Bullish on Main Street

Finally, the US Federal Reserve is ceasing to hold Main Street hostage to its efforts to expand industrial production in the US. Manufacturing certainly has access to vast capital from the many "too big to fail" banks that are hoarding cash. Eventually, manufacturing in the US could show real signs of health, who knows. But until now, Main Street USA has been held in economic abeyance due to the dearth of capital for Main Street focused economic development. QE3 promises to place a steady stream of capital into the hands of Main Street entrepreneurs, especially for real estate development. Main Street now enjoys a level playing field with manufacturing and industrial development for the first time since the economic crisis began.

My primary economic concerns have always rested with Main Street issues, including the persistent long-term declines in real working wages, home values, and the employment to population ratio. I am now bullish on real estate development in the US. I anticipate that construction jobs will expand, real working wages have a shot at increasing, and home values will increase. Again, I am delighted to see that Main Street USA has finally found its way onto the monetary policy agenda. Main Street now has a chance of improving its fortunes in a way that does not await "trickle-down" from the manufacturing economy or Wall Street bankers.

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America's Main Street Depression

I regret that while public corporations in the US have been experiencing a profit rebound in recent months, Main Street America remains in economic depression. The decoupling of our nation's largest "too big to fail" public corporations from Main Street has created widespead economic turmoil and hardships for small companies and familes in America. The continuing demise of Main Street began when US monetary and fiscal policy-makers unwisely posited "too big to fail" as a governing principle.

Treasury Sec Henry Paulson and Federal Reserve Chief Ben Bernanke (2008)

Keep in mind that "too big to fail" was the conceptual argument invoked back in 2008 by the US Federal Reserve lead by Dr Ben Bernanke, and the US Treasury lead by Treasury Secretary Henry Paulson. Today, gigantic "too big to fail" public corporations enjoy tacit financial guarantees from the Federal government, while small companies and businesses along Main Street are essentially left out in the cold.

America's emerging consolidated banking system is now laced with systemic risks extending from Wall Street into every facet of regional banking. In my view, the nation's banking needs would be better served by many thousands of smaller community and regional banks, instead of a few "too big to fail" financial institutions aligned with Wall Street. The economic risks associated with building and maintaining "too big to fail" corporations are not well-understood. Nevertheless, our nation's central banking system continues to grow larger while Main Street America is left to languish.

I cannot help but think that the powershift from Main Street to America's center will eventually lead to new unforeseen difficulties for America. History tells us that over centralization carries risks. Recall that the former Soviet Union was never able to marshal the human know-how and technical resources to manage and direct a massively centralized command economy. Is capitalism somehow different? I doubt that the US will be able to manage from the center indefinitely.

Years from now, a comfortably retired Dr Ben Bernanke will write in his memoirs something like this:

"...I wish we at the Federal Reserve would have paid closer attention to the impact of monetary policy on small businesses and community banking in America -- in reflection, I would have been more attentive to the plight of small businesses and regional banking across the nation -- however, we had no choice but to save the largest "too big to fail" institutions in America because we felt that saving Federalism was our mandated priority..."

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Lifeline for Main Street USA

Main Street USA continues to endure the effects of economic austerity caused by a scarcity of money (as evidenced by declining real wages, declining real home values, and a declining employment to population ratio). However, both fiscal and monetary policy makers are finally taking notice as the Fed pursues QE3 in an effort to reverse Main Street's real estate catastrophe, and the GOP seeks to retrench as a result of their disconcerting election losses.

Allen Street in State College, PA

Although late, the battle to win back Main Street political support is now in full swing as both big government Democrats and military-industrial Republicans create new strategies to address the Main Street depression still raging across the US. I expect the US will go over the fiscal cliff with tacit support from both Democrats and Republicans. The fiscal cliff losers will be the military-industrial complex, medical establishment, and government workers, who will now be required to make sacrifices for the first time since the economic crisis began in 2008.

