Young riding out recession by going into debt for college: Millennial unemployment jumps by two percent.
As the animal spirits of the economy rage wild, there are still difficult challenges ahead for younger Americans. While the stock market is up highlighting corporate euphoria, many companies are doing this with 4 million fewer workers. So the economic recovery is not evenly distributed and they rarely are. Yet younger Americans are still facing tough challenges ahead. One major trend has to do with many people going back to college. While education is positive, the costs are becoming incredibly high and many simply cannot afford it. This is why total student debt outstanding is now over $1 trillion. Why is this so important? Well for one, we are seeing data showing that recent graduates, those in the last decade, are not yielding solid gains from their ventures into college. With 4,000 colleges in the US, many are subpar and many are designed as vehicles to extract student loans. How is this economy treating younger Americans?
Are we reaching a tipping point in the stock market? 4 million fewer jobs from peak but corporate profits at record levels. Consumer confidence dips yet stocks keep moving up.
As the Dow flirted with 14,000 and the S&P 500 hit 1,500 the typical American is losing their confidence and also reflects a stock market that diverges from the interests of the Americans worker. Given that many of the S&P 500 companies earn a sizable portion of their profits abroad, it is hard to see a direct correlation to the health of the American worker. In fact, the middle class continues to face a difficult future. It was interesting to see consumer confidence fall while stock prices move up. But what we do see is a growing class of Americans stuck in poverty. The startling high number of Americans on food stamps does not seem to be inching lower (we are over 47 million). Yet corporate profits are at record levels. Goldman Sachs for example earned $2.8 billion in the fourth quarter of 2012. How is it feasible that stocks continue to move higher while real wealth gains to working and middle class Americans seem stagnant?
Inflation unchained: US dollar down 23 percent from 2000, Tuition up 72 percent, and home values up 44 percent. Incomes adjusting for inflation are back to 1990s levels.
It is hard to believe that people in the US are still denying the obvious impact of inflation. The slow erosion of purchasing power has occurred for many decades now. What people tend to forget in a completely fiat based system is that the Fed can print as much money as it likes. And they have in digital format but also monetizing debt via mortgage backed security purchases. When the crisis hit in 2007 debt was being destroyed via foreclosures and bankruptcies. Debt in a fiat system is money. That is why the Federal Reserve injected trillions back into the system to revive it. Yet this money did not trickle down to most people. However, today, we are seeing where debt is present prices will soar. Just look at student debt and housing prices again. How is it that college costs and housing prices are moving back up a nice pace when actual household wages are stagnant? Because inflation is hitting the system and more debt is accessible to these sectors.
Can you live in California on a $60,000 a year household income? Living the middle class lifestyle in California on $60,000 a year.
Can you live comfortably in California making $60,000 a year? It really depends on what you define as comfortably. We should note that the median household income in the US is $50,000 and in California it isn’t much higher. California gets a notorious rap of being an expensive state but this is if the entire focus is on coastal regions. There are many areas where homes are actually affordable given current interest rates. Yet many people struggle to get by. You have many households pulling in $100,000 or more a year and they speak as if it were an act of poverty. Yet they choose to live in areas like San Francisco and spend up to their income levels. It is very feasible to live in California on $60,000 a year but not how many would expect. People are feeling the withdrawals of our debt based addiction and California is a prime example of this.
What does Detroit say about the working class in the US? City has lost over 25 percent of its population since 2000. People take scrap metal from old buildings to export to China.
One of the biggest examples of the US eroding its working class is through the example of Detroit. The city of Detroit has lost a stunning 25 percent of its population between 2000 and 2010. Poverty is rampant with 3 out of 5 kids living below the poverty line. It is a startling revelation of what can happen to what was the fifth biggest city in the United States and now is merely a shell of itself. There is a documentary, Detropia which grimly shows dilapidated buildings while many tear out scrap metal to sell on the open market. You also hear from citizens trying to make sense of what is occurring. What is stunning is the population of Detroit is now back to levels last seen in the first half of the 1900s. A town built around big US automakers reflects what a country can look like when it loses a big part of its manufacturing base in pursuit of low wage capitalism. The rust belt gives us a clearer perspective as to why we have 47 million Americans on food stamps while the stock market inches closer to record levels.
