Circling The Drain. The death of the American family and its middle class; now two incomes be damned. (Part 2 of 2)

This 

The second part of the blog entry entitled: How to fix the economy: throw your wife back in the kitchen, barefoot and pregnant is optional



This is the most complicated aspect of working mothers in the workforce and the part that would be considered third-rail politically; the economic impact. I feel to date, this might be the most important topic I have talked about on this blog because it affects all of us on so many levels. I would like to think after reading this you would agree.

The confusing aspect of this, as mentioned in Part 1, is not intertwined in the complexity of the argument. On the contrary, it lies in the simplicity of it; yet it’s not even in the discussion of what ails our economy?

When it comes to children being cared for outside of the home, its hard to find clear cut data that points out positively home is better, thus I’m sure someone could call it subjective. Now it's common sense having one parent home works better but I like to deal in absolutes rather than conjecture. What is totally objective is the impact of working parents (and to a degree women in general) on the economy. This all can be traced back to two words: supply and demand.

Obviously, with any prospering nation, the population has been on the incline since its inception. Thus, there have always been more than enough people looking to work. If we compare our population today (315 Million) to 1960 (180 Million) we can see a 75% increase in population in 53 years. In 1960, there were 69 Million Americans employed. Today, there are 155 million Americans employed. That’s a 125% increase in Americans working today from 1960. If we include real unemployment numbers in one of the worst economic recovery’s in history (said to be about 22 million more Americans) that 125% climbs over 150%.

Adjusted for population and time, we have seen the true workforce expand more than 25% in 53 years. Even with the staggering unemployment, we are seeing 49% of our population in the workforce compared to just 38% in 1960. As we know, women entering the workforce deserve the spotlight here, but with all these added workers, are we getting our money worth?

From almost every statistical standpoint the answer is simple. No. And it doesn’t end there. First, this is what the employment history looks like men versus women over the last 60 years.









As we can see, women have almost doubled their numbers, while men in the workforce have fallen about fifteen percent since 1960. With the influx of all these new workers over time, it’s only natural to expect that a “rising tide lifts all boats” scenario would exist but that just doesn’t seem to be the case. Despite the fact that the US has more billionaires than anywhere else on the globe, despite the fact that the average net worth of the newly elected 113th Congress is 966k; the average American family has been stuck in neutral for 40+ years.

Nothing paints this picture more vividly than what has happened and will continue to happen to the middle class. Like the time you left the bath running too long, low-interest rates/created new money has been filling up the economy. By the time you do notice and go to shut the faucet off, you find the handle is stripped (as there is no end in sight to new money with record low-interest rates). And no matter what you do, we cannot keep up with rising costs (inflation via new money).

You work and work and work some more. Your spouse goes to work; your youngest kids are off to daycare while your teenager competes with those without a high school diploma for jobs. Debt, credit, 2nd job... it doesn’t matter; whatever it takes, you will use any bucket you can find. You throw every bucket you can into that tub to keep it from spilling over, to keep from falling under that median. To keep that American dream still afloat. The fear of being poor is a great motivator. But to no avail.

As we can see below the median income has been relatively unchanged for Americans over the last 40+ years. In fact, today, real household income is LESS than it was in 2000, adjusted for that inflation. Meanwhile, the median income for males in this country is LESS today than it was in 1973. Does this sound like a 'dream' or progress? Women have gained roughly 80% in median income in this span but it's still substantially less than men (there goes that richer sex theory).










The destruction of the middle class is taking place before our very eyes. We have more people getting rich but substantially more getting poorer. I suppose this is “better for everyone” too? And this lunacy isn’t just limited to Time Magazine either. All media seems to be nothing but a mouthpiece for this propaganda. As I said yesterday, we know it’s not better for kids and more specifically the family and as we can clearly see here it’s been no blessing for the overwhelming majority of Americans economies either.









