How Will The Economy Improve In 2014 If Almost Everyone Has Less Money To Spend?

Tyler Durden's picture

As a gentle reminder, the poor spend, the rich don't...

Why is it important? Simple - contrary to the Fed's flawed DSGE models, it is the poor who are more likely to consume. And logically with their purchasing power being funneled to the rich with every $85 billion in monthly debt monetization, they purchase less and less. As the slow but steady contraction in the economy over the past five years has proven beyond a reasonable doubt.

But hey: at least Hamptons' houses have never been more expensive and the Russell 2000 keeps on hitting daily all time highs. Thank you "wealth effect."


Which is why a marginally surging stock market does practically nothing for the 'real' economy... especially when the consumer is increasingly tapped out?!


Submitted by Michael Snyder of The Economic Collapse blog,

Is the U.S. consumer tapped out?  If so, how in the world will the U.S. economy possibly improve in 2014?  Most Americans know that the U.S. economy is heavily dependent on consumer spending.  If average Americans are not out there spending money, the economy tends not to do very well.  Unfortunately, retail sales during the holiday season appear to be quite disappointing and the middle class continues to deeply struggle.  And for a whole bunch of reasons things are likely going to be even tougher in 2014.  Families are going to have less money in their pockets to spend thanks to much higher health insurance premiums under Obamacare, a wide variety of tax increases, higher interest rates on debt, and cuts in government welfare programs.  The short-lived bubble of false prosperity that we have been enjoying for the last couple of years is rapidly coming to an end, and 2014 certainly promises to be a very "interesting year".

Obamacare Rate Shock

Most middle class families are just scraping by from month to month these days.

Unfortunately for them, millions of those families are now being hit with massive health insurance rate increases.

In a previous article, I discussed how one study found that health insurance premiums for men are going to go up by an average of 99 percent under Obamacare and health insurance premiums for women are going to go up by an average of 62 percent under Obamacare.

Most middle class families simply cannot afford that.

Earlier today, I got an email from a reader that was paying $478 a month for health insurance for his family but has now received a letter informing him that his rate is going up to $1,150 a month.

Millions of families are receiving letters just like that.  And to say that these rate increases are a "surprise" to most people would be a massive understatement.  Even people that work in the financial industry are shocked at how high these premiums are turning out to be...

"The real big surprise was how much out-of-pocket would be required for our family," said David Winebrenner, 46, a financial adviser in Lebanon, Ky., whose deductible topped $12,000 for a family of six for a silver plan he was considering. The monthly premium: $1,400.

Since Americans are going to have to pay much more for health insurance, that is going to remove a huge amount of discretionary spending from the economy, and that will not be good news for retailers.

Get Ready For Higher Taxes

When you raise taxes, you reduce the amount of money that people have in their pockets to spend.

Sadly, that is exactly what is happening.

Congress is allowing a whopping 55 tax breaks to expire at the end of this year, and when you add that to the 13 major tax increases that hit American families in 2013, it isn't a pretty picture.

This tax season, millions of families are going to find out that they have much higher tax bills than they had anticipated.

And all of this comes at a time when incomes in America have been steadily declining.  In fact, real median household income has declined by a total of 8 percent since 2008.

If you are a worker, you might want to check out the chart that I have posted below to see where you stack up.  In America today, most workers are low income workers.  These numbers come from a recent Huffington Post article...

-If you make more than $10,000, you earn more than 24.2% of Americans, or 37 million people.

-If you make more than $15,000 (roughly the annual salary of a minimum-wage employee working 40 hours per week), you earn more than 32.2% of Americans.

-If you make more than $30,000, you earn more than 53.2% of Americans.

-If you make more than $50,000, you earn more than 73.4% of Americans.

-If you make more than $100,000, you earn more than 92.6% of Americans.

-You are officially in the top 1% of American wage earners if you earn more than $250,000.

-The 894 people that earn more than $20 million make more than 99.99989% of Americans, and are compensated a cumulative $37,009,979,568 per year.

