my opinion, be a good thing.

 

Off the Top of My Head

Why is the Stock Market Surging in the Midst of Huge Unemployment

by John Lawrence

Simple answer is that the stock market has nothing to do any more with the Main Street economy. There are two economies: Main Street and Wall Street. There's the economy of rich investors, and the economy of the 90% who aren't investors. The stock market is dominated by large multinational corporations like Apple and Google, and is invested in by rich people from all over the world. As COVID has shown, we have a bifurcated economy. Secondly, interest rates for Treasury bonds are zero so why would an investor buy them when investing in stocks amounts to a self fulfilling prophecy? The more money going in, the greater the rate of return, and rich people are continuing to make huge amounts of money. Business Insider reported that billionaires saw their net worth increase by half a trillion dollars during the pandemic. All that money has to go somewhere. Meanwhile, middle class people with 401(k)s are draining them to meet expenses. Thirdly, the Federal Reserve has all but gifted rich investors trillions of dollars.

More than 1 in 4 Americans are raiding their retirement accounts after a coronavirus-related job loss. The unexpected loss in income is causing many Americans to tap their retirement savings just to make ends meet. And many people who lost a job — or have a spouse or partner whose income has declined — didn’t have much money saved in the first place. Half of Americans who were recently furloughed or let go have saved less than $500 for retirement in the past year — and 70% have saved less than $1,000, according to a report by fintech firm SimplyWise. Of those who have an individual retirement account, 401(k) plan or retirement savings account, 1 in 5 now plan to tap those funds. Of course rich investors don't suffer job losses because they don't have jobs other than managing their money. That they can do from home.

Some has been written about a K-shaped recovery from the pandemic. In a K-shaped recovery, the economic bounce-back is bifurcated like a "K": The wealthiest Americans are quickly rebounding, even thriving, while the middle- and lower-income set are not. As of the first quarter of 2020, the wealthiest 10% of American households owned 87% of all stocks and mutual funds, according to the Federal Reserve. So where does that leave the other 90%? Struggling. Waiting in line at food banks. Getting evicted and foreclosed on. Losing their small businesses in droves. The fact that a second relief package has not been implemented and in all probability won't be for another 2 months till after Biden takes office will hinder those people in the lower part of the K even more.

So what does this say about essential workers? Are rich investors essential workers? I don't think so. Are doctors and nurses? You bet. But they are being shafted by the American people who won't obey simple guidelines in the midst of a surge upon a surge in COVID. Many of them are committing suicide. Others will soon throw up their hands and quit their jobs rationalizing that their own families are more important than taking care of sick patients which puts them at risk. Multitudes of Americans traveled during the Thanksgiving holidays ignoring pleas to stay home. Now doctors and nurses will pay the price for those who exercised their "freedom" as Americans to ignore the pleas of others and only think of themselves. Even family members of these will pay the ultimate price. Another ghastly statistic: the US with 4% of the world's population has 19% of the world's COVID cases. An in November there were an average of a million new cases per week.

Having a President for the past four years who has dumbed down the American people has not been a big help in contributing to a better society for Americans or those in the rest of the world who had looked up to America. Now the question is to what degree the Biden administration can recover some semblance of American democracy and respectability among other world leaders and also economic equity for all Americans. A lot of it will hinge on whether or not Democrats will control the Senate after the two runoff elections in Georgia. If Republicans continue to control the Senate, we can expect four more years of gridlock and straitjacketing of Biden's ambitious agenda. This will be devastating for America and the world. The US will continue to diminish in importance in the world community. Economic inequality will be exacerbated, and global warming will get even worse as hurricane and fire seasons become normal year round events.

Off the Top of My Head

The American Economy is Not That Great Except for the Rich

by John Lawrence, July 17, 2018

Thanks to the financialization of the economy, rising GDP doesn't mean that more money is going into workers' pockets. When a private equity fund strips a company and sells off the parts, GDP goes up because that economic activity is added into GDP. In 2012,Hostess Products, the makers of Twinkies, filed for bankruptcy under the private equity firm Ripplewood Holdings, and some 8000 workers lost their jobs. Hostess has bounced back and forth among multiple private equity companies with the result that executives of those companies have gotten rich and workers have lost their jobs. In every case the shenanigans of private equity firms and hedge funds have caused GDP to rise, but the only financial gains have gone to the very rich and not to the average worker. Deals like Hostess have helped make the men running the six largest publicly traded private equity firms collectively the highest-earning executives of any major American industry.

