The Political Junkies

As wages for most Americans have lagged since 2000, Americans have been going deeper into debt to maintain their standards of living. The facts are appalling (emphasis added):

The indebtedness of U.S. households, after adjusting for inflation, has risen 35.7% over the last four years.

The level of debt as a percent of after-tax income is the highest ever measured in our history. Mortgage and consumer debt is now 115% of after-tax income, twice the level of 30 years ago.

The debt-service ratio (the percent of after-tax income that goes to pay off debts) is at an all-time high of 13.6%.

The high cost of gasoline (energy) is causing inflation. As inflation rises, the Federal Reserve continues to increase interest rates.

Americans who refinanced their homes with adjustable rate mortgages when interest rates were low, will see their mortgage payments go up in 2006 and 2007 when the “adjustment” comes due. The consequences will be dire:

In the last several years, millions of Americans took equity out of their houses and refinanced. Many chose hybrid ARMs , which featured a low introductory interest rate that resets upward after a set period of time, were easier to qualify for than traditional loans.

This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. Monthly payments will leap too, many beyond what homeowners can afford.

Nationally, foreclosures are up 38 percent, higher than in any quarter of last year, property tracker RealtyTrac Inc. said.

The numbers are even grimmer in the Midwest. Michigan and Ohio, battered by automotive-related job losses, together recorded 45,000 mortgages entering some stage of foreclosure in the first quarter. Those are increases of 91 percent and 39 percent, respectively, compared with last year's fourth quarter. . . .

Layoffs as a result of corporate downsizing, health-care issues, increasing debt levels and rising interest rates are all factors. In addition, a growing number of homeowners are relying on adjustable rate mortgages, catching some people by surprise when their monthly payment rises.

Significantly, some of those ARMs were offered with an initial three-year to five-year period in which the rate was fixed. At the end of that period the mortgages will be reset at prevailing rates, potentially upending borrowers since interest rates have been rising. For many such people, that moment is approaching.

"The increases we've been seeing in foreclosures don't even reflect the worst-case scenario that could happen when the $2.7 trillion in adjustable rate mortgages are reset over the next 18 months," said Rick Sharga, vice president of marketing at RealtyTrac. . . .

And in some cases, people stretched to qualify for a mortgage only to be undone by higher utility and gasoline costs.

Junkie: Morgan’s letter to the Editor of the Economist below is in response to an article in the Economist addressing economic inequality in America. A critical passage from the Economist article sets the background for Morgan’s probative observations:

Thanks to a jump in productivity growth after 1995, America's economy has outpaced other rich countries' for a decade. Its workers now produce over 30% more each hour they work than ten years ago. In the late 1990s everybody shared in this boom. Though incomes were rising fastest at the top, all workers' wages far outpaced inflation.

But after 2000 something changed. The pace of productivity growth has been rising again, but now it seems to be lifting fewer boats. After you adjust for inflation, the wages of the typical American worker—the one at the very middle of the income distribution—have risen less than 1% since 2000. In the previous five years, they rose over 6%. If you take into account the value of employee benefits, such as health care, the contrast is a little less stark. But, whatever the measure, it seems clear that only the most skilled workers have seen their pay packets swell much in the current economic expansion. The fruits of productivity gains have been skewed towards the highest earners, and towards companies, whose profits have reached record levels as a share of GDP.

Even in a country that tolerates inequality, political consequences follow when the rising tide raises too few boats. The impact of stagnant wages has been dulled by rising house prices, but still most Americans are unhappy about the economy. According to the latest Gallup survey, fewer than four out of ten think it is in “excellent” or “good” shape, compared with almost seven out of ten when George Bush took office.

The White House professes to be untroubled. Average after-tax income per person, Mr Bush often points out, has risen by more than 8% on his watch, once inflation is taken into account. He is right, but his claim is misleading, since the median worker—the one in the middle of the income range—has done less well than the average, whose gains are pulled up by the big increases of those at the top.