Wise investors will seek to get involved in real estate development in order to exploit new capital being introduced by the Fed via purchases of mortgage-backed securities. I expect originations of new mortgage-backed securities to accelerate over the coming year, and to continue for at least the next 2-3 years. Main Street USA is finally being thrown a lifeline...

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Main Street USA Primary Beneficiary of QE3

The primary beneficiary of QE3 will ultimately be Main Street USA -- the Federal Reserve Board's newly announced bond buying actions will cut a wide swath through the existing inventory of mortgage-backed securities -- QE3 will place money into the hands of those who deal in mortgage-backed securities -- now is the time to look carefully for real estate acquisitions along Main Street USA -- record low prices and interest rates make now an ideal time to acquire some "boring" Main Street properties -- small investors who hold and rent real estate stand to do very well as a result of QE3.

I applaud this latest move by Dr Ben Bernanke and the Federal Reserve Board -- this is the first US stimulus action since the financial crisis began in 2008 that targets dollars directly toward Main Street growth -- "to big to fail" banks and multinational companies in the US will decry QE3 as misguided because these firms are not the direct beneficiaries -- again, bravo to Dr Ben Bernanke and the supporting members of the Fed Board for their courageous and timely monetary actions designed to benefit Main Street USA home owners and real estate investors specifically.

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What About the Default Option…?

The US has but three methods for restoring economic growth: austerity measures (as in spending cuts and tax increases), monetary expansion (as in “printing money”), or default (as in not paying back on the various bills, notes, and bonds issued by the US Treasury). The national debate regarding the merits of both austerity measures and monetary expansion is well underway in the public domain. However, the default option has still to be fully considered as an alternative to austerity or monetary expansion.

To start the discussion, consider the following advantages of defaulting on the national debt:

1. The people would enjoy a $13 trillion dollar windfall from principal reduction in the national debt that would never be paid back.
2. The people would enjoy a windfall from the $400 billion dollars a year in interest payments that would no longer be required.
3. The “banksters” would have to abandon their looting operations in Washington, DC and return to regional and local limited purpose banking in order to compete for new investments in small businesses and Main Street.
4. The government would lose its ability to borrow in the future due to zero creditworthiness and would therefore have to end deficit spending and henceforth, balance the budget.
5. Mega-banks would likely split up and reorganize into regional and local service operations in order to redirect their marketing and lending activities toward small businesses on Main Street.
6. The government would have to lay off most of the Federal workforce due to lack of money – these workers would become available to join Main Street investment activities lead by small businesses.
7. The trade deficit would be solved because foreign manufacturers would cease exporting to the US as the world would no longer accept US treasury paper as payment for goods and services. 
8. The Federal Reserve would be bankrupted and closed permanently.
9. Washington politicians would have to redirect their concerns away form Federal issues and toward regional, state, and local politics in order to stay current and involved in the reemergence of small businesses and Main Street politics.
10. Small business on Main Street would be back in business as the centerpiece of American enterprise, employment growth, capital formation, and production of goods and services.

A default on the national debt by the US is an option separate from monetary expansion and austerity measures. I encourage the public to at least consider the default option more fully as part of its discourse on methods and possible courses of action for economic recovery.

Comments welcome below...

Main Street USA is the Future!

Main Street USA will eventually emerge from the ongoing economic crisis more "lean and mean" than ever. Workers along Main Street have lost vast wealth over the past four years. Conversely, the universe of government employees and pensioners, Social Security recipients, the military-industrial complex, the medical establishment, and unionized workers have experienced essentially none of the economic crisis to date. We along Main Street will likely "take no prisoners" from Federalists as we begin to emerge from the economic devastation around us.

Downtown State College, PA

I am suddenly bullish on Main Street USA!

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Main Street Depression Imploding America

At this point, I see nothing coming from Washington, Wall Street, or overseas that can avert what is now a Main Street Depression in America. The reality of persistently high unemployment, the unprecedented and expanding number of foreclosures, the rising tide of regional and local bank failures, the dearth of investment capital for small business expansion, and the devastating deflation in home prices across the nation is indisputable. The Main Street Depression of the early 21st century is imploding America at its heart...

