Oct 6 2012

The tipping point for global debt – total global needs to grow to $213 trillion by 2020 just to sustain current growth.

Every so often markets forget that too much debt is a bad thing.  We are already seeing inflation in many items and the standard of living being pushed lower for many Americans thanks to policies that crush the US dollar and allow the Fed to expand its balance sheet without congressional approval.  There are consequences to all these actions.  We are also quickly approaching the debt ceiling, again.  Does anyone think that $16 trillion will ever be paid off?  Total global debt is at a silly number no matter how you slice it.  The problem is you get a diminishing level of return and you can see this in places like the Euro-zone that is bailing out banks and countries left and right.  Then you have economies like China were they are having internal bubbles in real estate because hot money is flowing too quickly.  Is there a tipping point for global debt?

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Oct 3 2012

Who controls the wealth in the US? Western countries expand balance sheets at the expense of their younger population.

If the debates reflected the true interest of what Americans have on their mind the entire debate would revolve around the slow erosion of the US middle class.  Yet this is something that will only be a footnote and for any discussions that do come up the specifics will be lacking.  The reality is we do have a middle class crisis in the US.  Americans are being fleeced through inflation on daily goods and we have an incredible 46+ million Americans on food stamps, a record percentage of our population.  Yet the stock market slowly inches up to a near record high.  How is it then that most Americans because of this recession lost 30 to 40 percent of their wealth?  Part of this has to do with how wealth in the US is structured.  The reality is we are making it tougher for mobility to occur thanks to the massive higher education bubble.

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Sep 29 2012

When it costs more to be poor – Fed and government shifting inflation onto rent, medical care, and food. QE3 to widen the gap between the poor and the wealthy.

Inflation has been picking up since the recession ended in 2009.  The problem with the CPI increasing year over year with no rise in household incomes is that the standard of living for most Americans erodes every year that incomes do not keep up.  Household incomes are back to levels last seen in the mid-1990s while the cost of necessities has gone up.  This brings us to our article today that examines the nuts and bolts of what constitutes the Consumer Price Index (CPI).  The CPI attempts to measure the changes in price for consumer goods and services.  Overall it did a very poor job of measuring the housing bubble because of the owner’s equivalent of rent metric.  Today, it is understating inflation because of the excess spending on “wants” that occurred in the 2000s has now shifted to spending on “needs” but is being dragged down by the amount of family spending on needed goods.  We will dig deep into this data but suffice it to say that the Fed is creating inflation in items most Americans actually need to live their daily lives and the burden on the poor is actually increasing.

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Sep 27 2012

How the Fed bluffs the financial system – Labor force participation back to levels last seen over three decades ago. Fed policy aims at pushing US dollar lower.

The US is facing a long trend of aging Americans entering into retirement or what can be viewed as life post-work.  The vision of sitting on the sand in some resort villa is largely a dream.  Nearly half of American when they leave this world go out broke like a country western song.  Today as the stock market is nearing peak levels, one out of three Americans has no savings.  Yet the headline unemployment figures have moved lower giving the impression that things are better but a large part of this is happening because we have less Americans in the labor force.  In fact, our labor force participation rate is as low as it was over 30 years ago.  So of course if you shrink the labor pool you have more room to play with the headline figures.  It is crucial to understand this because the economy is operating under a false sense of success.  The housing market is now being propped up via the Fed and QE3 but this is at a cost of a multi-trillion dollar Fed balance sheet.  Plus, why do you want to increase home values when Americans are facing falling income?  The unemployment rate is a poor proxy of what is really going on in the overall economy.

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Sep 24 2012

Deleveraging from one bubble to another – $6.2 trillion in mortgage debt was added between 2000 and 2008. Since the peak in 2008 $1.3 trillion in US household debt is gone but another bubble is brewing hidden under the rubble of the busted housing market.

There is some interesting data on the deleveraging that is occurring with the American household.  Since the peak in Q3 of 2008, US households have lowered their outstanding debt by $1.3 trillion.  It is important to understand how this deleveraging is occurring.  First of all, Americans are largely paying down existing debts much faster and are no longer on a debt binge like they were pre-2007.  Yet a significant amount of the deleveraging has occurred via mortgage defaults.  So while lower debt is a good sign, it is important to understand in what context this is occurring.  Another point that will be highlighted is the amount of student loan borrowing in the US household equation.  This segment of debt was untouched by the recession as younger Americans financed their college educations through more expensive debt.  After a few years, Americans have pushed off some $1.3 trillion in household debt.  Let us examine how this debt weight was lost.

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Sep 20 2012

The tax consequences of a shrinking middle class – Nearly half of Americans do not pay income taxes because they earn too little or are flat out on Social Security.

Recently the topic of taxes has been put on center stage again.  Aside from the political bickering the data shows us an even more disturbing trend.  The middle class is demonstrably shrinking at a time that the government is spending money it doesn’t have while the Fed is digitally printing money to save its allied banks.  The reason nearly half of Americans pay no federal taxes, this is different from other taxes (i.e., payroll, sales, etc) is that nearly half of Americans make too little money.  This might come as a surprise to many given that we are the wealthiest nation on the face of the planet.  However, we need only remember that we have the highest percentage of Americans on food stamps in a generation with nearly 46.5 million receiving this aid.  Yet part of the data also reflects our aging population.  After all, since 1 out of 3 Americans have zero in savings many retire relying completely on Social Security for their income.

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Sep 17 2012

100 million credit card accounts are gone since 2008 – Credit card balances decline by 22 percent since their 2008 peak.

Credit cards have been used as a lifeline and a way to live beyond one’s means in the United States for many years.  Yet the current environment of deleveraging is hitting credit cards hard.  The outstanding balance on credit card debt has reached a level last seen over a decade ago.  This is positive since many were simply using credit cards as a method of spending money they did not have.  Yet with access to debt becoming more restricted for households, how many people that once had credit cards have shifted to safety net programs like food stamps?  It is impressive to see how the epitome of American debt spending in the credit card is contracting in this current environment.  Americans are simply in the process of deleveraging and credit cards are one of those items that signal that debt growth does have a maximum tipping point.

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