Inflation in the most important things: Inflation hitting housing, tuition, and medical services. Is the Fed reinventing another debt based bubble?
Household income is a vital measure of the overall well-being for most Americans. This is why it is important to try to understand why overall household incomes are back to levels last seen in 1995. This is a critical barometer that measures the health of the US middle class. Yet we continually see the argument that inflation is a good thing and since the CPI is registering such a low level of inflation, that the Fed should have a free-ride when it comes to digitally printing our way out of the recession. Yet even a tiny level of inflation is going to hurt when wages are stagnant. That is our current predicament. The one area where Americans spend their most money, housing is becoming more expensive courtesy of the Fed. Inflation is around you if you actually pay attention.
The young, educated, and massively in debt college generation: Total student debt outstanding approaches $1.1 trillion. 65 percent of all outstanding student debt held by those 39 and younger.
It is interesting to hear older politicians take the podium and wax and wane poetically how young Americans are not working hard enough or need to take responsibility for their actions in the current economy. The reality of the situation is the recent recession has punished the young disproportionately. The young have seen their net worth crushed and job opportunities shrink in the current recession. Most of the student debt outstanding is in the hands of younger Americans simultaneously going up with rising college tuition. The price of going to college can no longer be support by merely working a minimum wage job. I’ve heard some out of touch politicians argue that instead of going into debt, current students should work instead of going into debt. Even with a minimum wage job someone would have to work 40 hours or more just to cover a regular state school tuition in most states in the country. The student debt problem is largely a young American issue.
The $10 trillion question. The ever expanding central bank balance sheets: What does $10 trillion buy you in the market today?
The Federal Reserve has waded deep into uncharted territory. The Fed has concocted new ways of monetizing debt and allowing banks to essentially expand their balance sheets with no real repercussions to the financial sector. Of course the shrinking middle class might have something to say about this or the 47.77 million Americans on food stamps might disagree that quantitative easing is the panacea for a better economy for all. One thing is certain as the stock market makes new highs this year; the reality is the booming stock markets are not necessarily making life better for most in the economy. The stock market gains of the last few years have come from crushing wages, cutting costs, and expansion of low wage economics. Yet most of the gains have filtered to a very small group of people. The Fed continues to encourage this trajectory but so do other central banks around the world. If we look at the last seven years, we need to ask the central banks what $10 trillion has bought us?
One of the common views regarding the labor participation rate declining is that many baby boomers are retiring and leaving the work force. Unfortunately many are finding that retirement is a myth when you are broke and many will be working deep into their later years. So when we examine the numbers we actually find a large part of our older labor force is still fully engaged in some type of work. It is interesting to look at many dynamic areas to try to ascertain why the drop in the labor force is actually occurring. Digging for that needle in the economic haystack can be a challenge. The labor force participation rate is a better indicator of how many people in our society are actually working. We already know that the drop in the unemployment rate is largely due to hundreds of thousands of Americans simply not being in the labor force anymore. Just because you sweep dust under the rug doesn’t mean it is now gone. So where have all the workers gone?
United States of Food Stamps: Food stamp usage has grown by 30,000,000 people since 2000. The economics of a food stamp recovery.
I was working through a few pages of Excel data regarding food stamp usage and a troubling milestone has now been breached. Since 2000, we have now added over 30,000,000 Americans to the food stamp program now labeled SNAP. What is even more difficult to understand is this number has moved up nearly unabated since 2000 even though if you believe the data, we were in full recovery from 2001 to 2007 until the financial crisis hit. In reality, what was happening was that the poor and working class were merely papering over their shrinking wealth by going into unsupportable debt. The fact that food stamp usage continues to move up is a very telling sign of our current economic situation. Over 47.77 million Americans are now on food stamps. In many parts of the country, Wal-Mart stores have adjusted store hours at the end of the month to coincide with food stamp debit cards (EBT) being reloaded allowing people to shop. I wanted to dive into the food stamp data a bit deeper.
The incredibly uneven recovery: Net worth of bottom 93 percent declines by $0.6 trillion while top 7 percent net worth increases by $5.6 trillion. Why? Most Americans don’t own a sizable amount of stocks and bonds.
One unique signature of this economic recovery is how narrow it is. When we look at actual wealth, the net worth figures of Americans, we see some dismal numbers. In fact, what we find really isn’t a recovery at all if we look at 93 percent of the country. Then again, with most of Congress being millionaires they are so far removed from the real lives of the public that reality has become encapsulated in a very tiny bubble. One piece of data that recently came out highlights this uneven recovery. From 2009 to 2011, the heart of the so-called recovery, the net worth of Americans went up by $5 trillion. Sounds great right? Well, when the data is actually carefully examined we find out that the net worth of the bottom 93 percent of Americans actually fell by $0.6 trillion and the top 7 percent saw all the gains of $5.6 trillion. In other words, for most Americans, this isn’t a recovery at all.
Reinventing GDP: US GDP to be revised in July by adding “intangibles” to the tune of $500 billion. The make believe economy.
The US debt-to-GDP ratio is now quickly reaching insurmountable levels. It is interesting that a paper citing this issue is now being openly discredited as if this is reason enough to put on the rocket boosters of quantitative easing. Japan has gone so far off the deep end that they are now intervening in their stock markets. Why not just give everyone $1 million and push the DOW up to 30,000? The debt-to-GDP ratio in the US is now quickly approaching 107 percent. Of course, in the make believe economy, we now find out that the official GDP figure is going to be miraculously boosted up by $500 billion in July. Why? Because all of a sudden they want to add intangibles. How convenient that now that our ratios are out of whack that they want to add a whopping $500 billion out of thin air.