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How Household Debt Threatens the Recovery

The COVID-19 pandemic is having a disproportionate impact on the health of low-income Americans, but even those low-wage workers who avoid the disease…



The COVID-19 pandemic is having a disproportionate impact on the health of low-income Americans, but even those low-wage workers who avoid the disease itself are likely to suffer grave economic distress

In part, that is because workers with lower incomes have been more likely to lose their jobs than those who are better paid. The Pew Research Center reports that 32 percent of upper-income adults say that someone in their family has lost a job or taken a pay cut due to the outbreak. That compares with 42 percent of middle-income households who report lost jobs or pay cuts, and 52 percent of low-income households.

But pay is only part of the story. To fully understand the disparate economic impact of the pandemic, we need to look also at household wealth, or more exactly, net worth. The margin by which assets exceed household liabilities is crucial to a household’s ability to weather a job loss or a pay cut without catastrophic effects. And household net worth is not only less equally distributed than income — it is also frighteningly fragile for those in the bottom half of the population. That fragility is a major threat to hopes for a speedy economic recovery, as we will see.

Prosperity at the top, fragility at the bottom

Let’s look at some data. Figure 1 shows trends in the net worth of U.S. households from 1990 to the end of 2019, as reported by the Federal Reserve. All numbers are adjusted for inflation using the consumer price index. 

We see from the top line in Figure 1 that the top 1 percent of U.S. households have done very well, increasing their net worth by 167 percent over the past three decades. Those with middle incomes (51stto 90th percentile) and upper-middle incomes (91st to 99thpercentile) have not done badly, increasing their wealth by 52 and 91 percent, respectively. But those in the bottom half of the population have not done well at all. Their average real net worth has actually fallen by 24 percent since 1990. And keep in mind, we are not talking just about the 12 percent or so of the population who are officially poor. We are talking about the entire bottom half of the population.

In fact, you can’t really see what is going on with that group from Figure 1, since the blue line representing low-wealth households lies right flat along the horizontal axis. There’s an easy way to fix that. Figure 2 shows the same data replotted on a logarithmic scale to show more detail on changes in the net worth of the bottom 50 percent.

Consider, in particular, the effects of the downturn of 2008-2009 — a downturn popularly known as the “Great Recession,” although it may soon lose that title, since the one we are entering now is likely to be greater still. In the last recession, the top 1 percent lost 27 percent of their real wealth, as measured from the best quarter before the crisis to the worst one during it. Since that time, they have recovered all of their losses and then some. The middle and upper-middle groups lost about 20 percent of their wealth in the recession, and they, too, had more than regained their losses by the end of 2019. In contrast, households in the bottom half were hit much harder, losing 87 percent of their net worth. What is more, by late 2019, they were still more than 20 percent short of their position before the recession began.

Should we conclude that the rich picked their assets well while the less-well-off made bad investments? Not really. For the most part, the difference between the wealthy and the rest lay not in the quality of their assets but in the size of their debts.

It’s all a matter of leverage

In financial circles, the relationship of a firm’s or household’s debts to other items on its balance sheet is known as leverage.If you owe a lot relative to what you own, you are said to be highly leveraged. If your debts are relatively modest, your leverage is said to be low. Leverage can be measured in several ways, but however it is done, the greater your leverage, the greater the fragility of your financial position if the value of your assets fall or that of your debts increases. 

According to Monica Prasad, consumers tend to be more leveraged in countries that have relatively weak social safety nets and easy access to consumer credit. Figure 3 shows that is true for the United States, at least for those in the bottom half of the wealth distribution.

As we see, American households in the middle, upper-middle, and wealthiest groups have consistently maintained moderate leverage. However, in the bottom half have long  been more highly leveraged, and increasingly so over time.

Although the assets of middle- and upper-wealth households decreased in value during the last recession, their debt ratios remained well under control. Not so for the bottom 50 percent. As the value of their assets fell, their debt ratio, which was high to begin with, moved perilously close to the red line of insolvency. In the worst quarter of the Great Recession, the averagedebt ratio for the bottom half was 96 percent. Although the Fed’s data don’t allow us to calculate the number exactly, it is clear that a large fraction of the bottom half of the population were technically insolvent at the bottom of the last recession. 

