Middle class acquiesces through the looking glass of financial mediocrity: The financial system continues to pillage the wealth of working and middle class Americans.
2013 can be remembered as a year where the markets fully disconnected from Main Street. The trickle down promises are all empty and hollow words. For example, we had one of the best stock market rallies ever yet most Americans are not seeing any wage growth. The housing market boomed but more than 30 percent of sales are going to big banks and investors using the Fed’s QE system to crowd out regular people. Why are higher home prices positive if incomes are not going up? The market no longer reflects the pains of the working and middle class. In fact, the stock market must appear like a looking glass for many Americans who look at their paychecks and net worth and must wonder how they can get a piece of the action. The con is strong since most of non-housing debt taken on this year came via auto and student loan debt. In other words, spending what you don’t have. The financial system continues to pillage what little wealth working and middle class Americans have.
Quantitative Easing has become heroin to the financial markets: Federal Reserve balance sheet hits $4 trillion this week.
Addiction is never an easy battle to overcome. This also applies to easy money addiction that is now part of the Quantitative Easing economy. The Fed’s extraordinary measures are now appearing to be more permanent measures. Every time the whispers of tapering are made the markets respond accordingly signifying that the stock market is fully addicted on easy money. There is really no backing out of QE without some sort of pain. Any addict pulling themselves away from a drug suffers some brief or long period of withdrawal. Yet the long-term benefits are obvious. In this case, the Fed is not only avoiding tapering but getting more aggressive in their QE heroin. This week, the Fed’s balance sheet crossed the $4 trillion barrier. Of course few people pay attention to the Fed’s balance sheet but the fact that the Fed has created a second housing mania fueled by investor money is startling.
A Gilded Age built on debt for modern day financial aristocrats: Fed reports record for household net worth only problem is that most people do not own financial assets.
The Fed recently reported that US households reached an all-time record high when it comes to their net worth. A record $77.3 trillion net worth figure was reported with $7.65 trillion of this growth occurring over the last 12 months. The only issue here is that most Americans do not own any financial assets. The bulk of the gain has come from the juiced up stock market courtesy of mega Quantitative Easing. Yet at the same time, we have a peak in food stamp usage and the real estate market is largely being driven by Wall Street speculators. The Fed is creating a modern day Gilded Age that is favoring a very small portion of the population. The vast majority of the population is leveraged into debt with high rates while those with premiere access continue to increase their balance sheets. It is no coincidence that the top 10 percent of households control 75 percent of all wealth in the nation. This is why sentiment for most households is negative. For the majority to participate in this party they need to go into massive debt yet again to pretend they are still part of the middle class.
Sheltered banks do not trust broke American public: Too big to fail securely in place while business inventories surge to record levels.
Tracking consumer spending we find that industries subsidized by easy debt are growing at dramatic levels. These include student debt and auto loans since most Americans simply do not have enough saved up. Many have nothing to their name. The student debt market has grown dramatically this year again largely due to the reality that this debt is fully backed by the government and ability to pay the debt back is fully ignored. How else can someone get $30,000 or more a year to go to a for-profit paper mill? Beyond this, we now hear that household net worth has risen to record levels. However, since most Americans have no wealth in the stock market and are quickly losing home ownership in real estate, these gains are largely going to the top 10 percent in the nation that control roughly 75 percent of all wealth. This is not based on speculation but on multiple points of data. Banks do not trust the public because many are broke and do not have the funds to support massive debt growth. Ironically, these banks would not be around without the big bailout check that was required from the public.
Depreciating cars and expensive diplomas fueled by easy debt: 95 percent of consumer debt growth in past 12 months from cars and student loans.
New data from the Federal Reserve continues to highlight a reemergence of debt based consumer spending. Americans are largely buying stuff they can’t afford with money they don’t have. The Fed’s consumer credit report highlights a troubling trend. Over the last 12 months 95 percent of all consumer debt growth has come from people buying cars and young Americans going deep into debt to pursue a college education. A car quickly loses its value once it drives off the lot and many college degrees are massively over valued only being supported by easy financing. This is a disturbing trend, even more troubling than the last debt fueled bubble. One can argue with housing that at least people are getting an asset that generally rises with inflation. But a car? A for-profit degree? The debt juice is now flowing once again.
Top 10 percent of US households control nearly 75 percent of all wealth – Average Americans pretend to be temporarily embarrassed millionaires by going further into debt.
We currently exist in a land of financial contradictions. US household incomes adjusting for inflation are back to levels last seen in the late 1980s. However, holiday spending is going strongly largely by people going into big debt. Many are going to be paying for the holiday season of 2013 deep into years to come. More troubling than spending via debt is the record level of wealth inequality in the United States. We would need to go back to the Gilded Age to find similar levels of wealth inequality. The latest data shows that roughly 75 percent of the financial wealth in America is held in the hands of the top 10 percent of households. Or to invert this, 25 percent of all US wealth is divided up amongst the bottom 90 percent of the population. Wealth is the true measure of financial stability. It used to be the case that housing was the one safe store of wealth for Americans but Wall Street has hijacked this asset class and has converted it to another commodity to speculate on. Yet by looking at spending habits and financial behavior many Americans think they are simply temporarily embarrassed millionaires. They act against their own interests while wealth inequality rages on.
The average American is broke and buying things they cannot afford with debt again. Debt based consumer financing again filling the gap of a shrinking middle class.
At a family Thanksgiving get together we typically have a usual crowd showing up to celebrate the year that has passed. For many, this is the only time we see each other. A familiar face was not there. We asked what happened and apparently he had to work on Thanksgiving Day because stores are now pushing the shopping addiction into another day. Mind you that Americans for the most part are broke. It isn’t enough that we have Black Friday and cyber Monday to get people to spend outrageous sums of money on things they really don’t need via faux holidays. So it is no surprise that auto sales are on a sharp upswing from the lows of the recession. However, much of this is coming with people getting into massive auto loan debt. Those zero percent down deals are back again. All of this is happening while household incomes retreat to inflation adjusted lows that were last experienced in the late 1980s. Auto debt, credit card debt, and student debt are all on the rise again.