The financial oligarchy has continued to prosper to the tune of hundreds of billions of dollars, benefiting from death and destruction, through the direct intervention of the machinery of the capitalist state, of which the Fed is a crucial arm. And as events of the past week have revealed there is no greater supporter of the institutionalised mechanisms for siphoning wealth into the coffers of the financial oligarchy than the Democratic Party.
US Federal Reserve backstops rising corporate debt mountain
12 hours ago
As we noted, there was one notable feature of the passage of the $900 billion relief bill through the US Congress earlier this week that demonstrated the absolute loyalty of the Democrats to the Wall Street financial oligarchy.
After abandoning aid for cash-strapped cities and states to provide services and agreeing to a grossly inadequate one-time payment of $600 to most working people, they rose up in arms against at attempt to restrict operations by the Fed to bolster major companies.
Republican Senator Pat Toomey moved to prevent the Fed reviving an operation in which it receives money from the US Treasury, which it then leverages to make ultra-cheap loans to businesses and to buy corporate debt.
The Fed had raised objections when Treasury Secretary Steven Mnuchin called for the winding down of the program in November warning that it could impede its operations to sustain Wall Street and other financial markets.
The importance of that support, which was lifted to new heights following the market freeze in mid-March, has been underscored by data on the level of corporate borrowing this year compiled by the Bank of America and reported in the Financial Times earlier in the week.
US companies have borrowed a record $2.5 trillion in the bond market this year. This has meant that leverage—the ratio between debt and earnings—for investment grade companies has gone to new heights after reaching record levels in 2019.
The actions taken by the Fed in response to the March crisis have provided crucial support for these operations. The Fed took the unprecedented decision to buy investment-grade corporate bonds as well as buying exchange traded funds, including those that tracked riskier assets.
Unlike the purchases of Treasury bonds and mortgage-backed securities, which form the backbone of the Fed’s market intervention—currently running at $120 billion a month more than $1.4 trillion a year—the move into corporate bond purchases involved backing from the US Treasury, which the Toomey measure sought to restrict in the future.
The Fed’s corporate bond intervention after March had an immediate impact. As the Financial Times noted: “Without even purchasing a single bond, prices began to recover, bolstered by the Fed’s support. Investor confidence in corporate America returned and the floodgates opened to fresh corporate debt raising.”
Initially debt was raised to cover the loss of income due to the pandemic. But what the Financial Times called “the largest corporate borrowing spree on record” has developed as companies have used the ultra-low interest rates facilitated by the Fed to build up their cash holdings in order to take advantage of any favourable buying operations.
The significance of the Fed’s intervention into the corporate debt market, which the Democrats were so desperate to ensure continued unimpeded, was underscored by Jonny Fine, the USA head of debt syndicate at Goldman Sachs. He described it as “the most important piece of central bank policymaking I have seen in my career.”
Despite leverage ratios reaching record highs, indicating an escalation of risks, and the number of zombie companies—those where interest payments are higher than profits—climbing close to historic highs, the debt bubble has continued to inflate.
Rating agencies have downgraded ratings and a record number of firms have this year been rated at triple C, one of the lowest levels, and almost double the number last year.
They key factor at work in this extraordinary situation is the role of the Fed.
As Alex Veroude, chief investment officer at Insight Investment, commented to the Financial Times: “The Fed has created an expectation of a bailout.”
He said it almost did not matter “what other indicators or debt or leverage show” and that ‘if you think about it, it is insane. It’s exactly what critics would say capitalism has created. But it’s the reality.”
Increased Fed intervention has also aided the private equity market where vast profits are accumulated through takeover deals and buyouts. The value of private equity deals this year has risen to the highest levels since 2007. Buyouts were worth $559 billion this year, an increase of 20 percent over last year, according to figures compiled by Refinitiv.
When the pandemic struck at the beginning of the year it appeared that the mergers and acquisitions market was going to take a major hit. But the intervention of the Fed provided a boost to this form of financial parasitism, as it did to many others.
Commenting on a rise of private equity deals, Bryce Klemper at the consultant firm McKinsey noted: “Ultimately the lifeblood of private equity is cheap debt. When you have the Fed saying debt will stay cheap for years… the numbers look buoyant.”
There are a number of conclusions to be drawn from these developments.
On the economic front, the growth of debt parasitism makes clear what lies behind the bipartisan refusal in the US to implement the necessary measures to deal with the pandemic because of the impact they would have on the stock market and the financial system more broadly.