It is important to keep in mind that those numbers are for the employment income of individuals not households.  Most households have more than one member working, so overall household incomes are significantly higher than these numbers.

Higher Interest Rates Mean Larger Debt Payments

On Tuesday, the yield on 10 year U.S. Treasuries rose to 3.03 percent.  I warned that this would happen once the taper started, and this is just the beginning.  Interest rates are likely to steadily rise throughout 2014.

The reason why the yield on 10 year U.S. Treasuries is such a critical number is because mortgage rates and thousands of other interest rates throughout our economy are heavily influenced by that number.

So big changes are on the way.  As a recent CNBC article declared, the era of low mortgage rates is officially over...

The days of the 3.5% 30-year fixed are over. Rates are already up well over a full percentage point from a year ago, and as the Federal Reserve begins its much anticipated exit from the bond-buying business, I believe rates will inevitably go higher.

Needless to say, this is going to deeply affect the real estate market.  As Mac Slavo recently noted, numbers are already starting to drop precipitously...

The National Association of Realtors reported that the month of September saw its single largest drop in signed home sales in 40 months. And that wasn’t just a one-off event. This month mortgage applications collapsed a shocking 66%, hitting a 13-year low.

And U.S. consumers can expect interest rates on all kinds of loans to start rising.  That is going to mean higher debt payments, and therefore less money for consumers to spend into the economy.

Government Benefit Cuts

Well, if the middle class is going to have less money to spend, perhaps other Americans can pick up the slack.

Or maybe not.

You certainly can't expect the poor to stimulate the economy.  As I mentioned yesterday, it is being projected that up to 5 million unemployed Americans could lose their unemployment benefits by the end of 2014, and 47 million Americans recently had their food stamp benefits reduced.

So the poor will also have less money to spend in 2014.

The Wealthy Save The Day?

Perhaps the stock market will continue to soar in 2014 and the wealthy will spend so much that it will make up for all the rest of us.

You can believe that if you want, but the truth is that there are a whole host of signs that the days of this irrational stock market bubble are numbered.  The following is an excerpt from one of my recent articles entitled "The Stock Market Has Officially Entered Crazytown Territory"...

The median price-to-earnings ratio on the S&P 500 has reached an all-time record high, and margin debt at the New York Stock Exchange has reached a level that we have never seen before.  In other words, stocks are massively overpriced and people have been borrowing huge amounts of money to buy stocks.  These are behaviors that we also saw just before the last two stock market bubbles burst.

If the stock market bubble does burst, the wealthy will also have less money to spend into the economy in 2014.

For the moment, the stock market has been rallying.  This is typical for the month of December.  You see, the truth is that investors generally don't want to sell stocks in December because they want to put off paying taxes on the profits.

If stocks are sold before the end of the year, the profits go on the 2013 tax return.

If stocks are sold a few days from now, the profits go on the 2014 tax return.

It is only human nature to want to delay pain for as long as possible.

Expect to see some selling in January.  Many investors are very eager to start taking profits, but they wanted to wait until the holidays were over to do so.

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Seasmoke's picture

by Stealing .....

remain calm's picture

It is called printing money at the tune of 75 Billion a month

holgerdanske's picture
How Will The Economy Improve In 2014 If Almost Everyone Has Less Money To Spend?


By lending them money, of course. In this bizzaro world we can all become wealthy by just pretending and printing.

Not so.?

So why on earth any idiot would buy gold is beyond me.

Simply makes no sense, not so, Mr Armstrong!

I also believe in the tooth fairy, the benevolence of O$ama, and Santa Claus. Oh, yes, and social security!

That's it, goood boy!


InjectTheVenom's picture

the economy will improve because ... well, because all the smart people i see on tv say it will ... Cramer, Bob Pisani , the guy with the witty British accent ... THAT'S WHY !!   

Boris Alatovkrap's picture

"Most American is know that U.S. economy is heavily dependent of consumer spending."

Well, that is first problem, economy is not dependent on consumption, but production. First produce, then is consume. Economic plan built on using stuff not already is made, is, how you say, massive stupidity.

