Driving our way into poverty: Subprime auto debt continues to expand while domestic auto production remains weak.
Americans love their cars. Urban sprawl with poorly designed city centers has made driving a near necessity for most people. During the credit crisis, one of the problems that occurred was that too many loans were being made to people that had no ability of paying their debt back. We see this trend in full stride once again in the auto industry. Subprime auto lending is back in a big way. The vast majority of non-housing debt growth in the last 12 months has come in the form of auto and student loan debt. As we all should know, a car loses value the minute you take it off the lot. Sure, these new cars come fully loaded and are virtually spaceships but it will cost you especially when the per capita wage in the country is approximately $26,000. Given that the average new car costs $30,000 most people need to go into debt to finance this purchase. We are now seeing a big wave of subprime borrowers purchasing cars. What can possibly go wrong?
When does college become too expensive? Tuition growth continues to outpace income growth and the student debt bubble continues to expand with the vast majority of debt going to the young.
When does college become too expensive? Will there be a bell going off like during a boxing match? What is the price tag that makes getting an education too expensive? It is obvious in the current economy that many prospective students cannot afford a college education without going into joint breaking levels of debt. Many of the opportunities that provide good career prospects do require a college education or formalized training. These goals are difficult to achieve without going into debt. And that is why Americans are now carrying well over $1.2 trillion in student debt. This is also the most delinquent sector of debt in our economy highlighting that many students are unable to pay their student debt back. Because there is no formal way of discharging debt via bankruptcy, this debt is like an iron albatross that is carried forever usually by those least likely to afford it. When we look at inflation in tuition, it continues to outpace actual income growth. This is problematic for parents when sending their kids off to college. Many have to finance with expensive debt given that the Fed is offering near zero percent loans to banks yet somehow, is unable to push rates down for student borrowers. Cheap borrowing for banks, expensive rates for students. It shows you where the Fed’s priorities are in the current economy. So when does a college education become too expensive?
A trend to working fewer hours and low wage labor: Is America looking at becoming a low wage nation in a race to the bottom? 1 out of 4 people working are in jobs paying $10 an hour or less.
One distinctive feature of this recovery is that many of the jobs added since the recession officially ended five years ago is that a large part of the jobs are coming from low wage labor. Low wages are not the only challenge hitting Americans. The small package of benefits, or lack thereof in many cases, is leaving Americans in a position where more of their disposable income is going to basic needs like healthcare and retirement planning. Pensions are virtually extinct in the current environment and companies are largely scaling back what benefits they give to new incoming workers. Younger workers have a tough time developing the skills required for the new positions in the market and are pushed into lower paying jobs. This lag in career development also stunts any potential for socking money away for retirement. That is why many younger Americans have nothing saved and in many cases are starting their working professional lives with a negative net worth based on student debt. If we look at the average working hours for an American worker we will find that we are still nestled in the depths of a generational trough. Why is that? Because of our growing army of part time workers.
Inflation where it matters: Close to 50 percent of Americans indicate spending more on groceries and fuel this summer. Nearly one third indicate more spending on rent and mortgage payments.
The stock market continues to move upwards ambivalent to economic indicators and the reality that inflation is permeating throughout our economy. The Fed continues to point at CPI as evidence that inflation remains subdued and this gives them the motivation to move forward with monetary policies that we have never embarked upon. We are already getting a taste of the bigger consequences including a growing low wage labor force. A recent Gallup survey found that Americans are spending more money on items that actually matter and items that consume a large portion of a household’s budget. This is key here in understanding the nature of inflation. Items like housing, healthcare, food, and energy make up a large portion of spending. Yet the Fed looks at other items that consume a small part of a household’s budget and balance out the overall picture. What you get is a massive understating of inflation and a stock market heavily juiced on easy money. Large pools of money are chasing real assets and crowding out regular Americans from the market.