Federal Reserve slaps on financial rocket boosters but who will benefit? Half of Americans spend more than they make and household incomes fall back to levels last seen in 1995.
The Federal Reserve announced the sequel to the sequel on Thursday with Quantitative Easing 3. After all, if something didn’t work the first time might as well rinse and repeat. The markets are rallying yet what has come from the QEI, QEII, TALF, TARP, and all of those other backdoor bailouts? What has resulted is that we now have the highest poverty rate in a generation and US households have seen their household income fall back to levels last seen in 1995. Is this the solution? Who really benefits from these negative interest rates? The Fed had a hand in engineering the biggest real estate bubble we have ever witnessed and is now trying to allow banks off the hook by pushing rates so low that inflated prices appear lower simply because of the monthly payment. The middle class in the US has declined substantially since the 1970s and many failed to even acknowledge the reality that the national debt passed the $16 trillion mark. The solution? More debt and lower interest rates.
Economic duplicity with low wage capitalism – Nearly half of those that lost their job between 2009 and 2011 are working in a lower wage position. The hard financial reset button.
All jobs are not created equal. It is unfortunate that last month the drop in the unemployment rate was largely driven by hundreds of thousands of Americans simply dropping out of the labor force. Not exactly a way to build the middle class but to many it gives the false impression that things are getting better when they are largely treading water. Also a more trying sign of the times, a survey showing of the three million people that lost jobs between January of 2009 and December of 2011 with longer-term employment, roughly half that found a new job were making less than they once did. In other words, these people now have jobs but at the lower wage side of the scale. This also helps to explain why so many Americans are living day to day while facing the increasing cost of daily goods. It is hard to believe that for over a decade, the median household income has fallen for Americans. Young Americans are fully aware of the challenges the current economy faces because they are encountering it both in lack of savings and massive debt for college.
The swan song of stagflation – Gas prices up over 100 percent from 2005 and incomes are stagnant. Ignoring a $16 trillion debt headline and repackaging food to hide stagnant incomes.
If you look around your daily life you realize that your purchasing power is losing value. For a few decades now the middle class in the United States has demonstrably shrunken like clever food packaging. Over the last forty years we have lost 10 percent of our middle class. Most have fallen into the lower income bracket and now with a record 46.5 million Americans on food stamps, you have to wonder what kind of new economy we are entering into. Since household incomes have gone stagnant for well over a decade, any increase in price on one item will definitely impact the cost of other goods. In the end the purchasing power of Americans is falling. Did you notice that in the last few days our federal government debt went over $16 trillion? The media ignored this milestone assuming the public just doesn’t pay attention to headlines with the word trillion in it.
Student debt crisis enters a tipping point – Delinquent student debt now reaching record levels as defaults spike. Paying more and earning less.
The great deleveraging event continues to unwind while one sector of debt continues to grow by leaps and bounds. While other forms of debt have fallen by $1.6 trillion since the peak of the debt bubble mania, student loan debt has increased by a stunning $303 billion since the third quarter of 2008. What is more disturbing is the rising delinquencies seen in the student debt market that has now breached the $1 trillion barrier. While education overall is correlated with higher wages, there isn’t a clear distinction between university quality or even various degrees. Most of the studies examine the aggregate college pool when many went to college when prices were much cheaper. Many students are sucked into the for-profit vortex only to come out with a worthless piece of paper and mounds of debt. There is absolutely a bubble in higher education and how things unfold will carry a deep impact on the economy.
When the financial clock strikes zero – Half of Americans pass away with nearly zero wealth. The middle class has contracted by ten percent in the last 40 years.
A recent study demonstrates the precarious financial position many Americans find their lives in. The National Bureau of Economic Research found that nearly half of Americans pass away penniless. The exact figures were sobering stating that many of these Americans end up with no financial assets including home wealth and typically rely heavily on Social Security. This study points out a couple of important items regarding the state of the economy for many families. Many simply cannot save and end up relying on external funding. The system is witnessing heavy strain on these sources at a time when government spending is off the charts for bailouts and other targeted spending. Yet the typical American is still ending up in a financially precarious state. In the last four decades the middle class has contracted by ten percent. What does it say about the economy when half of the inhabitants of the wealthiest country pass away with almost no wealth?
Zero effective policy and stalling QE3 – Why QE3 will have little financial impact if implemented. Deposits at US commercial banks quickly approaches $9 trillion.
The markets eagerly await the words of central bankers over the next few days. The markets are on the fence waiting to see if Ben Bernanke gives the green light for QE3. What many fail to realize is the Fed already has other mechanisms to force banks to lend in the current marketplace. First, there is no need to pay interest excess reserves. Even the European Central Bank has dropped interest paid on excess reserves down to zero. So the Fed already has some alternatives to what QE3 would provide. It is also the case that deposits at US commercial banks are already nearing $9 trillion. Banks have the means and ability to lend if they only had the desire to do so. In spite of the US public bailing out the entire banking edifice, they have little faith in the American public.
China enters unfamiliar economic territory with rising inventory – Contraction in China’s manufacturing sector now inching closer to one year. What does this say about the global recovery?
China is feeling the deep impact of the global slowdown. The country has seen unprecedented growth for the last few decades and is now entering into a very unfamiliar territory. Slowing demand. Data is reflecting that the slowdown on exports from places like the US and especially Europe is having an impact in their very important manufacturing sector. China also has hundreds of thousands of empty apartment units as the country has been heavily reliant on real estate building to support growth. This economic contraction is not a surprise as global demand has fallen largely because of the massive levels of debt in a variety of countries and the process of deleveraging that is occurring. We rarely see the word “decouple” from the economic corners of the world because that is largely a myth. The global economy is more interconnected than many would want to think. The slowdown in China will have an impact in many places including the US.