As Dow Sprints to New High, the Middle Class and Manufacturing Languish

It’s hard to fathom the celebratory mood in the US markets, save that the moneyed classes are benefitting from a wall of liquidity reminiscent of early 2007, when risk spreads across virtually all types of lending shrank to scarily low levels. Then the culprit was not well understood, although Gillian Tett discerned that CDOs were a huge source of leverage, and in April 2007, an analyst, Henry Maxey at Ruffler, LLC, did an impressive job of piecing together how levered structured credit strategies were driving market liquidity.

Now it’s a lot easier to see what is afoot. The Fed has been trying to reflate asset values to goose the real economy. What it has done instead is goose the incomes of the top 1% while everyone else is on the whole worse off. But the central bank is suffering from a very bad case of “if the only tool you have is a hammer, every problem looks like a nail” syndrome. It’s unwilling or unable to admit that its program is working only for a very few. It has convinced itself that if it just keeps on the same failed path long enough, things will turn around. As we can see from Japan, “long enough” can exceed 20 years, and it is not clear that the latest Japanese pump priming will finally pull the economy out of the ditch.

Matt Phillips fleshes out how badly ordinary Americans have fared. From the Atlantic (hat tip Ed Harrison):

The stock market alone hasn’t repaired the damage done to American household finances in recent years. In many ways Americans are still sucking wind after the gut punch they suffered in 2008. Here’s a look.

These haven’t gone anywhere but down since the recession hit. Real median US household income — that’s “real,” as in “adjusted for inflation” — was $50,054 in 2011, the most recent data available from the US Census Bureau. That’s 8% lower than the 2007 peak of $54,489.

Yes, it’s true that those 2011 data are pretty old. But if consumer expectations are any reflection on income levels, it doesn’t look like the pay has gotten anywhere back to normal pre-crisis levels. And while the US economy has gotten back on track, workers’ pay has been a progressively shrinking piece of total GDP since the recession hit.

So the new high on the Dow appears mainly to be a reflection of the way corporations have been able to squeeze workers, even after the biggest economic upheaval since the Depression. So all the market giddiness is really about how secure the have feel in their advantaged position.

Yet despite all the talk about how great earnings are, actual S&P 500 quarterly earnings per share peaked in the first quarter of 2012 and were down in the following two quarters (the 4Q actual should be out shortly).

And a new report by MIT on innovation and production (hat tip Marcy Wheeler) has an almost desperate undertone. It starts by pointing out how the data understate how bad the competitive erosion is:

One of the key danger points identified in these reports is the declining weight of the U.S. in the global economy. Even though the U.S. share of world manufactured output has held fairly steady over the past decade, economists have pointed out that this reflects good results in only a few industrial sectors. And even in those sectors, what appear to be productivity gains may be the result of underestimating the value of imported components. A close look at the composition of a worsening trade deficit shows that even in high-tech sectors the U.S. has a deteriorating picture. While the output of U.S. high tech manufacturing is still the largest in the world and accounted for $390 billion of global value added in high-tech manufacturing in 2010, U.S. share of this world market has been declining, from 34 percent in 1998 to 28 percent in 2010, as other countries made big strides ahead into this market segment.

Jobs are another huge concern. The great spike in unemployment over the past five years was disproportionately due to loss of manufacturing jobs. And as the economy revived, such jobs were very slow to return. In fact it is clear that many of them never will.

It makes clear how far hollowing out has gone in the manufacturing sector, and how the economy has lost so many components critical to innovation that it isn’t clear how to restore them. The researchers went beyond the venture capital darlings to find what it called “Main Street Manufacturers.” It found they were at a serious disadvantage due to the lack of firms with complimentary know-how in their ecosystem. After quoting the experience of one firm, the authors noted:

But in this company as in most of the others in this category that we interviewed in the U.S. all growth depended on their internal resources. They were not finding any complementary capabilities they could draw on in the industrial ecosystem as they tried to develop new components: no outside funding, no connections with community colleges, no trade associations, no research consortia (all regular fixtures, we would discover, on the landscape of German companies in the same industrial sector.) As we wondered why the contributions to innovation of the Main Street manufacturers did not lead to greater profits and faster growth, the comparison with Germany was inevitable. An Ohio machine toolmaker is not going to take off like Microsoft or Facebook, but we saw underexploited possibilities. How could we galvanize more innovative activity within Main Street manufacturers, a faster uptake of new technology, and a tighter enabling connection with new start-ups across the economy?

I suggest you read the MIT report in full. It is short, informative and extremely important. One important discussion is of the model for manufacturing in the US in its heyday resulted from internal integration. The authors dare voice doubts about the new approach of fragmentation of tasks across firms and geographies:

The possibilities for innovators and designers to draw on the manufacturing capabilities of the entire world has stimulated a huge wave of new enterprise creation both in the U.S. and in the developing economies. On the face of it, this is an enormously positive outcome. What we do not know, though, across different industries—and particularly for emerging new high-tech domains—is whether the separation of innovation from manufacturing will allow innovation to continue full-bore at its original home, or whether separation comes at the price of learning and creation of capabilities that might produce future innovation at the original home base. Separating innovation and manufacturing—in different companies, or in different locations—might make it unlikely that a firm would gain full advantage from implementing technological advances within manufacturing, for example, from learning how to accelerate the scale-up of a biotech drug from test tube to mass production or learning how to fabricate semiconductor chips at lower volume, higher value, and lower cost to run the medical devices that aging generations of baby boomers will need to keep them healthy and functioning at home and out of hospitals.

It has long looked like outsourcing and offshoring are not about improving flexibility and innovation, but about what managers usually say it is about: lowering labor costs. But it’s actually a form of looting, just not the financial kind. The reduction in manufacturing floor costs is partially offset by an increase in managerial coordination, so it’s actually a transfer from blue to white collar workers, particularly the very top executives. And it increases risks of the enterprise. Look at how even master logistician WalMart has experienced major supply chain screw-ups. And what would happen, say, if all that saber-rattling in the Middle East finally leads to a hot conflict with Iran? If oil prices shoot up, the economics of transporting intermediate products around the world might not look so hot.

