The facts behind the mountain of student debt: 13 percent of students owe more than $50,000 and nearly 4 percent owe more than $100,000. Student debt grew by 284 percent from 2004 to 2013.
Many Americans view a college education as a way to build a better life. College is seen as an avenue for better prosperity and the ability to pull yourself up beyond your current circumstances. In fact, after World War II programs like the G.I. Bill allowed many Americans the opportunity to pursue a college degree. In many cases, the United States at this time developed the largest middle class the world had come to know. This is still the case today but the economic trends show a shrinking middle class that is largely having a tough time competing in this quickly globalizing economy. One fact that stands out is that back in 2004, student debt was the smallest portion of all non-housing related debt in the US. Only a short nine years later, student debt is the largest portion of debt in non-housing related debt. What happened in this short period of time and what information can we pull from the mountains of student debt information?
Federal Reserve ZIRP has essentially destroyed household income growth: Households headed by those 45 to 54 see their real household income growth drop by 16 percent from 1999.
The Federal Reserve has pursued a zero interest rate policy as a mechanism for pulling the US out of the financial crisis. Interestingly enough low rates and heavy speculation were part of the cocktail that led us into the crisis in the first place. Ben Bernanke recently mentioned a bit of concern that speculation is once again entering the markets. The Fed of course is always cautious in their wording including saying things like sub-prime loans were no issue in 2007 right before the economy tanked. The Fed is truly in uncharted territory here with a balance sheet of $3.3 trillion and nationwide with incomes stagnating, the ZIRP move by the Fed isn’t exactly helping the middle class. A modest amount of inflation is disastrous when you are seeing your income stuck in neutral or seeing it move in reverse. Even older Americans are seeing tougher challenges (although young Americans have faced the brunt of this recession). What is the aftermath of ZIRP?
What does it mean to be retired in the United States? The age of disappearing pensions, dependence on Social Security, and stock market speculation.
A few days ago the stock market experienced a mini panic as someone hacked a reputable news source Twitter account and posted a sensational headline. The markets quickly reacted to this news. What was troubling is many algorithm-based trading systems are setup to scour internet information for these kinds of dramatic changes. Many of the quick trades hit with machines simply acting on their own programming within seconds. Of course the stock market came back up after the hack was mentioned but how in the world are regular Americans suppose to compete with this kind of stock market trading? First, most Americans have no investment in stocks. One in three Americans has no savings to speak of. In the early 1980s the idea was that Americans would move away from pensions and save into accounts like 401ks and little by little plug along so when retirement came, they would have a nice nest egg. 30 years later, this isn’t remotely the case. The plan has failed. For many, retirement is largely just a giant illusion. Many will be working well into their very last years. Pensions are becoming a massive anomaly. So what does it mean to be retired in the United States?
Feeling rich through debt: Modern banking has replaced real economic prosperity with massive levels of debt. Housing affordability reaches multi-decade highs while household incomes retreat to 1990s levels.
One of the biggest headlines right now is how the housing market is pulling the entire market up. Housing prices are soaring while the stock market is making record highs. Yet a large portion of the housing run-up is being caused by easy money that has been created by the Federal Reserve. Banks are out-bidding regular home buyers so it is dubious how much of this jump in prices is really helping households. Affordability is up because mortgage rates are incredibly and artificially low. Another bubble is brewing in this economic stew yet this time, it doesn’t seem like Americans are feeling all that richer since most of the new access to debt is being given to large banks that are outbidding regular home buyers. In some markets, investors are purchasing 50 percent of all homes. So what use is a low interest rate if investors are going to outbid you? The game is the same this time. Housing is the juice machine once again. Incomes adjusting for inflation are back to levels last seen in 1995 so the easiest way to make Americans feel wealthier is by increasing their access to debt.
Inflation in the most important things: Inflation hitting housing, tuition, and medical services. Is the Fed reinventing another debt based bubble?
Household income is a vital measure of the overall well-being for most Americans. This is why it is important to try to understand why overall household incomes are back to levels last seen in 1995. This is a critical barometer that measures the health of the US middle class. Yet we continually see the argument that inflation is a good thing and since the CPI is registering such a low level of inflation, that the Fed should have a free-ride when it comes to digitally printing our way out of the recession. Yet even a tiny level of inflation is going to hurt when wages are stagnant. That is our current predicament. The one area where Americans spend their most money, housing is becoming more expensive courtesy of the Fed. Inflation is around you if you actually pay attention.