Politically, the events of this year have delivered the death blow to whatever remained of the doctrine of the “free market” which has functioned as one of the essential ideological pillars of the capitalist order.
The financial oligarchy has continued to prosper to the tune of hundreds of billions of dollars, benefiting from death and destruction, through the direct intervention of the machinery of the capitalist state, of which the Fed is a crucial arm. And as events of the past week have revealed there is no greater supporter of the institutionalised mechanisms for siphoning wealth into the coffers of the financial oligarchy than the Democratic Party.
As the oligarchs make trillions, Congress offers a pittance for the jobless
22 December 2020
The most important fact about the $900 billion coronavirus relief bill that was adopted by the US Congress Monday night is that it is grossly inadequate to meet the vast social needs exposed by the pandemic. Once again, the corporate-controlled two-party political system has revealed its indifference to mass suffering.
Millions of workers thrown out of their jobs by the coronavirus pandemic last spring were cut off federal supplemental unemployment benefits of $600 a week on July 31, under provisions of the CARES Act adopted near-unanimously by Democrats and Republicans in Congress. This cutoff was carried out to enforce the back-to-work drive by big business, which demanded that workers return to their jobs producing profits for the capitalists, regardless of the COVID-19 threat to their health and lives.
While workers were forced back to factories and workplaces, there are 10 million fewer jobs today than at the start of the year. Now, after nearly five months of no benefits, which have wiped out their savings, driven them into poverty and put many in danger of homelessness, longterm unemployed workers will receive $300 a week, limited to 11 weeks, expiring by the middle of March. This pitiful sum will barely keep food on the table, let alone pay the bills that have accumulated since the summer.
Added to that is the $600-per-person one-time check to be sent out to most working people, as well as their children—half the $1,200 checks that were issued by the Treasury last spring and less than the average rent in most American cities. The sum total of these checks, $166 billion, is less than the $190 billion that Amazon CEO Jeff Bezos and Tesla CEO Elon Musk have gained between them since March.
Two billionaires have added more to their personal wealth than the US government sees fit to pay out to all working people in the country, combined, in the midst of the greatest economic crisis since the Great Depression. What a demonstration of the fact that America is a dictatorship of, by and for the billionaires! And to this class reality must be added the fact that Bezos and Musk have enriched themselves from a social catastrophe, a pandemic that has killed 320,000 Americans and 1.7 million people around the world.
The Democrats and Republicans agreed on a $900 billion limit to the “relief” bill. This figure is less than the $1 trillion accumulated by America’s billionaires since March. And it is less than the nearly $1 trillion the federal government is spending on the military and nuclear weaponry, including a record $741 billion budget for the Pentagon alone, passed through Congress by huge margins in both parties.
Compare the colossal sums available to the superrich and the military to the penny-pinching treatment of jobless workers. Two pandemic-related unemployment benefits programs, scheduled to expire next Monday, will now be extended for a mere 11 weeks. The moratorium on evictions, established as a public health measure by the Centers for Disease Control and Prevention, will be extended for a month. A pitiful $25 billion is assigned to the relief of renters and homeowners facing foreclosure—another drop in the bucket.
The Democrats and Republicans in Congress have aimed not to save the lives or livelihoods of American working people, but to safeguard the vast fortunes of the financial aristocracy. The coronavirus relief bill seeks to stave off, for a month or so, an economic collapse that would trigger a massive social upheaval and threaten the existence of the capitalist system as a whole.
It is notable that in her remarks Monday introducing the legislation, House Speaker Nancy Pelosi cited the deadline of December 26 for the expiration of pandemic-related unemployment assistance, calling that “vital.” Politicians of both capitalist parties were concerned that such a cutoff for 12 million people the day after Christmas would trigger widespread outrage in the working class.
The Republicans took their stand on blocking any financial aid for city and state governments that have been devastated by the economic slump accompanying the pandemic and have already eliminated 1.3 million jobs of public employees. Caught in the vise between legal requirements that they balance their budgets and plunging revenues, virtually every major city and most states project even more massive job cuts unless there is emergency federal aid. Democrats abandoned a proposed $1 trillion for the cities and states in favor of minimal aid for schools and public health services.
However sharp their tactical and short-term differences—large numbers of congressional Republicans still refuse to acknowledge the election victory of President-elect Joe Biden—both parties share a common class loyalty. They uphold the interests of the financial oligarchy, for which the coronavirus pandemic has been a money-making opportunity, not a historic calamity.
