by divorced one like Bush

I should title this: Yeah, it is just like 1929 you freak'n see, hear and speak no inequality monkeys.

I have this pile of income data sorted out from Saez's work (the GDP is BEA). My thoughts regarding our economy is that income inequality (or equality) matters. It matters so much, that it is the all defining focus of government in a democracy. Every policy made should be judged against this goal of ever greater equality as we use the tool called “economy” for the betterment of our lives.

For most (even the tippy-top earners), the biggest share of income is not earned from money, but from labor, whether physical or cognitive. Because of this, there must be effort as reflected in our policy toward regulation and initiatives that continually work to equalize the share of income. I am confident, that just as Cactus showed there is a low and high to top marginal rates correlating with GDP growth rates, the same is true for share of income. That's my thoughts.

I sorted out the share of income in dollars and percentages in the past and have posted them. This time I look at per capita income and compare them to GDP.

Starting at the low point for both groups in 1933, we see $6142/person (16.46% of the total personal income) for the top 1% and $315/person for the rest. The following chart shows the years of income and GDP doubling along with the top's percentage share. I took the starting income and kept doubling it to find the year closest. A + or – means the actual income is before or after the year (between 2 years).
For the top, the number of years to double are as follows: 9,19, 12, 7, 5, 11, 9
For the bottom 99 the number of years to double are: 8, 7, 17, 9, 7, 15,
For GDP the number of years to double are: 8, 5, 11, 11, 8, 7, 12, 13
The bold number is the last doubling before 1976.

If we look at 2005 incomes, it is clear the trend for years to income doubling was increasing for the 99%. For this group, 9 years past the last doubling, there has only been a 34.5% increase where as the top has doubled. It appears that the best income percentage for both the top and the rest is around 10 to 12%. Based on my prior posting, I will say with confidence that once the 1%'ers increase their share to 16% of the income we are screwed. That is because, it was as the 1%'ers passed through the 16% mark as their share declined (the income low point in 1933) that the post 1929 economy started its turn upward. On the other end of this time span, it was 1996 that the 1%'ers passed through the 16% point as their share increased. 1996is the year that the 99%ers income fell below the personal consumption line and has stayed there since. Can you say deficit spending? Another funny thing about the 30's, the second recession, the top 1% hit 19.26% of the income in 1936. The WW2 turn around? The top 1%'ers share finally went below 16% in 1941 and never turned back.

However, here is the meat. Using 1976 as the center point of the range because it is the low point of the share of income for the top 1%, there are 5 times that GDP doubled for an average of 8.6 years per doubling. This during the time that income share was becoming more equal. As income became less equal over the next 32 years, there are only 3 doublings of GDP or once every 10.6 years. Also, the time between doubling is increasing to more than during the prior 43 years.

Now, for the class war aspect. In the first 43 years, the top 1% saw their income double only 3 times (1 every 14.3 yrs) compared to the bottom 99% seeing theirs double 4 times (1 every 10.75 yrs). During the next 32 years, the top 1% has experienced 4 doublings, one every 8 years compared to the 99% experiencing this only twice, one every 11 years.

Here is the graph that illustrates the relationship of shifting income share and GDP growth. Following Spencer's past suggestion, the graph is a logarithmic scale.

Basically, increasing of income was more equal and the economy grew more as the top was losing share. The post 1976 economic policy we have been following has quite frankly been killing our economy. Yeah, it sure benefited the top 1%, they got their's. But, it could not last because, you can not have one group taking more out of the economic growth faster than it can grow. That, boy's and girls is the lesson of the first 43 year compared to the last 32 years. For the first 43 years, GDP doubling was always ahead of the income. For the next 32 years, GDP growth was always behind the income which was do to the top 1%'s share. Their's is the only income that increased faster than the economy. In chart form it looks like this:
First 43 years doubling: GDP 8.6 yrs, 99%'ers 10.75 yrs, 1%'ers 14.3 yrs.
Next 32 years doubling: GDP 10.6 yrs, 99%'ers 11 yrs, 1%'ers 8 yrs.

You know what else this is? It is the difference between reducing debt or increasing debt: Saving or spending tomorrow's money. Unified budget (illegal) or general budget.

