New Non-Profit Takes On The Federal Reserve

Update  01/10/15: Because I've ceased publishing ECOMINOES, I've removed a great many articles I believe have become less relevant over time. I've deleted as many links that were broken as I could find...I apologize if I missed any. Also, due to the proliferation of spam, I've closed comments and deleted the ECOMINOES Facebook page and Twitter account.

It's been a pleasure promoting economic and individual liberty here on ECOMINOES. Now, I'm taking my passion to the next level by launching Solidus.Center, a 501(c)(3) non-profit that promotes economic strength and stability, sound money, equality of opportunity, and reduced government debt by limiting the Federal Reserve System’s influence on the American economy.

The following is a brief video explaining this new venture:

 

Solidus.Center is currently in the start-up phase, and we're looking for help. If you or anyone you know might be interested in board, fellowship, or volunteer opportunities, please contact me at seth@solidus.center.

Thank you so much for following ECOMINOES! I hope you'll join me on the next level.

Seth Mason, Charleston SC

Evidence That The Fed Prints For Wall Street (Not Main Street)

Here's some compelling evidence that the Federal Reserve is looking out for Wall Street investors instead of the Main Street economy: S&P and GDP expectations have been inversely proportional since the Fed announced "Operation Twist" (a bond buying scheme) in October, 2011. As you can see on this chart from Bloomberg, Operation Twist has greatly benefited those whose incomes are strongly tied to the market. But, for the tens of millions of middle class Americans who were unfortunate enough to lose their financial standing after the bursting of the Fed's housing bubble, economic prospects haven't been looking so good.

On the other hand, the Fed's liquidity pumping has juiced the stock market like crazy throughout this economic depression. Every time the Fed has either announced or implemented a new liquidity pumping scheme, the market has risen. Every time one of the Fed's schemes has ended, the market has declined. The economy simply hasn't been strong enough to support the market without the Fed's help. But these actions aren't indefinitely sustainable, and they certainly aren't without long-term consequences.

NSA, Section 215, And The Endangered 4th Amendment

In light of the continuously-developing NSA spying story, it's important to look at how substantial the government's legal justification is for its overreaching domestic surveillance policy and how said policy can impact the lives of ordinary citizens who supposedly have "nothing to hide".

First, let's look at government's legal argument. Earlier this month, The Guardian released the NSA order which compels Verizon to deliver customers' call information to the agency on an "ongoing, daily basis". Since that time, a plethora of additional information has come to light which demonstrates that the size and scope of federal domestic spying policy goes far beyond the NSA and Verizon. Nevertheless, the NSA Verizon order demonstrates how the government uses Section 215 of the Patriot Act to trounce the Constitution. Indeed, the order references the highly-controversial section in the very first line.

The ACLU has come to the conclusion that Section 215 of the Patriot Act is the specific legal order that authorizes the federal government to surveil the electronic communications of ordinary Americans. This section, according to the organization, enables the government to apply to the Foreign Intelligence Surveillance Court--which NPR's Dina Temple-Raston calls a domestic spying "rubber stamp"--to obtain legal clearance to circumvent 4th Amendment protections. In other words, the feds are granted permission to violate Americans' civil liberties as per the rulings of an autonomous, opaque court system that justified the existence of Section 215 in the first place! The section, according to the ACLU:

...authorizes the government to obtain "any tangible thing" relevant to a terrorism investigation, even if there is no showing that the "thing" pertains to suspected terrorists or terrorist activities. This provision is contrary to traditional notions of search and seizure, which require the government to show reasonable suspicion or probable cause before undertaking an investigation that infringes upon a person's privacy. 

"Any tangible thing" means ANY form of Americans' electronic communication, domestic or international. That should be extremely concerning to everyone, irrespective of ideology and if one has "nothing to hide".

So, why, then, should someone who supposedly has nothing to hide be concerned about Section 215 or federal domestic spying at all?

"Nothing to hide" is a myth that's built on certain false assumptions that are rarely--if ever-- considered when draconian surveillance measures are being pushed. Toby Stevens of Computer Weekly characterizes these assumptions as continuity, context, control, and consistency:

• Continuity: When a large data gathering exercise is started, the lifespan of the system will almost always be greater than that of its instigators. The most benign and caring government, authority or private company is inevitably subject to a change of management, and if the new executive does not share their moral stance, then data can be reused for very dangerous purposes. Those who provided data believing they had nothing to fear may find that data is misused in the future.

So, change of management--continuity--means that draconian laws can be abused by future regimes. I suspect that some enterprising bureaucrats already use sensitive data gathered in the name of the "War on Terror" to further political agendas. While such abuse may be isolated today, it could become widespread in the future.

