Were Being Fed a Steady Diet of Econocrap
Where to begin, where to begin?
This past week started off with a thud when the Federal Reserveās report on U.S. Family Finances showed that the median familyās net worth fell by almost 40 percent between 2007 ā 2010. Ā Economists at the Fed reported that the drop was the largest since the survey began in 1989.
Reuters had the story that I read in HuffPo.Ā Check out this fabulous Fed quoteā¦
“Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” the Fed said.
Is any of this bothering you?
First of all, could I just ask the studio audience who I know are playing along at home, what year is this?Ā 2012?Ā I thought soā¦ just checking.
Why are we only allowed to know how far weāve dropped up until 2010?Ā Is there some reason, other than the fact that telling us the truth could cause mass panic, that we couldnāt have run the numbers through 2011?
If a median familyās net worth has fallen by almost 40 percent as of 2010, how much has it fallen as of 2011, because itās already halfway through 2012, and Iām pretty sure it hasnāt gone up since 2010, arenāt you?
As to the largest drop since 1989?Ā Well, Iāll bet it was also the largest drop since 1979ā¦ 1969ā¦ 1959ā¦ and so on, and so on.Ā Is it the largest drop since the 1930s?Ā Iām betting it is, but no one wants to tell us that.
And, āthe decreases in median net worth APPEAR to have been driven most strongly by a broad collapse in house prices.āĀ Is that what it āappearsā to the Fed?Ā It appears that way, but they canāt be certain?Ā More research is required?Ā How is that possible?
Forbesā story added further color to the devastating newsā¦
āThe median family income dropped as well from $49,600 in 2007 to $45,800 (in 2010), or a 7.7% drop.ā
Thatās almost an eight percent drop over a three-year period, and if that doesnāt seem like that much to you, keep in mindā¦ that number is supposed to go UP each year.
(Click on chart to enlarge… )
Employment Since 2010ā¦
On the employment front, I canāt thank Mish Shedlock enough for posting news on this topicā¦ news on stats that I knew anecdotally there was something wrong with, but couldnāt say exactly what.
According to Mish, who is never wrong, by the way, ā100 percent of U.S. Jobs Added Since 2010 Have Been Self-Employment, Contractor, or Other Jobs Without Unemployment Insurance Benefits.ā
āSince 2010, the economy has added 3.23 million jobs according to the BLS. Of those 3.23 million jobs, 3.33 million (slightly greater than 100%) have been self-employment, contractor, family-business jobs, or other jobs with insufficient wages and therefore ineligible to collect unemployment insurance.
Since 2009 the numbers look much worse. In that timeframe the economy added 2.36 million jobs according to the BLS. Of those 2.36 million jobs, 5.91 million (250%) were self-employment or jobs otherwise not covered by unemployment insurance benefits.ā
And if thatās not enough to shake you up a bit, try this on for sizeā¦ also from Mishā¦
- Over the past few years, business owners report that they have, at one time or another, taken less profit (78 percent), worked more hours than usual (70 percent), and used their own money to help the business survive (69 percent).
- 54 percent of respondents say they have gone without a paycheck in order to keep the business running.
- 23 percent of owners have gone without pay for one year or more.
- More than one-third of owners (38 percent) said their employees worked overtime without pay
- 18 percent of owners said employees either missed paychecks or had paychecks delayed.
- Access to financing doesnāt come up in the top five most important issues among small businesses. Instead, business owners cite lack of sales and consumer confidence.
Yaā think?Ā Didnāt we all already know this has been the case?Ā In one way or another, Iāve been a small business owner for 25 years, and I sure did.Ā I couldnāt point to any proof that this was the case, but I knew it nonetheless.Ā I went around to business owners in my hometown a year ago and they all reported that their incomes had dropped between 25-40 percent.
āBear in mind, that making money or receiving a paycheck is irrelevant to the BLS when they compute the unemployment rate. If you work as little as 1 hour, whether you collect a paycheck or not, you are considered employed.
In addition to the 6.21 million business owners with no paycheck, factor in those selling trinkets on EBay out of desperation and collecting a few dimes in the process.
Also factor in all those starting multi-level marketing schemes and calling it a business. How many get sucked into that losing proposition every year? Yet, to the BLS, it’s a job if you worked any hours.ā
Thatās just great, donāt you think?Ā According to the Bureau of Labor Statistics,Ā āIf you work as little as 1 hour, whether you collect a paycheck or not, you are considered employed.āĀ Ā I don’t know, but that changes the numbers that get released through the mainstream media, don’t you think? Ā Combine that with the small business info above, and in that case weāre obviously doing very well economically, very well indeed.
Alrighty then… we’ll let you go back to bed then.
Housing is a Certaintyā¦
The certainty about housing is that itās not at the bottomā¦. not even close.Ā Now, before you come completely unglued, that doesnāt mean that we donāt have pockets where things couldnāt get much worse, after all, itās been six years of going straight down.Ā Detroit comes to mind, as does Las Vegas, parts of Phoenix, maybe something in Stockton, California or who-knows-where in Florida or Georgia.
Iām only talking about the rest of the country.Ā You know, like everywhere else.
Why would I say thatā¦ hmmā¦ letās seeā¦
Well, thereās the MILLIONS of foreclosures to come.
