Three Long Waves

Bruce Krasting's picture

Our economic slump is pushing four years now. The evidence is easy to find: huge deficits, slow growth, mortgage defaults, declining real estate prices, high unemployment and an economy that can’t produce enough jobs. There are less obvious consequences too. Here's a look at three changes that are taking place. None of them good.


A Bubble in Lawyers

An interesting article from the American Bar Association on the current status quo of lawyers coming out of law school, things stink for the new crop of lawyers. In 2008, when the skids were coming off the economy, what did many college graduates do? They thought, “The hell with getting a job in the middle of a recession.” They went to law school instead.

How did so many people get the money to get a law degree? They borrowed it from Uncle Sam of course. The (virtually) unlimited amount of federal dollars for graduate level education was part of the HERA stimulus bill. Now all those new lawyers are looking for a job in a crowded field, and they’re up to their eyeballs in debt. From the ABA article:


-In 2010, 85 percent of law graduates from ABA-accredited schools boasted an average debt load of $98,500.

-Assuming a total debt of $150,000 (the amount currently carried by several thousand law graduates), the total monthly payment is $1,743.46 a month for 10 years. The median starting salary for a lawyer who graduated from law school in 2010 is $63,000 (Debt=40% of take home pay).

-Heavy loans now threaten to consume the future earnings and livelihood of the nation’s young lawyers.

-The influx of so many law school graduates—44,258 in 2010 alone, according to the ABA—into a declining job market creates serious repercussions that will reverberate for decades to come.

-Direct federal loans have become the lifeblood of graduate education, and they shelter law schools financially from the structural changes affecting the profession.

-Given the likelihood of some form of curb in federal student lending, there are gut-wrenching times ahead for law schools

-Bad things happen when lawyers and law professors stick their heads in the sand.

Rents on the Rise

It’s not surprising that rents are rising. Last year the increase was, on average, only 2.5%. This year it could be double that. People do need shelter, and are forced to rent because:

-Rents are still cheaper than buying
-There is no upside to ownership
-Few have the 20+% down payment required to buy
-Few can qualify for a mortgage given tighter lending standards (FICO scores)

Some data points from Bloomberg (Link).

-U.S. apartment vacancies dropped to a 10-year low in the fourth quarter, allowing for rent increases that are likely to continue this year.

-The vacancy rate was 5.6 percent in the previous three months and 6.6 percent a year earlier. The vacancy rate has fallen for seven straight quarters.

-For all of 2011, 37,678 rental units were completed, the lowest annual total in 31 years.

Rising rents could have a significant consequence on Fed policy this year. Ben Bernanke has sworn not to ignore his obligations regarding inflation. Ben looks at Core CPI and has said repeatedly that Core CPI above 2% would not be tolerated.

Bernanke faces the problem that core CPI has a 21% weight based on “Owners Equivalent Rent”. A 5% increase in this category would, by itself, cause a 1% increase in Core CPI.

Oddly, the lingering recession is the reason for the higher rents. One would expect that rents would be muted while the economy is weak. That was not the case in 2011. Additional upward pressure on rents will put a floor of 1%+ on CPI in 2012. As a result, there is very little wiggle room for all the other components that make up the index if it is to remain around 2%.

This must drive Bernanke crazy. In the end, it will force him to abandon his prior pledge on inflation.


Declining Labor Force Participation

Tomorrow, the Non-Farms Payroll numbers will be released. I think this data series is mostly noise. Monthly changes in employment can’t be accurately measured when the (non cell phone) sampling is done with only 0.01% of the workforce.

I will be looking at the Labor Force Participation Rate (LFP). This important number may have hit a new 30-year low in December. In November it stood at 64.0%.



It’s not surprising that the LFP is in decline. After three tough years, people are leaving the workforce. Some are retiring early and getting Disability Insurance/early Social Security benefits. Some just fall off the grid and work for cash in the black economy. Either way, they don’t show up in the survey data so the LFP falls.This is a terrible development for local, state and federal government tax receipts.

The following chart is from 2007, before the SHTF. This was forecast data for future LFP based on the thinking at the time. Needless to say, we missed the estimates. It’s interesting to note that the current LFP of 64% is about where we were expected to be in 2025. That four-year-old estimate got crushed by a four-year recession.


