May 22 2014

Inflation conundrum, price increases without wage growth are unsustainable: Central banks around the globe aim at inflationary targets but have a hard time inflating wages.

Inflation has a slow corrosive power that few people ever see. We all realize that rust will occur on exposed metal through a slow process of oxidation. One rain will not do this. It takes time. Little by little the destruction occurs. I’m always thrown aback when I hear some people say something like they bought a house in 1970 for $25,000 and of course, this fact seems incredible when homes are selling for $200,000 today. The logical conclusion is that buying a home is a fantastic deal. What they don’t bother doing is adjusting prices for inflation. Wages were also a lot less back then. What about opportunity costs on other investments? Central Banks understand that few people bother with the inflationary math and simply live by a doctrine that views price hikes as something that is built into our economic system. Yet this constant push for higher prices is brought on by the policies taken by our financial system. For example, take housing today. Housing values in the last year have increased by double-digits across the U.S. This is a good thing, right? Well not when you look at why this is occurring. Large financial institutions have found loopholes in the system to access cheap capital and have now decided to crowd out regular home buyers in the market. A chase for yield has resulted but all this has done for regular households is cemented a system where more disposable income is going to housing, either in rents or housing payments. Price increases without wage growth are flat out unsustainable and that is the conundrum we find ourselves in today.

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May 19 2014

How much do Americans earn? Average income data for individuals and households. Stagnant income growth for American families.

How much do Americans earn? This seems to be a relatively easy question to answer yet rarely do we get concrete facts in the media about American income figures. On some financial shows, you get people saying that being middle class is making $250,000 a year which is outrageous because this is twisting words and ignoring basic math. If we look at the true middle, the actual median, the typical U.S. household makes $51,000 per year. That is a far cry from $250,000 or even $100,000. Yet this kind of misinformation is what passes as financial news today. Americans for the most part are largely in the dark as to what other people earn. There is no conspiracy out in the market but there is a concerted effort to keep people in the financial dark because it keeps them from realizing how bad financially they actually have it. It also keeps people spending money they don’t have and rarely asking questions about their financial health. Instead of confronting this reality families dive into massive debt to try to keep up the pretense that they are making progress forward. Budgeting and methods for taking care of your hard earned income are largely left off any educational curriculum yet will likely have a massive impact on your lifestyle. How much do Americans earn?

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May 16 2014

A demographic time bomb: Over the next decade 20 percent of the US population will be 65 years of age or older.

It is no secret that the United States like many developed nations is facing a demographic shift of epic proportions. Within the next decade 20 percent of the US population will be 65 years of age or older. This will place severe constraints on young workers, Social Security, and Medicare. Roughly 300,000 Americans per month hit the age of 65. As we have noted before many are unable to retire because they simply do not have enough money stashed away to enter into retirement. Many continue to work. The vast majority will mostly rely on Social Security benefits. Never in the history of the US have we had such a large number of Americans entering old age at one time. The baby boomer generation like a pig moving through a python is now entering the typical age of retirement. Yet many are in no financial position to retire comfortably. Many delay retirement and continue working. Some argue that this delay in retirement is plugging up some channels for younger workers to enter into the employment market. While this might be true, the unfortunate reality is that many Americans, young and old are simply in poor financial shape thanks to the financialization of our government and banking sector. This is brought on by our new low wage economy and lack of protection or concern for the middle class. We are confronting a demographic time bomb and things are already set into motion.

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May 13 2014

Is college worth a lifetime of debt? Student debt reaches critical tipping point at $1.2 trillion as annual price increases enter the moment of truth.