The unsold and unlisted inventory that has not, contrary to popular belief, disappeared over the last few weeks.
The fact that the 30-60 year old, buy-up buyer has essentially disappeared, since AT LEAST 50 percent of homeowners are underwater, and more than that if those who wanted to sell their homes were to list them for sale.
Ummā¦ can anyone say ātight credit markets.āĀ The need for 20-30 percent down payments and 760 FICO scores. Ā I read that something like 50 percent of Americans have credit scores above like 740 or something. Ā I’m sure that it’s true. Ā The only problem is that… how much would you like to bet me that most of that 50 percent is over 70 years old. Ā And I just don’t see that group re-starting much of anything economically. Ā I’m 51 and it’s hard to get me to buy a new shirt.
How about students graduating with six-figures in student loan debt that cannot be discharged in bankruptcy.Ā My daughter is going to be going to college in another year or twoā¦ private universities, Iām shocked to tell you can be $57,000 a yearā¦ plus room and board, books, et al.Ā Even public universities are in the $30k range.
There simply is not real estate market today, so we donāt even know what housing prices actually are.
A market is when the forces of supply and demand converge to set prices.Ā Thatās not what we have today.Ā The only people selling their homes today are those who have to.Ā No one today is saying, āGeeā¦ this seems like a good time to sell.ā
And the only people buying today are those who either believe that theyāre stealing something, or that think the interest rates make senseā¦ and Iām not saying they shouldnāt be buyingā¦ as long as theyāre buying a home and not a stock.
Prices per square foot are all showing continued declinesā¦ everywhere.Ā San Francisco, where Facebook millionaires are made, is going down the least at 5-6 percent, year-over-year.
Plus, I wonder what will happen when interest rates finally have to riseā¦ especially to those underwater in Phoenix with adjustable rate loans.Ā Actually, no I donāt.
You donāt have to be any sort of real estate economist to figure this out, the market fundamentals are just plain terrible.Ā The only reason weāre all not climbing the walls is that this government has pumped untold trillions into our economy, but we canāt keep that up going forward, and nothing has been fixed.Ā Perhaps had we allocated some of that money to improving the outlook of consumers…Ā but we didn’t.Ā It went to secure the financial position of banks.
In the next two years, this countryās version of austerity will come center stage as state budget deficits all cause state legislatures to choose between bankruptcy and civil unrest.Ā If you were wondering when this recession would feel like a depression, stand by because itās coming soon to a theater near you.
Now, it should go without saying that nothing bad will happen before the election.Ā Iām convinced that Secretary Geithner will move to Greece and start handing out Franklins in the streets before that country finally revolts and tells Germany to go pound sand.Ā And Spain is right behind Greeceā¦ and Italy is right behind Spainā¦ and the leg bone is connected to the anklebone.
None of this is a maybe, itās a for sure.Ā Water is wet, the sky is blueā¦ the fundamentals are what they areā¦ and thereās nothing on the horizon that will change them.
We need to de-leverage and there were only two ways to accomplish that:
- Come up with some mechanism to forgive debt.
- Let the foreclosures handle the problem and eventually weāll hit bottom.
The Obama Administration chose āB,ā but thatās no big deal because the Republicans did too.Ā The fact is that the political risk associated with forgiving debt is untenable.Ā Weāre a petty and jealous people, and if you forgive my neighborās debt you have to forgive mine too.
Look at Europe and youāll see the same thing.Ā Theyāve strangled Greece to death over the last three years.Ā They could have forgiven or restructured their debt, but they didnāt.Ā Because if you forgive Greece, then youāll have to forgive Spainā¦ and then what about Italy, France, and ultimately everyone elseā¦ and then investors will never lend money again and weāll all die.
Itās the Stupid, Painful & Petty approach to de-leveraging, I agree.Ā But we have lost the ability to govern ourselves.Ā If thereās an iceberg ahead, we canāt swerve to avoid it, we have to hit it head on and then maybe, as the crisis ensues, we can actually fix something.
Itās been that way for a while too.Ā Everyone saw the S&L crisis coming way back in the late 80s, but no one wanted to tell their S&L buddies that theyād have to regulate tem for their own safetyā¦ so it went BOOM!Ā And we got the $400 billion bill.
So, why is this happening?Ā Because our leaders want it to happen.Ā For the most part, weāre giving Congress a complete pass on this stuff.Ā Blame the banks for the failure of a government programā¦ perfect.Ā Oh, Iām not saying they shouldnāt be blamed for many things, but Fannie and Freddie drive the mortgage market, and their driving it straight off a cliff.
Any Questions?Ā Actually, I Donāt Have a Single One.
Overall, the point Iām making is that I donāt really care that the government wants to pay Scrabble-type word games with the word ārecessionā or ārecovery.ā Ā I donāt care how they want to screw around with the unemployment rate by not counting some folk and over-counting other.
Whatever they want to call this economy, I have my own choice words for itā¦ they arenāt appropriate for mixed companyā¦ and they arenāt going to change next month, next year, or for a long time.
So, stop eating the econocrap theyāre feeding you.Ā After a while itāll make you sick to your stomachā¦ and Iām not even sureā¦ do food stamps cover Pepto Bismol?