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Careless Whisper's picture

but borrowing and spending a ton of money on your education is "an investment in yourself". everyone knows that. bwahahaha

onelight's picture

:) indeed

The law grads will simply join the other millenials with $100k avg college loan balances, who say they expect the Govt to cancel their debt sometime in the 2015-2020 period after 4-5 more years of continuing weak job doubt China will want to fund that one..

americanspirit's picture

"The first thing we do is kill all the lawyers" Wm Shakespeare, Henry VI

Almost Solvent's picture

"Shakespeare's exact line "The first thing we do, let's kill all the lawyers," was stated by Dick the Butcher in "Henry VI," Part II, act IV, Scene II, Line 73. Dick the Butcher was a follower of the rebel Jack Cade, who thought that if he disturbed law and order, he could become king. Shakespeare meant it as a compliment to attorneys and judges who instill justice in society."

Towgunner's picture

Just an observation. I certainly agree with this analysis, to me I boil it down to misallocation of resources and capital, but the source for this might be surprising for some. From a competitive point of view, keep having people go to law school and medical school as it reduces competition in areas that will see real outsized growth. Something comes to mind reading this - how do we get an oversupply of lawyers? Does TV have something to do with it? I think so. The narcissistic culture that we live in (female-centric culture mind you) portrays the successful and "perfect" image many times as a lawyer. Matter of fact; consider the typical tv dramas...basically either lawyer or medical dramas. This is why collectivism and social engineering is destructive and individuality is ultimately the best way to live. People, women mainly because they are herd-creatures and imitate > emulate, take ques from TV and movies as to how they should live their lives. This is not only pathetic but a bad move in general...while many of us out grew our boyhood plans to be Han Solo, others did not. I think we are in a new paradigm were the question over does art imitate life or life imitate art is now answered and life does indeed imitate art. That should be a chilling realization because it means a very small minority is now telling the majority how to live...and artists of all kinds (like it or not) are not the most adjusted or ethical people. They tend to be crazy. Worse our artistic-elite just aren't very talented, just look at the crap they produce. Many anecdotes are beginning to surface that folks from both law and medical school are disappointed to learn that their workdays are not a running drama of he said she said but long hours of either mind numbing paperwork or cleaning-up fecal matter. "Getting it on" in the MRI room while performing a test will lead to losing licenses and termination never mind it being incredibly selfish and unethical, so, it doesn’t occur. Furthermore, he said she said is increasingly unlikely because of the absence of "he", from schools to work place affirmative action, EEOC and social engineering has constructed a female-only bias. No, not because they are better but because of state-based discrimination. The result is even great malinvestment as we arbitrarily push out the more productive sex. In order to correct this, a good place to start is to reject the utter scam academia has become and to turn off that glowing object in the living room, which (for all those mesmerized viewers especially of medical dramas) is likely giving you cancer - that’s radiation spewing at you.

GMadScientist's picture

"Now all those new lawyers are looking for a job in a crowded field"

Don't worry; BAC will keep em busy for years.

sangell's picture

Waiting to see a lawyer holding a cardboard sign "Will Sue For Food"

Might be a good idea if our Medical Schools were churning out doctors at the same rate as lawyers

( or are they?). An oversupply here might do more for healthcare costs than anyother cost containment program.

Will treat your disease for Food!

Common_Cents22's picture

obamacare will cause government to take over med schools/doctors.   why?  Because real doctors will be going into private fee based/retainer medicine thus leaving a shortage.   Obamacare will cause healthcare demand to explode with declining supply.     obama will then pay for med school costs in return for being a government doctor pretty much the rest of your life because you wont be able to pay back the loans.

our public healthcare will go into the crapper.

xela2200's picture

My sister was thinking about becoming a doctor. However, after doing the research, she said that she wasn't willing to suck cock to get into medical school. Medicine has become such a racket.

YHC-FTSE's picture

There are some parallels with schools and graduates in England. Last two years, I've gotten more lawyer cards than business cards in my holder. A few have jobs outside their profession - selling cars, marketing, that sort of thing - and want to start up small businesses if they can find a backer. Those who are lucky enough to get positions in law firms after graduation (There is fierce competition here, and graduates often PAY the law firms, or more likely get their parents to pay to hire them, which is mandatory work experience in order to become a fully fledged solicitor) have the air of desperation about them, constantly asking if I have anyone to sue. 


