Contagion and the viral spreading of debt based systems – CEO pay at regional banks surge on average to $10.5 million thanks to bailouts while austerity is forced onto the middle class.
The biggest economy in the world just reached a new peak with their unemployment rate. We are not talking about the United States but the massive block in the Eurozone. The unemployment rate in the 17 country block reached a new all-time high at 10.9 percent as austerity measures are being used to combat massive levels of debt. There is no single rule of thumb as to how much debt is too much. A few respected economists from the 1800s once stated that too much debt is reached when the market suddenly acknowledges that too much debt has been reached. In Europe it appears that this apex of debt has been reached and certainly in a handful of economies too much debt has been reached. The trouble of course is that Europe is a massive trading partner to the US but also the world. It is naïve to think that issues in the European zone will not trickle over to our already fragile economy. The working and middle class are likely to have another tough challenge put ahead of them as countries overseas begin redefining what life is like with too much debt.       Â
Middle class dysphoria – What does the new American Dream look like? Inflated college tuition, lower home ownership rates, and compressed wages.
The American Dream was always tied to economic prosperity. The ability to work and save for a respectable retirement seemed cornerstones to this vision of middle class success. The idea that future generations would have it better seemed to also be part of this vision of economic prosperity. The last two decades have seen a dramatic shift to this vision. The struggle to stay in the middle class is getting more difficult since more are being pushed into the poor or working poor categories. The recovery has been largely an odd accounting function courtesy of bailouts to the banks and massive government spending. Today, we have the largest number of Americans on food stamps. Those seeking to follow their desire to get a better education are saddled with a minefield of student debt and subpar institutions that simply look to steal their money and give them a piece of paper that is hardly recognized in any professional context. The home ownership rate, the symbolism of the American Dream is drifting further into the shadows.
The cascading waves of debt implosion – 5 charts looking at debt leverage, velocity of money, and contagion impacts from the European crisis.
If you inject money out of thin air into the banking sector but no quality jobs emerge, is the result a success? The bailout mission statement revolved around keeping credit available for the American public. The absolute opposite has occurred. A massive internal credit deleveraging has been taking place but the banks have simply hoarded the money like a squirrel hogging all the nuts.  The public is dealing with a great deal of austerity in the form of higher inflation in daily good items and an employment market that is extremely constricted. The issue continues to be that we are treating this crisis as one of liquidity when it has always been one of solvency. What function is it giving a bank billions of additional dollars if there are so few qualified people to lend to? We even see this restriction of money circulation when we examine the velocity of money. We are simply injecting more debt into the economy with decreasing results. Higher energy, food, healthcare, and other daily goods have risen beyond the average paycheck of most Americans as a consequence.
The young and the jobless – Half of bachelor’s degree-holders under the age of 25 are unemployed or underemployed, in the US. Social Security short fall highlights deeper reality of economy.
The news for young Americans doesn’t seem to be getting any better. Earlier this week it was announced that Social Security will be running out of funds by 2033, three years earlier than expected. What this means if nothing is changed is that future retirees will receive only 75 percent of expected payouts. Not a good item of news considering inflation in daily goods is high thanks to the bailout policies and quantitative digital printing taken on by the Federal Reserve. The full retirement age of Social Security for those impacted will be 66 or 67 by 2033 for everyone born after 1954 or 1960 and 21 years from now will come up a lot quicker than most realize. Yet many recent graduates, those under 25 with a bachelor’s degree are either unemployed or severely underemployed. What is worse, the young generation is shouldering most of the massive debt in the student loan market. Older generations are being impacted since many are moving back home or are requiring resources merely to stay afloat. Hard to imagine a future generation with lower financial living standards but this is simply the continuing trend of breaking apart the middle class.