Published: Sunday 9 December 2012
When people being portrayed as policy experts tell you that the United States or other countries face a demographic disaster because of declining ratios of workers to retirees they are mostly trying to tell you that they are not very good arithmetic.

One of themes that recurs endlessly in news coverage is that the United States and other countries face a disastrous threat to their living standards as a result of a falling ratio of workers to retirees. This is one that can be easily dismissed with some simple arithmetic.

A falling ratio of workers to retirees means that a larger chunk of what each worker produces must be put aside to a support the retired population. (Btw, this is true regardless of whether or not we have a Social Security or Medicare system. The only issue is whether retirees are able to maintain something resembling normal living standards.) However, that does not imply that the working population must see a drop in their living standards.

Fans of arithmetic might note that the ratio of workers to retirees fell from 5 to 1 in the early sixties to 3 to 1 in the early 90s. This sharp drop in the ratio of workers to retirees did not prevent both workers and retirees from enjoying substantial improvements in living standards over this period. The reason is that productivity growth, what each workers produces in an hour of work, swamped the impact of a falling ratio of workers to retirees.

That will also be the case the ratio of workers to retirees falls from the current 3 to 1 to a bit under 2 to 1 over the next 35 years under any plausible assumption about productivity growth. The chart below compares the impact of the decline in the ratio of workers to retirees in reducing the living standards with the impact of productivity growth in raising living standards, assuming that the ...

Published: Tuesday 6 November 2012
Anyone who thinks all this is funny should be disqualified from being taken seriously, not only as presidential candidate, but from holding any responsible position in public life.

When Gov. Romney gave his acceptance speech at the Republican convention he quipped that President Obama wants to slow the rise of the oceans, by contrast he wanted to help American families. It would be interesting to see if Romney would care to repeat this line today.

Perhaps he wants to tell the people of New York and New Jersey who have seen their homes — and in some cases lives — destroyed by the rise of the oceans, how silly President Obama is for taking steps to counter global warming. These people will surely get a good chuckle from the Governor’s sense of humor as they wait to have to electricity restored or their home rebuilt.

It is remarkable that the Democrats have not been harsher in holding Romney in contempt for his comments in these final days leading up to the election. Imagine the shoe were on the other foot.

Imagine a world where we had not seen the Sept. 11 attacks and a Democratic challenger to President Bush’s re-election in 2004 had mocked the money that Bush had spent on defenses against terrorism. If the country had then been hit by a terrorist attack in the week before the election would the Republicans be shy about going after their challenger’s bad sense of humor?        

Beating up Governor Romney is not just a question of cheap politics. Global warming is serious business. Over 100 people died last week in New York and New ...

Published: Thursday 1 November 2012
It is always unfortunate when people lose their jobs, but in this case it would be for a good cause.

 

One of the major growth industries in Washington is the promotion of budget hysteria. Well-funded groups have weekly, if not daily, events designed to hype the country’s budget situation. Much of the national media, most importantly the Washington Post, have enlisted in this effort, devoting both their opinion and news sections toward this goal.

Unfortunately for the deficit-crisis industry, the facts may stubbornly refuse to cooperate. Any discussion of the deficit requires separating out the short-term and the long-term story. The short-term story is very simple. The economy collapsed in 2008 when the housing bubble burst. That is the story of the large budget deficits that we have seen in the last five years: full stop.

Fans of the Congressional Budget Office (CBO) can go back to see their projections from January of 2008, before CBO recognized the consequences of the bursting bubble. The deficit had been a modest 1.2 percent of GDP in 2007. The deficit was projected to stay near 1.0 percent of GDP over the next three years until the end of the Bush tax cuts was projected to push the budget into surplus in 2012. Even if the Bush tax cuts had not been allowed to expire the country can literally run deficits of 1.0-2.0 percent of GDP forever.

There were no huge new permanent spending programs or tax cuts put in place in 2008 or 2009. The deficit soared because the recession sent tax revenue plummeting and caused spending on programs such as unemployment benefits to jump. There were also temporary measures designed to ...

Published: Tuesday 16 October 2012
The amount of damage being inflicted on countries around the world by bad economic policy is astounding.

There is an old story from the heyday of the Soviet Union. As part of their May Day celebrations they were parading their latest weapon systems down the street in front of the Kremlin. There was a long column of their newest tanks, followed by a row of tractors pulling missiles. Behind these weapons were four pick-up trucks carrying older men in business suits waving to the crowds.

