The origins of the economic crisis

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1. Great blog! My only suggestion for future blogs on this theme would be , in regard to your comments about the move into riskier lending territory, to place more emphasis on:

   (a) the efforts of the banking industry to convince respective national governments to further deregulate the finance sectors (e.g. repeal of Glass-Spiegel Act in the US and the deregulation policies maintained by the Blair and Brown governments in the UK);

   (b) the inadequacies of Basel-II, which favoured both internal modeling techniques affording too much influence to easily-compromised ratings agencies, and dubious processes of generating securitised collateral, where the associated risk was on-sold to institutions situated outside the province of the heavily regulated trading bank sector.

   I would also note that development models in 1960s and 1970s East Asia and early post-war Japan avoided the down-sides of such a debt-driven spending strategy through a combination of repressed-consumption and state-managed promotion of investment (an approach that is currently embraced by China).

2. Hello Bill,

   Great article / blog which unfortunately would be beyond the scope of politicians or the reptiles that advise them upon economic and financial matters.

   good times ahead I’m sure.

3. Dear Alan

   Thanks for the comment. Blogs can be educative perhaps. I guess we will learn this the hard way but eventually we will learn it. The middle class are being levelled by this crisis and they are the ones that swing back and forth to substantiate paradigm changes.

   best wishes, bill

4. Dear Bill,

   “The middle class are being levelled by this crisis and they are the ones that swing back and forth to substantiate paradigm changes.”

   If I read this correctly ,then by destroying the middle-class, neo-liberalism will be able to resist the paradigm change.

   Cheers, Alan

5. Hi Professor Mitchell,

   I am finding your blog very interesting and thought-provoking.

   The reason for this post is that I have been following a different argument on the origins of the crisis presented by Andrew Kliman and Alan Freeman, which draws on Marx’s tendency for the rate of profit to fall.

   (I realize this tendency stands or falls with Marx’s theory of value, but Kliman and Freeman are associated with the “temporal single-system interpretation” (TSSI) of Marx, which claims to have refuted existing critiques of Marx’s theory – their arguments are summarised by Kliman in his book Reclaiming Marx’s “Capital”: A Refutation of the Myth of Inconsistency.)

   I would be very interested in your opinion on Kliman’s argument.

   Briefly, Kliman argues that capitalism cannot be set back on a sustainable high-growth course until profitability recovers to something like the level attained after the Great Depression and WWII – or at least until profitability recovers to levels well above those that have prevailed at the onset of each unsustainable recovery since the 1970s.

   According to Kliman, in 1932 the rate of profit had sunk to -2%. By 1943, due to massive destruction of capital – both in value and physical terms – the rate of profit had risen to 30%. He argues that it was this strong revival in profitability that lay the basis for strong growth in the immediate post-war period.

   Since then, however, the rate of profit has tended to recover, after crises, to lower and lower levels. According to Kliman, from 1941-1956, the rate of profit averaged 28%. From 1957-1980 it averaged 20%. From 1981-2004 it averaged 14%. The reason for the decline in profitability, he argues, is that governments have stepped in during crises (e.g. in the 1970s, early 1980s, and now) in an attempt to prevent the degree of capital destruction that occurred during the Great Depression and WWII, for obvious reasons. For Marx, the functional role of capitalist crises is to restore profitability, but this has not been allowed to occur sufficiently (in terms of the system’s requirements) – for political and, yes, humane reasons.

   But in limiting the degree of capital destruction, Kliman argues, revival of profitability is also prevented, causing stagnationist tendencies that have been overcome only through unsustainable debt and the consequent creation of speculative bubbles.

   In my view (though Kliman doesn’t argue this, at least in the link provided below), the ongoing vicious attacks on real wages and workers’ living conditions of the past thirty-five years or so can be regarded as an attempt by capitalists (and neoliberal governments) to prop up the rate of profit.

   A more in-depth summary of Kliman’s argument can be found here:

   http://marxisthumanistinitiative.org/2009/04/17/on-the-roots-of-the-current-economic-crisis-and-some-proposed-solutions/

   alienated

6. The formula in the USA for the period 1980-2007 is really very simple (and it is what all “bailouts” and Fed money-printing are aimed at restoring): As productivity increases, real wages go down (that’s right, Virginia, “productivity” gains are always good for employers, but only good for employees if something makes the employers share those gains – which they really don’t want to do). The demand gap created by falling wages is filled (and demand is greatly expanded) by a big growth in consumer debt. You have reviewed it well, Bill. This process requires no specific government action other than to get out of the way (though in a starting environment like USA 1980, where there were existing government supports for wages and government restrictions on credit creation, pro-active government steps consisting of removing wage supports – including labor organizing laws – and removing credit creation restrictions, enhances the process).

   In theory, if allowed to continue uninterrupted, as long as 1) lenders will lend to all who seek to borrow and 2) borrowers will borrow from all who will lend and 3) borrowers will make all their interest payments and 4) borrowers will repay all the principal or lenders will refinance all debt, then productivity can increase to 100% (assuming all goods and services are eventually produced by machines) and all the former wage earners will pay for all their consumer expenses with borrowed money. Total consumer debt will never go higher than GDP – in fact, the way GDP is measured increases in debt on the books (and all the financial activity to expand and service debt) raises GDP. This theory is part and parcel of neo-liberalism, which is not only inherently anti-government it is also inherently anti-labor (it is, in fact, only pro-capitalist – with an open worship of “entrepreneurs”). This whole model is not workable in the real world for too many reasons to discuss here, all of which would be obvious to a bright 6th-grader. In the USA the neo-liberal experiment from 1989-2007 first started breaking down (in the USA) toward the end of 2005 when the interest payments on debt undertaken by families to maintain or increase consumption reached levels of interest due higher than available income received (during the transition, people who had been taking home-equity loans to consolidate credit card debt started taking on additional credit card debt to meet their mortgage payments. “Financial innovation” (no-down payment loans, liar loans, interest-only loans, and zero-pay loans) only accelerated the credit ride up and the fall back down by loading up low-income families with big debts, it wasn’t necessary for the process to be unsustainable. The tipping point came when families couldn’t meet their interest payments – most commonly on mortgage debt, but only because paper-gains real estate equity extraction had become the primary form of debt expansion for consumer purchases. The rest is history, with the actual “credit crisis” (in which lending froze up and even when dethawed remained on a declining trajectory) coming only after consumer borrowing had gone into spasm. All the subsequent banking and commercial problems have resulted simply and directly from the reversal of the consumer debt growth that so wonderfully replaced wage growth for almost thirty years.

   Looking forward, we ask “Will the governments – by bank and mortgage bailouts, or by money-printing, or by any other means, be able to restore the status quo ante as they so desperately desire”? The neo-liberal answer is yes, as soon as they get all the borrowing back to the level it was before. There is no room in the neo-liberal world for returning to wage growth, only for returning to credit growth (remember, “productivity is King”). Your model, Bill, as I understand it, points toward addressing wage growth rather than credit growth as a means to restore purchasing power and economic prosperity. I think you are on the more economically sound and socially healthier path, but sadly I don’t believe for a moment that any Anglo-American-Australian-type government will pay you any attention.

7. Regarding the explanation of the crisis that I mentioned above, Kliman has made available a new study on US corporate profitability and its connection (in his view) with crises, including the current one. It is still in draft form and can be found here (along with the data used in the study):

   http://akliman.squarespace.com/persistent-fall/

   The paper is long (about 27000 words). A brief summary of his findings can be found here:

   http://marxisthumanistinitiative.org/2009/10/18/the-persistent-fall-in-profitability-underlying-the-current-crisis/

8. Bill and everybody,

   would it be an objective point to start saying that wages as share of GDP should be 50% (or least never go below this point if we say that government is out there for all people) and then design public policies toward this objective? Like personal tax vs capital gain and corporate tax.

   If yes then on this metric Australia still fares pretty well.

9. Income and wealth inequality develops by not rewarding labor for their productivity, as the professor has just shown us. It is the root cause of financial instability. Capital, and the need for capital must be balanced, for an economy to function stably.

   If the accumulation of capital exceeds the need for capital to fund growth, the taxes on wealth and capital gains must be increased, and that on consumption and consumer income decreased .

   If consumer demand, and the attendant capital needs, outpace capital accumulation, the reverse is required. Taxes then should be shifted from capital gains to consumption and consumer income.

   Over the past several decades capital accumulation has outpaced the demand for capital, largely due to reductions in top bracket tax rates and stagnation of middle class incomes. The discussion that follows shows what happens when this occurs.

   If too much capital is accumulated, rates of return on capital drop. As rates of return drop, capitalists seek ways to improve them through the use of leverage or through the use of techniques to increase the demand for credit.

   If leverage is used , risk increases, necessitating even larger rates of return. This leads to a potentially unstable situation. So there is a limit to the amount of leverage that can be used.

   As the limits of leverage are reached, investment banks and hedge funds will look for ways to stimulate demand for credit. This can be done by relaxing the standards for issuing credit, and compensating by using techniques to hide risk.

   By collateralizing debt and issuing insurance on debt capitalists can be made to feel more comfortable with less secure investments. Debt issued with relaxed credit standards can be mixed with more secure debt making it harder for rating agencies to correctly assess risks. If regulation does not keep up with these measures, or decreases, the value of the collateralized assets and insurance instruments will be jeopardized.

   Excess capital can also result in additional risky speculation. When returns on productive investments are low and approaching inflation levels, capitalists will be willing to take larger risks in short term speculation on valuable assets and commodities, causing prices to rise. In turn, the rise in prices creates an upward momentum in asset prices that attracts even more speculation. Such price bubbles tend to be self sustaining as more and more capitalists are willing to take advantage of the upward momentum in prices, until eventually that trend cannot be sustained and the bubbles burst.

   All of these measures are driven by the need to increase returns on capital, when there is just too much capital for the real investment needs of the country. This is the situation that has developed over the last few decades largely because returns have been going more and more to capitalists while workers wages have stagnated. With stagnating wages, the demand for goods and services has not kept up with the accumulation of capital.

   The stagnation of wages has caused consumers to seek returns in the financial sector and to tap available credit to sustain consumption. This is evidenced by the excessive growth of the financial sector. At the same time, high income and capital gains tax rates have been reduced, accelerating the income and wealth gap between capitalists and middle class consumers.

   Unless taxes are shifted to wealth and capital gains from consumption and consumer incomes, this increasing spread in income and wealth will continue to cause instability and the kind of financial crises we are now experiencing.

10. Future references:

    http://voxeu.org/index.php?q=node/5823
    Debt, deleveraging, and the liquidity trap – krugman
    *****
    https://billmitchell.org/blog/?p=13193
    When will the workers wake up?
    *****
    https://billmitchell.org/blog/?p=13206
    Saturday Quiz – January 22, 2011 – answers and discussion (Wage Share)
    *****
    bill, I like how I can add to a post this far in the future. Thanks for that!!!

11. More Future References:
    *****
    http://krugman.blogs.nytimes.com/2012/04/28/where-the-productivity-went/
    Where The Productivity Went
    *****
    http://www.epi.org/publication/ib330-productivity-vs-compensation/
    The wedges between productivity and median compensation growth
    By Lawrence Mishel | April 26, 2012

    “Conclusion
    Productivity growth has frequently been labeled the source of our ability to raise living standards. This is sometimes what is meant by the call to improve our “competitiveness.” In fact, higher productivity is an important goal, but it only establishes the potential for higher living standards, as the experience of the last 30 or more years has shown. Productivity in the economy grew by 80.4 percent between 1973 and 2011 but the growth of real hourly compensation of the median worker grew by far less, just 10.7 percent, and nearly all of that growth occurred in a short window in the late 1990s. The pattern was very different from 1948 to 1973, when the hourly compensation of a typical worker grew in tandem with productivity. Reestablishing the link between productivity and pay of the typical worker is an essential component of any effort to provide shared prosperity and, in fact, may be necessary for obtaining robust growth without relying on asset bubbles and increased household debt. It is hard to see how reestablishing a link between productivity and pay can occur without restoring decent and improved labor standards, restoring the minimum wage to a level corresponding to half the average wage (as it was in the late 1960s), and making real the ability of workers to obtain and practice collective bargaining.”
    *****
    Try putting more people into retirement to tighten up the labor market.

12. And even more future references:

    Debt inequality is the new income inequality

    By Tami Luhby @CNNMoney May 2, 2012: 5:26 AM ET

    http://money.cnn.com/2012/05/02/news/economy/income-debt-inequality/index.htm
    *****
    Debt Serfdom in One Chart

    The essence of debt serfdom is debt rises to compensate for stagnant wages. (probably should be real wages)

    Friday, May 04, 2012

    http://charleshughsmith.blogspot.com/2012/05/debt-serfdom-in-one-chart.html

    plus the Doug Short chart
    *****
    Leveraging Inequality

    Finance & Development, December 2010, Vol. 47, No. 4

    Michael Kumhof and Romain Rancière

    http://www.imf.org/external/pubs/ft/fandd/2010/12/Kumhof.htm

    At end, “Restoring equality by redistributing income from the rich to the poor would not only please the Robin Hoods of the world, but could also help save the global economy from another major crisis.”

    No mention of banking/hedge fund in there. Replace major crisis with a too much debt crisis. Too much gov’t debt and too much private debt are both medium of exchange problems. Increasing the amount of medium of exchange while having a zero private debt and zero public debt economy helps allow productivity gains and other things to be evenly distributed between the major economic entities and evenly distributed in time. It also helps to eliminate:

    savings of the rich = dissavings of the gov’t (preferably with debt) plus dissavings of the lower and middle class (preferably with debt)

    And, also helps to eliminate the idea that the amount of medium of exchange in circulation can fall due to debt defaults and/or debt repayments.

    Those are all problems from targeting price inflation and/or NGDP and assuming real aggregate demand is unlimited and doing nothing else.

13. And again more future references:

    http://www.calculatedriskblog.com/2012/06/fed-survey-from-2007-to-2010-median.html

    From the Federal Reserve: Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances (ht MS)

    http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.pdf

    “The Federal Reserve Board’s Survey of Consumer Finances (SCF) for 2010 provides insights into changes in family income and net worth since the 2007 survey. The survey shows that, over the 2007-10 period, the median value of real (inflation-adjusted) family income before taxes fell 7.7 percent; median income had also fallen slightly in the preceding three-year period. The decline in median income was widespread across demographic groups, with only a few groups experiencing stable or rising incomes.”

    And, “The decreases in family income over the 2007−10 period were substantially smaller than the declines in both median and mean net worth; overall, median net worth fell 38.8 percent, and the mean fell 14.7 percent (figure 2).Median net worth fell for most groups between 2007 and 2010, and the decline in the median was almost always larger than the decline in the mean. The exceptions to this pattern in the medians and means are seen in the highest 10 percent of the distributions of income and net worth, where changes in the median were relatively muted. Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.”

    And, “The only group (by income) with an increase in the median net worth was the top 10%. There is much more in the survey.”

14. Yet another future reference:

    http://www.econbrowser.com/archives/2012/06/guest_contribut_19.html

    Guest Contribution: “Labor Shares and Corporate Savings”

    “The stability of the labor share, the proportion of an economy’s total income paid out to workers as compensation for their time, has long stood as one of the principal stylized facts of economic growth. While this regularity may very well hold across centuries or in the long run, our recent work demonstrates the failure of this characterization over the last three decades. In “Declining Labor Shares and the Global Rise of Corporate Savings,” (Karabarbounis and Neiman, 2012) we show that labor shares have eroded in most countries around the world, including seven of the eight largest. Globally, corporations paid about 65 percent of their income to labor (as opposed to capital) in 1975, compared with about 60 percent in 2007.1 This trend can be seen in the red dashed line in Figure 1, which plots year fixed effects from a regression of labor shares each year in the eight largest economies that also absorbs country fixed effects.2″

    “Changes in the labor share have broad implications for inequality and for our understanding of how firms operate. We also demonstrate that the labor share declines were associated with increases in corporate profits and corporate savings, which equal the portion of profits which were not paid out as dividends. Indeed, all eight of the world’s largest economies saw an increase in the share of their total savings originating in the corporate sector rather than from households or the government. Corporate savings accounted for a minority of total global savings in 1975 but contributed a majority by 2007. The upward sloping black line in Figure 1 plots year fixed effects from a regression of the share of total savings due to the corporate sector in the eight largest economies after absorbing country fixed effects. The increase of more than 20 percentage points is striking. In essence, thirty years ago global investment was primarily funded by household savings whereas now it is primarily funded by the savings of corporations.

    What caused these trends? …”

15. Some more!

    Wages aren’t stagnating, they’re plummeting

    http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/07/31/wages-arent-stagnating-theyre-plummeting/

16. Higher productivity doesn’t mean higher wages

    http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/08/10/higher-productivity-doesnt-mean-higher-wages/

17. I think that it is cool that ‘Fed Up’ continues to add info here! 🙂

18. Back again.

    Majority of New Jobs [in the USA] Pay Low Wages, Study Finds

    http://www.nytimes.com/2012/08/31/business/majority-of-new-jobs-pay-low-wages-study-finds.html

    It starts with:

    “While a majority of jobs lost during the downturn were in the middle range of wages, a majority of those added during the recovery have been low paying, according to a new report from the National Employment Law Project.

    The disappearance of midwage, midskill jobs is part of a longer-term trend that some refer to as a hollowing out of the work force, though it has probably been accelerated by government layoffs.

    “The overarching message here is we don’t just have a jobs deficit; we have a ‘good jobs’ deficit,” said Annette Bernhardt, the report’s author and a policy co-director at the National Employment Law Project, a liberal research and advocacy group.”

    Wekasus, thank you! I hope you find the posts informative and useful.

    Thanks to bill for allowing posts this far in the future and an ongoing discussion.

19. Still at it.

    Labor Day, Income & The Middle Class

    Charts:

    MEDIAN INCOME

    PERCENTAGE OF OVERALL US INCOME

    SIZE OF MIDDLE CLASS

    COSTS OF MIDDLE CLASS LIFESTYLE

    MIDDLE CLASS DEBT LEVELS

    http://www.ritholtz.com/blog/2012/09/the-middle-class/

20. Still more to be done!

    PRIVATE Debt Is the Main Problem

    http://www.ritholtz.com/blog/2012/09/private-debt-is-the-main-problem/

    I believe gov’t debt can be a problem too.

21. Will it ever end?

    Income, Poverty and Health Insurance Coverage in the United States: 2011

    http://www.census.gov/newsroom/releases/archives/income_wealth/cb12-172.html

    “In 2011, real median household income was 8.1 percent lower than in 2007, the year before the most recent recession, and was 8.9 percent lower than the median household income peak that occurred in 1999. The two percentages are not statistically different from one another.”

    Behind the Decline in Incomes

    http://economix.blogs.nytimes.com/2012/09/12/behind-the-decline-in-incomes/

    “4. There’s more evidence that the work force is “hollowing out,” as there was significant job growth in the first, second and fifth income quintiles, but not in the third and fourth ones.”

    Average Hourly Earnings:
    Deciphering Historical Trends

    http://advisorperspectives.com/dshort/commentaries/Average-Hourly-Wage-Trends.php

    The End of the Middle Class Century: How the 1% Won the Last 30 Years

    http://www.theatlantic.com/business/archive/2012/09/the-end-of-the-middle-class-century-how-the-1-won-the-last-30-years/262221/

22. The IMF should not exist, and I don’t agree with everything here but …

    http://blog-imfdirect.imf.org/2012/09/13/united-states-how-inequality-affects-saving-behavior/

    “Saving patterns before the crisis

    To analyze individual household behavior, we used the Panel Study of Income Dynamics, a well-established dataset that collects data from the same households over time. Our key finding is that that households with consistently lower income growth experienced larger declines in their saving rates and a larger rise in their MORTGAGE [MY emphasis & most likely from a BANK] debt before the crisis. We also find that these types of households contributed significantly to the overall decline in the saving rate.

    For instance, the households with the bottom third of income growth over 1999-2007 accounted for half of the decline in the overall saving rate over the same period. This finding is surprising because economic theory would predict that households save less when their income falls temporarily, but not when the fall is highly persistent [NOT if economists & politicians tell them things will get better]. By contrast, we don’t find a large decline in the saving rates of families with consistently lower income levels; their saving rates have always been lower than the saving rates of higher income families.

    Our results suggest that households with disappointing income growth attempted to preserve their living standards in the boom years by tapping into their housing equity [WAGES not keeping up with prices? , monthly budgeting].

    Their decisions did not anticipate the impending correction in house prices, the weaker economy, and lower incomes.The easy availability of home equity financing allowed households with low income growth to at least temporarily “keep up with the Joneses”; in other words, consumption inequalities remained smaller than income inequalities. With the subsequent housing crash, those households already suffering from lowest income growth found themselves more vulnerable, with high levels of debt [MORE monthly budgeting].