It’s perverse that stock market averages are treated in the business and popular media as a proxy for the health of the economy. They are now the indicator, at most, of the well being of the wallets of the wealthy, which is coming more and more at the expense of everyone else.

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    1. Klassy!

      Oh yes, because while this sounds good:
      Separating innovation and manufacturing—in different companies, or in different locations—might make it unlikely that a firm would gain full advantage from implementing technological advances within manufacturing, for example, from learning how to accelerate the scale-up of a biotech drug from test tube to mass production or learning how to fabricate semiconductor chips at lower volume, higher value, and lower cost to run the medical devices that aging generations of baby boomers will need to keep them healthy what I am more likely to read about (locally) when they talk about the latest innovation is yet another app that more efficiently tracks consumer behavior. Or some photo sharing thing. Or, if you’re looking for “socially responsible”, JPMorgan Chase sponsored a “code for good” competition and the winning product was an app that allowed social workers to use their smartphones to keep tabs on homeless clients.

    2. kevinearick

      always seperate your revenue from your cost, as if they are unassociated, juicing the former and assigning the latter to others, when you set up the ponzi…that’s MBA, my bigger assets….

    3. jmw


      One of the key danger points identified in these reports is the declining weight of the U.S. in the global economy.

      Gee whiz, I guess if Korporate AmeriKa offshores all the jobs, and technology and investment to China (and elsewhere), and amortizes those countries, while avoiding amortizing in America, it should be pretty darn obvious to everyone excepting for those most mentally-challenged, hmmmm?

    4. Nathanael

      “Well when MBAs replaced R&D… marketing replaced value… poof!~”

      Yeah. It’s interesting to note that Veblen talked about the industrialists being replaced by people who knew nothing about the product they were making or how to make it. This is an old problem.

  1. LXDR1F7

    Financial sector has the priviledge of creating the nation’s money so therefore they can manipulate markets to their favor and continue to marginalise other sectors of the economy.

  2. MikeNY

    Our Fed is a deeply deluded, reactionary institution. Under the banner of restoring employment, they are simply inflating yet ANOTHER bubble, further enriching the 1%, and further eviscerating the middle class — who will no doubt get sucked into this rally at the top.

    It’s patently clear that the Fed stands for the status quo, and smack in the way of substantive economic change. And they can’t even see this.

    1. Cynthia

      The people who are popping champagne corks about the DOW are the same people who lament the widening gap between the rich and the poor and the erosion of the middle class. Anybody got a wall I can use? I need to bang my head on it for awhile.

      With 53% of the population earning $30K or less per year, there is no question there is an asset bubble. There will be more and more attempts at redistribution until the whole thing pops. Enjoy the ride (up and down).

    2. Jim Haygood

      ‘Our Fed is a deeply deluded, reactionary institution. Under the banner of restoring employment, they are simply inflating yet ANOTHER bubble.’

      Well stated, sir.

      Actually they are inflating multiple bubbles. When central planners squeeze all the yield out of bonds, yields on competing assets such as stocks and property fall too.

      In particular, the bond bubble is so large that the Federal Reserve has begun preparing Congress for a potential half trillion dollar loss on its own bloated portfolio:

      One imagines puzzled Kongress Klowns asking Bernanke, ‘How could free money cost us so much?’ Ah ha ha ha …

      While much of Bernanke’s MMT-style funny-money largesse is leaking into stocks, the real objective here is to refloat property and make underwater equity dissolve in a blissful rising tide of higher housing prices.

      Needless to say, this all ends in tears. But it’s gonna be one wild party till Banzai Ben takes away the punchbowl.


      1. financial matters

        What Bernanke is doing is the opposite of ‘MMT-style’.

        MMT recognizes and is completely against debt leveraged increases in asset prices such as real estate and stocks. The former makes it more expensive for industry to operate and more expensive for first time home buyers. The latter makes it more expensive for people to buy securities for their future retirment.

        MMT on the other hand is for direct government investment in industry without going though the destructive grip of the FIRE sector. The many items mentioned in the above article which would support our manufacturing base are the sorts of things MMT would finance to help acheive their goal of full employment.

      1. Carla

        Including the delusion that it is “OUR” Fed. It’s is the international banking cartel’s Fed, and therefore naturally does the bidding of the cartel.

      2. jmw

        Exactly, Klassy, exactly!

        All Ameritards care about is entertainment, entertainment, and entertainment (movies, sports, porn, ad nauseum).

        Sure, we could imagine “but that’s all we are fed” — but every Ameritard over the age of 40 I’ve spoken with believes the Federal Reserve is part of the government, and doesn’t question Martin Feldstein’s pronouncements from on high (NBER) as to that phantom recovery he spews forth about — even though, unbelievably, Marty Feldstein was a director at HCA when they were hit with that historyic out-of-court penalty for Medicare/Medicaid fraud, and Feldstein was a director at Eli Lilly when they were hit with the highest criminal penalty in history for falsely marketing drugs which killed, and Feldstein was a director at AIG’s Financial Products group when they were responsible for the largest insurance swindle in history!

        Now, would ANY sane human pay any attention to Harvard’s Martin Feldstein?????????????????????????????

        1. jrs

          “but every Ameritard over the age of 40 I’ve spoken with believes the Federal Reserve is part of the government”

          Then they’re not entirely right but not entirely wrong either. I think most accurately it’s not part of the government so much as the government created and sanctioned monetary entity. It has the full government stamp of approval, as it was explicitly created by government laws (federal reserve act), it’s not something that just exists out there independent of the government. But it’s not directly accountable to the people? Well technically congress does have and could exercise oversight if it wanted to. But the very structure of the Fed makes it more difficult, one might say by design. It was a deliberately government created and sanctioned banking cartel pretty much.

