Casino economics: How the S&P 500 endured two 50 percent dips in the 2000s and sent the middle class packing.
It took the S&P 500 about 13 years to get back to where it was in 2000. Of course the power of inflation has taken an even deeper toll on this trend. The stock market is largely a spectacle for most average Americans. It is a dramatic sideshow like going to the track and betting on horses. The reality is, most Americans do not own any sizeable amount of stocks. 1 out of 3 Americans have no savings and about half of Americans are one paycheck away from being on food stamps. By the way, 47 million Americans are still on food stamps in this recovery. The stock market over the last few decades has operated like a casino swinging from one bubble to another. After every subsequent bust, middle class households have seen a chunk of their standard of living diminish. This is not hyperbole because simply looking at Census data, adjusting for inflation median household income is back to where it was in the mid-1990s. In fact, the S&P 500 has endured two dips of 50+ percent between 2000 and 2010, both precipitated by bubbles. Can the average American compete in casino economics?
US Household income continues to fall in midst of recovery: Since the recession started median household income is down 7.3 percent.
US households continue to face a declining standard of living. The first obvious item comes from falling incomes. Some of this is being masked by renewed access to debt as banks are once again lending money to over stretched consumers. Yet real wealth recovery this is not. The next major depressing factor for households is the reality that inflation is eating away purchasing power. When incomes are falling, even a moderate amount of inflation is very dangerous to your bottom-line. A new report came out highlighting that the median household income has fallen by 7.3 percent since the inflation started. This is a big deal. Especially when the cost of other items is now going back up (housing), is sky high (college tuition), and is potentially a cause for bankruptcy (medical care). Let us look at the income figures.
Too big to fail or ignore: How the US went from over 13,000 banks in 1987 to 6,000 today. $7.4 trillion in deposits backed by $32 billion dollars.
Remember when too big to fail brought our economy to a grinding halt? Of course you do because this is a recent financial event with dramatic ramifications. In the time since the buffet of bailouts was rolled out you might be surprised that the too big to fail banks have only grown even larger and if they were too big to fail before, what happens when they become even bigger? Some walk around in a financially comfortable delusion about our current system even though we all realize that we will never payback our $16 trillion in national debt. You also have a banking system backing $7.4 trillion in insured deposits with $32 billion (that is, 0.43 percent). Yet in our current system the Fed is digitally inflating away our currency and limiting available banking options. Are we simply ignoring the too big to fail?
The bailout of the wealthy: stock market sham, income inequality, and crushed consumer sentiment. Peak debt, peak Dow, peak inequality.
In the midst of the stock market reaching record levels the Federal Reserve has increased its balance sheet to well over $3.2 trillion. The Fed continues to be the primary buyer of mortgage backed securities. This strategy has caused a flood of easy money from big banks into residential real estate as funds start chasing yield from under every rock. Yet the results are rather clear that this new stock market high has done very little to improve the lot of most Americans. Sure, we have a peak Dow but we also have peak food stamp usage, peak student debt, peak federal debt, and peak inequality. This is probably making many people rethink their notion of what constitutes a recovery. The bailouts have been incredibly expensive but the clear winners have been a very small fraction of Americans. The bailouts are also ongoing. While some of the bailouts have trickled down to some Americans most of the gains have been concentrated to a very small number of people.