    Another interesting finding is that the decline in saving rates was larger for households with bottom third of income growth than for those who experienced the top third of house price increases. On the basis of this finding, it seems worth examining further whether the decline in the saving rate prior to the crisis reflects more the declining opportunities-GRASPING FOR THE LAST STRAW TO PREVENT DECLINING LIVING STANDARDS (MY emphasis)-rather than the story of winners in the “housing lottery” consuming their windfalls.

    Saving patterns after the crisis

    How did households fare after the crisis?

    We found that those more dependent on housing wealth and those with higher debt levels on the eve of the crisis indeed raised their savings sharply after the crisis. Yet, as this sharp correction started from very depressed and even negative saving rates, these households have not yet made meaningful progress in reducing debt and repairing their balance sheets. Hence, these households may face grim future consumption prospects.

    Taken together, our results do suggest that the lower income growth for segments of the income distribution was linked to the drop in saving rates and growing indebtedness of American families. Moreover, households that entered the crisis with a more precarious wealth situation have made limited progress in rebuilding their net worth (the difference between household financial and nonfinancial assets and their debt) by actively saving out of their incomes.

    Recent data on household finances indeed show that at least half of the American families had lower net worth (in inflation-adjusted terms) in 2010 than they did two decades ago (the median American family in 2010 had a net worth of $77,000, compared with $126,000 in 2007 and $79,000 in 1989).

    The data also shows that the share of the population that saved any of their income dropped from 54.6 percent to 52 percent between 2007 and 2010.

    Unless their incomes and house prices pick up robustly, many households will need sustained levels of higher savings to rebuild wealth, making it less likely for the American consumer to drive U.S. growth.”

23. A few more …

    Is US economic growth over? Faltering innovation confronts the six

    http://www.voxeu.org/article/us-economic-growth-over

    Hard Times Come Again Once More

    http://www.economicprincipals.com/issues/2012.09.23/1419.html

    Hard Times??? My FOOT!

    If the economic situation was handled correctly, there should be very little of the “Hard Times”!

24. Your a trooper Fed Up! 🙂

25. And some more…

    http://www.clevelandfed.org/research/commentary/2012/2012-13.cfm

    http://www.clevelandfed.org/research/trends/2012/0212/01gropro.cfm

26. Left out the titles for the ones just above (12:35).

    Labor’s Declining Share of Income and Rising Inequality
    — some talk about Labor Income & Capital Income

    Behind the Decline in Labor’s Share of Income

27. All stakeholders should be involved. From:

    Higher Wages Are The Key to Rebuilding the American Dream: Pulitzer-Prize Winning Reporter

    http://finance.yahoo.com/blogs/daily-ticker/key-growing-economy-pay-workers-more-says-hedrick-155918542.html

28. Sort of related to productivity & too much debt. Pimco is actually part of the problem but …

    More People Over 65 Are Still Working

    http://blogs.wsj.com/economics/2012/10/08/more-people-over-65-are-still-working/

    What’s Your Number at the Zero Bound? (Has to do with retirement)

    http://www.pimco.com/EN/Insights/Pages/Whats-Your-Number-at-the-Zero-Bound.aspx

29. Time for Some More

    The Uncomfortable Truth About American Wages

    http://economix.blogs.nytimes.com/2012/10/22/the-uncomfortable-truth-about-american-wages/

    “This finding of stagnant wages is unsettling, but also quite misleading. For one thing, this statistic includes only men who have jobs. In 1970, 94 percent of prime-age men worked, but by 2010, that number was only 81 percent. The decline in employment has been accompanied by increases in incarceration rates, higher rates of enrollment in the Social Security Disability Insurance program and more Americans struggling to find work. Because those without jobs are excluded from conventional analyses of Americans’ earnings, the statistics we most commonly see – those that illustrate a trend of wage stagnation – present an overly optimistic picture of the middle class.

    When we consider all working-age men, including those who are not working, the real earnings of the median male have actually declined by 19 percent since 1970. This means that the median man in 2010 earned as much as the median man did in 1964 – nearly a half century ago. Men with less education face an even bleaker picture; earnings for the median man with a high school diploma and no further schooling fell by 41 percent from 1970 to 2010.

    Women have fared much better over these 40 years, but they started from a lower level, and the same problems faced by their male counterparts are beginning to have an effect. Since 1970, the earnings of the median female worker have increased by 71 percent, and the share of women 25 to 64 who are employed has risen to 71 percent, from 54 percent. But after making significant wage gains over several decades, that progress has slowed and even reversed recently. Since 2000, the earnings of the median woman have fallen by 6 percent.”

30. Some talk about the “jobs” recovery in the USA:

    http://globaleconomicanalysis.blogspot.com/2012/11/explosion-in-uncovered-employment.html

    “Covered employment is the set of working employees that have unemployment benefits.”

    And, “I added data points to Tim’s chart. Let’s do the math.

    According to the BLS, the economy added 4,951,000 since January 2009. In the same timeframe, uncovered employment rose by 6,573,468! The difference is 1,622,468.

    Got that?

    133% of the jobs created since January 2009 are not covered. Employment rose by less than 5 million while uncovered employment rose by over 6.5 million.”

31. This Time is Different, Again? The United States Five Years after the Onset of Subprime

    Carmen M. Reinhart and Kenneth S. Rogoff

    http://www.scribd.com/fullscreen/110191703?access_key=key-1gvz59t1cbvkq7nqew4l

    *****

    The Middle Class Is Worse Off Than You Think: Michael Greenstone

    http://finance.yahoo.com/blogs/daily-ticker/middle-class-worse-off-think-michael-greenstone-133855510.html

    *****

    Finding Jobs, But Working For Less Pay

    http://finance.yahoo.com/news/finding-jobs-working-less-pay-010500333.html

    *****

    Tax Cuts for the Wealthiest Don’t Stimulate the Economy: Report

    http://finance.yahoo.com/blogs/daily-ticker/tax-cuts-wealthiest-don-t-stimulate-economy-report-160714639.html

    http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf

    *****

    Retirement Plan Shift Is Creating a Generation of Workers Unable to Retire

    http://finance.yahoo.com/news/retirement-plan-shift-is-creating-a-generation-of-workers-unable-to-retire.html

32. Is it possible that there is wealth/income inequality for businesses too?

    Meet the Four Companies That Together Provided Most of 2012 Earnings Growth in the S&P 500

    Apple, AIG, Goldman Sachs, and Bank of America

    http://www.slate.com/blogs/moneybox/2012/11/26/apple_aig_goldman_sachs_and_bank_of_america_provided_most_of_2012_s_earnings.html

33. Jobs, Productivity and the Great Decoupling

    http://www.nytimes.com/2012/12/12/opinion/global/jobs-productivity-and-the-great-decoupling.html?_r=0

    “The Great Decoupling is not going to reverse course, for the simple reason that advances in digital technologies are not about to stop. In fact, we’re convinced that they are accelerating. And this should be great news for society. Digital progress lowers prices, improves quality, and brings us into a world where abundance becomes the norm.

    But there is no economic law that says digital progress will benefit everyone evenly. As technology races ahead it can leave a lot of workers behind. In the short run we can improve their prospects greatly by investing in infrastructure, reforming education at all levels and encouraging entrepreneurs to invent the new products, services and industries that will create jobs.

    While we’re doing this, however, we also need to start preparing for a technology-fueled economy that’s ever-more productive, but that just might not need a great deal of human labor. Designing a healthy society to go along with such an economy will be the great challenge, and the great opportunity, of the next generation.

    We have to acknowledge that the old ride of tightly coupled statistics has ended, and start thinking about what we want the new ride to look like.”

    New ride might look like more retirement?

34. I agree with some but not all of this:

    http://www.debtdeflation.com/blogs/2012/12/01/the-debt-issue-in-neoclassical-economics/

35. Krugman’s Explanation of Stagnant Real Wages

    http://economistsview.typepad.com/economistsview/2012/12/krugmans-explanation-of-stagnant-real-wages.html

    “Another reader made a similar criticism: “The argument depends on the theory that workers are paid their marginal product. Some people hold to this old idea, however it is not supported by the empirical evidence.” Amen.

    For further discussion of criticisms of marginal productivity theory (a two part paper), see here and here.”

    http://www.paecon.net/PAEReview/issue59/Moseley59.pdf

    http://www.paecon.net/PAEReview/issue61/Moseley61.pdf

    “It is time we stop talking about marginal products and look for other better, logically consistent and empirically supported theories of the distribution of income.

    I agree with Krugman in a subsequent post where he stated: “If you want to understand what’s happening to income distribution in the 21st century, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital.”

    But marginal productivity theory is not a coherent way to talk about profits.

    Fred Moseley
    Mount Holyoke College”

36. Richard Koo Debunks the “Deleveraging is Almost Done, American Consumer Getting Ready for Good Times” Meme

    http://www.nakedcapitalism.com/2013/01/richard-koo-debunks-the-deleveraging-is-almost-done-american-consumer-getting-ready-for-good-times-meme.html

    “And the implications…

    The answer can also be found in Figure 1:the fact that the latest white bar is below zero means households drew down financial assets in the quarter. And that is hardly a good sign. It has happened only three times since 2000, including the present occasion.

    The first instance (barely visible in the graph) was in 2000 Q4, when the Internet bubble collapsed. The second was in 2008 Q4, when the failure of Lehman Brothers sparked a global financial crisis. People faced cash flow problems in both periods andprobably were forced to draw down existing savings to make necessary payments.

    During the bubble period towards the middle of Figure 1, much attention was paid to the fact that the US household savings rate had turned negative. While the sector did run a financial deficit during this period, the deficit was attributable to the fact that the increase in financial liabilities (ie growth in borrowing) was greater than the increase in financial assets (ie growth in savings). There was no drawdown of financial assets.

    Hence we need to pay attention to the fact that the latest figure shows only the third drawdown of financial assets since 2000 and that this drawdown is responsible for the financial deficit in the broader household sector. The reason: if household consumption is being financed by the drawdown of financial assets, it is not likely to be sustainable.”

37. Median Household Incomes: Down 0.5% in 2012

    http://advisorperspectives.com/dshort/updates/Median-Household-Income-Update.php

    “Overview: The Sentier Research monthly median household income data series is now complete through 2012. Nominal household incomes rose 1.3% for the calendar year, but adjusted for inflation, household incomes declined by 0.5%. Real household incomes have essentially been flat for the past seven months and are down 7.9% thus far in the 21st century.”

38. http://www.ritholtz.com/blog/2013/01/job-growth-productivity-and-labor-force-2/

    20 Years – Net Job Creation , Labor Productivity , Labor Force Participation Rate

    See chart(s) there.

39. http://www.bloomberg.com/news/2013-02-27/what-bernanke-didn-t-say-about-housing.html

    “What Bernanke Didn’t Say About Housing”

    “One of the more interesting exchanges at Ben Bernanke’s testimony to the Financial Services Committee today was the one between the Federal Reserve chairman and Representative Scott Garrett, a Republican from New Jersey.

    Citing Bernanke’s assertion that one of the benefits of QE had been the rise in home prices, Garrett said the following:

    “Previously you have said that the Fed’s monetary policy actions earlier this decade, 2003 to 2005, did not contribute to the housing bubble in the U.S. So which is it? Is monetary policy by the Fed not a cause of inflationary prices of housing, as you said in the past? Or is it a cause of inflating prices of housing? Can you have it both ways?”

    “Yes,” Bernanke said, much to Garrett’s surprise. The increase in home prices now is justified by the low level of mortgage rates, he said. On the other hand, those rates averaged 6 percent in the early part of the last decade and “can’t explain why house prices rose as much as they did.”

    What he didn’t say was that the percentage of adjustable-rate mortgages soared to a record 37 percent of total mortgage volume in 2005. From mid-2003 to mid-2006, ARM volume averaged 30 percent. The interest rate on ARMs is priced off the Fed’s overnight rate. It was this type of loan that witnessed the most egregious underwriting abuses and the highest delinquency and foreclosure rates.

    Garrett 1, Bernanke 0.

    Garrett wasn’t finished. He asked Bernanke about another presumed benefit of QE: higher stock prices.

    “I’m sure you’re familiar with Milton Friedman’s work that says that people only really consume off of their permanent income, which basically means that you don’t consume — increase consumption — because your stocks have gone up in the marketplace,” Garrett said, before wandering off into areas such as how seniors should invest, “risk-taking” and “price discovery” in a market distorted by the Fed.

    These are all good questions. I’ve asked many of them myself, most recently in my column today. The Fed is convinced it has the tools, regulatory wherewithal and forecasting acumen to prevent a misallocation of credit, better known as an asset bubble, with the potential to destabilize the financial system.

    Like Congressman Garrett, I’m not so sure.”

40. Back for more:

    What Happened to Wages?

    Below are five data graphics from my new book An Illustrated Guide to Income in the United States (pgs 106, 108, 109, 110, 112) that shows the long-term growth in wages in the US.

    http://visualizingeconomics.com/blog/2013/3/4/wages

    And,

    The U.S. Economy in the 1920s

    http://eh.net/encyclopedia/article/smiley.1920s.final

    “Earnings for laborers varied during the twenties. Table 1 presents average weekly earnings for 25 manufacturing industries. For these industries male skilled and semi-skilled laborers generally commanded a premium of 35 percent over the earnings of unskilled male laborers in the twenties. Unskilled males received on average 35 percent more than females during the twenties. Real average weekly earnings for these 25 manufacturing industries rose somewhat during the 1920s. For skilled and semi-skilled male workers real average weekly earnings rose 5.3 percent between 1923 and 1929, while real average weekly earnings for unskilled males rose 8.7 percent between 1923 and 1929. Real average weekly earnings for females rose on 1.7 percent between 1923 and 1929. Real weekly earnings for bituminous and lignite coal miners fell as the coal industry encountered difficult times in the late twenties and the real daily wage rate for farmworkers in the twenties, reflecting the ongoing difficulties in agriculture, fell after the recovery from the 1920-1921 depression.”

    “The shift from coal to oil and natural gas and from raw unprocessed energy in the forms of coal and waterpower to processed energy in the form of internal combustion fuel and electricity increased thermal efficiency. After the First World War energy consumption relative to GNP fell, there was a sharp increase in the growth rate of output per labor-hour, and the output per unit of capital input once again began rising. These trends can be seen in the data in Table 3. Labor productivity grew much more rapidly during the 1920s than in the previous or following decade. Capital productivity had declined in the decade previous to the 1920s while it also increased sharply during the twenties and continued to rise in the following decade.”

    Table 3 says 5.44% growth 1919 to 1929.

41. Keywords for last post:

    1920 , 1920’s , 1924 , 1927 , 1929

42. This does not help monthly budgets.

    U.S. Health Care Prices Are the Elephant in the Room

    By UWE E. REINHARDT

    http://economix.blogs.nytimes.com/2013/03/29/u-s-health-care-prices-are-the-elephant-in-the-room/

43. Census Bureau: More renters with high housing costs

    http://www.housingwire.com/fastnews/2013/04/16/census-bureau-more-renters-high-housing-costs

    “The number of U.S. households that rent rather than own a home rose from 34.1% in 2009 to 35.4% in 2011. Nearly 25% of the nation’s metros saw a rise in renting households, while less than 3% saw a drop.

    The study revealed that more renters are spending a high percentage of their income on rent. In this report, renters spending 35% or more of household income on rent and utilities are considered to have high rental costs.

    The number of renters with high housing costs in the U.S. increased from 42.5% in 2009 to 44.3% in 2011. However, average rental rates in the U.S. declined during the same time period.

    “While we saw a decrease in rental vacancy rates and pricing in some areas, the burden of rental costs on households increased across many parts of the nation,” said Arthur Cresce, assistant division chief for housing characteristics at the Census Bureau.

    He added, “Factors such as supply and demand for rental housing and local economic conditions play an important role in helping to explain these relationships.””

    Not helping the monthly budget.

44. http://advisorperspectives.com/dshort/guest/Lance-Roberts-130509-Labor-Hoarding.php

    “Of course, one of the highest “costs” to any business is labor. One way that we can measure this view is by looking at corporate profits on a per employee basis. Currently, that ratio is at the highest level on record.”

    “However, the mistake is assuming that just because initial claims are declining that the economy, and specifically full-time employment, is markedly improving. The next chart shows initial jobless claims versus the full-time employment-to-population ratio.”

    “The current detachment between the financial markets and the real economy continues. The Federal Reserve’s interventions continues to create a wealth effect for market participants, however, it is unfortunate that such a wealth effect is only enjoyed by a small minority of the total population – and it is primarily those at the upper end of the pay scale that have jobs.”

45. Debating Doctors’ Compensation

    http://economix.blogs.nytimes.com/2013/05/24/debating-doctors-compensation/

46. May Employment Report Offers Little Cause for Celebration

    http://www.ritholtz.com/blog/2013/06/may-employment-report-offers-little-cause-for-celebration/

    “The greatest issue plaguing the U.S. economic recovery is the dismal pace of real income and wage growth. As long as incomes do not keep up with the underlying rate of inflation, the economy cannot manage enough growth to foster job creation. Average hourly earnings were unchanged in May, and only 2 percent higher than year ago levels. In other words, consumers are simply running in place. This is particularly frustrating for those at the lower end of the income spectrum.

    According to the report, 96,300 of the 175,000 new nonfarm jobs created last month were in very low wage industries (retail, 27,000), temporary, (25,600), leisure and hospitality (43,000). The industries with the two lowest hourly wages are leisure and hospitality at $11.76 per hour and retail at $13.92 per hour. Even more concerning is that many of these positions are being filled by older, formerly retired persons who are taking away employment opportunities for young people. The unemployment rate for teenagers (16 to 19 years) increased to 24.5 percent in May from 24.1 percent in April.

    This is not a social judgment; it’s economics. That middle income strata – the primary driver of the U.S. economy – has fallen to the low income, and the low income has plunged to poverty. Now it’s just the “haves” in the driving seat, and once the stock market gets hit, it will fall down a rung too.”

47. Not Just May Employment

    http://www.federalreserve.gov/newsevents/speech/raskin20130322.htm

    “About two-thirds of all job losses resulting from the recession were in moderate-wage occupations, such as manufacturing, skilled construction, and office administration jobs. However, these occupations have accounted for less than one-quarter of subsequent job gains. The declines in lower-wage occupations–such as retail sales and food service–accounted for about one-fifth of job loss, but a bit more than one-half of subsequent job gains. Indeed, recent job gains have been largely concentrated in lower-wage occupations such as retail sales, food preparation, manual labor, home health care, and customer service.3

    Furthermore, wage growth has remained more muted than is typical during an economic recovery. To some extent, the rebound is being driven by the low-paying nature of the jobs that have been created. The slow rebound also reflects the severe nature of the crisis, as the slow wage growth especially affects those workers who have become recently re-employed following long spells of unemployment. In fact, while average wages have continued to increase steadily for persons who have remained employed all along, the average wage for new hires have actually declined since 2010.”

48. Got some more:

    Wage deflation charts of the day

    http://blogs.reuters.com/felix-salmon/2013/07/09/wage-deflation-charts-of-the-day/

    “This chart shows where a lot of the current stock-market strength is coming from: capital is taking more than 100% of real productivity gains, with labor steadily losing out. This, I fear, is the New Normal: OK for investors, bad for workers.”

    This chart refers to Figure 1.

    Occupational Employment and Wages News Release

    http://www.bls.gov/news.release/ocwage.htm

49. With more:

    http://www.ritholtz.com/blog/2013/08/is-mckinsey-to-blame-for-skyrocketing-ceo-pay/

    “Anyone who has worked in the corporate milieu knows that the arrival of McKinsey on the scene tends to not be a sign of good news for the rank and file. What is less known is McKinsey’s role in the creation of the CEO-to-worker gap itself. In 1951, General Motors hired McKinsey consultant Arch Patton to conduct a multi-industry study of executive compensation. The results appeared in Harvard Business Review, with the specific finding that from 1939 to 1950, the pay of hourly employees had more than doubled, while that of “policy level” management had risen only 35 percent. If you adjusted that for inflation, top management’s spendable income had actually dropped 59 percent during the period, whereas hourly employees had improved their purchasing power.”

    And, “Crony capitalism and the transfer of wealth from shareholders to insiders goes back much further than you may have guessed.

    Good ideas gradually die of their own accord, replaced with better ones. Bad ideas have a death grip on society, often with wealthy sponsors benefiting from them. That’s why they seem to hang around forever…”

    http://www.cepr.net/index.php/blogs/beat-the-press/nyt-warns-of-a-looming-crises-in-germany-rising-wages

    “Simple arithmetic shows that the impact of productivity growth will swamp the impact of demographics.”

50. Auto leasing surges to record high

    http://www.cnbc.com/id/101003126

    “Todd Skelton, who oversees AutoNation dealerships in Palm Beach and Broward County, Florida, said customers are now hunting for the lowest monthly payment with a new car or truck, and often that means taking out a lease.

    “People are much more open-minded about leasing. Nowadays, almost any make or model can be leased and that’s attractive to a lot of customers,” noted Skelton.