• Context: Those who use the NTHNTF argument most commonly use it in the context of government collecting information about individuals. In the information age, the idea of a single entity holding that information does not hold true. The massive pressures to share information within and beyond government mean that information is constantly on the move. Sooner or later, information held by the government will be shared across the government and with the private sector.

Sensitive data gathered in the name of the "War on Terror" may remain within the Department of Homeland Security and the FBI today, but, eventually, they might be accessed by other government agencies or leak out to private sector organizations that have the ability to disrupt ordinary citizens' lives: credit bureaus, current or potential employers, etc.

• Control: Whether through a sharing agreement, aggregation of databases or simply leaving a memory stick in a pub car park, information is always shared sooner or later. Information security professionals always assume a system to be insecure, and plan for when - not if - data is lost or corrupted.

Sensitive data gathered in the name of the "War on Terror" could also be accessed by hackers, who could sell it or use it to intimidate or blackmail.

• Consistency: The most important issue is that of consistent use of accurate information across all authorities and all individuals.

The recent IRS scandal demonstrates that some enterprising bureaucrats can--and will--use sensitive data inconsistently based on political agenda. Again, while such abuse may be isolated today, it could become widespread in the future.

The government's legal justification for its overreaching domestic surveillance policy and how said policy can impact the lives of ordinary Americans are two issues of paramount importance in this period of U.S. history. We must demand that our elected officials rethink the existence of the FISA court, revise Section 215 of the Patriot Act, and expunge sensitive information gathered in the name of the "War on Terror".

Seth Mason, Charleston SC

Lindsey Graham Is The Defense Industry's Man

South Carolina's senior senator, Lindsey Graham, loves the "War on Terror". He told Fox and Friends this morning that he's "glad" Verizon is turning over to the NSA phone records of average Americans:

I’m glad the NSA is trying to find out what the terrorists are up to overseas and in our country...I’m a Verizon customer. I don’t mind Verizon turning over records to the government if the government is going to make sure that they try to match up a known terrorist phone with somebody in the United States. I don’t think you’re talking to the terrorists. I know you’re not. I know I’m not. So we don’t have anything to worry about.

Senator Graham vehemently defends his favorite war. After learning that Rand Paul called the Verizon/NSA partnership a "an astounding assault on the Constitution", Senator Graham took to attacking libertarians:

Sen. Rand Paul, he's a libertarian, and in Rand Paul's world you have almost no defenses against terrorists...I see the threat to our nation differently.

Indeed he does. Graham continues to support nearly every federal "War on Terror" initiative--no matter how invasive--, even though the erosion of civil liberties has become a "hot topic" among conservatives. Perhaps one can better understand why he's such a strong advocate of controversial defense programs by looking at his top campaign contributors. From OpenSecrets:

4 of Graham's top 5 contributors from 2007 to 2012 have profited greatly from the senator's favorite war. SCANA is a major Department of Defense supplier. Nelson Mullins, et al. is a law firm that specializes in DoD procurement contracts. Motley Rice, LLC is a law firm that specializes in "War on Terror" litigation. And Boeing is one of the nation's largest DoD vendors.

Seth Mason, Charleston SC

Tremendous Opportunity For Libertarian Talk Radio

I previously noted that the demand for libertarian terrestrial talk radio is increasing, and the supply of libertarian hosts on terrestrial talk radio is far lower than demand. Today, I've come across additional data that suggest that libertarian talk radio has great potential.

Terrestrial music radio is hemorrhaging listeners, and many under-performing music stations are switching to the relatively-more popular news/talk format. In other words, the demand for news/talk programming is increasing.

While demand for news/talk programming is increasing, terrestrial news/talk radio as a whole, which is currently dominated by conservative hosts, is losing listeners. According to RadioInsights, more than half of news/talk stations lost market share in each of the last 3 years. News/talk listenership has been flat for years: the format has approximately the same number of listeners today as it had in 2007.

The conservative-dominated terrestrial news/talk format also has a less-than-optimal distribution of listeners by age group. According to Arbitron, listeners of the format are getting older, and the majority already age out of the key 25-54 demographic:

The majority of libertarians, on the other hand, are young--and therefore more valuable--to advertisers.
  
Libertarian talk has great potential in the online format as well as on terrestrial radio. While terrestrial radio is losing listeners, Internet radio is rapidly gaining listeners, and the number of listeners of online radio is expected to equal that of terrestrial radio in the next few years. The online talk radio format is better suited to libertarians than conservatives, as the former tend to be younger and more tech-savvy than the latter.