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Main Street Money

Given the extent of the Main Street Depression now raging across America, and given that monetary and fiscal policies have left America with insufficient legal tender to conduct local and regional commerce, should municipalities, counties, and even states consider issuing their own "scrip" as a means to expand the available money supply?

National Park Bank of New York Clearing House Certificate for $500 (1873)

During past depressions in the US, the appearance of local currencies in the form of "depression scrip" became commonplace (see examples). California has recently experimented with issuing warrants to its citizens in lieu of tax returns (see last example). The use of local and regional currencies is not without precedent in the US.

Five Dollar Certificate issued by the San Francisco Clearing House (1907)

Town, cities, counties, and states across the US are being strangled by deficits, and the supply of legal tender for commerce is simply inadequate to sustain current spending levels and public services. Should these same entities consider issuing their own currencies as a way to supplement the local money supply and maintain current levels of public employment and services? So far, a Main Street economic recovery appears elusive, especially given that our nation's fiscal and monetary policy-makers view local prosperity as a by-product of national prosperity. I would not be surprised to see local, regional, and even state currencies sometime in the near future.

Five Dollar Certificate issued by the Chicago Clearing House (1933)

Public entities that create their own currencies could use these "dollars" to pay public employees, contractors, suppliers, and pensioners. Additionally, public healthcare programs funded by states could be paid for using local currencies as services are rendered. Finally, local currencies could be used to pay public taxes due from taxpayers and business entities within those jurisdictions. Of course, this would mean that what America knows to be a "dollar" would become somewhat confusing. However, the creation of local and regional currencies could very well be a useful way for states to manage their budget deficits, or at least until the US money supply becomes more robust on a local and regional basis.

Warrant issued by California (2009)

The shortage of money in various localities and regions across the US has created a crisis, especially given that the nation's largest banks and corporations are continuing to hoard cash for whatever reasons. Perhaps expanding the Main Street money supply can be accomplished without the consent of the US Federal Reserve after all.

Human Suffering is Absolute

The expanding Main Street Depression in the US is now accelerating, and in absolute terms, the level of human suffering reached to date surpasses that of the Great Depression of the 1930's. According to the Bureau of Labor Statistics, more than 15.1 million Americans were unemployed as of July 2010. In contrast, 12.8 million Americans were unemployed at the peak of the Great Depression in 1933.

[Click image to expand]

I personally refuse to marginalize human suffering using ratio analysis, and I would urge our fiscal and monetary policy-makers to do the same. When historians study wars, they count casualties in absolute numbers of souls rather than as percentages of some given population. Likewise, economists must learn to study depressions using the absolute numbers of people effected. The Main Street Depression now imploding America is a horrific event in our nation's history that needs to be understood in absolute terms and numbers that make it real rather than abstract. Said another way, economists must learn that human suffering is absolute.

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The Problem with Cosmopolitan Economics

The three crucial indicators that something is wrong in America are: a) declining home values; b) declining real wages; and c) the declining employment to population ratio. These indicators are the key measures of Main Street economic vitality, all of which have been trending downwards for the past decade, and all of which are conveniently hidden behind the stage play of macroeconomic indicators (i.e., inflation, growth, and unemployment) that purport to pinpoint the health and well-being of the US (and therefore, Main Street) economy. However, the Main Street economy does not revolve around the cosmopolitan economy. Rather, the cosmopolitan economy revolves around the Main Street economy, a fact that society at large seems to have forgotten in modern times.

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Unemployed Should Consider Emigration

Let's face it, as far as the Federal government is concerned, jobs for Main Street is no different than jobs for Eskimoes. Our nation has been turning its back on significant segments of the population since its founding, and the newest career casualties will come from those who are seeking to make a living on Main Street instead of off Wall Street or Washington. Up to 35 million people across the US will experience personal unemployment during 2010. Yet, neither the Democrats nor Republicans have any real intentions of creating jobs directly, because both parties know they have no means of doing so.

