Opinion By: Patricia L Johnson
There have been two reports come out this week that are true indicators of what is happening in this country with our economy.
Corporate profits hit a new record high during the first three months of this year. Corporate profits came in at $1.7 trillion for the first three months of 2011 (on an annualized basis), which is 1.3% higher than the previous quarter.
Under normal circumstances this would be exceptional news because higher corporate profits generally result in the hiring of additional workers and/or purchasing capital equipment. The purchase of capital equipment then puts additional people to work. There are two problems here – first, businesses are doing little of either, they are not hiring and they are not spending, they are simply hoarding the money and second, due to lowered corporate tax rates (courtesy of the prior administration) we are unable to take advantage of their windfall by receiving higher revenues in the form of tax payments.
The second good news report came from the Federal Reserve. Commerical banks and savings institutions that are insured by the FDIC, Federal Deposit Insurance Corporation, reported profits of $29 billion in the first quarter of 2011 or an increase of 66.5% compared to the same period last year. In addition, it’s the 7th consecutive quarter of year-over-year increases.
Here again, this should be excellent news because when banks are flush, they make loans to the average John/Jane to purchase homes, cars, make home improvements, etc., etc., etc. Again, this is not a win for the country because the banks are doing the same exact thing corporations are doing with their money, they are hoarding it and as long as they are not lending the money out to the average American the housing market will not improve.
I’m sure the first question that will be asked is WHY are they hoarding the money? My personal opinion on this is it’s all a matter of politics. The longer banks and companies hold unto the funds, the worse it will look for President Obama. Instead of being labeled a hero (which he should be by having kept this country from going into another deep, dark, depression, and making enormous strides in the other direction) he will be labeled a failure due to the lack of jobs and dismal housing market if the same conditions prevail around election time 2012.
What that will mean is a Republican will probably be able to take over the White House in 2012 and they can continue to suck the life and money out of this country.
Why do the corporations and banks want Republicans in office? Republicans mean lower taxes for them (not for you, the average John/Jane, but for the super-wealthy) and fewer regulations.
The housing crisis in this country was caused by the fact there were few regulations in place for non-FDIC financial institutions providing loans so millions of sub-prime loans were provided to those that could not hope to repay because the majority were provided with ARM’s [adjustable rate mortgages]. A detailed analysis of this problem may be viewed at the following link.
Why did the banks do this? They made an incredible amount money on interest in the first two years – many ARM’s were 2/28 – click following link for chart http://www.articlesandanswers.com/ARMCHART.htm When the initial 2-year period was up and the mortgage amount due increased dramatically and folks could not longer pay.
Regulations apparently scare Republicans as can be determined by the fact House Speaker John Boehner refused to agree to allow the Senate to adjourn next week for fear Elizabeth Warren and others would be provided with recess appointments. The Constitution provides the Speaker of the House with the power to block Senate recesses exceeding three days.
© 2011 Patricia L Johnson