        2. pws

          The problem is people talk about the American Government when they mean the American System. Which is why almost everyone has some kind of opinion of Ronald Reagan, but you’ll get a lot of blank stares if you mention Jack Welch (who was just as important a policy maker in his own way, though he never held a public office.).

        3. U.S.Grant

          It reminds of Voltaire’s quip “Where some states have an army, the Prussian army has a state.” Hence, where some nations have a central bank, The Fed…

      3. Crazy Horse

        One of the biggest delusions is that the Dow average has just reached a new high point.

        Reality check: The previous high point of the Dow was in 2007. Since that time the Dow has gone down 50%-when measured in Gold instead of Dollars.

        Reality check: The non-fiat world currency Bitcoin is the best performing currency in the world, having increased over 100% against the dollar in the past year. Could that have something to do with it having a fixed and limited supply instead of endless printing by the FED?

        1. Crazy Horse

          Reality check:
          “Warren Buffet is the world’s greatest investor”

          A million dollars of Berkshire Hathaway stock has increased in value to $1.8 million in the past decade.

          A million dollars worth of gold bars has increased to nearly 5 million in the same period.

    3. Really?

      Well, it is a bank after all. What did you expect? That’s pretty much what banks do these days.

    4. Ms G

      I don’t quite agree that the Fed is “deluded.” It is proceeding precisely according to its policy of manipulating the monetary system to ensure the enrichment of the Oligarchy (the .01%) at the expense of the citizenry (the 99.9%).

      At inception, the Fed was structured by Morgan, et al. — hence our debt-based economy.

  3. ArkansasAngie

    Now add the fact that they can kill you (with a drone) without leaving thier office and you have a complete transfer of power from the many to the few.

    It’s time to say no …

    They aren’t going to give up stealing without a fight.

      1. different clue

        Is there a functional effective “stealth no” which millions of informed but seemingly unorganized clearly leaderless people can engage in?

        If a hundred million people came to share the belief that “every dollar is a bullet on the field of economic combat” and those hundred million people all began concentrating their fire against the same few targets, could they destroy or “kill” those targets? Is imagining the possibility the first step towards figuring out how to do it?

  4. from Mexico

    Can it honestly be argued that Bernanke is drunk on the Milton Friedman Kool Aid?

    Has he not asked for more sane fiscal policy, and indicated that monetary policy by itself cannot revive the economy?

    It seems to me if there is anyone who is drunk on uncle Milton’s Kool Aid it is the Obama administraiton and the congress.

    1. MikeNY

      Yes, Bernanke has admitted that monetary policy cannot solve all our problems. So why is he acting as if it can, and relieving the US Congress of its responsbility to act?

      He has become an enabler.

      1. from Mexico

        An enabler, or a scapegoat?

        It seems to me it is just all too convenient for the Obama adminstration and the congress to pile all their sins on the Fed, and then throw up their hands and say: “Oh well, there’s nothing under the sun we can do, it’s all the fault of the Fed.”

        This ruse is not unlike the debt ceiling or the sequester. It is asserted that there is absolutely nothing that the president or the congress can do in the face of the debt ceiling or the sequester. When they are confronted with these things, they are instantly rendered powerless and helpless. Never mind that they themselves created these things, and could just as easily uncreate them.

        All the kabuki seems to serve one purpose: to give these elected officials plausible deniability for making policy that is highly unpopular.

        1. MikeNY

          ITA about our political dysfunction.

          Why should the Fed continue to give Congress and the POTUS a fig leaf to hide behind? The Fed is now complicit in the irresponsbility, they are ennabling it, by perpetuating the asset-based economic growth model of Greenspan.

          IMO, it whould better for the Fed to lay off the juice, to stop perpetuating, exacerbating, the wealth inequality and the bubble machine. If people take to the streets — maybe that’s what is needed.

          1. from Mexico

            Well all these arguments to make Bernanke the fall guy suffer from the same logical fallacies that inhere to the arguments formulated by Augustine and the scholastics. The contradiction they were grappling with was this: How can human will be free in a world ruled by an omnipotent and all-powerful God?

            And so I ask: How can Bernanke be free in a world ruled by an omnipotent and all-powerful president and congress?

            Augustine employed the phrase liberum arbitrium captivatum, the human free will has been taken captive by sin. God gave man a free will, according to Augustine, so all the bad things that happen in the world are not God’s doings, but the doings of man. But this just papers over the problem, because if God is good and all-powerful, and giving man free will results in bad things, then why did God give man free will? In political speak, that would translate to if the president and congress are all-powerful (which when it comes to the Fed they are), and giving free will to the Fed results in bad things, then why do the president and congress give free will to the Fed?

            The scholastics — all the way from Anselm to Bernard of Clairvaux to Bonaventure — joined Augustine in refining elaborate polemics that blamed man, and not God, for all the bad things that happen in the world.

            Aquinas, by contrast, argued that both divine and human will are subordinate to reason. This notion was challenged by the nominalists on the basis of empiricism and experience — any sentient human being, after all, can look around the world and see that it is not governed by reason — as well as it subordinated the will of God to reason, something that cannot be if God is all-powerful.

            So let’s place the blame squarely where it belongs: on the president and congress.

          2. Nathanael

            Bernanke has freedom of speech. If “Fed independence” means anything, it means Bernanke can say what he wants.

            He chooses NOT to say “We require government spending on domestic, non-military programs which give money to the 99%, not to the 1%”.

            “Complicit” is a good word to describe Bernanke.

          3. sierra7

            To: From Mexico and Aquinas:

            AHHHH! But, didn’t Aquinas say in the end of things, you must have faith?

          4. traveler

            Sure. Stirred ’em up before and it would stir ’em up again. Really, what other recourse is there?