So, what should economic policy in a democracy strive to do? Promote more equality in the nation's income which everyone helps to produce thus giving everybody a more equitable rise in their standard of living or promote the top 1%'s growth and the hell with all the rest? The rest being 99% of the population, the overall economic growth, the deficit, quality of life (retirement, health care, free time, better life for future generations) and just plain happier people who don't find a need to fight with everyone else on the planet.

Personally, between this info and my post titled “It's the big one honey, I know it...”,I think it's rather clear exactly what needs to be promoted with policy. In case it's not clear, there is this post “In the Beginning there was Income”.

Such policy if implemented will also act as the stop gap for this current downward trend better than anything proposed so far because it will be returning to the true purpose of an economy in a democracy like ours. Or, we can keep talking in quintiles hiding the truth and pretending that it's just a housing bubble, and people spending to much, and a credit freeze and bad regulation and oil and lack of stimulus spending and it is not really like 1929 and...

by divorced one like Bush

I should title this: Yeah, it is just like 1929 you freak'n see, hear and speak no inequality monkeys.

I have this pile of income data sorted out from Saez's work (the GDP is BEA). My thoughts regarding our economy is that income inequality (or equality) matters. It matters so much, that it is the all defining focus of government in a democracy. Every policy made should be judged against this goal of ever greater equality as we use the tool called “economy” for the betterment of our lives.

For most (even the tippy-top earners), the biggest share of income is not earned from money, but from labor, whether physical or cognitive. Because of this, there must be effort as reflected in our policy toward regulation and initiatives that continually work to equalize the share of income. I am confident, that just as Cactus showed there is a low and high to top marginal rates correlating with GDP growth rates, the same is true for share of income. That's my thoughts.

I sorted out the share of income in dollars and percentages in the past and have posted them. This time I look at per capita income and compare them to GDP.

Starting at the low point for both groups in 1933, we see $6142/person (16.46% of the total personal income) for the top 1% and $315/person for the rest. The following chart shows the years of income and GDP doubling along with the top's percentage share. I took the starting income and kept doubling it to find the year closest. A + or – means the actual income is before or after the year (between 2 years).
For the top, the number of years to double are as follows: 9,19, 12, 7, 5, 11, 9
For the bottom 99 the number of years to double are: 8, 7, 17, 9, 7, 15,
For GDP the number of years to double are: 8, 5, 11, 11, 8, 7, 12, 13
The bold number is the last doubling before 1976.

If we look at 2005 incomes, it is clear the trend for years to income doubling was increasing for the 99%. For this group, 9 years past the last doubling, there has only been a 34.5% increase where as the top has doubled. It appears that the best income percentage for both the top and the rest is around 10 to 12%. Based on my prior posting, I will say with confidence that once the 1%'ers increase their share to 16% of the income we are screwed. That is because, it was as the 1%'ers passed through the 16% mark as their share declined (the income low point in 1933) that the post 1929 economy started its turn upward. On the other end of this time span, it was 1996 that the 1%'ers passed through the 16% point as their share increased. 1996is the year that the 99%ers income fell below the personal consumption line and has stayed there since. Can you say deficit spending? Another funny thing about the 30's, the second recession, the top 1% hit 19.26% of the income in 1936. The WW2 turn around? The top 1%'ers share finally went below 16% in 1941 and never turned back.

However, here is the meat. Using 1976 as the center point of the range because it is the low point of the share of income for the top 1%, there are 5 times that GDP doubled for an average of 8.6 years per doubling. This during the time that income share was becoming more equal. As income became less equal over the next 32 years, there are only 3 doublings of GDP or once every 10.6 years. Also, the time between doubling is increasing to more than during the prior 43 years.

Now, for the class war aspect. In the first 43 years, the top 1% saw their income double only 3 times (1 every 14.3 yrs) compared to the bottom 99% seeing theirs double 4 times (1 every 10.75 yrs). During the next 32 years, the top 1% has experienced 4 doublings, one every 8 years compared to the 99% experiencing this only twice, one every 16 years.

Here is the graph that illustrates the relationship of shifting income share and GDP growth. Following Spencer's past suggestion, the graph is a logarithmic scale.