Let’s re-cap. We work long hours. We are flooding the job markets over the last 50 years with record number job seekers, turning upside down our outlook on work and family in our culture in the process. All of this just to keep a foot in the middle class or otherwise known as: ‘living the American dream’. But inflation (read theft) through loose (read suicidal) monetary policy and cost of living has not just made this 'dream' impossible but in turn nothing short of a nightmare.

If this sobering fact of our economy wasn’t enough, we also have the reality that nationally; this situation is even worse. In fact, this is how the banksters and those at the top of the pyramid power structure want it. After all, all this work and no gain by the masses have to go somewhere, right?

It wasn’t until 1982 that we as a nation reached a national debt over 1 Trillion (1,142,034,000,000.00). That took 191 years to reach that numerical milestone. Thirty years later, we have surpassed the 16 trillion dollar ceiling. As I have pointed out before, interest rates are at record lows to finance this gargantuan debt, thus we don’t necessarily have to feel the direct pain associated with such outlandish debt. But that doesn’t indicate there isn’t damage. The public debt side of the national debt has risen 140% since 2007, from 5.1 trillion to 11.9 trillion today. 140% in just six years.








And for all this debt, we know GDP has grown, but really has it?






As we can see, our growth,  like our economy, both micro and macro is nothing but an illusion. A dirty trick, made possible by the complacent yet complicit public. So eager, to be dictated by emotion, so much so that sound logic is actually discouraged and looked down upon. Have you seen the savings rates at your local bank? Check out a CD. You’d make a better investment buying scratch off lottery tickets than let your savings be ravaged by the fractional reserve banking system who rely on ‘kick the can down the road’ politicians who spend more time whoring for re-election than legislating. Or you know… what they were elected for in the first place.


You think it's bad, now? Wait until the FED start's raising rates again (if that's even possible).

This isn’t about women staying home and men working. The reality of men staying home while a woman works is not something that is concerning. What is concerning to me and should be to you is the reality of the American family. How one income is no longer able to support a family (regardless of the sex) and how we have been conditioned to accept this as the norm! As we can see, we are just barely staying afloat with two incomes, in the meantime causing major damage to the fabric of the family structure. What happens 30 years from now?

We are seeing our wealth being vaporized at the expense of our families and our way of life. This leads to only one thing. As “we” Americans continue to be duped, dumped-on and mislead, don’t expect things to change. We are paving our inevitable road that leads into a cul-de-sac of serfdom. I think George Carlin said it best in his last HBO stand-up before his death:


"The reason they call it the American Dream is because you have to be asleep to believe it."


So, wake up America, the wolves are already at the door.

Turning Japanese? Turning Japanese? I really do think so.

That's why I'm turning Japanese
I think I'm turning Japanese
I really think so

I know I cannot be the first to use this analogy, but god bless new wave music & the 80's, for this apropos song. 

With so much attention being paid to the Eurozone, specifically Greece’s departure from it and 165% debt to GDP ratio in tote, its surprising to me that nobody in the MSM mentions the king of living beyond its means. This is none other than the spawn of American ingenuity and the benchmark that all post-war reconstructions whom are modeled after… Japan.

Japan’s ascension from rubble after WW2 to the world's third-largest economy has been staggering, especially for a country that’s about the size of the state of Montana. With a population that values education as much as anyone in the world, Japan has become a standard to many and no more than those in the corporate world, noted for their dedication to innovation and organization. But if you dig a little deeper, Japan and with all its glitz, glam & refined style; it isn’t all what it seems.

Because, like all fiat facilitated economies, the debt monster is alive and well and the only way to keep from getting swallowed up is to keep pushing, keep innovating and never, ever under any circumstance become stagnant. Well, at least over the last 20 years or so that’s been the case.

This is precisely what happened to Japan in the 1990’s known in Japan and around the world as Japan’s “lost decade”. When the NIKKEI started to free fall and real estate prices started to fall with it, those asset bubbles burst. This left the government in panic mode, so like all bureaucracies do in a panic, they did the opposite of what was right and did what was easy - threw money at it, instead of letting the natural correction run its course. 