Seeing this display, the Communist party boss turned to his defense secretary. He praised the tanks and missiles and then said that he didn’t understand the men in business suits. The defense secretary explained that these men were economists, and “their destructive capacity is incredible.”

People across the world now understand what the defense secretary meant. The amount of damage being inflicted on countries around the world by bad economic policy is astounding. As a result of unemployment or underemployment, millions of people are seeing their lives ruined. The current policies have led to trillions of dollars of lost output. From an economic standpoint this loss is every bit as devastating as if a building had been destroyed by tanks or bombs. And people have lost their lives, due to inadequate health care, food and shelter, or as a result of the depression associated with their grim economic fate.

If an enemy had inflicted this much damage on the United States, the countries of the European Union, or the countries elsewhere in the world that have been caught up in this downturn, millions of people would be lining up to enlist ...

Published: Tuesday 2 October 2012
Romney’s ads claim that he will declare China to be a currency manipulator and take retaliatory measures.

 

One of the themes that Governor Romney has been hitting at aggressively in his campaign ads is that he will get tough on China. The ads complain that China is a cheater, most importantly by “manipulating” the value of its currency. This means that China has been deliberately keeping down the value of its currency against the dollar.

A lower value for the yuan, which means a higher valued dollar, makes Chinese goods cheaper for people in the United States. It is the same thing as if China were to subsidize its exports to the United States. On the other side, the over-valuation of the dollar makes our goods more expensive to people in China, meaning that they will buy less of them. It is comparable to putting a tariff on U.S. exports to China.

Romney promises to be the tough guy who will reverse this situation. His ads claim that he will declare China to be a currency manipulator and take retaliatory measures.

President Obama has responded to Romney’s charges by pointing out that Romney personally has profited from dealings with China. His ads point out that Bain Capital, Romney’s former company, was a pioneer in outsourcing jobs to China.

While people will have to decide for themselves what they think of Romney’s business dealings in China, the Obama ad helps to clarify the issues in U.S. negotiations with China. The reality is that there are many U.S. businesses that are profiting enormously ...

Published: Tuesday 18 September 2012
If the backdrop to this question is not immediately clear, then you should be very angry at the reporters who cover the campaign.

 

That is a pretty simple and important question. Unfortunately most voters are likely to go to the polls this fall without knowing the answer.

If the backdrop to this question is not immediately clear, then you should be very angry at the reporters who cover the campaign. One of the items that continuously comes up in reference to the budget deficit is President Obama’s support for the plan put forward by the co-chairs of his deficit commission, Morgan Stanley director Erskine Bowles and former Senator Alan Simpson. On numerous occasions President Obama has indicated his support for this plan.

One of the items in the Bowles-Simpson plan is a reduction in the annual cost-of-living adjustment of roughly 0.3 percentage points. This would be accomplished by using a different index that, by design, would show a lower measured rate of inflation. It is important to recognize that this is an annual cut that would accumulate over time. After a retiree has been receiving benefits for 10 years the cut would be 3.0 percent, after 20 years it would be 6 percent. If a typical retiree lives long enough to get benefits for 20 years the average benefit cut over their years of retirement would be 3 percent.

This is the most immediate cut to Social Security in the Bowles-Simpson plan but not the only one. The plan also would gradually raise the ...

Published: Tuesday 11 September 2012
In short, the Clinton-era policies sent the U.S. economy on a seriously wrong path. They created an absurd obsession with budget deficits, a pattern of bubble-driven growth, an incredibly bloated financial sector and an unsustainable trade deficit.

 

Bill Clinton is clearly the most talented politician of our era. It is difficult to imagine Clinton losing an election to any of the people who have run for office in the last two decades.  But his skills as a politician should not prevent us from understanding the track record of his economic policies. In fact, until we get a clear understanding of these policies, it unlikely that we will be able to restore the economy to a path of sound economic growth.

The mythology of Clintonomics is that Clinton took the hard steps to bring the deficit down. He cut spending and raised taxes. This supposedly shifted the budget from large deficits to large surpluses and led to a booming economy. In the late 90s we had the lowest unemployment in three decades, and we saw real wage growth up and down the income ladder for the first time since the early 70s. There was in fact much here to celebrate.

