What are the causes of Poverty and more importantly, what are the cures?

While the Fed contemplates a victory lap via higher interest rates and President Obama kicks back on a 17-day vacation, the issue of poverty has become as pervasive as any point in the last five decades. It never completely went away. Yet the policies that helped keep it alive are lauded as the way to trigger its eradication. There is a record amount of people on food stamps; one in five American children under the age 18 are living in poverty despite the higher taxes on the rich; and the additional shakedowns have not helped.

Nevertheless, brace yourselves for more of the same.

I was asked on Twitter about the reasons and the solutions for poverty. While I don’t claim to have all the answers, this was my tweet reply:

Welcome Back

Welcome back, your dreams were your ticket out
Welcome back, to that same old place that you laughed about
Well, the names have all changed since you hung around
But those dreams have remained and they're turned around

-John Sebastian (Welcome Back, Kotter theme song)

However, despite the fact that the nation’s economy and jobs picture improved in the past with passages of work-welfare programs, there is a massive movement to return to the glory days of the 1970s.

New York City Mayor Bill de Blasio is implementing a new program that should swell welfare rolls. To understand how nutty the plan is, consider that there will be three-tiers; and the one most ready for work or “fully employable” will be offered services not to work. For instance, there will be Basic Education, concluding English as a second language.

New York City, like the rest of the nation, saw a major plunge in welfare receipts after Bill Clinton ran for reelection on the promise to “end welfare as we know it.” In 1993, there were more than 1.1 million New Yorkers on welfare. The number dropped to 350,000 by the end of last year. Moreover, participation in the workforce by single-mothers rocketed from 43% to 63%; poverty declined by 10 percentage points.

In other words, the Welfare-to-Work program worked!

Moreover, there is absolutley no doubt that when people are not given a choice, they’ll find a way. More recently, the end of many  extended unemployment programs and other “emergency” progams forced people to look and to accept work. In 2014, there were three million net new jobs created. It has been determined that 1.8 million or 60% are directly related to the fact that when people stopped getting free money, they hit the bricks and found jobs.

• http://www.nber.org/papers/w20884
• www.nationalreview.com/corner/397174/study-2014s-employment-boom-almost-entirely-due-expiration-unemployment-benefits-obama

China Takes Action

China’s economic tricks appeared to have dried up; last night, the People’s Bank of China (PBOC) announced it was devaluing its currency on the heels of the worst Producer Price Index (PPI) report in six years, and massive declines in exports and imports. I am not sure how the news will affect the Fed, but it could hurt expensive NYC real estate and other markets that have been gobbled up by many of the rich Chinese who are looking to hedge their bets.

Today’s Session

The rally is fading fast with the Dow Jones Industrial Average trading down to 17,390. Precious metals are getting a lift from the China currency concerns. Also, the US saw productivity rebounded 1.3% and unit labor costs rise by 0.5% in Q2.