      2. mac

        Can it be that Bernanke has become a victim of the idea that “even if I cannot really do something, I am expected to, so I will do this even if it hurts”.
        That sort of idea is such that people fear being criticized for inaction so the act even if the act id bad.

      3. jmw

        I’m guessing for the very same reason that former vice-chair of the Federal Reserve, Fredric Mishkin, did a report for Iceland proclaiming the soundness and health of their banking system, shortly prior to its meltdown, and then lied on his CV (that’s resume to Americans) and changed the title of his Icelandic financial report to indicate the opposite of what he originally said (liar, liar, Mishkin’s panties on fire!).

    2. Cynthia

      Bernanke has stated he will use proper monetary policy until there is a recovery per employment; therefore, we will get a recovery.

      Perfectly logical. And I’ll keep flapping my arms until I begin to fly; therefore, I will make myself fly at some point.

      Welcome to purposeful asset mis-allocation bubble number 3 of the Greenspan/Bernanke era. Can’t wait to see who they blame when this one ends in a colossal downturn, if not a severe Depression.

      1. mac

        Many years ago I saw a person who after drinking enough Puerto Rican beer decided he could fly. He attempted to fly off the roof of a 3 story barracks, the macadam parking lot disproved his flight theory.

  5. jake chase

    The stock market is not a proxy for economic activity. Rather, it is a proxy for leveraged speculation by hedge funds drunk on cheap borrowed money and 2-20 deals funded by those already rich. The low volume and extreme volatility suggest a very dangerous top. Those now getting up the courage to plunge in will most likely be buying from those now hoping to get out before the next crash.

    None of this means the crash will not be delayed for a year or two, or even longer. Nobody has any idea what will happen next, least of all those so called experts who bray about it incessantly.

    The only thing real about the economy is the debt overhang and the employment shortfall and the rents being extracted by the financial sector.

    1. They didn't leave me a choice

      There is nothing real about debts. They are just a ficticious construct that the rich use to enslave the humans.

      The only real economy that I recognise are the people, raw materials and physical equipment used to produce real, material goods. Everything else is fiction.

      On an tangent, do you know what the most shocking part about the movie “They Live” is? It is not how accurately it views utter destitution (probably not very), or how alien(ated, hahaha) the elites are from us humans. It’s the fact that it was made a quarter a century ago, but feels like it could have been made today.

      1. taunger

        “The only real economy that I recognise are the people, raw materials and physical equipment used to produce real, material goods. Everything else is fiction.”

        Don’t blind yourself to the value of human services, the arts, etc. Just because our decadent society often misuses the value beyond necessity services doesn’t mean that value aren’t thre.

      2. Really?

        Although, the real poverty you’ll find yourself living in once the law in enforced to collect those imaginary debts, remains, for the most part, very real indeed. New book idea! Zen and the Art of Debt Slavery. Should be an all time best seller if current demographics are any indicator, although you might have to give it away for free for anybody to be able to read it.

        1. They didn't leave me a choice

          True in a limited fashion I suppose. Your mind makes it real, perhaps? Or rather, other peoples minds and their attached guns and implied violence makes it real?

          Zen debt slavery, eh? What is the sound of rich person stealing?

        2. Ms G

          ” … the real poverty you’ll find yourself living in once the law in enforced to collect those imaginary debts, remains, for the most part, very real indeed.”

          Exactly. That is why what the coalition of FIRE and President Obama are doing to every one of the 99.9% (even the lackeys that are deluded they’re exempt) is domestic terrorism — the State turned against its people.

          The poster for our current circumstances is Goya’s painting of Saturn eating his children.

    2. jmw

      jc nails it again!

      The bond market doing well normally once meant that the stock market was doing poorly, not both markets doing well concurrently, completely indicative of absolutely rigged markets, with no countervailing forces whatsoever!

      Everything is a sham in a completely fraud-based society!

  6. Jefemt

    NPR blather feed on my drive home features Kai Riisdahl(sp?) on a money show. He’s getting increasingly cynical, and started last nights show with,

    “Repeat after me: the Dow Jones average is NOT the economy”. Wonder if anyone at the top or in Wall Street was listening? The disconnect is appaling

    Barfin’ the Bakken

    1. Myshkin

      Marketplace once had the excellent Marty Goldensohn as its New York Bureau Chief, before that he was New Director of WBAI Pacifica in the 80’s. Also David Brancaccio, before he joined Bill Moyers as a co host of NOW, was senior editor and host beginning in 93.

      Both were insightful and excellent analysts of the underlying, hidden side of American business, its destructive effects on the middle class and poor, and the fallacies of conventional economic wisdom.

      Then at some point Marketplace turned into happy marketplace talk and began to resemlbe NPR in general, devoid of meaningful content and nearly unlistenable.

      With all the advertisements, traffic reports and promos, This Hour Has 22 minutes, as they say in Canada, and most are garbage.

      1. Jim A.

        Sadly, the article is all about how the DJIA is a poor estimate of the stock market, and not how the stock market is a poor estimate of the economy.

    2. jmw

      While I’ve heard much, much fiction from NPR’s Planet Money farce, the one time I heard something factually correct was when they did a correct breakdown on the actual buyers of all those subprime mortgages. (The upper 5/6ths were corporate speculators and individual wealthy RE speculators, next came corporate house-flippers, and wealthy individual house-flippers, with the bottom 1/6th made up of family/couple/individual residential home buyers.

  7. David Lentini

    Some 20-30 years ago, we crossed the Rubicon into the radical engineering of the Western economies, the US in particular, into the image of a libertarian paradise. Like the Bolsheviks, this engineering was the spawn of a tiny group of intellectuals who created a theoretical utopia bsaed on their image of a rational being and then sought to reify that utopia by using every device they could find. Of course, the vision of the rational being that these thinkers held was itself irrational, a chimera that reflected more of the narcissisms of its creators than any physical human being, a logorrheic Mr. Spock without the quirky charm. A human in appearence only, but without shame, guilt, love, humility or wisdom–the very definition of a sociopath.