I don't think the schools themselves are experiencing financial difficulties yet. A casual look at the law schools in London reveal a huge influx of foreign students who pay full fees and contribute to the tertiary businesses of education. That's one thing we're very good at: Educating foreigners, and they pay us handsomely in return. I doubt that model could work in the 'States to save the schools for all the obvious reasons. 

Moe Howard's picture

1. Fuck lawyers.

2. Fuck rent.

3. Fuck labor.

disabledvet's picture

whatda Curly and Larry think?

onebir's picture

Interesting observations about lawyers and rents, but I think the one about labour force participation rates is mistaken. I think the first chart is total participation for males and females, which is being compared with males only in the second. (A quick comparison of the 2000 figures in the second chart with the 2001 outturn. ie in chart 2, LFP = 66% [=(60 +72) /2] in 2000, ~= 67% in early 2001 in the first one.)

Nonetheless the post 2008 collapse in LFP isn't going to help the US grow out of its debt bubble AT ALL...

They_Live's picture

"The first thing we do, let's kill all the lawyers"

ThisIsBob's picture

When a cop shoots your dog, who you gonna call?

They_Live's picture

Hey, just quoting the Bard.  

Besides if you need a lawyer to get justice for a cop shooting your dog it shows there's a problem with the justice system.

falak pema's picture

Anybody who has ever been in  a law suit with a TBTF entity, knows one thing : they'll try and BUY your lawyer first and foremost. As you are by definition a small entrepreneur in face of them, they'll succeed. Then they'll twist the law procedure so that due process is stilted, using every means to kick the can to draw out proceedings making you bleed, as your business often depends on what the TBTF have deprived you of in a dominant position. In the end, five years later, having softened you up, diluted your legal case through buying the shill, drawn out the proceedings to empty your company till in the lower and appeals courts, then comes the ugliest cut of them all; the judge throws out your case for a procedural irregularity or  just conveniently neglects proven facts or twists the law to suit his purpose or a mix of all these shenanigans. Case over. You are broke, and its cost you an arm and leg to no effect as you've lost your company. 

All the world over its the same story...a state of true law is as rare as a pearl oyster. And only the rich and powerful get to keep the pearls in the real world, often by robbing it.  WS and City, the greatest examples in today's ponzi world.

LawsofPhysics's picture

Yes, same as it ever was.  Nothing changes until people are willing to make real sacrafices by getting bloody.  Boring world indeed falak.

Coldfire's picture

The bulk of the legal profession is a derivative of the failing regulatory state. These law grads should plan for even leaner times ahead.

onelight's picture

They should switch career tracks, and do something the country actually needs.

Not to defend China, but there the managers decide and engineers execute, whilst in US the lawyer-politicians decide and execute---how well can that possibly work?

We get the chance at rule of law that way, sure, but programs designed by lawyers cannot function well, after which the arguments get surreal and rhetorical, versus constructive and functional

The US needs its edumacated folks to apply logic to building/enabling functional systems

As someone put it, the US has gone from making making stuff up..

onebir's picture

We should merge into onelightbeer :)

pasttense's picture

New lawyers don't need to get a job with another firm; they can open their own firm (rent a small office...) and get clients on a continency basis--lots of people feel they have been wronged and are quite willing to sue if they don't have to put out any cash up front.

Widowmaker's picture

The first 5 years of any venture are all cardboard -- for breakfast, lunch and dinner.

JD or not, I don't care how smart they are - the glut is in health care (doctors).  

Pool Shark's picture



A glut of medical specialists... possibly, but if you think we have a shortage of primary care physicians with an aging population of boomers headed for retirement; I've got a bridge I'll sell you...

TruthInSunshine's picture

Here's the BIG CONCEPT you seem to get but that many don't get (AFAI "the bubble is in health care"):


Government pays for at least 30% of the population's health care, and subsidizes another 35% of health care for others.

Hence, government (or, the productive, taxed businesses, entrepreneurs & workers who make "enough" to pay net taxes into the system), pay the full nut or partial nut of for 65% of Amerikans, who get a free ride (I'm not making a moral judgment, but a factual observation - Medicare, Medicaid, other federal & state health insurance 'entitlements').


