This page has been archived and commenting is disabled.
Tough Day For Our Calamity Economy
By Wolf Richter www.testosteronepit.com
The ugly numbers speak volumes on how the policies of the Federal Reserve hurt the real economy. But those very policies enable Congress and the White House to run up ruinous budget deficits.
Inflation is getting worse. CPI is up 3.9% over the past 12 months (BLS report). For "Urban Wage Earners and Clerical Workers," it spiked 4.4%. Price pressures in the supply chain indicate that this trend isn't going to abate anytime soon. Producer prices jumped 6.9% over September last year, and import prices shot up a red-hot 13.4%. There is absolutely nothing "subdued" about this kind of inflation though the New York Times inexplicably used that term.
But that's inflation in goods and services. Not wages!
Wages dropped 1.9% from September a year ago and .1% for the month on an inflation-adjusted basis. For production and non-supervisory employees, the drop was even steeper, down 2.4% for the year—those at the lower levels of the wage scale are getting whacked the most (BLS report). It's a continuation of a 12-year trajectory during which real wages dropped 9%.
Could we have a little deflation in goods and services please, to keep up with wage deflation? Yes. During a few months in 2009, consumer prices actually declined a bit while wages rose a smidgen. Result: a jump in purchasing power and an improvement in consumer spending.
But the Fed abhors declining prices and rising wages. Or even stable prices and stable wages. Instead, it has chosen the insidious combination of inflation in goods and services and deflation in real wages. And it has been vocal about its policies. The result is a creeping impoverishment of the middle class: 46.2 million Americans live in poverty, more than ever, the Census Bureau reported in September. No wonder that the Michigan Consumer confidence index dropped to 57.5 and that the expectations sub-index to 47, the lowest in 31 years. So, don't expect the middle class to rev up the economy.
Finally a good number ... on the surface: Housing starts shot up 15% from August to a seasonally adjusted annual rate of 658,000 "±13.7%"—for a sense of proportion, this is down from a peak of 2.3 million starts in January 2006. But every unit built only prolongs the housing nightmare. Its cause: 19 million vacant units, according to the Census Bureau. While reasonable minds might quibble with that number, everyone agrees that the inventory of vacant units is huge. And the healing process—household creation, which has nearly ground to a halt—will take along time. For more: US Housing Hangover or 20-Year Japanese Nightmare.
In other parts of the economy, early warning signs are also flashing. Capital One, one of the largest credit card issuers in the US, reported that 30-day delinquencies were rising—consumers are getting strung out again. Two days ago, the Empire State Manufacturing index came in at -8.5, in negative territory for the fifth straight month. On a very dark note, its future general business conditions sub-index, which measures expectations, fell to its lowest level since February 2009, the depth of the financial crisis. International business travel has fallen off a cliff at the end of August. And ominously, inbound port traffic is down, probably due to declining expectations for holiday sales.
Government deficit spending, an economic stimulus, filled the holes for the last ten years, but now, the economy is addicted to it, and even a $1.3 trillion deficit—8.7% of GDP, in line with Greece's deficit!—isn't enough anymore to keep it growing. Despite all the posturing by Congress and by the White House about cutting the budget, and despite the silly theatrics around the debt ceiling, spending in fiscal 2011 actually rose 4.2% to $3.6 trillion. With receipts of only $2.3 trillion, 36% of the entire budget was borrowed money. It makes the Eurozone debt crisis look benign.
The "advantage" the U.S. has over the Eurozone is a central bank that is willing and able to print whatever it takes to monetize the deficit, and to do so at negative real yields. It's financial repression that will demolish fixed-income investors and workers alike, but it enables Congress and the White House to continue their fiscal policies to the detriment of the real economy.
$46 billion in August, a hair-raising $376 billion year to date, half a trillion by year end—economic activity gone overseas. When everyone follows an ancient and valid business principle.... The Brutal Trade Deficit.
Wolf Richter www.testosteronepit.com
»
- advertisements -
Inflation at 4%? My biggest costs are college (+10%, a good year), taxes (increases coming) and medical (+10%). It's hard to calculate the increase in the cost of saving for 'retirement' since it seems medical expenses will increase to consume almost all possible savings for most people. Plus investment returns are close to zero in both stocks and bank deposits. By 'retirement'', I mean giving up on finding a job after getting laid off because employers don't want old people. The government figures are always much lower than what I actually see. The only things that have gotten cheaper in the past 10 years are clothes (1% of expenses for me) and electronics (not actually cheaper but I get bigger/better ones for the same price).
Anyway, this is nothing compared to what will probably be coming soon, more like 20% even by the official government numbers within a couple years. After that, the sky's the limit.
What you need to do is defer going to college until you retire.
Instead of paying back your student loan which you incurred before taking a job, take out a student loan to finance your retirement. Start going to school when you hit 65, taking out a loan for living expenses. You can get student healthcare, cheap housing, cheap meals.
Then instead of paying back your student loan, you just die and you never have to pay it back. The student loan paid for all your retirement.
I was going to ask if one's heirs would have to pay back the student loan out of one's estate, but the predators are making sure there will be no estate to divide among my kinder and therefore no funds for the student loan. Win-win as you Americans like to say.
Good insight. Retirement may never be a reality for many...
Mission accomplished.
Used houses are extra fucked for years to come. Desperate home builders will price nice shiny houses under resales. Combined with interest rate buy downs there isn't any comparision
Stagflation Bitchezz
Enjoy your shit filled twinkee.
Yo aren't factoring in the price of building materials, which are artifically being raised substantially.
Have you been what new homebuilders consturct for a quarter million? No bargains there I assure you.
Used houses are in the tank but it's not because of new home prices being a better bargain.
It's because there is an over supply, and a lack of people able to afford to pay for them, and live in them at the same time,and pay the prices for up keep.(If they have jobs).
It is going to get much worse, Boomer's are starting to sell their homes of many years.
I have been upgrading mine, to sell. I luckily live in Texas and the part I in is still decent for RE Prices,I could get out with a profit, and be done with it.
Upkeep and property taxes are insane.
Next up will be NO deductions for interest & taxes for folks that do not pay cash.That will drive a stake thru it's heart for sure.
A veritable DP with RE taxes coming up to match and exceed mortgage payments.
Cash is in control. If you have it , go for it. If its coming from a bank............
Plus many kids cannot afford to move out of mom's. Still lot's of illegal immigrants but they tend to live 20 to a house. Wait till inflation kicks in and mortgage rates go back to 8% or so. I would not buy a house today.
As a place to park money, I agree. Housing is not the place to be - and there likely will be some "fire sales" post Reset. On the other hand, depending on how unruly the sheep become when nothing is affordable, a defensible homestead - within a community of informed and like-minded folks - is an attractive thing to have.
You identify the best hedge for the flationary collapse. Bring it already.