To understand what is likely to happen during the recession that we are entering now, we should start with the fact that employment and output are dropping much more sharply this time than they did in 2008. What is more, the pattern of household assets and liabilities has changed, as shown in Figure 4.

The focus of the 2008 recession was the housing market. The big drop in the net worth of the bottom 50 percent, and the run-up in their debt ratios, was largely due to a decrease in home equity, to the point that it left many homeowners completely under water. After 2015, the value of housing increased, and mortgage debt rose also as households borrowed more against their increasingly valuable homes. However, neither real estate assets nor mortgage debt returned to their prerecession peaks. Going into the COVID pandemic, total mortgage debt owed by the bottom half was about 81 percent of their total real estate assets, leaving a reasonable cushion of equity.

Meanwhile, though, the recovery of household net worth has been undermined by a 25 percent increase in real consumer debt per household over the past decade. Such debt, which includes car loans, credit card balances, and student debt, constituted just 28 percent of all household debt in 2010. By the end of 2019, that had grown to 38 percent.

As the unemployment rate rises toward 20 percent and beyond, both household assets and liabilities will undergo further changes. On the asset side, it is likely that home prices will fall, although probably not by as much as during the last recession. Low mortgage rates will help sustain demand for homes and ease the pain for people with adjustable-rate mortgages. Also, most lenders are offering at least some degree of forbearance on missed mortgage payments, and there has been a moratorium on foreclosures for most mortgages. Those actions should reduce the number of forced home sales. 

Meanwhile, unemployed workers will be forced to run down their liquid savings (part of “other assets” in Figure 4b). Some may take advantage of a temporary reduction in penalties and make early withdrawals from pension plans. As of 2019, pension plans and other assets accounted for 20 percent of all household assets for those in the bottom 50 percent. People who are really pinched may resort to selling consumer durables such as furniture, boats, or sports equipment to make ends meet.

On the liabilities side, one of the first things people will do is max out their credit cards (part of “consumer debt” in Figure 4a). Many will take advantage of forbearance on mortgage payments and deferrals of rents, but although those will help their cash flows, they do not constitute debt forgiveness; the missed payments will still represent liabilities. Homeowners with federally insured mortgages are being allowed to let missed payments ride until they sell their homes or until their mortgages are paid off, but some private lenders are insisting that missed payments will have to be paid in a lump sum after only a few months. Much the same is true of student loans and car loans — the first- and second-fastest growing categories of consumer debt. Even if lenders agree to a delay in payments, the result will be a greater burden of liabilities.

Taking the impacts on assets and liabilities together, and considering that the peak unemployment rate in the COVID crisis is likely to reach twice the peak of 10 percent reached in October 2009, it is entirely possible that the average debt ratio for the entire bottom half of American households will exceed 100 percent before the economy fully recovers. 

Implications for the recovery

The COVID recession has had an unusually strong supply-side component. Output has been constrained by disruptions in global supply chains; by workers too ill or too fearful to report to their jobs; and most of all, by widespread stay-at-home orders. (See “The Coronavirus and the Economy” for details.) 

In recent weeks, much of the controversy over reopening the economy has focused on the supply side. Optimists hope that once stay-at-home orders are eased, the economy will bounce back quickly. As White House economic adviser Kevin Hassett put it, commenting on a mid-May uptick in the stock market, "I've been really positively impressed by how quickly things are turning around."

But the downturn also has an important demand-side component. Consumers have cut back sharply on their spending, not only because stores have been shuttered and restaurants closed, but also because their incomes have suffered. The optimists seem to assume that once regular paychecks are restored, consumers will go back to their free-spending ways. Skeptics have cast doubt on that, noting that many people will be fearful of riding on airplanes or sitting in restaurants while the virus is still circulating. Fear is certainly a concern, but it is not the whole story. A look at the balance sheets of households in the lower 50 percent suggests that it will be some time before even the most fearless of them are willing and able to spend freely.