    The intellectuals created a world where power, not truth or justice, was the rule. A world where acquiring things only mattered, becuase their self-imagel-made man only recognized the cold calucations of two-valued logic and zero-sum mathematics. What can’t be counted doesn’t count. Thus, America would become the land of the last men and women standing, the logical winners of a great optimizing analytical engine that would sort out in a binary fashion the truly valuable from the losers.

    Like the Bolsheviks, our intellectuals created a foundational myth that they trumpeted incessantly, following the advice of another great totalitarian thinker, Joesf Göbbels. The man made in the image of the intellectuals took over the universities and newspaper columns, the think tanks, and the popular culture. The funding for their myth-perpetuting engine coming from people who can’t stand democracy and wanted to take their place as our natural national aristocracy.

    The cold programming of this laissez-faire Bolshevism has ground on for more than three decades now. We are reaching the end of the optimziation process, in which the activity will now turn to those who have nearly reached the pinnacle of our economic Tower of Babel. Now the foundational myth is being laid bare for what is really has been all along–a fantasy. But who among the intellectual libertarian vanguard cares now, for the myth has served its puropse by weeding out the vast number of losers in order to further distill the chosen who will contintue to fight in the arena of the financial markets.

    So, the actions of the Fed and the other organs of government that have been coopted like the cloned protagonists in the movie Invasion of the Body Snatchers serve to perpetuate the program as it grinds on to select the most perfect beings made in the image of the intellectual vanguard. Becuase this has never been about economics in the sense that Aristotle coined the term, the management of as society for the good of its citizens; it’s always been about creating and installing a class of overlords.

    Soon it will be “game over”. The question is for whom?

    1. Really?

      Love the dark and ominous imagery. Sounds like a script for the next episode of Batman, complete with blustering orchestral theme in a minor key in the background. I wonder, who will be the world’s Dark Knight in the face of such a monstrous evil? Indeed, will there be a hero, super or otherwise, that can possibly stand up to the current powers that be? Things ain’t looking good for the good denizens of Gotham City these days.

      1. The Wabbit

        Perhaps, we citizens should stop looking for a Dark Knight, or a “hero”, or a “savior”. This predisposition to look for the special ONE to deliver us, would seem to be an ongoing shortcoming of our species.

        1. Really?

          True that, although we humans do seem to require figure heads of some sort to stay focused on any large scale undertaking. One thing’s for sure, O’Bomber and his ilk definitely took advantage of that fact and led us astray once again. Guess he fancied himself as the Joker – and the joke was definitely on US!

    2. Larry

      Sounds like Megan McCardle’s Rise of the Mandarins essay on the Daily Beast. Though more ominus.

    3. jmw

      Sorry, Lentini, but this stuff has been going on for ages, albeit incrementally, just recently has it exploded to the max!

      What is the greatest entitlement program, and who controls it?

      The “right” to create money, and that would be the banksters and private banksters with that so-called “shadow banking” being quite overt, and properly designated as credit derivatives, or securitization upon securitization upon securitization…..and credit derivatives upon credit derivatives upon credit derivatives (super-leveraging, in other words) with the ultimate financial manipulation thanks to those naked swaps (uncovered, or unconnected, credit default swaps which the US Treasury loves and swears by — just read their reports fromt the debt management office). Ravi Batra was correct when he said the US economy tanked around 1990 with the S&L meltdown — as that was about when credit derivatives (securities based upon debt) were introduced (ore technically re-introduced) into the American economy.

      1. rps

        Rumor has it back in 1971 the US economy tanked under Nixon. The band-aid fix of canceling the direct convertibility of the US dollar to gold since (-cough wheeze –code blue– crash cart!!!)The U.S. had insufficient gold to back the dollars in foreign banks and could suffer a run if they decided to exchange all their dollars for gold. All due to WAR that inturn drained our national pocketbooks while incurring trade deficits with accelerated inflation, high unemployment etc…. Gee wiz Mr. Wizard is this called deja vu’?

        Since then we’ve been hooked up to a respirator with the anticipated heroin drip that of course has its downside and then the couple jolts of jewels to restart the heart. Not much has changed other than the mandatory blood donations from the comatose patient while a bunch of arm-wrestling couch potato economists wave and shout their magic wand ideas. And in the meantime, we got War, high unemployment, inflation, to the moon trade deficits with the added feature of most americans tottering on the edge of bankruptcy. Seriously, the solution is simple, but it’s hard to do the morally right thing when greed and destruction are man’s ultimate glorification.

  8. Keenan

    The current period evokes a previous era of similarly sharp contrast:
    IT WAS the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair……

    Unlike the earlier period, chronicled by Dickens, this time the divide is worldwide.

  9. Jim Haygood

    Recently I completed a project that I’d wanted to do for years — making a complete DJIA database for the past half century. It’s a messy job, because 57 stocks have been in the 30-member DJIA since 1959. Their total returns series (hat tip CRSP, U. of Chicago) have to be painstakingly stitched together when replacements occurred (kind of like crocheting with a keyboard). But the exercise produces a tractably-sized 30-stock portfolio that’s free of selection bias.

    What’s interesting is how the DJIA’s sector composition has changed. Of the nine S&P sectors that are defined today, but six were represented in the 1959 Dow. And the only thing that resembled a tech stock back then was Eastman Kodak. More than half the average was concentrated in smokestack companies in the Materials and Industrial sectors.

    The first Health Care sector member, Merck, entered the Dow in June 1979. It was followed by the first Financial sector member, American Express, in August 1982.

    Today these formerly short-changed sectors are well represented in the Dow. It has four Financials (BAC, JPM, AXP and TRV); four Health Care entries (JNJ, MRK, PFE and UNH); and no less than five Technology contenders (HPQ, IBM, CSCO, INTC and MSFT). By contrast, the old smokestack belchers with their dark satanic mills have faded away.