Privately, some policymakers admit that the recent trends have them worried, and not just because of the congressional elections in November. The statistics suggest that the economic boom may fade. Americans still head to the shops with gusto, but it is falling savings rates and rising debts (made possible by high house prices), not real income growth, that keep their wallets open. A bust of some kind could lead to widespread political disaffection. Eventually, the country's social fabric could stretch. “If things carry on like this for long enough,” muses one insider, “we are going to end up like Brazil”—a country notorious for the concentration of its income and wealth.

Congratulations on your treatment of growing inequality in the United States. I want to add a few things:

You talked of income, but income after taxes is what is disposable, and we have all but eliminated the progressivity of our tax system. The marginal income tax rate has fallen from 91% to 34%, and increased loopholes have made things still worse. Government help at the bottom (welfare, education) has not kept up with inflation.

And with increased inequality of disposable income, we are losing the crucial theoretical justification for free market capitalism, i.e., that market demands are good guides as to what to produce and how to produce it. Can anyone justify the production of yachts and face lifts versus infant nutrition and health?

There is more. With vast inequality of disposable income, the majority is left with inadequate aggregate purchasing power to produce full employment, while the elite at the top find inadequate opportunities for real new investments. So huge liquid funds bid up the prices of existing assets, and corporations buy back their own shares. It makes the stock market look good, but once our splurge of military spending and of consumers using up their home equity, a recession seems inevitable.

So doing something about inequality is justified by more than compassion. It is essential for the survival of dynamic progressive capitalism.

* James N. Morgan is an Emeritus Research Scientist and Professor of Economics, Institute for Social Research, The University of Michigan. He is a Fellow of the American Statistical Association, founder of the Panel Study of Income Dynamics, co-author of The Economics of Personal Choice, and creator of SEARCH, a binary segmentation computer program.

TPJ refers to China as “The Banker” based upon the ever growing trade deficit America is accumulating with the Chinese and China’s increasing role in financing the US Government’s budget deficits. Republicans tout an economic policy of “free trade.” Trade with China does not represent free market capitalism within any sense of the phrase.

China does not let its currency float on the free market but artificially fixes the price of its currency to the US Dollar and lets it move up or down only slightly with the markets.

Bush talks “tough” about dealing with the Chinese currency issue. When Chinese President recently visited the White House this year, Bush asked that China do more to permit its currency to float on the free market.

While Bush talks “tough,” Bush capitulates to the Chinese. Last month (emphasis added):

The U.S. Treasury declined to brand China a manipulator of its currency, risking a clash with lawmakers who say an undervalued yuan is inflating the U.S. trade deficit and costing factory jobs.

China has made ``far too little progress'' in making its exchange rate more flexible, the Treasury said in its semiannual report on the currency policies of U.S. trade partners. Still, steps China has taken since a July revaluation and its promises to do more suggest the nation isn't deliberately seeking an unfair trade advantage, it said.

Treasury Secretary John Snow has sought to coax China into loosening its grip on the yuan while avoiding a confrontation with the world's fastest-growing major economy. Snow is also trying to blunt protectionist sentiment in Congress, where more than a dozen proposals seek to punish China for its economic policies. . . .

Overseas sales helped China's economy double in size in the past decade and vault ahead of the U.K. to become the world's fourth largest. The U.S. trade deficit with China jumped to a record $201.6 billion last year, eliciting calls for penalties from lawmakers who say the government keeps the yuan artificially weak to spur exports.

``I'm very disappointed that once again the Bush administration has failed to cite China as a currency manipulator,'' said Charles Schumer, Democrat from New York. ``Clearly China is intervening in the market,'' he said. ``There's no other explanation.''

In June, how does China respond to Bush’s call to loosen its currency manipulation and accommodation in not naming China as a currency manipulator. China agrees to let its currently “float” in the international markets up to a paltry 3% a year for the next three years (emphasis added):

China will allow the yuan to rise by only 3 pct a year, a government advisor said, despite growing calls from inside and outside the government for Beijing to let the currency appreciate faster. . . .

Market expectations of a faster pace of yuan appreciation have been building this year, though the currency has been lingering around the 8.00 to the dollar level for several weeks.

It broke through the 8.00 level last Wednesday for only the second time since currency reforms were unveiled last July.

Analysts both inside and outside the government insist that a faster rate of appreciation is needed to combat the capital inflows that stem from China's export earnings, foreign investment and from speculative funds chasing the potential gains from a rising currency.