This was demonstrated in one critical incident in the weekend drive to put together a final version of the relief bill. When Republican Senator Pat Toomey proposed an amendment that would bar the Federal Reserve from reviving lending operations to companies and government agencies authorized under the CARES Act but phased out by the Trump administration, the Democrats rose up in rebellion.
They would not fight for the unemployed, the destitute or those facing eviction and foreclosure. They could care less about the 320,000 dead from COVID-19, or the 400,000 more facing death before widespread vaccinations take place. But when it came to a threat to slow the flow of credit and subsidies to big business, every Senate Democrat rushed to the barricades. Toomey’s proposal was sidetracked, and the Fed’s lending powers remained unimpaired.
Even in the “relief” bill itself, more money goes to business interests than to workers, including $284 billion in loans for the misnamed Paycheck Protection Program (a slush fund for corporations masquerading as small businesses), $20 billion in emergency grants to businesses, $15 billion for the airline industry and $15 billion for the movie theater chains. There is even a provision expanding the tax deduction for the “three-martini lunches” enjoyed by corporate executives.
The New York Times, the main media voice of the Democratic Party, praised the bipartisan congressional bill, headlining its editorial, “This Deal Is Good Enough.” The Democrats and their media mouthpieces portray the bill as a temporary stopgap until the Biden administration takes office January 20, 2021. But Biden has no plans to alleviate the social conditions of masses of workers facing hunger, poverty, homelessness, disease and death in a winter that is likely to be the worst in living memory. He has flatly rejected a lockdown of nonessential businesses and the closure of schools, the only measures that can prevent a tidal wave of death before vaccinations are widely available to the American population.
Working people should not place their hopes in any section of the corporate elite, including the Democratic Party and the Biden administration. The only force that will defend workers’ interests is the working class itself, organized as an independent political movement, fighting to enforce the closure of nonessential workplaces, with full income protection for affected workers and small businesses, until the pandemic is under control, and prepare a nationwide political general strike on the basis of a revolutionary socialist program.
Democrats unite with Trump to enact massive corporate bailout
In a celebration of bipartisan unity, the Democratic-controlled House of Representatives on Friday approved by voice vote an unprecedented $2.2 trillion bill to bail out the nation’s corporations and banks, while providing limited and temporary aid to workers hit by the economic impact of the coronavirus pandemic.
The House vote followed Wednesday night's 96-0 approval of the measure by the Republican-controlled Senate. President Trump, who had lobbied furiously for the bill, signed it into law only a few hours after it passed the House just after 1:30 p.m.
The $2.2 trillion estimated cost of the bill, equal to more than half of the entire federal budget and far in excess of the $700 billion bank bailout bill passed in 2008, substantially underestimates the actual scale of the government handout to big business. The biggest single slice of the bill, $454 billion to finance guaranteed loans to big corporations, is designed to be leveraged by the Federal Reserve Board into some $4.5 trillion in loans and subsidies.
This amounts to a virtually unlimited backstop for the country's corporate and financial aristocracy, with no real strings attached. The provisions that provide stop-gap assistance to workers who are being laid off in the millions or being ordered to work without any protection against the deadly virus are designed to head off an eruption of class conflict in the short-term, so that the ruling class can buy time and prepare a counteroffensive to place the full cost of the corporate bailout on the backs of the working class. The bill's passage coincides with Trump's push to “open up” the country and force workers back into the plants and workplaces to resume pumping out profits for big business.
The Senate bill was supported by Vermont Senator Bernie Sanders, one of the two remaining candidates for the Democratic presidential nomination, who shelved his “socialist” pretensions to praise the measure as a boon to working people. There was no effort by the “progressive” allies of Sanders in the House, including Democratic Socialists of America members Alexandria Ocasio-Cortez and Rashida Tlaib, to actually oppose the bill.
Ocasio-Cortez railed against the bill during a four-hour floor debate Friday morning, but she failed to follow through with a threat to stall passage of the measure by demanding a roll-call vote. It was a right-wing Republican, Thomas Massie of Kentucky, a member of the ultra-conservative House Freedom Caucus, who sought to delay passage by opposing a voice vote and formally demanding a recorded vote.
With the House in recess, the White House, House Speaker Nancy Pelosi and House Minority Leader Kevin McCarthy had agreed that they would avoid requiring House members to appear in person to cast votes, under conditions of lockdowns and travel restrictions in large parts of the country and the rapid spread of COVID-19, and seek instead to get the bill approved by unanimous consent. That would have required only a few representatives to be in attendance.
