Fairytale economics – spending into poverty legend. How the allure and trappings of consumption led the middle class into a modern form of debt servitude.
Ludwig the II of Bavaria is rarely discussed in history class but most would recognize many of his castles especially the one that is replicated in Disneyland (Neuschwanstein Castle). Ludwig spent money he didn’t have to indulge in his eccentric desire to build opulent castles. Even wealthy royalty can put their balance sheet into jeopardy if they indulge every whim and wish. The banking sector for the last decade has allowed many Americans to satisfy nearly every consumer desire they had. Boats, cars, vacations, clothing, recliners, Jacuzzis, or anything else you can imagine. Some took this to the extreme and created a massive market that demanded bigger and more extravagant homes even though average Americans were not getting wealthier or earning more money. How this was accomplished was by allowing massive amounts of debt to accumulate until a crisis imploded the economy. The credit bubble bursting has forced many into a new life of austerity. No more Sleeping Beauty castles.
Sticking it to small business – Small firms charged an average of $3,224 per month of business expenses on credit cards. Yanking the credit card from small business. $40 billion less to small businesses in Q1 of 2010 compared to 2008.
42 million Americans work in firms that have 99 employees or less. We are often told how vital small business is to the health of our nation’s economy. Usually this rhetoric is given to us by banks and Wall Street yet recent data shows a very different attitude. Words ring hollow when it comes to banks lending capital to small businesses. In fact, in Q1 of 2010 lending to small businesses contracted by $40 billion versus lending in 2008. The challenge we face is that back in 2008 when the banking system was being bailed out, one specific reason given to the public was the necessity of keeping the lending lines open to small businesses. This has not happened.
American middle class slowly disappearing under mounds of debt – How Wall Street and government sucked working and middle class Americans into perpetual debt serfdom.
People quickly forget about the nearly 1,000 point “flash crash†brought on by glitches in the Wall Street casino machinery. Still no sensible explanation has been given but today the stock market now stands below the flash crash moment. The middle class is witnessing the largest wealth transfer in history take place and it is all happening because of the Wall Street infrastructure and the government’s lack of respect for the working class of the United States. Even last month as we lost 125,000 workers the unemployment rate actually went down because over 500,000 Americans simply dropped out of the workforce. In other words people simply threw their hands up in exhaustion and gave up. The government is literally not counting tens of thousands of Americans. What does this tell you about how much they value the middle class?
Commercial real estate transactions collapse 90 percent from 2007 to 2009. The next taxpayer bailout in the $3.5 trillion CRE market. From $522 billion in sales to $52 billion. CRE market over 4 times the size of the entire credit card market.
The massive commercial real estate market is already plaguing the weak balance sheets of banks. It is the case that each Friday, we are likely to see one U.S. bank fail because due to high levels of commercial real estate (CRE) debt on their books. This market is likely to cause the failure of hundreds of banks and put the economy down into another real estate funk. The amount of commercial real estate transactions shows no sign of recovery in this market. And why would there be any recovery? This is an area for hotels, strip malls, condos, and other projects that usually reflect a healthy and growing economy. We do not have that and the problems embedded in CRE are going to stifle any growth for years to come.