Apr 25 2013

The incredibly uneven recovery: Net worth of bottom 93 percent declines by $0.6 trillion while top 7 percent net worth increases by $5.6 trillion. Why? Most Americans don’t own a sizable amount of stocks and bonds.

One unique signature of this economic recovery is how narrow it is.  When we look at actual wealth, the net worth figures of Americans, we see some dismal numbers.  In fact, what we find really isn’t a recovery at all if we look at 93 percent of the country.  Then again, with most of Congress being millionaires they are so far removed from the real lives of the public that reality has become encapsulated in a very tiny bubble.  One piece of data that recently came out highlights this uneven recovery.  From 2009 to 2011, the heart of the so-called recovery, the net worth of Americans went up by $5 trillion.  Sounds great right?  Well, when the data is actually carefully examined we find out that the net worth of the bottom 93 percent of Americans actually fell by $0.6 trillion and the top 7 percent saw all the gains of $5.6 trillion.  In other words, for most Americans, this isn’t a recovery at all.

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Apr 22 2013

Reinventing GDP: US GDP to be revised in July by adding “intangibles” to the tune of $500 billion. The make believe economy.

The US debt-to-GDP ratio is now quickly reaching insurmountable levels.  It is interesting that a paper citing this issue is now being openly discredited as if this is reason enough to put on the rocket boosters of quantitative easing.  Japan has gone so far off the deep end that they are now intervening in their stock markets.  Why not just give everyone $1 million and push the DOW up to 30,000?  The debt-to-GDP ratio in the US is now quickly approaching 107 percent.  Of course, in the make believe economy, we now find out that the official GDP figure is going to be miraculously boosted up by $500 billion in July.  Why?  Because all of a sudden they want to add intangibles.  How convenient that now that our ratios are out of whack that they want to add a whopping $500 billion out of thin air.

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Apr 19 2013

US households are tapped out on debt: While US households are forced to eat austerity measures financial institutions load up on debt and purchase assets at rock bottom prices.

US households are tapped out with debt.  Debt matters.  Contrary to what is being spouted out over the airwaves having too much debt does cause problems.  American households tipped over this point when total household debt reached annual GDP.  This is a critical juncture and results in massive deleveraging.  There doesn’t seem to be answer or really a major priority in trying to figure out ways of maintaining a strong middle class in the US.  It is almost assumed that this is now a lost cause.  Fewer in the middle and more in the low wage system that is being developed.  Half of Americans are living paycheck to paycheck with 1 out of 3 having no savings at all.  Another 47 million Americans are struggling on food stamps.  Yet we are supposed to believe that this is a recovery.  We recently found out that a large jump in the economy has come from housing.  Yet curiously, the large purchasing power has come from financial institutions crowding out regular Americans.  There is such a thing as too much debt.  US households have reached that point.

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Apr 15 2013

The coming deleveraging for Canada – Unit labor costs in manufacturing above US labor costs and household debt-to-income at 160 percent.

Our neighbors to the north in Canada are going to face a serious deleveraging shortly.  This isn’t hyperbole or some off the wall call but based on evidence of what happens when economies get into too much back breaking debt.  If the largest trading blocs, the US and Europe had to have their day of reckoning how is it that Canada will be immune from the same economic forces of debt?  Bubbles do not pop in perfect harmony.  They pop in a disorderly and loud fashion and momentum picks up once the unraveling begins.  Canada has one of the biggest ongoing housing bubbles and contrary to the rhetoric we see, they have households deeply in debt.  In other words, they are leveraging to the hilt just to keep this charade going.  Yet this can only go on for so far.  Obviously bubbles can last for a very long-time (i.e., US housing from 1997 to 2007) and can surprise many people.  Let us take a look at a couple of reasons why Canada is going to face a heavy deleveraging.

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Apr 12 2013

Does inflation matter? The real cost of living for middle class Americans. Fed on path to growing balance sheet to $4 trillion.

Does inflation matter?  If you ask this question to the Fed, it appears like it doesn’t.  The Fed is doing everything it can to stoke the fires of inflation.  Instead, what it is doing is causing further asset bubbles and misallocation of capital in markets.  For most people the cost of living is becoming more expensive.  Tuition costs are soaring, healthcare is extremely expensive, energy costs have reached a new level, and incomes are stalled.  It is hard to see how inflation is a good thing when incomes get stuck but it is also part of the plan.  The psychology of inflation is excellent for a consumer driven economy.  If you think prices are going to go up tomorrow, you are more likely to spend today.  Falling prices cause consumers to hoard.  So the Fed is trying to manufacture more spending but this only works if underlying household incomes move up as well.  Inflation for most, does matter.

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Apr 8 2013

Food service workers at a record high in US economy: Record percent of Americans now employed in food services as a share of total employment coupled with peak food stamp usage.

One of biggest contributors to jobs over the last few years has come from the low-wage food service sector.  A record 7.6 percent of Americans now work in food services and drinking places.  Given that we have 47+ million Americans on food stamps and this figure has boomed in the last decade, it should come as no surprise that as Abraham Maslow would have it, people are reverting to the basic necessities of life.  Yet there is a larger story of our economic recovery.  There was a McDonald’s hiring a cashier but looking for someone with a college degree.  Welcome to the low wage recovery.  A large part of America is simply trying to get by and this population is growing.  Those that frequent financial sites on the net are probably a very small part of the overall population.  So I know it comes as a surprise to some readers when they realize the per capita wage in the US is $26,000.  I’m sure this record percent of Americans in the food services industry must come as a shock as well.

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Apr 6 2013

Where did the American worker go? 663,000 people were removed from the labor force pushing the figure to 90 million Americans not looking for work.

The employment report was very weak no matter how you sliced it.  The unemployment rate fell but this was largely driven by an incredibly large number of people dropping out of the labor force.  This recession has been extremely tough on US households.  The recession was technically over in the summer of 2009 which seems like an eternity ago.  However, the recession was over for a small group of Americans.  Labor force participation is now down to where it was in 1979!  The report was abysmal no matter how you diced it and this is coming on years of the Fed shoveling trillions of dollars to their friendly neighbor banks.  This was supposedly the recipe for recovery but a recovery for which group?  Certainly not the typical American family.  We have all these measures of distress hitting high levels: people on disability, about 15 percent of our population on food stamps, and labor force participation down to 63.3 percent.  This is what happens when 663,000 people drop out of the labor force.  Where did the workers go?

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