The unemployment situation in Amercia will no doubt persist through the end of the decade and perhaps longer. Those unemployed who have exhausted their 99 weeks of unemployment checks should probably begin to evaluate emigration to other countries with their families in search of work. The irony is that as more and more unemployed leave the US, the unemployment burden will subside and prosperity for the remaining population with jobs will be accelerated. In the mean time, it's time for the unemployed to face the facts and reality that the nation cannot help them, but does nevertheless wish them the best...

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Fed Prefers Wall Street to Main Street with $1.2 Trillion in "Secret Loans"

According to Derek Thompson of The Atlantic:

Bloomberg reporters Bradley Keoun and Phil Kuntz catalog the Fed's $1.2 trillion in "secret loans" to banks, including Bank of America, JPMorgan, and Goldman Sachs.... The Fed's secret bailout comes out to the same amount US homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The progressive take on this story will be that the Fed has preferenced Wall Street over Main Street by using its exceptional authority to extend trillions in loans to banks without offering similar guarantees to underwater home owners.

Let's face it, bankers watch out for other bankers...

Source: Thompson, D (2011, August 22), The Fed's 'Secret' $1.2 Trillion Bailout of Wall Street, The Atlantic.

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How Wall Street Consumes Main Street

Here's a short video from the Huffington Post that discusses how banks on Wall Street are essentially "gutting" value from homeowners on Main Street. It would seem to me that Wall Street might find better ways to make money other than consuming the equity of struggling homeowners across the US.

US Enduring Economic Depression

According to Nobel Laureate Prof Paul Krugman (2011, December 11), "it’s time to start calling the current situation what it is: a depression." In July 2010, I reported that a Main Street depression was imploding America. Since then, the depression along Main Street has continued to expand and envelop the US national economy through today, when many in America are increasingly anxious or even afraid for the future. Evidence of economic depression in America includes the persistently low employment-to-population ratio, the devastating declines in home values, and the extended decline in real working class wages over the past decade -- this evidence is indisputable.

"Time Saving Truth from Falsehood and Envy" by François Le Moine (1688-1737)

I agree with Prof Krugman -- it's time for Americans to accept that our nation is mired in an economic depression that is deeply scarring our national political fabric -- it's the truth.

Source: Krugman, P (2011, December 11), Democracy and Depression, NY Times Online.

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Federal Reserve Contempt for Main Street USA

For the last three years we have been told repeatedly by government officials that funneling hundreds of billions of dollars to large and teetering banks during the credit crisis was necessary to save the financial system, and beneficial to Main Street.... But this has been a hard sell to an increasingly skeptical public.

Read More

Source: Morgenson, G (2011, August 27), The Rescue that Missed Main Street, New York Times Online.

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Depressions Past and Present

My previous post entitled Unemployed Should Consider Emigration featured a photograph of today's signage warning the unemployed to keep out and move on. The similarities between the current Main Street depression and the Great Depression are striking...

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Main Street USA in Economic Depression

I posit that Main Street USA is now in economic depression. My evidence thereof includes the record pace of regional and local bank failures, the current state of job losses and unemployment, the rising rate of personal bankruptcies, the record number of home foreclosures, and the deflation in home prices across the country. I weep for America...

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Small Business Owners' Views on Big Business Taxes

A recent small business owners' survey report published by the American Sustainable Business Council, Main Street Alliance, and Small Business Majority (2012) concluded the following:

