Tags: DiNapoli | income | wealth | economy

Financial Sector Can Not Rescue Us

By    |   Friday, 14 March 2014 06:42 AM

For decades, the financial sector functioned as a strong engine of economic growth.

Not now, according to Thomas DiNapoli, comptroller of the State of New York.

DiNapoli manages the state's $160.7 billion pension fund, audits the expenditures of all state agencies and local governments, oversees the New York State and Local Retirement System, reviews the New York State and City budgets and approves state contracts and spending totaling billions of dollars.

In the most recent fiscal year, Wall Street employees received bonuses totaling $26.7 billion, a 15 percent increase from last year, at an average of $164,530 per worker — the largest per capita amount since 2007, a year before the financial crisis began, stated DiNapoli is a recent report.

Following recent economic downturns, this largess for the securities industry would typically foster general economic growth. However, this recovery is very different, according to DiNapoli.

Since the trough in the first quarter of 2009, net worth of households and non-profits have risen 45.2 percent, reaching a new all-time high that is 17.8 percent greater than the peak in the fourth quarter of 2007, according to the Federal Reserve Bank.

Unfortunately, this extraordinary increase in wealth has mainly touched the well-to-do, despite a 30 percent rise in social benefits relative to disposable income since the financial crisis began nearly six years ago, from 15.5 percent to 20.5 percent, according to Advisor Perspectives. These benefits include Social Security, Medicare, Medicaid, veterans' benefits and unemployment insurance.

Since February 2007, the population of those aged 25 to 54 has fallen 1.1 million. However, this group's labor force declined 3.26 million (missing workers), it's employment contracted 5.18 million and full-time work fell 6.13 million, according to the Department of Labor and U.S. Census Bureau.

The Economic Policy Institute estimates missing workers (those no longer participating in the labor market) younger than 55 total 4.2 million, more than 70 percent of the 5.8 million total. These individuals are the ones less likely to be retired and more likely to enter or re-enter the labor force. When these missing workers are included in the labor pool, the unemployment rate would rise to 10 percent from the 6.6 percent currently reported by the U.S. Labor Department.

Real disposable income per capita in the United States (adjusted for inflation) fell to $36,941 in the fourth quarter of 2013 from $37,265 a year earlier, while the personal savings rate dipped 16 percent between September 2013 and January 2014, according to the Federal Reserve Bank of St. Louis.

Making matters worse, the fourth quarter of 2013 experienced the greatest increase in consumer debt relative to the previous quarter since the third quarter of 2007, based on data from the Federal Reserve Bank of New York. Since the beginning of the financial crisis in 2007, global debt has risen 40 percent to $100 trillion, the majority of which has been issued by governments and nonfinancial corporations, according to the Bank of International Settlements, a consortium of 60 sovereign central banks.

Monetary velocity (money turnover) has fallen significantly during the past three decades, exacerbated by highly accommodative monetary policy that incents wealth transfer rather than creation by lowering the level of investment relative to gross domestic product.

The key to our economic recovery and survival is an increase in long-term investment — the type that generates employment and income for the masses.

This can be achieved with a currency backed by productivity-based assets, such as precious metals; and digital encryption algorithms, such as bitcoin and other virtual currencies; corporate tax rates that are well below personal tax rates; higher tax rates on short-term financial arbitrage activities; greater trading capital requirements; and stronger transparency for over-the-counter derivatives trading.

Our economy is destined for mediocrity and malaise without the implementation of these recommendations.

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For decades, the financial sector functioned as a strong engine of economic growth. Not now, according to Thomas DiNapoli, comptroller of the State of New York.
Friday, 14 March 2014 06:42 AM
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