David Cay Johnston, says, The Rich Get Richer

The Rich Get Richer

The rich, thanks to government handouts, are getting richer at everyone else’s expense. At least that’s what David Cay Johnston claims in the book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)

“This enormous growth of incomes at the top is not the result of market forces — there’s some market forces — but it’s largely the result of all these rules nobody knows about,” he tells Dan and Aaron in this clip.

The problem starts with government subsidies, says Johnston, a Pulitzer Prize-winning journalist. States are spending around $70 billion on government subsidies, he estimates. That doesn’t include the hundreds of billions more doled out in federal subsidies.

“Is that capitalism?,” he complains. “Go compete in a competitive arena. Don’t go to Washington and say ‘give me money’ either by saying ‘I don’t have to pay taxes’ or forcing other people to pay taxes that go to me. Go earn your money in the marketplace.”

The wealth gap in America is outpacing much of the world. “Income inequality in the United States has soared … with 1 percent controlling 24 percent of American income in 2007,” New York Times columnist Nicholas Kristof recently wrote. Kristof notes that’s worse than “historically unstable countries like Nicaragua, Venezuela and Guyana.”

What’s even more striking is that many of these unfair advantages are given to the biggest political contributors. The Wall Street bailouts are a perfect example.

“There’s been a massive turnover of money to people who didn’t have to face the consequences of the market,” Johnston says. “Goldman Sachs got its bad bets paid off at 100 cents on the dollar. I’ve never seen the government do that for me.”

If the trend continues the next crisis could be a lot worse than 2008 and 2009, Johnston warns.

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Niall Ferguson says, Paul Krugman’s Advice Will Lead USA To Depression

One of the hottest feuds in economics today is the one between Harvard Professor Niall Ferguson and Nobel Laureate Paul Krugman. The debate represents austerity vs. stimulus, with Krugman, of course, arguing that the U.S. needs to do way more to save the economy.Ferguson notes that his dispute with Krugman isn’t even so much about economics — it’s about history. Ferguson is a history professor. And history says pretty clearly that countries with this level of sovereign debt eventually go bust.Ferguson isn’t convinced we’re totally doomed just yet. And he’s not calling for overly violent cuts that will leave us eating cat food. Instead, he just wants to see credible commitments to get spending under control down the road to assure investors that our debt is good, and to convince businesses that they can hire and invest today without worrying about massive tax hikes down the road.

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Let Bad Banks Go Broke – says, Howard Davidowitz – Otherwise All These Bailouts Will Crush The Economy

Howard Davidowitz is a bear on America. If you’ve watched any of the recent clips, you know he’s negative on stocks, the economy and the political system. (If you haven’t seen them, check the links below.)Much of Davidowitz’s frustrations stem from the bailout of our financial system. “If a bank is bad, you let it go broke,” he says. “The bondholders lose their money, because they should. The stockholders lose their money, because they should. Lots of people get fired job, because they should. That’s the solution to the problem.”In the 1980s, Davidowitz’s firm worked on the restructuring of then struggling retailer Toys “R” Us. “We kept the good, we cut the bad. That’s how restructuring works,” he says. The national retail chain was cut down to 13 stores, but was kept alive. Today, the company is preparing for an IPO, five years after private equity giant KKR purchased the company for $6.6 billion. Again, Davidowitz believes the same measures should have been taken with the banks. Sure, bankruptcy is a painful solution in the short-term, but he believes the government’s rescue of some of our biggest financial institutions has had, and will continue to have, catastrophic economic consequences. As economist and Carnegie Mellon professor Allan Meltzer once said: “Capitalism without failure is like religion without sin.”

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Howard Davidowitz says, U.S. Economy is a Complete Disaster

The U.S. economy is in shambles and Americans will continue to see high unemployment and lower living standards in the years to come, Howard Davidowitz tells Henry and Aaron in the accompanying clip. Davidowitz lays much of the blame for the economy’s woes at the feet of the Obama administration, which he calls “the worst of my lifetime.”Obama “Mr. Mass Destruction”Davidowitz says that the key to Obama’s success is his ability to sell his policies to the public. He can confidently read from a teleprompter and appear competent and in control, when in reality, “it’s one big bag of empty words,” Davidowitz says of Obama’s messages.Davidowitz contends that the President’s spending, including the health-care bill, is creating massive deficits that will take the U.S. years to dig itself out of. “He is Mr. Mass Destruction,” Davidowitz says of Obama. “I mean he is a human destroyer. This guy has spent his way into oblivion and we don’t have a budget. He is surrounded by a bunch of complete incompetents, led by himself. “Housing GloomAs far as the actual economy goes, Davidowitz’s chief concern is the strained state of the housing market, from which the bad news continues to pour in. According to Davidowitz, Americans are facing an $8 trillion negative wealth effect from the bursting of the housing bubble.”We’re talking about some serious money here,” Davidowitz exclaims. “I mean this is a complete disaster and that’s why we are going to have a double dip. We’re guaranteed a double dip in housing.”Small Businesses and UnemploymentDavidowitz says that the job market is also in ruins, noting for every new job there are six applicants. As a result of the intense competition for positions, employers can offer lower wages. Young people entering the work force today can expect to make less money in their lifetime than previous generations. Considering the majority of new jobs are created by small businesses, Davidowitz argues that new regulations governing loans to small businesses are only making matters worse — both for the entrepreneurs and the millions of people out of work.”We have this insane new regulation,” Davidowitz says. “Community banks will not even be able to fill out the forms. They’ll pack up and quit. They’re already underwater. Commercial real estate is still terrible.” The Future a Massive StruggleAsked whether he thought the U.S. would experience another Great Depression, Davidowitz said the coming years will look more like Japan today vs. the U.S. in the 1930s.People will be making and spending less money and the nation as a whole will be dealing with the consequences of the deficit, he says. “We are in a struggle, day by day it’s ugly. At the core, when we look at our debt, we are going to have to deal with it.”A few months ago, while other analysts claimed that the economy would continue to follow a V-shaped recovery path, Davidowitz seemed out of step by insisting the nation’s problems were still dire. Regardless of what you think of his message or style, Davidowitz’s doom and gloom outlook now appears much more credible.

