Austerity nation – 45 million Americans on food assistance programs. Americans shopping at discount dollar stores confronting the realities of a shrinking dollar and disappearing middle class.
From November to December of 2010 487,000 Americans were added to the food stamp program. Keep in mind this all occurred while the stock market continued to soar and has rallied nearly 100 percent from the lows reached in March of 2009. Working and middle class Americans barely have enough to pay for the monthly bills so speculating in Wall Street is likely the least of their concerns. The data on food stamp usage usually trails the current calendar date by one quarter. The latest data we have is from December of 2010. However, we are adding roughly 300,000 people per month to the food stamp program called SNAP. If that is the case, as of today we now have 45,000,000 Americans participating in the food stamp program. We’ve noted trends in the economy where people line up at mid-night during certain key dates in the month at Wal-Mart locations waiting for their debit cards to refill so they can purchase food for their families.
Federal Reserve wild financial beast of Maiden Lane – How the Fed silently helped Hilton and Waldorf properties for the benefit of JPMorgan while placing the cost on working and middle class Americans.
The Federal Reserve has done an excellent job in covering up the trillion dollar banking bailout by essentially pretending it did not occur. To show how much it doesn’t care, it actually named a few bailout vehicles “Maiden Lane” for the New York Fed’s address in lower Manhattan. This sounds better than the “New York Fed” being bailed out by the Fed not to conjure up images of a snake eating its own tail. Like a professional liar, pretending with full conviction is usually a good way of getting away with theft. The Federal Reserve was one of the largest players in the commercial real estate market bailout. Many in the U.S. have no idea that their central bank has purchased and supports luxury products like multi-million dollar hotels in California. They would hesitate at calling it a purchase but they do own the liabilities securing the property. The bailouts were marketed and branded as a way of helping out the working and middle class. Given the massive financial destruction that the working and middle class still face it is easy to conclude that the stated policy failed. Yet looking at banking profits it did succeed for this segment of our economy. The Federal Reserve doesn’t even bother hiding this massive bailout and even labels these toxic vehicle hotels with its own address. Let us look closely at the Maiden Lane product.
The Giant American Banking Deception – $7.4 trillion in deposits backed by insolvent FDIC insurance fund. Bank of America and JP Morgan each have more than $2 trillion in assets each while 72 million Americans earn $25,000 a year or less.
The American banking industry is trying to convince the public that simply by hiding bad debts in the deep levels of corporate balance sheets that taking on leveraged risk is somehow safe. FDIC insured banks currently have $7.4 trillion in actual deposits, much of it covered by the Deposit Insurance Fund (DIF). Most Americans think that there is a “fund” similar to the “Social Security Trust Fund” to protect their hard earned savings but in reality the DIF is empty. The DIF is running on fumes and inspiration. Banks are trying to fool the public that somehow the Fed and FDIC backed institutions largely of the too big to fail variety, can simply print or hope money into existence like wishing mules would turn into magical unicorns. Most understand even at an instinctual level that something is wrong here. Even the king of the Ponzi scheme Bernard Madoff called the current structure the biggest of Ponzi schemes. He should know.
Home is where the working and middle class lose their money – $6.3 trillion lost in household real estate values. Top 1 percent control $13 trillion in financial assets while bottom 80 percent control $2 trillion.
When people talk about the American Dream it usually implies owning a home. Owning a home has been part of our collective psychology for generations and is hard to shake out even after such a disastrous and financially painful bubble that will linger with us for many years going forward. After World War II, owning a home merely required one blue collar income and a desire to work hard (at times even a modest effort at work was enough). After the 1970s it meant two working adults to pull off the middle class dream. By the late 1990s stagnant income growth meant American households needed two working professionals, mortgages with mythology like leverage, and then finally access to the American potential of homeownership was feasible. But really what has occurred over these last few decades is the erosion of the middle class lifestyle and a financialization vacuum that has sucked real wealth straight up to the top. The pretense was held together with scotch tape thanks to the massive amount of debt taken by individuals and also our debt happy nation. In a world of peak everything it seems that we have reached peak debt. The Federal Reserve just released their Flow of Funds Report and U.S. households have lost $6.3 trillion in real estate wealth from the peak. The dream apparently is over and it is time to face reality.
College Marauders – Student loan debt inches to $900 billion when only in 2000 it was at $200 billion – Most expensive colleges in country charging nearly $60,000 per year in tuition.
College education is a dream for many Americans. What the current recession is showing us is that having a college degree is a substantial benefit in getting ahead as long as you don’t put yourself into the abyss of student loan debt. This has been magnified by the fact that low skilled work and blue collar jobs are either outsourced or simply do not pay a competitive wage to keep up with the current cost of living. Average Americans do not have a 4-year college degree because if we look at the data 1 out of 4 adults in the United States has a bachelor’s degree or higher. Given that many of the sectors with future job growth including engineering and healthcare require advanced degrees it is crucial to have the foundational background to be competitive in these sectors. However like most anything in life, not all college degrees are created equal and chiseled from the same stone and with student loans people are able to do irreparable damage by chasing a degree that has little return on investment.
Financial dismantling of the American middle class in 8 charts – Peak debt, credit card addiction withdrawal, banks hoarding cash, financial sector dominance in pay, Federal debt will never be paid off, and struggles of the middle class.
The American economy runs on high octane debt. Debt has been welcomed by many with open arms and things seemed to be going well until people realized they actually had to pay the debt back. Average Americans trying to keep up with the picket white fence image of Leave it to Beaver were largely relying on debt to keep up with this lifestyle that was unsustainable with current incomes. Paradigm shifts in economies the size of the United States happen gradually over time. They occur slowly and systematically with the patience of a person watching grass grow. The Federal Reserve has made a conscious effort to bailout the banks and use the crisis as an excuse to lower the standard of living of most Americans to pay for the bailouts. Federal debt is so large that only someone with blind optimism would have any hope that it would ever be paid off. When an average person cannot pay their mortgage they lose their home in foreclosure. If someone can’t pay their car they get it repossessed. When banks need bailouts they simply print away and devalue the currency of the domestic country shifting the burden to society. Have we in the United States reached a peak debt scenario? Is the Fed willing to sacrifice the middle class to keep the banking system intact? Let us look at 8 charts showing shifts in our economy that put the middle class at risk.
Phoenix real estate breaks a record with 50 percent of all home sales coming from all cash investors. Locals barely can buy with FHA insured loans. Can a desert market dependent on cheap oil and survive in the $100+ a barrel world?
The Phoenix real estate market is a fascinating case examination of an area guided by FHA loans for first time buyers and all cash investors purchasing 50 percent of properties. In January of 2011, the latest month of stunning data, 1 out of every 2 homes sold went to an all cash buyer. We are seeing many investors moving off the picket fence and purchasing homes in these desert cities. Cash is being put into action. The price has fallen dramatically and home prices are cheaper today than they were over a decade ago. But is this a good deal? Are eager investors making a good move out in Phoenix? The median price for a home sale was $119,000 which is down y-o-y by 9 percent and the median condo price was $72,000 down 24 percent y-o-y. When we look at the statistics we see that many eager investors are moving cash off the sideline and purchasing homes with all cash.