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 Isn't it just like the market to play a
little April Fool's Day joke on investors the day after the UK's Independent
proclaimed on its front page, "USA 2008: The Great Depression?"
In truth, the market wasn't joking around at all. The Dow's 391 point rise
was a deadly serious message: Financial markets don't care about newspaper
articles. Nor do they care about the high prices you're paying for food, gas,
rent, tuition, debt service, clothes or anything else that you can no longer
afford. Financial markets have their own internal rules and logic, and right
now they simply cannot be bothered with average Americans' struggles to make
ends meet. At present, they are concerned mainly with the money free-for-all
going on over at the Federal Reserve.
But as the Independent's article states, life is becoming more and
more of a struggle for many Americans:
Emblematic of the downturn until now has been the parades of houses
seized in foreclosure all across the country, and myriad families separated
from their homes. But now the crisis is starting to hit the country in its
gut. Getting food on the table is a challenge many Americans are finding
harder to meet.
Forget about luxuries - simply
getting food on the table is tough for the 10% of Ohioans who are getting food stamps. In West Virginia, it
is close to 17% of the population . The CBO
estimates that 28
million Americans will be receiving food stamp assistance by October,
likely a gross underestimate, considering its source (the Federal
government).
 This is not a
problem that just sprang up this year. The graph on the left from the NY
Times shows that the need for food stamps has been growing steadily though
the listless "recovery" years of the 2000's:
All boats did not rise on the incoming tide during the economic recovery
that followed the brief post-9/11 recession. In fact, many families simply
took on greater debt to keep their boats afloat. With home prices collapsing,
equity shrinking and credit tightening, it is getting harder for many to stay
buoyant.
The lack of real wage growth during the decade has left many highly
vulnerable to a recession.
April Fool's Day Rally 2008
Given the economic situation for the majority of Americans, why on earth did
the Dow rally 391 points?
In fact, it was kind of a joke - the same cruel, sick joke that has been
played on the American people for at least the past 35 years, since real
wages quit keeping pace with inflation, starting in 1973. Here's the joke:
average Americans like you and I just don't matter.
It doesn't matter one lick to the companies that compose the Dow if you're
having a hard time making ends meet. If you're unable to become a revenue
stream to one of the global multinationals that make up the Dow, well, there
are scores of willing consumers, waiting on distant shores to take your place
in the global economy. It should be abundantly clear by now that a hot stock
market does not equate to a healthy economy. Just ask China, Russia,
Thailand
or any number of "developing" nations. A booming stock market and a
citizenry composed of millions of starving, subsistence level peasants can
happily coexist, and never the 'twain need meet. Why
should America
be any different? In fact, America
is becoming more and more like those "developing" countries every
day: A society composed of a small, ultra-wealthy elite class and a swelling
majority of the population living at the subsistence level.
 Do you think
financial markets care?
Example: The High Cost of Low Prices
Last weekend an acquaintance introduced me to a fantastic website at www.freedocumentaries.org.
As the title implies, there is a wealth of wonderful online educational
viewing to be had - the perfect antidote to the chronic problem of 500+
channels on television and nothing at all good on to watch.
Among the programs I watched recently is one on Dow component Wal
Mart, titled, The High Cost of Low Prices. Here is a 10 minute teaser
from the middle of the film:
I urge you to take the time to watch the full documentary at www.freedocumentaries.org.
If you do, you will discover that what is good - in fact great for Dow component Wal Mart - is devastating for working class Americans
across the country. In today's April Fool's Day rally, Wal
Mart stock was up 2.3% - $1.40 per share, or $5.6 billion. Meanwhile, GM,
Ford & Toyota all announced that their US car sales dropped by double digits last month.
In order to buy cars, citizens need good jobs that pay well. But not only has
Wal Mart destroyed thousands of community
businesses and better paying jobs across the country with its ultra low
priced, shoddily produced, imported products; its wages are so low that many employees can barely afford to feed
themselves properly, and proper health care is out of reach. Wal Mart managers are therefore trained in directing
employees to Federal welfare assistance for health care and yes, food stamps. Forget about buying a
new car on $7.00 per hour ($14,000 per year).
Imagine working a full time job and not being able to afford to buy enough
food to feed your family. Hard to believe, but this is what America has
become. But this behavior - terrible for people, for families and for the
cultural fabric that makes up America
- is tremendous for the Dow Jones Industrial Average.
The Anti-General Motors
Once upon a time it was said that what was good for General Motors is good
for America.
That was back when GM was America's
largest private employer and Detroit
was the world's manufacturing center. But as the NY Times states,
"Michigan has been in its own mini-recession for years as its collapsing
industrial base, particularly in the car industry, has cast more and more out
of work. Now, one in eight residents of the state is on food stamps, double
the level in 2000."
It is the same sad story for many once world-class American manufacturing
cities. They're been rotting away since the 1970's as America transitions to
a third world country, complete with tin horn dictator and hyperinflating currency. Wal
Mart's rise as the anti-GM epitomizes this transition. Whereas GM actually
manufactured things of lasting, productive value (how many old Chevy's are
still running strong in Cuba?),
Wal Mart imports and sells things of shoddy quality
and questionable value. Hardly any of it is manufactured in America. GM
paid such generous wages that a single breadwinner working for the company
could support a family comfortably. Wal Mart pays
such poor wages that two workers would still have difficulty supporting a
family without additional government assistance. GM offered generous pensions
and health care to their employees. Wal Mart
employees are on their own.
