To taper, or not to taper. Not the question if you are the Fed: Austerity intact while Fed balance sheet continues to expand.
The Federal Reserve has hinted at slowing down its Quantitative Easing machinery but that might face some challenges as the stock market experienced one of its worst months in over a year. This is not to say that the Fed should respond to the stock market when it sneezes but it makes it more unlikely that the Fed will adhere to its September taper announcement. Keep in mind that the entire QE strategy on the surface was to provide additional liquidity to US households. If that was the measure of success, QE has been a royal failure. As we will shortly see, credit to US households has not expanded in light of unprecedented Fed balance sheet growth. Money is being deployed but very ineffectually (if you are your regular US consumer). Funds are being diverted to large financial institutions while the public struggles with credit austerity.
Why are so many young Americans living at home? Record number of Americans living at home while student debt reaches another record.
While the unemployment rate continues to fall in large part because people are dropping out of the workforce, we reach another record which highlights a difficult economy for young people. A record number of young Americans now live at home. It would be one thing if this was being driven by a desire to stay at home but this is not the case. Economically younger Americans are simply having a tougher time starting their own households. Combine this with the record amount of student debt largely shouldered by young Americans and it is easy to understand why this trend is occurring. This living at home trend also helps to explain one of the reasons why homeownership has fallen overall. This is not a positive trend no matter how people try to spin it.
Long live the reemergence of the FIRE economy: Over the last decade GDP is up $5.2 trillion while the total credit market debt owed is up $24.5 trillion.
The current economy is juiced on the rivers of easy debt. An addiction that is only getting worse. Want to go to college? You’ll very likely go into deep student debt given the rise in college tuition. Want a home? Prices are soaring because of speculation but you’ll need a bigger mortgage to buy. Want a modest car? A basic new car that has four wheels will likely cost $20,000 after taxes after fees are included. Need gas for that car? The price of a gallon has quadrupled since 2000. Combine this with the reality that half of Americans are living paycheck to paycheck and you can understand why the debt markets continue to grow at an unrelenting pace. Here is some food for thought; in the last 10 years, GDP has gone up $5.2 trillion however, the total credit market has gone up by $24.5 trillion. An increasingly large part of our economic growth is coming from massive leverage. This is why the market sits fixated on the Fed’s next move regarding interest rates even though in context, rates are already tantalizingly low. The FIRE economy is driving a large portion of corporate profits yet most Americans are left in the cold winds of austerity.
Wealth distribution in US rivals a modern day Gilded Age: In 2013 wealth inequality at record levels. 72 percent of wealth in US held by 5 percent of the population.
Americans continue to live through a modern day Gilded Age. Wealth inequality is at its highest levels since the Great Depression, when names like Mellon and Morgan plastered the headlines. Yet this time around, the availability of debt provides the illusion that the playing field is even. Americans are massively in debt and when we look at actual wealth, we find that many have very little to their name. In fact, millions of young Americans are in a negative net worth situation thanks to their student debt. Wealth inequality has reached record levels because the system is now operating under a dysfunctional corporate and banking welfare structure. The public is forced to deal with compressed wages, weak benefits, and basically what we know as economic austerity. While this is happening, big banks use the Fed to their advantage and even when they lose, they win. This is how 72 percent of all the wealth in the US is held in the hands of 5 percent of the population (with 42 percent of this in the hands of 1 percent).