Are we missing critical inflation data with the CPI? How the government over time has altered the CPI to under report inflation.
Most Americans realize that their standard of living has decreased. Many realize today that their dollars do not go as far as they once did. We try to reflect this data via the Consumer Price Index but over the last few decades, this index has been adjusted to suit the needs of those producing the data or more to the point, those in power. A measurement is only as good as its ability to accurately produce valuable data. The CPI has been altered many times over the last few decades and we’ll discuss how this measure no longer reflects real underlying inflation. You need only look at your underlying budget to realize that somehow, your money is not going as far as it once did. Yet the CPI data tells us that inflation is hardly any concern in the current economy. Let us examine a little bit of history with the CPI.
Income Based Repayment plan cementing inflated higher education costs for graduate school: How new IBR Pay as you Earn plan will be a big win for graduate students and keep college costs high. Student debt to hit $1.8 trillion in 2020.
It is interesting that the two segments in our economy mired in debt, housing and higher education, were largely inflated courtesy of easy access to debt. New rules on how students pay back their student debt including the Income Based Repayment plan ironically will keep prices inflated. The new program dubbed “Pay as you Earn” reduces the cap on loan payments from 15 to 10 percent of a borrower’s income and accelerates loan forgiveness from 25 to 20 years. As we will highlight, this will largely aid in keeping prices inflated especially in graduate schools since the government will provide a subsidy to this cohort. It is interesting that the fastest growing debt segment of the economy after the recession has come in student debt. Instead of looking at the issue comprehensively, it is likely that we will continue to push this bubble until it pops.
Is the stock market a sham for the middle class? Retail investors expected to pull out $475 billion in funds. Volatility index under pricing real risks.
The stock market is largely a source of entertainment or awe for most Americans instead of being a true source of wealth. In the United States roughly 42 percent of all financial wealth is aggregated with one percent of the population. One third of Americans have no savings at all so for this group, the stock market does not even enter the equation. Yet the stock market itself is now inching closer to record levels. Even volatility is abnormally low given that we barely avoided the fiscal cliff and are dealing with debt ceiling challenges once again. The stock market would signify that the American economy is doing fantastic. In reality, many people are still struggling and many organizations used the recession as a period to cut jobs and slash costs. The economy is still short four million jobs from the peak reached a few years ago yet here we are, with the stock market up over 100+ percent from the March 2009 lows. Is the stock market a sham for the middle class?
Federal Reserve bubble escape clause: The master of bubble creation talks about preventing future bubbles and other circular banking logic. Fed aggressively buying securities outright.
It is no secret that the Federal Reserve is aggressively buying up a variety of securities and storing them in their opaque balance sheet. The Fed in essence has become the bad bank and has served as the conduit to support bad banking policy. There seems to be a policy of slowly shrinking the middle class and over time, maybe people will not notice it. How can you not see that the central bank of the United States has been at the nucleus of many of the previous bubbles? So with that said, I found it rich that the Fed has talked about its ability to moderate bubbles. That is right. The Fed, the numero uno culprit in the housing bubble is talking about preventing future bubbles. Ironically by going deep into QE3 they are essentially inflating asset prices yet again by destroying fixed income investments and causing inflation to pick back up.
US median household income trap: Four decades of data and households struggling to keep up with inflation. Younger Americans face bigger income struggles.
Household income growth in the US has largely been absent for well over a decade if we adjust for inflation. This is important because people truly care about what their money can purchase. What use is it getting a $1 raise if healthcare went up $2? What use is it that you are earning $1,000 more a year when sending your kids to college now costs $5,000 a year more? It is unfortunate so little attention is given to income growth when the available data is readily available. Part of the lack of coverage probably stems from the reality that the mainstream press is largely an advertising vehicle. Do not hold your breath for deep analysis and reporting from the press. Telling people how their inflation adjusted incomes are back to 1990s levels isn’t going to encourage people to go out and buy that new car, fancy tech gadget, or go into heavy debt for that new home. Let us dive deep into the income data.