Basically, increasing of income was more equal and the economy grew more as the top was losing share. The post 1976 economic policy we have been following has quite frankly been killing our economy. Yeah, it sure benefited the top 1%, they got their's. But, it could not last because, you can not have one group taking more out of the economic growth faster than it can grow. That, boy's and girls is the lesson of the first 43 year compared to the last 32 years. For the first 43 years, GDP doubling was always ahead of the income. For the next 32 years, GDP growth was always behind the income which was do to the top 1%'s share. Their's is the only income that increased faster than the economy. In chart form it looks like this:
First 43 years doubling: GDP 8.6 yrs, 99%'ers 10.75 yrs, 1%'ers 14.3 yrs.
Next 32 years doubling: GDP 10.6 yrs, 99%'ers 16 yrs, 1%'ers 8 yrs.

You know what else this is? It is the difference between reducing debt or increasing debt: Saving or spending tomorrow's money. Unified budget (illegal) or general budget.

So, what should economic policy in a democracy strive to do? Promote more equality in the nation's income which everyone helps to produce thus giving everybody a more equitable rise in their standard of living or promote the top 1%'s growth and the hell with all the rest? The rest being 99% of the population, the overall economic growth, the deficit, quality of life (retirement, health care, free time, better life for future generations) and just plain happier people who don't find a need to fight with everyone else on the planet.

Personally, between this info and my post titled “It's the big one honey, I know it...”,I think it's rather clear exactly what needs to be promoted with policy. In case it's not clear, there is this post “In the Beginning there was Income”.

Such policy if implemented will also act as the stop gap for this current downward trend better than anything proposed so far because it will be returning to the true purpose of an economy in a democracy like ours. Or, we can keep talking in quintiles hiding the truth and pretending that it's just a housing bubble, and people spending to much, and a credit freeze and bad regulation and oil and lack of stimulus spending and it is not really like 1929 and...

Was the Great Depression really THE Great One? Apparently not, according to Scott Reynolds Neslon, 19th century historian. The Real Great Depression was the Panic of 1873 [fixed]. The parallels to present day, he says, are unnerving and uncanny. I include practically the entire piece. It is well worth the read.

That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.
But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America's heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873. Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing). The bonds had sold well at first, but they had tumbled after 1871 as investors began to doubt their value, prices weakened, and many railroads took on short-term bank loans to continue laying track. Then, as short-term lending rates skyrocketed across the Atlantic in 1873, the railroads were in trouble. When the railroad financier Jay Cooke proved unable to pay off his debts, the stock market crashed in September, closing hundreds of banks over the next three years. The panic continued for more than four years in the United States and for nearly six years in Europe.

The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.

As the panic deepened, ordinary Americans suffered terribly. A cigar maker named Samuel Gompers who was young in 1873 later recalled that with the panic, "economic organization crumbled with some primeval upheaval." Between 1873 and 1877, as many smaller factories and workshops shuttered their doors, tens of thousands of workers — many former Civil War soldiers — became transients. The terms "tramp" and "bum," both indirect references to former soldiers, became commonplace American terms. Relief rolls exploded in major cities, with 25-percent unemployment (100,000 workers) in New York City alone. Unemployed workers demonstrated in Boston, Chicago, and New York in the winter of 1873-74 demanding public work. In New York's Tompkins Square in 1874, police entered the crowd with clubs and beat up thousands of men and women. The most violent strikes in American history followed the panic, including by the secret labor group known as the Molly Maguires in Pennsylvania's coal fields in 1875, when masked workmen exchanged gunfire with the "Coal and Iron Police," a private force commissioned by the state. A nationwide railroad strike followed in 1877, in which mobs destroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.

In Central and Eastern Europe, times were even harder. Many political analysts blamed the crisis on a combination of foreign banks and Jews. Nationalistic political leaders (or agents of the Russian czar) embraced a new, sophisticated brand of anti-Semitism that proved appealing to thousands who had lost their livelihoods in the panic. Anti-Jewish pogroms followed in the 1880s, particularly in Russia and Ukraine. Heartland communities large and small had found a scapegoat: aliens in their own midst.