    Leasing comeback with auto rebound

    Three years ago, just 17.7 percent of vehicles bought with financing were leased.

    But leasing has soared since then due to a combination of more aggressive leasing offers by automakers and buyers searching for the best option to keep monthly payments in check amid rising new car and truck prices.

    “Manufacturers have enhanced their lease options so leasing is often a better deal than financing with a loan,” Skelton added.”

    Hello to the monthly payment consumer from the 1920’s!!!

51. A Decade of Flat Wages

    The Key Barrier to Shared Prosperity and a Rising Middle Class

    http://www.epi.org/publication/a-decade-of-flat-wages-the-key-barrier-to-shared-prosperity-and-a-rising-middle-class/

    “The nation’s economic discourse has finally shifted from talk of “grand bargain” budget deals to a focus on addressing the economic challenges of the middle class and those aspiring to join the middle class. Growing the economy from the “middle out” has become the new frame for discussing economic policy. This is long overdue; in our view, an economy that does not provide shared prosperity is, by definition, a poorly performing one. Further, such an economy will not provide sustainable growth without relying on consumption fueled by asset bubbles and escalating household debt. The collapse of the housing bubble and the ensuing Great Recession have laid bare the consequences of this model of unbalanced growth.

    The revived discussion of strengthening the middle class, however, has so far failed to drill down to the central problem: The wage and benefit growth of the vast majority, including white-collar and blue-collar workers and those with and without a college degree, has stagnated, as the fruits of overall growth have accrued disproportionately to the richest households. The wage-setting mechanism has been broken for a generation but has particularly faltered in the last 10 years, once the robust wage growth of the late 1990s subsided. Corporate profits, on the other hand, are at historic highs. Income growth has been captured by those in the top 1 percent, driven by high profitability and by the tremendous wage growth among executives and in the finance sector (for more on wage and income growth among the top 1 percent, see Bivens and Mishel 2013).

    President Obama’s July 24 speech in Galesburg, Ill., marking the kickoff of the White House’s “A Better Bargain for the Middle Class” initiative, illustrates both the best of this recent focus on the middle class and the failure to adequately acknowledge and address the economy’s failure to broadly raise wages. The president appropriately looked back in time, noting:

    In the period after World War II, a growing middle class was the engine of our prosperity. Whether you owned a company, swept its floors, or worked anywhere in between, this country offered you a basic bargain-a sense that your hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement, and, above all, to hand down a better life for your kids.

    And he correctly identified what broke down:

    But over time, that engine began to stall. That bargain began to fray. . . . The link between higher productivity and people’s wages and salaries was severed-the income of the top 1 percent nearly quadrupled from 1979 to 2007, while the typical family’s barely budged.”

52. The myth of the modern welfare queen (TANF)

    http://www.cnbc.com/id/100975718

    “An average of about 1.72 million families a month received direct assistance through Temporary Assistance for Needy Families last year, according to the latest data from the federal government’s Office of Family Assistance. That’s about half the 3.94 million families who received TANF in 1997, according to an Urban Institute report funded by the Department of Health and Human Services

    In addition, about 62 percent of never-married moms ages 20 to 49 with a high school degree or less were working in 2011, according to an analysis of Current Population Survey data prepared by the Center on Budget and Policy Priorities, a liberal-leaning think tank. That’s up from about 51 percent in 1992 but down from 76 percent in 2000, before two recessions hit low-skill workers hard.

    Welfare-to-work

    Welfare has not been the same since the mid-1990s, when the old program, called Aid to Families with Dependent Children, was replaced by TANF. The new program’s requirements include that recipients do 20 to 30 hours a week of work-related activities, such as job hunting or community service.

    Most states allow adults to collect TANF for a maximum of five years over the course of their lifetime.

    (Read more: Most would keep job after lottery win)

    “The expectation is that you need to be looking for work,” said LaDonna Pavetti, vice president for family income support policy at the Center on Budget and Policy Priorities. “And if you don’t, you will either have your benefits reduced or lose them entirely.”

    Many more low-educated single mothers did start working soon after the program was introduced, but experts say welfare-to-work cannot take all the credit for that. The late-1990s welfare reform effort also coincided with the expansion of the earned income tax credit-which provides financial assistance to low-wage workers-and a strong labor market.

    “There really were three factors: One was welfare reform, one was expansion of the EITC, and one was (the) economy,” Pavetti said. “Welfare reform was not the biggest role in that.”‘

    Working, but struggling

    These days, Kathryn Edin, a professor of public policy at Harvard University, said the good news is that many single mothers who used to be longer-term welfare recipients are now workers who need assistance only once in a while.

    But the bad news for those with little education and low skills is that, in the past decade or so, it has become increasingly difficult to find a stable, full-time job that pays well. That means some moms may now be working very hard and still find that their families are at or near poverty.

    A person working a full-time, minimum wage job would take home $15,080 a year. That’s below than the Census Bureau’s 2012 poverty threshold for a family of one adult and two children under 18.”

    $7.25 per hour [federal minimum wage] times 40 hours per week times 52 weeks per year = $15,080 per year

53. Between 2000 and 2012, American wages grew…not at all

    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/21/between-2000-and-2012-american-wages-grewnot-at-all/

    “Get a load of that productivity line, and how much steeper it is than the compensation lines. That’s not supposed to happen, and for many decades, it wasn’t. In 1996, Paul Krugman observed that from 1977-1992, “the increases in productivity and compensation have been almost exactly equal. But then how could it be otherwise? Any difference in the rates of growth of productivity and compensation would necessarily show up as a fall in labor’s share of national income – and as everyone who is even slightly familiar with the numbers knows, the share of compensation in U.S. national income has been quite stable in recent decades.” That was true when Krugman wrote it. It’s not true anymore. Labor’s share of national income is experiencing a serious fall. The benefits of productivity growth are going increasingly to owners of capital, not to labor.”

    See chart #3 and Figure 1.

54. Obamacare, tepid US growth fuel part-time hiring

    http://www.cnbc.com/id/100977130

    ‘Economists and staffing companies are cautiously optimistic that part-time hiring and the low wages environment will fade away as the economy regains momentum, starting in the second half of this year and through 2014.

    But businesses, accustomed to functioning with fewer workers, might not be in a hurry to change course. A study by financial analysis firm Sageworks found that profit per employee at privately held companies jumped to more than $18,000 in 2012 from about $14,000 in 2009.

    “Private employers are either able to make more money with fewer employees or have been able to make more money without hiring additional employees,” said Sageworks analyst Libby Bierman. “The lesson learned for businesses during the recession was to have lean operations.”‘

55. http://www.cnbc.com/id/101135835

    “Asset bubbles alone don’t cause financial crises like the one in 2008, former Federal Reserve Chairman Alan Greenspan told CNBC on Wednesday. Instead, the combination of bubbles and leverage is the problem, he said.

    “We missed the timing badly on September the 15th, 2008 [the day Lehman Brothers filed for bankruptcy]. All of us knew there was a bubble. But a bubble in and of itself doesn’t give you a crisis,” he said in a “Squawk Box” interview. “It’s turning out to be bubbles with leverage.”

    Take the explosion of the dotcom bubble in the 1990s and even the stock market crash of 1987, he continued, they barely showed up in longer-term economic growth figures.

    In his new book, “The Map and the Territory,” the 87-year-old Greenspan reflected on the 2008 financial crisis and the questions it raised about the economic models used to predict risk. He looked at the shortcomings of current forecasting tools and how they can be updated to take better account of human nature.

    “If you’re looking at the distribution of outcomes, fear is hugely more important than euphoria or greed,” Greenspan told CNBC. “Bubbles go up very slowing and then they go bang.”

    After the 2008 crisis, Greenspan said, he came to realize there was “something fundamentally wrong” with the way he and many colleagues were looking at the economy. “I was shocked, surprised, and since delighted at how many of the aspects of fear, euphoria and time preference … [were] systematic,” not random.”

56. Japan , Abenomics

    http://www.cnbc.com/id/101142483

    “Many analysts have attributed the recent uptick in inflation data to higher energy import costs, rather than a substantial improvement in consumer spending or corporate investments, which effectively distorts the numbers.

    (Read More: Why Japan stocks may storm higher even if the yen firms)

    With several of Japan’s key nuclear power stations suspended, the country has to rely on imports to meet its energy needs, which have become more costly given the yen’s near 12 percent decline against the dollar this year.

    Schulz, too, attributed the recent rise in inflation to energy costs skewing the data. He also saw the planned consumption tax hike from 5 to 8 percent next April as a potential headwind.

    “Right now we have a build-up of additional demand before the consumption tax hike, which will be implemented next spring, after that we will have a drop,” he said.
    Other analysts were also reluctant to become too optimistic on Japan’s inflation numbers.

    “Even though we’ve seen positive numbers for four consecutive months, it will take a very long time for Japan to meet its 2 percent inflation target,” said Junko Nishioka, chief Japan economist at RBS Securities.

    Nishioka said two main factors were at play: the yen appears to have halted its weakening trend, pulling back to 97 to the dollar from 100 in early July; companies are still struggling to transfer input costs to their output prices.

    (Watch This: Energy imports root of Japan trade deficit: Pro)

    “The pace of [adjusting output prices] is very slow in Japan because most of the price makers have been suffering deflationary costs for a long time. So it’s hard for them to increase output prices despite the more healthy condition of the economy,” she said.

    Meanwhile, Paul Donovan, managing director and deputy head of global economics at UBS told CNBC that although Japan’s inflationary level seemed to be picking up, it was the “wrong sort of inflation.”

    (Read more: Abenomics speeds corporate investment, but not in Japan)

    “You’re seeing food and energy price inflation, wage deflation and consumer durable goods deflation. It’s the worst possible inflation for getting a sustained recovery because it makes the consumer feel really bad,” he said.

    “You really need wage inflation and that isn’t coming through at the moment. If people feel their incomes are higher, then they will be prepared to spend money in a meaningful way,” he added.”

57. Retirement research:

    Why 401(k) savers don’t have enough to retire

    http://www.cnbc.com/id/101153706

    “Many workers say they would like to put more money into their 401(k) plans but simply don’t have enough left after paying everyday expenses to do it.

    That’s the new reality. Most Americans with 401(k) and other defined contribution plans are accumulating debt faster than they’re saving for retirement, according to a new report from the financial services website HelloWallet.

    The amount that retirement plan participants spent to pay down debts has risen nearly 70 percent in the last 20 years, the study found. Many workers say they are unable to contribute as much as they would like to their 401(k) plan because they have more expenses and less income than they had in the past.

    (Read more: Over 50? Ask your financial advisor this)

    The problem is most pronounced for those closest to retirement. Half of retirement plan savers 50 to 65 are accruing debt faster than they’re building up their savings, according to the HelloWallet study. They’re spending an average of 22 percent of their income paying down debt.

    “It’s remarkable,” says HelloWallet CEO Matt Fellowes. “You’d expect most people at that point to be deleveraging: paying off their mortgage, paying back their student loans or have already paid off their student loans, and not having difficulty paying off credit card debt. But in fact those are the households that are most likely to be building up debt faster than retirement savings.”

    The result is that these older workers have only about two years of retirement income saved. Yet Americans are living longer and will typically need about 17 years worth of retirement income after age 65.”

    Debt Savers in Defined Contribution (401-k) Plans

    http://info.hellowallet.com/rs/hellowallet/images/debtsavers.pdf

58. Six feet under as a retirement plan?

    http://www.cnbc.com/id/101133464

59. Richard Alford: On Grading the Bernanke Fed

    http://www.nakedcapitalism.com/2013/11/richard-alford-on-grading-the-bernanke-fed.html

60. Japanese Households Without Savings Climb to Most Since ’63

    http://globaleconomicanalysis.blogspot.com/2013/11/japanese-households-with-zero-savings.html

61. Will debt derail Abenomics?

    http://blog.mpettis.com/2013/11/will-debt-derail-abenomics/

62. Recovery’s Great If You Were Already Rich (or Even Modestly Well Off): Ritholtz Chart

    http://www.bloomberg.com/news/2013-11-12/this-recovery-s-great-if-you-were-already-rich.html

63. http://globaleconomicanalysis.blogspot.com/2013/11/no-money-to-retire-new-american.html

    “Call it the new American nightmare: Running out of money in retirement is scaring the **** out of record numbers of older workers, forcing them to stay in the workforce.

    Now 80 is the new 60 when it comes to retirement. Many older workers who finally clock out have sharply underestimated their financial needs in retirement, raising the specter of personal financial disaster.

    By putting off retirement the Baby Boomers are a large reason for the high levels of unemployment for those looking to enter the workforce. According to the latest Bureau of Labor Statistics the rate of joblessness in people 20- to 25-years old is 12.5 percent, twice the rate of people 25 and older.”

    And, “The percentage of older middle-class Americans who said their day-to-day financial concern is “paying the monthly bills” has climbed from 52 percent last year to 59 percent today, according to Wells Fargo. Saving for retirement comes in second. Four in 10 say saving and paying the bills is “not possible.”

    Older adults are now the fastest-growing share of the US labor force. By 2020, workers 55 and older will comprise a stunning 25 percent of the civilian labor force.”

    Personal finance and monthly budgeting matter macroeconomically.

64. Striking it Richer:
    The Evolution of Top Incomes in the United States
    (Updated with 2012 preliminary estimates)
    Emmanuel Saez, UC Berkeley•
    September 3, 2013

    http://elsa.berkeley.edu/~saez/saez-UStopincomes-2012.pdf

    See page 7 thru page 10. (table and figures)

    http://www.cnbc.com/id/101207907

    “An analysis of income gains between 2009 and 2012, released last month by economists at University of California, Berkeley, found that the top 1 percent of incomes grew by 31.4 percent during that three-year period of economic recovery, while the remainder saw income gains of just 0.4 percent.”

65. http://www.ritholtz.com/blog/2013/11/a-limited-central-bank-2/

    “Congress established the current set of monetary policy goals in 1978. The amended Federal Reserve Act specifies the Fed “shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Since moderate long-term interest rates generally result when prices are stable and the economy is operating at full employment, many have interpreted these goals as a dual mandate with price stability and maximum employment as the focus.

    Let me point out that the instructions from Congress call for the FOMC to stress the “long run growth” of money and credit commensurate with the economy’s “long run potential.” There are many other things that Congress could have specified, but it chose not to do so. The act doesn’t talk about managing short-term credit allocation across sectors; it doesn’t mention inflating housing prices or other asset prices. It also doesn’t mention reducing short-term fluctuations in employment.

    Many discussions about the Fed’s mandate seem to forget the emphasis on the long run. The public, and perhaps even some within the Fed, have come to accept as an axiom that monetary policy can and should attempt to manage fluctuations in employment. Rather than simply set a monetary environment “commensurate” with the “long run potential to increase production,” these individuals seek policies that attempt to manage fluctuations in employment over the short run.”

    It seems to me the idea that real AD is unlimted is written into law. There is the problem. I don’t believe real AD is unlimited.

66. http://www.businessspectator.com.au/article/2013/11/26/economy/end-depression-never?

    End this Depression? Never

    Larry Summers

    Paul Krugman

    beggar thy working class

    household debt

67. The Monthly Payment Car Consumer

    http://globaleconomicanalysis.blogspot.com/2013/12/auto-lending-standards-plunge-new-car.html

    “The average loan on a new car climbed to $26,719 in the third quarter, up by $756 from a year earlier, and the most in at least five years, according to data collected by Experian Plc.

    Despite borrowing so much more, average monthly payments on new car loans rose only $6 to $458. That is because banks and finance companies were willing to lend at lower rates and grant borrowers more time to repay.

    Lenders made 26.04 percent of their loans on new cars to buyers with subprime credit scores, up from 24.84 percent a year earlier, said Experian, which collects car title and financing information to compile its reports. For loans on used cars, the portion to subprime borrowers rose to 54.95 percent from 54.43 percent.

    As the lenders made bigger loans, they also extended credit further beyond the value of the vehicles. The average loan-to-value on new cars rose to 110.6 percent, up by 1.17 percentage points. On used cars it rose to 133.2 percent, up by 2.18 percentage points.

    Auto lenders often provide loans that exceed the value of cars they are financing because borrowers want cash to pay sales taxes and fees.

    Extra-long loans are becoming more common. Some 19 percent of new car loans were made for more than six years, up from 16.4 percent a year earlier.

    The percentage of loans 30-days delinquent was down in the third quarter to 2.58 percent from 2.67 percent a year earlier, Experian said.

    However, the average loss on loans gone bad jumped to $7,770 in the third quarter from $7,026 a year earlier and repossessions increased sharply, particularly for subprime borrowers.”

68. What Does It Take To Be Middle Class?

    http://charleshughsmith.blogspot.com/2013/12/what-does-it-take-to-be-middle-class.html

69. More on U.S. auto sales
    http://advisorperspectives.com/dshort/guest/Michael-Lombardi-131211-Auto-Sales.php
    “Auto sales in the U.S. economy look solid on the surface.
    According to Autodata, in November, the annual rate of auto sales
    in the U.S. economy was 16.41 million units. In October, the annual
    rate of auto sales was reported to be 15.23 million and in the same
    period a year ago (November 2012), it was 15.32 million. (Source:
    Autodata web site, last accessed December 10, 2013.) Cleary, auto
    sales are increasing. By looking at the auto sales numbers, one
    could be easily tempted to suggest consumer spending is increasing.
    But this is not the case. A deeper look at the numbers reveals a
    large increase in subprime lending to finance consumer auto
    purchases. According to Experian, an information services company,
    loans issued for new vehicles to nonprime, subprime, and deep
    subprime borrowers made up 26.04% of all auto loans in the third
    quarter of this year. In the same period a year ago, this number
    was 24.84%. For used vehicles, loans issued to nonprime, subprime,
    and deep subprime borrowers made up an astonishing 54.95% of all
    auto loans in the third quarter. (Source: Experian, December 4,
    2013.) But this is not all. We are also seeing more and more
    consumers interested in buying vehicles on credit. For example, in
    its “Household Debt and Credit Developments” report for the third
    quarter of 2013, the Federal Reserve Bank of New York reported that
    in the third quarter, 168 million inquires for auto loans were
    made. In the second quarter of 2012, that number was only 159
    million. (Source: Federal Reserve Bank of New York, November 2013.)
    All of this shouldn’t be taken lightly. We know what happens when
    this kind of behavior prevails. Just look at what happened to the
    housing market of the U.S. economy when subprime borrowers became
    so prevalent. A significant amount of money was lent to subprime
    borrowers, they defaulted, and we saw a housing crash. Auto loans
    in the U.S. economy are increasing. In the third quarter of 2013,
    auto loans reached their highest level since the third quarter of
    2007; they increased to $97.4 billion. I question if auto loans are
    taking on the shape of a bubble. Low interest rates in the U.S.
    economy have encouraged consumers to borrow to buy cars, hence the
    increase in auto sales. But lending to subprime borrowers can be
    problematic when interest rates increase. Another bubble, this time
    in auto sales? I’m afraid so.”

70. http://www.debtdeflation.com/blogs/2013/12/09/dont-do-the-math/
    When economic theory fails the maths exam
    http://www.businessspectator.com.au/article/2013/12/9/economy/when-economic-theory-fails-maths-exam
    “Eight years ago, in December 2005, I began warning of an impending
    economic crisis that would commence when the rate of growth of
    private debt started to fall. My warnings hit a popular chord:
    journalists throughout the world picked it up and publicised my
    views – as well as similar arguments from Nouriel Roubini, Dean
    Baker, Ann Pettifor, Michael Hudson, Wynne Godley, and a few
    others. But our arguments were ignored by the economics profession
    because, according to mainstream economic theory, private debt
    should have no impact on aggregate demand. As Bernanke put it,
    lending simply transfers spending power from lender to borrower,
    and “pure redistributions should have no significant macro-economic
    effects” (Bernanke, Essays on the Great Depression, p. 24).” And,
    “The authors found the implications of their study for democracy
    rather depressing, since it implies that both evidence and
    intelligence make precious little difference to how people will
    vote on contentious issues – which are after all the only ones we
    do vote on. The need to preserve a sense of identity matters more
    than the evidence – and this can’t be treated as “irrational”
    behavior either, because it’s quite rational to want to retain
    membership of a group that is immediately important to you.
    Numeracy can make you blind. Who’d a thought? Someone who did
    belatedly reach the same conclusion was one of history’s great
    numerates, Max Planck – the father of quantum mechanics. He found
    it near impossible to convince his fellow physicists to accept his
    new – and empirically far more accurate – characterisation of the
    nature of energy, and he ultimately concluded that: A new
    scientific truth does not triumph by convincing its opponents and
    making them see the light, but rather because its opponents
    eventually die, and a new generation grows up that is familiar with
    it. (Max Planck). Planck’s pessimism might well turn out to be
    optimism when compared to how economics “evolves”. As John Quiggin
    put it in his book Zombie Economics (which hands down has the best
    cover of an economics book that I’ve ever seen), ideas that
    manifestly conflict with empirical data continue to exist long
    after reality killed them. The data on private debt and employment
    should long ago have killed the “Loanable Funds” model of lending
    that led Bernanke and his tribe to ignore private debt before the
    crisis hit, but I expect they’ll hang on to their pet theory and
    find a way to make it appear compatible with the data instead-and
    Larry Summers may well have given them the means to remain part of
    The Great Undead with his “secular stagnation”
    hypothesis.”