However the reality is quite different from the mythology. The reduction in the deficit was supposed to lead to an increase in investment and a fall in the trade deficit. These are the two components of GDP that increase our wealth for the long-term, the former by increasing out productive capacity and the latter by giving us ownership of more foreign assets.

It turns out that the investment ...

Published: Tuesday 4 September 2012
“If you want to see what the country would look like without unions, watch re-runs of the Republican convention.”

 

In polite circles in Washington it is common to view unions as a quaint anachronism. They may have made sense back when most workers had little education and worked in factories, but there really is no place for them in a 21st century economy. From this perspective, the sharp decline in union membership that we have seen in the last three decades is simply a natural process, sort of like the development of more powerful computers.

There is evidence that suggests otherwise, most notably that many other wealthy countries still have very high rates of unionization. The share of the workforce represented by unions is 80 percent or higher in many European countries. While some may want to attribute the eurozone crisis to factors such as high unionization rates (as opposed to inept central bankers) they face the problem that non-eurozone countries like Denmark and Sweden seem to be doing just fine. In Denmark 80 percent of the workforce is represented by a union and in Sweden the share is 91 percent. According to the most recent OECD data, their unemployment rates are both 7.8 percent. That isn’t great, but it’s still half a percentage point below ours. And, both countries are able to borrow at the same or lower interest rates than the U.S. Clearly, high unionization rates have not led to catastrophe. 

But many still view Europe as being fundamentally different than the United States. And of course they don’t speak English in Denmark and Sweden, or at least not as a first language. This is why it is useful to look at Canada, a country that is culturally and economically very similar to the United States, and a place ...

Published: Tuesday 28 August 2012
“In the absence of a stimulus program that was 2-3 times the size of the one President Obama put forward and considerably longer lasting, the economy was doomed to a prolonged period of unemployment.”

 

Washington is the mecca for people across the country and around the world who have difficulty seeing the obvious. The economy tanked because the country had a huge housing bubble that burst. The collapse sent the economy into a long and severe recession because there was nothing that could replace the $1.4 trillion in annual demand that was generated by the housing bubble.

In the absence of a stimulus program that was 2-3 times the size of the one President Obama put forward and considerably longer lasting, the economy was doomed to a prolonged period of unemployment. None of this is 20-20 hindsight; some of us said it repeatedly as clearly as possible in advance (e.g. herehere and here).

So, naturally, in Washington, when events turn out exactly as predicted, leading policy wonks turn to alternative explanations. Hence we have 

Published: Tuesday 21 August 2012
“However, Biden also lives in a city where calling for cuts to Social Security is the way to demonstrate your manhood. The bigger the cuts and the more frequent the calls, the higher your status.”

 

Last week Vice President Joe Biden did a courageous thing, he promised an audience in southern Virginia that there will be no cuts whatsoever to Social Security in a second Obama Administration. He used the strongest possible language, telling customers at a local diner: “I guarantee you, flat guarantee you, there will be no changes in Social Security. I flat guarantee you.”

That was good to hear from the Vice President. Since the Obama Administration had several times indicated that it would be willing to cut Social Security as part of a “Grand Bargain” on the budget, it was encouraging to hear Mr. Biden make such an unambiguous commitment. While nothing in politics can be taken as 100 percent certain, this is about as good as you get.

On the one hand, Biden’s commitment may not seem very courageous. After all, he is running for office and Social Security is the most popular program on the table. It draws approval ratings close to 80 percent from Republicans, conservatives, and even Tea Party supporters. Backing Social Security in this context might just seem like cheap politics, which it may well be.

However, Biden also lives in a city where calling for cuts to Social Security is the way to demonstrate your manhood. The bigger the cuts and the more frequent the calls, the higher your status. And, there are plenty of rewards for those politicians who go down fighting for Social Security cuts. Just check out the salaries for the lobbying jobs of the Blue Dog Democrats who have left office in recent ...

Published: Tuesday 14 August 2012
“What do you give a government program that has everything ... except a secure future of its own?”

Today, August 14, is Social Security's 77th birthday. That presents us with a difficult challenge: What do you give a government program that has everything ... except a secure future of its own?

Let's take a look at the options for this year's celebration.

The Gift Pile

Talk about an embarrassment of riches! Look what Social Security can already list among its gifts. It's got:

Hundreds of millions of people who love it. Polls consistently show that Social Security, along with Medicare, is one of our most popular government programs.