    Capitalism, comrades! Or its pale facsimile, better to say. Let the captains of industry work for you.

    1. Cynthia

      Jim Cramer was on “The Today Show” today and said that DOW companies are posting record-breaking profits not because they are selling a record-breaking number of products and services, but because they have increased worker productivity to the point where an absolute minimum number of workers are needed get the job done as quickly and accurately as possible, thus maximizing company profits. Maybe this is true for companies within the DOW, but it’s not true for large companies within the hospital space.

      Over the last three or four years, large hospitals have hired record numbers of nurse managers, nurse educators, and nurse coordinators, despite much of what they do can be easily automated. Isn’t automation one of the most sure-fire ways to increase worker productivity? Apparently this is not what is happening when it comes to hospitals and their hiring practices.

      Perhaps nurse managers and other non-clinical nurses wouldn’t be such a drag on productivity if their salaries were more in line with the salaries of clinical nurses. But this it isn’t so. Most newbie nurse mangers and other newbie non-clinical nurses make 20% to 30% more than the most seasoned clinical nurse, despite the fact that most of these armchair nurses wouldn’t know how to diagnosis and treat a patient if their life depended upon it! Nor, do they play any sort of meaningful role in improving patient care or reducing hospital stay — the two most important factors in determining a hospital’s profitability, especially under ObamaCare.

      It’s very hard for me to understand why any hospital nurse who doesn’t have to put their license on the line every time they come to work, and who never has to experience the stress and stain of having to deal with life and death situations has a significantly higher paycheck than a hospital nurse who does have to put their license on the line every time they come to work, and who oftentimes has to experience the stress and stain of having to deal with life and death situations. This is why I have pretty much come to the conclusion that within the hospital setting, nursing management and nursing education are nothing more than a welfare program for master’s and doctorate prepared nurses.

      1. Nathanael

        This is the thing where managers pay themselves higher salaries than the people they manage. They shouldn’t, it’s bad for everyone except them. But they can. So they do.

        This is very close to the root of corporate rot.

        1. Cynthia

          What gets me, Nathanael, unlike clinical nurses, nurse managers and other non-clinical nurses can’t bill their services to Medicare or any other health insurer for that matter. And since these armchair nurses are being hired in record numbers and rewarded with record-high salaries and benefits, despite most of what they do can easily be automated and replaced by an average-intelligent computer, they act as a huge drag on productivity, making them far more costly than beneficial to hospitals.

          So tell me, how in the world are these high-cost, low-productivity employees making hospitals more profitable?

          1. JTFaraday

            “Over the last three or four years, large hospitals have hired record numbers of nurse managers, nurse educators, and nurse coordinators, despite much of what they do can be easily automated. Isn’t automation one of the most sure-fire ways to increase worker productivity? Apparently this is not what is happening when it comes to hospitals and their hiring practices.

            Perhaps nurse managers and other non-clinical nurses wouldn’t be such a drag on productivity if their salaries were more in line with the salaries of clinical nurses.”

            Yeah, after the executive suite fluffs up its rent take from the government via Obamacare, they will give you an ankle bracelet and get rid of your boss.

            Good times ahead!

      2. jmw

        That’s the same Jim Cramer who shouted to everyone that the mortgage foreclosure was to be ignored back around 2008, then the very next week was whining to the government to bail out Wall Street? And you still watch this clown?

      3. different clue

        Perhaps that would be a problem for unionized nurses and their Nursing Unions to address. Perhaps pay-cutting or substantial “riffing” of these nurse-managers etc. would be something for nurse work-doers to bargain for or even strike for . . . if they get their long bitter strike funds in order first. Perhaps it could work if every nurse in the union could strangle-down their standard of living enough to become debt-free or debt-low so as to reduce their vulnerability to threats-of-replacement by a vengeful management jealous of its power and rewards.

  10. Renodino

    Got to take this market higher to prepare for the breakup of the EU this summer.
    The 40% drop won’t look so bad from an S&P at 1650. Ok, it will still look bad, but by then the 1% will be out and mom and pop will be all in.

  11. Can't Help It

    Hei the ADP is reporting higher employment numbers. It appears small and medium business are hiring. We are finaly close to a recovery. What sequester, what payroll tax, here comes pop and mom!!!

    1. jmw

      We are finaly close to a recovery…

      By any chance did you have a great deal of difficulty with arithmetic when you were a kid, and even more problems as an adult?

      Who owns ADP? Who sits upon their board? Where do most of the revenues derive from which their parent company comes by?

      Those talking snakes in the Bible? I’ve yet to encounter one, although plenty of humans who appear to be talking snakes.

      US households lost an estimated $17 trillion between 2007 to 2009, according to the US Treasury (Alan Krueger).

      The banksters ain’t giving it back, kiddie.

  12. Uncle_Bob

    Reading this morning’s San Jose mercury-news was very telling. Along with frontpage headlines about the Dow, were stories about the crumbling roads and infastructure in Santa Clara County; home to Google, with an all-time high of $868 a share, Apple, and Adobe.
    ..And another story about the Gilroy School District being taken over by the county because of poor bookeeping. reading on one learns one of the main reasons for the problems was not enough people were working there…due to cut-backs..One lady was the head of 5 different departments!..
    so..just an 2 cents woth..bob

    1. jmw

      In the Seattle School District we’ve had financial scandal after financial scandal after financial scandal the past twenty years or so.

      I recall when they hired some 28-year-old “credit derivatives” Wall Street expert, who royally effed things up, next a Bill and Melinda Gates Foundation-sanctioned individual who wanted to move towards the privatization of everything (when she was canned, the Ameritards locally claimed it was racially-motivated — pure bunkem and only a moron would have excused her Bill and Melinda Gates Foundation-sanctioned behavior).