71. http://www.ritholtz.com/blog/2013/12/why-do-measures-of-inflation-disagree/

    Why Do Measures of Inflation Disagree?

    “The Bureau of Labor Statistics (BLS) first developed the CPI in 1913. The index is based on reports from retailers and tracks the price level for a basket of goods and services purchased by a typical urban consumer. The PCEPI is produced by the U.S. Commerce Department’s Bureau of Economic Analysis (BEA) based on the same national accounts data used to estimate gross domestic product. For most of its history, the Federal Reserve used the CPI to set policy and forecast inflation. However, in February 2000, the FOMC began using the PCEPI to frame its inflation forecasts.

    The PCEPI and CPI share many of the same features. For example, the PCEPI, like the CPI, is designed to track the prices of goods and services consumed by households, and it includes much of the same data. However, the PCEPI differs from the CPI on many dimensions. The FOMC cited three of these as reasons for switching its focus from the CPI to the PCEPI (Board of Governors 2000). First, the PCEPI’s formula adjusts to changing consumption patterns, while the CPI is based on a basket of goods and services that is largely fixed. Second, the PCEPI is revised over time, allowing for inflation to be tracked as a more consistent series. Third, the PCEPI’s larger scope of goods and services provides a more comprehensive picture of the nation’s consumer spending than the CPI.”

    “Figure 1 shows the year-over-year change in core CPI and PCEPI inflation over the past 10 years. These core measures exclude food and energy prices, reducing volatile short-run movements in the indexes. Core measures are better able to capture the underlying longer-term trends in inflation. The figure shows that core CPI and core PCEPI inflation measures are highly correlated, but that gaps frequently arise between them. Since August 2011, annual core CPI inflation has outpaced annual core PCEPI inflation by a minimum of 0.20 percentage point and an average of 0.34 percentage point. This is the longest sustained gap between these measures in the past 10 years.”

    “One way to see how the difference in the weights has affected the gap between CPI and PCEPI inflation is by looking at shelter prices. Importantly, neither index uses actual house prices to determine owner-occupied shelter prices. Rather, these prices are based on the BLS’s Consumer Expenditure Survey, which asks households how much their homes would cost to rent on the open market. Shelter currently takes up 32% of the CPI consumption basket, but only 15% of the PCEPI basket. This difference reflects the larger scope of goods in the PCEPI, which dilutes the weight of shelter in its consumption basket. Overall, the CPI’s larger weight on shelter means that it is more sensitive to shelter price movements than the PCEPI. The BEA estimates that, since 2011, the difference in these shelter weights has caused a 0.31 percentage point difference between CPI and PCEPI inflation. This accounts for more than half of the 0.56 percentage point weight-based effect over the recent period.”

    “Conclusion

    Core CPI inflation is currently 0.5 percentage point higher than core PCEPI inflation. Historically, gaps of this size are not unusual and have primarily been driven by the differences of the weights the two indexes put on various items in their consumption baskets. For the most recent gap, the CPI’s larger weight on shelter is a major reason why that index has exceeded PCEPI inflation. Based on historical patterns, we expect core CPI inflation to move back gradually toward PCEPI inflation.”

    What about price inflation based on the budget of a lower/middle class person?

72. http://www.ritholtz.com/blog/2013/12/mainstream-economists-finally-admit-that-runaway-inequality-is-hurting-the-economy/

    by Washingtons Blog – December 23rd, 2013, 1:30am

    “As one example, Paul Krugman used to doubt that inequality harmed the economy. As the Washington Post’s Ezra Klein wrote in 2010:

    Krugman says that he used to dismiss talk that inequality contributed to crises, but then we reached Great Depression-era levels of inequality in 2007 and promptly had a crisis, so now he takes it a bit more seriously.

    Krugman writes this week in the New York Times:

    The discussion has shifted enough to produce a backlash from pundits arguing that inequality isn’t that big a deal.

    They’re wrong.

    The best argument for putting inequality on the back burner is the depressed state of the economy. Isn’t it more important to restore economic growth than to worry about how the gains from growth are distributed?

    Well, no. First of all, even if you look only at the direct impact of rising inequality on middle-class Americans, it is indeed a very big deal. Beyond that, inequality probably played an important role in creating our economic mess, and has played a crucial role in our failure to clean it up.

    Start with the numbers. On average, Americans remain a lot poorer today than they were before the economic crisis. For the bottom 90 percent of families, this impoverishment reflects both a shrinking economic pie and a declining share of that pie. Which mattered more? The answer, amazingly, is that they’re more or less comparable – that is, inequality is rising so fast that over the past six years it has been as big a drag on ordinary American incomes as poor economic performance, even though those years include the worst economic slump since the 1930s.

    And if you take a longer perspective, rising inequality becomes by far the most important single factor behind lagging middle-class incomes.

    Beyond that, when you try to understand both the Great Recession and the not-so-great recovery that followed, the economic and above all political impacts of inequality loom large.

    ***

    Inequality is linked to both the economic crisis and the weakness of the recovery that followed.”

73. http://globaleconomicanalysis.blogspot.com/2013/12/haircut-deficit-kids-living-in.html

    “The recession ended in mid-2009. Since then spending on services has lagged spending on durable goods by a huge margin.

    Why? A record number of Millennials, adults aged 18 to 32, put off household formation and stay at home to live with parents.

    Why? No job and/or huge college debt with no way to pay it back.

    The jobless rate for Americans aged 18 to 19 years old stood at 19.2%. Unemployment among 20- to 24-year-olds is 11.6 percent. In contrast, the overall unemployment rate is 7%.

    Kids Living in Basements a Drag on U.S. Services Spending”

    http://www.bloomberg.com/news/2013-12-13/service-spending-lag-called-culprit-in-slow-u-s-growth-economy.html

    Back to Mish’s post:

    “What’s Next?

    Via email, a close friend “BC” commented on “What’s Next”

    The top 1-10% receive 50% of income in an economy in which 72% of GDP is Personal Consumption Expenditures (PCE). Unless the top 10% increase spending ~6%/yr., US real final sales per capita will be near 0% at the trend population and reported deflator.

    The bottom 90%, who receive the other 50% of income, are not experiencing any growth of purchasing power after factoring in taxes, inflation, and debt service. They contribute little-to-nothing in growth of real final sales per capita.

    Once the Boomer top 10-20% replace their auto fleets, real retail sales and real final sales per capita will again contract.

    Wealth Effect

    I would add that some of the spending, especially on autos, is due to the wealth effect of rising stock market and recovery in home prices. A substantial (and lengthy) decline in the stock market is long overdue. And when it comes it will pressure sales and services in general.

    What’s coming isn’t pretty even though the precise timing is unknown.”

74. http://houseofdebt.org/2014/03/15/household-debt-and-the-great-depression.html

    “In November 1930, before anyone knew how Great the Depression would be, Charles Persons published an article in the Quarterly Journal of Economics called “Credit Expansion, 1920 to 1929, and Its Lessons.” His thesis was stated forcefully in the first paragraph:

    “The thesis of this paper is that the existing depression was due essentially to the great wave of credit expansion in the past decade.”

    He then meticulously documented data on the stunning growth in borrowing by households during the 1920s. As is common in the run-up to severe economic downturns, there was a tremendous growth in mortgage debt. “The great field of credit expansion in the last decade lies in the realm of urban real estate mortgages”, Persons wrote. In nominal terms, outstanding mortgage debt grew by more than eight times from 1920 to 1929, according to Persons.

    Persons also highlighted the rise in installment debt, or consumer debt used to purchase new furniture, clothing, sewing machines, and cars. Martha Olney at Berkeley examined the rise in purchases of cars and other durables during the 1920s, and concluded that “societal attitudes toward borrowers changed radically between 1900 and 1920; by the mid-1920s, buying on credit was considered normal, not sinful.”

    Persons concluded his 1930 article with a statement that is eerily similar to many we here today: “The past decade has witnessed a great volume of credit inflation. Our period of prosperity was based on nothing more substantial than debt expansion.”

    Both the Great Depression and our recent Great Recession were preceded by large increases in household debt driven by new lending technologies. The 1920s had the installment loan; the mid-2000s had the subprime mortgage loan. Is it a coincidence that the two most severe recessions in the last 150 years were preceded by a dramatic expansion in household debt driven by new lending technologies? This is a central question of our book.”

75. http://houseofdebt.org/2014/03/18/the-most-important-economic-chart.html

    “If you must know only one fact about the U.S. economy, it should be this chart:

    See Chart

    The chart shows that productivity, or output per hour of work, has quadrupled since 1947 in the United States. This is a spectacular achievement by an advanced economy.

    The gains in productivity were quite widely shared from 1947 to 1980. Real income for the median U.S. family doubled during this time just as output per hour of work performed doubled. The rising tide was lifting all boats.

    However, what we want to focus on today is the remarkable separation in productivity and median real income since 1980. While the United States is producing twice as much per hour of work today compared to 1980, a small part of the gain in real income has gone to the bottom half of the income distribution. The gap between productivity and median real income is at an historic all-time high today.

    So where are all of the gains in productivity going? Two places:

    First, owners of capital are getting a bigger share of GDP than before. In other words, the share of profits has risen faster than wages. Second, the highest paid workers are getting a bigger share of the wages that go to labor.

    The net result is that families at the higher end of the income distribution have received more of the income produced by the economy since the 1980s. The latter fact has been documented meticulously by the brilliant research of Thomas Piketty and Emmanuel Saez.

    The widening gap between productivity and median income is a defining issue of our time. It is not just about inequality – important as that issue is. The widening gap between productivity and median income has serious implications for macroeconomic stability and financial crises. Our forthcoming book takes up these issues in more detail.

    We will also discuss some of these issues in coming posts.”

76. http://www.ebri.org/surveys/rcs/2014/

    http://finance.yahoo.com/news/americans-only-have–1-000-saved-for-retirement-ebri-report-134741117.html

    “More Americans are confident about their retirement prospects for the first time in seven years, but even so, more than one-third of workers (36%) have a measly $1,000 saved for their later years, according to a new study by the Employee Benefit Research Institute. (Compare that to the 28% of workers who said they had $1,000 saved in last year’s survey, and the picture gets a little more grim.)

    As a whole, however, Americans are feeling more confident about retirement, with 18% saying they’re “very confident,” up from 13% in 2013. But this year’s confidence numbers are still lower than they were before the Great Recession, when one-quarter of Americans were feeling very confident about their golden years.

    “We’re definitely moving in the wrong direction,” said Greg Burrows, senior vice president of retirement and investor services with the Principal Financial Group, which co-sponsored the report. “Increasingly, workers realize they need to save a lot more for retirement, and yet their actions aren’t following through.”

    At a time when research has shown time and again how ill-prepared most workers are to support themselves through their golden years, the study offers a glimpse into what the “very confident” 18% have that, well, the rest of us don’t.

    They know their number. A lot more goes into saving for the future than dollars and cents. You have to have some idea of how much you need to save. And people who take the time to calculate their retirement needs ahead of time are more likely to be on track.

    About 44% of workers say they’ve run their numbers through a retirement calculator, helping them to save a whopping 40% more than the rest of us.

    “Everyone else is really just guessing,” said Burrows. “Using savings calculators is a really important trigger for improving actions and savings rates. When we look at our own customers who use calculators, they take action and are more likely to make a change.”

    You don’t need to hire a pricey financial planner to get your number. EBRI offers a free tool, as well as Bankrate, the AARP, and Kiplinger.

    They’ve got money (and they know how to use it). Obviously, saving for the future is easier when there’s more to start with. Workers earning more than $75,000 a year were far more likely to report feeling more confident about retirement than those earning less, according to the EBRI. On the other hand, of those workers who say they’ve saved less than $1,000 for retirement, 68% reported earning $35,000 or less.

    When asked, more than half of workers blamed their low savings rates on day-to-day living expenses. But in many cases, daily budgets aren’t static and can be rearranged to free up funds for savings. What some people lack is the time and energy to revamp their entire household budget – especially for a goal that seems far off.

    “In order to have a good opportunity to save, you have to develop an understanding and a plan for managing your spending and saving,” Burrows said. “It’s not easy, but it’s doable if people make the effort to understand their spending patterns and have a good command of their dollars and where they’re being spent.”

    They have a designated retirement account. Saving is also easier when you’ve got a vehicle in place to do so. A whopping 90% of households who have a designated retirement account (like an IRA or 401(k)) actually contribute to it, according to EBRI. On the flipside, just 20% of workers who don’t have a retirement savings account say they’ve saved.

    Not surprisingly, people who invested in retirement plans during the economic recovery saw the biggest spike in confidence this year, thanks to a much-needed boost from a bull market. Between 2013 and 2014, the rate of plan-holders who said they were confident about retirement jumped from 14% to 24% – twice as high as workers who didn’t have a retirement plan.

    They’d love to work through retirement – but they don’t count on it. EBRI found that confident workers are more likely to have a realistic idea of when they’ll retire – and in most cases that means earlier rather than later.

    There’s something of a reality gap between when today’s workers think they’ll retire and when they actually do. For example, only 9% of workers say they plan to retire early (before age 60) but nearly four times that number (35%) report actually retiring that early, according to the report. And just 18% of workers say they’ll retire before age 65, but again, far more people found themselves retiring in that age range than expected (32%).

    “This difference between workers’ expected retirement age and retirees’ actual age of retirement suggests that a considerable gap exists between workers’ expectations and retirees’ experience,” the report says.

    The biggest reason for early retirement: unexpected health issues. Overestimating your retirement age can be just as costly as underestimating it. For example, if you think you’ll work until 75, you might not consider things like long-term health insurance, which could make all the difference for the 70% of Americans expected to need long-term nursing care at some point in their lives.

    “When you build a plan for retirement, don’t count on the ability to work in retirement,” Burrows said. “If you do get the opportunity, that’s fantastic. But it’s not something you should build your plan around because the reality is that the majority of workers don’t.””

77. http://advisorperspectives.com/dshort/guest/Lance-Roberts-140324-Replay-the-90s.php

    It’s Impossible To Replay The 90’s

    “This drive to increase profitability did not lead to increased economic growth due to increased productive investment and higher savings rates as personal wealth increased. The reality was, in fact, quite the opposite as it resembled more of a “reverse robin-hood effect” as corporate greed and monetary policy led to a massive wealth transfer from the poor to the rich.

    It is easy to understand the confusion the writer has from just looking at the stock market as a determinant of economic prosperity. Unfortunately, what was masked was the deterioration of prosperity as debt supplanted the lack of personal wage growth and a rising cost of living.

    The chart below shows the rise in personal debt, which was fostered by 30 years declining borrowing costs, to offset the declines in personal income and savings rates.

    As the author correctly states above, it was the “borrowing and spending like mad” that provided a false sense of economic prosperity. The problem with this assumption is clearly shown in the chart below.

    In the 1980’s and 90’s consumption, as a percentage of the economy, grew from roughly 61% to 68% currently. The increase in consumption was largely built upon a falling interest rate environment, lower borrowing costs, and relaxation of lending standards.

    In 1980, household credit market debt stood at $1.3 Trillion. To move consumption, as a percent of the economy, from 61% to 67% by the year 2000 it required an increase of $5.6 Trillion in debt. Since 2000, consumption as a percent of the economy has risen by 1% over the last 13 years. In order to support that increase in consumption it required an increase in personal debt of $6.1 Trillion.

    The importance of that statement should not be dismissed. It has required more debt to increase consumption by 1% of the economy since 2000 than it did to increase it by 6% from 1980-2000.

    The problem is quite clear. With interest rates already at historic lows, consumers already heavily leveraged and economic growth running at sub-par rates, there is not likely a capability to increase consumption as a percent of the economy to levels that would replicate the economic growth rates of the past.

    It is quite apparent that the ongoing interventions by the Federal Reserve has certainly boosted asset prices higher. This has further widened the wealth gap between the top 10% of individuals that have dollars invested in the financial markets, and everyone else. However, while increased productivity, stock buybacks, and accounting gimmicks can certainly maintain an illusion of corporate profitability in the near term, the real economy remains very subject to actual economic activity. It is here that the inability to releverage balance sheets, to any great degree, to support consumption provides an inherent long term headwind to economic prosperity.

    In my opinion it is likely quite impossible, from an economic perspective, to replay the secular bull market of the 80-90’s. While I would certainly welcome such an environment, the more likely scenario is a repeat of the 1970’s. The trick will be remaining solvent for when the next secular bull market does indeed eventually arrive.”

78. From:

    http://globaleconomicanalysis.blogspot.com/2014/04/millennials-mired-in-wealth-gap-as.html

    http://www.bloomberg.com/news/2014-03-31/millenials-mired-in-worth-gap-as-elder-americans-recoup-wealth.html

    http://www.stlouisfed.org/publications/itb/articles/?id=2481

    Housing Crash Continues to Overshadow Young Families’ Balance Sheets

79. America’s Wal-Mart Economy: Checks Clear At Midnight; Savings Wiped-Out By One Emergency

    http://davidstockmanscontracorner.com/americas-wal-mart-economy-checks-clear-at-midnight-savings-wiped-out-by-one-emergency/

    http://www.mybudget360.com/how-many-americans-live-paycheck-to-paycheck-income-wealth/

    “A really big reason why Americans are losing ground is because inflation has eroded purchasing power. Simply put the average dollar is not going as far anymore. Going back to the survey, it also detailed how 66 percent of households making $100,000 or less would hit a big brick wall if an unexpected $10,000 expense came up. This is not such a big emergency. Consider a major house repair or a mild medical emergency would wipe this amount away.

    Americans are simply seeing their standard of living erode. Take housing for example. Housing eats up the biggest portion of household spending:”

    See chart.

    “Housing eats up about 30 to 40 percent of disposable income. With a low rate environment large banks have decided to take a liking to housing. This has pushed housing values up and rents have also increased during this time. Conversely, incomes have not grown. So what occurs is more money is getting dumped into the housing bucket. How is this good? It really isn’t unless real wages also were keeping track with changes in costs. It also means less money for saving which is the core issue.

    Americans think the nation is wealthier than it really is. Whenever you see the financial press trying to define middle class, they usually throw out an annual income of $200,000 or $250,000 per year. That is absolutely not the case (the statistical middle class is $50,000 per year). Take a look at income in the US:”

    “To be in the top 10 percent of households, you would need an annual income of $135,000. 75 percent of households fall under $85,000 a year or less for their annual income. The survey sheds light on how addicted to spending Americans are. It also shows the growing struggles in saving money because the cost of living is outpacing income growth.

    The largest growing sectors of employment in the US are part of the low wage economy:”

    Only “high-wage” job listed in the “for largest USA occupations” is nursing.

    “What was illuminating from the survey was that nearly 50 percent of Americans mentioned that if they lost their current job, it would be very difficult to find another similar paying job in the market. This isn’t some paranoia but reality based. Look at the top employment fields above. The market is flooded with low paying jobs.

    Many Americans are living paycheck to paycheck simply because the bills eat up every penny of net disposable income. Saving for retirement? That is simply not a pressing matter for most. When we look at retirement surveys the facts are grim:

    The typical working household only has $3,000 saved for retirement! That is absolutely nothing. One to two months of bills. You would think things are better today with a record in the stock market but this would assume Americans had savings invested in the market in any meaningful way. Hard to do that when you are living paycheck to paycheck.”

80. Goodbye American middle class: New report reveals that 62 percent of Americans earn $20 or less per hour. Household income stuck in neutral for a generation.

    http://www.mybudget360.com/goodbye-american-middle-class-median-income-household-wages/

    “The latest figures from the Bureau of Labor and Statistics (BLS) reveals that 62 percent of Americans earn $20 or less per hour. And this only examines those that actually have a job. Most of the new jobs added since the Great Recession ended have come in the low-wage segment of our economy which seems to be adding the bulk of employment. These are certainly interesting times that we live in. The US has close to 130 million jobs. 18 million jobs pay less than $10 an hour and 63 million pay between $10 and $20. These two segments makeup 81 million jobs so it is understandable why the two income household is more of a necessity rather than a luxury. The median household income in the US is roughly $50,000 per year. Adjusting for inflation income is back to levels last seen in the 1980s. Americans feel poorer because their purchasing power has been eroded by inflation and also the swarm of lower paying jobs that now dominate the market. The US middle class is shrinking and to ignore this is to ignore the actual facts.

    What is causing the middle class to disappear?

