Say hello to my little friend, inflation: Shrinking packages, higher tuition, rising healthcare costs, real estate values jumping all the while household incomes remain stagnant.
Only those deep in denial think that inflation is not occurring in the economy. You only need to look back 10 years to see how nutty things have become. Is the price of a car more or less than it was 10 years ago? How about the price of tuition? Real estate? Healthcare? Inflation is alive and well in the economy. You even have many cases at grocery stores where you pay the same for less. Sure, the price didn’t go up but you are paying more for less of the product in what is usually termed dis-inflation. Access to debt has created some of the biggest bubbles in spite of real household income falling back to levels last seen in the 1980s. This is why juiced up sectors like real estate and higher education are seeing runaway price hikes. Say hello to my little friend, inflation.
Is college worth the debt? The cost of one year of college is higher than the per capita wage of a fully working American.
Going to college has become a rite of passage in America. We’ve left shamanic rituals deep in our human past and have come to accept college as a clear transition point into adulthood. In a consumption based economy, success is typically measured by your ability to consume. Spending prowess is not measured by sea shells but by how many credit cards grace your wallet. Unfortunately many in the once healthy middle class are falling off the wagon and finding it necessary to enter into a deal with the debt devil merely to keep the pretenses up. Last year roughly 90+ percent of non-housing debt growth occurred because of auto and student loans. Is college worth the cost? More to the point, is college worth the massive amount of debt being taken on? Clearly many prospective students have no other means of financing their education aside from going deep into the student debt market. College has become a rite of passage and the ticket for that journey has grown incredibly expensive.
The Great Income Divide: IRS data shows 50 percent of households make less than $35,000 per year. Top 10 percent pay 68 percent of income taxes.
A major theme throughout 2013 revolved around a booming stock market and real estate sector. Alongside this theme however was also the one of growing income inequality. The stock market generated one of its best years but only a small portion of the population benefitted since most Americans do not own stocks outright. The real estate boom was largely driven by big money investors leveraging the unprecedented Quantitative Easing machinery from the Federal Reserve. Yet most households have little access to this debt since deleveraging is still occurring for households. The only consumer debt sectors to boom in 2013 came from student loans and auto debt. Not exactly two sectors to build up your wealth portfolio. We see how the great income divide is splitting the nation even when it comes to paying income taxes. The adjusted gross income for half of households in the US is less than $35,000. This group pays 11.55 percent of all income taxes. The top 10 percent pay 68 percent of all income taxes. This is an expected trend when wealth inequality is at levels last seen since the Gilded Age.
Comparing the inflated cost of living today from 1938 to 2013: How the US Dollar has lost incredible purchasing power since 1938.
Money is only as useful as to what it can purchase. The Fed has created a system where debt is now equal to money. This is why big purchases like cars, housing, and even going to college are only feasible by mortgaging your future for many decades. Since the payments are broken down into tiny monthly installments many people pay little attention to the true cost of things over their lifetime. Yet over this time, the U.S. dollar has lost a tremendous amount of purchasing power due to inflation. Inflation slowly eats away at your purchasing power yet having access to debt has given the middle class the false impression that they are still protected from the unraveling impacts of inflation. Someone sent over a photo posted over on the popular Reddit website that shows the cost of living for people back in 1938. You would think that people in 2013 would have more purchasing power than those living through the Great Depression. Adjusting for inflation you would be surprised what has happened in the last 75 years.
Middle class acquiesces through the looking glass of financial mediocrity: The financial system continues to pillage the wealth of working and middle class Americans.
2013 can be remembered as a year where the markets fully disconnected from Main Street. The trickle down promises are all empty and hollow words. For example, we had one of the best stock market rallies ever yet most Americans are not seeing any wage growth. The housing market boomed but more than 30 percent of sales are going to big banks and investors using the Fed’s QE system to crowd out regular people. Why are higher home prices positive if incomes are not going up? The market no longer reflects the pains of the working and middle class. In fact, the stock market must appear like a looking glass for many Americans who look at their paychecks and net worth and must wonder how they can get a piece of the action. The con is strong since most of non-housing debt taken on this year came via auto and student loan debt. In other words, spending what you don’t have. The financial system continues to pillage what little wealth working and middle class Americans have.
Quantitative Easing has become heroin to the financial markets: Federal Reserve balance sheet hits $4 trillion this week.
Addiction is never an easy battle to overcome. This also applies to easy money addiction that is now part of the Quantitative Easing economy. The Fed’s extraordinary measures are now appearing to be more permanent measures. Every time the whispers of tapering are made the markets respond accordingly signifying that the stock market is fully addicted on easy money. There is really no backing out of QE without some sort of pain. Any addict pulling themselves away from a drug suffers some brief or long period of withdrawal. Yet the long-term benefits are obvious. In this case, the Fed is not only avoiding tapering but getting more aggressive in their QE heroin. This week, the Fed’s balance sheet crossed the $4 trillion barrier. Of course few people pay attention to the Fed’s balance sheet but the fact that the Fed has created a second housing mania fueled by investor money is startling.
A Gilded Age built on debt for modern day financial aristocrats: Fed reports record for household net worth only problem is that most people do not own financial assets.
The Fed recently reported that US households reached an all-time record high when it comes to their net worth. A record $77.3 trillion net worth figure was reported with $7.65 trillion of this growth occurring over the last 12 months. The only issue here is that most Americans do not own any financial assets. The bulk of the gain has come from the juiced up stock market courtesy of mega Quantitative Easing. Yet at the same time, we have a peak in food stamp usage and the real estate market is largely being driven by Wall Street speculators. The Fed is creating a modern day Gilded Age that is favoring a very small portion of the population. The vast majority of the population is leveraged into debt with high rates while those with premiere access continue to increase their balance sheets. It is no coincidence that the top 10 percent of households control 75 percent of all wealth in the nation. This is why sentiment for most households is negative. For the majority to participate in this party they need to go into massive debt yet again to pretend they are still part of the middle class.