Does inflation matter? The real cost of living for middle class Americans. Fed on path to growing balance sheet to $4 trillion.
Does inflation matter? If you ask this question to the Fed, it appears like it doesn’t. The Fed is doing everything it can to stoke the fires of inflation. Instead, what it is doing is causing further asset bubbles and misallocation of capital in markets. For most people the cost of living is becoming more expensive. Tuition costs are soaring, healthcare is extremely expensive, energy costs have reached a new level, and incomes are stalled. It is hard to see how inflation is a good thing when incomes get stuck but it is also part of the plan. The psychology of inflation is excellent for a consumer driven economy. If you think prices are going to go up tomorrow, you are more likely to spend today. Falling prices cause consumers to hoard. So the Fed is trying to manufacture more spending but this only works if underlying household incomes move up as well. Inflation for most, does matter.
Food service workers at a record high in US economy: Record percent of Americans now employed in food services as a share of total employment coupled with peak food stamp usage.
One of biggest contributors to jobs over the last few years has come from the low-wage food service sector. A record 7.6 percent of Americans now work in food services and drinking places. Given that we have 47+ million Americans on food stamps and this figure has boomed in the last decade, it should come as no surprise that as Abraham Maslow would have it, people are reverting to the basic necessities of life. Yet there is a larger story of our economic recovery. There was a McDonald’s hiring a cashier but looking for someone with a college degree. Welcome to the low wage recovery. A large part of America is simply trying to get by and this population is growing. Those that frequent financial sites on the net are probably a very small part of the overall population. So I know it comes as a surprise to some readers when they realize the per capita wage in the US is $26,000. I’m sure this record percent of Americans in the food services industry must come as a shock as well.
Where did the American worker go? 663,000 people were removed from the labor force pushing the figure to 90 million Americans not looking for work.
The employment report was very weak no matter how you sliced it. The unemployment rate fell but this was largely driven by an incredibly large number of people dropping out of the labor force. This recession has been extremely tough on US households. The recession was technically over in the summer of 2009 which seems like an eternity ago. However, the recession was over for a small group of Americans. Labor force participation is now down to where it was in 1979! The report was abysmal no matter how you diced it and this is coming on years of the Fed shoveling trillions of dollars to their friendly neighbor banks. This was supposedly the recipe for recovery but a recovery for which group? Certainly not the typical American family. We have all these measures of distress hitting high levels: people on disability, about 15 percent of our population on food stamps, and labor force participation down to 63.3 percent. This is what happens when 663,000 people drop out of the labor force. Where did the workers go?
The un-American savings rate: Americans savings rate heads to a record low. Americans saving about 2 percent per year and the near extinct pension.
For a brief period during the height of the recession, Americans resorted to saving more money as credit markets around the world tightened up. As data is now showing, this turned out to be a very brief anomaly in the market. Americans are back to not saving money. The debt markets are creeping back in and since household incomes are back to levels last seen in the 1990s adjusting for inflation, many people are simply supplementing this lack of income growth with high levels of debt. This works out for a brief period but when the savings rate is near 2 percent, close to a record low, you realize that many people are simply living day to day and using debt as a bridge to having access to a certain standard of living. The two-income household is almost a necessity for a middle class lifestyle. So why is it that Americans living in the richest nation on the planet, have such a hard time saving?
Casino economics: How the S&P 500 endured two 50 percent dips in the 2000s and sent the middle class packing.
It took the S&P 500 about 13 years to get back to where it was in 2000. Of course the power of inflation has taken an even deeper toll on this trend. The stock market is largely a spectacle for most average Americans. It is a dramatic sideshow like going to the track and betting on horses. The reality is, most Americans do not own any sizeable amount of stocks. 1 out of 3 Americans have no savings and about half of Americans are one paycheck away from being on food stamps. By the way, 47 million Americans are still on food stamps in this recovery. The stock market over the last few decades has operated like a casino swinging from one bubble to another. After every subsequent bust, middle class households have seen a chunk of their standard of living diminish. This is not hyperbole because simply looking at Census data, adjusting for inflation median household income is back to where it was in the mid-1990s. In fact, the S&P 500 has endured two dips of 50+ percent between 2000 and 2010, both precipitated by bubbles. Can the average American compete in casino economics?
US Household income continues to fall in midst of recovery: Since the recession started median household income is down 7.3 percent.
US households continue to face a declining standard of living. The first obvious item comes from falling incomes. Some of this is being masked by renewed access to debt as banks are once again lending money to over stretched consumers. Yet real wealth recovery this is not. The next major depressing factor for households is the reality that inflation is eating away purchasing power. When incomes are falling, even a moderate amount of inflation is very dangerous to your bottom-line. A new report came out highlighting that the median household income has fallen by 7.3 percent since the inflation started. This is a big deal. Especially when the cost of other items is now going back up (housing), is sky high (college tuition), and is potentially a cause for bankruptcy (medical care). Let us look at the income figures.
Too big to fail or ignore: How the US went from over 13,000 banks in 1987 to 6,000 today. $7.4 trillion in deposits backed by $32 billion dollars.
Remember when too big to fail brought our economy to a grinding halt? Of course you do because this is a recent financial event with dramatic ramifications. In the time since the buffet of bailouts was rolled out you might be surprised that the too big to fail banks have only grown even larger and if they were too big to fail before, what happens when they become even bigger? Some walk around in a financially comfortable delusion about our current system even though we all realize that we will never payback our $16 trillion in national debt. You also have a banking system backing $7.4 trillion in insured deposits with $32 billion (that is, 0.43 percent). Yet in our current system the Fed is digitally inflating away our currency and limiting available banking options. Are we simply ignoring the too big to fail?