When peak credit implodes on the consumer balance sheet – $1 trillion in consumer debt has been removed from the market since 2008. Only consumer debt category growing is student loan debt.
The U.S. insatiable consumer machine has reached a peak debt scenario. Household balance sheets are simply unable to take on more debt on their already financially sore shoulders. At the core of the Federal Reserve quantitative easing actions is the mission to lower the interest rate since consumers simply are unable to borrow more. By lowering interest rates, it provides a shadow boost to purchasing power. The way this occurs is through allowing borrowers to pay more for assets yet keep their monthly payments low enough to coincide to their now lower standard of living and stagnant wages. Being in a position like this is troubling to most Americans who hold very dearly the idea that the core mission of their government and financial institutions is to grow a healthy middle class. Many are starting to painfully realize that the government and banks are primarily looking out for their bottom line and this translates to exporting the U.S. middle class standard of living. As you will see with the chart below, consumer debt peaked early in 2008.
California facing $20 billion budget deficits deep into 2016 – $25 billion budget deficit starring California in the face for the next fiscal year and overly optimistic economic predictions.
California, the wealthiest state in our nation is facing some Herculean financial troubles yet again. As the elections came to a dramatic close, it was announced that a $6 billion budget deficit emerged from “miscalculations†of potential revenue streams. The current Governor was overly optimistic in many respects including an expectation that the Federal government would somehow throw like a wild pitch billions of dollars onto California’s doorstep. This did not materialize. So a lame duck session of Congress is left to deal with the current fiscal year gap of $6 billion but there is little incentive for the state Congress to act when new state legislatures are sworn in early in December. The new Governor will have no honeymoon period and the 2011-12 fiscal budget is expected to have a $25 billion budget deficit. The challenges California face are magnified by its decade long reliance on the housing industry for jobs and tax revenues. Let us examine the challenges facing California moving forward.
The stalling of the California housing market – California Foreclosure Prevention Act has institutionalized a drawn out foreclosure process. 470,000 MLS listed and distressed homes in the state. California construction industry employing the same number of workers as it did in the early 1990s.
The state of California continues to grapple with the collapse of the enormous housing bubble. The Governor earlier in the week called for a special emergency session to deal with a $6 billion deficit that emerged just weeks after the state budget was signed and the ink dried. States with a large dependence on the housing market are suffering with larger issues since much of their economy was reliant on the volatile housing market. This came in the form of construction employment, property taxes, jobs in the finance industry, and home spending typically through home loans. In California, 470,000 homes are potential for sale properties with MLS inventory, homes with notice of defaults, those scheduled for auction, and properties that are bank owned. The public can only view and can only put in a bid on roughly 170,000 homes but the large amount of problem housing will keep the state budget in limbo for years to come unfortunately. To understand the California housing market, the biggest and most expensive in some areas, we need to first see the total potential inventory.
Dark Ages for a modern Middle Class – Modern day debt serfdom and rising prices not seen through the consumer price index. Coffee up 50 percent for the year.
Most Americans enjoy a good cup of coffee. Yet very few realize that coffee futures are now up over 50 percent for 2010. Creative packaging that includes smaller quantities but offers the same price helps delude many Americans into thinking their dollar still has the purchasing power of better days. This all occurs in a relatively subtle and typically hidden process. Cotton for example is now up 90 percent for the year. Corn is up over 40 percent. It would be one thing if this was all based purely on demand but more of this increase in price is coming from the Federal Reserve pursuing actions that are punishing the U.S. Dollar. The below chart is rather startling and shows that even though the CPI has remained weak, principally because of the crashing housing market, many other areas are seeing incredible price increases.