Opting out of the workforce: Federal disability payments and the rise of those not in the labor force. Since 2000, those on federal disability insurance are up 66 percent while population is up 13 percent.
The number of Americans receiving federal disability payments has doubled in recent decades. One reason for this is the aging of our workforce and the reality that with older age, more health problems occur. This only explains part of it. There is evidence that 40 to 60 percent of the recent rise has to do with structural issues where those in low wage employment sectors simply opt out of the labor force via federal disability payments. It shouldn’t be shocking when you realize that the typical American worker takes home about $27,000 per year. For example, in 2000 we had about 6.6 million Americans on disability insurance. Today it is close to 11 million, a rise of 66 percent while the population increased roughly 13 percent. Something more than old age is contributing to this massive jump in federal disability payments. With a large low wage employment sector, you simply have more people opting to not work instead of earning a very low wage. The estimates of 40 to 60 percent seem to be right given the major discrepancy between population growth and the rise of those on disability insurance. Unfortunately this is a trend that is appearing with our “not in the labor force” growth over the last decade. Many are simply opting out of the workforce.
Old, broke, and financially unprepared for retirement: Many older Americans are simply unprepared for the costs associated with retirement.
America is graying out. The massive cohort of baby boomers are now entering retirement age at a rate of close to 10,000 per day, or roughly 300,000 per month. Many are fully unprepared for the challenges associated with retiring and living a life where work income becomes a smaller source of support. The workforce during the last decade has added many lower wage jobs and this has added to the challenges of adequately saving for retirement. Saving takes work, patience, and enough disposable income to stash away. The facts are simply disturbing here. Most Americans entering retirement will rely on Social Security as their primary source of income. Since Social Security payouts come from current workers, those young lower paid workers are going to face a growing burden. This is all documented yet many Americans are entering old age fully unprepared for the economic challenges they will face. Healthcare costs are soaring but so are food costs, energy prices, and housing costs and all of these will be eaten away if your fixed income does not keep up.
The chasm between the real economy and stock market: Baltic Dry Index down 60 percent and CNBC viewership near record lows. Where is the wealth in the US?
There is a continuing divide between the stock market and what is happening in the US economy. Many of the S&P 500 companies derive a large portion of their profits from growth abroad and many companies have increased their bottom-line by slashing wages, hours, and benefits domestically. Not exactly a plus for working and middle class Americans. It is also interesting to see that the Baltic Dry Index has fallen by 60 percent year-to-date and is now down near record lows. This index is important because it is a measure of what it costs to move raw materials across the seas. You would think that a booming economy would have a large need for raw materials and this would push shipping costs up. Obviously fuel is a big input for these operations so the near record low cost flies in the face of what is occurring in the stock market. We also know that inflation is hitting harder on the pocketbooks of most Americans even though the CPI appears relatively tame. There is a chasm between the stock market and what is happening in the real economy because the stock market is largely being driven by hot money and financial institutions that trade massive amounts of financial instruments while the public holds very little in true wealth. This is probably why today CNBC sees near record low viewership at a time when the stock market is near a peak.
The loud noise of inflation: Fed underplays current rise in inflation as noise while Americans see higher home prices, tuition, food costs, and energy prices.
It was interesting to hear the Federal Reserve mention that the higher than expected inflation numbers are merely noise. It is highly unlikely that most Americans feel the current rise in prices as noise. Inflation has a way of eating into every penny that you have especially when the market is flooded with debt. Just think of the price of items ten years ago and you will realize that practically everything has increased in cost including; housing, rents, college tuition, healthcare, food, and energy. It is also the case that wages have simply not kept up with price hikes. In other words, the cost of important items is trailing the growth of wages. What we have is a decline in the standard of living brought on by inflation. It happens slowly and many fail to realize it is happening. You see it over the last few years with banks flooding the housing market and crowding out regular families. The Fed has been the number one buyer of mortgage-backed securities and the repercussions are very noticeable in the housing market. The markets saw a stiff rise in commodities recently as people suddenly realize that the Fed is fully addicted to debt and is disconnected from what is happening with average families.
Generation R – Millennials are largely living at home or opting to rent. What happens when homeownership is less accessible to younger Americans?
There is a big challenge when someone comes of age during an economic crisis. Millennials, the children of baby boomers born between 1982 and 2000 have largely grown into an economy that was fully in shambles. This is a generation that grew up with parents talking about the middle class as if it were a foregone conclusion. Their parent’s went to school when it was affordable, came of age when jobs were plentiful, and housing costs were reasonable relative to incomes. Those days are largely gone. While some in the real estate industry scratch their heads as to why homeownership for younger Americans is so low, they should spend some time analyzing the cross-currents that are hitting this cohort. The older Millennials are well into their first home buying years yet their homeownership rates are far below those of previous generations. It was thought that once the Great Recession ended in 2009 that somehow these people would be back at it and buying homes. Yet growing up during a time of massive uncertainty leaves a psychological impact on how you view your future goals. Many are opting not to buy homes and many others simply cannot afford to leave home. The apt title for this cohort is Generation R, as in a new generation of renters.
Crony capitalism and the cult of borrowing: As the banking sector is fully bailed out, Americans push aside history and begin to leverage into debt to compensate for stagnant wages.
Banking should operate as a utility by providing businesses and consumers a source of funds for projects that will add real growth in the real economy. Unfortunately, the current banking system favors speculation and banking for the sake of banking. It also favors creating a non-working class that merely lives off of speculation and their easy access to debt. For example, many banks used special privileges with the Federal Reserve to borrow cheaply, take over other firms with incredibly generous benefits, and ultimately were never made accountable to the public by being saved. There have been multiple examples as to how these bailouts have failed the American public. Americans continue to face a dwindling middle class. We have a plethora of low wage jobs, little benefits, and a financial system that forces people into massive debt. Going to college has put Americans into $1.2 trillion of student debt. Buying a home is only feasible for most Americans with a low down payment since they hardly have any savings. Banks are paying ridiculously low interest rates on savings accounts making it unattractive to save and plan for a rainy day. It is no surprise that borrowing on credit cards is up again. Yet many banks are seeing peak bonuses, peak profits, and peak cronyism.
The economic war on the young: young Americans are being priced out of the housing market, pushed into student debt, and many see no growth in wealth.
The job market continues to be depressed for young Americans. As graduation season comes to an end, many are going to start getting letters in the mail from their friendly student debt service organization. Other recent graduates continue to live at home facing a failure to launch as rents rise and the prospect of home ownership continues to fall beyond their reach. In fact, we have many people in their 30s and 40s living at home because of financial constraints. This isn’t exactly what older parents had in mind but many are battling their own lack of retirement funds as they enter into old age. Young Americans are facing a trifecta of economic depression that wasn’t present in the previous generation; they are unable to compete in this investor heavy housing market, many of the decent paying jobs of today require a college education that is becoming more expensive by the day, and finally many are unable to find a good paying job stunting their savings plan. On many fronts, while orchestrated or not, it appears to be an economic war on the young of this country.