Massie, however, refused to back down, forcing a quorum call to determine whether more than half of the chamber's 435 members were on hand—as they were. He was, however, unable to get a single House member to back his demand for a roll-call vote, allowing the House leadership to push the bill through on a voice vote. There were only a few scattered “nays” amidst the overwhelming chorus of “ayes.”
Following the vote, Pelosi and McCarthy appeared side by side to hail the passage of the bill, cynically casting it as a humanitarian lifeline to ordinary Americans. Pelosi quoted Pope Francis in praising the measure.
The bill includes two main provisions providing aid to workers. It allocates $300 billion for direct cash payments to more than 150 million households. Those eligible, who do not include undocumented workers, will receive $1,200 per adult or $2,400 per couple, plus an additional $500 for each child. This is a one-time subsidy.
In addition, the bill allocates $250 billion to extend unemployment benefits by 13 weeks and add $600 per week to the benefits provided by the states. This federal supplement is to end in early August for workers filing claims this week. The bill also makes freelance and gig workers eligible for the same unemployment benefits.
Some $500 billion is to be distributed to defray the costs of fighting the coronavirus epidemic and other social needs. That sum includes $207 billion for state, local and tribal governments, school districts and public transit agencies; $130 billion for hospitals and public health facilities and $45 billion for the Disaster Relief Fund of the Federal Emergency Management Agency. Only $16 billion is set aside for hospitals to procure personal protective equipment and ventilators.
The vast bulk of the bill is a massive handout to business, with most of the money by far going to big corporations. In addition to the $454 billion Treasury backstop for Fed loans and grants to corporations, the bill provides $46 billion in targeted loans from the Treasury Department, mainly to the commercial airline industry, with $17 billion carved out for Boeing.
It sets aside $350 billion in loans and aid to small businesses, which are defined as enterprises with up to 500 employees. This could include multi-billion-dollar hedge funds and other financial firms.
There is also $50 billion for an “employee retention tax credit” to companies that keep their employees on the payroll.
There are other windfalls to business buried in the more than 800 pages of the legislation. One that could directly benefit Trump or his associates is the full restoration to the real estate sector of a huge tax break for interest costs and operating losses that was limited by the 2017 tax overhaul.
Restrictions imposed on corporations receiving government aid are largely nullified by caveats. There is a provision barring businesses receiving loans from cutting their employment levels until September 30. However, this is hedged with the phrase “to the extent practicable.”
Corporate recipients are also barred from raising dividends or carrying out stock buybacks to further enrich executives and big investors. This provision, however, can be waived by Treasury Secretary Steven Mnuchin, a multi-millionaire and former CEO of OneWest Bank, where he was sued for illegal home foreclosures.
The bill sets the precedent for the unlimited plundering of social resources to prop up the corporate oligarchy, while providing entirely inadequate assistance to working people devastated by the health and economic impact of a pandemic that could have been either minimized or stopped in its tracks. Multiple advance warnings by health experts were ignored, no preparations for such a crisis were made, and the virus was not taken seriously by the government when it erupted in China.
The bipartisan bill does nothing to mobilize the immense power of technology and industry in a planned and coordinated manner to quickly produce and distribute the ventilators, masks and PPE material needed to save lives, and to construct the ICU units and hospitals and train the staff needed to prevent the health care system from being completely inundated.
It does not provide for the mass testing, contact tracing and extended social distancing needed to contain and defeat the disease. Nor does it order the shutdown of all workplaces and factories not providing essential services, with no loss in income for the workers, and safe conditions under medical supervision for those required to work.
These are demands that workers must raise, along with free and equal care for all those affected by the virus and a moratorium on rent, mortgage payments and personal loan payments for the duration of the crisis.
These critical needs at every point collide with the priorities of the profit system and private ownership of the means of production. The coronavirus pandemic has demonstrated all over the world the life-and-death need for the working class to put an end to capitalism and replace it with socialism.
COVID-19 bill that stiffed workers full of handouts to big busines
The COVID-19 relief bill passed by Congress this week provided a pittance for workers affected by the greatest economic crisis since the Great Depression. But in recent days it has emerged that the bill is stuffed full of handouts to major businesses and the superrich.
Included in the combined relief and spending bill are generous tax incentives for large businesses totaling over $110 billion for liquor producers, wind energy lobbyists, the National Association for Stock Car Auto Racing (NASCAR) and electric motorcycle manufacturers. The Washington Post reported that the “tax extenders” are “something of a year-end tradition” frequently added to large bills at the behest of industry lobbyists.
