Aug 31 2013

Why are so many young Americans living at home? Record number of Americans living at home while student debt reaches another record.

While the unemployment rate continues to fall in large part because people are dropping out of the workforce, we reach another record which highlights a difficult economy for young people.  A record number of young Americans now live at home.  It would be one thing if this was being driven by a desire to stay at home but this is not the case.  Economically younger Americans are simply having a tougher time starting their own households.  Combine this with the record amount of student debt largely shouldered by young Americans and it is easy to understand why this trend is occurring.  This living at home trend also helps to explain one of the reasons why homeownership has fallen overall.  This is not a positive trend no matter how people try to spin it.

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Aug 27 2013

Long live the reemergence of the FIRE economy: Over the last decade GDP is up $5.2 trillion while the total credit market debt owed is up $24.5 trillion.

The current economy is juiced on the rivers of easy debt.  An addiction that is only getting worse.  Want to go to college?  You’ll very likely go into deep student debt given the rise in college tuition.  Want a home?  Prices are soaring because of speculation but you’ll need a bigger mortgage to buy.  Want a modest car?  A basic new car that has four wheels will likely cost $20,000 after taxes after fees are included.  Need gas for that car?  The price of a gallon has quadrupled since 2000.  Combine this with the reality that half of Americans are living paycheck to paycheck and you can understand why the debt markets continue to grow at an unrelenting pace.  Here is some food for thought; in the last 10 years, GDP has gone up $5.2 trillion however, the total credit market has gone up by $24.5 trillion.  An increasingly large part of our economic growth is coming from massive leverage.  This is why the market sits fixated on the Fed’s next move regarding interest rates even though in context, rates are already tantalizingly low.  The FIRE economy is driving a large portion of corporate profits yet most Americans are left in the cold winds of austerity.

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Aug 24 2013

Wealth distribution in US rivals a modern day Gilded Age: In 2013 wealth inequality at record levels. 72 percent of wealth in US held by 5 percent of the population.

Americans continue to live through a modern day Gilded Age.  Wealth inequality is at its highest levels since the Great Depression, when names like Mellon and Morgan plastered the headlines.  Yet this time around, the availability of debt provides the illusion that the playing field is even.  Americans are massively in debt and when we look at actual wealth, we find that many have very little to their name.  In fact, millions of young Americans are in a negative net worth situation thanks to their student debt.  Wealth inequality has reached record levels because the system is now operating under a dysfunctional corporate and banking welfare structure.  The public is forced to deal with compressed wages, weak benefits, and basically what we know as economic austerity.  While this is happening, big banks use the Fed to their advantage and even when they lose, they win.  This is how 72 percent of all the wealth in the US is held in the hands of 5 percent of the population (with 42 percent of this in the hands of 1 percent).

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Aug 20 2013

The epic crisis in retirement savings: Vast majority of Americans unprepared for retirement. Median retirement savings for those 25 to 34? Zero dollars.

If actions are a method of gauging interests Americans have little desire or ability to prepare for retirement.  In fact, the amount of money saved for retirement is absolutely shocking on the low side.  When you mention that the American per capita wage is $26,000 people seem shocked.  This figure doesn’t coincide with the spend happy media’s perception of the American family.  Even after the lows of the recession, much of the employment recovery has come via low wage jobs and cutting back pay.  Saving money can only be accomplished if people have enough left over each month after necessities are taken care of.  Many financial blogs seem to speak to a small portion of society and fully ignore the overarching data.  For example, the median retirement savings amount for those 25 to 34 is $0.  That is right, the majority of young Americans don’t even have a penny saved to their name.  Do not think that as you move up the scale that things get all that better.  We have an epic crisis when it comes to saving for retirement.

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Aug 17 2013

Let us count the ways of inflation: While the CPI understates inflation Americans are living out the days of a contracting standard of living.

Americans are experiencing the impacts of inflationary pressures on their pocketbooks.  The Consumer Price Index (CPI) used by the Bureau of Labor and Statistics does a poor job of measuring inflation because it uses derivative measures to reflect the price of things we can readily get.  The most obvious example is the measure used to value homes.  The CPI missed the first housing bubble and is now missing the rampant rise in home prices again.  Why?  The CPI uses a measure called owners’ equivalent of rent (OER) which is a hypothetical measure of what you would get if you rented out your house.  Yet as we know in many expensive markets, someone may rent a home for $1,500 but the full carrying cost of owning the place may be $2,000 or more even after tax advantages are considered.  The bottom line is the Federal Reserve has pointed to the CPI as sufficient reason to continue using Quantitative Easing even though we are seeing large banks and hedge funds flooding the housing market.  No inflation?  Let us count the ways.

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Aug 15 2013

The scam of unpaid internships: How companies exploit free labor from students under the guise of unpaid internships.

Many people have taken on internships that were unpaid merely to learn some transferable skill or to build a solid network.  This was okay in a time when graduating students had little debt and higher education was more affordable.  Today some companies have used interns as a source of free labor without adding any benefits for the interns.  It is interesting that in the last year there has been a growing movement against unpaid internships.  It is bad enough young Americans are underpaid so why add insult to injury and have them “work” for free?  Most internships require students to receive some sort of takeaway that may include gaining new job skills or learning a new trade.  However, as has been the case many times over, many students are used as errand runners fetching coffee or other menial tasks.  This isn’t to say that all unpaid internships are bad or don’t serve a purpose.  However, the Black Swan ruling is showing an underlying trend of problems with our unpaid internship system.

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Aug 12 2013

Suppressing wages and increasing corporate profits: The tough math behind the current economic recovery.

It should come as no surprise that the stock market is a very poor barometer on the financial health of Americans.  We think of the stock market as a temperature gauge on how well Americans are doing.  If that is the case, the record breaking highs in the stock market should reflect a very happy and well off economy.  That unfortunately is not the case.  There has been a deep structural shift in the last decade which only accelerated since the recession engulfed the nation.  Corporations have increased profits largely by chopping wages and other compensation to employees.  This is part of a global low wage trend that is now fully rolling over the United States.  New data reflects this deeper morphing of our economy and also explains why many working and middle class Americans are finding it harder to keep up with the changing winds of the economy.  Suppressed wages, higher corporate profits, and less compensation.  What you would like to see is profits trickling down into the pocket books of Americans yet that is not the case.

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