They began to doll out stimulus after stimulus (sound familiar?), bailed out banks and insurance companies (getting warmer?) with the economy still limping along they said the hell with it and raised its consumption tax 2 percent (doesn’t this sound familiar too?) which subsequently brought on another recession.

After about two decades, and even with stimulus’s keep piling on, Japan’s economy finds itself in a ditch. Since 2011, the Bank of Japan has issued quantitative easing programs in excess of 900 billion alone. With very little to no growth potential, an aging population and an exponentially escalating debt tab; Japan is running on borrowed time. 

 

In a recent interview with Spiegel Online's Anne Seith, The Bank of Japan's governor, Masaaki Shirakawa said: "At the moment, the effect of our monetary policy in stimulating economic growth is very limited. The money is there, liquidity is abundant, interest rates are very low -- and, still, firms do not make use of accommodative financial conditions, the return on investment is too low."

Doesn't this sound eerily similar as well? 

Japan is currently using 25% of its outlays just to service their debt. If they raise interest rates, the number will climb dramatically. This is why the US is so fearful of raising its interests rates well. The FED wont entertain raising interest rates until 2014, so imagine all the cheap money printed off until then? If we are to raise interest rates where we already pay 220 billion on basically 0% what will it look like if those rates go up? As I pointed out back in March, via Kyle Bass, for every additional percentage point it will also bring about $140 Billion dollars on top of the existing 220 Billion.

  President's FY 2013 budget, Congressional Budget Office

Japan’s current debt to GDP ratio is currently 220% according to IMF reports for comparison’s sake the US debt to GDP ratio is about 102% (but that number has doubled in just four years). Japan however, unlike the US, has a few unique circumstances that will either prolong a slow death or escalate to their death at the speed of sound. 

Graph: zerohedge.com

Japan is one of the few countries that its public finances most of its debt (an astounding 95%). Thus, if they are comfortable with virtually no return on their investing (0.75% average return) into the debt and increasing inflation, they can literally keep financing their own debt as long as they don’t mind saving up to go to the grocery store as if it were a vacation.

The other option(s) is eye popping and absolutely lunacy to say the least. Newly elected Prime Minister Shinzo Abe wants the Bank of Japan to start issuing “unlimited easing” starting with a 120 billion dollar bullet into infrastructure. If that doesn’t get inflation where he sees fit and despite a declining Yen the threats coming out of Shinzo Abe’s mouth, will bring the death of Japan sooner rather than later.

In true, ancient Japanese kamikaze fashion, the Liberal Democrat Shinzo Abe with all his love for easing (hello Bernanke) is threatening to change the country’s laws and actually take the Bank of Japan over: read quite literally, socialization.  

So, as you can see, here in the US by all accounts, we are not Japanese yet. Although if we keep up this pace, follow the Japanese playbook and we look at the last four years as any indication; it should tell you it’s only a matter of time before we do.  

Thou not lead us to temptation

When I was working on my last entry concerning FEMA and Ron Paul, I started to get into a bit of a tirade concerning the debt. This, in this writers opinion, is the United States greatest threat, not some foreign enemy. With most people showing no interest or regard for it, its up to those of us who do hold these truths to be evident, to keep putting that word out there... and that word is debt (specifically insurmountable debt) is slavery and nothing more then a transfer of wealth; from the many to the few. 

In this article I want to tackle two situations that I see problematic and the key cogs to insurmountable debt. First, there is the federal government and our elected "leaders" role in this failure to be reasponsible. Secondly, is the Federal Reserve and its banks, that have been culpable in allowing (through the manipulation of interest rates) this economy to take a path that will see it fall off a cliff. What the recoil will be from QE 2,3,4,5,6,7 bailouts and stimulus remains to be seen, but there can be only one thing we know for sure. 