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Paul Krugman Throws In Towel, Says We’re Headed For Another Depression

For the last several months, Princeton professor Paul Krugman has become increasingly agitated about what he feels is a disastrous mistake in the making — a sudden global obsession with “austerity” that will lead to spending cuts in many nations in Europe and, possibly, the United States.Krugman believes that this is exactly the same mistake we made in 1937, when the country was beginning to emerge from the Great Depression. A sudden focus on austerity in 1937, it is widely believed, halted four years of strong growth and plunged the country back into recession, sending the unemployment rate soaring again.In Krugman’s view, the world should keep spending now, to offset the pain of the recession and high unemployment–and then start cutting back as soon as the economy is robustly healthy again.Those concerned about the world’s massive debt and deficits, however, have seized control of the public debate, and are scaring the world’s governments into cutting back.Which fate is worse? It depends on your time frame.Cutting back on spending now would almost certainly make the economy worse, at least for the short run. Not cutting back on spending later, meanwhile (and Congress has shown no ability to curtail spending), will almost certainly keep us on a road to hell in a handbasket.The White House’s own budget projections show the deficit improving as a percent of GDP to about -4% by 2013. After that, however, even the White House doesn’t think things will get much better. After a few years of bumping along at about -4%, the deficit will begin to soar at the end of the decade. And thanks to the ballooning costs of Medicare, Medicaid, and Social Security–along with inflating interest payments from all the debt we’re accumulating–the White House expects the deficit to soar to a staggering -62% of GDP by 2085.What Krugman and his foes agree on is that that’s no way to run a country. And it’s time we finally faced up to that.In the meantime, we’ll continue to fight about what to do in the near-term. And Krugman thinks he has lost that war and we’re headed for another Depression.

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Double Dip? Or Did the ‘Great Recession Really Never End

Monday’s weak consumer spending data is the latest in a string of reports that has many Americans worried about a “double-dip” recession.Then again, considering the unemployment rate has remained elevated, many Americans would be forgiven for thinking the recession that began in December 2007 still hasn’t ended. Notably, that’s the view of the National Bureau of Economic Research (NBER), the nation’s official arbiter of economic expansion and contraction.Among the signs suggesting the NBER is right to hold off in declaring the recession over:Housing Rolling Over: Last week’s housing numbers were horrific, especially the steep drop in new home sales. Still, Coldwell Banker CEO Jim Gillespie tried to put some lipstick on the proverbial pig on Tech Ticker last week.Jobs Still Hard to Come By: Despite signs of recent progress, “there’s no possibility to restore 8 million jobs lost in the Great Recession,” a notably candid Vice President Joe Biden said Monday. Friday’s jobs report is expected to show overall payrolls declined by 115,000 in June.’Hair-Shirts’ in Fashion, Worldwide: As discussed here, this weekend’s G20 meeting shows that policymakers believe the time for fiscal austerity is at hand. From an economic point of view, the G20 confirms that the appeal of government spending (i.e. Keynesian economics) to combat the downturn is on the wane, replaced by a view that it’s better to take the pain now and cut spending (i.e. Austrian economics).Financial Market Distress: While the stock market’s recent struggles grab most of the headlines, the real pain of late has been felt in the bond market. Excluding the panic levels of late 2008, the yield on the 10-year Treasury hit its lowest levels since 1962, last week. Meanwhile, the price of default insurance for Greece and other sovereign credits spiked higher and Bloomberg reports the percentage of corporate bonds considered in distress is at the highest in six months.The Downside of Falling RatesOf course, the market is not always right but the bond market is signaling that policymakers like Ben Bernanke are right to be much more worried about deflation and economic slowdown vs. inflation and the economy overheating.A big concern for many is that the economy is sputtering despite the Fed’s historically easy policies and the government’s huge spending binge. The idea we’ve spent all this money with little (or nothing) to show for it has some observers worried America is heading down the same path as Japan, which is about to complete its second-straight “lost decade.”Of course, it was unrealistic to expect the economy to indefinitely continue its V-shaped rise from the depths of last year. Most recoveries are uneven so it’s premature to say what’s happening lately is proof positive the economy is rolling over, as Henry and I discuss in the accompanying video.

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Gary Shilling is Bearish on Housing

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