Bush’s failure to declare China a currency manipulator and China’s rebuff of Bush’s call to let its currency float means China, “The Banker,” wins.

China will continue to sell more goods in the United States that we can export to China. The result means that the United States has little chance to reduce its massive balance of trade deficit with China. China will keep accumulating American dollars that it will, in turn, use to buy more American assets.

The US House voted on a Republican designed bill that rejects and “arbitrary” time frame in which to withdraw troops from Iraq, supports the troops’ service, and honors those who have engaged the war on terror. Republicans also prohibited any amendments to the bill. All of which was designed to make it difficult for anyone to vote against the bill without being subjected to the charge of being unpatriotic.

This was the final tally (click on the blue icons to see the list of Congressmen):

The Republicans staged the vote to demonstrate the divisions within the Democratic Party. Eleanor Cliff states the Republican strategy simply:

House Republicans staged a debate for the cameras on a meaningless resolution declaring the “United States will prevail in the Global War on Terror and the struggle to protect freedom from the terrorist adversary.” The idea is to corner the Democrats into taking a stand that could hurt them in November. A yes vote angers the Democratic base, which is increasingly antiwar; a no vote invites charges of cut and run.

"It's a trap," Rep. Maxine Waters, D-Los Angeles, a leader of the Out of Iraq Caucus, said during the debate. "It's an attempt to force Democrats to sign onto a resolution that will do nothing to bring our troops home. All they want to do is make us sound unpatriotic."

Bush may not be able to sell the “stunt.” Recent polling by CNN reflects the problems for Republicans:

CNN Poll conducted by Opinion Research Corporation. June 14-15, 2006. N=1,017 adults nationwide. MoE ± 3 (for all adults).
					.
"Do you approve or disapprove of the way George W. Bush is handling the situation in Iraq?"
					.
		Approve	Disapprove	Unsure
		%	%	%
	6/14-15/06	39	54	8
	5/16-17/06	34	62	4
					.
"In view of the developments since we first sent our troops to Iraq, do you think the United States made a mistake in sending troops to Iraq, or not?" Half sample, MoE ± 4.5
					.
		A Mistake	Not a Mistake	Unsure
		%	%	%
	6/14-15/06	54	42	4
	6/8-11/06	55	40	6
	4/21-23/06	55	39	5
					.
"Do you favor or oppose the U.S. war with Iraq?" Half sample, MoE ± 4.5
					.
		Favor	Oppose	Unsure
		%	%	%
	6/14-15/06	38	54	8
					.
"In general, how would you say things are going for the U.S. in Iraq: very well, moderately well, moderately badly or very badly?"
					.
		Very Well	Moderately Well	Moderately Badly	Very Badly	Unsure
		%	%	%	%	%
	6/14-15/06	7	34	29	26	4
	6/8-11/06	5	38	31	23	3
					.
"Which comes closer to your view about U.S. troops in Iraq? The U.S. should set a timetable for withdrawal by announcing that it will remove all of its troops from Iraq by a certain date. The U.S. should keep troops in Iraq as long as necessary without setting any timetable for withdrawal." Options rotated
					.
		Timetable	No Timetable	Unsure
		%	%	%
	6/14-15/06	53	41	6
					.

Most Americans are opposed to the war and want a time set to end American participation in the war. Democrats can make the case. The killing in Iraq continues without abatement.

Republican appointments to the United States Supreme Court are starting to dismantle traditional and time honored constitutional protections. Under traditional constitutional principles, officers had to knock at a person’s home before entering to execute a search warrant. The law was consistent with the principle that a “person’s home is their castle.”

If officers violated the “knock” rule, any evidence seized as a result of an unlawful search could not be used in court. The “penalty” impressed upon law enforcement officers the simple need to follow the law.

This past week, the Supreme Court ruled in a 5-4 decision that even if officers violate the law and enter a person’s home without “knocking” any unlawfully seized evidence can be used in court. The practical effect is quite simple. Officers will no longer feel compelled to “knock” before busting into a person’s home. An individual’s home is no longer their “castle,” by any meaningful definition.