    2. sierra7

      Good point about crumbling infrastructure in Santa Clara Valeey home to some of the “richest” corporations on this planet with sky high share prices, while just down the street from for example, Apple, a major community college is strapped for funds and has been forced to slash student spending…an or, all financing….
      We are a disgrace.
      I hate to see this; I shared raising my children there and am personally disgraced by this mess.
      Ah, but where does Apple secure its cash?????????
      Nowhere near it’s headquarters……

  13. TC

    First of all, the U.S. is not rightly compared to Japan. In the post-2008 crisis period, the Japanese have the option of devaluing their currency. The U.S. does not.

    Yet verily be forced to suffer a severe dollar devaluation, reckless central banks starting with the Fed virtually assure, as beggar my neighbor policies now inescapably win the day and march the globe toward physical shutdown.

    Won’t the so-called 1% supposedly benefitting from post-2008 crisis policy prescriptions be shocked by sudden failure whose ushering is likely to make 2008 appear a tortoise’s walk! They’ll be ruined, just like everyone else. Truth is they know it, too. That’s why when you look to the stock market’s underpinnings you see nothing but no confidence the post-2008 game will sustain the ruse that, status quo formed during the Greenspan era of wildcat finance can ever be restored. It’s just not gonna happen, leaving heartbreak in store.

    All you need ask is where are necessary buyers who are spreading the love, as must occur if prices assigned to assets at the bottom of the capital structure are likely to be upheld. There are no buyers and there is no love. The simplest of measures revealing the nature of what is underlying the stock market’s recovery plainly reveal this. Goose whatever mechanisms are available to coax return to normality, the more they try, the more it appears this will end in tears. The 1% will not escape it either.

    Not sure what is the point of contemplating the state of U.S. manufacturing this late in a London-New York run Ponzi scheme whose effect has decimated the trans-Atlantic banking system, all in a venture to destroy sovereign nation states (which is the real issue at hand here, and this no less targeting the constitutional republic that is the United States in particular). Per the risk of oil prices shooting up? Only as a last ditch effort to “save” the dollar, yet far more likely intending to issue its coup de grace.

    1. Nathanael

      The US most certainly could devalue the currency if a concerted effort was made to do so by the federal government.

      It wouldn’t solve the problems unless money went to the 99%. It wouldn’t hurt, though.

    2. jmw

      With QE I, II, III (and who knows how many more?) the Fed has most certainly devalued the dollar.

      1. Jim A.

        Of course since QE mostly flowed into the financial-industrial-complex rather than into consumer’s hands, inflation has mostly hit stock prices rather than consumer goods.

  14. tyaresun

    Samsung vs Apple should be a very good example of what happens when you separate manufacturing from design and marketing.

    1. hunkerdown

      Oh don’t even bring that Apple rounded-corner fanboi nonsense in here. The jury foreman bragged to the media how he ignored the court’s instructions to the jury in favor of his own agenda. In fact, the jury’s award was recently cut in half due to gross errors on the verdict form. Chances are the whole mess will be cut even further once the appeals court gets wind of how much exculpatory evidence Judge Koh and her magistrate forbade Samsung to present.

      Groklaw has posts a few times a week on important IP cases and has followed this one extensively. It is well known that Florian Mueller is a paid anti-Google and anti-FOSS mouthpiece and has been caught out in so many factual misrepresentations it’s a wonder the trade press even talks to him anymore.

      If there is any lesson to be taken from Samsung v. Apple (or Microsoft v. Motorola), it’s that courts have an unconscious bias toward the home team. We all do, without doing lots of work to correct for it.

    2. Cynthia

      Most DOW companies have re-located their manufacturing, as well as their services that can be done through the internet, to Asia. Workers in the West are either unemployed, under-employed or paid little. Governments collect less tax from corporations that have relocated to Asia. Western workers cannot borrow to consume. All this adds up to huge problems for governments and ordinary people in the West. And bubbles in the stock market are not going to make things better when they burst.

      1. jmw

        Ms. Cynthia says it all – – – shrinking jobs base, shrinking tax base – – – corporations, according to many GAO reports, have increasingly refused to pay ANY fed taxes almost exponentially since the 1990s, collectively growing worse each year. Doomsday soon to come . . .

    1. They didn't leave me a choice

      Ahhahhhahhah! Thanks, we all need a bit of the onion in our lives.

  15. Kurt Sperry

    This land of such dear souls, this dear dear land,
    Dear for her reputation through the world,
    Is now leased out, I die pronouncing it,
    Like to a tenement or pelting farm:
    England, bound in with the triumphant sea
    Whose rocky shore beats back the envious siege
    Of watery Neptune, is now bound in with shame,
    With inky blots and rotten parchment bonds:
    That England, that was wont to conquer others,
    Hath made a shameful conquest of itself.
    Ah, would the scandal vanish with my life,
    How happy then were my ensuing death!

  16. Jason Boxman

    Years ago, someone here suggested Jane Jacobs’ Economy of Cities; an interesting read that looks into the integration of manufacturing in cities and city growth cycles. Highly recommended!

  17. readerOfTeaLeaves

    Capitalism separates production from ownership.
    Ownership concentrates, and this concentration escalates over time.
    We see this with the 1%, and with finance (i.e. “ownership”) as the focus of too much government policy.
    The center does not hold; indeed, as Yves points out it is hollowed out:

    It makes clear how far hollowing out has gone in the manufacturing sector, and how the economy has lost so many components critical to innovation that it isn’t clear how to restore them. The researchers went beyond the venture capital darlings to find what it called “Main Street Manufacturers.” It found they were at a serious disadvantage due to the lack of firms with complimentary know-how in their ecosystem.

