Quantifornication and an American spring

Consider:

• U.S. labor force participation is now down to where it was in 1979 – 63.3 percent.
• Adjusted for inflation household incomes are now back to levels last seen in the 1990s – average per capita wage is around $26,000, household median income is at $50,000.
• Adjusted for inflation markets are lower than they were in 2000.
• U.S. national debt is $16+ trillion.
• The banking system backs $7.4 trillion in insured deposits with $32 billion, that’s just .43 percent – when the U.S. was on the gold standard your dollar was backed 40 percent with gold. In 1987 there were over 13,000 banks, today there are 6,000. There are 50 banks with assets totaling over $20 billion, these are ‘too big to fail’.
• Student debt totals over $1 trillion. Medical care is the second fastest inflating sector after first place college tuition. Since 1985, college tuition has soared nearly 600 percent and medical care is fast approaching 400 percent. The overall Consumers Price Index (CPI) is at 200 percent.
• The Federal Reserve’s balance sheet is plus $3.2 trillion and the Fed is continuing to purchase assets at a rate of $85 billion a month.

• Consumer sentiment is at crisis levels last seen in 2008. In August 2012, in A Pew Research survey of middle-class Americans done in August 2012, reported 42 percent of those surveyed said they were worse off than they were in 2008.

A Rasmussen survey showed that only 39 percent believed the U.S. economy would be stronger in five years – the first time that figure has ever dipped below 40 percent.

The John J. Heldrich Center for Workforce Development at Rutgers University’s survey showed that more than half of those surveyed believe the U.S. economy will not fully recover for another six years, and nearly one-third said the U.S. economy will never fully recover.

• Estimates put a return to “normal” employment deep into 2019 – and that’s a best case recovery with no hiccups.
• The largest city bankruptcy in US history was just announced for Stockton, California – population 300,000.
• People aren’t buying cars because they can afford them – U.S. cars, on average, are almost 11 years old, that’s the oldest the fleets been since record keeping began. When cars get old they breakdown, costly repairs happen all too often. Unfortunately for a consumer driven economy already swirling around the bowl every dollar spent on a car purchase is one not being replaced for purchases elsewhere.
• In the final quarter of 2012, the US economy expanded at an annual rate of 0.4 percent. The 0.4 percent growth rate for the gross domestic product (GDP) was the weakest quarterly performance in almost two years.
• For all of 2012, the economy grew 2.2 percent, that’s after a 1.8 percent increase in 2011 and a 2.4 percent advance in 2010. Since the recession ended in the summer of 2009 the economy has been expanding at sub-par rates.
• The Congressional Budget Office (CBO) has estimated that the combination of tax increases and spending cuts (the much talked about fiscal cliff) could trim economic growth this year by 1.5 percentage points leaving just 1.5 percentage points for growth in 2013.
• The just released (April 10^th) Presidential budget calls for $580 billion in new taxes, $400 billion in health savings plus an additional $200 billion in savings from farm subsidy reductions and reforms to Federal retirement plans.

SNAP

Food stamp participation increased from about 17.2 million in fiscal year 2000 to 26 million people in July 2006. By August 2008, participation had reached an all-time (non-disaster) high of 29 million people per month.

Today roughly 15 percent (47.3 million) of Americans are on food stamps – the Supplemental Nutrition Assistance Program (SNAP).

Half of current SNAP recipients are children, and half of these ten million children live in extreme poverty, meaning family income is less than half the official poverty level.

In the 1970s, about one out of every 50 Americans was on food stamps. One in six Americans receives food stamps today.

Last year’s average monthly benefit was $133 per person – Republican’s are seeking $16 billion worth of cuts to the SNAP program over 10 years.

Three out of four households receiving SNAP benefits include at least one person who is working.

The ranks of America’s poor have climbed to 50 million.

Dying Broke

Few Americans own any significant amount of financial wealth:

One of three Americans has no savings.

• Median household income has fallen 7.3 percent since the recession officially ended in the summer of 2009. During the same period inflation has been between two and four percent.
• From 2007 to 2010, a typical US family lost 39 percent of its wealth, in 2007, the median family net worth was $126,400, in 2010, it was $77,300.
• In the U.S. ten million mortgages are underwater. Today’s home prices are lower than they were during the Great Depression.
• Roughly 10 percent of the private sector has a pension versus 60 percent in 1980.
• The Federal Deposit Insurance Corp. (FDIC) reported more than a quarter of American households lacks access to full banking services or have no bank account while nearly 10 million U.S. households have no checking or savings accounts..
• The White House has announced its budget proposals include a shift to a Chained CPI. This will produce a major cut in Social Security and Veterans benefits. Chained CPI can be expected to grow .25 – .30 percentage points slower than the current CPI measure. Nearly two in three recipients rely on Social Security for at least 50 percent of their income while benefits make up at least 90 percent of the income of 36 percent of seniors. The CBO has estimated that by switching to chained CPI-U the federal deficits would be reduced by $340 billion in the decade from 2014 through 2023. Of that, $127 billion would come from savings on Social Security.
• Nearly half of American’s die broke.

The class divide

The S&P 500 – an index of 500 large US companies – has finally, after a four year rally, recouped all of its losses from the 2008 global financial crisis.

