Jul 26 2015

Credit card debt makes up for lack of income growth: Credit card debt outstanding back up to $900 billion. Since 1980 household income up 300% while credit card debt up 1,760%.

The middle class started disappearing in earnest in the late 1970s.  Massive inflation started eating away at the standard of living for most Americans.  Yet much of this was covered up by access to debt.  Credit cards, creative mortgages, student loans, and auto debt all allowed Americans to continue acting as if prosperity was only an American Express card away.  Credit card debt outstanding is now back up to $900 billion, a number last seen during the Great Recession before the great deleveraging.  Americans have used debt as a means to cover up the reality that the middle class is disappearing.  Credit cards are probably the clearest example of spending money you don’t have.  Credit cards allow you to literally spend future earned money today.  We always hear that many pay their balance off each month.  Well the data shows something else.  There is $900 billion in credit card debt floating out in the system.

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Jul 22 2015

The financial gouging of the American college student: Tuition is up 300 percent from 1990 and total outstanding student debt has grown by over 1 trillion dollars since 2000.

Inflation is such an insidious standard of living destroyer.  Little by little those dollars in your wallet get worth less and you suddenly find yourself needing to go into large levels of debt to purchase cornerstones of the American Dream.  Going to college has been the dream for many Americans after the G.I. Bill was signed into law in 1944.  Even in the early part of our country, going to college was a privilege largely reserved for the elite and wealthy.  It wasn’t viewed as a public good until World War II.  The heyday of the US middle class was after World War II and slowly this has been chipped away starting in the 1970s.  As of today, going to college is fraught with so many financial landmines.  Working class areas are targeted by predatory for-profit colleges.  Many others go to quality schools but come out with too much debt relative to what they can earn in an environment littered by lower wage jobs.  This is the future of higher education.  But think of this jaw dropping stat: since 1990 tuition has gone up 300 percent.  You can rest assured wages have not kept up.

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Jul 18 2015

Millennials that are thriving in this economy are those with links to rich parents: The vast majority of other Millennials are mired in debt and unable to purchase homes.

Most young Americans are still living in an economy that feels like it is in a recession.  Yet there are Millennials that are doing well and are thriving in this economy.  How are they escaping mountains of student debt?  How are they gaining access to down payments to purchase more expensive homes?  The short answer is that they have rich parents.  This isn’t some Trumpism.  This is merely facts that are coming out of research from the Fed, Census, and Zillow.  For the vast majority of young Americans the last decade has been one of low wage labor and a market mired with very expensive colleges.  Despite the disappearing middle class many of those Millennials that are thriving are doing so thanks to familial wealth transfers.  We tend to romanticize the “self-made” person in the United States but it is increasingly becoming more difficult.  More wealth is accumulated in fewer hands and it is staying there.

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Jul 14 2015

The oncoming disaster in public pensions: The $4 trillion retirement savings deficit and the bill of payouts for pensioners.

Americans have done a very poor job saving for retirement.  In many cases, families simply have very little left over each month to save after monthly expenses chomp away at their net take home pay.  Pensions used to be common.  In 1975 you had 88 percent of private sector workers and 98 percent of state and local sector workers covered by defined benefit plans (that is a pension).  By 2011 only 1 in 5 private sector workers had access to a pension.  Public sector workers still have access to pensions for the large part but the math is not working out.  Glorious stock market gains have not made up for big pension shortfalls as retirees start pulling in payouts.  The numbers just don’t work.  Greece is an extreme example of public spending gone awry and pensions are a part of the math.  You have weak tax collection and massive payouts.  How does that math work?  It isn’t a question of pensions being bad but the underlying assumptions that are flawed.  If you want healthy pensions, expect to pay.  Yet people want it all with little coming in and politicians promise the world leaving future problems to predecessors to deal with.  In the US, many pensions are relying on future stock market gains that seem very optimistic to meet their liabilities.

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Jul 10 2015

China lost the equivalent of 14 Greeces over the last month: Why the actions of banning short selling and punishing the market taken by the Chinese government will backfire.

The market has been fixated on the actions of Greece, a country with 11 million people or the equivalent of Los Angeles County.  However, the bigger action is taking place in the gambling obsessed Chinese economy.  For those of you not following global news the Chinese stock markets, primarily the Shanghai Composite, Shenzhen, and Hang Seng have been on a ridiculous tear.  The ChiNext which tracks China’s small-cap board had a trailing PE ratio of 90, twice that of the NASDAQ back in America’s dotcom bubble in 2000.  In other words China is in one massive bubble.  They are following the path of Japan in the sense that they had (still have) an absurd real estate bubble that has now popped and people then flooded their money into the stock market.  The recent actions in China carry an underlying feeling of fear.  They loved capitalism when the stock market was soaring and farm workers and hairdressers suddenly became mini Warren Buffets.  But with the bust, all of a sudden it is communist central and people are being punished for selling.  This doesn’t bode well especially considering at the latest trough, $3.3 trillion in wealth evaporated.  This is the equivalent of losing 14 Greeces.

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Jul 7 2015

You are being lied to about inflation. Latest CPI figures show nearly no inflation over the past year. Yet housing, tuition, and healthcare costs continue to soar.

Inflation.  Few people think about inflation but simply accept the reality that prices will go up.  However prices going up has a deeper economic reason than simply momentum.  Inflation is notorious at destroying your standard of living.  Our current financial system is now setup in a way to punish savers.  Most banks are offering near 0 percent on standard savings accounts.  However, they are able to borrow from the Federal Reserve near 0 percent and lend out mortgages at 4 percent or credit cards at 15 percent.  Money out of nothing.  If everything goes down in flames, the Fed will bailout the too big to fail.  It is really the perfect system if you were a bank.  However most people are not banks.  And policy is dictated on the inflation rate as measured by the CPI.  The CPI on a year-over-year basis is coming in at a neutral level.  But look at housing values, college tuition, and healthcare.  None of these are even remotely close to coming in at neutral for the year.  Prices are going up and wages are not.  So why is there a motivation to hide the truth regarding inflation?

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Jul 4 2015

Non-working America soars by 640,000 in one month to new record of 93.6 million. Not in the labor force Americans up 11 million since 2010.

It is hard to believe that one out of every three Americans is financially supporting the other two-thirds.  The unemployment rate appears much lower than it is because of the odd math behind the labor force.  The latest unemployment rate of 5.3 percent sounds great until you realize that last month 640,000 Americans were plopped into the not in the labor force category.  223,000 jobs were added but 640,000 Americans dropped out of the labor force.  Take the back of the napkin calculation that 10,000 Americans a day are hitting retirement age (that is roughly 300,000 per month).  Assuming all of these older Americans had the means to retire (not likely according to older Americans working) this means 340,000 Americans of working age fell out of the workforce for other reasons than age.  Something is going on behind the headline figures and it seems like more people are waking up to the funny math when it comes to employment.

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