    Or, to rephrase: separating production from ownership means that ownership screws production in more ways than anyone anticipated. The entire legal, corporate, and accounting structures constructed to protect forms of ‘ownership’ unwittingly lost sight of the fact that to actually produce something requires a social ecosystem in which ideas can flourish and be tested with fairly low risk, at fairly frequent intervals, before they develop into actual products.

    The separation of ownership from production appears to have decimated the social, economic, and knowledge infrastructures critical to new kinds of production.
    We are seeing a new phase of this problem playing out.
    As Jesse might say, “this will end badly”.

    Sincerely appreciate the link to the MIT Study; will read it (and perhaps re-read it) later in the day.

    1. jmw

      What few Americans understand is that Abraham Lincoln said something quite similar in his inaugural address.

  18. kevinearick


    The only way to change the course of an economy is to have children when others are not and train them accordingly, which places a premium on parenting, identifying future values and making current decisions accordingly. An economy depends upon trust, and children learn by example, which enables community.

    The less weak take advantage of the weak, arguing equal rights to the resulting aggregate deficit financing, to form a passive aggressive majority, making increasingly arbitrary, capricious and malicious decisions on a path that can only lead to tyranny, to preserve the increasingly manufactured majority in a positive feedback loop. Cultivate your own accordingly.

    A very limited amount of homosexuality may be beneficial to an economy, but it is only the talk of the nation when the nation is collapsing. There are over 3 billion men out there; choose one that works for you and submit, or find yourself sucked in by majority peer pressure, which conditions itself right out of nature and into the DNA churn pool.

    As you have seen, the Fed simply manipulates the credit delays among peer pressure groups to print whatever it wants, report inflation/deflation as it wants, and blow real estate bubbles to suit its own. You are paying government/corporate workers twice your salary and selling them your property at 20 cents on the dollar, which the Fed conveniently ignores, and they outnumber you four to one. Whatever you do, don’t let your men go to work or have children yourself. How’s that working for you?

    So, a C in Mercedes tells you to move along or she will call the sheriff (firefighter, dogcatcher, whatever). What do you do? Why would you want to win such a game? If you can place your economy anywhere, why would you place it in a closed real estate ponzi designed to ensure you lose?

    Yes, the government workers are buying up everything, at what they consider to be bargain prices, but it’s all a sunk cost, because only you can generate real income and you can recognize it at the place of your choosing, if you act in the best interests of your children. Of course the little socialists/communists want universal head start, just like they wanted universal health care. Have you ever been to Italy? They must steal yours to feed themselves. Give up smoking so your fascist motherland can fuel its tanks.

    Sequester? What will the trolls try next? Where do you suppose the US Navy got its power, which is now obsolete? Humans are going to be removed from the surface, one way or the other. If you don’t like this speed…

  19. Hugh

    Re manufacturing jobs, the last peak in them seasonally adjusted was 17.637 million in March-April 1998. By the time Bush took office in January 2001, they had dropped 535,000 to 17.102 million. What often gets lost in these discussions is that in the years leading up to the December 2007 recession, 3.356 million manufacturing jobs were lost with total numbers dropping to 13.746 million. By contrast, the drop in jobs since the beginning of the December 2007 recession was 1.796 million (to 11.950 million in January 2013) . And manufacturing jobs have actually increased by about 500,000 since early 2010.

    The big story here is that NAFTA and the entrance of China into organizations like the WTO made a huge difference in the number of manufacturing jobs which primarily showed up pre-meltdown, even pre-recession in the Bush years. And while manufacturing jobs have increased at a very slow rate in the last 3 years, it is also important to note that the quality of those jobs in terms of pay and benefits has greatly deteriorated.

    1. jmw

      In other words, the neocon administration of Reagan, the neocon administration of Geo. H.W. Bush, the neocon administration of Bill Clinton, the neocon administration of Geo. W. Bush and the neocon administration of Obama have pretty well screwed us.

  20. Hugh

    Re the discussion of Bernanke and the serial bubbles he is blowing, an understanding of the concept of “bad faith” is critical. It is immaterial whether Bernanke believes or does not believe in what he is doing just as it is immaterial whether the SS officer believed or did not believe in the massacres he committed. Bernanke occupies a post of great power and prestige. It is his job to know about the effects of his monetary policies, and he has vast resources on which to relie to assess them. And there are many of us out here who have made extremely good analyses of our own as to why what he is doing does not and will not work. It is part of his job’s responsibilities to know these as well. So when Bernanke doesn’t simply choose bad policies but persists in them, he has no excuses. Sure, there are others like Obama who have even more authority and more power than he has, but this means nothing. The SS officer also had his higher ups. In neither case, is culpability mitigated in any way.

    Again this definition of bad faith has nothing arcane about it. I am not talking about abstruse points here but what anyone with a little knowledge and common sense would be expected to know. The height of the office and therefore the responsibility is simply an aggravating factor.

    So yes, Bernanke is acting in bad faith. He is working for and at the behest of the wealthy criminal class I call kleptocrats. That is enough. It doesn’t matter to me what he believes. He has enough information to know either that what he is doing is criminally wrong or that he is not competent to hold the position he does. There is no way that Bernanke can both be head of the Fed and pursue the policies he does, in good faith.

  21. F. Beard

    So the new high on the Dow appears mainly to be a reflection of the way corporations have been able to squeeze workers,

    Without the counterfeiting cartel, the banking system, corporations would either have to pay honest interest rates for their workers’ savings AND/OR pay them with common stock. In either case, workers would be far better off.

    But keep imagining that a money system based on usury for stolen purchasing power is benign if only it is regulated properly?

  22. Laurie

    Remarkable! The q of e sponsors the dow. 95% of America is struggling so the stocks won’t stay where their at, How? because there will be no consumer profits…WE go broke. AMEN

  23. run75441

    Hi Yves:

    While it is always refeshing to see “someone” discuss the rise and the fall of manaufacturing, it and the associated topics are old news. Hopefully someone hears the message you bring to the table this time.

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