Speaking to the Post, Howard Gleckman, a tax policy expert at the Urban Institute, characterized them as a “gravy train for members and lobbyists.” He added that these are “classic special interest tax breaks that do not benefit the overall economy in any way.”
One extender, lobbied for by liquor and alcohol giants, Anheuser-Busch and Bacardi North America, re-ups tax cuts that first became law in 2017 but were set to expire this year without congressional approval. In an interview with the Post, Democratic Senator Ron Wyden (Oregon) defended the cuts as a way to “help small brewers and wineries.”
The extender granted to NASCAR goes back to 2004 and will help Brian France and the rest of the France family, owners of NASCAR and worth a reported $5.7 billion, to continue claiming tax breaks on their facilities through 2025. Another extender will grant a tax credit to purchasers of electric motorcycles worth up to $2,500, or 10 percent of the cost of the vehicle.
The bill also includes the so-called “three martini lunch” provision, which allows business executives to deduct their meal expenses at 100 percent, compared to the previous 50 percent, which will lead to a $5 billion reduction in tax revenue, according to the Tax Foundation. While Trump has championed this provision since April, the stimulus bill failed to include a $120 billion fund that had been lobbied by the National Restaurant Association (NRA), which reported that employment within the industry remains 2.1 million jobs below its pre-coronavirus level.
To add insult to injury, Trump threatened to veto the bill Tuesday, raising the prospect that millions of desperate people will not get any assistance at all for weeks.
While the bill is the largest in US history at nearly 6,000 pages, not a single line was devoted to protecting career federal employees from political retaliation and terminations. Two weeks before the election Trump issued an executive order which allowed him to reclassify federal employees and civil servants that work within government agencies, such as the Office of Budget and Management, allowing them to be dismissed with little cause, similar to political appointments. It is unknown how many of the 2.1 million federal workers, many of whom deal with crafting policy or giving confidential advice top officials, could be affected.
The $900 billion so-called relief bill which has been attached to a $1.4 trillion omnibus package also does not add any language to thwart a recent executive order issued by the Trump administration that strips most civil service protections from thousands of federal employees, opening them up to termination with little cause or recourse.
Far from providing direct immediate relief for the hundreds of thousands of businesses that have closed their doors, the bill earmarks $284 billion to refill the corporate slush fund known as the Paycheck Protection Program. Ostensibly created to allow small businesses to receive low-interest loans which can be turned into grants in order to retain workers, instead, the program has been seized upon by major restaurants, hotel chains, political consulting firms, and profitable companies to enrich themselves, and generate billions in fees for major banks, while laying off thousands of workers.
Meanwhile, the “relief” is a fraction of the jobless aid workers and their families received at the beginning of the year. The bill only extends federal unemployment benefits for 11 weeks at $300 a week and a one-time direct payment of $600, half of the $1,200 included in the CARES Act. Student dependents would not be eligible for the check, nor would immigrants without a social security number. The bill only renews the Centers for Disease Control eviction moratorium for just one month, until January 31, 2021.
Both vital measures are set to expire on the 26th and the 31st respectively, leaving roughly 13 million people collecting unemployment with nothing the day after Christmas, while some 19 million are facing eviction January 1, 2021. It should also be noted that the moratorium has not prevented hundreds of thousands of people from being evicted.
Despite the frenzied character of the past two weeks of negotiations, the fact is both political parties have deliberately denied unemployment aid to workers in an attempt to blackmail them into going back to work in order to generate profits.
While Congress was able to come together and nearly unanimously pass the CARES Act at the end of March, which provided some $6 trillion to the Treasury and Federal Reserve; the meager assistance for jobless workers in the form of $600-a-week unemployment payments through July and a one-time $1,200 direct payment was deemed a “disincentive” by the ruling class and hindrance to the continued extraction of surplus labor value. Hence, the deliberate delay and the demand by President-elect Joe Biden that schools be reopened, no matter what, within the first 100 days of his administration in order to force parents back on the job.
As Congress dithers over the peanuts that will be spared in order to prevent a mass social movement from below, thousands of families are wondering where they will be sleeping after being evicted despite the CDC moratorium. Speaking to CNN, Jordan Mills, along with her partner Jonathan Russel and their two-year-old daughter Valkyrie, were evicted this month even after providing a CDC declaration to her landlord and court, as well as making a payment plan with her landlord.
“People like me are still being evicted for nonpayment,” she told CNN. Mills attempted to appear at her court hearing to challenge the proceeding. However, she was unable to attend because of the cost of parking. “I couldn’t afford parking; it is all $20. I’m literally living hand to mouth. I got paid yesterday. I have $4 to my name.”
