1 out of 3 American workers support the rest of the country: Those not in the labor force surges to another record at 93,770,000.
The latest employment figures did not help the market. While the unemployment rate remained unchanged this is largely being driven by the massive number of Americans not in the labor force. This is the biggest employment story going on for a couple of years but is completely ignored by the media. It is also conveniently ignored by the unemployment rate that only measures those “in the labor force” which is a very generous range. A large part of the not in the labor force group has come from people simply being unable to find work in this low wage economy. And then the media acts shocked that people like Trump and Bernie Sanders are gaining traction. The media would like to continue to paint a Pollyanna case of the economy but that is just not the truth. We recently hit a record 93,770,000 Americans that are no longer in the labor force. 1 out of 3 Americans are not in the labor force while 1 out of 3 workers are supporting the rest of the country.
Comparing the cost of living between 1975 and 2015: You are being lied and fooled when it comes to inflation data and the cost of living.
Inflation is widely misunderstood by the public. Even economists tend to have a hard time coming to a general agreement to the true definition of inflation. When you ask the person on the street what inflation is they usually respond by saying the “price of things going up” which is more of a consequence of inflation, rather than the cause. Inflation is like a new car that lacks maintenance. At first, there is little notice of the issue but overtime major problems start occurring and eventually the car breaks down. If you want to see inflation out of control just look at Venezuela right now where people are swarming stores for basic food items. In the US inflation has occurred primarily because of the Federal Reserve’s banking policy. Too much cash (or debt in this case) chasing the same amount of goods. Only when we look at longer periods of time do we see the insidious nature of inflation. Yet somehow, the data used to measure inflation misses much of what is happening because it uses derivative like measures. For example, we use the owners’ equivalent of rent (OER) instead of the true monthly cost of owning a home. Let us take a look at some data between 1975 and 2015.
The economy chugs along with consumers going into deep credit card debt: Credit card debt surges in top 25 US metro areas according to Equifax data.
Credit card debt is like crack for the American consumer. A cheap alternative to pure spending cocaine but enough to keep you on the hamster wheel of consumption. I recently discussed how credit card debt while remaining subdued since the Great Recession suddenly made a 180 degree turn. Americans are spending money they don’t have on shiny plastic. Total outstanding credit card debt recently surged beyond the $900 billion mark. That is a lot of consuming. And with the average nationwide interest rate of 14% that means spending hamsters are probably dropping tens of billions on interest costs alone. I found it interesting that I got a few e-mails proselytizing how great credit cards were after my last piece. My reaction: So you enjoy locking in future earnings for money you don’t have today? Keep in mind people pray to the hedge fund gods for a 7% annual return. Getting a 14% return is like finding El Dorado had a sister name AmEx. It is amazing to get a 14% return (and with some cards, you are getting close to usury). Equifax released credit card data on 25 US metro areas and the results are startling.
People are still surprised why new home sales remain anemic and new home building is simply not materializing. The latest Census data shows that the typical new home sold for $281,000. At the same time we also realize that your typical U.S. household is making about $50,000 per year. The reason home sales remain weak is because the vast majority of Americans simply cannot afford to purchase homes! The minority category of Millennials that are doing well are coming from rich parents – the data backs this up. You really don’t need a Ph.D. in Physics to figure this out but a household making $50,000 a year simply cannot afford a $281,000 home! Let us be generous and look at the figures for a home costing $250,000. We’ll provide you a full household budget so you can see the numbers at work.
Credit card debt makes up for lack of income growth: Credit card debt outstanding back up to $900 billion. Since 1980 household income up 300% while credit card debt up 1,760%.
The middle class started disappearing in earnest in the late 1970s. Massive inflation started eating away at the standard of living for most Americans. Yet much of this was covered up by access to debt. Credit cards, creative mortgages, student loans, and auto debt all allowed Americans to continue acting as if prosperity was only an American Express card away. Credit card debt outstanding is now back up to $900 billion, a number last seen during the Great Recession before the great deleveraging. Americans have used debt as a means to cover up the reality that the middle class is disappearing. Credit cards are probably the clearest example of spending money you don’t have. Credit cards allow you to literally spend future earned money today. We always hear that many pay their balance off each month. Well the data shows something else. There is $900 billion in credit card debt floating out in the system.
The financial gouging of the American college student: Tuition is up 300 percent from 1990 and total outstanding student debt has grown by over 1 trillion dollars since 2000.
Inflation is such an insidious standard of living destroyer. Little by little those dollars in your wallet get worth less and you suddenly find yourself needing to go into large levels of debt to purchase cornerstones of the American Dream. Going to college has been the dream for many Americans after the G.I. Bill was signed into law in 1944. Even in the early part of our country, going to college was a privilege largely reserved for the elite and wealthy. It wasn’t viewed as a public good until World War II. The heyday of the US middle class was after World War II and slowly this has been chipped away starting in the 1970s. As of today, going to college is fraught with so many financial landmines. Working class areas are targeted by predatory for-profit colleges. Many others go to quality schools but come out with too much debt relative to what they can earn in an environment littered by lower wage jobs. This is the future of higher education. But think of this jaw dropping stat: since 1990 tuition has gone up 300 percent. You can rest assured wages have not kept up.
Millennials that are thriving in this economy are those with links to rich parents: The vast majority of other Millennials are mired in debt and unable to purchase homes.
Most young Americans are still living in an economy that feels like it is in a recession. Yet there are Millennials that are doing well and are thriving in this economy. How are they escaping mountains of student debt? How are they gaining access to down payments to purchase more expensive homes? The short answer is that they have rich parents. This isn’t some Trumpism. This is merely facts that are coming out of research from the Fed, Census, and Zillow. For the vast majority of young Americans the last decade has been one of low wage labor and a market mired with very expensive colleges. Despite the disappearing middle class many of those Millennials that are thriving are doing so thanks to familial wealth transfers. We tend to romanticize the “self-made” person in the United States but it is increasingly becoming more difficult. More wealth is accumulated in fewer hands and it is staying there.