The echoes of the past in the current problems with residential mortgages trouble me. Loans after about 2001 were issued to first-time homebuyers who signed up for adjustablerate mortgages they could likely never pay off, even in the best of times. Real-estate speculators, hoping to flip properties, overextended themselves, assuming that home prices would keep climbing. Those debts were wrapped in complex securities that mortgage companies and other entrepreneurial banks then sold to other banks; concerned about the stability of those securities, banks then bought a kind of insurance policy called a credit-derivative swap, which risk managers imagined would protect their investments. More than two million foreclosure filings — default notices, auction-sale notices, and bank repossessions — were reported in 2007. By then trillions of dollars were already invested in this credit-derivative market. Were those new financial instruments resilient enough to cover all the risk? (Answer: no.) As in 1873, a complex financial pyramid rested on a pinhead. Banks are hoarding cash. Banks that hoard cash do not make short-term loans. Businesses large and small now face a potential dearth of short-term credit to buy raw materials, ship their products, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment. Unions (previously illegal in much of the world) flourished but were then destroyed by corporate institutions that learned to operate on the edge of the law. In Europe, politicians found their scapegoats in Jews, on the fringes of the economy. (Americans, on the other hand, mostly blamed themselves; many began to embrace what would later be called fundamentalist religion.)

The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs. The failure in July of the World Trade Organization talks begun in Doha seven years ago suggests a new wave of protectionism may be on the way.

[Italics bold mine]

Was the Great Depression really THE Great One? Apparently not, according to Scott Reynolds Neslon, 19th century historian. The Real Great Depression was the Panic of 1873 [fixed]. The parallels to present day, he says, are unnerving and uncanny. I include practically the entire piece. It is well worth the read.

That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.
But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America's heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873. Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing). The bonds had sold well at first, but they had tumbled after 1871 as investors began to doubt their value, prices weakened, and many railroads took on short-term bank loans to continue laying track. Then, as short-term lending rates skyrocketed across the Atlantic in 1873, the railroads were in trouble. When the railroad financier Jay Cooke proved unable to pay off his debts, the stock market crashed in September, closing hundreds of banks over the next three years. The panic continued for more than four years in the United States and for nearly six years in Europe.

The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.

As the panic deepened, ordinary Americans suffered terribly. A cigar maker named Samuel Gompers who was young in 1873 later recalled that with the panic, "economic organization crumbled with some primeval upheaval." Between 1873 and 1877, as many smaller factories and workshops shuttered their doors, tens of thousands of workers — many former Civil War soldiers — became transients. The terms "tramp" and "bum," both indirect references to former soldiers, became commonplace American terms. Relief rolls exploded in major cities, with 25-percent unemployment (100,000 workers) in New York City alone. Unemployed workers demonstrated in Boston, Chicago, and New York in the winter of 1873-74 demanding public work. In New York's Tompkins Square in 1874, police entered the crowd with clubs and beat up thousands of men and women. The most violent strikes in American history followed the panic, including by the secret labor group known as the Molly Maguires in Pennsylvania's coal fields in 1875, when masked workmen exchanged gunfire with the "Coal and Iron Police," a private force commissioned by the state. A nationwide railroad strike followed in 1877, in which mobs destroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.

In Central and Eastern Europe, times were even harder. Many political analysts blamed the crisis on a combination of foreign banks and Jews. Nationalistic political leaders (or agents of the Russian czar) embraced a new, sophisticated brand of anti-Semitism that proved appealing to thousands who had lost their livelihoods in the panic. Anti-Jewish pogroms followed in the 1880s, particularly in Russia and Ukraine. Heartland communities large and small had found a scapegoat: aliens in their own midst.

