The financially forgotten generation: Economically raising the Millennials in a debt strapped financial world. Over half of Millennials have no savings.
Millennials, those roughly 18 to 34 years of age are growing up in the financial shadow of their baby boomer parents. This group of Americans is more diverse in what they perceive to be a good quality life. They prefer to live close to work and shopping, they are not big on suburbs, and many are massively in debt. It seems to go against the grain of what we expect, that a future generation of Americans will have it financially tougher than the current generation but that is the path we are now walking on. Student debt is a large burden for many of the Millennials. Total student debt outstanding is now over $1 trillion and continues to be the fastest growing segment of non-housing related debt. Are Millennials a forgotten generation when it comes to their financial success?
A wing and a prayer retirement plan: Two-thirds of Americans are not saving enough for retirement. Income inequality at record levels in the US.
It is interesting to see what passes for financial journalism in the press. This morning a guest was on one of the major news stations and she was mentioning that Americans need to save $1 million or more to retire comfortably. In the next sentence, she mentioned that two-thirds of Americans don’t even save enough and in this group, about half don’t even save. So think about that. How in the world is this group even going to come close to saving one million dollars for retirement when they are living paycheck to paycheck? 47.7 million Americans are on food stamps and they are talking about saving a million dollar as if this was some kind of easy task to achieve. Is it any wonder then that the vast majority of the country is by default going to rely on Social Security as their main source of retirement income as if the government had a secret touch that turns everything into gold like King Midas? Pensions are becoming a thing of the past now. For most of this country retirement consists of closing your eyes and hoping something will be there when old age hits. Well many are opening their eyes and realizing that not much of a net is now left for retirement.
The return of irrational exuberance to Las Vegas: The growing worries of another Las Vegas housing bubble.
It is rather clear that large institutional investors are diving into investment real estate once again. This time these investors are supplanting individuals but are targeting very familiar markets in Arizona, Nevada, and Florida. One of those markets is Las Vegas. Las Vegas had one of the most spectacular real estate bubbles that we have seen in this generation. The housing bubble was not evenly distributed. You had places across the nation that barely saw the signs of a housing bubble and then you had places like Las Vegas. The glamour and lights in the Southwest Desert. You had home values rising close to 140 percent from 2000 to their peak in 2007 like some sort of real estate Icarus. The bust was equally spectacular. Today you are seeing the same kind of fervor in the market but this time it is being driven by hungry institutional investors. There are clear signs that Las Vegas real estate is in some form of bubble albeit different from the last one.
Bread, butter, and food stamp economy: Is the US developing a permanent under-class of citizens economically?
The American economy has developed a deep disconnect between its financial markets and the working and middle class. The stock market has soared by 138 percent from the low reached in 2009. Yet very little of this has trickled down to the majority of Americans. In fact, most Americans actually saw little to negative growth in their net worth over this period. Even more problematic is the emergence of a permanent working poor in spite of a booming stock market. Over 47 million Americans are still receiving food stamps on a monthly basis. Not only has this number remained high, there is now an economy that is building up around servicing the needs of this large constituency. Why wouldn’t there be a new booming market here? Nearly one out of every six Americans is on food assistance in the most prosperous country in the world. Doesn’t exactly go hand and hand with the perception of a record breaking stock market. Is the US and the current economy developing a permanent under-class of citizens?
Rationalizing and pushing the debt limit: The academic battle to open the gates on unlimited digital debt monetization.
One of the recent cases for the never ending expansion of debt purchases via central banks is the case of the Bank of Japan. The BoJ has essentially gone into hyper-drive with their version of quantitative easing by going straight into the Nikkei. The case seemed simple: the European Union mired in austerity measures has failed whereas the US and now Japan in full QE mode were the models for ever expanding bank balances sheets. While the case for the working and middle class is still to be made in these nations, it is the case that GDP has expanded but how much of this has come because of financial speculation and additional risky behavior caused by easy debt. Well Japan is experiencing a quick correction in a few short weeks. The Nikkei is now down over 16 percent from the peak reached in May. This quick reversal is suddenly getting rationalized as some sort of market adjustment. Yet if you saw an individual that was in financial trouble because of debt the last thing you would offer them is more debt. That seems to be the recipe for success according to central banks.
Why inflation matters: How the Fed is creating real estate inflation and hiding behind inflation data to continue their expansionary ways. OER and Case Shiller divergence.
Inflation matters. It matters a lot. Contrary to what you may hear in the mainstream press the Federal Reserve has done everything to stoke the fires of inflation. The reasons for this include creating asset inflation that is understated in CPI data and also setting up a system where consumption is almost forced upon consumers. How so? With negative interest rates consumers are losing money by simply having their money in a savings account. Even a modest rate of inflation will erode purchasing power when banks are paying zero percent on your hard earned deposits. Yet this is all part of the design. Inflation matters because it does encourage spending. You want to spend today given that your current dollars will lose value tomorrow. The Fed likes inflation so much that it has reignited the housing market once again while it has expanded its balance sheet to over $3.3 trillion. Inflation absolutely matters.
Americans are slowly creeping back to their non-saving and debt based spending ways: Drop in the savings rate and shift in type of debts being taken.
The personal saving rate in the United States is on a multi-decade decline. Part of this has to do with Americans putting their money into alternative savings vehicles like 401ks and IRAs but a large part of this has to do with Americans simply not saving. Roughly one-third of US households have no savings to speak of. After the recession hit, the savings rate increased as Americans were forced to save money as access to credit halted and many started moving money away from stock invested vehicles. Yet this minor trend lasted only a few years. Americans are back to their debt spending ways but the type of debt that is being used has shifted. One of the big drivers of debt growth in our current economy is student debt. Credit card debt growth has slowed down but with the housing market turning around, more Americans are going into mortgage debt again. Are we setting up another debt crisis and are we forgetting the lessons of the 2000s?