Aug 14 2014

Will subprime auto loans ignite another credit crisis? Fed reports $101 billion in new auto loans between April and June with a sizable portion being in the form of subprime debt.

Buying a car is a big deal given that the sticker price of an automobile is close to the annual per capita income of an American worker. The average car in the US now costs $31,000. That is a healthy amount of money for a regular working person. Since incomes have gone stagnant for well over a decade, Americans have peppered over their loss of purchasing power by going deep into debt. Many are priced out of the housing market which at least provides some sort of equity building over your lifetime. Big banks have crowded into the housing market making it difficult for regular households to compete. However, the desire for easy lending profits has gotten Wall Street all excited once again. The current hot debt sectors are auto loans and student debt. Let us focus on auto debt today since the quarterly household report from the Fed was released this week. The report is stunning because it shows a massive jump in auto debt. In the last quarter, auto debt jumped by $101 billion. Total outstanding auto debt now stands at $905 billion. In other words total auto debt jumped 12 percent in one quarter alone. More troubling of course is that a sizable portion of this debt is in the form of subprime debt. Without a doubt, many of these loans will default. So what are the financial ramifications here now that a giant portion of auto debt is in the subprime variety?

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Aug 12 2014

Average Salary in US: What does the average salary in the USA have to do with economic issues for a consumption based economy?

What is the average salary in the US? It is a challenge to get your hands on this data since a big portion of income figures are reported via median household income. In the US, the latest Census figures from 2008 to 2012 show that a typical household earned $53,000. Per capita income in the last 12 months came in at $28,000. This tends to surprise people especially with the high cost of living that has been brought on by the slow process of inflation. One of the better ways for looking at average income is by going into Social Security figures since this looks at all income earned in the country. According to the latest Social Security figures the average salary in the US is $44,321. Yet Social Security income data comes with a cap at $117,000 for 2014, the maximum taxable earnings limit. The average income in the US according to the Census is $81,400 and this goes beyond the Social Security cap rates. That however is a big difference from the per capita income of $28,000 being reported by the Census. Why? Well the Social Security and Census data for averages also looks at high income earners that will certainly skew income figures to the higher end, much more so in Census figures. For the purposes of economic discussion, the most important income figures are per capita income and household median income. For a consumption based economy, what does it say when the average American is not seeing their income grow?

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Aug 9 2014

Masters of debt easing access to debt again: FICO score adjustments will allow people to take on more leverage at market peaks.

It is no coincidence that as the market gets long in the tooth, the crafty financial sector is looking for ways to offload products onto the public. This is the modus operandi of Wall Street in that after a historic bull run brought on by massive financial assistance from the government and Fed, it is now time to repeat the cycle and rid some of these assets onto the public. The latest consumer data shows that revolving credit grew very slowly in the last quarter while auto debt and student debt continued to soar. No surprise in the two areas where incomes don’t matter, credit is booming. In housing, we see mortgage debt hitting a wall because consumers are tapped out and income growth is simply not occurring. A massive portion of home buying since the stock market put on the afterburners was brought on by non-traditional buyers in the form of banks and hedge funds. Looking to keep the market rolling, debt needs to be extended in spite of poor income growth. The almighty FICO score looks like it will be adjusted to give people a nice little push up. In other words, time to move the goal posts and let people that are cash strapped access to more debt. Forget about the recent report that showed a huge number of Americans have had one or more accounts in collection.

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Aug 7 2014

Unwealthy in America: New study finds that Top 1 percent hold 37 percent of nation’s wealth. A quarter of US families feel they are under economic stress caused by the Great Recession.

Wealth matters. Saving and investing are the cornerstone to having a long-term successful future. Yet for most Americans, the ability to gather and save wealth is slipping through their fingers like sand through an hourglass. A new study finds that the top one percent actually hold more wealth than we once thought. Why? First, there is underreporting and also, for the ultra-wealthy tax shelters and income sources are diverse making it harder to track. This isn’t your typical W-2 worker household. This data is transparent. A new study looking at Forbes information and other figures found that in the US, the top one percent hold a stunning 37 percent of all wealth available. This is 3 percent higher than previous data. We can also look at income figures and find that for the lower 80 percent of this nation, household income growth has been stagnant for more than a generation. Wealth inequality is going to happen but when things get this disjointed, you start seeing cracks in the system. For example, many retailers are finding tougher times ahead while ultra-luxury stores are doing exceptionally well since the top slice of the pie is grabbing a hold of more wealth. How else can you have a year where the stock market reaches a peak while 47 million Americans are on food stamps, another record that shouldn’t carry any pride with it? Let us take a look at wealth in America.

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Aug 5 2014

16 million Americans have dropped out of the labor force in the last 10 years: The growth of long-term unemployment, low wage labor, and distorted employment figures.

The unemployment rate is looking much better than it should because we have a very large number of Americans that have dropped out of the labor force. How many? In the last 10 years 16.2 million Americans have dropped out of the labor force. The total number of Americans not in the labor force is over 92 million. What is more surprising is that most of the jump in the last 10 years occurred once the recession was labeled as being officially over. When you eliminate counting a large pool of your population, it is easy to understand why the unemployment rate appears to be so low. However the nation is largely shifting to one of low wage labor. Corporate profits are being bolstered by massive slack in the employment markets and the shifting of benefits from corporations to employees. This has been incredibly difficult for middle class families that are witnessing inflation and their purchasing power decline. It might be useful to examine where our employment situation now sits given that we are now half a decade into this so-called recovery.

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Jul 31 2014

China ghost cities and real estate correction: China’s GDP and individual household wealth is heavily tied to real estate. What happens when a correction hits?

China has had one of the wildest real estate sectors of any large global economy. Chinese real estate values have appreciated dramatically largely shutting out regular workers in the country. It is an interesting situation. You hear countless stories of young males trying to find a potential mate and given the restrictive one child policy, many eligible bachelorettes are looking out for those that actually own property. Nothing wrong with that but it adds fuel to the real estate flames in China. The flames are now cooling down. China’s real estate market has started to cool for the first time in many years. This will be challenging for the economy because a massive part of Chinese GDP is tied directly to real estate. We have many examples of ghost cities and ghost apartments sitting virtually empty but somehow, added to the GDP figures. It is also important to note that in China, a large portion of household wealth is tied up in one asset, real estate. Chinese stock exchanges do not reflect the massive growth of the country, fudge factors aside. So what actually happens when real estate contracts in China?

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Jul 29 2014

Collection nation: One out of three consumers have debts in collection over the past year. A total of 77 million Americans are having problems managing their debt. 22 million consumers have zero credit.

A recent report by the Urban Institute and Encore Capital Group’s Consumer Credit Research Institute has found some rather startling news about consumer debt in the United States. Over one third of consumers had some sort of debt in collection over the past year. Of course this coincides with the struggling employment growth that many are facing or the stagnant wages families are encountering. For a nation so reliant on debt, this is a big problem. Many people mistake access to debt as some form of wealth. Many working class families go deeper into debt to keep up the pretense that they are securely in the middle class when in fact, inflation is simply eroding their purchasing power. The data also shows that Americans are juggling a multitude of debt from mortgages, student loans, credit cards, auto loans, and other debt that once was rare. Now it would seem that debt is simply a way to keep buying things one cannot afford. So what does it say when 77 million Americans are having a tough time staying current on their debt payments?

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