The best balance sheet in the entire government. Despite all the scare talk (which we'll get to shortly), no program in U.S. history is on a firmer financial footing than Social Security. It's a stand-alone program which isn't allowed to contribute to the overall government deficit, and is absolutely solvent until the mid-2030s.

No other program can say that.

A great profile. There's no way to say this delicately, so we'll come right out with it: Social Security has the slimmest, sleekest look in Washington. We don't like to encourage our society's fixation on thinness as the ideal of beauty, but let's face it -- Social Security is so cost-effective in delivering its benefits that it's got the most streamlined chassis around.

The Social Security Administration beats every private benefits program in the country when it comes to low overhead and efficient administrative design. One of the main reasons for that is the fact that everybody who pays into the system receives its benefits at qualification time.

There's no "means testing," no gamesmanship, no trick—just trim, no-overhead service delivery.

Great polls. Time and time again, overwhelming majorities of Americans have made it clear that they don't want this program to be cut. That means a lot: Of all the gifts in the world, the best ...

Published: Tuesday 7 August 2012
“The CEOs want to do this behind closed doors because they know that politicians who have to answer to their constituencies will never be able to get away with these cuts. The key is to force the debate into the sunlight.”

 

Last week I wrote about the conspiracy of corporate chieftains to impose a budget plan involving large cuts to Social Security and Medicare, regardless of who wins the elections in November. According to veteran Washington Post columnist Steven Pearlstein, who wrote approvingly of these efforts, many of the top executives of the country’s biggest companies are meeting behind closed doors to design such a budget plan.

This plan is expected to follow the designs of the plan crafted two years ago byMorgan Stanley Director Erskine Bowles and former Senator Alan Simpson, the co-directors of President Obama’s deficit commission. The Bowles-Simpson plan called for a reduction in the annual cost-of-living adjustment for Social Security that is equivalent to a 3 percent cut in benefits. It also called for gradually raising the normal retirement age to 69 and phasing in lower benefits for workers who earned more than $40,000 a year. The Bowles-Simpson plan would also raise the age of eligibility for Medicare to 67.

Published: Tuesday 31 July 2012
“Many of the same folks who brought the economy to ruin just a few years ago are now going to come up with a plan that is supposed to set the budget and the economy on a forward path. ”

 

Many people are following the presidential election closely with the idea that the outcome will have a major impact on national policy. However, according to Steven Pearlstein, a veteran Washington Post columnist and reporter, it may not matter who wins the election. In a column last week, Pearlstein told readers that the top executives of some of the country’s largest companies are getting together to craft a budget package that they will try to push through Congress and get the president to sign.

While Pearlstein clearly sees these backroom meetings of corporate chieftains in positive terms (he refers to them as “grown-ups” who have been noticeably absent from the conversation about the budget), the rest of us might view this plotting a bit differently. As Pearlstein openly acknowledges, this corporate coup is an end-run around the electorate. As corrupt as the political process may have become, at least we will get a vote in the election. Pearlstein’s plotters are not inviting the rest of us into the conversation.

Many of the same folks who brought the economy to ruin just a few years ago are now going to come up with a plan that is supposed to set the budget and the economy on a forward path. At the center of their proposal are big cuts in Social Security and Medicare.

READ FULL POST

46 COMMENTS
Published: Tuesday 17 July 2012
“At the time the TARP bailout was being debated in the fall of 2008 many progressive members of Congress wanted to have a provision that would at least temporarily alter bankruptcy law to allow judges to rewrite the terms of a mortgage.”

Ever since the housing bubble collapsed, the Federal government has refused to take major initiatives to help underwater homeowners. As a result, we are likely to see close to 1 million foreclosures both this year and next, with the numbers only gradually slipping back to normal levels by the end of the decade.

The inaction cannot be attributed to a lack of opportunity. At the time the TARP bailout was being debated in the fall of 2008 many progressive members of Congress wanted to have a provision that would at least temporarily alter bankruptcy law to allow judges to rewrite the terms of a mortgage.

Under current law, home mortgages are treated differently than any other type of debt. Bankruptcy judges are prohibited from altering the terms of a mortgage in anyway. If a homeowner cannot meet the terms of the mortgage, they lose the house. Congress could have allowed bankruptcy judges to rewrite mortgages that were written during the housing bubble frenzy, but it backed away from this opportunity.