Job prospects remain slim for millions of workers whose industries have been wiped out by the ongoing pandemic. The latest initial claims from the U.S. Department of Labor revealed another historic week of job losses with 803,000 initial claims filed last week. Additionally another 397,511 claims were filed under the federal Pandemic Unemployment Assistance program, created for contracted, the self-employed and “gig” workers, bringing the total number of first-time claims above 1.2 million, which under any other circumstances would be considered catastrophic.
Over 20.3 million people are collecting some form of unemployment, a slight decrease from the previous week, reflecting the fact that several states’ funding has dried up or the jobless have used up all their eligibility. Approximately 5.44 million people are collecting state benefits, while roughly 9.2 million are collecting federal benefits through the PUA program and nearly 4.8 million are collecting through the Pandemic Emergency Unemployment Compensation program, which provides 13 weeks of payments for those whose state benefits have expired.
Since the initial surge in unemployment claims in mid-March following the implementation of haphazard lockdown measures, over 72 million initial claims have been filed, nearly double the 37 million claims filed throughout the Great Recession in 2008. The unprecedented levels of job loss and the social misery that accompany it, coupled with the growing realization that whatever meager assistance emerges will not be nearly enough to recover what has been lost, are driving millions of jobless workers and their families into destitution.
Exemplifying the severe and unequal character of the social crisis, while US billionaire wealth has grown by over $1 trillion since the start of the pandemic, American personal incomes fell by 1.1 percent, or $221.8 billion, in November. In Illinois, the Greater Chicago Food Depository released a report on Tuesday showing that an average of 50 percent more people in Cook County were seeking help this year compared to last year. Citing research from Feeding America, which estimates that 54 million in the US face food insecurity, nearly 270,000 more households compared to 2018 had trouble finding enough to eat.
Whatever Frankenstein monster of a bill emerges from the protracted political maneuvering and backroom deals that has delayed and denied relief for millions of people for months leading to unnecessary hardship and mass death, the inescapable fact is that the US government has no interest in safeguarding the lives and well-being of the majority of the population. The fight to save lives, end the pandemic, and provide housing and food for all begins with recognizing that workers must organize for their own interests on a shared class basis in opposition to the entire capitalist system.
Home Buying Boom Lost Steam in November As Sales Unexpectedly Fell To Slowest Pace Since June
The homebuying boom of 2020 appears to have lost some steam in November.
Sales of newly built homes fell sharply in November to a seasonally adjusted annual rate of 841,000, according to data released by the Census Bureau Wednesday. That was below the estimates of Wall Street’s economists and 11 percent lower than the downwardly-revised October pace.
New home sales make up for a small part of the overall housing market but can have outsized impacts on the economy. Homebuilding is labor-intensive, requiring workers up and down the skill-ladder. New homes get outfitted with new appliances, driving sales of durable goods. Even car sales are correlated with new home sales.
A report on previously owned homes released Tuesday showed falling sales as well. Together, the reports suggest that the housing market is dimming.
Sales fell in all parts of the country, led by a 43 percent decline in the Midwest. Sales in the West fell 17.3 percent. Sales in the South, the biggest market for new homes, fell by just 1.9 percent. They were down 2.5 percent in the Northeast.
The median price of new homes for sale was $335,300, a decline from October but 5 percent above the year-ago level. Sales held up better at the higher end of prices than at the lower end, with sales of homes priced over $750,000 actually rising a bit.
Steeply rising prices may be cooling the desire of some city-dwellers to move into the suburbs in search of more space, privacy, and safety from violent crime.
Despite the slowdown in November, new home sales were up 20.8 percent year-over-year in November. Year-to-date sales are up 19.1 percent. So although the market cooled, it remains hot by historical standards.
Household income and spending declined in November, so part of the sales decline may be due to tightening financial constraints on families. Rising unemployment and layoffs may also be discouraging families from locking money up in a home purchase.
The seeming victory of Joe Biden, who has promised radical new housing policies aimed at reshaping the suburbs, may also be discouraging homebuyers. The prospect of higher capital gains taxes and higher income taxes could also weigh on demand for housing.
The monthly data on new home sales can be volatile and is frequently subject to large revisions. Most analysts would look to longer-run trends rather than assuming a major shift has occurred because of a single report. In the November report, however, the higher sales of earlier months received significant downward revisions, which may indicate that some of the strength of the housing market was exaggerated by inflated numbers.