Seth Mason, Charleston SC

The American Hiring Paradigm Is Broken

Central banking has made a mess of the economy, and increasingly onerous jobs-killing federal legislation has impeded hiring and thus has impeded economic recovery. But the Fed and Washington aren't the only vectors of the nation's continued economic malaise. The American hiring paradigm is also to blame.

With few exceptions, hiring managers at mid to large-sized American organizations offer job seekers but one port-of-entry: buggy, unwieldy applicant tracking systems (AKA "talent management systems"), which pitiable job seekers must wrestle online. Under this paradigm, robots judge applicants based on experiential demands with little regard to the applicants' potential to add value to their organizations' bottom lines. Lou Adler, entrepreneur and best-selling author, summarized this disconnect in an article he recently published on LinkedIn:

"Successful candidate will develop a new approach for reducing water usage by 50%" is a lot better than saying “Must have 5-10 years of environmental engineering background including 3-5 years of wastewater management."

Correct. But ATSes can't judge applicants based on successes. Clearly, organizational leaders should spearhead searches for candidates in their fields of expertise. Tragically, a great many talented candidates are stonewalled before they even get a chance to make their cases to a decision maker. Consider the following anecdote from Yahoo! Finance:

I'm a technical Product Manager. I've launched about ten big products. This is all I do. I work for technology companies. I got laid off in September, and I applied for a job online yesterday afternoon.

Last night at ten p.m. I received an auto-responder message back from the employer. It said that I wasn't chosen to move forward for the product manager job I had applied for. I was surprised, but those things happen. The auto-responder message said that I'd be notified of any other job openings that are a closer fit to my background.

I got another auto-responder message from the same company early this morning. They sent me another job opening. Guess what kind of job it was? It was a food service job in their company lunchroom.

The RECRUITER who had the product manager opening on her desk told me why I'd been rejected by the company's careers website. She told me that she gets so many unsuitable resumes through the company careers portal that she set the parameters to Reject All Resumes. Every single person who applies through the site the way I did gets a no-thanks message. Because the company's job-posting system asks for a default -- they require the recruiter to direct those rejected applicants somewhere, that is -- she set it up to send every rejected person all the new job openings that are posted for any job in the company. That's why I got the food service job.

Instead of forcing talented applicants to contend with ridiculousness such as this, hiring managers should take the lead in determining which applicants could best add value to their organizations. Robots can never replace the judgement of organizational leaders, no matter how "well-programmed" they are. Not surprisingly, the current ATS-centric American hiring paradigm has a failure rate of up to 50%, according to ERE Recruiting Intelligence, a prominent HR industry analyst.

April Employment Increase: Nothing But Menial Jobs

Readers of this blog know that Washington's employment data should be scrutinized. The Bureau of Labor Statistics is notorious for crushing down the labor force participation rate in order to make it appear that the unemployment rate is falling, and the agency's survey methodology is fundamentally-flawed, according to a former BLS leader. But, even if you take the government's word on unemployment as the "Gospel truth", a 50,000-150,000 monthly net increase in jobs--as Uncle Sam has been reporting for years--is woefully insufficient. At this rate of increase--with the unemployment rate dropping by a tenth of a percent each month--, it would take until 2017 to get back to the lower end of the "full employment" range. And that's IF the economy has no additional difficulties and WITH the help of a crushed-down labor participation rate. And, that's if you consider 5% unemployment and 10% underemployment "full employment".

But the raw jobs numbers don't tell the full story anyway. What does it matter if 50,000 or 150,000 or even 1,000,000 jobs are created each month if the jobs are menial in nature? And make no mistake: we've been seeing for years little but a monthly increase in low-wage, low-skill jobs. The April jobs report showed more of the same.

The overwhelming majority of jobs created last month were in leisure and hospitality (waiters, bartenders, hotel employees, etc.) and temp jobs. Industries that actually produce something, whether it be information or physical goods, actually lost jobs:

There was a net decrease in jobs for Americans of prime working age, i.e. there was a net decrease in "career" jobs. But there was a net increase in jobs for Americans of prime restaurant worker and Walmart greeter ages:

In fact, the number of jobs for Americans of prime working age (i.e. career age) has been flat since the economy collapsed:

Seth Mason, Charleston SC

The New, Bigger Housing Bubble In 4 Charts

Federal Reserve Chairman Ben Bernanke's "solution" to the country's economic woes, a new, even larger asset bubble, is becoming evident in several sectors of the economy, from equities to real estate. The following charts suggest that the bubble the Fed is inflating in the housing market will eclipse the last one, which was big enough to plunge the country into an economic depression when it burst.