Similarly, Congress could have temporarily changed the rules on foreclosure to allow foreclosed homeowners to stay in their homes for a substantial period of time (e.g. five years) as renters paying the market rent. This would have assured underwater homeowners substantial housing ...

Published: Tuesday 10 July 2012
“While these stories are undoubtedly confusing to most of the public, which is not generally familiar with the intricacies of different interest rate indexes, the basic story is fairly simple: Big banks were caught lying about interest rates in order to make big profits ”

 

Over the past week, the business news has been filled with stories about major British banks manipulating the LIBOR rate. While these stories are undoubtedly confusing to most of the public, which is not generally familiar with the intricacies of different interest rate indexes, the basic story is fairly simple: Big banks were caught lying about interest rates in order to make big profits.

For the most part the victims were other high-rollers who were taking the other side of bets on complex financial derivatives. However there were also pension funds and even governmental units such as school districts and park services that were persuaded by their financial advisers to get into this high-stakes game. These folks were among those who lost because of the LIBOR liars.

A Fundamental Problem

While there should be a thorough investigation that results in the guilty parties being severely punished, this incident sheds light on the fundamental problem with the modern financial industry. There is enormous money to be made by shaving a small fraction of a penny here or there. When this shaving is done on trades that can run into the hundreds of billions or even trillions of dollars, those fractions of a penny can run into really big bucks. And when we give people enormous incentive to lie and steal, it is likely that many will take advantage of the opportunity.

READ FULL POST 6 COMMENTS

Published: Tuesday 3 July 2012
“However because the folks in Washington are so dependent on Wall Street money, it is more likely that they will be looking to target the benefits of people struggling to get by on their $1,100 a month Social Security checks.”

 

As the presidential election builds up steam, the Washington elites in both parties are actively scheming to find ways to cut Social Security and Medicare benefits for retired workers. The media have widely reported on efforts to slip through a version of the deficit reduction plan developed by Morgan Stanley director Erskine Bowles and former senator Alan Simpson. Since the vast majority of voters across the political spectrum reject cuts to these programs, the Washington insiders hope to spring this one on us after the election, when the public will have no say.

That is the sort of anti-democratic behavior we expect from elites who naturally want to protect their own interests. Of course the rest of us are more concerned about the well-being of the country as a whole rather than the preserving the wealth of the richest 1 percent.

For the 99 percent there are much better ways of dealing with whatever deficit problems may arise down the road. Most obviously, insofar as we need more revenue we can look to tax the sort of financial speculation through which the Wall Street gang makes its fortunes. A very small tax on trades of stocks, options, credit default swaps and other derivative instruments could raise a vast amount of money.

The Joint Tax Committee of Congress estimated that a tax of just 0.03 percent on each trade, as proposed by Senator Tom Harkin and Representative Peter DeFazio, would raise more than $350 billion over the first nine years that it is ...

Published: Tuesday 26 June 2012
“The regulation monster is composed of the mounds of bureaucratic paperwork and red tape that strangles businesses.”

Those familiar with the “confidence fairy” recognize that economic policy debates in Washington are dominated by imaginary creatures. The confidence fairy, which was discovered by Paul Krugman, is the mythical creature that brings investment, jobs, and growth as a reward to countries that practice painful austerity.

Economies don’t actually work this way, but important people in policy making positions in Washington and Europe insist that they do. And they hope that they can get the public to believe in the confidence fairy, or at least a large enough segment of the public, to stay in power.

In this same vein, Mitt Romney and the Republicans are trying hard to promote the belief in the “regulation monster.” The regulation monster is composed of the mounds of bureaucratic paperwork and red tape that strangles businesses. As a result of the regulatory monster, America’s businesses aren’t able to be the job creators that they want to be.

There are a few problems with this story. First and foremost, all the data show that businesses are doing just great. The profit share of GDP is near its 50-year high. The after-tax profit share is at a 50-year high since the tax share of profits is down considerably from its levels in the 50s and 60s. This means that when we look at the economy as a whole, the regulation monster has not left any tracks.

Suppose we look at specific industries. Governor Romney and the Republicans say the ...

Published: Tuesday 19 June 2012
“The fact that the economy can use an additional boost should not be in dispute.”