 (Sodahead.com)

That is, we are accumulating debt. And vast amounts of it. The implication of compound interest makes these actions basically treasonous by our elected leaders and criminal by the FED. How can Congress and the executive branch both complicity push the cost of running the government so far out of the realm of practicality? How is it legal for the FED to lend huge sums at what amounts to no interest to those banks that were all considered "too big to fail" who then take that liquidity and invest in T-Bills that will actually yield a 2-3% interest? These practices destroy existing savings and the incentive to save; thus creating only one desired effect - consumption. 

Because, without people borrowing and spending the whole thing blows up. Money = debt, debt = money.  The biggest problem is that the American population are over saturated in debt thus why the sub-prime in housing was needed. Like its population, the US government, is over saturated as well. They, unlike you and I, have no limits and that defies logic. Lets look at the executive's role.

The Interest payment is the only debt payment required by the Constitution that must be accounted for in the budget each year to be paid.

With that said, every President hopeful on the Republican side and President Obama have all released a budget or a proposed budget.

Not one of them have a plan to balance the budget next year, neither will any one of them do so in four years either (with the exception of Ron Paul). We will without a doubt have continuous mounting deficits that will probably be in the 1-2 Trillion mark annually regardless of who is in office (with the exception of Ron Paul). Starting to notice a trend here?

We have seen Obama’s appetite for destruction already regarding deficit spending; so let’s take a peek at the eventual Republican nominee’s (Mitt Romney) insanity.

Mitt Romney wants to increase defense spending by putting 100k more troops on the ground and rebuild parts of the Navy and Air Force. He would not have left Iraq, appears to have an itch to scratch in Iran and will not leave Afghanistan until its won (the forever war) or at least until his generals say to leave??? His budget has the wealthiest Americans (who pay the most income taxes) getting a significant tax cut on top of the existing tax cuts that are already in place.

Romney has no plans to offset the lost revenue that will surly happen when these cuts take place, nor does he have any plans to make any significant cuts in existing outlays to recoup the ramped up defense spending. This defines logic. Mitt Romney's plans are contrary to anything sane in regards to the federal government living within its means. He’s fiscal policy’s will be train-wreck like.

That however, is not how Romney sees it. He thinks if he cuts taxes the gains in receipts will pay for this increase in spending. The problem with that is that the FED doesn’t think the economy is going to grow by all that much… and they control the money supply. This leads us into the second part of the equation: the insurmountable tag team.

 The FED’s long term forecast is a relatively weak one going forward with long term GDP growth outlook being in the 2.3 to 2.6 percent ranges. The FED has also said it will not look to raise interest rates until, at the earliest, 2014. Here you have the economy just barley keeping its head above water for the foreseeable future, the FED continuing its non-stop intravenous liquidity therapy into bank’s reserves creating a soon to be inflation tsunami all the while our elected representatives continue to show no regard for the situation.

I want to take a look at two charts that really speak volumes for what is going on and what we will being seeing soon enough in our own backyards. Lets start at 2006, when the FED stopped tracking M3. As you can see below, when Shadowstats picked up the tab of tracking M3, the growth in money supply was steadily rising until early 2008. As the recession came, the Fed lowered interest rates to avoid the fire of deflation but banks weren’t loaning, so the money supply dropped with it.  

(shadowstats.com)

A curious situation started occurring by the middle of 2010. M3 started to rise and its rising still as of now. Meanwhile, Interest rates from 2009 on have stayed basically at zero and as we’ve already heard from the FED, they will remain that way for years. This does not bode well for the dollar or anything equity wise going forward in my opinion. If the economy continues its "recovery” like so many in the media says it is, the eventual outcome will be a pretty substantial increase in inflation. This would, by default, put relatively the majority of commodities into buy, buy and buy more mode. Most specifically gold and silver.