Consumer Sentiment Tumbled in Late December
Consumer sentiment in the U.S. deteriorated in late December but remained above its November level, the University of Michigan’s survey of consumers showed Wednesday.
The biggest shift from the mid-month reading came in the current conditions gauge, reflecting the surge in infections following Thanksgiving weekend and the return of lockdowns.
The second and final December reading of the consumer sentiment index fell to 80.7 from the preliminary reading of 81.4 earlier in the month. In November, the index had fallen to 76.7.
Economists had expected a higher reading of 81.
Much of the gain compared with the prior month is due to Democrats becoming more hopeful, a shift that has outpaced Republicans turning negative.
“The improvement was due to a large and rapid partisan shift, with Democrats becoming much more positive and Republicans much more negative,” the survey’s chief economist, Richard Curtin, said.
Curtin described the partisan shift:
The largest change was in long term business prospects, as twice as many Democrats as three months ago expected a continuous expansion over the next five years (54% up from 27%), while that same favorable expectation was nearly cut in half among Republicans (32% down from 60%).
The measure of current conditions rose to 90 in the final December reading from 87 last month. This was a move down from the mid-month level of 91.8 and is 18.7 percent lower than the year ago level.
The index that measures expectations for the next six months rose to 74.6 from 70.5 in November and remained largely unchanged from the mid-month level.
The pandemic has opened up a gap between how consumers see their own current personal financial situation and their assessments of the overall economy, according to Curtin.
Curtin explained:
Trends in how consumers evaluate their own finances and how they assess changes in the national economy have followed a close association over the past half century. Since the start of the pandemic, however, a huge divide has grown across households in how they assess their own personal finances: the finances of those that continue to be employed and working at home have remained positive while those who have lost jobs and incomes have been quite negative. Growing inequalities have also been due to rising home and stock prices. In contrast, nearly everyone has reported negative assessments of current conditions in the national economy.
This is evidence for what has been described as the “k-shaped” recovery, with some consumers doing much better than others. It might also explain why consumer spending has been more resilient than expected.
Curtin says the data suggests the economic growth will be shaky for some time.
“While the rollout of the vaccine has been greeted as the beginning of the end, the end of the pandemic is still on the distant horizon in terms of a return to normalcy for consumer behavior, even among the most favored households. Precautionary motives will continue to shape both economic and personal behavior,” Curtin said.
What the rich are thankful for
For most Americans, this will be the worst Thanksgiving they can remember. A quarter-million people in America are dead from the pandemic. Tens of millions have lost their jobs, and countless others are hungry or on the verge of being evicted from their homes. For months, workers throughout the country have played a daily game of Russian roulette every time they punched into a shift at a factory, warehouse or store.
But the view from Manhattan’s billionaires’ row is much more pleasant. On Tuesday, the Dow Jones Industrial Average hit a record of 30,000, up nearly 70 percent since March. This, in turn, has fueled the wealth of the ultra-rich. A recent report from the Institute for Policy Studies gives a sense of the enormous upward redistribution of wealth that has occurred since the outbreak of the pandemic:
Ten billionaires have a combined wealth of $433 billion and have seen their wealth increase $127 billion since the beginning of the pandemic in mid-March, a 42 percent increase. These ten are Jeff Bezos (Amazon), Alice, Rob and Jim Walton (Walmart), Apoorva Mehta (Instacart), John Tyson (Tyson Foods), Stephen Schwarzman (Blackstone), Henry Kravis and George Roberts (KKR), and Steve Feinberg (Cerberus).
John H. Tyson, the billionaire owner of Tyson Foods, has seen his personal wealth increase over $600 million since the beginning of the pandemic as an estimated 11,000 Tyson workers have been infected with COVID-19.
The wealth of Amazon’s Jeff Bezos has increased over $70 billion since mid-March while an estimated 20,000 Amazon workers have been infected with COVID-19.
To this list should be added Elon Musk, who recently eclipsed Bill Gates to become the second-richest man in the world. Musk has had his wealth surge by $112 billion—larger than the GDP of Kenya—in a single year as the stock price of Tesla and SpaceX soared.
On May 11, Musk announced the resumption of production at Tesla’s main facility in California, defying state law, with the complicity of the state’s Democratic Party government. In the period since Tesla reopened production, its stock price has more than tripled, making it the largest carmaker by market capitalization. Musk’s wealth is now five times what it was just two years ago.
The surge in the markets is driven by the vast and unprecedented intervention by the Federal Reserve, which has guaranteed that there will be no fall in stock prices regardless of the state of the real economy. Economists Raphaële Chappe and Mark Blyth note in the latest edition of Foreign Affairs that the growth in the rise in share values has almost exclusively benefited the super-rich.