• Small business owners overwhelmingly believe big corporations use loopholes to avoid taxes that small businesses have to pay: A sweeping 90% believe this to be true; 92% say big corporations’ use of such loopholes is a problem.
• Nine out of 10 small business owners say U.S. multinational corporations using accounting loopholes to shift their U.S. profits to offshore subsidiaries to avoid taxes is a problem: 91% of respondents agreed it is a problem, with 55% saying it is a very serious problem.
• Majority of small business owners say their business is harmed when big corporations use loopholes to avoid taxes: Three-quarters of respondents agree that their small business is harmed when loopholes allow big corporations to avoid taxes. More than one-third say it harms their business a lot.
• Small business owners say big corporations are not paying their fair share of taxes: 67% believe big corporations pay less than their fair share of taxes. An even bigger majority, 73%, says multinational corporations pay less than their fair share.
• Small business owners say households making more than $1 million a year pay less than their fair share in taxes: 58% of owners say households whose annual income exceeds $1 million pay less than their fair share.
• Small business owners support a higher tax rate for individuals earning more than $1 million a year: 57% of respondents agree that individuals earning more than $1 million a year should pay a higher tax rate on the income over $1 million. Only one small business owner out of 500 polled reported their annual household income to be more than $1 million.
• Four out of five small business owners disapprove of the “carried interest” loophole that gives hedge fund managers a big break on their taxes: 81% of small business owners favor hedge fund managers paying taxes at the ordinary income tax rate, with a top bracket rate currently set at 35%, rather than the 15% capital gains rate—with 61% strongly supporting this change.
• A majority of small business owners believe Congress should let tax cuts expire on taxable household income exceeding $250,000 a year: 51% of respondents believe Congress should let tax cuts on taxable household income exceeding $250,000 a year expire (40% said they should be extended).
• Respondents in this scientific national survey were politically diverse, with a majority Republican or independent-leaning Republican: 50% identified as Republican (27%) or independent-leaning Republican (23%); 32% as Democrat (14%) or independent-leaning Democratic (18%); and 15% as independent.

Business interests in the US are clearly not defined homogenously. The emerging divide between small businesses and larger firms is becoming very real, at least in the minds of small business owners. Follow the link below to download the full report:

Download

Source: National Opinion Poll: Small Business Owners’ Views on Taxes and How to Level the Playing Field with Big Business (2012, February 6), American Sustainable Business Council, Main Street Alliance, & Small Business Majority.

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US Federalism on the Ropes

The epic battle between big government Democrats and military-industrial Republicans over scarce sovereign borrowing rights to fund their mutually exclusive "guns or butter" approach to Federalism is at the root of everything evil about America and her empire. What we need instead are fresh ideas that only Libertarians can deliver at this point. The continuing efforts of Democrats and Republicans to hold Main Street (and the construction sector) hostage to big government and military-industrial spending initiatives assures that Main Street will remain marginalized and mired in economic depression, as evidenced by the long-term declines in real working wages, home values, and the employment-to-population ratio. Nevertheless, the big government Democrats and military-industrial Republicans are now on the ropes, despite their best efforts to form a fascist union in American. More at:

Libertarian Party

The people are not happy; the future of America will be Libertarian.

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What Derailed the Recovery?

An interesting question was posed in the Wall Street Journal (2011) this morning under the title, What Derailed the Economic Recovery? Three Possible Explanations. I provided my own short explantion as a posted comment in response:

The economic recovery was "derailed" by the myopic response of the Federal Reserve and Congress -- when the crisis began, the US embarked on efforts to save Federalism as the first priority, which meant bailing out or protecting "too big to fail" banks, automobile manufacturing, the defense industry, and government salaries -- unfortunately, those efforts ignored the problems on Main Street, including comsumption -- reality to date is that consumption has not been restored, probably because consumers have no money -- any money that was dispersed went to Federal and state workers, defense, and the automobile industry -- but nothing whatsoever has been done to put money directly into the hands of consumers -- at this point, Federalism is consuming all the nation's resources and then some -- anything left is being consumed by state workers and programs -- nothing is left for the consumer-at-large in America -- the US has become a safe-haven for the largest "too big to fail banks," government workers, unionized manufacturing, and the defense establishment -- public employees are a protected class, while small businesses and consumers have been "written off" in a misguided effort to save Federalism from itself...

Source: What Derailed the Economic Recovery? Three Possible Explanations (2011, July 21), Wall Street Journal.