Even when income starts coming in again, those households are going to place a higher priority on paying down debts and rebuilding savings than on discretionary spending. With maxed-out credit cards, they are going to be less tempted to drop in for a $5.25 venti salted caramel mocha latte on their way to the office, even if the office is open. They are going to think twice about a new car when the old one is still running well, and when there are missed payments to make up on the loan or lease. They are going to trailer their boat to the local lake for some fishing rather than rebook the cruise on which they luckily managed to get a refund when it was cancelled due to the virus. 

The result could be that stores and factories optimistically reopen, only to be forced into a new round of layoffs when customers fail to show up. If so, the result could be a W-shaped recovery, even if there is no second round of COVID cases as social distancing eases. A slow recovery is all too real a real risk for an economy in which half the population lives on the brink of insolvency even when times are good.

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What Follows US Hegemony

What Follows US Hegemony

Authored by Vijay Prashad via,

On 24 February 2023, the Chinese Foreign Ministry released a…



What Follows US Hegemony

Authored by Vijay Prashad via,

On 24 February 2023, the Chinese Foreign Ministry released a twelve-point plan entitled ‘China’s Position on the Political Settlement of the Ukraine Crisis’.

This ‘peace plan’, as it has been called, is anchored in the concept of sovereignty, building upon the well-established principles of the United Nations Charter (1945) and the Ten Principles from the Bandung Conference of African and Asian states held in 1955. The plan was released two days after China’s senior diplomat Wang Yi visited Moscow, where he met with Russia’s President Vladimir Putin.

Russia’s interest in the plan was confirmed by Kremlin spokesperson Dmitry Peskov shortly after the visit: ‘Any attempt to produce a plan that would put the [Ukraine] conflict on a peace track deserves attention. We are considering the plan of our Chinese friends with great attention’.

Ukraine’s President Volodymyr Zelensky welcomed the plan hours after it was made public, saying that he would like to meet China’s President Xi Jinping as soon as possible to discuss a potential peace process. France’s President Emmanuel Macron echoed this sentiment, saying that he would visit Beijing in early April. There are many interesting aspects of this plan, notably a call to end all hostilities near nuclear power plants and a pledge by China to help fund the reconstruction of Ukraine. But perhaps the most interesting feature is that a peace plan did not come from any country in the West, but from Beijing.

When I read ‘China’s Position on the Political Settlement of the Ukraine Crisis’, I was reminded of ‘On the Pulse of Morning’, a poem published by Maya Angelou in 1993, the rubble of the Soviet Union before us, the terrible bombardment of Iraq by the United States still producing aftershocks, the tremors felt in Afghanistan and Bosnia. The title of this newsletter, ‘Birth Again the Dream of Global Peace and Mutual Respect’, sits at the heart of the poem. Angelou wrote alongside the rocks and the trees, those who outlive humans and watch us destroy the world. Two sections of the poem bear repeating:

Each of you, a bordered country,
Delicate and strangely made proud,
Yet thrusting perpetually under siege.
Your armed struggles for profit
Have left collars of waste upon
My shore, currents of debris upon my breast.
Yet today I call you to my riverside,
If you will study war no more. Come,
Clad in peace, and I will sing the songs
The Creator gave to me when I and the
Tree and the rock were one.
Before cynicism was a bloody sear across your
Brow and when you yet knew you still
Knew nothing.
The River sang and sings on.

History, despite its wrenching pain
Cannot be unlived, but if faced
With courage, need not be lived again.

History cannot be forgotten, but it need not be repeated. That is the message of Angelou’s poem and the message of the study we released last week, Eight Contradictions of the Imperialist ‘Rules-Based Order’.

In October 2022, Cuba’s Centre for International Policy Research (CIPI) held its 7th Conference on Strategic Studies, which studied the shifts taking place in international relations, with an emphasis on the declining power of the Western states and the emergence of a new confidence in the developing world. There is no doubt that the United States and its allies continue to exercise immense power over the world through military force and control over financial systems. But with the economic rise of several developing countries, with China at their head, a qualitative change can be felt on the world stage. An example of this trend is the ongoing dispute amongst the G20 countries, many of which have refused to line up against Moscow despite pressure by the United States and its European allies to firmly condemn Russia for the war in Ukraine. This change in the geopolitical atmosphere requires precise analysis based on the facts.