“According to recent research by Goldman Sachs,” they write, “the bottom 90 percent of Americans hold a mere 12 percent of the value of stocks owned by U.S. households. The U.S. economy has failed to deliver inclusive growth for decades, as real wages for many workers have been stagnant since the mid-1970s.” They continue:
The Fed itself determined last year that the majority of American adults would not be able to cover a hypothetical unexpected expense of $400—a scenario that for millions of Americans became a reality when the pandemic forced the country to shut down.
In short, the United States seems to have stumbled into a monetary policy regime that has untethered the fate of economic elites, who derive most of their income from state-protected financial assets, from that of ordinary people, who rely on low and precarious wages. Such a regime offers permanent protections to those with high incomes from financial assets.
In reality, US capitalism has not “stumbled” into this policy. This state of affairs is the product of a decades-long campaign to slash the living standards of the working class while enriching the financial oligarchy.
Beginning with the Reagan/Thatcher/Volcker anti-inflation policies in the early 1980s, the world’s ruling classes launched a systematic campaign to drive down workers’ wages and living standards. “Anti-inflation” policies, which originally entailed the raising of interest rates to create a manufactured recession in the early ’80s, were soon supplanted by decades of extremely low interests rates for banks and the implicit guarantee that central banks would ensure there would be no serious fall in the value of financial assets.
The ruling class responded to the economic and financial crisis of 2008 by launching, under both Bush and Obama, a massive, multi-trillion-dollar bailout, implemented over the course of years, that led the stock market to surge amid mass unemployment.
In 2020, the ruling class used the crisis conditions created by the pandemic to launch a bailout twice the scale of 2008, implemented within a matter of just a few months, leading stock markets to surge to record highs almost immediately.
Beyond the trillions of dollars that went directly to Wall Street, even the funds supposedly meant to preserve workers’ jobs took the form of corporate handouts. As Chappe and Blyth noted, “An MIT team concluded that the PPP [Paycheck Protection Program] handed out $500 billion in loans yet saved only 2.3 million jobs over roughly six months… the annualized cost of the program comes out to roughly $500,000 per job.”
The bailout was followed by the reopening of workplaces in April and May. By the end of July, the emergency federal unemployment benefits available to some workers were allowed to expire, with legislators of both parties arguing that keeping the unemployed afloat was a “disincentive” to workers getting back on the job.
In the 2020 elections, millions of workers voted against the “herd immunity” policies of the Trump administration and the single-minded subordination of the well-being of the population to the stock market.
But immediately after the election, Biden declared that there will be “no national shutdown” while reaffirming the Federal Reserve’s unlimited commitment to propping up the stock market. “Our interest rates are as low as they have been in modern history. And I think that is a positive thing,” Biden declared. Biden’s selection of former Fed Chair Janet Yellen as his Treasury Secretary is a signal to Wall Street that the flood of free money will continue.
Neither Biden nor congressional Democrats have shown any interest in restoring emergency jobless aid, even as states close restaurants, bars and gyms to prevent hospitals from being overrun.
The year 2020 has exposed American society as an oligarchy, in which a tiny group of billionaires inflicts enormous social misery on the great majority of society for its own personal enrichment. If hundreds of thousands of people need to die to generate more wealth for the oligarchs, so be it.
The unprecedented enrichment of the financial oligarchy, in the midst of the greatest crisis since the 1930s, has exposed the arguments that have been made to justify decades of job-cutting and the destruction of social programs. If there is no money to pay jobless benefits, where on earth did society find $112 billion to give to Elon Musk?
These events have not passed unnoticed by millions of workers. Even before the pandemic, socialist sentiment was on the rise among broad sections of the population. Now it is becoming self-evident that the basic needs of society—including the preservation of human life itself—are incompatible with the domination of a few thousand billionaires over society.
The United States is facing an emergency. The pandemic is raging, and millions are hungry and jobless. Urgent measures are necessary. Containing the pandemic requires the immediate nationwide shutdown of nonessential production. This must be accompanied by full compensation for lost wages of workers and earnings of small businesspeople.
The money to save hundreds of thousands of lives exists in the overflowing bank accounts of the oligarchs. These funds must be immediately frozen, seized, and put to use to stop the pandemic and ensure that no one goes hungry or homeless as a result of lockdowns. The demand for these urgent measures is a critical component for the struggle for socialism and the reorganization of society to meet social need, not private profit.
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