Who’s afraid of a little bit of inflation? How low interest rates hide the real price of housing, college tuition, and cars.
Inflation is like the proverbial story of a frog in hot water. Drop a frog in boiling water, it jumps right out. Drop a frog in regular water but slowly raise the heat, and it will slowly boil into oblivion. Inflation has a subtle way of destroying purchasing power. Unless incomes are rising, which they are not, any minor price change is going to have a solid impact on buying power. Americans have been feeling this declining standard of living for more than a decade now. Yet the change has come at a subtle pace where few have reacted to it. For example, college tuition has soared in the last decade. Since incomes have not kept pace, many have gone into debt (from about $200 billion in 2000 to now being over $1 trillion today). Another big issue is with the rising costs of healthcare especially with many baby boomers now drawing on the medical system in the US. Anyone that has looked at going to college today or has required medical care will tell you that inflation is very much real in our economy. So who’s afraid of a little bit of inflation?
The long slog ahead for jobs: We are 9.45 million jobs short of where we should be and are unlikely to reach normal levels of employment before 2019.
Employment is the most important indicator of a healthy economy. The recession has left a deep scar and has set us back into a lost decade. Primarily for this reason many Americans are having a hard time jumping on this recovery that officially will reach a four year anniversary this summer. The long term projections for employment have picked up but the recession hit at such a profound level that it jolted the trajectory of job growth for an entire decade. Estimates put a return to “normal†employment deep into 2019 assuming no other major events happen. That is unlikely given our massive debt and the major demographic shifts that we are now experiencing. Over 47 million Americans now rely on monthly food stamps simply to get by. Our economy still faces major challenges but the most important one is putting Americans to work and having an economy that creates enough jobs for population growth.
European economy struggles under debt and staggering unemployment: EU unemployment at record while nations pile into massive levels of debt. Inflation censorship.
The European Union is the largest economy in the world combining the collective buying and selling power of multiple countries. If you’re biggest customer is having troubles, it is expected that the world would be concerned. Not so with the stock market. The EU is currently sitting at a high in respect to their unemployment rate and nations continue to be weighed down by enormous levels of debt. This is what is crushing Spain, Italy, and Greece. Yet there seems to be some underlying euphoria in all of it. Similar to our US market, the stock markets simply do not reflect the underlying fundamentals in these regions. This is why at the same time the Dow reached a peak, we reached a peak in food stamp usage. The EU is still facing deep economic issues but the markets do not seem to care. Probably because only a small portion of the population is even participating in the markets.
An economy of peak food stamp usage, peak Dow, and peak Debt: What does it say about our economy that at the same time the Dow Jones hits a peak, we have the highest percentage of Americans on food stamps?
It is a dichotomy that speaks to the current state of our economy. Food stamp usage has peaked at the very same time that the Dow Jones Industrial Average is setting new highs. Of course, the Dow is setting new nominal highs but still has a way to go to catch up to the eroding effects of inflation. You have to really ask how is it possible that at a time where so much financial wealth is available that so many people, over 47 million people in our country, are relying on food assistance just to get by. Where is all the wealth going? The financial system has been propped up with trillions of dollars of bailouts and loan programs and has allowed the same kind of speculation that caused our serial bubbles to once again emerge. Many people are speculating in places like Las Vegas and Arizona and crowding out your typical family simply looking to buy a simple home or find a rental. The fact that we are facing a peak in food stamp usage and seeing a new high with the Dow is very telling in the sense that it shows that we are truly becoming a society with a smaller middle class.