Economic Growth in America’s “Two-Tiered Society”

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The news has been good. Global M&A in the second quarter soared 47% to over $1 trillion, Reuters reported. It was the highest since the record set in 2007, which was followed by the financial crisis. In its sixth year, the phenomenal, global free-money tsunami is bearing fruit for those who have access to it.

The first half saw 38 big hostile takeovers, accounting for over $150 billion in total, over twenty times more than a year ago. There were white-hot deals where US corporations bought overseas companies with “offshore cash” in order to become a foreign company for tax purposes. A strategy to cut their US tax bill. “Inversion” it’s called. To fund these deals, companies can still borrow at record low rates. And in this feeding frenzy, buyers paid out of their nose, hitting 13X earnings before interest, tax, depreciation, and amortization (EBITDA), the highest since 2008, when the financial system was already cracking under the weight of our Wall Street geniuses.

Even in California, the news is starting to be good, or so it seemed: 44% of the registered voters said that they were financially better off than last year, the best score since 2001; only 28% said they were worse off, the best score since 2004; and 28% saw no change, according to the Field Poll’s latest annual assessment; “a much more positive assessment of personal financial well-being than each of six prior Field Polls conducted since 2007.”

“However,” the report continued…

And embarked on some nagging issues: the above good news meant that 56% of the voters were in the same or worse financial shape than last year. There were only two areas in California that were doing well; the rest were languishing. And the boom was reserved for households with higher incomes.

The report didn’t sort out what households with over $200k in income were thinking. But of those earning $80k or more a year, 58% said they were better off than last year, and 22% said they were worse off. Of those earning $40k or less, 37% said they were better off, 33% saw no change, and 30% said they were worse off!

Put it this way: in the lower income bracket, 63% were in the same or worse financial shape than last year, despite all the bubbles being inflated around them.

Overall, 53% of the voters thought the state was still in economic “bad times,” the least terrible assessment in the past six years when it ranged from 72% to 96%. How many thought the economy was experiencing good times? Only 25%! Does income have anything to do with it? Of those with household income of over $80k, 46% had a negative view of the economy. Of those earning less than $40k per year, 62% did, another 22% saw a “mixed” situation, and only 16% saw an economy experiencing good times.

Not exactly a glorious endorsement of economic growth when 84% of the people making $40k or less feel that the economy is in bad shape – after the Fed’s money-printing binge that is now into its sixth year and approaching $4 trillion. Who got all this money? No them!

And there were regional differences. In the Bay Area – including my beloved San Francisco which is currently submerged by hot money pouring in from all over the world – 35% saw bad times. In L.A. County, 44% did. But the rest? In Northern California beyond the Bay Area, 62% did; in the Central Valley, 63% did; and Southern California beyond the L.A. area, 65% did – and there, not far from biotech centers and the glitter of Hollywood and bubbly home prices, only 16% saw an economy that was experiencing good times.

Booming California job market?

Not quite: 64% of the voters believed jobs were still hard to find in their area. Only 21% figured there were plenty of jobs. In the Bay Area, the situation was more promising, with 49% considering jobs hard to find. In the vast Central Valley, where medium-sized cities and smaller towns dot America’s most productive produce area – now parched by a multi-year drought – 72% of the voters thought jobs were hard to find. And in Northern California beyond the Bay Area, the rate jumped to 81%. It’s tough up there.

Mark DiCamillo, senior vice president of the Field Research Corporation, which conducted the poll, had a phrase for this phenomenon when he discussed the results with KQED: a “two-tiered society.”

He tried to put a positive spin on it when he said that “at least this poll is showing some good news, even if….” And that was followed by a description of California – which mirrors the rest of the nation – that has split into two: those who make plenty of money and live in areas that are awash in the Fed’s hot money; for them, the future seems bright.

For the rest, those who can’t afford the ballooning rents and home prices, and for those in most of the rest of the state, there isn’t much of a recovery. The Fed’s trillions, on the way to inflating enormous asset bubbles, have passed them by. But what these folks see are the higher prices those trillions leave in their wake.

“Asset prices have reached stunning levels, obviously out of line with ‘fundamentals.’ The “most dangerous” are housing bubbles; when they burst, they “wreck whole economies.” Read…. UBS: The Secret Reason The Fed Is ‘Tolerating’ Bubbles

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