"Most intelligent person* is KNOW economy is dependent on production and efficiency of production"

There, Boris is fix that!

* Nobel Laureate or member of Banskter class is exclusion

Headbanger's picture

The answer to the question is easy!

The economy will improve by imploding first!

Only after massive private and public defaults and the prices of everything reflect the true earnings of the sheeple can there be any economic improvement because there's too much debt to support now.


markmotive's picture

The world is trying to dig out of deflationary cycle. Money printing will continue. And so will the transfer of wealth.


philipat's picture

When the Insurance Industry and Big Pharma wrote Obamacare, why would any other outcome be expected? Their problem, however, is that they also assumed that Government would have the competence to keep its side of the "Deal" in terms of both inclusion of the young in the risk pool AND implementation. Which, of course, was a very dangerous assumption. Obama care IS the Black Swan which will completely destroy the middle class, upon which any free society is built.

Mission accomplished?

bobert's picture


A thought for you.

When quoting just type it the way it reads and it will be accurate.

You have interesting thoughts.

Boris Alatovkrap's picture

Boris is type exactly as read...? Is not accurate?

RafterManFMJ's picture

Boris quotes, Most American is know that the U.S. economy...

Wait, even when you cut and paste a quote, it mixes up word order? We is know Boris is make good boot leg Office programs.

Boris Alatovkrap's picture

... what is "cut and paste"? Boris is not possess of fancy new computer.

BLOTTO's picture

Queue in 1st of many false flag(s) for 2014 in 3, 2,....1....

Hulk's picture

you will first need to get yourself a pair of digital scissors and a stack of digital paper...

AngelEyes00's picture

As remain calm states, it's the QE.  My question is; how long can zero interest rates supported by QE, along with near trillion dollar deficits continue?  So far it has worked to maintain BAU, but is there a breaking point? 

bobert's picture

Watch the federal reserves balance sheet.

If it increases we have problems.

If it remains static we don't.

If it goes down we have problems.

We can then readdress this in 2015.


When the 10yr gets to 6% THEN you will know you have a really big problem.

johngaltfla's picture

The only ones who will be allowed to steal reside on Wall Street or in Washington. This will be an epic collapse in 2014, one for the 18 year old Scotch and lots of popcorn as we watch...


Predictions for 2014 Print Edition

Spigot's picture

"How will the Economy Improve?"

If we define 'economy' to simply mean GDP, a reduction of gross income will lead to a reduction in GDP (unless a super storm wipes out the NYC-WashDC corridor, in which case we all win...).

If we define 'economy' to mean using one's own energy and initiative, doing more and better with less, then a reduction in income will certainly spur THAT kind of economy.

In this bit of sad sack alley, we've been doing wonderfully well in the second catagory after the major income earner became chronicly ill, and unable to work. What has worked out to a 65% reduction in gross for the domo...since the late 90's. So, not unfamiliar territory.

I believe JKGalbraith wasl incredibly accurate in his assessment that people have to leave their 'normal' in order to achieve. I believe that the difficulties of these times will be the fertile field from which a new crop of innovation and prosperity will come forth. Most of us tend to be willing to muddle along in our mediocrity until reality kicks us out of the nest and forces us to fly.




RaceToTheBottom's picture

in case you have been asleep for the last few years, innovation is only a small part of the rewards being played out there. WS Produces NO INNOVATION, only corruption ism and cronyism...

Why would things change? There is no driver for the banksters to change anything. Until there is, be it violence, or possibly utilization of laws, nothing changes.

Spigot's picture

Have you invented a way to replace or avoid interactions with WS, and thereby regain control of your shrinking capital? If not, then you haven't been terribly focused have you?

Use that big muscle between your ears, hombre. Light a candle instead of cursing the darkness...

RaceToTheBottom's picture

Good point.

I use a CU not a bank.  OK, admit have a mortgage from Chase since WAMU when wife worked there.

Have a BOFA account as a conduit to transfer consulting money into the CU.  Never held in BOFA, more than days.

Wife and I make close to 300K and WS will never get any of it. 

Live in bad section of town where very local community trumps actions of the local bad community.