The echoes of the past in the current problems with residential mortgages trouble me. Loans after about 2001 were issued to first-time homebuyers who signed up for adjustablerate mortgages they could likely never pay off, even in the best of times. Real-estate speculators, hoping to flip properties, overextended themselves, assuming that home prices would keep climbing. Those debts were wrapped in complex securities that mortgage companies and other entrepreneurial banks then sold to other banks; concerned about the stability of those securities, banks then bought a kind of insurance policy called a credit-derivative swap, which risk managers imagined would protect their investments. More than two million foreclosure filings — default notices, auction-sale notices, and bank repossessions — were reported in 2007. By then trillions of dollars were already invested in this credit-derivative market. Were those new financial instruments resilient enough to cover all the risk? (Answer: no.) As in 1873, a complex financial pyramid rested on a pinhead. Banks are hoarding cash. Banks that hoard cash do not make short-term loans. Businesses large and small now face a potential dearth of short-term credit to buy raw materials, ship their products, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment. Unions (previously illegal in much of the world) flourished but were then destroyed by corporate institutions that learned to operate on the edge of the law. In Europe, politicians found their scapegoats in Jews, on the fringes of the economy. (Americans, on the other hand, mostly blamed themselves; many began to embrace what would later be called fundamentalist religion.)

The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs. The failure in July of the World Trade Organization talks begun in Doha seven years ago suggests a new wave of protectionism may be on the way.

[Italics bold mine]

by: Divorced one like Bush

Just a little point of order regarding how bad this economy is.

Lost in Space 120 episodes, 33.2 per season
Batman (on twice weekly) 120 episodes, 53.33 per season
The Virginian, 249 episodes, 27.67 per season
The Beverly Hillbillies, 274 episodes, 30 per season
Gilligan's Island, 98 episodes, 32.67 per season

New season started this year around September 22. Last Monday night (10/27/08), CBS sitcom night, my date night with my flower girl... every one of the shows was a repeat.

It's bad enough we get 7 minutes of commercials all timed to the other networks, but now they can't even get to Halloween before running out of new shows!

We're entering a depression, and we can't get new comedy? Guess I'll just have to rely on the real thing. All 190 of them.

On no! They've been co-oped.

There is only one solution. We must all immediately call our congress critters and the presidential candidates and demand a bailout for the sitcom industry! It is our only salvation, our only true hope. It is what worked in the past regarding our sanity and stopped us from becoming like the bankers we loath.

by: Divorced one like Bush

Just a little point of order regarding how bad this economy is.

Lost in Space 120 episodes, 33.2 per season
Batman (on twice weekly) 120 episodes, 53.33 per season
The Virginian, 249 episodes, 27.67 per season
The Beverly Hillbillies, 274 episodes, 30 per season
Gilligan's Island, 98 episodes, 32.67 per season

New season started this year around September 22. Last Monday night (10/27/08), CBS sitcom night, my date night with my flower girl... every one of the shows was a repeat.

It's bad enough we get 7 minutes of commercials all timed to the other networks, but now they can't even get to Halloween before running out of new shows!

We're entering a depression, and we can't get new comedy? Guess I'll just have to rely on the real thing. All 190 of them.

On no! They've been co-oped.

There is only one solution. We must all immediately call our congress critters and the presidential candidates and demand a bailout for the sitcom industry! It is our only salvation, our only true hope. It is what worked in the past regarding our sanity and stopped us from becoming like the bankers we loath.

Ken Houghton

I've been trying not to talk in these terms, but I'm sick, and Walter Jon links to an article in the Chronicle of Higher Education that puts it out in the open, so let us compare:

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

But the economic fundamentals were shaky....The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.

with this:

The sudden loss of credit, one of the ripple effects of the current financial turmoil, is affecting local governments in all parts of the country, rich and poor alike. In New York, a real estate boom has suddenly gone bust. Washington has shelved a planned bond offering to pay for terminal expansion and parking garages already under construction at Dulles and Reagan National Airports.... [other examples omitted]

The only alternative would be what New York City did on Monday: Go into the locked-up markets and whip up demand by offering to pay investors a very high return.

Analysts said the dysfunction in the municipal bond markets appeared to signal the end of an era of relatively cheap money for governments and, probably, the start of an era of tough choices for communities. When the market starts moving again, they said, it will look a lot like the municipal bond market of 10 years ago, before the arrival of financial wizardry in the form of structured-finance products, which lowered borrowing costs but added big new risks. Instead, governments will probably be issuing plain-vanilla bonds with fixed rates of interest, higher than they are accustomed to.

The thing is, innovations such as auction-rate securities are, conceptually, a great idea. One of the things that got overlooked in all of the fooforah about how people couldn't sell them is what the result was:

If you couldn't sell an auction-rate security, you got an above-market coupon instead.

