A day of reckoning has arrived to retiring Americans: 63 percent of Americans that start working by the age of 25 will be dependent on Social Security, relatives, or charity by the time they hit 65.
The notion of retirement is a fairly new one outside of wealthy circles. For most of civilized history, people worked until they died. Not a glamorous way to go but that is simply the course of human history. Only until recently with the emergence of the middle class was there a general semblance that retirement may be accessible to all. However looking at actual figures reflects a very different picture. It is hard to get a perfect balance sheet as to where older Americans stand today since there are many differing resources floating out in the market. Yet one thing is consistent and that is, older Americans are entering into a major day of reckoning with not enough. Older Americans are woefully unprepared for what lies ahead in retirement. Many are basically at the mercy of Social Security, family, or charity. Not exactly the retirement paradise Wall Street started pitching to the masses starting early in the 1980s. The reason this has gone on for so long is the political system is co-opted by big money. Over this period of time real substantive reforms could have occurred. Instead a generation has passed and many have nothing to show for it even with the stock market at record highs.
New definition of retirement = work until you die: Half of Americans have little to no savings for what will likely be a long and drawn out retirement.
The ideal vision of retirement is one of constant leisure supported by a sizable nest egg. Building a nest egg takes decades of discipline and careful planning. Unfortunately, many Americans did not adequately prepare and combined with the casino like financial system, many have been washed out of the system. Many retiring baby boomers are going to use Social Security as their primary crutch for retirement income. The Social Security system was never designed to be the primary target for retirement income yet this is what we are facing. The problem of course is that Americans simply do not have much sizable wealth in stocks and bonds. While the majority of Americans own houses, most own very little to no stocks. This is why the current record in the stock market means little in the face of an imminent retirement. Also, the one vehicle to build net worth in housing is largely locking out young future buyers thanks to massive buying from Wall Street and big investors nearly guaranteeing another retirement disaster after this one. One crisis at a time. So why will so many Americans be in dire financial situations as they enter their golden years?
China’s housing correction is now in full swing: Big developers begin to slash prices with sales falling more than 10 percent.
It was bound to happen. The housing correction in China is now here. It is interesting to hear the various perspectives from people and how China is absolutely different to the point of never being open to property bubbles. The same arguments were made during the Japanese real estate bubble as well. Well apparently the laws of math apply to most countries around the world and unfold on their own timelines. The typical price for a new home in China fell yet again for a third straight month with property developers cutting prices. The government has intervened to quell the fires of a bubble but at this point, it is already too late. The correction will occur. The bigger question will be how deep will the correction be? When bubbles occur, entire systems are built around the inflated prices as if they were only set to stay high. They rarely factor in a reversal. Perceptions will drive future home purchases and do people want to buy an asset that suddenly is starting to fall? The argument goes that many people put massive down payments in China so therefore, things will be okay. Okay in what respect? Instead of using money that is borrowed, people are using their own hard cash. So the burden is shifted to the public versus banks. As we know, many in China will funnel in life savings into a property just to purchase. In many respects, this will likely make buyers more cautious and impact sales harder. I’m not sure this is reason enough to justify permanently high prices and the current correction is a symptom of this perception.
The trend for part-time work sweeping the world: Part-time work dominating jobs in the United States, Canada, and Japan.
The employment statistics do a good job concealing the true nature of the workforce. The unemployment rate has dropped dramatically since the recession ended largely because millions of Americans are now no longer considered part of the workforce. This is an easy way to boost the employment rate without actually creating new jobs. Another trend that seems to be growing around the world is that of part-time work. Part-time work and low wage labor go hand and hand. Part-time workers usually are not afforded the same benefits as those working full-time. They are also brought on with a just in time attitude and are treated as such when no longer needed. Part-time work has been growing before the recession and continues to do so today. In Canada, part-time work has been the dominant sector of employment growth. Low wage labor and part-time work go together like peas in a pod. Is this a trend we should be concerned about?
Will subprime auto loans ignite another credit crisis? Fed reports $101 billion in new auto loans between April and June with a sizable portion being in the form of subprime debt.
Buying a car is a big deal given that the sticker price of an automobile is close to the annual per capita income of an American worker. The average car in the US now costs $31,000. That is a healthy amount of money for a regular working person. Since incomes have gone stagnant for well over a decade, Americans have peppered over their loss of purchasing power by going deep into debt. Many are priced out of the housing market which at least provides some sort of equity building over your lifetime. Big banks have crowded into the housing market making it difficult for regular households to compete. However, the desire for easy lending profits has gotten Wall Street all excited once again. The current hot debt sectors are auto loans and student debt. Let us focus on auto debt today since the quarterly household report from the Fed was released this week. The report is stunning because it shows a massive jump in auto debt. In the last quarter, auto debt jumped by $101 billion. Total outstanding auto debt now stands at $905 billion. In other words total auto debt jumped 12 percent in one quarter alone. More troubling of course is that a sizable portion of this debt is in the form of subprime debt. Without a doubt, many of these loans will default. So what are the financial ramifications here now that a giant portion of auto debt is in the subprime variety?
Average Salary in US: What does the average salary in the USA have to do with economic issues for a consumption based economy?
What is the average salary in the US? It is a challenge to get your hands on this data since a big portion of income figures are reported via median household income. In the US, the latest Census figures from 2008 to 2012 show that a typical household earned $53,000. Per capita income in the last 12 months came in at $28,000. This tends to surprise people especially with the high cost of living that has been brought on by the slow process of inflation. One of the better ways for looking at average income is by going into Social Security figures since this looks at all income earned in the country. According to the latest Social Security figures the average salary in the US is $44,321. Yet Social Security income data comes with a cap at $117,000 for 2014, the maximum taxable earnings limit. The average income in the US according to the Census is $81,400 and this goes beyond the Social Security cap rates. That however is a big difference from the per capita income of $28,000 being reported by the Census. Why? Well the Social Security and Census data for averages also looks at high income earners that will certainly skew income figures to the higher end, much more so in Census figures. For the purposes of economic discussion, the most important income figures are per capita income and household median income. For a consumption based economy, what does it say when the average American is not seeing their income grow?
Masters of debt easing access to debt again: FICO score adjustments will allow people to take on more leverage at market peaks.
It is no coincidence that as the market gets long in the tooth, the crafty financial sector is looking for ways to offload products onto the public. This is the modus operandi of Wall Street in that after a historic bull run brought on by massive financial assistance from the government and Fed, it is now time to repeat the cycle and rid some of these assets onto the public. The latest consumer data shows that revolving credit grew very slowly in the last quarter while auto debt and student debt continued to soar. No surprise in the two areas where incomes don’t matter, credit is booming. In housing, we see mortgage debt hitting a wall because consumers are tapped out and income growth is simply not occurring. A massive portion of home buying since the stock market put on the afterburners was brought on by non-traditional buyers in the form of banks and hedge funds. Looking to keep the market rolling, debt needs to be extended in spite of poor income growth. The almighty FICO score looks like it will be adjusted to give people a nice little push up. In other words, time to move the goal posts and let people that are cash strapped access to more debt. Forget about the recent report that showed a huge number of Americans have had one or more accounts in collection.