Feb 24 2015

Subprime lending at highest level since financial crisis hit: The three leading subprime categories are auto loans, credit cards, and student debt. $189 billion in subprime loans made in 2014.

The euphoria is bleeding into every corner of our debt driven economy.  Access to credit is being given to consumers but unfortunately, the loans are tied to items that are counter to becoming financially healthy.  More to the point, subprime loans have reached levels that were last seen only during the financial crisis.  As fewer good borrowers are available, lenders are digging into every nook and cranny of the economy to find additional borrowers.  Money is brought into existence through debt.  People have a hard time wrapping their mind around this.  For example, say you are a student looking at going to college but have zero dollars to pay for it.  A lender will pay for your school and create this “money” out of thin air.  How so?  All of a sudden you graduate and now owe $50,000 for example.  You will need to pay this back with real earned income for many years.  This is money that was brought into the system from financial institutions and we are now seeing it permeate into auto loans and credit cards with subprime borrowers.  In 2014 $189 billion in subprime loans were made.  Welcome back to the easy debt party.

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Feb 20 2015

The revival of the American debt machine: auto loans, student debt, and credit card debt surge in latest report. Total non-housing debt now at $3.15 trillion.

Last week while going through mountains of credit cards offers, it felt as if we were in 2005 and 2006.  Even last year, the cold calls started and it seemed like the debt machine was back and alive.  This is helpful news for consumers given that half of Americans are living paycheck to paycheck.  Now that the bailouts have aided the very small portion of financially connected, it is time to shower the public with auto debt, credit card debt, and student loan debt to get the party fully going.  I’ve covered over the last few quarters the surge in subprime auto debt since practically all Americans have some sort of auto debt.  With all those with OK credit being tapped out, it was time to search for a wider market.  The last quarter saw auto debt go up by $21 billion, student debt by $31 billion, and credit card debt by $20 billion.  Non-housing debt continues to make new highs while housing debt is still off the peak since big banks and investors now own a good number of single family homes.  The debt machine is back on.

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Feb 17 2015

A demographic tsunami looms: By 2020 we will have 20 percent of our population 65 and older. Half of elderly Americans would be in financial ruin if it weren’t for Social Security.

Kicking the can down the road has a nice appeal.  It is the same allure that comes from procrastinating.  Putting off the dirty work for another day.  This seems to be the approach we have taken for deficit spending.  So it is no surprise that older Americans have followed in the same footsteps and many did not prepare for retirement.  It is startling to realize that over half of elderly Americans rely on Social Security for most of their income in retirement.  We also know that over the next decade the percent of Americans aged 65 and older is going to boom. So this trend of financially living on the edge is going to be troublesome.  Younger American workers are having a tough time in the current economy so it isn’t realistic to have this group support the incredibly large number of retirees.  So what are we doing?  Just ignoring the issue for another day.  We are heading to some challenging times and many older Americans are simply not prepared for retirement.

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Feb 13 2015

Top 4 largest occupation sectors in the United States all in the low wage service sector paying $10 an hour or less: What does it mean living near the minimum wage?

People have a hard time wrapping their minds around the economic fact that the top employment sectors in the United States are all made up of occupations in the low wage service sector.  We define low wage as a job that pays $10 an hour or less.  The press doesn’t really highlight this working poor segment of our society even though a large percentage of our population is employed in an industry that pays very little and offers scant benefits (if any).  There was a time when the top employment sectors in the US involved people making things and wages provided enough for a healthy standard of living.  Now most Americans need to go into incredible levels of debt to purchase homes or even go to college.  I always find it useful to look at the top employment sectors in our country because it gives us a good sense as to what jobs are dominating the market.  Let us take a look at some of the top employment fields.

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Feb 10 2015

The Canadian housing market will implode in dramatic fashion: 5 charts highlighting the inevitable pop to Canada’s real estate boom.

The Canadian housing market is deep into bubble territory.  We all know that bubbles can go on for longer than most people think.  But with the crash in oil prices and people fully believing their own hype, the market is setup for a big fall from grace.  It is interesting how most from the outside can see what is coming but those within the system just can’t accept the fact that prices are massively overvalued.  Just like bubbles can grow to outsized proportions, corrections can hit quickly.  Virtually all analysts did not see the massive correction in oil hitting late in 2014.  But it did.  Many within Canada especially those tied to the real estate industry are deep into a trance believing they are immune to the economic rules that apply to all economies.  The economy is dependent on oil and construction and both of those industries are taking hits.  Yet somehow, home prices will continue to move up just because?  Canadian households are deep into debt and make American households look like penny pinchers. Here are five charts showing that the implosion in Canada’s housing market is inevitable.

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Feb 6 2015

The evolution of low wage America: The most common jobs by state in 1978 to 2014. The destruction of the manufacturing industry.

The US continues to see a widening gap between the army of low wage workers, the highly paid small upper-class, and a dwindling middle class.  We’ve already shown through IRS tax data that households make a lot less than people think.  The US has been on a very steady trend towards having a massive pool of low wage labor with nearly non-existent fringe benefits.  Benefits have been decreasing while the cost of healthcare and planning for retirement is surging.  It is always interesting to look at Census and BLS data for employment figures.  There was a fascinating report looking at the most common jobs per state over time, starting in 1978.  The evolution is interesting and what we can take from the report is that the secretarial position went from being very common to being virtually non-existent.  And today, truck drivers are the most common job in many states thanks to the obvious reality that you can’t outsource a big rig trucker driver (although I’m sure driverless technology will soon handle that in a few years).

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Feb 3 2015

The largest bracket of tax payers in the United States is made up by those making $15,000 a year or less: Half of all federal taxes paid by those making $250,000 or more. Sample $50,000 budget.

New IRS tax filing data sheds an interesting light on the American economy. Americans for the most part comply with paying their taxes as measured against other countries. However, when we look at tax data we get an interesting picture on the low wage economy. As it turns out, the largest tax bracket comes in the form of those making $15,000 or less per year (this group makes up 25% of tax filings). What the data also finds is that households making $250,000 a year or more make up 2.4% of filers but pay 26% of all federal income tax. So when we hear about large spending proposals we have two ways to fund them. It means higher taxes or simply more deficit spending. We’ve already covered how inflation is really hitting the family budget even though we continue to hear stories to the contrary. Just look at the actual numbers on real life spending. The IRS data always gives us a nice look at how household spending is measuring up.

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