    The mainstream press rarely talks about the disappearing middle class. If this issue is brought up it is in the context of the inevitable. The middle class is declining simply because of global competition and a race to lower prices, or so the argument goes. There simply isn’t enough money to go around. However, compensation at the top has never been better. What is occurring is basic items like health benefits, access to affordable schooling, and livable wages are being neglected for fast profits.

    If you really want to feel how little purchasing power you have you need to travel outside of the US. Take a look at what has happened to the US dollar in the last generation:

    The US dollar has lost more than 50 percent of its purchasing power since the 1980s. The impact of all of this is reflected with inflation. Inflation is problematic in itself but it is much more challenging when prices are going up but wages remain stuck in neutral.

    All you need to do is look at household incomes to see this stagnation:

    Adjusting for inflation household incomes are back to levels last seen in the 1980s. Are you noticing a pattern here? The middle class has been losing ground for a generation here. Some mitigated this impact by going deep into debt to finance the following items:

    -Housing

    -College tuition

    -Automobile purchases

    Most of these big ticket items have seen massive price increases but if you look at monthly payments, they are moving up slowly to stay on pace with many struggling Americans. It once was thought to be shocking for a student to graduate with $50,000 or $100,000 in debt but those stories are all too common today. The sticker shock is stunning but the Fed has forced rates to as low as they can go to keep this debt binge going.

    Wealth distribution is highly tilted today because most of the gains in productivity are flowing to a small group:

    Wealth is the best measure of financial success. Most Americans in the past were able to build up wealth in housing but that avenue is being closed off thanks to Wall Street and the Fed turning this market into another speculative vehicle. The result? The home ownership rate in the country continues to decline. This used to be a major cornerstone and brass ring of the middle class. Not anymore.

    Lower paying jobs, stagnant wages, and rising costs. Will politicians bring this up in the 2014 elections? It doesn’t seem like the middle class is on their radar.”

    See the charts too!

81. Hand-to-mouth nation: Roughly 40 percent of US households living paycheck to paycheck but two thirds of these families are not considered poor by economic definitions.

    http://www.mybudget360.com/paycheck-to-paycheck-people-living-paycheck-to-paycheck/

    People have a hard time believing that in the wealthiest country in the world, we have close to half of our population living hand-to-mouth bouncing from one paycheck to another. A recent paper released by the Brookings Institution’s BPEA conference shows that people living hand-to-mouth are largely those with “middle class” incomes. Of course middle class doesn’t say much in a world where banks are inflating our debt away and the US dollar has lost considerable purchasing power over the last generation. What was telling from the report was that 40 percent of US households live paycheck to paycheck. This might not be a surprise given the vast number of people working in low wage jobs. What was telling from the report was that two out of three of these households represent a part of the “wealthier” income segment of our society. The paper discusses how many of these people are house rich but cash poor. These people basically live in their retirement fund.

    Hand-to-mouth nation

    The paper was telling but also had a very low threshold as to what it considers “substantial” holdings. The paper placed the bar at $50,000 where a family would be considered “wealthy” which is rather low. What the paper found was that many of these families that hold some chunk of wealth are actually living very similar lives to the poor in America. This all makes sense. If you own a home and most of your net worth is tied up in your property, this does very little in addressing short-term cash flow issues which unfortunately are extremely common.

    Those that are considered to be “wealthy hand-to-mouth” tend to be older and more educated:

    What is significant about the paper is how low the bar is getting for someone to be considered wealthy. After all, we do have over 47 million people on food stamps with virtually no liquid savings. The median net worth for young Americans is actually negative thanks to the mountains of debt they are carrying via student loans. What you realize is that slowly the avenues towards wealth are being closed off or are certainly becoming much harder to pass through. This ties in with policy actions from the Fed which amount to a large wealth transfer to the rich. It was interesting to hear the President of the Dallas Fed mention this in regards to QE.

    When we look at where jobs are being created, we can only forecast that those living hand-to-mouth will be increasing in the next decade:

    While the US lost 4 million good paying jobs since the recession hit we have added 3.6 million low-wage jobs. We now have the largest number of Americans working in low-wage jobs as a percentage of our entire work force.

    This hand-to-mouth living may not seem like a big deal but it does say more about how we view economic policy and the impact of larger scale bailouts. The financial sector is doing well thanks to targeted bailouts but it is certainly not trickling down. This much is clear and the above figures merely reflect a slow erosion of the middle class.

    It should matter that our nation is seeing a dramatically higher number of people living paycheck to paycheck. The income and wealth inequality in the nation is staggering. Just take a look at where wealth stands:

    The top 1 percent control 43 percent of all available wealth. The top 5 percent control 72 percent of all available wealth. The bottom 80 percent only has control of 7 percent of total wealth.

    It isn’t a surprise that many middle class families are living hand-to-mouth. I wouldn’t consider $50,000 in savings to be substantial especially if you are nearing retirement age and the only asset you have is a home. Yet this is how low the bar is now being placed for someone to be considered financially well off.

    It almost seems like things that were once accepted as part of the middle class like good healthcare, quality education, and access to affordable housing are now becoming items of luxury. Do people still think that inflation is a good policy action especially when the inflation is being spurred on by bailouts to the financial sector? I’m sure those living hand-to-mouth have something to say about this.

    See the charts too!

82. America’s Consumers Are Dropping, Not Shopping: McDonald’s Posts Worst Q1 Same Store Comps In A Decade

    Sales Growth ; S&P 500 Companies Latest Quarter Year / Year Change

    http://davidstockmanscontracorner.com/americas-consumers-are-dropping-not-shopping-mcdonalds-posts-worst-q1-same-store-comps-in-a-decade/

    “Current projections for the first quarter add up to about 2.5% revenue expansion across S&P 500 companies, but, as last quarter showed, that is likely overly optimistic (fourth quarter revenue was believed to be expanding at near 3% at the outset of earnings season in January 2014, only to be revised lower to almost 0%).”

    And, “Janet Yellen’s comment above, from June 2008, sounds no different than what is being said right now. What looked like “drags” on tepid growth trajectories was, at that moment, something worse – and would only grow far, far more destructive further on.

    If there is one striking difference between then and now, it would have to be the evident bifurcation and stratification of economic station. There is a very narrow channel into which financial and asset inflation is fostering the impression of economic activity on the mend (autos, mostly, now that housing is in reverse). However, these results shown here conclusively dismiss any and all ideas that expect such narrow benefits to be the catalyst for more widespread economic revival. In fact, what we see, particularly in the comparisons to the first phase of the Great Recession, is that such doctrine of asset inflation and the “wealth” effect are wholly incorrect toward this updated “trickle down.””

83. The End of the Gold Standard

    http://www.advisorperspectives.com/dshort/guest/Bryan-Taylor-140422-End-of-the-Gold-Standard.php

    “It was 100 years ago, in 1914, that the Gold Standard died. When World War I began, most countries went off the Gold Standard and attempts to return to a Gold Standard since have all failed. Some people have called for a return to the Gold Standard as a way of disciplining governments and ensuring that they do not inflate their way out of their current fiscal problems. If it were only that easy.

    What many people don’t understand is that in the long run, the International Gold Standard was a very brief phenomenon, and the fact that the world moved to a Gold Standard in the late 1800s was a sign of weakness in the role of gold and silver in the economy, not of strength. The reality was that Europe was on a bimetallic standard, not a Gold Standard, from the Middle Ages until World War I, and gold triumphed in the nineteenth century because bimetallism had failed. This should have been taken as a sign that the gold standard too would inevitably fail, not that it was the result of teleological inevitability.

    The first gold and silver coins were issued by Croesus in Lydia around 600 BC. Before that, both gold and silver were used as a store of for wealth, for conspicuous consumption, or to value other goods, but no coins existed. The value of gold relative to silver, the gold/silver ratio, changed over time. In 2700 BC it was around 9 to 1; under Hammurabi in 1800 BC it was 6 to 1; and by the time Croesus issued the first gold and silver coins, rather than electrum coins, it was 12 to 1.

    The gold/silver ratio remained around 12 to 1 for the next 2500 years, though it could range as low as 9 to 1 or as high as 16 to 1. Athens built its empire on the silver mines of Laurium; Alexander the Great plundered the treasuries of the Persians; and the Romans seized this stolen bullion when they conquered the Mediterranean. Constantine took the gold of the Pagan temples for his needs, and whoever controlled Egypt could rely upon the mines in Nubia as a source of gold. When the Arabs spread Islam through the world, they seized the gold and silver of the lands they conquered. When they gained control over northern Africa, the Arabs also gained power over the gold coming from sub-Saharan Africa.

    Europeans minted a few coins during their Dark Ages, but mainly they relied upon Arab gold coins. It wasn’t until the Europeans sacked Constantinople during the Crusades, taking its gold, and the Venetian cities developed trade surpluses with the Arabs that Europe found a need to mint gold on a regular basis, starting in 1252.

    The chart below shows the gold/silver ratio over the past 750 years. In the thirteenth century, the gold to silver ratio was around 10 to 1. It was the scarcity of gold in the fifteenth century that drove the Portuguese to go south and east to seek gold and silver, and the Spaniards to go west, discovering the Americas instead of reaching China.

    The discovery of America released not only the gold of the Americas which the Spaniards seized, but the silver of Potosí and Mexico which supplemented the silver mines of Germany that produced silver Thalers. Galleons filled with silver crossed the seas to Europe and China every year, causing global inflation in the seventeenth century.

    The chart, which uses the gold/silver ratio for the United Kingdom through 1800 and the United States after that, shows that between 1250 and 1850, the value of gold relative to silver gradually increased, rising from around 10 to 1 in 1250 to 15 to 1 around 1850. Despite all the discoveries of gold and silver, the seizing of gold and silver by conquerors from the conquered, or the changes in the global economy during those intervening 600 years, the ratio of the price of gold to silver saw no dramatic changes.

    This stability enabled the Bimetallic standard to prevail for those 600 years. As one country changed the domestic ratio of gold to silver, gold would leave one country and go to the other. If the gold/silver ratio was 12 in France and 11.5 in the Netherlands, gold would flow to France where it was more highly valued, and silver would flow to the Netherlands. If the Netherlands changed the ratio to 12.5 to 1, gold would flow from France to the Netherlands.

    Anyone who thinks governments didn’t debase their currency before paper money was introduced knows nothing about history. Paper money only enabled governments to speed up the process of debasement. The English silver Shilling had 16.2 grams of silver under William I in 1066, but only 2.6 grams under Henry VIII in 1546. The French Livre Tournois had 84 grams of gold under Philip Augustus II in 1200, but 4.5 grams when the French Revolution began in 1789. The worst offender was Spain whose Maravedí had 52 grams of silver in 1200, but only 0.031 grams of silver in 1808.

    What happened in the 1800s to change the gold/silver ratio forever? There were new discoveries of gold in California, Australia, South Africa and the Yukon, but what really changed things irrevocably was the huge discoveries of silver in Nevada and Colorado which caused a collapse in the price of silver, as well as its price relative to gold, as the graph below shows.

    It wasn’t that countries chose to move to the Gold Standard because it was the right thing to do, but because they had no choice. The collapse in the price of silver made silver a token commodity. The relationship between gold and silver that had held for 600 years was irrevocably broken. Although almost every developed country was on the Gold Standard by 1900, few realized it was the lull before the storm. When World War I broke out in August 1914, the Gold Standard was dead.

    Attempts to resurrect the Gold Standard after World War I, World War II and today were doomed to fail because the relationship between gold and silver had been changed forever. Could a country like the United States return to a Gold Standard? In theory, yes, as I have demonstrated in my paper “Returning to the Gold Standard in Five Easy Steps”. In practice, it is highly unlikely.

    It wasn’t governments who destroyed the Gold Standard through their fiscal ineptitude. Governments from the Roman Empire until today have run deficits and debased the currency regularly. It was the new discoveries of gold and silver and the technology to exploit those discoveries which destroyed the price relationship between gold and silver forever.

    Governments, and the people who vote for them, will have to learn to change their behavior if the debasement of currencies is to end. Whether that is possible, remains to be seen.”

84. The Earnings Season: “House Of Cards”

    http://streettalklive.com/analysis/daily-x-change.html?id=2181

    Just like the hit series “House Of Cards,” Wall Street earnings season has become rife with manipulation, deceit and obfuscation that could rival the dark corners of Washington, D.C. From time to time I do an analysis of the previous quarters earnings for the S&P 500 in order to reveal the “quality” of earnings rather than the “quantity” as focused on by Wall Street. One of the most interesting data points continues to the be the extremely low level of “top line” revenue growth as compared to an explosion of the bottom line earnings per share. This is something that I have dubbed “accounting magic” and is represented by the following chart which shows that since 2009 total revenue growth has grown by just 31% while profits have skyrocketed by 253%.

    As I have discussed previously:

    “Since 2000, each dollar of gross sales has been increased into more than $1 in operating and reported profits through financial engineering and cost suppression. The next chart shows that the surge in corporate profitability in recent years is a result of a consistent reduction of both employment and wage growth. This has been achieved by increases in productivity, technology and offshoring of labor. However, it is important to note that benefits from such actions are finite.”

    As we enter into the tsunami of earning’s reports for the first quarter of 2014, it will be important to look past the media driven headlines and do your homework. The accounting mechanizations that have been implemented over the last five years, particularly due to the repeal of FASB Rule 157 which eliminated “mark-to-market” accounting, have allowed an ever increasing number of firms to “game” earnings season for their own benefit.”

85. Mortgage applications take another deep dive

    http://www.cnbc.com/id/101626558

    “The mortgage news comes on the heels of a quarterly report showing that not only did the U.S. home ownership rate fall to the lowest level in 19 years, but the vast majority of the newly formed households are renter households.

    “All of our new households are renters and they aren’t transitioning into ownership because of high prices in many metros, tight credit, high student debt and low rental affordability which makes it difficult to save for a down payment,” said Stan Humphries, chief economist at Zillow, a real estate website. “Over the past decade, the pace of rent increases has been double the growth in incomes. You don’t have to be an economist to see a problem there.”

    Meanwhile, home prices continue to make strong gains, with the latest readings showing anywhere from 7 to 13 percent annual appreciation. While home prices are still at least 10 percent below their peak in 2006, the credit market today makes that price differential substantially larger.

    Home prices were able to soar to their 2006 highs because buyers didn’t need much, if any, cash to buy a home. No-down-payment loans with short-term teaser rates made home purchases easy. Home prices were artificially inflated by cheap and easy credit. As we know, that model was unsustainable.

    Today, credit is much tighter. It’s therefore incorrect to compare today’s prices to those of the housing boom because home buyers now need to make larger down payments and pay the market rate on a 30-year fixed loan or an adjustable rate loan right from the start. They may also be subject to mortgage insurance premiums, which are higher at the FHA, the government’s mortgage insurer that was initially created for lower credit-worthy borrowers with lower down payments. In the case of adjustable rate loans, borrowers must prove an ability to afford the loan once rates adjust higher, thanks to new lending rules, deemed, “ability to repay.”

    Home price gains are still a function of a housing market driven by a historically-high share of all-cash investors. While investors are slowing some of their purchasing, more than one third of all home sales today are made in cash. Much of the sales activity is now on the higher end of the market, as the crucial first-time buyer continues to be squeezed out. While home values may be recovering, the health of the overall housing market is not.”

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    Rents and home prices up more than wage income. Simple problem. However, a lot of economists have trouble with that.

86. http://www.businessspectator.com.au/article/2014/5/13/politics/another-budget-bounty-lucky-party

    “Working this out in a hurry (I’m in the budget lock-up writing this, with four hours to finish my copy — so this has to be a “back of the envelope” analysis), I’ll lean on my own work on the sources of growth in nominal output in a credit economy, plus the sectoral balances approach pioneered by Wynne Godley, and apply the combination to the question “where’s the money going to come from?”

    (I might look like I’m channelling Milton Friedman here by relying on the velocity of money, and ignoring changes in it — but again, give me a break here: a four-hour deadine forces some compromises.)

    In a nutshell, the velocity of money is defined as nominal GDP divided by the money stock — where (contra Milton Friedman) the money supply can be increased by private bank lending, as well as by government deficits and a trade surplus. That leads to the deduction that change in nominal GDP will equal (ignoring changes in velocity, which — again contra Milton Friedman — do happen and are large and pro-cyclical): the velocity of money, multiplied by the sum of the government deficit, the current account surplus, and the growth in private debt.

    Reworking this expression leads to this equation for bank lending:

    Bank lending p.a. = Nominal GDP growth / Velocity of Money + Government Deficit + Trade Surplus”

    If I’m reading that correctly, Steve Keen so close, yet so far away!

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    Why the Housing Bubble Tanked the Economy And the Tech Bubble Didn’t

    http://fivethirtyeight.com/features/why-the-housing-bubble-tanked-the-economy-and-the-tech-bubble-didnt/

    “Macroeconomists have traditionally ignored distributional issues, grouping all households into a a single “representative agent.” This assumes that differences in spending responses to wealth shocks don’t matter, which is at odds with the empirical findings.

    In other words, traditional macroeconomic models place no importance on the fact that the poor pull back on spending much more than the rich when their limited wealth takes a hit. For example, former Federal Reserve Chairman Ben Bernanke described why academics doubt the importance of distributional issues in his book on the Great Depression, suggesting that differences in spending propensities because of wealth would have to be “implausibly large” to explain the decline in spending in the 1930s. Some economists would make a similar point about the most recent recession.

    We disagree. The dramatic effect of the 2008 housing crash on spending, and its contrast with almost no effect of the early 2000s tech crash, shows how important distributional issues should be in macroeconomics. As the recent craze over French economist Thomas Piketty’s new book, “Capital in the Twenty-First Century,” shows, both economists and lay people are beginning to understand that wealth inequality is crucial for understanding the broader economy.”

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    Inflation is rising. Yay!

    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/05/15/inflation-is-rising-yay/

    “Rising prices are a sign of growing consumer demand — and that demand is the engine of the American economy. A little bit of inflation also helps reduce the cost of doing business, which means companies can hire more people. And inflation makes debt easier to pay off, which anyone with a student loan or a mortgage can appreciate.”

    “Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.”

    That just about sums up what is wrong with economics and financial reporting.

87. And here is part of the problem:

    http://finance.yahoo.com/news/big-ticket-dinners-blunt-bernanke-200233561.html

    “AFTER THE FED

    Since leaving the Fed at the end of January after serving eight years as chairman, Bernanke has taken a position as a distinguished fellow at the Brookings Institution, a think tank in Washington.

    He kept a low profile for the first month after his departure, delivering his first public remarks to a banking conference in Abu Dhabi on March 4 and earning a $250,000 speaker’s fee. His annual paycheck from the Fed was $199,700 last year – an amount that he would have already exceeded many times over from the fees he has earned in the past couple of months.

    By contrast, his predecessor at the Fed, Alan Greenspan, waited only a week after his departure before addressing a private dinner hosted by Lehman Brothers, the investment bank whose collapse in 2008 sent the financial crisis into high gear.

    That also brought in a reported $250,000, while a private telechat with investors in Japan that same day in 2006 was worth about half of that, each drawing criticism for giving high-paying investors a leg up on others who didn’t have access to Greenspan.

    Bernanke’s private dinners began near the end of March, roughly two months after his retirement.

    “It’s not atypical for what other former Washington big shots do,” said Jan Baran, a partner and head of the election law and government ethics group at law firm Wiley Rein LLP.

    “He’s being paid … for sharing his wisdom and predictions, and presumably not to exert his influence on the Fed,” he added. This will go on “until he’s proven to not be all that clairvoyant.””

88. Another link for Wednesday, May 21, 2014 at 13:49 post:

    http://www.cnbc.com/id/101681329

    Also,

    What Kind of Jobs Have Been Created During the Recovery?

    http://www.newyorkfed.org/newsevents/speeches/2014/dud140521.html

    “Let me turn to the topic of today’s press briefing: how the types of jobs in the region have changed over the last business cycle. Firms often change the way they utilize workers and the mix of skills they employ during recessions and recoveries. The weakening demand during recessions forces firms to look for new ways to be more efficient to cope with hard times. These adjustments do not affect all workers equally. Indeed, it’s what we typically think of as middle-skilled workers-for example, construction workers, machine operators and administrative support personnel-that are hardest hit during recessions. Further, a feature of the Great Recession and indeed the prior two recessions, is that the middle-skill jobs that were lost don’t all come back during the recoveries that follow. Instead, job opportunities have tended to shift toward higher- and lower-skilled workers.

    As we’ll show, these same trends have played out in our region. While there’s been a good number of both higher-skill and lower-skill jobs created in the region during the recovery, opportunities for middle-skilled workers have continued to shrink.

    I believe it is important for us to highlight these job trends and to understand their implications for our region. There have been significant and long-lasting changes to the nature of work. As a result, many middle-skilled workers displaced during the recession are likely to find that their old jobs will never come back. Furthermore, workers are increasingly facing higher skill requirements in order to land a good job. These dynamics in the labor market present a host of challenges for the region to address. However one thing is clear: workers will need more education, training and skills to take full advantage of the types of job opportunities being created in our region, as well as across the nation. So, it’s important that we work together to find ways to help people in our region adapt to these changes.”