The consequences of the court’s decision are profound. As the Houston Chronicle noted:

IN 1998 a squad of Houston policemen, who had no search warrant, charged into an apartment and, in the darkness and confusion, shot an innocent, unarmed man to death. The U.S. Supreme Court's ruling this week in a case out of Michigan invites similar abuse and tragedy.

The justices ruled 5-4 that evidence seized can be admitted in court, even if police armed with a search warrant do not knock and announce themselves, as required by previous court rulings. The court upheld the drug possession conviction of Booker Hudson.

The majority opinion said that police blunders should not result in a "get out of jail free card." Perhaps so, but is it too much to ask law enforcement officers to obey the law themselves?

The requirement that police obtain and properly execute a search warrant before entering an American's residence serves both citizens and police. Police often go to the wrong address. In this fearful age, innocent residents and suspects alike need to know the police — and not some home invaders or terrorists — are outside and about to come in.

After the 1998 slaying of Pedro Oregon Navarro, Houston Police Department officials advised Houstonians to ask to see a picture identification card before admitting police to their house or business. If the police have no search warrant, residents are free to cooperate with the investigation or tell officers to depart.

The case of Hudson v. Michigan illustrates how much Supreme Court decisions are affected by the so-called judicial philosophy of each justice. Had Sandra Day O'Connor continued on the court, the case would have gone the other way. O'Connor's replacement, Justice Samuel Alito, joined Chief Justice John Roberts and Justices Clarence Thomas and Antonin Scalia in voting to throw out almost a century of Supreme Court precedents. (Justice Anthony Kennedy voted with the majority but would not go along with ending the knock and announce requirement.)

The court's decision in this case blurs the image of traditional conservatism. Is it conservative to depart from long precedent and to rule that official conduct once thought to be intolerable can now be tolerated? Is it conservative to increase the power of the police at the expense of individual rights? Do conservatives want to hand government the power to intrude upon residents' lives and property without notice?

Many conservatives, joined by many liberals, would argue that the answer to all of these questions is "no."

It is not just one case. Republicans are advancing radical principles throughout the judicial system. The New York Times noted that:

Bush administration told a judge in Detroit that the president's warrantless domestic spying is legal and constitutional, but refused to say why. The judge should just take his word for it, the lawyer said, because merely talking about it would endanger America. Today, Senator Arlen Specter wants his Judiciary Committee to take an even more outlandish leap of faith for an administration that has shown it does not deserve it.

The point is that NO administration, Democrat or Republican, should have the unbridled power to refuse to answer to a court. Bush is simply placing himself, and future Presidents above the law.

A federal court in New York has ruled that Bush may seize illegal aliens and hold them for an indefinite period without due process of law:

A federal judge in Brooklyn ruled yesterday that the government has wide latitude under immigration law to detain noncitizens on the basis of religion, race or national origin, and to hold them indefinitely without explanation.

The ruling came in a class-action lawsuit by Muslim immigrants detained after 9/11, and it dismissed several key claims the detainees had made against the government. . . .

This is the first time a federal judge has addressed the issue of discrimination in the treatment of hundreds of Muslim immigrants who were swept up in the weeks after the 2001 terror attacks and held for months before they were cleared of links to terrorism and deported. The roundups drew intense criticism, not only from immigrant rights advocates, but also from the inspector general of the Justice Department, who issued reports saying that the government had made little or no effort to distinguish between genuine suspects and Muslim immigrants with minor visa violations.

Lawyers in the suit, who vowed to appeal yesterday's decision, said parts of the ruling could potentially be used far more broadly, to detain any noncitizen in the United States for any reason.

"This decision is a green light to racial profiling and prolonged detention of noncitizens at the whim of the president," said Rachel Meeropol, a lawyer for the Center for Constitutional Rights, which represented the detainees. "The decision is profoundly disturbing because it legitimizes the fact that the Bush administration rounded up and imprisoned our clients because of their religion and race."

One must simply ask themselves when do we cross the line where police and enter a person’s home and seize them, citizen or illegal alien, and hold them indefinitely without due process of law.

	Yeas	Nays	PRES	NV
Republican	214	3	2	12
Democratic	42	149	3	7
Independent		1
TOTALS	256	153	5	19

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