The Fed's policy of holding interest rates at zero has caused massive inflation in the real estate and stock markets, but this is not reported as inflation due to the way inflation is computed. Here too this rapid increase in home prices has made the GDP increase while pricing many average people out of the real estate market. Advantage: the rich. Disadvantage: everybody else. The American economy which seems to be in good shape with its various economic indicators like GDP, has mainly benefited the rich while seemingly benefiting everyone. But while economic indicators are all positive, the results are a further divide between the rich and the poor with the rich reaping all the gains of an economy in which the gains and increases go mainly to them.

Medium reported:

Adjusted for inflation, the US economy has more than doubled in real terms since 1975.

How much of that growth has gone to the average person? According to many economists, the answer is none or close to none.

In a recent gloomy study of the American economy, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman find that between 1980 and today, almost none of the gains from economic growth accrued to the bottom half of the population. They write, “Looking first at income before taxes and transfers, income stagnated for bottom 50% earners: for this group, average pre-tax income was $16,000 in 1980 — expressed in 2014 dollars, using the national income deflator — and still is $16,200 in 2014.”¹ Piketty, Saez, and Zucman also found that incomes of the top 1% tripled over the same time period.

New York Times columnist David Leonhardt, reacting to this work, concluded “the very affluent, and only the very affluent, have received significant raises in recent decades.”

So the world's largest economy is essentially a bifurcated economy with the rich racking up phenomenal gains while the poor and middle class stagnate. However, some in the middle class are still doing OK. They are mainly the ones who bought stocks and real estate 20 or more years ago. Those stocks and real estate have inflated due to the Fed's interest rate policies. The other middle class group that has prospered are those who have benefited from a transfer of wealth from the previous generation. Those who have inherited neither stocks nor real estate and have had to start from zero are in the worst shape because they are likely to be the ones that have acquired student loan debt to get an education that purportedly would gain them a toe hold in the middle class. But that toe hold has slipped and they have ended up with no real estate (they can't afford a mortgage because of the student loan debt they have to pay off) nor have they been able to acquire stocks at greatly inflated prices.

The intergenerational transfer of wealth has exacerbated the wealth gap between white and black families. The Atlantic reported:

A forthcoming study from Meschede and Joanna Taylor, also a researcher at Brandeis, in the American Journal of Economics and Sociology, makes the point clearly. Building on a 2017 study of theirs that examined wealth accumulation among college graduates—as well as “intergenerational financial transfers,” like when a parent helps a recent college grad out with rent or, say, gives her $1,000 a month to spend on whatever she pleases—the two looked specifically at how family inheritances, which are usually larger and tend to come all at once, factor into building and maintaining wealth.

The two researchers focused specifically on inheritances among families where at least one parent has a college degree. They looked at families like this in order to test the notion that higher education is a great equalizer.

The differences that they found between black and white families were stark. “Among college-educated black families, about 13 percent get an inheritance of more than $10,000, as opposed to about 41 percent of white, college-educated families,” Taylor said in a release announcing the new research. More specifically, white families that receive such an inheritance receive, on average, more than $150,000 from the previous generation, whereas that figure is less than $40,000 for black families.

So far from being an equalizer between black and white families, a college education has only indebted black families on average even more. In other words they are worse off with a college education than they would have been without one. A college education for many blacks and poor whites has only been a debt trap, a debt trap that follows them to retirement where their social security is snatched away from them for repayment of their student loan debt.

So Donald Trump will probably fool a lot of voters who will be sold the bill of goods that the economy is doing great. They will wonder why that is not so for them, but will have to chalk it up to their own failings. Meanwhile, Bernie Sanders, Elizabeth Warren and others will have to try and explain a more nuanced picture - that the economy is doing very well for the rich but not for those at the lower end of the economic spectrum. Again people will probably not have the mental aptitude to grasp that distinction and will probably vote against their own interests.

Off the Top of My Head

The Ingenious Way the Ruling Class Has Found to Keep the Economy Humming

by John Lawrence

In short: GIVE MONEY TO RICH PEOPLE.