Equally alarming will be the federal governments penchant for debt as we have also seen, they will not live within our means, thus piling more debt on to the insurmountable existing amount. What happens when the FED has to raise interest rates? If we are seeing 450 Billion interest payments already (Intragovernmental and Public) imagine what will happen to those when interest rates go up? They could look something like this:

Just for a little perspective. In 1988, the national Debt was 2.6 Trillion. The interest payment on that in the budget was 214 Billion. The interest payment in 2011 was 450 Billion, roughly double. The principal, as we know, was 14+ Trillion.

The US government will not cut spending and we will continue to finance the welfare/warfare system. What happens in 10 years from now will be interesting thou. Can the FED really raise rates, without completely tanking the economy? And if they did, what would happen to the interest payment on the debt outstanding (besides sky rocketing into the trillion dollar mark). If the FED does not raise rates out of the fear of deflation, isn’t massive inflation the only alternative?

George Carlin said it best:

When you're born you get a ticket to the freak show. When you're born in America, you get a front row seat.

Get 'ya Popcorn ready!

Blue, white... and red? Is the US on the same path of Greece?

With Greece out on the corner whoring for another bailout and Standard and Poor yesterday lowering Greece’s credit rating to CCC (the lowest in the world) joining Moodys, who dropped Greece two weeks ago… it’s a great time to reflect. Or fittingly enough hold up a mirror to ourselves. Could the mighty US ever be in the same mess the Greeks find themselves in now? They are socialists you say and we’re capitalists, surly that couldn’t happen. Or Could it?

The Greek GDP is 329 Billion (2009). Obviously its not Rwanda. But let’s put that into perspective. The 2009 revenue of Wal-Mart was over 400 Billion. Wal-Marts annual revenue surpassed 174 nations that year. And being Wal Mart is just one company in the US, it gives you a feel for how truly large and powerful we are. So much so, that the US GDP is nearly three times its nearest competitor standing at 14.2 Trillion.

What separates the US from Greece? Sure we collectively output 45X in a year then they do collectively, but our external debt to GDP ratio is 100% on the nose as of tonight’s check. What we have that Greece don’t have is simple. We have a printing press. Our currency is traded throughout the world as the default currency. All we have to do is print our recovery (at the expense of massive inflation of course amongst other undesirables). The Greeks have to rely on a bailout from the European Union or default and declare bankruptcy. In many ways bankruptcy isn’t a bad thing for Greece. Because the sooner they can weed out mal-investment, waste and become more efficient the sooner they can get started in rebuilding. We on the other hand are so disillusioned our reckoning is going to be a lot slower and much much more painful.

So Greece having to default on its debt is one thing, for us to do it… that surly would send a ripple effect throughout the world. And that’s where the conversation truly ends. That’s where you get into raising the debt ceiling. Because after all, its not just the Chinese holding debt, its average Americans too. We can stick it to those red chinamen… but we refuse to and won’t default on Grandma Sherley. I mean, Standard & Poor's may be forced to take away our AAA credit rating, or what basically what amounts to as being a credit card with no limit!

At the current rate, in a few months we will start to default on our debt. The disease of debt and living beyond our means at a national level are over. The diagnosis isn’t going to change. The treatment is the only choice we have. Take the medicine now by choice, or be forced to do it later. And we have two responsible options to do this now and one irresponsible one that will only make things worse.

We can default on our debts and admit to the world and to ourselves that we are living well beyond our means or raise taxes and pay our way. If our 2011 budget deficit is 1.6 Trillion and we have roughly 160 million working Americans, all we will need is 10g per working American to cover this years shortcoming (hows that for stimulating the economy, suck 1.6 trillion out of citizens hands and into the coffers of out of control and out of touch government).

Or we can do what what politicians always are in favor of doing, and that is to let the next guy worry about it and continue to kick the can down the road, raise the debt ceiling, creating an oncoming tsunami at what point could be a country in total chaos. Lets see what kind of chutzpah these elected “leaders” have the rest of this summer. Based on past results, i dont think the shoe business should need a bailout.