What insurance exists for those desiring to hire attorneys, as they would go visit a doctor or hospital, who ordinarily couldn't afford the consult fee, let alone follow up care or procedures (or prescriptions)?

There is none. Aside from medical care being less 'discretionary' than legal services (even if 1/2 of all medical care is a truly, useless, wasted expenditure - fraud, artificialy created conditions by pharma, unecessary tests and procedures, etc.), medical care is more necessary, on average, for more people, than legal services.

Government entitlement programs create the support for 65% of the medical profession and industry (and pharmaceuticals) at the price levels they now exist at.

It's quite cancerous (pun intended) as it's very non-capitalistic.

The cost of medical care in the U.S. (i.e true pricing based on capitalistic principles) would be a minimum of 50% (and probably closer to 85%+) lower (as would the cost of medical school and the salaries of physicians) without government f**king up the price/demand curve.

Give anything for free or at huge subsidization to the masses and sad hilarity results.

*p.s. - If you know a pharmacist personally, ask them to give you a truthful response as to how many people get their prescriptions filled, paid for in full or part, by government (federal or state) programs. They'll tell you that nearly 2 out of 3 do. Bank on it. Why do yoo think insurance and pharma companies WANT some form of ObaMao care? The government IS their big client, bitchez.

Almost Solvent's picture

Having a spouse that works in an urban hospital, you hit the nail on the head. The stories I hear are INSANE.


OTHERS are left so that "family" can sit home and collect that person's SS/SSD/Pension/Welfare check. People TAKE GRANDMA in just so that they can TAKE HER CHECK while she's in.

And of course OTHERS walk in and ask for fucking 25mg of DILAUDID right off the bat. Hmmmmm, wonder if your an addict. And they go ED to ED with their sob stories and remarkable knowledge of opiate dosing.


The problem is that until the law allows hospitals to DENY ADMISSION, nothing will change.

LawsofPhysics's picture

Speaking the truth again sunshine?  That will get you on "the list".  The TRUTH is that the laws of Nature and physics make NO promises regarding your survival.  If these Godly powers can not insure your safety or health, why in the fuck do so many people really believe any man-made construct or organization can insure you health and safety.  The system is corrupt and broken and nothing changes until everyone stop paying in, period.  The truth is apathy is at an all time high and so I expect the decay to be slow and painful for most.  The only thing that will change this and accelerate the decline are supply disruptions of essential items (in this case, antibiotics or serum etc...).  More broadly this will be things related to everyday needs such as clean water, food, and fuel.


Same as it ever was.

Moe Howard's picture

Stop confusing the plebs with facts.

DR's picture

Sic the lawyers on the bankers, this will keep lawyers employed and bankers nervous.

LawsofPhysics's picture

Check out the registery at the National Bar, most lawers work for the banks or the brokers, or in some other area of the financial "services" industry.  Wake the fuck up, 30% of the GDP comes from the fucking "financial services" industry.  Aside from bankrupting the country and stealing your 401k, exactly what service of value do any of these fuckers provide?

blunderdog's picture

#1 is no problem.  Failed lawyers can just go into politics.

#2 is generally positive.  Housing market correction has only occurred when ownership and renting are equally unappealing.  Much pain needed.  More than any other single thing, reducing housing cost helps the US worker transition to lower real income.

#3 makes it worth getting up tomorrow to read the news

Tijuana Donkey Show's picture

Just point them all at Wall St and bank class actions.....

Red Herring's picture

There is a line of people in an unemployement office.  Suddenly, one guy starts massaging the neck and shoulders of a guy in front of him.  The guy in front turns around and asks - what the hell do you think you are doing?

The first guy replies - you see, I am a masseuse, and I saw you had some tension in your muscles, and I decided to give you a massage. 

The second guy then says - I am a lawyer! Do you see me screwing the person in front of me?


dynomutt's picture

First guy replies - you see, I'm a masseuse?!?

Look up the word masseuse, it does not mean what you think it means.

Red Herring's picture

I stand corrected.