    So what will an economy look like with 3 or 4 lower paying jobs being created for every higher paying job with almost none in the middle?

89. Why Was Canada Exempt from the Financial Crisis?

    http://www.ritholtz.com/blog/2014/05/why-was-canada-exempt-from-the-financial-crisis/

    “As the worst financial crisis in generations hit the United States in 2007 and 2008, Canada was a pillar of resilience.

    No Canadian financial institutions failed. There were no government bailouts of insolvent firms (just a couple of lending programs to address market volatility relating to problems in the United States). Canada was the only G-7country to avoid a financial crisis, and its recession was milder than those it experienced in the 1980s and early 1990s. For the last six years, the World Economic Forum has ranked Canada first among more than 140 countries in banking stability.

    It’s not just one-time luck. If you define “financial crisis” as a systemic banking panic – featuring widespread suspensions of deposit withdrawals, bank failures, or government bailouts – the United States has experienced 12 since 1840, according to a recent study by Charles Calomiris, professor of finance and international affairs at Columbia University, and Stephen Haber, professor of history and political science at Stanford. That’s an average of one every 14 and a half years. Canada has had zero in that period. Its largely export-driven economy has seen more than its share of recessions, and even some notable bank failures, but it has almost completely avoided systemic problems. Even during the Great Depression, when more than 9,000 of our banks failed, Canada lost a grand total of one – to fraud.”

    More at the link.

90. About real wages:

    Five Decades of Middle Class Wages: Update

    http://www.advisorperspectives.com/dshort/updates/Employment-Wages-and-Hours-since-1964.php

    “Now let’s multiply the real average hourly earnings by the average hours per week. We thus get a hypothetical number for average weekly wages of this middle-class cohort, currently at $695 — well below its $828 peak back in the early 1970s.”

    And, “If we multiply the hypothetical weekly earnings by 50, we get an annual figure of $34,728. That’s a 16.1% decline from the similarly calculated real peak in October 1972.”

    Plus, this assumes price inflation is being measured correctly.

91. Why America’s Workers Need Faster Wage Growth-And What We Can Do About It

    http://www.epi.org/publication/why-americas-workers-need-faster-wage-growth/

92. For future reference (hopefully about debt)

    Whom or What Does the Representative Individual Represent? ( Representative Agent )

    http://econ2.econ.iastate.edu/tesfatsi/WhomOrWhatDoesRepIndRepresent.AKirman1992.pdf

93. Forcing Americans to Save Money

    “Wealth inequality has spiraled out of control for two reasons-middle-class Americans aren’t making enough money and they’re saving virtually none of it.”

    http://www.theatlantic.com/business/archive/2014/11/save-more-money-everyone/382306/

94. Child care costs more than college

    http://money.cnn.com/2014/12/04/news/economy/child-care-costs-college/

    “It’s no secret that child care is expensive.

    But new numbers show just how deeply it can eat into a family budget — in many cases, even deeper than what may spend on college.

    The average cost of childcare is at least a quarter of the median income of single parents, according to a report Thursday from Child Care Aware, a group that provides resources to parents and caregivers.

    And families at the poverty line, can spend as much as 85% of their income on care.

    Parents in Massachusetts are spending more on childcare than in any other state. On average, Bay State families are paying $16,549 per year to send an infant to a center for care. That’s about 15% of the median income for a two-parent family.

    New York families pay a higher proportion of their incomes than in any other states, or about 16%.

    The best bargain for child care? That would be in Louisiana, where it costs only about 7% of the median income.

    Related: How much will it cost to raise your child?

    The high costs don’t pay off all the time. Three in 10 parents either missed work or were late getting to their jobs last year because of care-related problems, the study found. Child care issues cost businesses about $3 billion every year.

    On the bright side: when the bill for college tuition arrives years later, it might not seem so steep in comparison.

    Child Care Aware said that in 30 states, the annual cost of child care is higher than tuition and fees at the state’s four-year state colleges.

    It concluded the multiple government programs to make care more affordable have significant room for improvement.”

95. Basic Costs Squeeze Families

    Health Care, Cellphones Eat Up Income, Leaving Less for Things Like Movies, Clothes

    http://finance.yahoo.com/news/basic-costs-squeeze-families-002900254.html

    “The American middle class has absorbed a steep increase in the cost of health care and other necessities as incomes have stagnated over the past half decade, a squeeze that has forced families to cut back spending on everything from clothing to restaurants.

    Health-care spending by middle-income Americans rose 24% between 2007 and 2013, driven by an even larger rise in the cost of buying health insurance, according to a Wall Street Journal analysis of detailed consumer-spending data from the Bureau of Labor Statistics.

    That hit has been accompanied by increases in spending on other necessities, including food eaten at home, rent and education, as well as the soaring cost of staying connected digitally via cellphones and home Internet service.

    With income growth sluggish, discretionary spending on things like clothing and movies, live shows and amusement parks has given way.

    The data-drawn from 14,000 households that either keep diaries on their spending for two weeks or agree to quarterly interviews-helps explain why so many retailers are turning in persistently lackluster results, and why the household-products business has shown virtually no growth for years. It also helps illuminate why the consumer-led U.S. economy has been so slow to rebound from the financial crisis.

    The rise in health-care spending preceded the Affordable Care Act’s requirement that most Americans have health coverage and that insurance companies cover existing conditions, both of which kicked in this year. The impact of other parts of the overhaul, like the requirement that family insurance policies include children up to the age of 26, isn’t clear.

    Michael Peters, who owns the four-store Carpet Plus chain in Wisconsin, and his wife just began paying more than $900 a month for their health insurance. That’s about 40% more than what they paid six years ago even though his company plan increased their deductible and dropped ambulance coverage to save money. His wife’s cataract surgery in August cost the couple $1,700 out of pocket. In 2007, when she had the operation on her other eye, the couple was on the hook for just $189.

    “Same procedure, same doctor, same wife,” said Mr. Peters, who lives near Madison. The couple now eats out at Panera Bread instead of “tablecloth restaurants,” stopped buying season tickets at Madison’s Overture Center for the Arts and dropped their indoor club seats for University of Wisconsin football games.

    Consumer spending continues to make up just over two-thirds of the U.S. economy. But where households spend that money has shifted significantly.

    To see how it has moved, the Journal analyzed Labor Department data on 2013 out-of-pocket spending for the middle 60% of the population by income-households earning between about $18,000 and $95,000 a year, before taxes.

    The data show they are losing ground. Overall spending for the group rose by about 2.3% over the six-year period from 2007, even as inflation totaled about 12%. At the same time, income for the group stagnated, rising less than half a percent.

    With health care and other costs rising, these consumers spent less on furniture, entertainment, clothing and even child care, the Journal analysis found.

    “Part of the story is that your income growth is slowing,” said Steven Fazzari, an economist and chairman of the sociology department at Washington University in St. Louis. “They’re spending more on necessities, cutting back on other types.”

    The overall cost of health care rose by 21% between 2007 and 2013, according to separate data from the federal Centers for Medicare and Medicaid Services. And employees paid more for workplace insurance, averaging $380 a month for family coverage in 2013, up 39% from 2007, data from the Kaiser Family Foundation shows.

    This year, overall health-care spending is expected to continue growing at a modest pace, but government projections suggest U.S. households may spend slightly less, as more people obtain insurance, premium subsidies or Medicaid coverage.

    Spending on mobile-phone service, meanwhile, has soared, rising nearly 50% since 2007, the year the iPhone came out and data plans became more commonplace.

    In Kansas City, Mo., Dawn Miller said her family’s cellphone bill has grown from $35 a month years ago to more than $350 some months today, depending on whether someone in the family blows past their plan’s monthly data limit.

    “Because the Verizon bill is so expensive, and because it changes month to month, you have to cut back,” said Ms. Miller, a police dispatcher.

    http://finance.yahoo.com/photos/spending-pattern-photo-1417529440422.html

    Two months ago, she and her husband postponed an anniversary dinner after their Verizon bill eclipsed $500. “I can’t tell you the last time I went out to a movie,” she said.

    Similarly, spending on home Internet service has soared by more than 80%. Last year, it made up about 0.8% of spending for middle income households, up from 0.4% six years earlier. Despite talk of “cord cutting,” spending on cable and satellite television is still up 24% from 2007.

    Spending on housing was up just 2.4%. But that masked big declines in spending on home purchases and mortgage interest, reflecting lower levels of homeownership and low interest rates. Spending on rent soared 26%, as some families lost their homes and rising demand for apartments helped push up monthly rents.

    Restaurant spending fell slightly, while outlays on food eaten at home rose 12.5%.

    To make up the difference, middle income Americans have cut costs where they can. Spending on event admission and fees has fallen 16.5%, while spending for a broad category that includes boats, motor-homes, cameras and party rentals has fallen 31%.

    Spending on household textiles, including bath and bed linens, has fallen 26.5%. Spending on care for children and the elderly has fallen 25%.

    Aileen Reve, a day-care center worker on New York’s Long Island, said she has noticed parents cutting back on hours, often by telecommuting or juggling their job schedules.

    “They work a couple of days at home,” and keep an eye on the children while they do, Ms. Reve said.

    Together, food, housing and health care accounted for about 56% of consumer spending for middle-income Americans, up from 54% in 2007. Transportation, which accounted for another 19% of the total, was largely flat during the period, as Americans spent less on auto-loan interest and new car payments, but more on gasoline.

    A variety of factors can affect spending in a category. The 6.5% decline in spending on new cars and trucks, for example, likely reflects a combination of delayed car purchases as well as a shift to less expensive vehicles, or even used ones, for which spending is up 2%. Lower apparel spending-down 11.5% overall, but down 18% for women 16 years old and over-likely reflects a combination of fewer clothing purchases and a preference for less expensive clothes, as well as aggressive discounting by retailers jockeying for business.

    Spending on electricity is up 11% since 2007, according to the Labor Department data.

    Luise Fortney, a U.S. Defense Department auditor in suburban Baltimore, says she buys less clothing, jewelry and shoes-or travels to a Delaware outlet mall to find bargains-and has stopped collecting Longaberger baskets, in part due to higher electric bills.

    “I buy less stuff for myself,” she said. “We’ve cut a lot out-a lot of extras you used to get, so you can afford food and the electric. And you’re trying to save for retirement.”

96. Dipping Into Auto Equity Devastates Many Borrowers

    http://www.cnbc.com/id/102295592

    “The automobile is at the center of the biggest boom in subprime lending since the mortgage crisis. The market for loans to buy used cars is growing rapidly.

    And similar to how a red-hot mortgage market once coaxed millions of borrowers into recklessly tapping the equity in their homes, the new boom is also leading people to take out risky lines of credit known as title loans.

    They are, roughly speaking, the home equity loans of subprime auto. In these loans, which can last as long as two years or as little as a month, borrowers turn over the title of their cars in exchange for cash – typically a percentage of the cars’ estimated resale values.

    “Turn your car title into holiday cash,” TitleMax, a large title lender, declares in a recent television commercial, showing a Christmas stocking overflowing with money.

    More than 1.1 million households in the United States used auto title loans in 2013, according to a survey by the Federal Deposit Insurance Corporation – the first time the agency has included the loans in its annual survey.

    Title loans are becoming an increasingly prevalent form of high-cost, short-term credit in subprime finance, as regulators in a number of states crack down on payday loans.

    For many borrowers, title loans, also sometimes known as motor-vehicle equity lines of credit or title pawns, are having ruinous financial consequences, causing owners to lose their vehicles and plunging them further into debt.

    A review by The New York Times of more than three dozen loan agreements found that after factoring in various fees, the effective interest rates ranged from nearly 80 percent to more than 500 percent. While some loans come with terms of 30 days, many borrowers, unable to pay the full loan and interest payments, say that they are forced to renew the loans at the end of each month, incurring a new round of fees.

    Customers of TitleMax, for example, typically renewed their loans eight times, a former president of the company disclosed in a 2009 deposition.

    And because many lenders make the loan based on an assessment of a used car’s resale value, not on a borrower’s ability to repay that money, many people find that they are struggling to keep up almost as soon as they drive off with the cash.

    As a result, roughly one in every six borrowers who take out title loans have their cars repossessed, according to an analysis of 561 title loans by the Center for Responsible Lending, a nonprofit in Durham, N.C.

    The lenders argue that they are providing a source of credit for people who are unable to obtain less-expensive loans from banks. The high interest rates, the lenders say, are necessary to offset the risk that borrowers will stop paying their bills.

    Title loans are part of a broader lending boom tied to used cars. Auto loans allowing subprime borrowers – those with credit scores at 640 or below – to buy cars have surged in the last five years.

    Read More › 5 tips to get the best deal on a car loan

    The high interest rates on the loans have enticed an influx of Wall Street money. Private equity firms are investing in lenders, and some big banks are ramping up their auto lending to people with blemished credit.

    Propelling this lending spree are the cars themselves, and how essential they are in people’s lives.

    In most parts of the country, a car is vital to participating in the work force, and lenders are betting that people will do virtually anything to keep their cars, choosing to make auto loan payments before paying for just about any other expense.

    The title lending industry, perhaps more than any other facet of subprime auto lending, thrives because of the car’s importance.

    While people seeking title loans are often at their most desperate – dealing with a job loss, a divorce or a family illness – the lenders are willing to extend them loans because they know that most borrowers will pay their bill to keep their cars. Some lenders do not even bother to assess a borrower’s credit history.

    “The threat of repossession turns the borrower into an annuity for the lenders,” Diane Standaert, the director of state policy at the Center for Responsible Lending, said.

    Unable to raise the thousands of dollars he needed to repair his car, Ken Chicosky, a 39-year-old Army veteran, felt desperate. He received a $4,000 loan from Cash America, a lender with a storefront in his Austin, Tex., neighborhood.

    The loan, which came with an interest rate of 98.3 percent, helped him fix up the 2008 Audi that he relied on for work, but it has torpedoed his credit score. Mr. Chicosky, who is also attending college, uses some of his financial aid money to pay his title loan bill.

    Mr. Chicosky said he knew the loan was a bad decision when he received the first bill. It detailed how he would have to pay a total of $9,346 – a sum made up of principal, interest and other fees.

    “When you are in a situation like that, you don’t ask very many questions,” he said.

    Cash America declined to comment.”

97. Most Americans are one paycheck away from the street

    http://www.marketwatch.com/story/most-americans-are-one-paycheck-away-from-the-street-2015-01-07

    http://www.federalreserve.gov/econresdata/2014-economic-well-being-of-us-households-in-2013-executive-summary.htm

    “Americans are feeling better about their job security and the economy, but most are theoretically only one paycheck away from the street.

    Approximately 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair, according to a new survey of 1,000 adults by personal finance website Bankrate.com. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%).

    “Emergency savings are not just critical for weathering an emergency, they’re also important for successful homeownership and retirement saving,” says Signe-Mary McKernan, senior fellow and economist at the Urban Institute, a nonprofit organization that focuses on social and economic policy.

    The findings are strikingly similar to a U.S. Federal Reserve survey of more than 4,000 adults released last year. “Savings are depleted for many households after the recession,” it found. Among those who had savings prior to 2008, 57% said they’d used up some or all of their savings in the Great Recession and its aftermath. What’s more, only 39% of respondents reported having a “rainy day” fund adequate to cover three months of expenses and only 48% of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money.

    Read: American credit-card debt hits a post-recession high

    Why aren’t people saving? “A lot of people are in debt,” says Andrew Meadows, a San Francisco-based producer of “Broken Eggs,” a documentary about retirement. “Probably the most common types of debt are student loans and costs related to medical issues.” He spent seven weeks traveling around the U.S. and interviewed over 100 people about why they haven’t saved enough money. “People are still feeling the heat from the Great Recession.” Some 44% of senior citizens have enough savings to cover unexpected expenses versus 33% of millennials, Bankrate.com found.

    Read: Half of Americans can’t afford their house

    On the upside, the Bankrate survey found that 82% of Americans keep a household budget, up from 60% in 2012. Even in the age of the smartphone, most people keep a budget the old-fashioned way, either with a pen and paper (36%) or in their heads (18%). Just 26% of those surveyed say they use a computer program or smartphone app. “A solid majority of Americans say they have a household budget, which is a good thing. But too few have the ability to cover expenses outside their budget without going into debt or turning to family and friends for help,” said Claes Bell, a banking analyst at Bankrate.com.

    But while the jobs market is improving and the Affordable Care Act has given an estimated 15 million people access to medical care, the Great Recession does appear to have taken its toll on Americans’ finances; in fact, they’re 40% poorer today than they were in 2007. The net worth of American families – that is, the difference between the values of their assets, including homes and investments, and liabilities – fell to $81,400 in 2013, down slightly from $82,300 in 2010, but a long way off the $135,700 in 2007, according to a report released last month by the nonprofit think tank Pew Research Center in Washington, D.C.”

98. Workers ‘squeezed’ by health insurance costs: Report

    http://www.cnbc.com/id/102318871

    http://www.commonwealthfund.org/publications/issue-briefs/2015/jan/state-trends-in-employer-coverage

    “Even when there’s good news for health insurance prices, workers still can’t catch a break.

    A slow-down in growth of premium prices for employer-based health insurance in most of the United States in recent years has yet to translate into relief for the people covered by those plans, a new report released Wednesday finds.

    The Commonwealth Fund’s state-by-state analysis also shows that in every state over the course of a decade, the cost of employer-provided health care still grew faster than incomes.

    Read More › 5 smart ways small biz can slash health costs

    That, in turn, had led to workers footing a bigger share of the costs of their health insurance.

    In fact, employee contributions to their insurance costs have risen by as much as 175 percent since 2003 in some cases-with workers in the south having the biggest cost burden.

    “Slow wage growth means working families in every state are being squeezed by health-care costs,” said Sara Collins, the report’s co-author and vice president for health-care coverage and access at the Commonwealth Fund.

    The report comes after years of slow growth in overall health-care costs on the heels of the 2008 financial meltdown, and as the effects of President Barack Obama’s health-care reform law, the Affordable Care Act, are being felt. The ACA contains several provisions designed to slow the rate of health-care cost growth.

    The report notes that from 2010 to 2013, on the heels of the ACA’s passage, 31 states and the District of Columbia saw a slowdown in the growth of premiums charged for health insurance for workers. Twelve of those states saw at least a three-percentage-point decrease in the rate of premium inflation.

    Read More › HealthCare.gov sign-ups near 6.6M

    But from 2003 through 2013, in all states, the price of employer-provider insurance premiums grew quicker than the pay for the workers there.

    Because of that, “from an employee and family perspective, there may be little awareness that premium growth has slowed,” said Cathy Schoen, one of the authors of the study, which includes an interactive map that highlights the state-based data.

    Read More › Harvard’s health costs: Doing the math

    The effect of that difference in inflation rates is underscored by the fact that in 2003 there were only two states, New Mexico and West Virginia, where average premiums equaled 20 percent or more of the median income in those states.

    But by 2013, “average premiums amounted to 20 percent or more of the median income in all but 13 states and the District of Columbia,” according to the Commonwealth Fund.

    And in seven states as of 2013-Alaska, Arkansas, Kentucky, Nevada, New Mexico, Texas and West Virginia-“average premiums were 25 percent to 28 percent of of state median income in 2013,” the group said.

    Exhibit 4

    “Premiums relative to incomes are particularly high in Southern states,” according to the Commonwealth Fund. “Average total premiums equaled 22 percent or more in 12 Southern states.”

    Those average premiums nationally-which range from about $13,500 to $14,382 annually at the low end, up to between $17,262 to $20,715 at the high end-represent the total premium payments by both employers and employees to the health plans.

    But during the same decade-long period eyed by the Commonwealth Fund, workers ended up paying more personally for their coverage, both in the form of premiums and deductibles, the portion of medical costs that have to be paid by the enrollee before the insurance pays its share of the bill.

    “In every state, employees contributions to their health insurance premiums in 2013 amount to a higher share of state median income than a decade earlier,” the Commonwealth Fund said. “In 15 states, employees annual payment for their share of premiums rose by 100 percent or more.”

    Read More › Obamacare effect: Record lowuninsureds

    On the deductible side of the equation, the report noted that in 2003, no state had an average deductible for employer plans that was as high as $1,000. A decade later, the average-per-person deductible in such plans topped $1,000 “in all but three states and the District of Columbia.” Deductibles, over the same time period, at least doubled in all but six states, and the District of Columbia.

    The combined out-of-pocket premiums and deductibles borne by workers in employer plans range from a low of 6 to 7 percent of the median income in the District of Columbia, Hawaii and North Dakota, to 12 percent or more of median income in Texas and Florida.

    Commonwealth Fund President Dr. David Blumenthal said those out-of-pocket costs are “of concern since research shows that high health-care cost burdens relative to income may lead people to avoid seeking needed health care.””