 

The Federal Reserve Board’s Open Market Committee (FOMC) meeting this week likely presents its last opportunity to boost the economy before the end of the year. While the FOMC meets every six weeks, as a practical matter the FOMC has historically been very reluctant to take major moves close to an election. After this week’s meeting we will be in the window where the Fed is unlikely to move. This means that it is especially important that the Fed take steps to boost the economy now.

The fact that the economy can use an additional boost should not be in dispute. The rate of job creation in the last two months understates the underlying growth path since it is essentially a payback from the stronger growth due to an unusually mild winter.

Even the 165,000 average rate of job creation for the last five months is far too slow. With the economy needing roughly 100,000 new jobs a month to keep pace with labor force growth, it would take us more than 12 years to make up our 10 million jobs deficit at this point.

If there is a clear need for more rapid growth, the data also show there is no downside risk of excessive inflation. The consumer price index fell 0.3 percent in May. It has risen by just 1.7 over the last year. The core index rose 0.2 percent last month and is up 2.3 percent over the last year.

Of course many of us have ...

Published: Thursday 14 June 2012
“Between the 2007 survey and the 2010 survey, the typical family had lost 38.8 percent of their wealth.”

The Federal Reserve Board’s newly released triennial Survey of Consumer Finance (SCF) confirmed what most of us already knew: The middle class has taken a really big hit. It showed that between the 2007 survey and the 2010 survey, the typical family had lost 38.8 percent of their wealth. In fact, the wealth of the typical family was down 27.1 percent from where it had been a decade ago in 2001. This is in spite of the fact that the economy was more than 15 percent larger than in 2010 than it had been 2001.

It wasn’t just wealth that had dropped; the survey showed that income had fallen as well. Median family income in 2010 was down by 7.7 percent from its 2007 level and 6.3 percent from its level a decade ago.

There is not much surprising about these numbers. The SCF is picking up the impact of the collapse of the housing bubble. For the vast majority of middle-class families, their home is by far their largest financial asset. For decades they were encouraged to believe that it was a safest way to save for the retirement or other purposes. 

This clearly was not true when house prices became inflated by a bubble. In the years when the bubble reached levels that were clearly unsustainable, from 2002-2007, housing was just about the worst possible place to keep wealth.

Unfortunately, tens of millions of Americans ...

Published: Tuesday 5 June 2012
Alan Simpson once again launched an obscenity-laden diatribe against those who oppose his plans to cut Social Security and Medicare.

 

Alan Simpson, the foul-mouthed former senator, has been back in the news again. He once again launched an obscenity-laden diatribe against those who oppose his plans to cut Social Security and Medicare.

Unfortunately, the focus of the media attention has been on the senator’s use of obscenities. This is unfortunate because the use of obscenities is really beside the point. After all, a single well-placed expletive can often do the work of a hundred g-rated words.

The real issue is the senator’s open contempt for the portion of the population that is either dependent on Social Security or Medicare now or will be in the future. Since that group comprises almost everyone except the rich, Senator Simpson’s diatribes are expressing contempt for just about the whole population, in other words, the 99 percent.

The contempt the senator holds for the 99 percent is probably common among those like him, the son of a senator, who grew up to great privilege and never had to fear financial insecurity. However Senator Simpson is unusual in showing this contempt so openly. Usually the members of the elite who enter politics are at least able to conceal the negative views they have of the less-privileged.  

READ FULL POST 6 COMMENTS

Published: Thursday 24 May 2012
It should not be acceptable for people in the industry to commit fraud and there should be serious consequences for those who do.

 

It was almost four years ago that Federal Reserve Board Chairman Ben Bernanke, Treasury Secretary Henry Paul Paulson, and then New York Fed Bank President Timothy Geithner ran to Congress warning that the end of the world was near. They told members of Congress that the banks were drowning in bad debt and without a massive bailout they would soon be forced into bankruptcy. Congress quickly coughed up the money in the form of $700 billion in TARP loans. The Fed contributed trillions more.

Undoubtedly most of the bad debt was due to stupidity, which does not seem to be in short supply on Wall Street despite the high paychecks. The folks running the major banks somehow could not see the largest asset bubble in the history of the world. The fact that house prices had risen by more than 70 percent above their trend level, with no plausible explanation in the fundamentals of the housing market, did not trouble these high-flyers.

