Robert Reich: Economic Storm Clouds Ahead

[eridani]

http://www.nationofchange.org/economic-storm-clouds-ahead-1370096982

Almost all the forward movement in the economy is now coming from consumers — whose spending is 70 percent of economic activity. But wages are still going nowhere, which means consumer spending will slow because consumers just don’t have the money to spend.

On Thursday the Commerce Department reported that consumer spending rose 3.4 percent in the first quarter of this year. But the personal savings rate dropped to 2.3 percent — from 5.3 percent in the last quarter of 2012. That’s the lowest level of savings since before the Great Recession. You don’t have to be an economic forecaster, or an astrologer, to see this can’t go on.

Yes, home prices are rising. The problem is, they’re beginning to rise above their long-run historical average. (Before the housing crash they were were way, way above the long-run average.) So watch your wallets. We’ve been here before: The Fed is keeping interest rates artificially low, allowing consumers to get low home-equity loans and to borrow against the rising values of their homes. Needless to say, this trend, too, is unsustainable.

What about the stock market? It’s time we stopped assuming that a rising stock market leads to widespread prosperity. Over 90 percent of the value of the stock market — including 401(k)s and IRAs — is held by the wealthiest 10 percent of the population.

Moreover, the main reason stock prices have risen is corporate profits have soared. But that’s largely because corporations have slashed their payrolls and keep them low. Whic

[golfguru]

1. Agree with everything Reich says....n/t

[BillyRibs]

2. Same as it ever was.

[Warpy]

3. Reich should also realize that most of the QE dollars that were printed

ended up in very few pockets, most of which were already stuffed to overflowing with money. Very little of it has made its way to Main Street, instead pumping up equities to not just inflated value, but hyperinflated value. This is also not sustainable and what has gone up so quickly is likely to go down just as quickly should we decide to do anything rational about the larger economy.

Wealthy stockholders shouldn't despair. If the government suddenly does the right thing with wages, public works, and higher taxes on the plutocracy, the lower face value of the stock will be offset by higher earnings as the economy takes off again. Right now they're all flying high on inflated net worth but the earnings have not been good for many years. While paper

profits have soared as workforces have been cut, little of that profit has been distributed. Corporations are hoarding money because they know this mess of an economy is not sustainable on any level.

My best guess is that they all know what has to be done. They're just hoping to steal the maximum before it is done and that they can run to whatever hidey hole they find attractive before the next collapse.

It won't work, of course, and most of the greed heads will be wiped out with the rest of us. However, that's what's driving the resistance to doing any of the right things to rescue this country.

[Laelth]

4. k&r for the truth, however depressing it may be. n/t

-Laelth