Pick either masseur or massage therapist. 

moneymutt's picture

One good thing, student loan debt will likely become dischargable if a bunch of law grads are buried under it. If a business can declare bankruptcy to break union contracts and just to compete better, why can't a student whose degree did nothing for their earning power declare bankruptcy?

disabledvet's picture

because it's illegal! (and we're talking government...and debt collection is a government business when it comes to education. imagine if this were true in real estate...

moneymutt's picture

The bump up in rent is temporary, housing stock needs to catch up to shift from homeowwners to renters of apts in multi family units....there's a bubble in apt building that will burst

Take a poll of 20 and 30 something's you know, they are stuck under a mountain of debt, underwater on their houses, student loan debt or just living with mom and dad or five friends, if they are stuck, where our future.

That bubble of lawyers, those people 60 or 30 years ago would have been solid upper middle class, but evn 15 years ago, many average people with law degrees we're struggling. I knew a law grad who had a law job and was delivering newspapers in the morning to get by, pay loans. The fate of lawyers is the fate of kids today, no easy path to middle class, the luck and pluck you used to have to have to make it rich, these kids will have to have, just to do as well as a HS grad working in a factory did 40 years ago.

disabledvet's picture

there's always another housing bubble. perhaps if we tried shoe boxes next time? or another trillion square feet in a single building in Manhattan?

williambanzai7's picture

As much as I like to detest the legal profession, there are still places where having a lawyer means absolutely zilch. Likewise, freedom of contract, private property and due process of law.

Trust me, you don't want to live in such places.

Can't live with them can't live without them.

bank guy in Brussels's picture

Having a lawyer in the USA means 'zilch', too, in any case where the victim is dealing with a politically connected or powerful party, or the wish of government to jail the innocent.

US federal courts have a higher 'conviction' rate (98%) than Adolf Hitler's Third Reich. Even the Nazi judges of the 30s and 40s let off more people.

Smarter businesspeople in Europe know to avoid US courts, they are totally non-legitimate and bribed, US lawyers just take the money and sell out to the more powerful side.

As Falak Pema says in his post below, « Anybody who has ever been in  a law suit with a TBTF entity, knows one thing : they'll try and BUY your lawyer first and foremost ... »

The political refugee from the US in Brussels that I know (I use one of his flickr pics for my avatar) is partly under threat of murder, because he was publicising the corruption of the US legal system that is not in the big corp media ... how it is not like in the Hollywood movies, the image that fools most people.

Google has blocked all his websites, as part of Google Inc.'s own deals of bribery with American judges. Some of the blocked and censored journalism:

Articles educating EU officials on how the bribed judges of America are attacking and defrauding Europeans:

Foreign Companies Face Risk of US Court Corruption:
Doing Business in the Big Bribery Nation

America's Corrupt Legal System -
A Danger to Visitors, Travellers as Well as USA Residents

Americans Murdering Their Judges, and the US Crisis of Judicial Corruption

Live Photo: Google Inc. Caught Censoring EU Search Results
Google Internet Censorship - Censure d'Internet par Google - Internet censuur door Google


Coldfire's picture

99% of lawyers give the rest a bad name. But all professions are a conspiracy against the laity.

a growing concern's picture

All your due process are belong to us.  Didn't you get that memo?

Mactheknife's picture

>Bernanke faces the problem that core CPI has a 21% weight based on “Owners Equivalent Rent”.

Well hell, we know that's easily fixed. They'll just change the CPI weightings.

Tijuana Donkey Show's picture

He's changing the rents. Didn't you see his proposal to make foreclosure's rentals to the tenets? It's QE for the rental market, and will screw the rental market by flooding it with cheep rentals. Add a freebee back door local govt bailout, as Fannie/Freddie/Fed Rental Co pays the property taxes that have been a little lean. Fed owns buildings, local govt raises taxes like Cedar Creek, and everybody is happy again. Good serfs get rentals and SNAP, bad serfs get NDAA terrorist label. Don't like the plan, terrorism! 

etresoi's picture

USA is on a decline, which increases incrementally, daily.

Alledgedly educated young people go into debt to become non-productive members of the economy, i.e. lawyers.

Rents go up close to the inflation rate, as always.

And less and less people go to worK in the country that exports the means of death and destruction to the world.

In sum, a very positive report to those who oppose.

infinity8's picture

Fuck the lawyers - they bought into the system to become part of the system to bleed from the system. and now, ha-ha, who can afford a fucking lawyer? just when you need a lawyer for everything except taking a shit. As for everything else - good luck with the bad math. god bless the child that's got his own.