Yes, remember the 2008 banking crisis when Hank Paulson with his hair on fire demanded that Congress give the banks a bailout of $700 billion? Then after that the Federal Reserve gave $29 trillion to the big banks (rich people), and they continued to this day with quantitative easing (ultra low interest rates and no interest for savings accounts). The $700 billion was a taxpayer commitment, but the $29 trillion was just money the Fed printed, in other words fiat money. The euphemistic term is they "took it on their balance sheet".

But wait that's not all. One more thing. Trump's tax cuts gave even more money to rich people and a smidgeon to the hoi polloi. And the economy is going great. Full employment. Asset prices like the stock market and real estate are up fantastically. All those with 401(k)s couldn't be happier. So what's not to like about this solution to an economy which never has a downturn ... in perpetuity?

Some have suggested that all this money flooding the economy (going mainly to rich people) is a sugar high. Inevitably there will be a crash. The stock market will crater. There will be a ton of foreclosures. Student loans will all go into default Unemployment will reach all time highs. The national debt will have to be paid off instead of added to on an annual basis. But in the meantime the economy has enjoyed the largest bull market for the longest period of time in history. Why couldn't this continue forever? As long as the Fed can print money, it can go on forever.

The game is that, even though the Federal government runs a deficit every year which is added to the national debt ($21 trillion at latest count), the US Treasury continues to sell bonds to investors. If you reach the point where there are no investors willing to buy any more Treasury bonds, the Fed just prints the money, gives it to the big banks and THEY buy the Treasury bonds. Ipso facto, the US government can go on running up huge debts forever and give more tax breaks to rich people.

However, there are some downsides. Hundreds of thousands of homeless people who can't afford outrageously high rents. People who are dying because they can't afford the cost of health care and prescription drugs. Gun violence that causes multiple mass shootings on a daily basis. Just today 12 people killed in a California bar. An infrastructure that is falling apart. But these are minor problems. As far as the homeless, the victims of mass shootings and other gun violence and the people dying for lack of health care and prescription drugs, they are all minorities, and minorities don't count in a majoritarian society. They don't have enough votes to matter so they can be treated with benign neglect. Thoughts and prayers should suffice.

Off the Top of My Head

If the Economy is So Bad, Why Is the Stock Market Booming?

by John Lawrence, October 3, 2018

The simple answer is that the Fed has printed so much free money that it has nowhere else to go. But all those with 401(k)s sure must be happy. In 2015, about 54 million American workers were active 401(k) participants, and there were nearly 550,000 401(k) plans. If each worker was responsible for a family of 4, that would make approximately 200 million Americans that were covered by 401(k)s or 100 million adults. The American population is 325 million. So about 125 million Americans are not benefiting from the rise in the stock market. However, we could assume that those benefiting from the economy would vote Republican. In the last election approximately 130 million people voted or roughly half the American population. Since the poorest Americans probably don't vote, we would assume that most of the 100 million American adults who are benefiting from the stock market's rise would vote Republican in the upcoming election and would vote for Trump again in 2020. So based on this analysis, Republican voters would be in the majority.

That leaves about 100 million Americans in the lower financial tiers of American society, a substantial number to be sure, but not the majority of voters. As long as the economy is humming along for the majority, their interests will be maintained by Republican elected representatives. Their interests would include all the money that is made from militarism. That includes all the engineer college grads that are employed in the military-industrial complex by the likes of Lockheed Martin, Boeing and Raytheon. It includes all the young people out of high school that take advantage of the military's training, education acquisition of job skills, free health care, world travel and generous pay scales as inductees into the military itself with the option of retirement with benefits in 20 years.

The 100 million Americans not benefiting from the stock market's rise would include all the minimum wage workers working paycheck to paycheck, government workers other than those employed in the military or military-industrial complex, teachers, nurses and care givers. These Americans who would vote Democratic if they voted at all, will see whatever benefits they receive from government diminish as the Republican majority and their elected representatives squeeze that part of government - as well as all public programs and spaces - so small that it can be drowned in a bathtub.

Republican elected representatives and lobbyists cater to the uppermost rungs of society and the people in those rings don't want their taxes being used to support government programs that benefit poor people. So until there is some cataclysm that takes down the majority of the economy, as long as the economy keeps humming along, as long as there is full employment (albeit with a large portion of minimum wage workers), as long as the stock market keeps rising, Michael Moore's contention that American society is majority leftist is hogwash. While it may be majority leftist on cultural matters like abortion and marijuana legalization, it is majority rightist on pocket book issues which trump all other issues.