Dec 21 2012

Diving into the fiscal economic mess – Fiscal cliff a reckoning for decades of poor financial management and massive debt based spending.

The media is making it appear that the fiscal cliff is a sudden event.  Like a countdown to a New Year’s party.  Yet this cliff was as predictable more than a decade ago as we spent more than we took in as an economy.  The challenge is real because our spending is so much more that what is coming in.  Sure, we can go into deeper debt and allow the Fed to issue trillion dollar bailouts to the banking system yet what we have gotten in return over the last five years is now a low wage economy.  We now bask in reports that show unemployment rates falling not because of substantial job growth but because people are dropping out of the economy like flies hitting the light.  The fiscal cliff can really be summed up in one major chart.

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Dec 18 2012

The erosion of purchasing power via inflation – Federal Reserve and the permanent portfolio.

Inflation has a subtle and quite way of eroding your purchasing power.  The process can unfold slowly and before you know it you suddenly wake up realizing your paycheck no longer stretches so far.  This is happening across the US in many ways.  Those on very tight budgets, especially those now on food stamps are feeling the pinch of higher food costs.  Middle class Americans seeking to send their kids to college realize that it might be difficult to do so without going into deep student debt.  Inflation as measured by the CPI understates the real change in purchasing power because our system is flooded with massive levels of debt.  Access to debt is viewed as a vector in which you can pretend to have money and spend on things you are unable to afford.  Yet debt and wealth are not the same.  Inflation is creeping into the system and people are feeling it.

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Dec 15 2012

New Retirement Model of Working into Old Age – Baby Boomers hitting retirement age with little to no savings.

The fiscal issues facing the country are troubling for a variety of reasons but one big reason is the reality that many older Americans simply do not have enough money to retire.  The idea of entering your golden years without the need of working is a relatively modern one.  In fact, it was the generation that grew up after World War II that enjoyed this middle class ideal.  A secure job, a paid off house, and the ability to send your children to a good college.  That was the dream.  Yet that dream is now largely gone in a puff of smoke.  It has been gone for sometime but the ability to access unsupportable debt kept the party illusion going a decade or so longer.  Today, Americans are now entering retirement at a time when the stock market has given zero returns over a decade.  Government debt is tipping over and we continually spend more than we earn.  For millions of older Americans, retirement means continuing to work.

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Dec 11 2012

The food stamp economic recovery – Food stamps increase by over 600,000 in last month of data. GDP at record levels yet US employment is 4 million below start of recession.

There was a startling figure that came across my desk from the United States Department of Agriculture regarding food stamp usage in the SNAP program.  Food stamp usage has grown dramatically in the last decade even during the debt inspired boom times.  Yet the devil is always in the details as we reported with the unemployment rate really dropping because of the over 500,000 Americans simply dropping out of the labor force.  The food stamp figures are stunning because they show in the last two months food stamp usage has skyrocketed by over 1,000,000.  In the last month of data observation, food stamp usage increased by more than 600,000.  Keep in mind to qualify for food stamps you have to carefully demonstrate that you are earning very little and technically are classified as being in poverty.  So what does it say that our nation now has 47.7 million Americans on food stamps?

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Dec 8 2012

Disappearing US labor force and goodbye to retirement – Adding 146,000 jobs while 542,000 drop out of the labor force. Understanding the changes in the unemployment rate.

The recent drop in the unemployment rate was largely due to the number of people dropping out of the labor force.  I’ve noticed that more people in the press are picking up on the important nuances when it comes to the employment figures.  For example, in the last month those “not in the labor force” increased by well over 500,000.  This is a big figure and given that 1 out of 3 Americans has no savings to their name, many are hitting retirement age but are still likely to be working.  There is an idea that with 10,000 Americans hitting retirement age each and every day that they are now all spending their time sipping Margaritas and playing cards on some crystal blue beach.  Yet net worth has been slammed and most Americans have seen their net worth plummet by roughly 40 percent since the crisis hit.  Let us take a closer look at the employment numbers to see what is really going on.

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Dec 4 2012

US households already went off their fiscal cliff and breached their debt ceiling – US quickly approaching another debt ceiling limit aligning with the fiscal cliff.

Few people realize that the debt ceiling is aligning right on track with the fiscal cliff.  Total public outstanding debt is now at $16.369 trillion and is only $63 billion away from breaching the limit.  Not a coincidence that the fiscal cliff is also on the horizon.  In essence, we are addicted to debt.  However US households have been on a multi-year long process of deleveraging yet this is not being asked from banks or governmental institutions.  Of course we knew this was coming.  Anyone that was honestly objective realized that we were on an unsustainable path.  Yet the name of the game is now about kicking the can furiously down the road so it falls beyond or line of vision.  Then we act surprised when we arrive at the can and it has only gotten heavier with debt.  So as we are T-minus a few days from the fiscal cliff, let us examine the debt ceiling.

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Dec 1 2012

Engaging debt spiral – Spillover to US market from record European Union Unemployment – US exports over $260 billion to Europe every year. Why is the EU crisis no longer in the US press?

It is hard to tell why the European Crisis fell out of favor in the US media.  The EU is the largest economy in the world punching in over US$17 trillion a year in GDP.  The idea that things have been saved is clearly not the case.  Sticking your fingers deep in your ears is not a solution.  More debt is put on top of more debt like multiple layers of icing on a rotten cake.  A colleague brought up Greece and was talking as if the situation had been solved.  The bailouts are merely a method of extending enough credit to continue servicing the current debt.  In other words, they are insolvent.  The same story circulated under new packaging.  This is like having a $10,000 mortgage and making $2,000 a month with no savings.  Then your uncle lends you $100,000 and that will carry you a few more months but then what?  There is then a constant oceanic wave of bailouts.  Spain and Greece are the most obvious cases but the overall EU now has reached a record high level of unemployment.  Where do we go from here?

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