A leveraged system – US debt jumps $100 billion on last day of year. Total US debt markets at $58 trillion.
The New Year came and went and here we are fully into 2015. Most Americans didn’t realize this but on the last day of the year US debt jumped by $100 billion in one day driven largely by Social Security adjustments. The current economy is dangerously addicted to debt. There was a time not too long ago where paying for college or even a car with cash was seen as a common occurrence. That is no longer the case and we are even seeing subprime auto debt since many Americans are cash strapped and a little low on the income side. Total credit market debt is nearing $58 trillion which seems a bit excessive given this is three times annual GDP. The current system is highly addicted to debt in any form. Those with the ability to access debt and leverage it can thrive in this system so long as debt is accessible. For many Americans with stagnant wages debt is available but for products that largely create negatives for wealth accumulation – cars, TVs, etc. Many on Wall Street can leverage cheap debt to purchase goods in the economy and crowd out regular workers.
Standard American Retirement plan equates to flying by the seat of your pants: The majority of older Americans rely on Social Security as primary source of retirement income.
Social Security keeps half of elderly Americans out of poverty. You need to recall that many older Americans came of age during the 401k cult worship of Wall Street. Greed is good as portrayed in the movie Wall Street. Stories developed as a sign of caution actually drove many to aspire to become financial mavens that sought to make as much as possible even if it meant setting a torch to the underlying economy. Many made billions of dollars during the housing crisis betting on the failure of regular American families. As many baby boomers now find themselves looking over the retirement cliff, many realize that the annihilation of pensions in place of 401ks was not exactly the lost city of El Dorado. Most retired Americans rely on Social Security as their main source of income. This was never the intention of the system. Social Security was supposed to be one leg of a three part stool. You had pensions, 401ks or other retirement plans, and finally Social Security. Since most Americans have no savings and pensions are largely going extinct, many are now forced to rely on Social Security as their primary source of income. The only issue is that we now have a demographic tsunami of people entering old age and many are going to fly by the seat of their pants into retirement.
92.4 million Americans not in the labor force: The continuing trend of one-third of Americans supporting the other two-thirds.
92.4 million Americans are considered to be “not in the labor force” officially. This number is incredibly high and is a large factor for the drop in the employment participation rate. While many older Americans are winging it when it comes to retirement, one-third of the private workforce is supporting two-thirds of the population. Part of the reason we have so many Americans in the not in the labor force category is partly due to the aging of the country but that only accounts for one portion of the change. A large portion also comes from the unusual jumps in the disability category, a large number going back to high cost college, and many simply dropping out of the market completely. The rate of increase in each of these categories is growing much faster than the rate of growth in the population suggesting something else is going on. The unemployment rate on the surface looks to be much healthier than it is because you are removing millions of Americans from being counted.
Dollar Store Nation: Largest percentage of Americans on food stamps while stock market disconnects from working class Americans.
While the stock market whipsaws like a rollercoaster, many Americans only see one tiny benefit to their bottom line. The massive drop in oil prices will add a few extra dollars into the wallets of Americans just in time for the holiday shopping season. Many will only have the budget to shop at dollar stores which are doing fantastically well over the last decade. What happened over the last decade? The crash of the middle class. This is how mid-tier retail stores are having a tough time while places like Tiffany & Co. are doing great targeting the wealthy. The gap is growing and we now have the largest percentage of Americans on food stamps. A large part of the growth in the stock market is being driven by slashing wages, cutting benefits, and many Americans are simply winging it for retirement. The number of dollar stores across the United States is amazing and many are happy to accept food stamp debit cards.
Why oil is crashing and the black swan event of 2014: The price of oil is down by 40 percent in six months and hardly anyone saw this coming.
Black swan events are bound to happen in financial markets. It appeared that 2014 would be a year where stock markets gained footing in the world of supposedly low volatility until oil prices came crashing down. The crash in oil is enormous. It has sent many countries into panic mode including Russia where interest rates were hiked up to 17 percent. This produced little result since the change in oil prices has come so abruptly. Oil is down over 40 percent in the last six months. The current price of a barrel of oil is $55.40. What so many analysts got wrong is the assumption that high cost oil was here indefinitely and that somehow the global economy would be on perma-debt growth. Obviously things can change dramatically over night. As we saw with the recent spending bill, sneaky provisions for derivatives were popped in for the next financial bailout. But with oil, this is a global commodity with massive market implications. This is the financial story of the year and it will setup 2015 for an interesting period.
Cronyism and ensuring American taxpayers bailout the finance industry during the next crash: Nostradamus like spending bill will ensure big banks never fail with your money.
Do you smell what is in the air? Pine trees? No. Something with a more pungent smell. There is a wonderful whiff of cronyism floating around Washington D.C. In the latest government kabuki theater there was some interesting items being passed. There were major protections given to banks should trillions of dollars in derivatives blow up during the next market correction. While the public is enjoying a few dollars off in gasoline prices so they can spend more money they don’t have during this holiday season, the latest government/banking spending bill was passed by slim margins but puts the taxpayer on the hook for trillions of dollars of risky derivative bets. Great timing given the energy markets are imploding so we know some hedge funds are taking it in the shorts and will likely come to D.C. hat in hand to cash in on those generous campaign donations. Central banks have done very little to help US households because incomes simply are not keeping up in the face of inflation. The latest bill is something to behold.
The American Dream deferred for young Americans: Living in rentals, inflated college tuition, and low wages await millions of young Americans.
The Americans Dream was largely built on a few simple ideals. One was the ability to purchase your own home without needing artificially low rates and dangerously low down payments. Another key aspect of the dream was allowing young Americans to receive a college education to pursue their future. While more Americans are going to college, many are taking on dangerously high levels of debt to embark on this journey. Another key component of the American Dream was having the ability to have a job that paid well enough to have a good standard of living. That standard of living is eroding as inflation is eating away purchasing power. It is hard to come to terms but the upcoming generation may not have it as good as that of the baby boomers. There is no fast and hard rule saying that each generation should be better. That is why the middle class rising in the US was a historical anomaly. Something worth aspiring and investing in. Yet if we look at history, you largely have one of a small wealthy elite and the rest. The fact that we are looking more like the Gilded Age is not a positive sign. For many, dreams are being deferred.