Am getting dual citizenship (proving harder than expected) to help prepare for future problems

Have more than I should have in Silver and Gold, mostly in CEF, outside of US

VD's picture

End not only the Fed but the IRS as well.

XitSam's picture

But that would mean the government has less money to spend and the people get to keep what they earn. That will not be allowed.

zerozulu's picture

debt-jubilee my friend, debt jubilee.

Boris Alatovkrap's picture

Long time coming! Technical term is "restructure of debt".

Seasmoke's picture

Boris, you lost your accent !!!...... Rosetta Stone ???

Boris Alatovkrap's picture

You are accuse of Boris of infidelity!? Boris is never hearing of whore Rosetta!

bobert's picture

Oooops, my fat finger.

You have two green arrows Seasmoke.

I misstruck.

Gotta love Boris.

Dr. Destructo's picture

Nah his accent is as thick as ever -he didn't insert a definite article before the word "Technical".

However, I must provide a "red arrow" to maintain balance.

Boris Alatovkrap's picture

IRS is collection division of Federal Reserve. End Fed will end IRS. Also is end bank, petro dollar, massive surveillance, presidential assassination, easy credit, identity fraud, but is beside point.

Freddie's picture

Boris - he know American history than American stupniks.

Look at the history folks.    Fed and IRS/icnome taxes were "passed" by Congress in the middle of the night within weeks or months of each other.  IRS was formed to collect money for the private Federal Reserve Bank.

Boris Alatovkrap's picture

Correction, Internal Revenue Service is form in 1953 by President Eisenhower, Amend XVI is ratify in 1913 June by Philanderer Knox, Federal Reserve Act is sign to law December 23, 1913 by President Wilson. But even when evil is move slow, is still evil.

bobert's picture


The Bureau of Internal Revenue began using the name Internal Revenue Service as early as 1918.

Just saying.

I do have a modern computer, however, am limited to only a few operations like Wikpedia.

holgerdanske's picture

Why be so modest?

What have we got worth preserving, the justice system, naah, the health care --- no, the banking system hell no, the lobbyist-- don';t make me laugh, the politicians--- errh WHAT?, the military industrial complex, NSA, foreign relations?


Add on!!, not much worth saving, except our dignity and the will to create something more worthy and in line with what this world will sustain.

Humbleness, if such a thing exists today, might be a good point to start, as would respect for our fellow men and living creatures! But the rest, they can have it!

fxrxexexdxoxmx's picture

You can only save your family. Plan, prepare, and you will survive.

Or you can depend on artificial constructs such as government and you will die as those who make up those entities protect themselves as they watch you and yours die.

Boris Alatovkrap's picture

You like you are family? You can keep family!

SDShack's picture

"Your family, I want to buy them. How much for your children? Your wife? The little girl?"

TideFighter's picture

Become a Like and Tweet reseller. Tweet re-selling already a hot item in my office.

booboo's picture

"by Stealing"
That is the essence of democracy, stealing other people's shit by voting for a bigger more powerful central government as their proxy and of course they are happy to oblige.

Freddie's picture

Hope & Change.  More Democrat and RINO tyranny.

fxrxexexdxoxmx's picture

Hope is a good thing. At least it was until it became a slogan for facists.

roadhazard's picture

Interesting that repubicans offer neither hope or change. That's what I call brutal honesty.

SDShack's picture

Dumbcrats said they offered Hope & Change, but in reality all they delivered was Hoax & Chains. That not only was dishonest, it was brutal.

roadhazard's picture

They did deliver change, they didn't promise what kind. The hope was destroyed on the House floor.

lakecity55's picture

Yes, most serfs do not understand we have 1-party rule.

Smegley Wanxalot's picture

The MPGFOBG (Marginal Propensity to Get Fucked Over By the Government) is 100%, or more.

ebworthen's picture

The economy won't improve in real life, only on the Glass Onion and the Interwebs.

SAT 800's picture

It's impossible for any economy to improve without manufacture and export. As long as we subsidize China and remove jobs from this economy we'll continue to fail.