Monday, October 10, 2011

October 10 New York Times --- two front page articles, so different, so similar

Today's NYT had a front page article on China entitled "As Its Economy Sprints Ahead, China's People Are Left Behind". A second front page article focused in the U.S. had the title "Median Incomes Shrank Further After Recession, a sobering new report, overall drop of nearly 10% helps to explain grim public mood".

They are both worth reading if you have access via newsprint or internet. I will only briefly explain. The China article focuses on how middle class families are stressed as they try to save for their children's education and their own safety net. They don't trust the highly volatile stock markets so deposit their money in the state owned banks that pay roughly 3% interest at a time when official inflation rates are 6%(many say this is wildly understated because of the rise in cost of many basic food items). The article explains that the Chinese state banks use the savings to finance major infrastructure projects like dams and high speed rail that are state owned and at the same time are cutting back on personal government "guarantees" like health care and subsidized basic food prices(what was it once called? the iron rice bowl or something like that). The end result is that some state officials, bankers and industrialists are becoming vastly rich while the middle class is falling behind and feeling increasingly vulnerable.

The U.S. article is more familiar. The middle class is spending less and saving more, but for some that savings is partially being used to repay banks for past unwise credit decisions. For what I would guess is the majority of the, and more prudent and educated, middle class those savings are cared for as in the China article. With little faith in the volatility of securities markets, the saved money is put in banks, short term treasuries, and money market funds that pay interest of less than 1%, while the government suggests that inflation is 1.5% or so. As in China, that government figure is generally viewed as significantly understated. There is a sense that the "recovery" is primarily benefitting big bankers, the already wealthy, the entitled elderly, major industrial companies, and Obama's pet projects like green energy and nutrition education that offer new jobs way off in the future, as well as simply subsidizing state and local municipal unions with outsized pensions and rigid work rules. The middle class continues to fall behind but some modest economic growth of 2% is still claimed by government statistics.

I could debate some of these beliefs but that is not the point of the post. It's just pointing out the similarities of two articles that one may not have expected.

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