The chart below is from the St. Louis Fed, direct from the horse’s orifice, so to speak. It shows hourly earnings (unchanged for the last year in real terms) and real median household income. This is the economy as seen by 99%ers, not Barack and Michelle (or Hillary and Bill). Do you see a “recovery?” I don’t. The vast majority are getting poorer and poorer. Many have given up finding work.
The economy only looks sort of OK because massive injections of new credit are supporting it. Since the housing market remains broken (and is falling again as buy-to-rent speculators retreat, licking their wounds), mortgage financing can’t provide new credit as it did in the last bubble. Obvious sources of increase in credit account for nearly 12% of GDP:
- Government borrowing. The increase in Treasury debt for 2013 amounted to 5.7% of GDP. (0.919T on 16.4T). Of course this was all directly monetized by the Federal Reserve.
- Student and Auto loans. The increase in outstanding balances is running about 1.1% of GDP. Subprime auto loans are back, now 55% of all car loans, along with 72-month terms as the norm and average LTVs of 110% for new cars and a stunning 133% for used cars. Student loans… enough about that massive fraud. Makes my blood boil. The default rate on (federal) student loans is now 22% and rising.
- Corporate share buybacks. Running about 4.9% of GDP, buybacks are holding a high rate while corporate cash is essentially unaffected, showing that buybacks are being financed with debt. Which makes sense, as it is the companies with weak or no earnings that are using buybacks to juice reported EPS (and bonuses).
Well, you say, GDP was growing at an annual rate of 4% in the last report. Well, yes, but most of the stuff produced was going into inventory because people don’t have the money to buy it if they can’t finance it with government’s freshly printed money. Real final sales so far this year are growing at an annual rate of only 1.3%, historically only seen around recessions.
What kind of set me off was Hussman’s weekly comment, which mention Galbraith’s comments about the 1929 crash, viz:
“the crash did not come – as some have suggested – because the market suddenly became aware that a serious depression was in the offing. A depression, serious or otherwise, could not be foreseen when the market fell.”
So he says, but most histories I have read noted that a serious recession began in August such that, during the two month period leading up to the crash, production declined at an annual rate of 20 percent, wholesale prices at 7.5 percent, and personal income at 5 percent. It seems to me that an alert observer could, as today, have observed that the economy was, to say the least, not doing well. Take away the injections mentioned above and you would have a similar or worse situation today.
While I am not saying that this is 1929, I do observe that since the 2009 bottom the S&P is up 200% while the economy has not offered most people anything but a gradual decline in their standard of living. We observe the riots in Ferguson as the people who are on the very bottom of the economic ladder have had enough, to the point where government feels threatened enough to show up in full battle rattle to protect itself from the enraged citizenry. This is only coincidentally about race – it is really a symptom of horrible economic mismanagement. Not to worry, Barack is back on the golf course.
Edit: I didn’t see this until later: “Experian, which analyses millions of auto loans, said Wednesday that the percentage of those loans that were delinquent or ended up in default with the vehicle being repossessed surged in the second quarter of this year. The rate of repossessions jumped 70.2 percent in the second quarter, …” usw.