But there was more than just stupidity involved here. There was an epidemic of mortgage fraud that was identified by the FBI 

Published: Sunday 15 April 2012
A new report from the Center for Economic and Policy Research examines the impact of raising the Social Security retirement age and its effect on the distribution of wealth from loss of future Social Security benefits.

Social Security remains the most important source of income for most Americans in their retirement. Nonetheless, there are many proposals for cutting benefits that get serious consideration, including increasing the normal retirement age. A new report from the Center for Economic and Policy Research examines the impact of raising the Social Security retirement age and its effect on the distribution of wealth from loss of future Social Security benefits.

“The full retirement age for Social Security is already scheduled to increase to 67 over the next 10 years,” said Dean Baker, a co-director of CEPR and an author of the report. “Despite the fact that each year of increase in the normal retirement age is equal to a cut in benefits of 6 to 7 percent, some policy makers are calling for raising the retirement age as high as 70.”

The report, “The Impact on Inequality of Raising the Social Security Retirement Age,” projects the impact of a gradual increase of the normal retirement age on various demographic groups, looking at each quintile of the wealth distribution, as well as the richest 1 percent. The paper also contains separate projections for homeowners and non-homeowners, single individuals and couples in several age cohorts. These projections demonstrate that Social Security wealth is a much larger share of wealth for the bottom four of the five groups. As a result, an increase in the retirement age would cause an increase in inequality.

“Since those in the top income quintile have vastly more wealth than those in other quintiles, a loss of 7 percent of Social Security benefits will not ...

Published: Thursday 2 February 2012
“Obama’s plan would allow homeowners to refinance at current rates, which are quite low.”

President Obama detailed his administration’s new housing plan in Virginia today, a little over a week after announcing it in his State of the Union address. The crux of the plan is providing help to underwater homeowners—which, in turn, could also boost the economy.

The plan works like this: everyone who has a mortgage with a non-government sponsored enterprise (GSE), like Fannie Mae and Freddie Mac, is eligible to refinance under this plan if they meet the government’s criteria. (There are also features to further incentivize help for those with GSE loans—more on that later). Non-GSE homeowners must be current on their payments, meet a minimum credit score and be a single-family, owner-occupied home within FHA loan limits to get help under the new plan. (The idea is to target aid to families that aren’t already quite wealthy and are trying to stay in their current homes).

Crucially, however, it doesn’t matter if the homeowner is underwater on their mortgage (meaning they owe more than their home is worth). This is important because underwater homeowners typically can’t refinance, which creates a vicious economic cycle for the country: with high mortgage payments, people have less money to spend and so the economy suffers. But a suffering economy pushes home prices downward, meaning underwater homeowners are sunk even deeper.

Obama’s plan would allow homeowners to refinance at current rates, which are quite low. In the hypothetical distributed by the White House, say there’s a family with a $300,000 mortgage that they took out in 2005 at 6 percent. They’d have a balance of $272,000 with monthly payments of $1,800—but their home is only worth, say, $225,000. This means they’re underwater and can’t refinance at today’s lower rate. The administration plan would allow them to refinance at 4.25 percent, which would reduce their monthly payments by $460 per ...

Syndicate content
Make your voice heard.
Write for NationofChange
The world can be a disheartening place. You turn on the news and hear about the economic turmoil in...
Online classes have become omnipresent in college course catalogs, allowing students to learn from...
You’re an HR professional, which means you’re charged with putting together employment offer...
Before 2008, real estate was the way to make great profits. Between 2008 and 2014, the stock market...
Part I - Rationalizations With the Israelis once more inflicting collective punishment in Gaza (a...
Remember the film Jaws? Remember how the whole town was affected by the presence of the predatory...
What would a psychiatrist call this? Delusions of grandeur? US Secretary of State John Kerry, July...
Part I - Dogmatists in the Justice System Scattered throughout the ranks of U.S. federal...
For many, Australia is all about Melbourne, The Great Barrier Reef and Sydney. While these are...
There you are, ready for a business pow-wow, in front of a glittering, glimmering office complex,...
If you run a small business that doesn’t mean that you can’t think big. In fact, when you think...
Tea Party politicians don’t like people who are out of work. In Congress and in campaigns they...
After flying from San Diego to Texas, a group of Central American immigrant families were met with...
As scientific studies improve, new and effective solutions are being devised to provide consumers...
Growing concerns about the global shortage of highly skilled cybersecurity professionals have been...