A clash of generations – 1 out of 6 Americans receiving Social Security benefits. A larger share of workforce dominated by older Americans.
The bill is coming due. A stunning 61,000,000+ Americans receive Social Security, Supplemental Security Income, or both. Add another 46,000,000+ Americans on food assistance and you begin to see why we are running on borrowed time on a variety of fronts. With Social Security, working Americans are taxed for current retirees. This works when you have a large and young work base supporting a relatively small retired population. That equation is not our current situation. In 1960 you had nearly 5 workers for each beneficiary. Today that number is down to 2.8 and will hit 1.9 in 2035. For many young and less affluent Americans this is the time they will enter into retirement. If we are having a hard time funding current programs what is going to change the math down the line?
The four horsemen of the sluggish economy – Total credit market debt above $55 trillion, few jobs for many unemployed, the student debt bubble, and long-term compression of wages.
The US economy is facing tremendous financial hurdles in the years to come. The current market is being held together by a flood of debt that is masking underlying issues. Total credit market debt is many times larger than our annual GDP. Student loan debt continues to expand unabated even though the return-on-investment for many college degrees is not worth it. We also have an interesting dynamic where we still do produce manufactured goods but require fewer and fewer workers to conduct these jobs. These challenges will not go away when the last ballot is cast this November. We also have big challenges of taking care of an older generation with a much less affluent and deeply in debt younger generation.
The dynamic central banking duo – ECB balance sheet up over €3.1 trillion mimicking Fed balance that is close to $3 trillion. Shuffling toxic assets into darkness.
You might have the vague memory that the European Central Bank reacted somewhat negatively to the Federal Reserve’s massive balance sheet expansion a few years ago. The ECB was not following in the same path as that of the Fed. Well fast forward to the current Euro crisis and the ECB now has a balance sheet that far surpasses that of the Fed. You have the two largest central banks in the world with over $6 trillion in unaudited funds and surely a good portion of that is toxic assets. This trajectory is unfortunately a natural consequence of our current banking system. These central banks focus on protecting their big banking allies and the crisis is still going on. Of course the working and middle class will be paying for this in a variety of ways for years to come. Ask the 25 percent unemployed in Spain and Greece how well the economy is doing. Ask young Americans how the economy is doing.
The great deleveraging – US households see access to debt diminish. Housing affordability and reversion to the home price to family income ratio.
Households in the US continue to face a painfully slow process of austerity via debt deleveraging. In a debt based system like the one we live in access to debt is viewed by many as access to money. That is, your ability to finance a car, home, vacation, or even a college education is largely contingent on your ability to access debt. With the markets reaching a peak debt situation households have been in a major process of deleveraging since 2007. In fact, household debt obligations are now back to levels last seen in the early 1990s and similar to levels of the mid-1980s. Most of this debt removal has occurred via the painful process of millions of mortgage foreclosures. Say someone bought a home and took on a $400,000 mortgage. The home is now worth $200,000 and unable to pay the bills, the home is taken back by the bank. The bank instead of having a $400,000 “asset†now only has a $200,000 line item but more importantly, the home buyer is freed from the massive debt albatross. Multiply this millions of times over and you get a clear sense of the deleveraging many Americans are undergoing.