Jul 29 2012

Ph.D. in food stamps – the rise of food stamp usage among those with advanced degrees. Record number of households on food stamps.

t is hard to declare a recovery when a record 22.3 million households are now on food assistance.  The latest data shows that 46.5 million Americans are still relying on SNAP, the food assistance program, to get by each month.  Since this data lags, we see that in May we added 77,000 jobs but added 222,000+ Americans to the food stamp program.  This is not a positive economic calculus.  The recent rallies were all spurred by the utterance of more bailouts with more debt.  Will these promises be enough to give us a positive second half of the year?  Central banks and the government are stepping up in historic fashion just to keep the system from coming apart.  Think about the fact that over 46 million Americans rely on a small check each month just to get food into their household.  Some companies have seized this trend to their advantage.  Some with advanced degrees are turning to food assistance in larger numbers.  Where do we go from here?

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Jul 26 2012

Retirement means having to work in current economy – new survey shows 34 percent of workers in their 60s do not plan on retiring. The hunger for higher yields in a weak stock market.

The chase for yield is causing money to flow into unlikely places in the market.  The low performance market has taken a toll on retirement planning models for millions of Americans nearing retirement age.  Many of the models were built on the assumption that stock market gains would return 7 to 10 percent annual gains year-over-year.  So of course many of the models had extremely generous projections.  This of course applies to those that actually were able to save some money.  Many Americans are unable to save any money.  One out of three Americans has not one dollar set aside for retirement.  Those that have invested in the stock market have seen one of the worst periods ever.  For example, even with the recent rally the S&P 500 is back to a point last seen in 1999.  Over this 13 year window boring CDs outperformed the stock market.  Yet this raises an important question about retirement.  How will millions of Americans retire when they have so little money to their name?

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Jul 23 2012

The hindrance of global debt – Spain accelerating to major bailouts and bond markets react. Eurozone stock markets in major decline.

It is always a sign of desperation to ban short selling.  Trying to put an artificial bottom usually backfires and we are seeing this hit in Spain.  The situation is unsustainable and has taken the headlines away from Greece.  Spain is a much bigger economy and they are deep in a recession with headline unemployment near 25 percent.  Financial and government leaders continually attempt to solve a debt crisis with more debt.  How is the debt going to be serviced with 25 percent of your workforce not working and incomes are being crushed?  Does it even logically make sense to give Spain more loans when they are already unable to service their current debt?  A household in this position is bankrupt and basically needs to restructure their entire balance sheet.  The last thing they need is larger loans but that has been the proposals for the last few years.  The contagion is spreading as now Italy is being caught up in the debt crisis.

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Jul 19 2012

The sinister nature of inflation – historic droughts push food costs up impacting 46 million Americans on food stamps. What happens when everything gets more expensive and incomes fall?

Inflation is an odd sort of economic beast.  People take it for granted that inflation will always be a part of our life sort of like a quite humming background noise.  The Federal Reserve is doing all it can to increase inflation so banks can essentially inflate their debts away.  Yet the impact for most Americans is negative.  The debt based system built on access to easy debt has seen a perpetual system of bubbles.  We had the housing bubble now followed by the higher education bubble.  While prices in the two most expensive pursuits for Americans went into bubbles, the average American has seen their net worth and incomes go negative.  Inflation erodes the purchasing power of every dollar you have in your pocket.  At the moment, the process of deleveraging is so large that inflation is muted in some categories.  Yet items like college that are decoupled from income are soaring to stratospheric levels.

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Jul 16 2012

Refinancing debt into prosperity – most mortgage activity for refinances with applications up 97 percent from last year and car sales are down by over 50 percent from 2001.

Shuffling papers around on your desk does not mean you are being productive but might give the appearance of activity.  Refinancing debt in countries in an insolvent position may feel good for the moment, but ultimately the position is unsustainable.  You buy yourself a window of opportunity.  With the Federal Reserve pushing mortgage rates to historical lows and allowing banks to borrow at virtually interest free terms, the market is creating a window of time to exit this mountain of debt.  Is this even feasible?  Not likely and millions of Americans have already lost their homes via foreclosure.  Many are using the current opportunity to refinance debt but is it stimulating real economic activity?  If we look at some data, the current housing boom in the headlines does not look so mighty.

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Jul 13 2012

The looming student loan bubble – Almost half of all student borrowers were not making payments. 1 out of 4 in debt repayment past due on student debt.

The aggressive growth in student debt is setting the country up for another debt fueled bubble.  Higher education costs have expanded so quickly that Americans now carry $1 trillion of student debt.  Most of this expansion has occurred in a time when the return-on-investment for a college degree has fallen.  Over the last ten years student debt outstanding has grown from less than $300 billion in 2002 to $1 trillion in 2012.  The cracks in the student loan bubble are already forming with large numbers of students defaulting on their loans.  And the pipeline is only increasing.  Almost half of all student borrowers are not making payments.  Many are in school and many are simply unable to pay.  Yet with a weak economy the prospect increases that many younger Americans are going to enter a market where job growth is weak yet student debt payments are high.

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Jul 9 2012

A clash of generations – 1 out of 6 Americans receiving Social Security benefits. A larger share of workforce dominated by older Americans.

The bill is coming due.  A stunning 61,000,000+ Americans receive Social Security, Supplemental Security Income, or both.  Add another 46,000,000+ Americans on food assistance and you begin to see why we are running on borrowed time on a variety of fronts.  With Social Security, working Americans are taxed for current retirees.  This works when you have a large and young work base supporting a relatively small retired population.  That equation is not our current situation.  In 1960 you had nearly 5 workers for each beneficiary.  Today that number is down to 2.8 and will hit 1.9 in 2035.  For many young and less affluent Americans this is the time they will enter into retirement.  If we are having a hard time funding current programs what is going to change the math down the line?

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