To that end, our latest dossier, Sovereignty, Dignity, and Regionalism in the New International Order (March 2023), produced in collaboration with CIPI, brings together some of the thinking about the emergence of a new global dispensation that will follow the period of US hegemony.

The text opens with a foreword by CIPI’s director, José R. Cabañas Rodríguez, who makes the point that the world is already at war, namely a war imposed on much of the world (including Cuba) by the United States and its allies through blockades and economic policies such as sanctions that strangle the possibilities for development. As Greece’s former Finance Minister Yanis Varoufakis said, coups these days ‘do not need tanks. They achieve the same result with banks’.

The US is attempting to maintain its position of ‘single master’ through an aggressive military and diplomatic push both in Ukraine and Taiwan, unconcerned about the great destabilisation this has inflicted upon the world. This approach was reflected in US Defence Secretary Lloyd Austin’s admission that ‘We want to see Russia weakened’ and in US House Foreign Affairs Committee Chairman Michael McCaul’s statement that ‘Ukraine today – it’s going to be Taiwan tomorrow’. It is a concern about this destabilisation and the declining fortunes of the West that has led most of the countries in the world to refuse to join efforts to isolate Russia.

As some of the larger developing countries, such as China, Brazil, India, Mexico, Indonesia, and South Africa, pivot away from reliance upon the United States and its Western allies, they have begun to discuss a new architecture for a new world order. What is quite clear is that most of these countries – despite great differences in the political traditions of their respective governments – now recognise that the United States ‘rules-based international order’ is no longer able to exercise the authority it once had. The actual movement of history shows that the world order is moving from one anchored by US hegemony to one that is far more regional in character. US policymakers, as part of their fearmongering, suggest that China wants to take over the world, along the grain of the ‘Thucydides Trap’ argument that when a new aspirant to hegemony appears on the scene, it tends to result in war between the emerging power and existing great power. However, this argument is not based on facts.

Rather than seek to generate additional poles of power – in the mould of the United States – and build a ‘multipolar’ world, developing countries are calling for a world order rooted in the UN Charter as well as strong regional trade and development systems. ‘This new internationalism can only be created – and a period of global Balkanisation avoided’, we write in our latest dossier, ‘by building upon a foundation of mutual respect and strength of regional trade systems, security organisations, and political formations’. Indicators of this new attitude are present in the discussions taking place in the Global South about the war in Ukraine and are reflected in the Chinese plan for peace.

Our dossier analyses at some length this moment of fragility for US power and its ‘rules-based international order’. We trace the revival of multilateralism and regionalism, which are key concepts of the emerging world order. The growth of regionalism is reflected in the creation of a host of vital regional bodies, from the Community of Latin American and Caribbean States (CELAC) to the Shanghai Cooperation Organisation (SCO), alongside increasing regional trade (with the BRICS bloc being a kind of ‘regionalism plus’ for our period). Meanwhile, the emphasis on returning to international institutions for global decision-making, as evidenced by the formation of the Group of Friends in Defence of the UN Charter, for example, illustrates the reinvigorated desire for multilateralism.

The United States remains a powerful country, but it has not come to terms with the immense changes taking place in the world order. It must temper its belief in its ‘manifest destiny’ and recognise that it is nothing more than another country amongst the 193 members states of the United Nations. The great powers – including the United States – will either find ways to accommodate and cooperate for the common good, or they will all collapse together.

At the start of the pandemic, the head of the World Health Organisation, Dr Tedros Adhanom Ghebreyesus, urged the countries of the world to be more collaborative and less confrontational, saying that ‘this is the time for solidarity, not stigma’ and repeating, in the years since, that nations must ‘work together across ideological divides to find common solutions to common problems’.

These wise words must be heeded.

