Driving our way into poverty: Subprime auto debt continues to expand while domestic auto production remains weak.
Americans love their cars. Urban sprawl with poorly designed city centers has made driving a near necessity for most people. During the credit crisis, one of the problems that occurred was that too many loans were being made to people that had no ability of paying their debt back. We see this trend in full stride once again in the auto industry. Subprime auto lending is back in a big way. The vast majority of non-housing debt growth in the last 12 months has come in the form of auto and student loan debt. As we all should know, a car loses value the minute you take it off the lot. Sure, these new cars come fully loaded and are virtually spaceships but it will cost you especially when the per capita wage in the country is approximately $26,000. Given that the average new car costs $30,000 most people need to go into debt to finance this purchase. We are now seeing a big wave of subprime borrowers purchasing cars. What can possibly go wrong?
When does college become too expensive? Tuition growth continues to outpace income growth and the student debt bubble continues to expand with the vast majority of debt going to the young.
When does college become too expensive? Will there be a bell going off like during a boxing match? What is the price tag that makes getting an education too expensive? It is obvious in the current economy that many prospective students cannot afford a college education without going into joint breaking levels of debt. Many of the opportunities that provide good career prospects do require a college education or formalized training. These goals are difficult to achieve without going into debt. And that is why Americans are now carrying well over $1.2 trillion in student debt. This is also the most delinquent sector of debt in our economy highlighting that many students are unable to pay their student debt back. Because there is no formal way of discharging debt via bankruptcy, this debt is like an iron albatross that is carried forever usually by those least likely to afford it. When we look at inflation in tuition, it continues to outpace actual income growth. This is problematic for parents when sending their kids off to college. Many have to finance with expensive debt given that the Fed is offering near zero percent loans to banks yet somehow, is unable to push rates down for student borrowers. Cheap borrowing for banks, expensive rates for students. It shows you where the Fed’s priorities are in the current economy. So when does a college education become too expensive?
A trend to working fewer hours and low wage labor: Is America looking at becoming a low wage nation in a race to the bottom? 1 out of 4 people working are in jobs paying $10 an hour or less.
One distinctive feature of this recovery is that many of the jobs added since the recession officially ended five years ago is that a large part of the jobs are coming from low wage labor. Low wages are not the only challenge hitting Americans. The small package of benefits, or lack thereof in many cases, is leaving Americans in a position where more of their disposable income is going to basic needs like healthcare and retirement planning. Pensions are virtually extinct in the current environment and companies are largely scaling back what benefits they give to new incoming workers. Younger workers have a tough time developing the skills required for the new positions in the market and are pushed into lower paying jobs. This lag in career development also stunts any potential for socking money away for retirement. That is why many younger Americans have nothing saved and in many cases are starting their working professional lives with a negative net worth based on student debt. If we look at the average working hours for an American worker we will find that we are still nestled in the depths of a generational trough. Why is that? Because of our growing army of part time workers.
Inflation where it matters: Close to 50 percent of Americans indicate spending more on groceries and fuel this summer. Nearly one third indicate more spending on rent and mortgage payments.
The stock market continues to move upwards ambivalent to economic indicators and the reality that inflation is permeating throughout our economy. The Fed continues to point at CPI as evidence that inflation remains subdued and this gives them the motivation to move forward with monetary policies that we have never embarked upon. We are already getting a taste of the bigger consequences including a growing low wage labor force. A recent Gallup survey found that Americans are spending more money on items that actually matter and items that consume a large portion of a household’s budget. This is key here in understanding the nature of inflation. Items like housing, healthcare, food, and energy make up a large portion of spending. Yet the Fed looks at other items that consume a small part of a household’s budget and balance out the overall picture. What you get is a massive understating of inflation and a stock market heavily juiced on easy money. Large pools of money are chasing real assets and crowding out regular Americans from the market.
We are absolutely in a stock market bubble: corporate equity valuations now higher than peak reached in 2007. Crestmont P/E of 26.3 is 90 percent above its average of 13.9.
Once again the stock market is in full bubble mode. The internet chat forums are full of people pumping up stocks and you also have penny stocks surging in light of people looking for the next free lunch. The stock market is a poor indicator of the overall economy but it does show how those with disposable income to invest are thinking. Even on more conservative investing boards, those that advocate dollar cost averaging into broad based mutual funds or stocks, you have people throwing caution to the wind and trying to time the market or go all in on stocks fully ignoring bonds as a part of a balanced portfolio. The market was already overvalued earlier this year and the froth continues to build. The Crestmont P/E of 26.3 is now 90 percent above its average of 13.9. Valuations are off the chart and euphoria is setting in. You even have penny stocks going up in rocket rides up which was very common during the tech boom of the 1990s. At the same time, you have inflation eroding the purchasing power of regular Americans not participating in this casino. All the signs are there: massive speculation, unexplainable valuations, and blind optimism. All signs of a bubble top when the fundamentals don’t make any sense.
How the US is creating a low wage workforce: Foreign born workers earn 79.9 percent compared to native born workers.
Over the last decade the U.S. has entered into a low wage economic trend impacting the overall economy. The result has been for many once middle class familiesto fall one or two rungs lower on the economic ladder. Many corporations have boosted their bottom line by using slack in the labor force to cut wages, slash benefits, and ultimately filter more profits away from workers. This is how you achieve a record level in the stock market yet wages have been stagnant for well over a generation adjusting for that pesky background “noise” of inflation. Another way that wages get depressed is by examining our foreign born workforce. There is data showing that foreign born workers earn 20.1 percent less than native born workers (79.9 percent the pay of native born workers) in the U.S. Even when we look at college education, we find that foreign born workers simply add more pressure on current workers giving companies an excuse to undercut wages and in many cases slash benefits. For example, this is very common in the tech sector where companies will bring in foreign born workers via H1-B visas and pay workers reduced wages and typically these workers received paired down benefit packages. This is simply another example of how we are entering a low wage workforce.
The Red Queen’s Race in pay raises: Record number of employed US workers report no change in wages or salary. Stagnant wages and inflation eating away at purchasing power.
A record number of Americans currently working are reporting no wage increases over the last year. What is important to note in this recent report from the Federal Reserve is that this is for those working and staying in their current job. As we know, we have a growing army of people in the “not in the labor force category” and we can assume, that they are not receiving any pay raises. If the economy were booming (assuming the stock market is a good barometer) we should see a healthy increase in wages as demand for labor increases. That is simply not the case and this report only adds more fuel to the fire that we are entering a phase of low wage America. Pricing power is in the hands of corporations and banks have created an entire nation fully dependent on debt to have any sort of middle class life. Only a generation ago, a careful saver putting away the earnings of their labor could enjoy a middle class lifestyle. That is out of the question today. You think you can pay $30,000 a year in tuition to go to college out of savings? Or what about buying the typical $200,000 house? Your average new car now costs $30,000. Good luck doing that when the per capita wage in the US is $26,000. The fact that a record number of currently employed workers are receiving no pay raises should give you a hint as to how healthy this recovery is.