Quantitative Easing has been the fuel for rising inequality and welfare for the modern Gilded Age: President Fisher from the Federal Reserve Bank of Dallas mentions QE’s gift to the rich.
As the Fed begins to slightly ease up on Quantitative Easing the reality of the winners and losers is becoming more apparent. QE was welfare for the wealthy and even President Fisher of the Dallas Federal Reserve Bank hints at QE being a massive gift to boost wealth. Well if we merely look at wealth across America, the only group that saw wealth increase after the recession ended was the top 10 percent. QE was ushered in under the guise of helping the nation overall but what we have seen is massive low-wage work taking over good paying jobs while banking profits hit new record highs. The Fed’s balance sheet has ballooned to well over $4 trillion and even though tapering is slowly beginning, there is no sign that the balance sheet is shrinking. The average American may not care about the Fed or even realize what is going on with rising wealth inequality but this is absolutely important. QE was the picture perfect example of welfare for the wealthy.
A land of low-wage jobs: For every job that pays above the low-wage threshold of $15 an hour you have 7 job-seekers. 51.4 million low-wage jobs in U.S.
The Great Recession has only accelerated deeper structural changes to our economy when it comes to low-wage employment. While many good paying jobs were lost during the Great Recession many of the new jobs have come in the form of low-wage employment. Large organizations have used this slack in the market to reduce wages, cut benefits, and ultimately increase profits at the expense of the American worker. A Job Gap Study found that close to 40 percent of all U.S. employment pays $15 or less. The threshold changes in terms of inflationary pressures on housing, food, and other items but this is the largest share of our workforce that is now struggling to meet the daily costs of living. This trend is only increasing as more wealth is filtered into the hands of a very small part of our population. Banking profits hit another record at the same time we have a record number of families on food stamps. The U.S. is largely becoming a bifurcated economy where wealth and income inequality is only getting more dramatic. For every employment opportunity that opens where pay is $15 or more you have 7 job-seekers to this one position.
The big economies cannot avoid a soft default as they face their debt reckoning: U.S. and other central banks battle it out for artificially low interest rates on unsupportable levels of debt.
Would you lend money to someone that you knew would never pay you back? The answer is, probably not unless you are okay with burning through hard earned cash. The global central banks unfortunately have entered into terminal velocity when it comes to debt support. The U.S. carries a stunning $17.51 trillion in total public debt. This is bigger than the annual GDP of the largest economy in the world but this pattern is not only in the domain of the U.S. Other central banks like the Bank of Japan and European Central Bank have also entered a mode where digital money printing is the only way out. Everyone does realize that this $17.51 trillion is never going to be paid back right? The Fed needs to push rates low in whatever method it can because the interest payments on the total outstanding debt would crush our economy alone. The Fed is mainly looking out for this when it comes to facing the debt reckoning and why we are witnessing inflation in debt based items like housing and higher education. It should be clear that many large economies are simply in a soft default already. In other words, they can only pay their debt by financial chicanery.
The perpetually depressed American consumer: Stock market high and bounce in real estate does not assist in boosting consumer confidence. 57 percent of Americans think economic outlook is getting worse.
Looking at the stock market and real estate prices would lead you to believe that the economy is recovering at a healthy clip. The underlying conditions of the economy may benefit the financial and real estate sectors (both live off each other) yet for most American families conditions are not rosy. In fact consumer confidence since 2000 has never recovered fully. Two mega-bubbles will do that to you. It could be that people were irrationally exuberant in 2000 but wasn’t the housing mania of 2005 through 2007 also exuberant? The big difference of course is that the housing bubble was largely masking the decline of the middle class while in 2000 wages were reaching their inflation adjusted peak via actual employment income. So Americans had a right to feel giddy at this point since their income reached a “true” high. It is no surprise that many Americans have little faith in their political system run by millionaires that simply bend to every whim of lobbyist and powerful corporations. Is it then a surprise that the latest Gallup poll shows that 57 percent of Americans feel that economic conditions are worsening? What is going on if peak stock values and a boom in real estate values no longer bolster the confidence of the American consumer?
The dual income conundrum – Americans need to work two jobs to make up for stagnant wages and the sinister impact of a middle class being eaten away by inflation.
In the United States the dual income household is the status quo. In the late 1960s dual income households were not common. Today however two income households are the majority largely because many Americans require two incomes just to stay afloat. This has been labeled as the “two income trap” and in many ways, it is more like the two income illusion. You would think that by adding two incomes you would be doubling your purchasing power but since the 1970s male wages have collapsed while more women entered the workforce. When household incomes combine these figures the collapse in income doesn’t look so dramatic but it is. The added wage of another worker simply masks the impact inflation is having. It is a new reality for many families struggling to enter the middle class. Inflation has a powerful eroding impact on your purchasing power. If your income is stagnant and housing prices just went up by 10 percent that means more of your disposable income is going to be eaten up by this sector. If tuition is outpacing wage growth that means many people are going to finance higher education by going deep into debt. With the dual income household situation in the US, one plus one doesn’t necessarily equal two. In many case the illusion is that one plus one equals one.
Never leave home generation: Household formation goes negative year-over-year at steepest rate since recession ended in 2009.
Young Americans have taken on the brunt of this Great Recession. Since the recession ended, young Americans continue to be saddled with tremendous amounts of student debt. With a weak blue collar sector, going to college may seem like the only viable road into the middle class. Yet one thing is certain and that is, the current younger generation in the United States is either unable or unwilling to form new households. I would go with the former rather than the latter since Americans are fiercely individualistic and staying with mom and dad late into your twenties and well into your thirties does not have a mass appeal. Yet through the fog of debt based euphoria, the economy appears to be recovering for a small segment of the population. Real estate is up largely on the backs of investors leveraging easy money from uncle Fed. The latest figures show that household formation is contracting at the fastest rate since the recession officially ended in 2009. What is going on? Isn’t the stock market recovery an accurate barometer of the health of the real economy? Real estate values going up only mean that you have fast money pushing out regular buyers and also, making rents more expensive for a generation that is already having a tough time moving out on their own.
The death of retail: What do RadioShack and J.C. Penney say about the future consumer economy? Low wage retail work to take a hit.
RadioShack recently announced that it will be closing 1,100 of its 5,000 stores. Holiday sales were dismal and shares were pummeled dropping by 24 percent. The problem of course is that these 1,100 store closures will result in many Americans out of jobs in one of the biggest employment sectors in the country, retail. Yet this one company is indicative of a much larger trend in consumer buying. People are choosing to opt to buy from other avenues especially online via big giants like Amazon. However you do not need a large workforce when you have incredibly efficient supply chains as Amazon has in place. This will only create a greater divide on inequality in our nation since blue collar work has been gutted and even low wage labor is taking a hit. For example, Amazon generates about $600,000 in sales per employee. That is very hard to compete against. Even J.C. Penney’s recent run up in stock value does not reflect a longer term decent. At one point a few years ago J.C. Penney was trading at $41.55 a share while today it trades at $8.30 (an 80 percent drop). In a consumer addicted economy like the U.S. seeing retail take a hit signifies some bigger changes to our workforce. It also makes you wonder who will be buying all this stuff if more people are out of work or living day to day on smaller paychecks.