Tyler Durden Sun, 03/19/2023 - 23:30

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“True Stories… Could Fuel Hesitancy”: Stanford Project Worked To Censor Even True Stories On Social Media

"True Stories… Could Fuel Hesitancy": Stanford Project Worked To Censor Even True Stories On Social Media

Authored by Jonathan Turley,




"True Stories... Could Fuel Hesitancy": Stanford Project Worked To Censor Even True Stories On Social Media

Authored by Jonathan Turley,

While lost in the explosive news about Donald Trump’s expected arrest, journalist Matt Taibbi released new details on previously undisclosed censorship efforts on social media. The latest Twitter Files revealed a breathtaking effort from Stanford’s Virality Project to censor even true stories. After all, the project insisted “true stories … could fuel hesitancy” over taking the vaccine or other measures. The effort included suppressing stories that we now know are legitimate such as natural immunity defenses, the exaggerated value of masks, and questions over vaccine efficacy in preventing second illnesses. The work of the Virality Project to censor even true stories should result in the severance of any connection with Stanford University.

We have learned of an ever-expanding coalition of groups working with the government and social media to target and censor Americans, including government-funded organizations.

However, the new files are chilling in the details allegedly showing how the Virality Project labeled even true stories as “anti-vaccine” and, therefore, subject to censorship. These files would suggest that the Project eagerly worked to limit free speech and suppress alternative scientific viewpoints.

Taibbi describes the Virality Project as “a sweeping, cross-platform effort to monitor billions of social media posts by Stanford University, federal agencies, and a slew of (often state-funded) NGOs.”

He added: “We’ve since learned the Virality Project in 2021 worked with government to launch a pan-industry monitoring plan for Covid-related content. At least six major Internet platforms were ‘onboarded’ to the same JIRA ticketing system, daily sending millions of items for review.”

According to Taibbi, it targeted anyone who did not robotically fall in line with the CDC and media narratives, including targeting postings that shared “Reports of vaccinated individuals contracting Covid-19 anyway,” research on “natural immunity,” suggesting Covid-19 “leaked from a lab,” and even “worrisome jokes.”

That included evidence that it “knowingly targeted true material and legitimate political opinion, while often being factually wrong itself.”

The Virality Project warned Twitter that “true stories … could fuel hesitancy,” including stories on “celebrity deaths after vaccine” and the closure of a central New York school due to reports of post-vaccine illness.

The Project is part of the Cyber Policy Center at Stanford and bills itself as “a joint initiative of the Freeman Spogli Institute for International Studies and Stanford Law School, connects academia, the legal and tech industry and civil society with policymakers around the country to address the most pressing cyber policy concerns.”

The Center launched the Project as a “a global study aimed at understanding the disinformation dynamics specific to the COVID-19 crisis.”

As with many disinformation projects, it became a source of its own disinformation in the effort to suppress alternative views.

It is being funded by Craig Newmark Philanthropies and the Hewlett Foundation.

On its website, it proclaims: “At the Stanford Internet Observatory our mission is to study the misuse of the internet to cause harm, and to help create policy and technical mitigations to those harms.” It defines its mission to maintain the truth as it sees it:

“The global COVID-19 crisis has significantly shifted the landscape for mis- and disinformation as the pandemic has become the primary concern of almost every nation on the planet. This has perhaps never happened before; few topics have commanded and sustained attention at a global level simultaneously, or provided such a wealth of opportunities for governments, economically motivated actors, and domestic activists alike to spread malign narratives in service to their interests.”

What is even more disconcerting is that groups like the Virality Project worked against public health by suppressing such stories that are now considered legitimate from the efficacy of masks to the lab origin theory. It was declaring dissenting scientific views to be dangerous disinformation. Nothing could be more inimical to the academic mission. Yet, Stanford still heralds the work of the Project on its website.

There is nothing more inherently in conflict with academic values than censorship. Stanford’s association with this censorship effort is disgraceful and should be a matter for faculty action. This is a project that sought to censor true stories that undermined government or media narratives.