99. U.S. CPI & Reality

    http://www.bls.gov/news.release/cpi.t07.htm

    Table 7. Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, by expenditure category, 12-month analysis table (2013 to 2014)

    Below are the annual price increases for items that might impact your life on a daily basis:

    Food at home – 3.7%

    Food away from home – 3.0%

    Meat – 12.7%

    Fish and seafood – 4.3%

    Eggs – 10.7%

    Milk – 4.3%

    Fresh Fruits & vegetables – 4.1%

    Coffee – 3.6%

    Butter – 22.5%

    (piped) Natural gas – 5.8%

    Footwear – 2.8%

    Prescription drugs – 6.4%

    Newspapers & magazines – 4.8%

    College textbooks – 5.0%

    Apartment rent – 3.4%

    Owners equivalent rent – 2.6%

    Hotels – 7.3%

    Water & sewer – 5.6%

    Medical care -2.4%

    Hospital care – 4.9%

    College tuition – 3.4%

    Postage – 4.1%

    Tax preparation – 6.1%

    I don’t know about everyone else, but the most of the costs listed above account for a significant amount of a person’s budget.

    Health insurance accounts for .75% of a person’s annual budget???

    Health insurance fell by 0.5% over the last year??? I’d love to hear from anyone out there whose health insurance premiums fell in the last year. Mine went up by about 20%.

100. Honda Warns Against ‘Stupid’ Loans Driving U.S. Sales Gains

     http://www.bloomberg.com/news/2015-01-20/honda-warns-against-stupid-auto-loans-driving-u-s-sales-gains.html?cmpid=yhoo

     “A top U.S. executive at Honda Motor Co. (7267) said competitors are doing “stupid things” to boost auto sales, including making seven-year-long car loans that harm buyers.

     Automakers are increasingly selling vehicles with 84-month loans that reduce monthly payments while making it tougher to repay faster than cars lose value, John Mendel, Honda’s U.S. sales chief, said in an interview. The Tokyo-based company will avoid longer-term loans even as Nissan Motor Co. (7201) tries to supplant it as the fifth-biggest automaker in the U.S., he said.

     “You’re ringing the bell on a new-car sale, but that customer is saddled — they’re stretched so thin,” Mendel said at the North American International Auto Show last week. Extended-term loans are “stupid not just for us, but for the industry.”

     Subprime Lending »

     The comments by Honda’s Mendel were a rare show of caution during the auto show in Detroit, as car-industry executives cheered the best year of U.S. sales since 2006. Deliveries are projected to rise to 16.7 million this year, which would be a sixth straight increase and extend the longest streak of gains since World War II.

     Honda fell 0.2 percent to 3,638.5 yen as of 9:24 a.m. in Tokyo trading. The shares have gained 3.1 percent this year, compared with a 1.2 percent drop in Japan’s benchmark Topix index. Toyota Motor Corp., the nation’s largest carmaker, has risen 0.6 percent this year while Nissan is down 4.1 percent.

     ‘Not Pretty’

     Sales will keep growing as the Federal Reserve’s zero-interest-rate policy encourages investors to collect yield from auto loans, said Tom Webb, chief economist at Manheim Consulting. While not in a bubble, the industry is taking on more risk by extending longer loans with smaller down payments to buyers with blemished credit scores, he said.

     “We’ve seen this movie before, we know how it ends, and it’s not pretty,” Webb told reporters at an event before last week’s show. “But I say that it has longer to run, and we have already paid the price of admission. So we might as well stay to the end. You just keep your eyes on the exit door.”

     More than one in four new-car loans in October and November were 73 to 84 months long, according to Experian Plc. The share of new-car loans at those term lengths was less then 10 percent in 2009 and 2010.

     Honda Sales

     “It can have some negative impact on the market in creating a vicious cycle of negative equity if the consumer doesn’t hold onto their vehicle long enough,” Melinda Zabritski, senior director of automotive finance for Experian, said by phone. “Something has to be done to keep the market affordable, or consumer buying is going to have to change and we’ll have to return to less frequent purchases.”

     Honda’s U.S. deliveries will grow 2 percent to 4 percent this year to a record, driven by three new or updated utility vehicles: the subcompact HR-V, the compact CR-V and the mid-size Pilot, Mendel said.

     Nissan, the sixth-largest automaker by U.S. sales, narrowed the gap with Honda for the second straight year in 2014. The Yokohama, Japan-based company trailed Honda by fewer than 20,000 vehicles, or less than the number of Civics sold in December.

     “There is no reason why Nissan should be behind Honda, particularly in this market,” Jose Munoz, Nissan’s executive vice president in charge of North America, said after the company debuted its new Titan pickup. “When we reinforce our presence in the truck segment, we’re going to be more of a challenge for them than we are today.”

     Honda Loans

     Munoz declined to predict whether Nissan will overtake Honda in 2015 or 2016.

     “I don’t lose my sleep with that, but it’s going to happen,” he said. “We’re not going to do any crazy thing to achieve it.”

     Mendel said that rather than chase sales goals, Honda will rely on 36- to 48-month long loans that more easily allow consumers to owe less on their car than what it’s worth when sold as a used vehicle.

     “They’re in equity, don’t put any more money down, they get another car — we call it keys-to-keys,” he said. “That’s the kind of experience that really engrains loyalty.””

101. The Precarious State of Family Balance Sheets

     http://www.pewtrusts.org/~/media/Assets/2015/01/FSM_Balance_Sheet_Report.pdf

     “Overview

     The U.S. economy is five years removed from the Great Recession, and most national indicators point to a
     steadily increasing recovery. The stock market has more than doubled since its low in 2009, housing values
     have slowly increased nationally, foreclosure rates have declined for four years in a row, and unemployment has continued to trend slowly downward from a high of 10 percent during the recession to the current 5.6 percent.1 But these aggregate statistics obscure the financial insecurity that many Americans still face.

     Between 2010 and 2013, most household incomes fell, particularly among families of color and those without
     postsecondary education.2 Over that period, stock ownership decreased for households on all but the top 10
     percent of the income ladder, with a particularly steep decline among those on the bottom half.3 And almost a third of working-age adults reported having no retirement savings or pensions.4

     It is not surprising, then, that recent public opinion polling found American adults pessimistic and anxious about the economy and their own economic stability. They question whether the American Dream is within reach, and many doubt that their children will fare better than they have.5

     This report seeks to develop a clear picture of the current state of household financial security. It begins by
     exploring three components of family balance sheets-income, expenditures, and wealth-and how they have
     changed over the past several decades, and concludes with an examination of how these pieces interrelate and why understanding family finances requires that they be examined holistically.6 Taken together, the data in this study reveal a striking level of financial fragility:

     •• Although income and earnings have increased over the past 30 years, they have changed little in the past
     decade. The typical worker had wage growth of 22 percent between 1979 and 1999 but just 2 percent from
     1999 to 2009.
     •• Substantial fluctuations in family income are the norm. In any given two-year period, nearly half of
     households experience an income gain or drop of more than 25 percent, a rate of volatility that has been
     relatively constant since 1979.
     •• The Great Recession eroded 20 years of consumption growth, pushing spending back to 1990 levels. Over
     the 22 years before the start of the downturn, household expenditures grew by 16 percent. But households
     tightened their purse strings after the start of the recession in 2007, and spending has yet to recover. As a
     result, the net increase in average annual household spending is just 2 percent since 1990.
     •• The majority of American households (55 percent) are savings-limited, meaning they can replace less
     than one month of their income through liquid savings. Low-income families are particularly unprepared for
     emergencies: The typical household at the bottom of the income ladder has the equivalent of less than two
     weeks’ worth of income in checking and savings accounts and cash at home.
     •• Even when pooling all of its resources-including from accounts that are potentially costly to access, such
     as retirement accounts and investments-the typical middle-income household can replace only about four
     months of lost income.
     •• Most families face financial strain across all balance sheet elements: income, expenditures, and wealth. In
     addition to being savings-limited, households face other financial challenges; just under half of families are
     “income-constrained,” reporting household spending greater than or equal to their income; and 8 percent are
     “debt-challenged,” with payments equal to 41 percent or more of their gross monthly income. Fully 70 percent of households face at least one of these problems, with many confronting two or even all three.

     The data tell a powerful story about the state of household economic security and opportunity: Despite the
     national recovery, most families feel vulnerable and stressed, and could not withstand a serious financial
     emergency. This reality must begin to change if the American Dream is to remain alive and well for future
     generations.”

102. Excluded from the Financial Mainstream:

     How the Economic Recovery is Bypassing Millions of Americans

     http://assetsandopportunity.org/assets/pdf/2015_Scorecard_Report.pdf

     “The quality of available jobs helps explain why many people are not benefitting from the recovery. Fully one-quarter (25.1%) of jobs are in low wage occupations, a four percentage-point increase over the prior year. These jobs are disproportionately held by women and workers of color.8 Across the board, average annual pay nationally continued nearly a decade of stagnation and actually fell between 2012 ($50,011) and 2013 ($49,808).”

     And, “Millions of Americans are being excluded from the economic recovery. However, for some, the degree of exclusion is more profound. Not only are these households not reaping benefits of an improving economy, they are living outside the economic mainstream, relegated to using fringe-often high-cost-financial services and products that trap them in a cycle of debt and financial insecurity. One in five households regularly rely on fringe financial services to meet their needs. Nationally, 55.6% of consumers have subprime credit scores, meaning they cannot qualify for credit or financing at prime rates. Outside the financial mainstream, high-cost predatory loans are often the only way to bridge the gap between income and the cost of meeting basic needs.”

103. Stock Buybacks Are Killing the American Economy

     Profits once flowed to higher wages or increased investment. Now, they enrich a small number of shareholders.

     “President Obama should be lauded for using his State of the Union address to champion policies that would benefit the struggling middle class, ranging from higher wages to child care to paid sick leave. “It’s the right thing to do,” affirmed the president. And it is. But in appealing to Americans’ innate sense of justice and fairness, the president unfortunately missed an opportunity to draw an important connection between rising income inequality and stagnant economic growth.

     As economic power has shifted from workers to owners over the past 40 years, corporate profit’s take of the U.S. economy has doubled-from an average of 6 percent of GDP during America’s post-war economic heyday to more than 12 percent today. Yet despite this extra $1 trillion a year in corporate profits, job growth remains anemic, wages are flat, and our nation can no longer seem to afford even its most basic needs. A $3.6 trillion budget shortfall has left many roads, bridges, dams, and other public infrastructure in disrepair. Federal spending on economically crucial research and development has plummeted 40 percent, from 1.25 percent of GDP in 1977 to only 0.75 percent today. Adjusted for inflation, public university tuition-once mostly covered by the states-has more than doubled over the past 30 years, burying recent graduates under $1.2 trillion in student debt. Many public schools and our police and fire departments are dangerously underfunded.

     Where did all this money go?

     The answer is as simple as it is surprising: Much of it went to stock buybacks-more than $6.9 trillion of them since 2004, according to data compiled by Mustafa Erdem Sakinç of The Academic-Industry Research Network. Over the past decade, the companies that make up the S&P 500 have spent an astounding 54 percent of profits on stock buybacks. Last year alone, U.S. corporations spent about $700 billion, or roughly 4 percent of GDP, to prop up their share prices by repurchasing their own stock.

     In the past, this money flowed through the broader economy in the form of higher wages or increased investments in plants and equipment. But today, these buybacks drain trillions of dollars of windfall profits out of the real economy and into a paper-asset bubble, inflating share prices while producing nothing of tangible value. Corporate managers have always felt pressure to grow earnings per share, or EPS, but where once their only option was the hard work of actually growing earnings by selling better products and services, they can now simply manipulate their EPS by reducing the number of shares outstanding.

     So what’s changed? Before 1982, when John Shad, a former Wall Street CEO in charge of the Securities and Exchange Commission loosened regulations that define stock manipulation, corporate managers avoided stock buybacks out of fear of prosecution. That rule change, combined with a shift toward stock-based compensation for top executives, has essentially created a gigantic game of financial “keep away,” with CEOs and shareholders tossing a $700-billion ball back and forth over the heads of American workers, whose wages as a share of GDP have fallen in almost exact proportion to profit’s rise.

     To be clear: I’ve done stock buybacks too. We all do it. In this era of short-term-focused activist investors, it is nearly impossible to avoid. So at least part of the solution to our current epidemic of business disinvestment must be to discourage this sort of stock manipulation by going back to the pre-1982 rules.

     This practice is not only unfair to the American middle class, but is also demonstrably harmful to both individual companies and the American economy as a whole. In a recent white paper titled “The World’s Dumbest Idea,” GMO asset allocation manager James Montier strongly challenges the 40-year obsession with “shareholder value maximization,” or SVM, documenting the many ways that stock buybacks and excessive dividends have reduced business investment and boosted inequality. Almost all investment carried out by firms is financed by retained earnings, Montier points out, so the diversion of cash flow to stock buybacks has inevitably resulted in lower rates of business investment. Defenders of SVM argue that investors efficiently reallocate the profits they reap from repurchased shares by investing the proceeds into more promising enterprises. But Montier shows that since the 1980s, public corporations have actually bought back more equity than they’ve issued, representing a net negative equity flow. Shareholders aren’t providing capital to the corporate sector, they’re extracting it.

     Meanwhile, the shift toward stock-based compensation helped drive the rise of the 1 percent by inflating the ratio of CEO-to-worker compensation from twenty-to-one in 1965 to about 300-to-one today. Labor’s steadily falling share of GDP has inevitably depressed consumer demand, resulting in slower economic growth. A new study from the Organization for Economic Co-operation and Development finds that rising inequality knocked six points off U.S. GDP growth between 1990 and 2010 alone.

     It is mathematically impossible to make the public- and private-sector investments necessary to sustain America’s global economic competitiveness while flushing away 4 percent of GDP year after year. That is why the federal government must reorient its policies from promoting personal enrichment to promoting national growth. These policies should limit stock buybacks and raise the marginal rate on dividends while providing real incentives to boost investment in R&D, worker training, and business expansion.

     If business leaders hope to maintain broad public support for business, they must acknowledge that the purpose of the corporation is not to enrich the few, but to benefit the many. Once America’s CEOs refocus on growing their companies rather than growing their share prices, shareholder value will take care of itself and all Americans will share in the benefits of a renewed era of economic growth.”

     $6.9 trillion

     http://www.politico.com/magazine/story/2014/11/overtime-pay-obama-congress-112954.html#.VNwtEmB0xLN

     54 percent of profits

     https://hbr.org/2014/09/profits-without-prosperity

     World’s Dumbest Idea

     https://www.gmo.com/America/CMSAttachmentDownload.aspx?target=JUBRxi51IIBoe1yul9uERnfCmQoglFl9k5qwJSfHx8w%2fWCnFLmEb2MC9GoFnZVlslR5NzCRY1ajgn503icBv67VQg%2fNVUMWsYvi3A2%2fL%2bS28A7Pthjp7LmOfLYQfHMJc

104. The Middle Class May Be Under More Pressure Than You Think

     https://www.stlouisfed.org/publications/in-the-balance/issue11-2015/the-middle-class-may-be-under-more-pressure-than-you-think

     The Financial Pressures of the Middle Class

     https://www.stlouisfed.org/on-the-economy/2015/april/the-financial-pressures-of-the-middle-class

     “Using data from the Survey of Consumer Finances, Emmons and Noeth found that the median incomes of thrivers and stragglers were slightly higher in 2013 than in 1989, rising 2 percent and 8 percent, respectively. The middle class, however, experienced a decline in median income of 16 percent over the same period.

     Regarding wealth, thrivers experienced an increase in median wealth of 22 percent over the period 1989-2013. The middle class and stragglers experienced large declines, with the median wealth of the middle class dropping 27 percent and of the stragglers dropping 54 percent over the same period.

     Emmons and Noeth also examined the performance of each group relative to the population as a whole. They found that the median income of the middle class as they defined it grew 21 percent less than the overall median income from 1989 through 2013. The cumulative growth shortfall in wealth for the median demographically defined middle-class family was about 24 percent compared to overall median wealth.”

105. High Number of Zero-Savers

     47% of households have a 0% personal savings rate

     http://www.ritholtz.com/blog/2015/04/high-number-of-zero-savers/

     http://www.ritholtz.com/blog/wp-content/uploads/2015/03/zero-savers.png

     It says the source is Source: Torsten Sløk, Ph.D., Deutsche Bank Securities, DB Global Markets Research, and FRB Survey of Consumer Finances

106. Labor Productivity, Household Incomes and Corporate Profits: And the Winner Is?

     http://www.advisorperspectives.com/dshort/commentaries/Labor-Productivity-and-Household-Incomes.php

     “The growth in labor productivity clearly hasn’t translated into higher incomes for median (aka middle class) households. Note that the household income data ends at 2013. The Census Bureau will publish the 2014 data in mid-September. That relatively flat blue line, showing a cumulative growth of 19.2% since 1967, is actually 8.7% off its peak, which occurred in 1999 as the market was entering the final phase of the Tech Bubble.

     So who actually benefited from the upward trend in labor productivity? Let’s look at an overlay of the Labor Productivity Index and a log-scale chart of Corporate Profits. On the recommendation of my friend Bob Bronson of Bronson Capital Markets Research, we’re using the series CPATAX in the FRED repository, which tracks corporate profits is after tax with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj).

     Now let’s examine an overlay all three.

     Growth in Labor Productivity has been a boon to corporate profits, but not to household incomes.

     So much for the theory of trickle-down economics.”

     Last Chart:

     http://www.advisorperspectives.com/dshort/charts/index.html?indicators/Labor-Productivity-Median-Household-Incomes-and-Corporate-Profits.gif

107. Can services prices mean price inflation is understated, not overstated?

     http://www.businessinsider.com/the-cost-of-cable-subscriptions-2015-7

     “This chart shows how the cost of cable has exploded over time”

     “This chart, from RBC Capital Markets’ Investment Strategy Playbook for July, is quite something.

     With little pause, the cost of a cable subscription has exploded over the years.

     We know that people are ditching pay TV for cheaper, contract-free streaming options like Netflix.

     And, according to data provided to BI Intelligence, the gap between the number of TV and internet subscribers keeps widening, with more people opting for broadband-only packages.”

     http://static2.businessinsider.com/image/55982cedeab8ea6d11fff5f3-1200-632/screen%20shot%202015-07-04%20at%201.19.53%20pm.png

     “The cost of cable subscriptions has doubled in the last eight years.”

108. Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay
     Why It Matters and Why It’s Real

     http://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/

     http://www.epi.org/productivity-pay-gap/

109. Is the annual pay raise dead?

     http://www.cnbc.com/2015/10/05/is-the-annual-pay-raise-dead.html

     “”Base salary increases are flat. We don’t see the prospect of that changing much at all in the next several years,” said Ken Abosch, who studies compensation issues for Aon Hewitt.

     In other words, the annual raise is dead. It was already on life support last decade, but the Great Recession has finished off the raise. It’s been replaced by “variable compensation” – the bonus. (See the chart from Aon Hewitt below.)

     “The quiet revolution has been the change in compensation mix,” Abosch said. “Through a series of recessions, organizations have pulled back dramatically on fixed costs. And base salaries are often a company’s most significant fixed cost … [They] have a compounding effect, and create a drag on an organization’s ability to change.”

     In a perfect world, variable compensation allows companies to align corporate and worker incentives, and it rewards high performers and hard workers. It also allows companies to pull back on employee costs during hard times without resorting to layoffs.

     In reality, switching from raises to bonuses has mucked up a lot of things. For starters, it’s hard to make long-term financial plans with such short-term financial commitments from your employer. It’s nerve-wracking to take on a 30-year mortgage if your income is $100,000 this year but might be $80,000 next year.

     Workers also complain that the relationship between performance and bonus is often indirect – determined by factors outside their control, such as turnover in other departments or the overall economy.

     In a larger sense, when a substantial portion of a worker’s compensation is unpredictable, one benefit of full-time work fades. The “bonus” employee ends up in the same boat as an independent contractor, not quite knowing what their income will be in the future. The Aon and Towers Watson disagreement about funding of bonus pools speaks to the high degree of uncertainty that variable compensation can bring.”

110. It’s Getting Harder To Move Beyond A Minimum-Wage Job

     http://fivethirtyeight.com/features/its-getting-harder-to-move-beyond-a-minimum-wage-job/

     “Minimum-wage jobs are meant to be the first rung on a career ladder, a chance for entry-level workers to prove themselves before earning a promotion or moving on to other, better-paying jobs. But a growing number of Americans are getting stuck on that first rung for years, if they ever move up at all.

     Anthony Kemp is one of them. In 2006, he took a job as a cook at a Kentucky Fried Chicken in Oak Park, Illinois. The job paid the state minimum wage, $6.50 an hour at the time, but Kemp figured he could work his way up.

     “Normally, a good cook would make $14, $15, $17 an hour,” Kemp said. “I thought that of course I’d make a better wage.”

     He never did; nine years later, the only raises Kemp, 44, has seen have been the ones required by state law. He earns $8.25, the state’s current minimum wage.