The S&P 500 became the last major US index to hit a new high. The Dow Jones Industrial average has already climbed past its previous high.

The average net worth of the 400 wealthiest Americans, classified as the super rich, rose to an all-time record of $4.2 billion, up more than 13 percent from a year ago. Collectively, this group’s net worth, currently at $1.7 trillion, is the equivalent of one-eighth of the entire U.S. economy.

• The top one percent of the American population controls 42 percent of all financial wealth in the country.
• The top 20 percent control roughly 90 percent of all stock ownership and financial wealth.
• The bottom 80 percent of Americans control less than 10 percent of all stocks owned.
• The bottom 80 percent of Americans hold roughly 5 to 8 percent of all financial wealth (non-housing related).

 “The vast majority of Americans are not the beneficiaries of this “buoyant economy.” Rather, growing numbers of people have been thrown deeper into poverty and social distress. Long-term unemployment has become entrenched. Working families are saddled with growing debt and struggle to pay for housing and other basic necessities, let alone put aside anything for retirement…

The US Federal Reserve is pumping $85 billion a month in virtually free money into the financial system, fueling the stock market boom. This is more money in a month than the $76.6 billion the federal government spent all of last year to provide SNAP benefits to 47.8 million impoverished Americans.”  The two sides of the US economic “recovery”, wsws.org

Income inequality is the highest it’s been since World War II.

The ranks of the working-age poor are at the 1960s levels that led to the national war on poverty. One in twelve Americans are jobless, and 50 million live below the poverty line. Over 47 million people, many from middle-income families, now depend on social assistance for food. And across America, 1.5 million children are in families that have lost their homes.

It’s obvious the ‘recovery’, concentrated as it is on just the stock market, has nothing to do with most Americans reality.

 “Since the S&P 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.” David Stockman, former director of the Office of Management and Budget under President Ronald Reagan

Stock Market Longevity

“On the earnings front, my concern continues to be that investors don’t seem to recognize that profit margins are more than 70% above their historical norms, nor the extent to which this surplus is the direct result of a historic (and unsustainable) deficit in the sum of government and household savings. As a result, investors seem oblivious to the likelihood of earnings disappointments, not only in coming quarters but in the next several years. We continue to expect this disappointment to amount to a contraction in earnings over the next 4 years at a rate of roughly 12% annually.” John Hussman, manager Hussman Funds, hussmanfunds.com

“Corporate profits are nothing if not mean-reverting. There are several explanations for this phenomenon; but whatever the cause, the current off-the-charts percentage of profits to GDP is highly unlikely to become an enduring feature of the New Normal. Especially not given the recent weakness across the rest of the data spectrum.” John Mauldin, Mauldin Economics, mauldineconomics.com.

Conclusion

We should we measuring our economic progress by how the poor and the middle class are doing. After all, besides the benefits being so narrowly focused, it hardly seems likely that the Fed induced stock market bubble, and off the charts corporate profits, are sustainable.

Quantifornication is the term I coined for what the Federal Reserve is selling to the world – the unrealistic, insane fiat dream that the monetary policy currently being employed by the Fed can fix the economy. It can’t, you cannot fix a debt induced problem by adding more debt.

Welfares role’s are going to grow, millions more will be looking for food stamps yet programs are being cut and taxes raised.

Is an American Spring coming? Certainly many of the same pressures that caused riots, civil disobedience and regime overthrow (perhaps this is why President Obama is militarizing the police and his government is buying ammunition – almost two billion hollow point bullets?) across the Arab world are beginning to build in America and for the very same reasons.

The Arab Spring had many causes, but chief among them was socio-economic turmoil – poverty, lack of adequate medical facilities and attention, low to no employment, low wages, disease, no clean drinking water, lack of shelter and shortages of food or unaffordable food can all cause socio-economic pressure to build.

“It seems to me there are very dangerous ambiguities about our democracy in its actual present condition. I wonder to what extent our ideals are now a front for organized selfishness and irresponsibility. If our affluent society ever breaks down and the facade is taken away, what are we going to have left?” Thomas Merton

“When you think about the largest central banks in the world, they have all moved to unlimited printing ideology. Monetary policy happens to be the only game in town. I am perplexed as to why gold is as low as it is. I don’t have a great answer for you other than you should maintain a position.” Kyle Bass, Hayman Capital, in a Bloomberg TV interview

“Gold is money, everything else is just credit.“ J.P. Morgan

Quantitative easing, a global currency race to worthless and a spring storm on the horizon means gold and silver bullion might be the best protection you can own and should be on all our radar screens. Are they on yours?

Contact Richard (Rick) Mills via [email protected]

Richard is the owner of Aheadoftheherd.com and invests in the junior resource/bio-tech sectors. Get in touch with him if you’re  interested in learning more about the junior resource and bio-med sectors, and quality individual company’s within these sectors.

His articles have been published on more than 400 websites, like the Wall Street Journal, Market Oracle, USA Today, National Post, Montreal Gazette, Vancouver Sun, CBS news, Calgary Herald, Resource Investor, Forbes and Financial Sense.

For Richard Mills’ legal notice/disclaimer, see Aheadoftheherd.com