First, the year-over-year increase in home prices since 2008 has been steeper than the YoY during the last housing bubble:

Second, the inversely proportional decrease in mortgage standards and increase in demand for mortgages has been starker than it was during the last bubble:

Third, apartment and condo starts have been skyrocketing at a rate far eclipsing that of the last bubble:

Fourth, investors are throwing cheap, Fed-provided money at housing at a rate far exceeding that of the last bubble:

Libertarian Talk Radio: It's A Matter Of Differentiation

I recently wrote about how libertarianism is growing and how conservatives, terrestrial talk radio's bread-and-butter demographic, are becoming more libertarian. In the article, I argued that there's a growing under-served demand for libertarian terrestrial talk radio. Today, I'd like to add to that argument from another perspective, that of differentiation.

Fox News, the only television news provider gearing to those on the right side of the political spectrum, enjoys strong ratings for the simple fact that it's the only conservative news alternative. (Fox Business is a business news--not "news news" network.) As you can see in the following graphic, most television news clusters around the left side of the political spectrum. Fox News, on the other hand, enjoys a monopoly on the right.

The same principal applies to political talk show hosts on terrestrial radio. As you can see in this graphic, most hosts cluster around the social conservative/neoconservative side of the conservative political spectrum. There's only one prominent host on the libertarian side of the spectrum, Dennis Miller, and his show doesn't get particularly good ratings.

The previous 2 graphics, combined with the changing political landscape on the Right, suggest that it's time for program directors to put more libertarians on the air.

Seth Mason, Charleston SC

Libertarian Talk Radio: If You Build It, Ratings Will Come

Terrestrial talk radio's key demographic, conservatives, are becoming more libertarian. However, there are few libertarian hosts in terrestrial talk radio. Program directors would be wise to air more of them.

According to Gallup, an increasing number of Americans describe themselves as "conservative", terrestrial talk radio's bread-and-butter political ideology:

However, a decreasing number of conservatives identify with "traditional values":

On the other hand, also according to Gallup, an increasing number of Americans consider themselves "libertarian":

And, today, nearly 60% of Americans share some libertarian views:

However, there are only a handful of libertarian hosts in terrestrial talk radio. This suggests there's a growing under-served demand.

Fed Liquidity Pumping Good For Wealthy, Bad For Rest

The premise is simple: the wealthy have a disproportionate amount of their net worth in investments, and the Fed has been propping up the stock market and inflating asset bubbles. Therefore, the price inflation-driven economic recovery has been robust for the richest 7% and weak to non-existent for everyone else. And never forget, wealth and exposure to inflation are inversely-proportional. In other words, those with less money spend a greater percentage of their incomes on essentials--food, energy, etc.--whose prices have been rising as a result of the asset bubble. From Pew Research:

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.

From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.

These wide variances were driven by the fact that the stock and bond market rallied during the 2009 to 2011 period while the housing market remained flat.

Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.

From the end of the recession in 2009 through 2011 (the last year for which Census Bureau wealth data are available), the 8 million households in the U.S. with a net worth above $836,033 saw their aggregate wealth rise by an estimated $5.6 trillion, while the 111 million households with a net worth at or below that level saw their aggregate wealth decline by an estimated $0.6 trillion.¹

Because of these differences, wealth inequality increased during the first two years of the recovery. The upper 7% of households saw their aggregate share of the nation’s overall household wealth pie rise to 63% in 2011, up from 56% in 2009. On an individual household basis, the mean wealth of households in this more affluent group was almost 24 times that of those in the less affluent group in 2011. At the start of the recovery in 2009, that ratio had been less than 18-to-1.

(The focus in this report on the upper 7% of households rather than some other share of high wealth households reflects the limits of the tabulations published by the Census Bureau. The boundaries of its wealth categories dictated the split of households analyzed in this report.)

Overall, the wealth of America’s households rose by $5 trillion, or 14%, during this period, from $35.2 trillion in 2009 to $40.2 trillion in 2011.² Household wealth is the sum of all assets, such as a home, car, real property, a 401(k), stocks and other financial holdings, minus the sum of all debts, such as a mortgage, car loan, credit card debt and student loans.

During the period under study, the S&P 500 rose by 34% (and has since risen by an additional 26%), while the S&P/Case-Shiller home price index fell by 5%, continuing a steep slide that began with the crash of the housing market in 2006. (Housing prices have slowly started to rebound in the past year but remain 29% below their 2006 peak.)

The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period. Among households with net worth of $500,000 or more, 65% of their wealth comes from financial holdings, such as stocks, bonds and 401(k) accounts, and 17% comes from their home. Among households with net worth of less than $500,000, just 33% of their wealth comes from financial assets and 50% comes from their home.