The cost of going to college has come into deep questioning. In our inflation addicted market, the answer to every question regarding affordability involves more debt. Can’t afford a home? How about taking on a massive mortgage with a small down payment. Can’t afford a car? How about a 0 percent 0 down loan. Having trouble financing your college education? How about the albatross of student debt. It is no coincidence that student debt has fully gone off the rails courtesy of the federal government and banks dishing out student loans as if they were candy at Halloween. Is college worth the debt? In some cases it is and it also depends on what career you enter. This distinction is rarely made in the media where the general advice is “go to college and earn more” assuming all disciplines and schools are created equal (they are not). What about the predatory for-profit colleges that have horrific placement rates and high costs? What about going to a high cost private school and majoring in something that has little demand in the market? Yes college, is not a de facto employment training ground but at this price tag you better ask what you are getting for with that heavy debt burden. If we look at the low wage labor force, we have a market producing lower paying jobs and yet we continue to pump out more and more college graduates with heavier debt loads. Few will argue against education being a good thing. Of course education is important. However simply getting a degree does not equal financial success, or even getting a job in your field of study. The majority of this nation is financially in the dark when it comes to managing their finances or even understanding the deep capture the financial sector has on government. For most, these questions never come up until they see the price tag of their college degree. Is college worth the price of debt?

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May 11 2014

Global debt enters terminal velocity mode: Why central banks have no intention of slowing their public and private debt binge.

Central banks around the world are following one core mission. That mission revolves around expanding debt to goose equity markets and attempting to solve a debt crisis with more debt. Even the more conservative European Central Bank bowed down to easy digital money printing by announcing they too would follow in the footsteps of the Fed and Bank of Japan. Global banking is now fully addicted to non-stop debt. Every dollar of debt is having a smaller impact on what it can do to the real economy. The Fed’s balance sheet is now well over $4.3 trillion and while talks of tapering are made in public, there is no visible action being taken to show this is the intended goal. At the core of the global crisis was an expansion built on too much debt. Banks attacked this issue as one of liquidity but in reality this was a crisis of solvency. Banks never dealt with writing down assets but have decided to use modern day inflation methods to boost banking profits at the expense of working class families. Global debt has now reached a terminal velocity mode and central banks have no choice but to continue to expand their balance sheets.

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May 8 2014

US household debt nearly twice as high as annual wages and salaries: Inflating the consumer debt bubble with student loans and auto debt.

The latest consumer credit report surprised to the upside. What was the surprise? Americans are back to borrowing money they don’t have. Are they borrowing for investing or possibly purchasing a modest home? No. The latest data shows that Americans are once again going deep into student debt and auto debt. This is actually worse than borrowing for a home you can’t afford. A car will begin losing its value seconds after you drive it off the lot. Yet this is where Americans are pouring their money. So don’t be surprised if you see a pizza delivery person driving in a nicer car than you are. Since the 1980s, households have been supplementing the decline in their standard of living by going into deep debt. The last crisis was more of a debt bubble but it was more visible through the housing market crashing and burning. Housing was only the vector where debt was attached to. Starting in the early 1980s, households started borrowing more money than their actual wages and salaries. At a time when pensions were going extinct in favor of the Wall Street casino, Americans simply filled the gap of weaker wages with debt. So it should come as no surprise that today, US household debt is nearly twice as high as annual wages and salaries.

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May 6 2014

The impending retirement crisis: Pushing the financial constraints of an economy where many will rely on Social Security for the bulk of their income on the backs of a growing young low wage workforce.

There is a looming retirement crisis on the horizon. Most Americans are ill prepared for a long-term retirement. Back in the early 1980s, over 60 percent of American workers had access to some sort of pension plan. Today, that number is less than 10 percent. Planning for the future is challenging because it takes discipline, a steady source of income, some luck, and support from a rising market. That doesn’t always happen. That is why today, we have a large problem with older Americans not being able to retire. The latest data shows that most baby boomers will depend on Social Security as their primary source of income. Yet this money needs to come from a healthy and ideally, well paid younger population. That is simply not the case. Many younger Americans are saddled with massive student debt and others are unable to find good paying work. A large portion of profits in this recovery have gone straight to the top to a very small portion of the population. Also, a good portion of gains have come from slashing wages, cutting benefits, and squeezing productivity out of workers. This is how we have a nation where 1 out of 3 Americans have no actual savings. For many, Social Security will be the last barrier between them and being financially destitute. Just like saving for retirement takes decades, the current crisis will unfold over decades. Demographics are not looking kindly on the next decade for retirees.

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