     Stories like Kemp’s are becoming more common. During the strong labor market of the mid-1990s, only 1 in 5 minimum-wage workers was still earning minimum wage a year later.1 Today, that number is nearly 1 in 3, according to my analysis of government survey data.2 There has been a similar rise in the number of people staying in minimum-wage jobs for three years or longer. (For a more detailed explanation of how I conducted this analysis, see the footnote below.)3

     Even those who do get a raise often don’t get much of one: Two-thirds of minimum-wage workers in 2013 were still earning within 10 percent of the minimum wage a year later, up from about half in the 1990s. And two-fifths of Americans earning the minimum wage in 2008 were still in near-minimum-wage jobs five years later, despite the economy steadily improving during much of that time.4″

     There is more in the article.

111. Inequality in Our Retirement Accounts

     http://www.bloombergview.com/articles/2015-10-29/inequality-in-our-retirement-accounts

     http://www.bloomberg.com/news/articles/2015-10-28/top-100-ceo-retirement-savings-equals-41-of-u-s-families

     http://www.ips-dc.org/tale-of-two-retirements/

     “In the Republican presidential debate Wednesday night, the issue of income inequality came up with surprising frequency. Why that happened is worthy of its own column; for now, let’s explore the issue with some recent data. Specifically, I want to consider inequality in the funding of our collective retirements.

     As a nation, we do a rather mediocre job preparing for the day we stop working. We underfund Social Security, a program originally developed to combat poverty among older Americans. As individuals, we fail to save enough to fund our own secure retirements.

     QuicktakeAmerica’s Retirement Gap

     To go deeper on the topic, let me direct your attention to Charley Ellis, founder of Greenwich Associates and former chairman of the Yale endowment. Ellis wrote the seminal investment book “Winning the Losers Game.” More recently, he co-wrote a sober explanatory book, including reasonable solutions, titled “Falling Short: The Coming Retirement Crisis and What to Do About It.” You can listen to our Masters in Business interview with Ellis here.

     In the meantime, consider this analysis by the Schwartz Center for Economic Policy Analysis at the New School for Social Research in New York. Using the most recent Census Bureau data, their analysis observed that “almost half of U.S. workers didn’t have a company-sponsored retirement plan in 2013, compared with 39 percent in 1999.”

     As Bloomberg News reported, “The lack of plans is fueling a retirement-savings crisis. Few workers save anything outside of employer-sponsored plans. Only 8 percent of taxpayers eligible to set aside money in an IRA or Roth IRA did so in 2010, according to the IRS.” Those statistics are simply awful.

     Forget for a moment the debate as to whether Social Security will be around (it’s easily made solvent). At present, Social Security benefits average $15,700 a year, far below what most people need to replace the median U.S. salary of $53,657.

     Then consider:

     • Half of U.S. workers lack company-sponsored retirement plans.
     • Only 45 percent of businesses with fewer than 100 employees offer 401(k)s.
     • Those who work part time, or switch jobs frequently, or work at a small company, are less likely to have an employer-sponsored retirement plan.

     It’s not just that the U.S. retirement situation is bad — it’s that it’s trending in the wrong direction.

     At the opposite end of the spectrum are the retirement plans of chief executives. As a group, not surprisingly, they are doing exceedingly well. As Bloomberg reported Wednesday, “The retirement savings accumulated by just 100 chief executives are equal to the entire retirement accounts of 41 percent of U.S. families — or more than 116 million people.” The 100 largest chief executive retirement funds are worth an average of $49.3 million per executive, or a combined $4.9 billion. All of these data points come from a new study by the Institute for Policy Studies and the Center for Effective Government.

     Some of the data points are quite astonishing: “Fortune 500 CEOs have $3.2 billion in special tax-deferred compensation accounts that are exempt from the annual contribution limits imposed on ordinary 401(k)s.” The CEOs managed to “save $78 million on their tax bills by putting $197 million more in these tax-deferred accounts than they could have if they were subject to the same rules as other workers. These special accounts grow tax-free until the executives retire and begin to withdraw the funds.”

     Why well-paid executives get a better tax deal than rank-and-file workers is not much of a surprise: They are the ones who can afford the lobbyists who insert these special dispensations into the tax code.

     So while we are debating income inequality, we should also be thinking about retirement inequality.

     Perhaps most vulnerable are the millennials, who came of working age in the midst of the Great Recession. There are 68 million wage-and-salary workers without a company-sponsored retirement plan, according to the Employee Benefit Research Institute. Millennials make up a disproportionate share of workers without a 401(k).

     This is unfortunate: Patrick O’Shaugnessy noted in his book “Millennial Money: How Young Investors Can Build a Fortune,” that as investors, millennials are planning for retirement in 40 to 50 years. Never again in their lifetimes will they have such a long time horizon.

     We have a looming retirement crisis. I have yet to hear a coherent solution from anyone from either party.”

     ***** So while we are debating income inequality, we should also be thinking about retirement inequality. ***** My emphasis.

112. http://www.etf.com/sections/features-and-news/research-affiliates-wheres-beef-lies-damned-lies-and-statistics?nopaging=1

     Research Affiliates: Where’s The Beef?

     “Key Points

     American households, pinched by rising prices at a rate higher than headline inflation, have generally not benefited from the unrelenting stimulus of quantitative easing and zero interest rates, and instead have experienced a decade of zero growth in income and spending power.
     The high valuations and low interest rates born of accommodative monetary policy lower forward-looking returns for both the wealthy and the middle class, but the middle class, who must invest today to prepare for retirement tomorrow, suffers relatively more.
     When the Fed eventually steps away from overt market interventions, capital market valuations should revert to more normal (i.e., lower) levels, which would bring with them more sensible forward-looking returns.

     The price of beef has been soaring over the past five years-up 80% cumulatively at the end of December 2015-but you’d never know it by looking at the official U.S. Consumer Price Index (CPI), which is up 7%, or 1.4% a year, over the same five-year span, and therein lies our beef. The developed nations of the world, are supposedly living in a low-inflation environment, at risk of tipping over into the abyss of deflation. That’s what the folks at the U.S. Bureau of Labor Statistics (BLS) tell us. And they should know, right?

     Well, maybe not. Surveys suggest that the average American’s daily experience may be quite different. One-year consumer inflation expectations have been consistently higher than trailing and realized inflation over the last 20 years, and higher than more recent market-based inflation expectations, measured by one-year swap rates. Figure 1 shows how this divergence has grown larger since the financial crisis, suggesting the average household might have been feeling even greater pain during the recovery process than has been believed.

     Since 1995, households have expected inflation to be, on average, 3.0%, whereas realized inflation has been around 2.2%, leaving an inflation “gap” of almost 0.8%. What explains this gap? The following is our hypothesis. The four “biggies” for the average American are rent, food, energy, and medical care, in approximately that order. These “four horsemen” have been galloping along at a faster rate than headline CPI. According to the BLS definition, they compose about 60% of the aggregate population’s consumption basket, but for struggling middle-class Americans, it’s closer to 80%. For the working poor, spending on these four categories can stretch to as much as 90% of total spending. Families have definitely been feeling the inflation gap, that difference between headline CPI and inflation in the prices of goods they most frequently consume.

     Since 1995, the average year-over-year inflation rate for energy has been 3.9%, for food, 2.6%; for shelter, 2.7%; and for medical care, 3.6%. If we strip out all other items and recalculate the index based exclusively on these four components, we find the average rate has been about 2.9%, right in line with households’ expectations. Let us be provocative. If inflation-as experienced by the average American-is higher than official BLS “inflation,” then what exactly is the BLS statistic measuring?

     It looks like the BLS thermometer is broken! Whatever temperature they show us, the actual temperature is higher, as experienced by the average American family. For instance, the reported CPI inflation over the past 10 years ending December 2015 was about 1.9% a year. If we focus on the “big four” over the last decade, the inflation that Americans experienced was about 0.5% more. Let’s call this 0.5% difference a “measurement bias.” Paradoxically, the inflation measures for these four categories are produced by the same people who assemble the CPI. Other sources peg the gap as being considerably larger.

     These considerations have a direct bearing on our prosperity. How much real growth, for example, has occurred in the past decade? Officially, GDP has grown 1.4% a year, over and above inflation. Over the same period, the U.S. population has grown by 0.9% a year. Thus, real per capita GDP has risen by a scant 0.5% a year. Subtract the 0.5% measurement bias-probably a conservative estimate-and the average American has experienced zero growth in personal spending power over the past decade. With wealth and income concentration, if the average is flat, then median per capita spending power must be lower. Comparing 2015 with 2005, this feels about right. The official statistics do not.

     The Great Recession begot a 5% reduction in U.S. real per capita GDP from the peak of 2007 to the trough of 2009. In the wake of the market collapse, major central banks around the world eased monetary conditions in lockstep with the Fed. It took nearly six years for U.S. real per capita GDP to regain its prerecession peak. This herculean task was achieved through massive spending and relentless borrowing from the nation’s current and future income. Has it worked? As always, it depends on whom you ask. We are deeply skeptical of claims that these massive interventions have helped. Real median household income has fallen by 4% since 2007, despite the “recovery” following the Great Recession! Comparing today to 1970, Figure 2 shows that real per capita GDP is up by 110%-more than doubling over the last 45 years! Yet, the median American has experienced less than one-fifth of this growth.

     Middle-class Americans are struggling, as are middle-class Japanese and Europeans. Easy money, asset purchases, and negative interest rate policies of central banks across the developed world are intended to ignite the “animal spirits” of the private sector. Are they instead stifling economic and wage growth? Are they stimulating asset hoarding and bubbles, which fuel widening gaps between the haves and the have-nots, and feed class resentment? Are they leaving inflationary pressures unchecked and hollowing out opportunities for the middle class? These are provocative suggestions, which go against neo-Keynesian theoretical dogma, but they fit the objective evidence we see all around us. Sometimes common sense trumps theory.

     Former Fed Chairman Ben Bernanke was quite candid in saying that zero interest rates and quantitative easing were intended to create a “wealth effect.” He wanted asset values to rise so the affluent would spend more, so the economy could boom. He achieved the first of these: asset values rose. But who owns assets? The wealthy. What this “stimulated” is a growing gap between the haves and the have-nots: the wealthy got wealthier. That’s redistribution, backwards. Then, in a towering act of hubris and hypocrisy, the central bankers collectively deny they played any role in widening the income and wealth disparity, or in hollowing out the middle class. Ouch. But although the rich began to spend more, the impact on the economy was limited. If the rich mostly buy more assets (i.e., stocks, bonds, real estate, art, collectible cars, rather than “new stuff” that needs to be manufactured), doesn’t that just fuel more bubbles?

     And let’s not forget the downside of bull markets. The benefits to the rich of accommodative monetary policy are short lived. The values of the assets they own soar, but the forward-looking returns on those assets crater. (Notice how hard it is to find a liquid mainstream market that offers real after-tax returns much above zero these days.) Then, net of spending and charitable giving, their wealth dissipates assuredly and rapidly, recycled into the economy with no assistance needed from the Pikettys of the world. The wealth of the richest is fleeting, typically dissipated by the third generation (Arnott, Bernstein, and Wu, 2015).

     Worse, lousy forward-looking returns also afflict the young and the shrinking middle class. The future returns on their pension assets are horribly low, but the average American must prepare for retirement now, not later when the artificial policy-induced bull market ends and prices settle to more sensible levels. As a result, they invest their hard-earned money in the S&P 500 and hope for the best. Unfortunately, hope is not a strategy. To add insult to injury, their kids have essentially zero incentive to invest for the future or to buy (not at today’s prices!) those self-same assets from their parents to help transform them into goods and services their parents can consume in retirement. Zero-interest rate policies have crushed the opportunities and incentives for the middle class-and their kids-to save and invest.

     The middle class is getting squeezed from every direction and is sadly disappearing. In 2008, according to Pew Research Center, 53% of adults considered themselves middle class. A scant 6 years later in 2014, as Figure 3 illustrates, that number had dropped precipitously to 44%. At this rate of decline, in 30 years there’ll be no middle class left! For the class warriors, don’t worry, be happy-the self-identified upper class has shrunk from 21% to 15% in that same 6-year span, so they’ll be gone in just 15 years!

     We’re being deliberately provocative; we do not expect this to happen because pendulums swing both ways. But this particular swing of the pendulum is profoundly disturbing and is doing a lot of damage to what was once called “American exceptionalism.”

     New business start-ups suffer too. Individual investors hesitate to fulfill their dreams of beginning their own businesses-home to the majority of our economy’s jobs-because they don’t know the cost of capital. Near-zero interest rates aren’t available to them, and the future cost of capital is unknown but presumed to be higher. The prospective regulatory regime three to five years hence is shrouded in mystery too. Corporations, like investors, are deeply wary about long-horizon investments with uncertain prospects. Why plow funds into long-term risky business ventures when low-risk (but, of course, high-priced) stock is available for buybacks and can be funded with near-zero-rate financing? The endgame is that the economy stagnates and the middle class slowly slips underwater. Is this speculation or fact? January 2016 was one of only a few months since the Great Depression with no IPOs.

     The fears surrounding the global economy and the calls for negative interest rates highlight the uncertainty surrounding the near future. When central banks finally step away from overt market interventions, however, capital market valuations will presumably revert to the levels that would prevail in the absence of intervention. Does anyone think that will mean higher price levels? Didn’t think so. Accommodative monetary conditions inflate asset prices into asset bubbles that sooner or later will seek their fair value. If the interventions are artificially propping up asset prices, the average investor is justifiably wary. If fair values are lower, the good news is that, after the one-off adjustment, forward-looking returns will once again be sensible.

     Big Brother cannot take care of us. Only we can do that. Big Brother is us; the government is us. If we think a bureaucrat can take care of us better than we can take care of ourselves, or cares more about us than we care about ourselves, we’re deluded. The more we think we can offload our own responsibility for self-reliance-the longer we take to look under the bun and ask, “Where’s the beef?”-the more we invite our elite leaders to continue with the interventionist policies that have inflicted so much damage already.”

113. http://blogs.wsj.com/economics/2016/05/11/just-how-good-or-bad-are-all-the-jobs-added-to-the-economy-since-the-recession/

     Just How Good (or Bad) Are All the Jobs Added to the Economy Since the Recession?

     With interactive data.

     At the end, “So were all the jobs we created since the recession bad? Well, yes and no. It’s true that many low-wage industries have been growing, many middle-wage industries have shrunk, and more people work part time or for minimum wage than did a decade ago. But it’s also true many middle- and high-wage industries are growing too, and the number of minimum wage and part-time workers has gradually been declining over the past five years.”

114. https://research.stlouisfed.org/publications/economic-synopses/2016/08/12/labor-compensation-and-labor-productivity-recent-recoveries-and-the-long-term-trend/

     See all including:

     “In fact, labor productivity has been growing at a higher rate than labor compensation for more than 40 years. As Figure 3 shows, labor productivity in 2016:Q1 is 3.8 times as high as that in 1950:Q1; labor compensation, on the other hand, is only 2.7 times as high. In other words, the gap between labor productivity and compensation has been widening for the past four decades (see Domenech, 2015, and Fleck, Glaser, and Sprague, 2011, for discussions of the widening gap). The slower growth in labor compensation relative to labor productivity during the recovery from the two most recent recessions is part of this long-term trend.

     The data in Figure 3 show that the productivity-compensation gap-defined as labor productivity divided by labor compensation-has been increasing on average by approximately 0.9 percent per year since 1970:Q1. Based on this long-term trend, the gap would have been 51 percent higher in 2016:Q1 compared with 1970:Q1; in the data, the gap is actually 47 percent higher.

     In conclusion, labor compensation failed to catch up with labor productivity after the 2007-09 recession. How­ever, the driving force behind it is not unique to the recent recession but is part of a long-term trend of a widening productivity-compensation gap.”

115. Americans are now in more debt than they were before the financial crisis

     http://www.marketwatch.com/story/this-is-how-much-credit-card-debt-americans-racked-up-in-2016-2016-12-20

     “Americans may soon exceed the amount of credit-card debt they racked up during the Great Recession.

     The average household with credit card debt owes $16,061, up 10% from $14,546 10 years ago and $15,762 last year, according to a new analysis of Federal Reserve Bank of New York and U.S. Census Bureau data by the personal finance company NerdWallet. The amount of household credit card debt is still down from a recent high of $16,912 in 2008 at the height of the recession. The U.S. won’t hit pre-recession credit card debt levels until the end of 2019, NerdWallet’s analysis projects.

     Total debt (including mortgages, auto loans and student loans) is expected to surpass the amounts owed at the beginning of the Great Recession by the end of 2016, NerdWallet found, mostly due to mortgages and student loans. Mortgage debt jumped from $159,020 per household in 2010 to $172,806 in 2016, and debt from auto loans grew from $20,032 in 2010 to $28,535 in 2016.

     Nationwide, total household debt (including mortgages, auto loans and student loans) now equals almost $12.4 trillion, up from about $11.7 trillion in 2010.

     Why the growth in debt, given that many consumers should be skittish about living beyond their needs after the credit bubble of the Great Recession? The reason concerns a problem that has long dogged Americans. Median household income has grown 28% over the last 13 years, said Sean McQuay, a personal finance expert at NerdWallet, but expenses have outpaced it significantly. Case in point: Medical costs increased by 57% and food and beverage prices by 36% in that period.

     Many Americans find it difficult to stick to savings goals. And that’s even worse if you have a family. The amount that a two-parent, two-child family needs just to pay the bills (but not have money left over for savings) ranges from about $50,000 to more than $100,000 depending on where a family lives, according to data from the nonprofit and nonpartisan think tank the Economic Policy Institute.

     Rent has risen 3.9% in the last year alone, according to the Bureau of Labor Statistics. “The economy is doing better, but we’re really not seeing that trickle down to individual households the way we’d hope,” McQuay said. Rising living costs mean, if anything, consumers should pay extra attention to their budgets in the next year, he said. “We’re allergic to the idea of budgeting,” he said. “It sounds just as awful as dieting.””

116. Every industrial robot takes up to 6 jobs, study finds

     http://www.marketwatch.com/story/over-6-million-jobs-at-risk-from-robots-new-study-finds-2017-03-29

     “Industrial robots could take over 6 million jobs in a decade, new research finds.

     Economists Daron Acemoglu of the Massachusetts Institute of Technology and Pascual Restrepo of Boston University say that at the high end of projected industrial robot takeup, there would be a 0.94 to 1.76 percentage point decline in the employment-to-population ratio by 2025. Though the authors didn’t quantify the jobs at risk, the Census Bureau projects the 2025 population to be 347.3 million people, meaning between 3.3 million and 6.1 million jobs could be lost.

     Even a more conservative projection of robot usage would imply a 0.54 to 1 percentage point decline in the employment-to-population ratio, or between 1.9 million and 3.5 million jobs lost.

     The authors studied the impact of rising industrial robot usage between 1990 and 2007. They found that each new robot per thousand workers reduced the employment-to-population ratio by about 0.18 to 0.34 percentage points, and wages fell between 0.25% to 0.5%.

     Another way to say that: between 3 and 5.6 workers lost their jobs for each robot added to the national economy.

     Industrial robots are fully autonomous machines, which do not need a human operator and can be programmed to perform several manual tasks such as welding and painting. (Coffee machines, cranes and elevators are not industrial robots because they have a unique purpose, can’t be reprogrammed and/or require a human operator.)

     The employment impact, the authors find, is most pronounced in routine manual, blue collar, assembly and related occupations, and for workers with less than a college education. At the same time, the authors don’t find any positive and offsetting employment gains in any occupation or education group, a finding they call a surprise.

     The authors also found that while the robot impact on men and women was similar, the impact on male employment was more negative.

     Another notable finding is that the impact from robots is distinct and weakly correlated to other factors such as Mexican and Chinese imports, offshoring and other computer technology.”

     EMPHASIS: “At the same time, the authors don’t find any positive and offsetting employment gains in any occupation or education group, a finding they call a surprise.”

117. How fewer Americans are out-earning their parents – in one chart

     Making more money than mom and dad becomes less common

     http://www.marketwatch.com/story/how-fewer-americans-are-out-earning-their-parents-in-one-chart-2017-04-28

     http://science.sciencemag.org/content/early/2017/04/21/science.aal4617/tab-figures-data

     If the American Dream means making more money than your parents, then here’s a chart that shows the dream is in trouble.

     The below chart – which comes from the journal Science – gives the percentage of Americans who are out-earning their folks by birth cohort.

     If you’re a WWII baby or boomer, you most likely pulled in more than mom and dad.

     But it’s become not as common for Generation X and millennials. (Hat tip to the Daily Shot for highlighting this graphic, which is our Need to Know column’s chart of the day.)”

118. Great Divergences: The growing dispersion of wages and productivity in OECD countries

     http://voxeu.org/article/great-divergences-wages-and-productivity

119. I thought I had two (2) other comments/articles on May 18th.

     What happened to them? Thanks!