The Census Bureau data also indicate that among less affluent households, fewer directly owned stocks and mutual fund shares in 2011 (13%) than in 2009 (16%), meaning a smaller share enjoyed the fruits of the stock market rally. Likewise, fewer had individual retirement accounts (IRAs) or Keogh accounts (22% in 2011 versus 24% in 2009) and the same share had 401(k) or Thrift Savings Plan accounts (39% in both years). Among affluent households, there was also a decline in the share directly owning stock and mutual fund shares during this period (59% in 2011 versus 62% in 2009), but a slight increase in the share with IRAs or Keogh accounts (70% versus 68%) and a larger increase in the share with 401(k) or Thrift Savings Plan accounts (65% versus 61%).

Overall, net worth per household in the U.S. in 2011 made up nearly all the ground it had lost since 2005—$338,950 versus $340,252 in 2005, the latest pre-recession data published by the Census Bureau. (Total household wealth doubtless rose for a period after 2005 before falling precipitously during the Great Recession of 2007-2009 and rebounding since then. However, no household wealth data are available from the Census Bureau for the years between 2005 and 2009, so it is not possible to pinpoint when, or at what level, the peak in wealth per household occurred.)

Looking at the period from 2005 to 2009, Census Bureau data show that mean net worth declined by 12% for households as a whole but remained unchanged for households with a net worth of $500,000 and over. Households in that top wealth category had a mean of $1,590,075 in wealth in 2005, $1,585,441 in 2009 and $1,920,956 in 2011.³

Seth Mason, Charleston SC

Economy Creating Lost Generation

I don't seek out bad economic data; bad economic data find me. I gather data from numerous reputable sources, and, sometimes, reputable sources send them to me. One of these reputable sources is John Lounsbury, Founding Partner and Managing Editor at Econintersect LLC. This morning, John sent me the following article about the lost generation that the current economic depression has been creating:

The inordinate growth of student loans – and its effect on the economy – is killing consumption (autos) and the housing sector.  This is no short term dynamic, but will effect the economy for decades.

The USA is a consumer driven economy.  A study released this week authored by Meta Brown and Sydnee Caldwell stated:

As a result of tighter underwriting standards, higher delinquency rates, and lower credit scores, consumers with educational debt may have more limited access to housing and auto debt and, as a result, more limited options in the housing and vehicle markets, despite their comparatively high earning potential.

Both these factors—lowered expectations of future earnings and more limited access to credit—may have broad implications for the ongoing recovery of the housing and vehicle markets, and of U.S. consumer spending more generally. While highly skilled young workers have traditionally provided a vital influx of new, affluent consumers to U.S. housing and auto markets, unprecedented student debt may dampen their influence in today’s marketplace.

Some believe the lack of jobs is causing a higher than normal attendance in schools – but historical data from the BLS shows attendance appears moderating.

And there seems little correlation between the ability of the young to get jobs and enrollment in colleges / universities.

The student loan growth phenomenon seems to be directly related to cost inflation of education outstripping the general rate of inflation by significant multiples.  The following table is from a study by Jordan Bowersox and Jonathan Breazeale.

Yearly Cost of Colleges / Universities

This study appears to correlate well with the associated BLS education cost index.

It is interesting to this author that economists talk about the economic drag by the baby boomers on the economy, but yet ignore the built in drag of higher education on the economy.  The young are historically higher consumers than the old – yet the cost of education is weakening the ability of the young to consume.

It's important to note that ever-expensive higher education not leading to good-paying jobs not only prevents younger people from contributing to the economy as consumers; it impedes their ability to achieve life milestones that contribute to the economy: getting married, having children, etc.

Seth Mason, Charleston SC

The Definitive War On Drugs Infographic

Perhaps it's time to rethink the War on Drugs? Presenting the economic and human costs of the longest, bloodiest war in U.S. history:

It's GOP Vs. America On Social Issues, War

America's economic future is uncertain. But one thing this country has going for it is its burgeoning liberty movement. A great many Americans have become weary of the nanny state and the prospect of endless war. Today, a majority of Americans support the legalization of marijuana, marriage equality, believe the war in Iraq was a mistake, and believe we shouldn't still be in Afghanistan. Most Republicans, on the other hand, are on the wrong side of each of these issues:

On the legalization of marijuana:

America:

GOP:

On marriage equality:

America:

GOP:

On war:

America on Iraq:

GOP on Iraq:

America vs. GOP on Afghanistan:

Wake up and smell the liberty, GOP. Lest you become a dinosaur party.

Seth Mason, Charleston SC