Which is the way it was supposed to work. If the securities can't be sold, they are riskier. If they are riskier, they compensate investors and try again the next period.

It is, therefore, in the interest of everyone to make certain that such securities sell the next time.* And it reduces overall municipal financing costs, enabling tax burdens to be kept more reasonable.

But it appears we may lose that. And therefore infrastructure projects will become more difficult to finance, and, as with the early 1870s, the question may well have become who will be the new industrial superpower—and whether we will react more skillfully than the Europeans and Americans of the time did.

Read the whole thing.

*There are some exceptions to this. A municipality may have swapped itself into a lower fixed-rate, agreeing to receive the coupon of the auction-rate security to offset that cost. But in such a scenario, the originating investment bank GLB-entity really wants to sell the securities the second time around.

Ken Houghton

I've been trying not to talk in these terms, but I'm sick, and Walter Jon links to an article in the Chronicle of Higher Education that puts it out in the open, so let us compare:

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

But the economic fundamentals were shaky....The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.

with this:

The sudden loss of credit, one of the ripple effects of the current financial turmoil, is affecting local governments in all parts of the country, rich and poor alike. In New York, a real estate boom has suddenly gone bust. Washington has shelved a planned bond offering to pay for terminal expansion and parking garages already under construction at Dulles and Reagan National Airports.... [other examples omitted]

The only alternative would be what New York City did on Monday: Go into the locked-up markets and whip up demand by offering to pay investors a very high return.

Analysts said the dysfunction in the municipal bond markets appeared to signal the end of an era of relatively cheap money for governments and, probably, the start of an era of tough choices for communities. When the market starts moving again, they said, it will look a lot like the municipal bond market of 10 years ago, before the arrival of financial wizardry in the form of structured-finance products, which lowered borrowing costs but added big new risks. Instead, governments will probably be issuing plain-vanilla bonds with fixed rates of interest, higher than they are accustomed to.

The thing is, innovations such as auction-rate securities are, conceptually, a great idea. One of the things that got overlooked in all of the fooforah about how people couldn't sell them is what the result was:

If you couldn't sell an auction-rate security, you got an above-market coupon instead.

Which is the way it was supposed to work. If the securities can't be sold, they are riskier. If they are riskier, they compensate investors and try again the next period.

It is, therefore, in the interest of everyone to make certain that such securities sell the next time.* And it reduces overall municipal financing costs, enabling tax burdens to be kept more reasonable.

But it appears we may lose that. And therefore infrastructure projects will become more difficult to finance, and, as with the early 1870s, the question may well have become who will be the new industrial superpower—and whether we will react more skillfully than the Europeans and Americans of the time did.

Read the whole thing.

*There are some exceptions to this. A municipality may have swapped itself into a lower fixed-rate, agreeing to receive the coupon of the auction-rate security to offset that cost. But in such a scenario, the originating investment bank GLB-entity really wants to sell the securities the second time around.

I've been doing some numbers concerning personal income. Breaking out share of income, savings, GDP, etc based on BEA data and Saez's data. I'm playing with it, have converted it to year 2000 dollars and will be looking at per capita relations too. Even thinking of converting it all to 1929 dollars. I plan a few posts on it all.

But, considering the post today concerning the dollar, I thought these two charts would be of interest. These two charts are in 2000 dollars. There is an interesting hump around WW 2, I'll get to that in a later post. But for now, look at the 3 lines and pay attention to what crosses what.
Now, look at this chart.

See anything of interest? Something around 1996? Now, Sherman, set the WABAC machine to 1929 and look forward.

I've been doing some numbers concerning personal income. Breaking out share of income, savings, GDP, etc based on BEA data and Saez's data. I'm playing with it, have converted it to year 2000 dollars and will be looking at per capita relations too. Even thinking of converting it all to 1929 dollars. I plan a few posts on it all.

But, considering the post today concerning the dollar, I thought these two charts would be of interest. These two charts are in 2000 dollars. There is an interesting hump around WW 2, I'll get to that in a later post. But for now, look at the 3 lines and pay attention to what crosses what.
Now, look at this chart.

See anything of interest? Something around 1996? Now, Sherman, set the WABAC machine to 1929 and look forward.