I am not hopeful that Stanford will sever its connection to the Project.  Censorship is now the rage on campuses and the Project is the perfect embodiment of this movement. Cloaking censorship efforts in self-righteous rhetoric, the Project sought to silence those who failed to adhere to a certain orthodoxy, including scientific and public health claims that were later found flawed or wrong. The Project itself is an example of what it called “media and social media capabilities – overt and covert – to spread particular narratives.”

Stanford should fulfill its pledge in creating the Virality Project in fighting disinformation by eliminating the Virality Project.

Tyler Durden Sun, 03/19/2023 - 17:55

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Royal Caribbean Officially Makes Controversial Change

The cruise line has made a controversial change that some passengers will love while others will be angry.



The cruise line has made a controversial change that some passengers will love while others will be angry.

During the early days of the cruise industry's comeback from the covid pandemic, Royal Caribbean outlawed smoking in the casino. At the time, the Centers for Disease Control (CDC) required passengers to wear masks in public areas of the ship except when eating or drinking while stationary.

Smoking was, at first, a sort of loophole. People would smoke in the casino and remove their masks (or at least move them to the side) while playing slot machines. That basically meant that unlike drinking, where your mask could be moved and then replaced for a sip, smokers were essentially not wearing a mask.

DON'T MISS: Carnival Cruise Line Comments on a Possible (Very) Adult Change

Royal Caribbean (RCL) - Get Free Report closed that loop by fully outlawing smoking in its casinos while masks were still required. That was something that smokers weren't happy about, but probably understood given how large a role the CDC was playing in setting cruise ship rules.

Once the CDC stopped requiring masks (and regulating cruise ships at all), Royal Caribbean reverted to its pre-pandemic smoking policies. That meant that every casino on its ships had a smoking section. Technically, smoking is only allowed when actually playing a slot machine, but that's hard to enforce and the casinos quickly filled back up with smoke.

Now, the cruise line has officially made a long-rumored move that should make non-smokers really happy while angering a whole different group of the cruise line's passengers.

Image source: Matt Cardy/Getty Images

Oasis-Class Ships Getting Non-Smoking Area

Wonder of the Seas, the newest member of Royal Caribbean's Oasis class was originally built to sail out of China. It was moved to Florida due to the covid pandemic which created a sort of happy accident for non-smokers.

The ship was built with a secondary casino that was originally intended as a high rollers room. Once the ship was repurposed to sail from the United States, that smaller casino was shifted from an area designed to cater to big-money players into a non-smoking casino.

For months, it has been rumored that the cruise line would turn the "Jazz on 4" space -- the same location as the non-smoking "Golden Roon" on Wonder of the Seas -- into similar non-smoking casinos. Royal Caribbean never commented on those rumors, but it did warn passengers on some sailings that service in the Diamond Lounge, an area next to Jazz on 4 reserved for Diamond and higher members of the company's loyalty program, would be disrupted due to construction.

The results of that construction have been revealed on another Oasis-class ship, Harmony of the Seas. Johnny Travalor shared pictures of the new casino in a Facebook group for fans of Royal Caribbean's casinos.

"The brand new non-smoking casino on Harmony officially opened today and I have been here since the opening playing, donating!" he shared.

That's not official confirmation that all Oasis-class ships will have Jazz on 4 turned into a non-smoking casino, but all signs point in that direction.

Royal Caribbean Makes Some Passengers Mad

No change on a cruise ship will make all passengers happy. Some Royal Caribbean gamblers have suggested that the non-smoking area, which is much smaller than the original casino, should be the smoking area.

"Maybe once they see the non-smokers are bursting at the seam in that space and the smoking casino isn’t as crowded they will reverse it," Barb Boyer Green shared.

"That should be the smoking room...seems like the non-smokers are being put in a closet," Maureen Ethier added.

Not all passengers, however, are upset because of the size of the non-smoking area. Some are lamenting the loss of Jazz on 4, which hosted live jazz music.

"I think this is an overall loss, with now an entertainment area being taken over on this ship. I always enjoyed the jazz club and this will do nothing for the smell of the ship, net loss for all passengers" Justin Rogers wrote.

"It was our fav such a sad day. It was our escape, great talent, romantic, not another venue like it. Such a shame," added Julia Doumad.

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