The young, educated, and massively in debt college generation: Total student debt outstanding approaches $1.1 trillion. 65 percent of all outstanding student debt held by those 39 and younger.
It is interesting to hear older politicians take the podium and wax and wane poetically how young Americans are not working hard enough or need to take responsibility for their actions in the current economy. The reality of the situation is the recent recession has punished the young disproportionately. The young have seen their net worth crushed and job opportunities shrink in the current recession. Most of the student debt outstanding is in the hands of younger Americans simultaneously going up with rising college tuition. The price of going to college can no longer be support by merely working a minimum wage job. I’ve heard some out of touch politicians argue that instead of going into debt, current students should work instead of going into debt. Even with a minimum wage job someone would have to work 40 hours or more just to cover a regular state school tuition in most states in the country. The student debt problem is largely a young American issue.
The $10 trillion question. The ever expanding central bank balance sheets: What does $10 trillion buy you in the market today?
The Federal Reserve has waded deep into uncharted territory. The Fed has concocted new ways of monetizing debt and allowing banks to essentially expand their balance sheets with no real repercussions to the financial sector. Of course the shrinking middle class might have something to say about this or the 47.77 million Americans on food stamps might disagree that quantitative easing is the panacea for a better economy for all. One thing is certain as the stock market makes new highs this year; the reality is the booming stock markets are not necessarily making life better for most in the economy. The stock market gains of the last few years have come from crushing wages, cutting costs, and expansion of low wage economics. Yet most of the gains have filtered to a very small group of people. The Fed continues to encourage this trajectory but so do other central banks around the world. If we look at the last seven years, we need to ask the central banks what $10 trillion has bought us?
One of the common views regarding the labor participation rate declining is that many baby boomers are retiring and leaving the work force. Unfortunately many are finding that retirement is a myth when you are broke and many will be working deep into their later years. So when we examine the numbers we actually find a large part of our older labor force is still fully engaged in some type of work. It is interesting to look at many dynamic areas to try to ascertain why the drop in the labor force is actually occurring. Digging for that needle in the economic haystack can be a challenge. The labor force participation rate is a better indicator of how many people in our society are actually working. We already know that the drop in the unemployment rate is largely due to hundreds of thousands of Americans simply not being in the labor force anymore. Just because you sweep dust under the rug doesn’t mean it is now gone. So where have all the workers gone?
United States of Food Stamps: Food stamp usage has grown by 30,000,000 people since 2000. The economics of a food stamp recovery.
I was working through a few pages of Excel data regarding food stamp usage and a troubling milestone has now been breached. Since 2000, we have now added over 30,000,000 Americans to the food stamp program now labeled SNAP. What is even more difficult to understand is this number has moved up nearly unabated since 2000 even though if you believe the data, we were in full recovery from 2001 to 2007 until the financial crisis hit. In reality, what was happening was that the poor and working class were merely papering over their shrinking wealth by going into unsupportable debt. The fact that food stamp usage continues to move up is a very telling sign of our current economic situation. Over 47.77 million Americans are now on food stamps. In many parts of the country, Wal-Mart stores have adjusted store hours at the end of the month to coincide with food stamp debit cards (EBT) being reloaded allowing people to shop. I wanted to dive into the food stamp data a bit deeper.
The incredibly uneven recovery: Net worth of bottom 93 percent declines by $0.6 trillion while top 7 percent net worth increases by $5.6 trillion. Why? Most Americans don’t own a sizable amount of stocks and bonds.
One unique signature of this economic recovery is how narrow it is. When we look at actual wealth, the net worth figures of Americans, we see some dismal numbers. In fact, what we find really isn’t a recovery at all if we look at 93 percent of the country. Then again, with most of Congress being millionaires they are so far removed from the real lives of the public that reality has become encapsulated in a very tiny bubble. One piece of data that recently came out highlights this uneven recovery. From 2009 to 2011, the heart of the so-called recovery, the net worth of Americans went up by $5 trillion. Sounds great right? Well, when the data is actually carefully examined we find out that the net worth of the bottom 93 percent of Americans actually fell by $0.6 trillion and the top 7 percent saw all the gains of $5.6 trillion. In other words, for most Americans, this isn’t a recovery at all.