Americans are slowly creeping back to their non-saving and debt based spending ways: Drop in the savings rate and shift in type of debts being taken.
The personal saving rate in the United States is on a multi-decade decline. Part of this has to do with Americans putting their money into alternative savings vehicles like 401ks and IRAs but a large part of this has to do with Americans simply not saving. Roughly one-third of US households have no savings to speak of. After the recession hit, the savings rate increased as Americans were forced to save money as access to credit halted and many started moving money away from stock invested vehicles. Yet this minor trend lasted only a few years. Americans are back to their debt spending ways but the type of debt that is being used has shifted. One of the big drivers of debt growth in our current economy is student debt. Credit card debt growth has slowed down but with the housing market turning around, more Americans are going into mortgage debt again. Are we setting up another debt crisis and are we forgetting the lessons of the 2000s?
Why do people feel poor even though the stock market is at a record high? The process of inflating asset bubbles and transferring wealth to targeted groups. S&P 500 up 145 percent from 2009 low.
The stock market provides a beautiful scent of success although most Americans will only catch a whiff of that aroma. The S&P 500 is now up 145 percent from the gloomy low reached in 2009. Even though this unrelenting trend upwards has added wealth to a few, the majority of Americans are still seeing the purchasing power of their dollars slowly erode. The one secure location for wealth in housing is now being usurped by Wall Street as investors begin to invest heavily in the rental real estate business. Speculation in the markets is once again booming. Japan had a mini-crash this week but the media cycle continues to pretend that printing your way into prosperity is somehow as easy as having central bankers pushing play on the iPod and expecting the hits to come one after another. The reason you likely do not feel the big gains of the recent run is because most of the gains have come from artificially low interest rates and companies slashing wages and squeezing profits out of current workers.
Spend or be financially doomed: Idolizing the gods of consumption and stoking the fires of debt based speculation. Has the Fed crossed the line of no return?
The Federal Reserve has created the perfect environment where savers are chastised and debt based spending is glorified. Our economic engine is powered by the fires of consumption. This has been true for many decades. What is different about our current space in time is the punishment savers are taking. Many banks through savings or even CDs offer rates that are hovering around the zero percent mark. Add in inflation of about three percent and you are actually losing money. The system is designed to punish any sort of conservative saving. The stock market continues to move up but it clear that most Americans simply do not have the funds to participate in this party. The current financial environment is really a perfect brew of punishing savers and encouraging debt based consumption. Will the elixir work this time around?
The facts behind the mountain of student debt: 13 percent of students owe more than $50,000 and nearly 4 percent owe more than $100,000. Student debt grew by 284 percent from 2004 to 2013.
Many Americans view a college education as a way to build a better life. College is seen as an avenue for better prosperity and the ability to pull yourself up beyond your current circumstances. In fact, after World War II programs like the G.I. Bill allowed many Americans the opportunity to pursue a college degree. In many cases, the United States at this time developed the largest middle class the world had come to know. This is still the case today but the economic trends show a shrinking middle class that is largely having a tough time competing in this quickly globalizing economy. One fact that stands out is that back in 2004, student debt was the smallest portion of all non-housing related debt in the US. Only a short nine years later, student debt is the largest portion of debt in non-housing related debt. What happened in this short period of time and what information can we pull from the mountains of student debt information?