The comparison between these two global giants is an object lesson in how far
America's
standard of living has slipped in less than half a century. Billy Joel
captured it perfectly in his 1982 song, Allentown:
Well we're living here in Allentown
And they're closing all the factories
down
Out in Bethlehem they're killing time
Filling out forms
Standing in line
...
Well we're waiting here in Allentown
For the Pennsylvania we never found
For the promises our teachers gave
If we worked hard
If we behaved
So the graduations hang on the wall
But they never really helped us at all
No they never taught us what was real
Iron and coke
And chromium steel
And we're waiting here in Allentown
But they've taken all the coal from the
ground
And the union people crawled away
Every child had a pretty good shot
To get at least as far as their old man
got
But something happened on the way to that
place
They threw an American flag in our face
Well I'm living here in Allentown
And it's hard to keep a good man down
But I won't be getting up today
And it's getting very hard to stay
And we're living here in Allentown
Yup, they threw that American flag in our face. Somehow capitalism,
"free" markets and globalization sneakily became more patriotic and
American than America
itself. Billy Joel tells the story poignantly with his poetry because, as Wikipedia informs us: "Joel witnessed this
first-hand while performing at the Lehigh Valley's numerous music venues at
the start of his career in the late 1960s and early 1970s."
Like much of America, Allentown has continued
its long, slow decline:
The city's [above national average] crime statistics have been heightened
by growing gang-related crime and gang rival violence. The Allentown region is one of several national
strongholds for MS-13, considered the nation's single most violent gang. The
Bloods, another notoriously violent gang, also has a presence in the city.
These and other gangs, including the Crips, have
been responsible for gang signal graffiti, which typically is a reference to
their presence on a certain block and sometimes an advance warning of
forthcoming retaliatory gang violence or other crimes. Allentown also has seen a growth in drug
trafficking and prostitution in recent years.
But at least Allentown
has a Wal Mart! Supercenter #2641. In spite of
that - or because of it - violence and crime have followed the economic
despair. Is there a modern-day Billy Joel to witness and document America's
ongoing second great depression? Will such an artist be propelled to fame,
perhaps singing America's
new blues on American Idol?
Doubtfully. TV is for happy, useless, mind bludgeoningly
idiotic tittytainment. Which brings us back
to yesterday's April Fool's Day rally, which exists somehow in the same realm
as American Idol. Both are part of a nether world - fantasies divorced
from the reality of struggling, working class Americans. That fantasy world
is populated by a smaller - but still large enough - segment of the
population that is doing just fine, thank you. They are the ones with high
paying jobs and generous health insurance benefits who earn their livings
playing with abstract concepts like credit default swaps and mortgage backed
securities. These are the Lucky Few, though many will no doubt tell you arrogantly
that their success has nothing to do with luck, and everything to do with
their "hard work." But even the Lucky Few are getting fewer by the
day. Until just a week or so ago, some of the Lucky Few were gainfully
employed at Bear Stearns, and life was good.
Members of the Lucky Few don't have to worry about food stamps or public
transportation. The rising price of food and gas is a minor annoyance.
They've likely never heard of the Crips, Bloods, or
MS-13. The Lucky Few are the ones who are floating the Dow and pushing it
higher. To them, Wal Mart is no doubt a screaming
buy: As the economy gets worse, people won't be able to afford to shop
anywhere else! And so many people will be looking for work that Wal Mart can lower its wages and make every "associate"
a part timer - meaning no need to pay full-time benefits. Ka-ching! Increased profits - forget about costs. The system
has no way of valuing them. Furthermore, the Fed is running the magic
liquidity hose, which means inflation and higher stock prices over time. Ka-ching! Again, forget about the costs associated with
inflation. The system has no way of valuing those, either. Finally, Wal Mart is expanding abroad, especially in China. So
even if tens of millions of Americans get so dirt-poor that they can no
longer afford to shop even at Wal Mart, there are
hundreds of millions of up-and-coming Chinese consumers that are waiting in
line to take their places. Conclusion: Wal Mart is
a strong buy, as evidenced by yesterday's market action. It hit a new 52-week
high.
That's the reality of it. Ross Perot was right. That giant sucking sound he
warned us of has gone about its work thoroughly and efficiently, sucking out
wealth and value from the pockets of average Americans in nearly every nook
of the country. The Dow is no longer an American index. In this age of globalism, the Dow can do just fine without most
Americans keeping up with the Joneses. The world is full of people with money
and those pesky companies will do anything to get it -- all of it -- before
moving on.
First Allentown, now the rest of America. Who
is to stop the trend? Not the global multinationals - they're the ones
creating it! Not our government - they're the ones who sold us out in the
first place! The only ones we can rely on are ourselves. But even we've
allowed it to happen with our apathy. Where is the outrage? Perhaps people
are just too busy and harried to understand what is happening. The upside to
the second great depression is that as more and more people find themselves
unemployed, with time on their hands and an internet connection to study up,
people will start to figure things out. And when they do, they're going to
get mad. And once that begins to happen, who knows where we'll be propelled?
Next time: A diagnosis of the problem, and a potential solution. Sign
up to be notified.
Michael
A. Nystrom
Editor, Bull not Bull
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